Petersen v. Vallenzano

• Decision Date: 01 April 1994
• Docket Number: No. 89 Civ. 5346 (RWS).,89 Civ. 5346 (RWS).
• Citation: 849 F. Supp. 228
• Parties: Brian PETERSEN, Plaintiff, v. Marcello VALLENZANO, individually and doing business as A.B.M., A.B.C. Health Spa, Waterbed Wholesalers Supply and Service Company, Fax Net International and Attorney Paralegal Services Company (Lawyers Paralegal Services Corporation), Defendant.
• Court: U.S. District Court — Southern District of New York

849 F. Supp. 228

Brian PETERSEN, Plaintiff, v. Marcello VALLENZANO, individually and doing business as A.B.M., A.B.C. Health Spa, Waterbed Wholesalers Supply and Service Company, Fax Net International and Attorney Paralegal Services Company (Lawyers Paralegal Services Corporation), Defendant.

No. 89 Civ. 5346 (RWS).

United States District Court, S.D. New York.

April 1, 1994.

Kayser & Redfern, New York City (Declan P. Redfern, of counsel), for plaintiff.

Marcello Vallenzano, defendant pro se.

Max Markus Katz, P.C., New York City, for ABCO Pool.

OPINION

SWEET, District Judge.

Defendant Marcello Vallenzano ("Vallenzano") has filed an Order to Show Cause against Plaintiff judgment-creditor Brian Petersen ("Petersen") seeking to vacate the restraint placed by Plaintiff on Abco Pool Distributors Inc.'s ("Abco Pool") National Bank of New York City bank account number 075 773 724 (the "bank account"). Defendant also moves for sanctions to be awarded against Petersen. In turn, Petersen opposes Vallenzano's Order to Show Cause to vacate the restraint and cross moves for an order imposing a constructive trust on the property and assets of Abco Pool and to set aside the transfer of Defendant's property and assets to Abco Pool. Abco Pool has submitted a memorandum in support of Vallenzano's Order to Show Cause to vacate the restraining order and in opposition to Petersen's cross motion.

For the reasons set forth below, Vallenzano's Order to Show Cause seeking to vacate the restraint is denied as is his motion seeking sanctions. Petersen's cross motion imposing a constructive trust on Vallenzano and Abco Pool as an improper conveyance by a defendant is granted.

The Parties

Petersen is a citizen of California and a judgment creditor of Abco Tek Technologies, Inc. ("Abco Tek").

Vallenzano, a New York resident, was the former President of Abco Pool.

Abco Pool, a New York corporation with offices in New York, was formally dissolved by the Secretary of State on March 25, 1981. Stephen Scarpetti ("Scarpetti") is allegedly the current President of Abco Pool.

Prior Proceedings and Facts

The prior proceedings and facts in this action are fully set forth in the previous opinions of this Court, familiarity with which is assumed. See Peterson v. Vallenzano, No. 88 Civ. 5346, 1991 WL 2774, 1991 U.S. Dist. LEXIS 180 (S.D.N.Y. Jan. 9, 1991) ("Peterson I"); Petersen v. Vallenzano, No. 89 Civ. 5346, 1992 WL 116427, 1992 U.S. Dist. LEXIS 6922 (S.D.N.Y. May 22, 1992) ("Petersen II"); Petersen v. Vallenzano, 996 F.2d 303 (2d Cir.1993) ("Petersen III"). Only those facts relevant to the instant motions are presented below.

In 1987, Petersen obtained a judgment of $200,000 against Abco Tek in a jury trial before the Southern District of New York. Although the judgment was affirmed on appeal on October 17, 1988, it remains unsatisfied. Petersen filed this action on August 8, 1989, against Vallenzano for the amount of the judgment.

Petersen filed a second motion for summary judgment in May of 1990 seeking to pierce Abco Tek's corporate veil in order to hold Vallenzano personally liable for the judgment. On January 9, 1991, the Court denied Petersen's motion as there still existed a question of material fact concerning whether Vallenzano had used Abco Tek's funds for personal ends. See "Peterson I," No. 88 Civ. 5346, 1991 WL 2774, 1991 U.S. Dist. LEXIS 180 (S.D.N.Y. Jan. 9, 1991).

In February 1992, after additional discovery, Petersen filed a second motion for summary judgment seeking to pierce the corporate veil and to hold Vallenzano personally liable for the judgment. That motion was granted in May of 1992, Petersen II, No. 89 Civ. 5346, 1992 WL 116427, 1992 U.S. Dist. LEXIS 6922 (S.D.N.Y. May 22, 1992), and affirmed in a memorandum opinion by the Second Circuit on May 26, 1993, Petersen III, 996 F.2d 303 (2d Cir.1993).

Since that time, additional discovery proceedings against Vallenzano have revealed a relationship between Vallenzano and Abco Pool. In June of 1993, Petersen restrained Abco Pool's bank account at the National Bank of New York. Petersen's subpoena of the bank revealed Vallenzano to be the sole signatory and President of Abco Pool as late as May, 1993. See Pl.'s Ex. D.

Vallenzano filed an Order to Show Cause on November 14, 1993 seeking the immediate vacation of Petersen's restraint on Abco Pool's bank account contending that Abco Pool is a discrete entity separate and unique from himself.

Abco Pool has cross-moved in support of Vallenzano's motion, contending that on May 26, 1990 he consummated an Operating Agreement¹ (the "Agreement") with Stephen Scarpetti. Scarpetti Aff. at 8. This Agreement included the following provisions:

Vallenzano would become Vice President of Abco Pool and was thereafter placed under the direction of Scarpetti, the new President of Abco Pool. Vallenzano was to lend his time, leased vehicles, telephone and credit cards used by Abco Pool. In turn, Abco Pool agreed to provide office space to Vallenzano to conduct his business.

Vallenzano was to be a signatory on Abco Pool's bank account.

Abco Pool allegedly agreed to deduct $80.00 per week from the $80,000 debt owed to it by Vallenzano. In the event Abco Pool showed a profit, Vallenzano was to be credited 5% of that profit after taxes towards his debt on a per annum basis.

Abco Pool agreed to pay directly Vallenzano's personal credit cards, telephones, and leased vehicles used in conjunction with its operations.

Subsequent discovery in this action established that Vallenzano has established the same pattern of payment between Abco Pool and its creditors as that which existed with Abco Tek and its creditors. Cf. Petersen II, No. 89 Civ. 5346, 1992 WL 116427, 1992 U.S. Dist. LEXIS 6922 (S.D.N.Y. May 22, 1992). Vallenzano testified in his depositions that Abco Pool used his credit cards, motor vehicles, motor insurance, rental space, and telephones. In addition, Vallenzano retained control over Abco Pool's check book.

Based on these revelations, Petersen has cross-moved to set aside the transfer of Vallenzano's property and assets to Abco Pool and to impose a constructive trust on the property and assets of Abco Pool.

Oral argument on the motions was heard on January 5, 1994. The motions were considered fully submitted at that time.

Discussion

A. Conveyances By Defendants

In general, to establish a fraudulent conveyance, a plaintiff must prove either that a transfer was made without fair consideration, or that it was made with the actual intent to hinder, delay or defraud creditors or that the defendant was insolvent or was rendered insolvent by the transfer. International Ass'n of Machinists & Aerospace Workers v. Allegis Corp., 144 Misc.2d 983, 545 N.Y.S.2d 638 (1989).

New York Debtor and Creditor Law has an additional provision, entitled "Conveyances by Defendants," which provides expanded remedies for judgment-creditors under certain circumstances:

Every conveyance made without fair consideration when the person making it is a defendant in an action for money damages or a judgment in such an action has been docketed against him, is fraudulent as to the plaintiff in that action without regard to the actual intent of the defendant if, after final judgment for the plaintiff, the defendant fails to satisfy the judgment.

N.Y.Debt. & Cred.Law § 273-a (McKinney's 1990). Under this provision, three elements are necessary to establish liability: (1) that the conveyance was made without fair consideration; (2) that the conveyor is a defendant in an action for monetary damages, or that a judgment has been docketed against him or her; and (3) that the defendant failed to satisfy the judgment. Schoenberg v. Schoenberg, 113 Misc.2d 356, 358, 449 N.Y.S.2d 137, 139, modified on other grounds, 90 A.D.2d 827, 456 N.Y.S.2d 14 (N.Y.Sup.Ct.1982). Questions of actual intent and insolvency are irrelevant. Id.

B. Vallenzano's Conveyance to Abco Pool Was Made Without Consideration

The first element necessary to establish § 273-a liability is that there must be fair consideration for the property conveyed. Under New York Debtor and Creditor law, fair consideration is given for property:

(a) when in exchange for such property, or obligation, as a fair equivalent therefor, and in good faith, property is conveyed or an antecedent debt is satisfied, or

(b) when such property, or obligation is received in good faith to secure a present advance or antecedent debt in amount not disproportionately small as compared with the value of the property, or obligation obtained.

N.Y.Debt. & Cred.Law § 272 (McKinney's 1990); Corbin v. Litke, 105 Misc.2d 94, 431 N.Y.S.2d 800 (1980). The test for fair consideration may be distilled as follows: first, there must be a fair exchange of value; and second, there must be good faith. See In re Fill, 82 Bankr. 200, 215 (Bankr.S.D.N.Y. 1987) (citing Julien J. Studley, Inc. v. Lefrak, 66 A.D.2d 208, 412 N.Y.S.2d 901, 905 (2d Dep't), aff'd, 48 N.Y.2d 954, 425 N.Y.S.2d 65, 401 N.E.2d 187 (1979)).

The burden of proof is on the creditor seeking to set aside a conveyance as fraudulent to establish that the conveyance was made without fair consideration. Gelbard v. Esses, 96 A.D.2d 573, 576, 465 N.Y.S.2d 264, 268 (N.Y.App.Div.1983); ACLI Gov't Secur., Inc. v. Rhoades, 653 F.Supp. 1388, 1391 (S.D.N.Y.1987), aff'd without op., 842 F.2d 1287 (2d Cir.1988). The courts may determine what is fair consideration for a conveyance by looking to "the facts of each particular case" in which there is an alleged fraudulent conveyance. Colombo v. Caiati, 129 Misc.2d 338, 340, 493 N.Y.S.2d 244, 246 (N.Y.Sup.Ct.1985) (citing Gelbard v. Esses, 96 A.D.2d 573, 465 N.Y.S.2d 264 (2d Dep't 1983)), aff'd, 131 A.D.2d 532, 516 N.Y.S.2d 476 (2d Dep't 1987); see also Orbach v. Pappa, 482 F.Supp. 117, 119-20 (S.D.N.Y.1979) (construing consideration pursuant to N.Y.Debt. & Cred.Law § 272).

In this case, Petersen argues that the Agreement between Vallenzano...