Pagano v. Pergament, 11-CV-2630(SJF)

• Decision Date: 16 May 2012
• Docket Number: 11-CV-2630(SJF)
• Parties: HOPE PAGANO, Appellant, v. MARC A. PERGAMENT, Chapter 7 Trustee of the Estate of Marc B. Tolkin, Appellee.
• Court: U.S. District Court — Eastern District of New York

HOPE PAGANO, Appellant,

v.MARC A. PERGAMENT, Chapter 7 Trustee of the Estate of Marc B. Tolkin, Appellee.

11-CV-2630(SJF)

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK

Date: May 16, 2012

ORDER

FEUERSTEIN, District Judge:

AppellantHope Pagano("Pagano" or "Appellant") has filed a notice of appeal from the memorandum decision of the United States Bankruptcy Court for the Eastern District of New York(Grossman, U.S.B.J.), dated April 5,2011, finding that the Trustee was entitled to recover from Pagano the sum of nine thousand dollars ($9,000.00), plus interest.For the reasons set forth below, the decision of the Bankruptcy Court is affirmed.

I.Background

A.Appellant's Loan to Marc Tolkin

On October 1, 2007, Appellant and her husband, Steven Pagano, loaned Marc B. Tolkin(the "Debtor") the sum of one hundred fifty thousand dollars ($150,000.00).Memorandum Decision dated April 5, 2011[Docket EntryNo. 1-11]("Mem. Dec")at 5-6.Appellant has testified that she and her husband raised the money for the loan by borrowing from their homeequity line of credit account with Chase Bank ("Chase Account").Id. at 6.The Debtor executed a balloon note (the "Note") requiring him to repay the principal and accrued interest on the Note on or before December 1, 2007.Id.

B. Marc TolkinBankruptcy Proceedings

On May 19, 2008, the Debtor filed a petition pursuant to Chapter 13 of the United States Bankruptcy Code.¹Id. at 3.On June 26, 2008, the case was converted into one under Chapter 11 of the Bankruptcy Code, and on December 10, 2008, the case was converted into one under Chapter 7 of the Bankruptcy Code.Id.Marc A. Pergament(the "Trustee") was appointed trustee of the bankruptcy estate on December 10, 2008.Id.Pagano was not listed as a creditor in the schedules filed in this case.Id. at 6.

On July 31, 2009, the Trustee commenced an adversary proceeding against Pagano and the Debtor's father, Ron Tolkin.Id. at 3.In the complaint, the Trustee claimed that, after the Debtor filed his petition on May 19, 2008, he sold the forty percent (40%) interest he owned in an entity named the Alnic Restaurant Group ("Alnic") to a third party for the sum of one hundred forty thousand dollars ($140,000.00).Id.;Complaint [Docket Entry No. 1-8]at ¶¶ 10-11.According to the Trustee, the Debtor conducted this transaction without the approval of the Bankruptcy Court and then transferred the proceeds of the sale to Pagano and Ron Tolkin.Docket EntryNo. 1-8 at ¶¶ 11,13.The Trustee alleged that the proceeds from the Debtor's sale of his interest in Alnic constituted property of the Chapter 7 bankruptcy estate.Id.at ¶ 12.TheTrustee's complaint sought judgment pursuant to 11 U.S.C. § 549(a) avoiding the transfers, as well as judgment pursuant to 11 U.S.C. § 550(a)(1) against Pagano and Ron Tolkin for the sum of seventy thousand dollars ($70,000.00) each, plus interest from October 1, 2008.Id at ¶¶ 18-26.²

The Trustee subsequently moved for summary judgment with respect to the claims against Pagano.Appellant's Amended Appendix [Docket EntryNo. 13-2]("PI.Appx.")at 167.On or about September 27, 2010, in connection with summary judgment briefing, the Trustee increased the amount he sought to recover from Pagano to eighty-nine thousand sixty-four dollars and eighty-one cents ($89,064.81), citing his discovery of "additional monthly payments" that Debtor made to Pagano.Id. at 175.

The Bankruptcy Court denied the Trustee's motion for summary judgment, finding that there were disputed issues of fact as to the source of the funds transferred to Appellant.Mem. Dec.at 4.A trial was held on December 7, 2010.Id. at 4-5.

C.The Bankruptcy Court's Decision

On April 5, 2011, the Bankruptcy Court issued a memorandum decision finding that the Trustee was entitled to judgment in the total amount of nine thousand dollars ($9,000.00), plus interest from the date the adversary proceeding was commenced.Id. at 3.

The Bankruptcy Court found that after Debtor filed the second bankruptcy petition May 19, 2008, he made a series of deposits into Appellant's Chase Account, totaling sixty-eightthousand six hundred and six dollars ($68,606.00).Id at 1-3, 7, 11.Specifically, the Bankruptcy Court found that the Debtor: transferred four thousand nine hundred dollars ($4,900.00) to Appellant's Chase Account prior to May 19, 2008(i.e., the date on which the Debtor filed his Chapter 13 petition); transferred five thousand dollars ($5,000.00) to the Chase Account during the Chapter 13 phase of the case; transferred fifty-four thousand dollars ($54,000.00) to the Chase Account during the Chapter 11 phase of the case; and transferred nine thousand six hundred and six dollars ($9,606.00) to the Chase Account during the Chapter 7 phase of the case.Id at 7.

The Bankruptcy Court noted that "what constitutes property of the Debtor's estate changes under each Chapter of the Bankruptcy Code," and separately analyzed the transfers made during each phase of the bankruptcy proceeding.The Bankruptcy Court ultimately found that: (1)the Trustee was entitled to recover the five thousand dollar ($5,000.00) transfer made while the Debtor was proceeding under Chapter 13;(2)the Trustee was entitled to recover four thousand dollars ($4,000.00) of the fifty-four thousand dollar ($54,000.00) transfer made while the Debtor was proceeding under Chapter ll³; and (3)the Trustee was not entitled to recover any of the transfers made while the Debtor was proceeding under Chapter 7. Mem. Dec.at 2-3.

This appeal followed.

II.Discussion

A.Standard of Review

This Court has jurisdiction to hear appeals from judgments, orders, and decrees of a bankruptcy court.28 U.S.C. § 158(a).On an appeal from a bankruptcy court decision, a district court must review findings of fact under a "clearly erroneous" standard, with "due regard .. . given to the opportunity of the bankruptcy court to judge the credibility of the witnesses."Fed. R. Bankr. P. 8013."A lower court's choice between two permissible views of the facts cannot be held to be clearly erroneous."In re Kollel Mateh Efraim. LLC.456 B.R. 185, 191(S.D.N.Y.2011)(quotingIn re Commodore Bus. Mach..246 B.R. 476, 487(S.D.N.Y.2000))."[T]he burden of demonstrating that the Bankruptcy Court's findings of fact are clearly erroneous rests squarely on the shoulder of the appellant.'"Id.(quotingIn re Ciena Capital.440 B.R. 47, 52(S.D.N.Y.2010)).Issues of law, however, as well as "mixed questions of law and fact," are reviewed de novo.In re Vouzianas.259 F.3d 103, 107(2d Cir.2001);In re Hirsch.339 B.R. 18, 24(E.D.N.Y.2006)."[T]he district court... may affirm, modify, or reverse a bankruptcy judge's judgment, order, or decree or remand with instructions for further proceedings."Fed. R. Bankr. P. 8013: see alsoIn re Moreo.437 B.R. 40, 50(E.D.N.Y.2010).

B.Analysis

Appellant challenges the Bankruptcy Court's decision on the following grounds: (1) that the Trustee has failed to prove that any funds deposited into her Chase Account were property of the Debtor's estate, see Appellant's Amended Brief ("Br.")[Docket Entry No. 8]at 14;(2) that afive thousand dollar ($5,000.00) transfer on June 12, 2008 and a one thousand dollar ($1,000.00) transfer on September 13, 2008 were "made outside of the time allotted the Trustee pursuant to and [sic]550(f),"id. at 14-15; and (3) that the evidence did not establish that a two thousand dollar ($2,000.00) transfer on October 14, 2008 and a one thousand dollar ($1,000.00) transfer on November 15, 2008 originated from Debtor's estate, seeid. at 15.

1.The Debtor's Transfers as "Property of the Estate"

"11 U.S.C. § 549(a), in pertinent part, vests in a trustee the power to 'avoid a transfer of property of the estate-(l) that occurs after the commencement of the case; and...(2)(B) that is not authorized under this title or by the court.'"In re Westchester Tank Fabricators. Ltd..207 B.R. 391, 396(Bankr. E.D.N.Y.1997)(quoting11 U.S.C. § 549(a))."As the party seeking to set aside the Postpetition Transfers, the Trustee bears the burden of proof."Id.(citing cases)."[T]o the extent that a transfer is avoided under section .. . 549 ... the trustee may recover, for the benefit of the estate, the property transferred...."11 U.S.C. § 550(a).

Neither party disputes the finding that Appellant"was the transferee of property in the form of deposits into the Chase Account... in the aggregate amount of $68,606.00."SeeMem. Dec.at 11.Rather, Appellant challenges the Bankruptcy Court's finding that the sum of nine thousand dollars ($9,000.00) transferred constituted "property of the estate" under Section 549.SeeBr.at 14.

a. Debtor's Chapter 13 Proceeding

11 U.S.C. § 541(a)(1) defines "property of the estate" as "all legal or equitable interests ofthe debtor m property as of the commencement of the case."As the Bankruptcy Court noted, however, "what constitutes property of the Debtor's estate changes under each Chapter of the Bankruptcy Code."Mem. Dec.at 1.

In a Chapter 13 case, "property of the estate" includes, in addition to the property specified in 11 U.S.C. § 541(a)(1):

(1) all property of the kind specified in such section that the debtor acquires after the commencement of the case but before the case is closed, dismissed, or converted to a case under chapter 7, 11, or 12 of this title, whichever occurs first; and

(2) earnings from services performed by the debtor after the commencement of the case but before the case is closed, dismissed, or converted to a case under chapter 7, 11, or 12 of this title, whichever occurs first.

11 U.S.C. § 1306(a).Thus, this definition also includes assets acquired after a petition is filed under Chapter 13.

On or about June 12, 2008, while Debtor's case was proceeding under Chapter 13, he made a single transfer of five thousand dollars ($5,000.00) to Appellant's Chase Account.The Bankruptcy Court found that these funds...