Mendelsohn v. Roslyn, LLC (In re Leff)

Decision Date21 June 2021
Docket NumberCase No. 8-19-73377-reg,Adv Proc. No. 8-20-08012-reg
Citation631 B.R. 106
Parties IN RE: Leonard Robert LEFF a/k/a Lenny Leff, Debtor. Allan B. Mendelsohn as Trustee of the Estate of Leonard Robert Leff a/k/a Lenny Leff, Plaintiff, v. Roslyn, LLC and Elias Chalet, LLC, Defendants.
CourtU.S. Bankruptcy Court — Eastern District of New York

Fred S. Kantrow, The Kantrow Law Group, PLLC, Syosset, NY, Nico G. Pizzo, Law Offices of Avrum J. Rosen, PLLC, Huntington, NY, for Plaintiff.

Roy J. Lester, Lester Korinman Kamran & Masini, P.C., Garden City, NY, for Defendants.


Robert E. Grossman, United States Bankruptcy Judge


This matter is before the Court pursuant to an adversary proceeding commenced by Allan B. Mendelsohn (the "Trustee" or the "Plaintiff") as the chapter 7 trustee in the case of Leonard Robert Leff a/k/a Lenny Leff (the "Debtor"). The Trustee seeks to recover prepetition transfers to Roslyn, LLC and Elias Chalet, LLC (the "Defendants"), in the amount of $88,831.79. Each of the subject transfers were made from a bank account jointly held by the Debtor and his non-filing spouse, Beth Leff ("Beth"). The Trustee's claims are based on constructive and intentional fraudulent conveyance law, and the theory of unjust enrichment. The parties to this adversary proceeding opted to forego holding an evidentiary hearing in favor of resting on written submissions. Notwithstanding the procedural vagaries of this case, the role of the Court remains the same, which is to determine whether the Trustee is entitled to the relief he seeks in the complaint.

Ruling on the relief sought by the Trustee under the federal bankruptcy statutes requires an examination of the effect applicable state law has on these claims. The Trustee acknowledges in his pleadings that all the transfers he seeks to avoid were disbursed from this joint account. However, the Trustee fails to take into account the legal significance of the very facts he alleges. Once funds were deposited into the joint account, Beth became the presumptive legal owner of half of all such funds under New York law. This decision explores with specificity the legal implications flowing from this, as well as the consequences of failing to present an evidentiary record sufficient to establish a prima facie case as to any of the causes of action set forth in the complaint. Because of these infirmities, the Court must deny the relief requested and rule in favor of the Defendant.

This case highlights that parties relying upon federal bankruptcy statutes must be cognizant of the effect applicable state law may have on the relief requested. Just as salient is the need to ensure that the record before the Court is sufficient and clear enough to establish the elements of each cause of action.

Procedural History

On May 8, 2019 ("Petition Date"), the Debtor filed a voluntary petition for relief under chapter 7 of the Bankruptcy Code. On May 8, 2019, the Trustee was appointed. On September 3, 2019, an order was entered granting the Trustee's motion for a Rule 2004 examination of Beth [Case No. 8-19-73377, ECF No. 34]. The Trustee examined Beth on December 19, 2019. On January 17, 2020, the Trustee commenced this adversary proceeding against the Defendants.1 On the same date, the Trustee also commenced an adversary proceeding No. 8-20-8013 against Beth ("Beth Leff Adversary Proceeding") seeking recovery of an alleged fraudulent transfer of real property prepetition from the Debtor to Beth and authorization to sell the real property on behalf of the Debtor's estate and/or to conduct a section 363(h) sale of the real property. The Beth Leff Adversary Proceeding was settled and an order approving the Trustee's settlement ("Settlement Agreement") pursuant to Bankruptcy Rule 9019 was entered on August 4, 2020. [Beth Leff Adversary Proceeding, ECF Nos. 12, 14]. The Settlement Agreement contains language releasing Beth from any and all claims and causes of action the Trustee has or may have that arose on or before the date of the Settlement Agreement, including any such causes of action arising under the Bankruptcy Code. [Beth Leff Adversary Proceeding, ECF No. 12, Ex. 3].

On February 17, 2020, the Defendants filed an answer in the instant adversary proceeding. On February 12, 2021, the Court entered an order scheduling a trial by video conference for March 11, 2021. On March 4, 2021, the parties filed a Joint Pretrial Memorandum. The parties requested that in lieu of an evidentiary hearing, the issues be presented on papers to be filed, to which the Court agreed. The parties agreed to submit initial briefs on or before March 17, 2021 and additional briefs on or before March 24, 2021. On March 17, 2021, the Defendants filed a Memorandum of Law. On March 18, 2021, one day after the deadline, the Trustee filed a Memorandum of Law. On March 24, 2021, the Defendants filed a Memorandum of Law in Opposition to the Trustee's Brief. The Trustee declined to file an additional memorandum of law and the sole testimony the Trustee relies on is the Rule 2004 deposition transcript of Beth Leff. All the exhibits submitted by the parties have been admitted and are part of the record. Thereafter, the matter was marked submitted.


The following facts are taken from the Debtor's petition and schedules, the Joint Pretrial Memorandum dated March 4, 2021 [ECF No. 12] and the Rule 2004 deposition transcript of Beth, which is submitted as an attachment to the Defendants' Memorandum of Law. [Defs.' Mem., ECF No. 14]. The Debtor is the 100% owner of over fifteen businesses, including Quest Receivables, LLC, [Case No. 8-19-73377, ECF No. 95], all of which are valued at zero by the Debtor. Beth is married to the Debtor.2 During the relevant time period, the Debtor and Beth maintained a joint bank account at First National Bank of Long Island (the "Joint Account"). Beth testified that she worked, and continues to work, for the Debtor's companies and while paychecks were issued solely to the Debtor by Quest Receivable Services, LLC, she was entitled to half of each paycheck issued. [Beth Dep. 10:13-18, 11:8-20]. According to Beth, the paychecks from Quest Receivable Services, LLC are directly deposited into the Joint Account.3 [Beth Dep. 22:12-25, 23:1-9]. Despite Beth's claim of entitlement to half of each such paycheck, the petition and schedules reflect that Beth was not employed on the Petition Date. [Case No. 8-19-73377, ECF No. 1].

Ruth Litt ("Ruth") is the sister of Beth. On March 7, 2014, Beth executed an apartment application with the Defendants as lessors, in which she claimed to have an annual income of $125,000.00 and listed the Joint Account with the Debtor ("Beth's Application"). On March 9, 2014, in connection with Beth's Application, Ruth executed an apartment application with the Defendants. Ruth represented to the Defendants that she had an annual income of $120,000.00 but she did not maintain a checking account. On March 12, 2014, Beth and Ruth executed a lease and rider ("First Lease"), and prepaid rent in the amount of $33,156.00. On April 1, 2015 and April 1, 2016, Beth and Ruth renewed the First Lease. On March 9, 2017, Beth and Ruth executed a lease and rider ("Second Lease") in connection with apartment application dated March 21, 2017. On March 19, 2018, Beth and Ruth renewed the Second Lease.

Beth did not reside in any apartment unit in connection with the First Lease or the Second Lease (collectively, the "Leases"). However, Beth, as co-signor, was granted use and occupancy rights under the Leases. According to Beth's testimony, every month she collected approximately $2,500 in cash from Ruth for the lease payments and deposited it into the Joint Account. [Beth Dep. 28:5-21, 30:11-25]. Beth paid rent to the Defendants pursuant to the Leases by means of checks issued from the Joint Account4 (the "Transfers"). [Beth Dep. 30:13-25, 31:1-3]. Ruth also occasionally gave Beth cash to deposit into the Joint Account, from which Beth would pay Ruth's PSE&G bill. [Beth Dep. 38:13-18]. In addition to the paychecks from Quest Receivable Services, LLC and the deposits from Ruth, the Joint Account also contained funds Beth obtained directly from the Debtor. On several occasions the Debtor handed Beth cash to deposit into the Joint Account. [Beth Dep. 22:12-25, 23:2-13]. Beth testified she handles the day-to-day banking and issues most of the checks on the Joint Account. [Beth Dep. 21:23-25, 22:2-11]. Beth testified she could not quantify the extent to which the Debtor wrote checks from the Joint Account. [Beth Dep. 21:17-25, 22:1-11].

The evidentiary record provided by the Trustee is sparse and inconclusive as to several critical aspects. In the complaint, the Trustee alleges that the Transfers at issue total $88,831.79, but the last of the thirty-two transfers listed in the complaint occurred on May 13, 2019, which is after the Petition Date. Therefore, this last transfer in the amount of $2,475.00 is not subject to recovery as a prepetition fraudulent conveyance.

Moreover, the Trustee did not provide copies of the checks for each of the remaining thirty-one transfers; only twenty-nine checks issued to the Defendants were produced, with no corresponding bank statements. However, the Defendants admit in their answer to the complaint that they received the Transfers. Nevertheless, the checks alone only establish that the Defendants received the Transfers from the Joint Account. The Trustee produced no copies of bank statements or checks showing where the money deposited into the Joint Account originated, nor is there a breakdown of the extent to which any transfers outside of the payments made to the Defendants were for the benefit of the Debtor or Beth, or some other party. As a result, it is impossible to calculate on a month-by month basis how the funds in the Joint Account were allocated.

The Defendants did provide some bank statements that the Court can consider, but they do not provide a...

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