LaMonica, as Chapter 7 Trustee of the Estate of JV v. Harrah's Atlantic City Operating Company, LLC

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
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In re: 	:
: 	Chapter 7
JVJ PHARMACY INC. D/B/A UNIVERSITY 	:
CHEMISTS, 	: 	Case No. 16-10508 (SMB)
:
Debtor. 	:
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SALVATORE LAMONICA, AS CHAPTER 7 	:
TRUSTEE OF THE ESTATE OF JVJ 	:
PHARMACY INC. D/B/A UNIVERSITY 	: 	Adv. Pro. No. 18-01853 (SMB)
CHEMISTS, 	:
:
Plaintiff, 	:
:
- against - 	:
:
HARRAH’S ATLANTIC CITY OPERATING 	:
COMPANY, LLC D/B/A HARRAH’S RESORT 	:
ATLANTIC CITY, 	:
:
Defendant. 	:
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MEMORANDUM DECISION AND ORDER
REGARDING CROSS-MOTIONS FOR SUMMARY JUDGMENT
A P P E A R A N C E S:
LaMONICA HERBST & MANISCALCO, LLP
3305 Jerusalem Avenue, Suite 201
Wantagh, New York 11793
David A. Blansky, Esq.
Of Counsel
Attorneys for Plaintiff
GRIFFIN HAMERSKY LLP
420 Lexington Avenue, Suite 400
New York, New York 10170
Scott A. Griffin, Esq.
Michael D. Hamersky, Esq.
Of Counsel
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- and -
BROWNSTEIN HYATT FARBER SCHRECK, LLP
100 North City Parkway, Suite 1600
Las Vegas, Nevada 89106
Frank M. Flansburg III, Esq.
Maximilien D. Fetaz, Esq.
Of Counsel
Attorneys for Defendant
STUART M. BERNSTEIN
United States Bankruptcy Judge:
Plaintiff Salvatore LaMonica, the chapter 7 trustee (“Trustee”) for the estate of
JVJ Pharmacy Inc. d/b/a University Chemists (“Debtor”), filed an adversary proceeding
against the defendant, Harrah’s Atlantic City Operating Company, LLC, d/b/a/ Harrah’s
Resort Atlantic City (“Harrah’s”). The Trustee seeks to recover $859,040 in transfers
(the “Transfers”) that the Debtor allegedly made to or for the benefit of Harrah’s when
the Debtor’s principal, James F. Zambri, used the Debtor’s debit card to initiate cash
advances at ATM’s on Harrah’s property. The Trustee makes his claims under
fraudulent transfer and unjust enrichment theories. The Trustee and Harrah’s filed
cross-motions for summary judgment. (Memorandum of Law in Support of Plaintiff’s
Motion for Partial Summary Judgment on His Amended Complaint, dated April 10,
2020 (“Trustee’s Motion”) (ECF Doc. # 57-1); Harrah’s Atlantic City Operating
Company LLC d/b/a Harrah’s Resort Atlantic City’s Memorandum of Law in Support
of its Motion for Summary Judgment, dated April 10, 2020 (“Harrah’s Motion”) (ECF
Doc. # 58).) 1 The parties also filed a Joint Statement of Undisputed Fact in support of
1 	“ECF Doc. #” refers to the documents filed on the electronic docket of this adversary proceeding.
“ECF Main Case Doc. #” refers to the documents on the electronic docket of the main case, No. 16-10508
(SMB).
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their cross-motions. (Joint Statement of Undisputed Facts in Support of Cross-Motions
for Summary Judgment, dated February 28, 2020 (“Joint Statement”) (ECF Doc. #
48).)
For the reasons that follow, the Trustee’s Motion is granted with respect to Count
2 of the of his Amended Complaint, dated June 7, 2019 (ECF Doc. # 25), he is awarded
the sum of $850,449.60, and the Trustee’s Motion is otherwise denied. Harrah’s
Motion is granted as to Counts 1 and 3 through 7 and is otherwise denied.
BACKGROUND
At all relevant times, the Debtor operated a specialty pharmacy located at 74
University Place, New York, NY 10003. (¶ 1.)2 Zambri was the Debtor’s president, (¶¶
2-3), and sole shareholder. (Voluntary Petition, List of Equity Security Holders (ECF
Main Case Doc. # 1), at ECF p. 39 of 46.) 3 The Debtor maintained an operating account
at a branch of JPMorgan Chase Bank, N.A. located in the State of New York (the “Chase
Account”). (¶ 5.) A debit card issued to the Debtor could be used to withdraw cash from
Debtor’s Chase Account. (¶ 71.) Harrah’s operates the Harrah’s Resort located in
Atlantic City, New Jersey, (¶ 8), and Zambri used the Debtor’s debit card to initiate cash
advances at ATMs located on Harrah’s property. (¶ 70.) In the main, the Trustee seeks
through this adversary proceeding to recover the transfers from the Chase Account that
covered the cash advances received by Zambri as fraudulent transfers.
2 	The parenthetical “¶” refers to the paragraphs in the Joint Statement.
3 	“ECF p.” refers to the page numbers printed by the ECF system at the top of each page.
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A. 	Harrah’s Cash Advances
To understand the disposition of the cross-motions, it is necessary to review how
the cash advances and the corresponding repayments from the Chase Account worked.
Caesars, Harrah’s affiliate4, contracted with Ultron Processing Services, Inc. (“Ultron”)
pursuant to a Master Services Agreement (“Ultron MSA”) 5 for services related to the
ATMs on Harrah’s premises. 6 (¶¶ 17-19.) A patron could obtain cash at Harrah’s in one
of two ways. He could withdraw cash directly from the Ultron ATM which Harrah’s
stocked with cash. (Ultron MSA, Ex. B, § 5.b.v. at JVJ000364.) Ultron would charge
the patron’s debit or credit card and collect the payment from the patron’s bank as agent
for Caesars. (Ultron MSA, Ex. A, § 1.gg at JVJ000486.) 7 Alternatively, a patron could
obtain cash advances directly from Harrah’s utilizing the ATM pursuant to a separate
4 	The parties use Caesars and Harrah’s interchangeably in their motion papers. While Caesars is
the contracting party, Harrah’s is covered by the relevant contracts as an “affiliate.” (See ¶¶ 25, 47.) The
Court will refer to both as Harrah’s.
5 	The Ultron MSA is attached as Exhibit 2 to the Joint Statement.
6 	The Ultron MSA provides that “Caesars shall, at its expense . . . [p]erform cash usage
management, and supply and replenish each Casino Transaction Kiosk at the Locations using Caesars
cash and personnel.” (Ultron MSA at Ex. B at § 5.b.v.)
7 	Ultron MSA, Ex. A, § 1.gg, provides in pertinent part:
. . . When a Cardholder (as defined in Exhibit B) uses a Casino Transaction Kiosk to obtain cash, the
Casino Transaction Kiosk will dispense cash, that is stored inside the Casino Transaction Kiosk, to the
Cardholder. Pursuant to Section 5(B)(5) of Exhibit B, [Caesars] is responsible for providing the cash
necessary to supply and replenish the cash supply that is stored inside the Casino Transaction Kiosks.
When a Casino Transaction Kiosk dispenses cash to the Cardholder, a related transaction occurs whereby
monies are deducted from the Cardholder’s account and are paid to [Ultron]. The parties acknowledge
that [Ultron] will receive such monies as [Caesars’s] agent in accordance with Exhibit B. . . .
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Master Services Agreement (“Global MSA”) 8 between Harrah’s and Global Cash Access,
Inc. (“Global”), in the manner described below. (¶¶ 30-31.)
Zambri utilized these cash advance services provided by Global rather than the
cash withdrawal services provided by Ultron. To initiate a cash advance at an Ultron
ATM located on Harrah’s property, the Cardholder inserts a debit card and enters the
amount of the request; Global verifies the Cardholder’s available credit limit and/or
account balance, obtains proper authorization from the Card issuer, and confirms that
Harrah’s has complied with various security protocols. (See ¶ 33; Global MSA, Ex. B, § 1
at JVJ000616.) Assuming the Cardholder qualifies for the cash advance, he receives a
receipt from the Ultron ATM directing him to proceed to Harrah’s cashier’s cage where
he presents the receipt to the cashier. (¶¶ 48-49, 52.) Per the Global MSA, (Global
MSA, Ex. B-1 at JVJ000620-JVJ000621), the Harrah’s cashier accesses Global’s
processing system, pulls up the pending transaction, verifies the identification of the
person receiving the cash advance, and distributes Harrah’s cash to the person seeking
the advance. (¶¶ 48, 50-51, 53-54, 64.) Global collects the cash from the Cardholder’s
bank and reimburses Harrah’s in the amount of the cash advance through a batch
settlement the next federal wire day. (¶¶ 65-66.)
Global and Caesars split a processing fee the Cardholder must be paid for a cash
advance. For cash advances initiated with a debit card, Global earns 25% of a 4% fee on
the amount of cash advanced, and Harrah’s receives the balance. (¶¶ 39, 42-44; Global
MSA, Ex. B at § 11.B.2 at JVJ000618.) Global, which has collected the entire processing
8 	The Global MSA is attached as Exhibit 3 to the Joint Statement.
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fee, settles up with Harrah’s on a monthly basis. (Global MSA, Ex. B, § 11.C at
JVJ000618.)
The outcome of this adversary proceeding turns on the relationship between
Harrah’s and Global. Although the Global MSA indicates that neither party intended for
the other party to be viewed as its agent, (Global MSA, Ex. A, § 21.b, at JVJ000614) (“At
no time will either Party represent itself as an agent . . . of the other Party”), Section 1 to
Exhibit B of the Global MSA states one notable exception; Global serves as Harrah’s
agent in connection with “quasi-cash advance services”:
[Caesars] engages [Global] to act as its agent for the sole purpose of
providing a quasi-cash advance services, whereby the authorized holders
(individually, a “Cardholder”) of a valid credit or ATM/debit card
(individually, a “Card” and collectively, the “Cards”) . . . may obtain quasi-
cash advances (individually, a “Cash Advance”) in exchange for a service
charge, subject in each case to (i) the Cardholder’s available credit limit
and/or account balance, (ii) receipt of proper authorization for the Cash
Advance transaction from the Card issuer, and (iii) compliance by
[Caesars] with security policies and procedures established by the Card
Associations, Network Organizations and [Global] from time to time; and
[Global] and [Caesars] desire to enter into this Agreement, whereby
[Global] will supply Cash Advances at the Locations listed on Schedule A
for Cardholders who will ultimately purchase gaming chips or other
products and services from the Company (referred to herein as the
“Service”).
(Global MSA, Ex. B, § 1 at JVJ000616.)
The Global MSA allocates the responsibility for an improper or unauthorized
cash advance. If Global incorrectly verifies that an account had sufficient funds and
cannot collect the cash advance from the Cardholder’s bank account, Global guarantees
the transaction and must reimburse Harrah’s for any cash Harrah’s advanced. (¶ 37;
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Petrosh Transcript 9 at 19:23-20:6.) In addition, Global is required to indemnify
Harrah’s for “any claim arising from the negligence of [Global], it’s employees, and
third-party contractors used in performance of [Global’s] obligations pursuant to this
Agreement and any related SOW.” 10 (Global MSA, Ex. A, § 11.a.i.4 at JVJ000611.) On
the other hand, Harrah’s must reimburse Global for the full amount of the cash advance
where, according to applicable rules, the Cardholder validly disputes the cash advance,
the Card issuer charges back the cash advance for any valid reason, or Global has any
reason to believe that a Cash Advance is questionable, fraudulent, not genuine, or is
otherwise unacceptable. (Global MSA, Ex. B, § 4.3 at JVJ000617.)
Although the Global MSA reads as if Global is making the cash advance, this is
not how it worked. Global facilitates the transaction between the Cardholder and
Harrah’s but does not advance any funds; the funds are advanced by Harrah’s cashier
and repaid by the Cardholder’s bank to Global, Harrah’s agent. As Ryan Carlson,
Harrah’s Federal Civil Rule 30(b)(6) witness, (see Joint Statement, Ex. 1, at ECF p. 3 of
30), explained, the Cardholder’s bank reimburses Global for the cash advanced and
remits any associated fees, Global then reimburses Harrah’s for the cash advance in a
batch settlement on the next federal wire day through ACH, and the portion of the fees
on the cash advances shared with Global are paid monthly after an accounting process.
(¶¶ 65-67.) The only cash that Global retains upon collection from the Cardholder’s
bank is its 25% of the 4% processing fee, i.e., 1% of the cash advance.
9 	Excerpts of the Transcript of Deposition of Katie Petrosh (“Petrosh Transcript”) are attached as
Exhibit 4 to the Joint Statement.
10 	“SOW” is not defined in the Global MSA.
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B. 	Zambri’s Cash Advances
From January 2, 2015 to August 3, 2015 (the “Relevant Period), Zambri regularly
initiated cash advances that resulted in withdrawals aggregating $859,040, inclusive of
the 4% processing fee (i.e., the Transfers), from the Chase Account. (¶¶ 70-71.) The
receipts issued at Harrah’s cage identified the transactions as a “PlayerCash@dvantage,”
i.e. a cash advance. (¶¶ 55-56; Joint Statement, Ex. 7.) Each receipt reported the cash
advance amount and the total fee calculated at 4% and identified Zambri as the
Cardholder and Harrah’s Atlantic City as the merchant. (Joint Statement ¶¶ 57-59;
Joint Statement, Ex. 7.) The Title 31 Multiple Transactions Log prepared and
maintained by Harrah’s to comply with applicable gambling regulations described each
of the transactions at Harrah’s cage as a “CASH ADVANCE” or “CCA,” meaning cash
advance. (¶¶ 81-83; Title 31 Log, Joint Statement, Ex. 10 at JVJ000064-JVJ000083.)
The Chase Account statements recorded the Transfers as “PCA* Harrah’s Ac Atlantic
City, NJ Card 4488.” (Joint Statement, Ex. 8.)
Zambri did not always gamble at Harrah’s on the days that he initiated a cash
advance, (¶ 73), or initiate cash advances on the days he gambled. During the Relevant
Period, Zambri initiated cash advances and gambled on the same date only seventeen
out of the forty-nine days he gambled at Harrah’s. (¶ 74.) On the dates that Zambri
initiated cash advances and gambled at Harrah’s, the amount of each cash advance did
not match the amount that Zambri used to gamble. (¶ 75.) In addition, Zambri was
successful at times when he gambled at Harrah’s. (¶ 86.) During the Relevant Period,
Zambri gambled approximately $1,747,790.00 at Harrah’s, (¶ 87), and won a total of
$488,455.00. (¶ 88.) This may explain why he did not always take a cash advance on
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the day he gambled or why the amount of the cash advance and the amount he gambled
did not always match.
D. 	Bankruptcy and Adversary Proceeding
The Debtor filed a chapter 11 case on March 3, 2016, and the Court converted the
case to chapter 7 on December 21, 2017. On December 19, 2018, the Trustee
commenced this adversary proceeding against Harrah’s seeking to avoid and recover the
Transfers as fraudulent transfers under Bankruptcy Code §§ 548(a)(1)(A) and
548(a)(1)(B) and as fraudulent conveyances under New York Debtor and Creditor Law
(“NYDCL”) §§ 273-276, 11 made applicable through 11 U.S.C. § 544(b)(1), as well as
under a theory of unjust enrichment.
The parties subsequently filed cross-motions for summary judgment. Harrah’s
seeks summary judgment dismissing all of the claims. First, it argues that New Jersey
law rather than New York law governs all of the Trustee’s claims, and his claims under
the NYDCL (Counts 3 through 6) should be dismissed. (Harrah’s Motion at 5-9.)
Second, the Debtor’s funds were not transferred to Harrah’s, and Harrah’s was not,
therefore, a transferee. (Id. at 9-13.) At most, Harrah’s was Global’s subsequent
transferee and received the subsequent transfer in good faith, for value, and without
knowledge of the avoidability of the initial transfer. (Id. at 13-17.) Third, the Trustee
has failed to adduce evidence of fraudulent intent to support his claims of actual
fraudulent transfer. (Id. at 18-22.) Fourth, even if Harrah’s was the initial transferee,
11 	All references to the NYDCL refer to the version of the NYDCL in existence at the time of the
Transfers. That version was repealed effective April 4, 2020 and replaced by the Uniform Voidable
Transactions Act. See 2019 N.Y. Sess. Laws Ch. 580 (A. 5622) (McKinney).
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the constructive fraudulent transfer and unjust enrichment claims fail because Debtor
received fair consideration and reasonably equivalent value in exchange for the
Transfers when the cash was advanced to its principal, Zambri. (Id. at 22-29.)
The Trustee contends in his own motion and in opposition to Harrah’s Motion
that the NYDCL governs. (Trustee’s Motion at 6-9.) He asserts that the Transfers may
be avoided pursuant to Bankruptcy Code § 544(b)(1) through NYDCL §§ 273, 274 and
275 and § 548(a)(1)(B), and the value of the Transfers can be recovered pursuant to §
550(a). (Id. at 10.) He argues that the Debtor made the Transfers to or for the benefit of
Harrah’s through electronic withdrawals from its Chase Account, the Transfers were
paid to Harrah’s agent, Global, and Harrah’s was, therefore, the initial transferee. (Id. at
12-16.) Furthermore, the Debtor did not receive fair consideration or reasonably
equivalent value and was insolvent at the time of the Transfers. (Id. at 16-21.) In
addition to his fraudulent transfer claims, the Trustee also seeks summary judgment on
an unjust enrichment claim. (Id. at 23-24.)
DISCUSSION
A 	Jurisdiction
The Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C.
§§ 157 and 1334(b) and the Amended Standing Order of Reference, No. M 10-468, 12
Misc. 00032 (S.D.N.Y. Jan. 31, 2012). The fraudulent conveyance claims are core
proceedings. 28 U.S.C. § 157(b)(2)(H). The unjust enrichment claim arose under state
laws before the bankruptcy case and is non-core.
The Court has the authority to enter a final judgment on all claims. In
accordance with Rule 7008 of the Federal Rules of Bankruptcy Procedure, the Trustee
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expressly consented to the Court’s authority to enter a final judgment in paragraph 5 of
his Complaint, dated Dec. 19, 2018 (ECF Doc. # 1), and paragraph 5 of the Amended
Complaint.
While Harrah’s did not expressly consent, its consent is implied. “[T]he key
inquiry is whether ‘the litigant or counsel was made aware of the need for consent and
the right to refuse it, and still voluntarily appeared to try the case’ before the non-Article
III adjudicator.” Wellness Int’l Network, Ltd. v. Sharif, 575 U.S. 665, 135 S. Ct. 1932,
1948 (2015) (quoting Roell v. Withrow, 538 U.S. 580, 590 (2003)). First, Harrah’s was
aware of its right to consent or withhold consent. Rule 7012(b) of the Federal Rules of
Bankruptcy Procedure requires the responding pleader to state whether it does or does
not consent to the entry of a final judgment by the bankruptcy judge. Although
forewarned by Rule 7012(b) and the Trustee’s Complaint and Amended Complaint
regarding the need to allege consent or the withholding of consent, Harrah’s Answer,
(ECF Doc. # 36), and Amended Answer, (ECF Doc. # 37), to the Amended Complaint
ignored the mandate of Rule 7012(b) and substituted the non-responsive statement
“[w]ith respect to the allegations contained in paragraph 5 of the Plaintiff’s Amended
Complaint, no factual response from Harrah’s is required.” Second, Harrah’s
voluntarily litigated the merits of the claims. It made two motions to dismiss, a motion
for summary judgment, and defended against the Trustee’s summary judgment motion
without raising an objection to the Court’s authority to hear the dispute or enter a final
judgment.
In short, Harrah’s was made aware of the opportunity to withhold its consent to
the Court’s authority to enter a final judgment; it failed to do so and instead, engaged in
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substantial litigation before the Court relating to the merits of the Trustee’s claims.
Accordingly, it impliedly consented to the Court’s authority to enter a final judgment.
B. 	Standards Governing the Motions
Under Rule 56 of the Federal Rules of Civil Procedure, made applicable to this
adversary proceeding by Rule 7056 of the Federal Rules of Bankruptcy Procedure,
summary judgment is proper “if the movant shows that there is no genuine dispute as to
any material fact and the movant is entitled to judgment as a matter of law.” F ED. R.
CIV. P. 56(a). The party seeking summary judgment bears the burden of establishing the
absence of a genuine issue of material fact. Rodriguez v. City of New York, 72 F.3d
1051, 1060-61 (2d Cir. 1995). “A fact is material if it might affect the outcome of the suit
under the governing law, and an issue of fact is genuine if the evidence is such that a
reasonable jury could return a verdict for the nonmoving party.” Ramos v. Baldor
Specialty Foods, Inc., 687 F.3d 554, 558 (2d Cir. 2012) (quotation omitted). The Court’s
function at the summary judgment stage is not “to weigh the evidence and determine
the truth of the matter but to determine whether there is a genuine issue for trial.”
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). When deciding whether a
genuine dispute exists as to a material fact, all ambiguities must be resolved, and all
reasonable inferences must be drawn, in favor of the nonmoving party. See Tolan v.
Cotton, 572 U.S. 650, 657 (2014); McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184,
202 (2d Cir. 2007); see also Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133,
151 (2000) (“Thus, although the court should review the records as a whole, it must
disregard all evidence favorable to the moving party that the jury is not required to
believe.”).
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C. 	Choice of Law
The parties dispute whether New York or New Jersey law governs the fraudulent
transfer claims. “[W]here no significant federal policy, calling for the imposition of a
federal conflicts rule, exists, a bankruptcy court must apply the choice of law rules of the
forum state.” Geron v. Seyfarth Shaw, LLP (In re Thelen LLP), 736 F.3d 213, 219 (2d
Cir. 2013) (internal quotation marks and citations omitted). Under New York conflicts
principles, “the first step in any case presenting a potential choice of law issue is to
determine whether there is an actual conflict between the laws of the jurisdictions
involved.” GlobalNet Financial.com, Inc. v. Frank Crystal & Co., 449 F.3d 377, 382 (2d
Cir. 2006) (internal quotation marks omitted).
Both sides agree that an actual conflict exists between New York and New Jersey
constructive fraudulent transfer law. Under the NYDCL, a plaintiff can establish a
constructive fraudulent conveyance if the transfer is made “without fair consideration.”
NYDCL §§ 273-75.
Fair consideration is given for property, or obligation,
(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 the obligation
obtained.
NYDCL § 272 (emphasis added). Hence, a plaintiff may prevail by proving either the
absence of an equivalent exchange of value or the lack of good faith by either the
transferor or the transferee.
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New Jersey has adopted the Uniform Fraudulent Transfer Act (“UFTA”) under
which a transfer by an insolvent is fraudulent as to present creditors if it is made for less
than reasonably equivalent value. N.J. STAT . § 25:2-27. “[A] party receives reasonably
equivalent value for what it gives up if it gets ‘roughly the value it gave,’ considering the
totality of the circumstances surrounding the disputed transfer.” Motorworld, Inc. v.
Benkedorf, 156 A.3d 1061, 1071 (N.J. 2017) (quoting VFB LLC v. Campbell Soup Co.,
482 F.3d 624, 631 (3d Cir. 2007) (quoting In re Fruehauf Trailer Corp., 444 F.3d 203,
213 (3d Cir. 2006)). “[T]he factors utilized to determine reasonably equivalent value
are: (1) whether the value of what was transferred is equal to the value of what was
received; (2) the fair market value of what was transferred and received; (3) whether the
transaction took place at arm’s length; and (4) the good faith of the transferee.” Id.
(emphasis added) (quoting Grochocinski v. Schlossberg (In re Eckert), 388 B.R. 813,
835 (Bankr. N.D. Ill. 2008), aff’d, 402 B.R. 825 (N.D. Ill. 2009)); accord Thor 725 8th
Ave. LLC v. Goonetilleke, Civ. No. 17-318, 2019 WL 5304146, at *6 (D.N.J. Oct. 17,
2019). Thus, the transferor’s good faith is relevant under New York law but not under
New Jersey law, and an actual conflict exists.
New York law treats a fraudulent conveyance as a tort. Cruden v. Bank of New
York, 957 F.2d 961, 974 (2d Cir. 1992); Geron & Robinson & Cole LLP, 476 B.R. 732,
737‐38 (S.D.N.Y. 2012); Drenis v. Haligiannis, 452 F.Supp.2d 418, 426-27 (S.D.N.Y.
2006). “‘[T]he relevant analytical approach to choice of law in tort actions in New York
is the ‘[i]nterest analysis,’” GlobalNet Financial.com, 449 F.3d at 382 (quoting Schultz
v. Boy Scouts of Am., Inc., 480 N.E.2d 679, 684 (N.Y. 1985)), which seeks “to determine
which of two competing jurisdictions has the greater interest in having its law applied in
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the litigation.” Padula v. Lilarn Properties Corp., 644 N.E.2d 1001, 1002 (N.Y. 1994);
accord Sheldon v. PHH Corp., 135 F.3d 848, 853 (2d Cir. 1998). This requires two
separate inquiries: “(1) what are the significant contacts and in which jurisdiction are
they located; and (2) whether the purpose of the law is to regulate conduct or allocate
loss.” Padula, 644 N.E.2d at 1002; accord Krock v. Lipsay, 97 F.3d 640, 645 (2d Cir.
1996).
The first inquiry is easy because the only significant contacts were in New Jersey.
Zambri resides in New Jersey, 12 traveled to Harrah’s Atlantic City casino in New Jersey
to gamble, and initiated the Transfers there. Harrah’s has no significant contacts with
New York. While the Debtor maintained the Chase Account in New York, the location of
the bank account was immaterial to the wrongful conduct that resulted in the fraudulent
transfers.
The second inquiry is less straightforward. Fraudulent conveyance laws are
conduct regulating, and “the law of the jurisdiction where the tort occurred will
generally apply because that jurisdiction has the greatest interest in regulating behavior
within its borders.” Lyman Commerce Solutions, Inc. v. Lung, No. 12–cv–4398, 2014
WL 476307, at *3 (S.D.N.Y. Feb. 6, 2014). When the alleged wrongful conduct and the
injury occur in different places, “it is the place of the allegedly wrongful conduct that
generally has superior ‘interests in protecting the reasonable expectation of the parties
who relied on [the laws of that place] to govern their primary conduct and in the
admonitory effect that applying its law will have on similar conduct in the future.’” Licci
12 	According to the List of Equity Securities Holders included with the petition and cited earlier,
Zambri resides at 2020 Winding Brook Way, Scotch Plains, New Jersey 07076.
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ex rel. Licci v. Lebanese Canadian Bank, SAL, 739 F.3d 45, 50-51 (2d Cir. 2013)
(quoting Schultz, 480 N.E.2d at 684-85); accord Lyman, 2014 WL 476307, at *3 (for
fraudulent conveyance claims, “the location of injury does not control; instead, it is the
location of the defendant’s conduct that controls.”) (citation omitted)).
Here, the wrongful conduct occurred in New Jersey. Zambri initiated the
fraudulent transfers the Trustee is seeking to recover and received the fruits of his
fraudulent conduct in New Jersey. Furthermore, New Jersey has the superior interest in
regulating fraudulent conduct in New Jersey casinos. Finally, although the Transfers
stripped the Debtor’s New York bank account, they injured the Debtor’s then-present
creditors who resided in all sections of the nation. The purpose of New York’s
fraudulent conveyance law “is not to provide equal distribution of a debtor’s estate
among creditors, but to aid specific creditors who have been defrauded by the transfer of
a debtor’s property.” HBE Leasing Corp. v. Frank, 48 F.3d 623, 634 (2d Cir. 1995).
Outside of bankruptcy, a fraudulent conveyance action is a creditor remedy and a
transferor cannot recover its own fraudulent conveyances under the NYDCL. It is only
the intervention of bankruptcy that allows a trustee to assert a fraudulent conveyance
claim on behalf of the debtor-transferor under Bankruptcy Code §§ 544(b)(1) and
548(a).
According to the Debtor’s schedules, the only evidence on this issue, the majority
of the Debtor’s creditors were located outside of New York as of the Petition Date. The
Debtor’s amended Schedule E/F (ECF Main Case Doc. # 46) listed twenty-seven
unsecured creditors holding $1,411,928.20 of unsecured debt. The list identified six
New York creditors holding $102,463.41 of unsecured debt. It also listed two New
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Jersey creditors (one of which is Zambri) holding $514,913.02 of unsecured debt. The
balance of the creditors and the debt were scattered throughout the nation. Thus, even
if the Transfers depleted the Debtor’s New York bank account, New York’s sole contact
with this dispute, it is not sufficient to overcome New Jersey’s superior interest in
regulating fraudulent conduct within its borders and the substantial injury caused to the
Debtors’ creditors the majority of which were located outside of New York, at least as of
the Petition Date.
Accordingly, New Jersey fraudulent transfer law governs the Transfers, and
Harrah’s motion for summary judgment dismissing the claims under the NYDCL
asserted in Counts 3 through 6 of the Amended Complaint is granted.
D. 	Bankruptcy Fraudulent Transfer Provisions
Bankruptcy Code § 548 permits the Trustee to recover both intentional and
constructive fraudulent transfers.
(a)(1) The trustee may avoid any transfer . . . of an interest of the debtor in
property . . . that was made or incurred on or within 2 years before the
date of the filing of the petition, if the debtor voluntarily or involuntarily—
(A) made such transfer or incurred such obligation with actual
intent to hinder, delay, or defraud any entity to which the debtor was or
became, on or after the date that such transfer was made or such
obligation was incurred, indebted; or
(B)(i) received less than a reasonably equivalent value in exchange
for such transfer . . . ; and
(ii)(I) was insolvent on the date that such transfer was made or such
obligation was incurred, or became insolvent as a result of such transfer or
obligation . . . .” 13
13 	Section 548(a)(1)(B)(ii) includes two additional financial tests: the “unreasonably small capital”
test, § 548(a)(1)(B)(ii)(II), and the intention to incur debts beyond the ability to pay as they mature, §
548(a)(1)(B)(ii)(III). In light of the disposition of the constructive fraudulent transfer claim, I limit my
consideration to the insolvency test.
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Where the trustee avoids the initial transfer under § 548(a), § 550 governs his
recovery:
(a) Except as otherwise provided in this section, to the extent that a
transfer is avoided under section . . . 548, . . . the trustee may recover . . .
the value of such property, from—
(1) the initial transferee of such transfer or the entity for whose
benefit such transfer was made; or
(2) any immediate or mediate transferee of such initial transferee.
(b) The trustee may not recover under section (a)(2) of this section from—
(1) a transferee that takes for value, including satisfaction or
securing of a present or antecedent debt, in good faith, and without
knowledge of the voidability of the transfer avoided; or
(2) any immediate or mediate good faith transferee of such
transferee.
1. 	Intentional Fraudulent Transfer
In Count 1, the Trustee pleads that the Debtor made the Transfers with the intent
to hinder, delay, or defraud its creditors, (Amended Complaint ¶ 44), and cites §
548(a)(1)(A). (Amended Complaint ¶ 54.) Count 1 also includes allegations that appear
to invoke the constructive fraudulent transfer provisions of § 548(a)(1)(B), (see
Amended Complaint ¶ 45 (“Debtor received less than reasonably equivalent value”); id.
¶ 51 (alleging balance sheet insolvency); id. ¶ 53 (alleging equitable insolvency)), but the
constructive fraudulent transfer claim under § 548(a)(1)(B) is expressly reserved for
Count 2. Accordingly, I read Count 1 as alleging an intentional fraudulent transfer claim
under § 548(a)(1)(A).
The Trustee did not move for summary judgment on his intentional fraudulent
transfer claim under Count 1 (or his NYDCL intentional fraudulent conveyance claim
alleged in Count 6), but Harrah’s did. It argued that the Trustee failed to allege intent.
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The Trustee did not respond to this argument, and accordingly, Counts 1 and 6 are
deemed abandoned.14 Nat’l Commc’ns Ass’n, Inc. v. Am. Tel. & Tel. Co., No. 92–CV–
1735, 1998 WL 118174, at *28 (S.D.N.Y. March 16, 1998) (deeming claim “abandoned”
and granting summary judgment where plaintiff did not address claim in response to
defendant’s summary judgment motion). Accordingly, Harrah’s Motion to dismiss
Count 1 is granted.
2. 	Constructive Fraudulent Transfer
Count 2 pleads a constructive fraudulent transfer claim under § 548(a)(1)(B).
Each side moves for summary judgment on Count 2. To satisfy the requirements of the
subsection under the insolvency test, the Trustee must demonstrate as a matter of law
that the Debtor made a transfer to Harrah’s at a time when it was insolvent or rendered
insolvent and received less than reasonably equivalent value in exchange for the
Transfers. The question of Harrah’s good faith or what it knew or should have known is
not material to the Trustee’s affirmative case.
There is no dispute that the withdrawals from the Chase Account were transfers
by the Debtor. Furthermore, the Trustee submitted the expert report of his accountant,
Joseph A. Broderick, CPA, who opined the Debtor was insolvent during the entire
Relevant Period.15 (See ¶ 93.) Harrah’s did not serve a rebuttal expert report or contest
the Debtor’s insolvency, and accordingly, the Trustee has established insolvency.
14 	Count 6 asserted under the NYDCL has already been dismissed on the separate ground that the
NYDCL does not apply.
15 	The Expert Report of Joseph A. Broderick is attached as Exhibit 14 to the Joint Statement.
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The principal issue that divides the parties is the identity of the initial transferee.
The Trustee contends that Harrah’s was the initial transferee of the Transfers; Harrah’s
claims it was Global, and at most, Harrah’s was Global’s subsequent transferee who
received the subsequent transfers in good faith, for value, and without knowledge of the
avoidability of the initial transfer.
a. 	The Initial Transferee
It is common ground that Global received the Transfers from the Chase Account
in connection with its cash advance services. However, the first recipient of the funds is
not necessarily the “initial transferee” of the funds. Christy v. Alexander & Alexander of
New York Inc. (In re Finley, Kumble, Wagner, Heine, Underberg, Manley, Myerson &
Casey), 130 F.3d 52, 56-57 (2d Cir. 1997) (collecting cases); Bonded Fin. Servs., Inc. v.
European Am. Bank, 838 F.2d 890, 893 (7th Cir. 1988). Discussing the preference
provision of the former Bankruptcy Act, Chief Judge Cardozo explained:
One who accepts a preference not for his own account but as agent for a
principal is not ‘the person receiving it or to be benefited thereby.’ . . .
The one who receives a preference . . . within the meaning of the statute, is
the one who is preferred, and the one who is preferred is not the mere
custodian or intermediary, but the creditor, present or contingent, who
receives by virtue of the preference an excessive share of the estate.
Carson v. Federal Reserve Bank of New York, 172 N.E. 475, 482 (N.Y. 1930); accord In
re Maxwell Newspapers, Inc., 151 B.R. 63, 70 (Bankr. S.D.N.Y. 1993) (citing cases).
Thus, where the recipient—the first entity to touch the transferred property—is
contractually obligated to turn it over to a third-party, the recipient is a “mere conduit”
and the entity it pays the transfer to is the “initial transferee.” Finley Kumble, 130 F.3d
at 58 (citing Danning v. Miller (In re Bullion Reserve of N. Am.), 922 F.2d 544, 548-49
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(9th Cir. 1991) (where recipient of money had contractual obligation to immediately
transfer funds, he was not initial transferee even though the funds were eventually spent
for his benefit) (parenthetical quoted in Finley Kumble); Hooker Atlanta (7) Corp. v.
Hocker (In re Hooker Invs., Inc.), 155 B.R. 332, 337 (Bankr. S.D.N.Y. 1993) (“Parties
that act as conduits and simply facilitate the transfer of funds or property from the
debtor to a third party generally are not deemed initial transferees for purposes of [11
U.S.C. § 550]”); see generally 5 C OLLIER ON B ANKRUPTCY ¶ 550.02[4][a] (16th ed. 2020);
cf. In re 360networks (USA) Inc., 338 B.R. 194, 204 n.11 (Bankr. S.D.N.Y. 2005)
(“[W]here a ‘mere conduit’ retains possession of some portion of the funds, he will be
held liable up to the amount which he retains.”) (quoting Maxwell Newspapers, 151 B.R.
at 70)).
Under the Global MSA and as confirmed by Harrah’s Rule 30(b)(6) witness,
Global acted as Harrah’s “agent” in connection with the cash advance services which
included collecting the repayment from the Chase Account for Harrah’s. Global did not
advance any of its own funds to Zambri and was not entitled to retain the money it
collected from the Chase Account except for its portion of the processing fee. It was
contractually obligated to pay the balance to Harrah’s and reimbursed Harrah’s for the
cash advance as part of a batch settlement on the next federal wire day through ACH.
(¶¶ 65-67.) Moreover, the Chase Account monthly statements show that the Transfers
were made to Harrah’s. (Joint Statement, Ex. 8.) Finally, while the Global MSA
identified certain situations calling for Harrah’s to reimburse Global for cash advances,
there was nothing to reimburse other than the 1% processing fee when Global did not
advance its own funds, and Harrah’s does not contend in any event that its
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reimbursement obligation was triggered in this case. Accordingly, Harrah’s was the
initial transferee of the Transfers within the meaning of § 548(a) except for the portion
of the processing fee that Global retained.16
The conclusion that Harrah’s is the initial transferee is consistent with the
practical concerns expressed by the Bonded Financial Court when it compared the
potential liability of initial and subsequent transferees. The initial transferee bears the
burden of inquiry and the risk if the conveyance is fraudulent because the initial
transferee is the best position to monitor the transfer from the transferor. Bonded Fin.,
838 F.2d at 893. In this case, Global, Harrah’s agent, dealt directly with Zambri,
processed his request for cash, confirmed the availability of funds in the Debtor’s Chase
Account and took the necessary steps to assure reimbursement from that account before
generating the receipt redeemed by Zambri at Harrah’s cashier’s cage. Global was in the
best position to monitor the Transfers and knew or certainly should have known that the
Debtor rather than Zambri was the owner of the Chase Account. 	Harrah’s bore the risk
16 	The facts are analogous to the situation in which a corporate principal pays a personal debt with a
corporate check. In that circumstance, the creditor who received the payment is the initial transferee and
the corporate principal, whose debt was discharged, is the party for whose benefit the transfer was made.
Tese-Milner v. Brune (In re Red Dot Scenic, Inc.), 293 B.R. 116, 122 (S.D.N.Y.), aff’d, 351 F.3d 57 (2d Cir.
2003). This is the one-step transaction hypothesized by Judge Easterbrook in Bonded Fin., 838 F.2d at
893; accord Red Dot Scenic, 293 B.R. at 119 (“[T]he [Bonded] Court distinguished between a one-step
transaction in which a debtor’s check is paid directly to its principal’s creditor and a two-step transaction
in which the check is paid to the principal, who then pays his personal creditor. In the first situation, the
creditor is the initial transferee. In the second situation, the situation that arose in Bonded itself, the
principal is the initial transferee and the principal’s creditor is a subsequent transferee.”) Here, Zambri
did not use a corporate check to pay for his gambling and other personal expenses; instead, he initiated an
electronic transfer from the Chase Account, but the result is the same. Furthermore, Harrah’s has not
argued that the Cash Advances involved a two-step transaction through which the initial transfer from the
Chase Account was made to Zambri rather than to Global, Harrah’s agent.
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that the transfer of funds by the Debtor to Harrah’s to allow Zambri to gamble or use as
he saw fit might be fraudulent and had the ability to decide whether that risk was worth
the reward.
b. 	Reasonably Equivalent Value
Section 548(a)(1)(B)(i) requires the Trustee to demonstrate that the Debtor did
not receive reasonably equivalent value in exchange for the transfers. The undisputed
facts show that the Debtor did not receive any value; Zambri received the value for his
personal use. The cash advance receipts, (Joint Statement, Ex. 7), identified Zambri as
the Cardholder and Harrah’s Title 31 Multiple Transaction Log, (Joint Statement, Ex.
10), identified Zambri as the patron. Neither mentioned the Debtor nor indicated that
the Debtor received the cash advances. Furthermore, Harrah’s does not suggest that
Zambri used any of the cash advances to pay the Debtor’s expenses or redeposited any
portion in the Debtor’s bank accounts. In short, Zambri got the cash; the Debtor got
none.
c. 	Harrah’s Affirmative Defense
In contrasting the liabilities of initial and subsequent transferees, courts observe
that the initial transferee is absolutely liable under 11 U.S.C. § 550(a) while the
subsequent transferee may defend against liability under 11 U.S.C. § 550(b)(1) by
demonstrating that it received the subsequent transfer for value, in good faith, and
without knowledge of the avoidability of the initial transfer. See, e.g., Carroll v. Milner
(In re Red Dot Scenic, Inc.), 351 F.3d 57, 58 (2d Cir. 2003). Although the initial
transferee has no such defense to its liability under 11 U.S.C. § 550(a) once the transfer
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is avoided, it enjoys a similar defense to the avoidance claim under 11 U.S.C. § 548(c) .17
The transferee may defeat the avoidance claim, in whole or in part, by demonstrating
that it received the transfer in good faith and gave value to the debtor. Assuming
Harrah’s good faith, it did not give value to the debtor for the reasons stated.
Accordingly, the Trustee’s motion for summary judgment on Count 2 is granted,
and Harrah’s corresponding motion is denied. The Trustee is therefore entitled to a
judgment under 11 U.S.C. § 550(a) in the sum of $850,449.60, which represents the
aggregate amount of the Transfers less the 1% processing fee retained by Global.
3. 	Unjust Enrichment
The Trustee’s final cause of action, Count 7, asserts a claim of unjust enrichment
against Harrah’s. Each side moves for summary judgment on the claim. The Trustee
argues that New York law governs; Harrah’s contends that New Jersey law controls but
does not identify a conflict, and there is none. See Hettinger v. Kleinman, 733 F. Supp.
2d 421, 446 n.8 (S.D.N.Y. 2010) (“I do not engage in an independent choice of law
analysis with respect to this claim for unjust enrichment because there is no difference
between the law of the two interested jurisdictions-New York and New Jersey.”) (citing
MK Strategies, LLC v. Ann Taylor Stores Corp., 567 F.Supp.2d 729, 733-34 (D.N.J.
17 	Section 548(c) provides:
Except to the extent that a transfer or obligation voidable under this section is voidable
under section 544, 545, or 547 of this title, a transferee or obligee of such a transfer or
obligation that takes for value and in good faith has a lien on or may retain any interest
transferred or may enforce any obligation incurred, as the case may be, to the extent that
such transferee or obligee gave value to the debtor in exchange for such transfer or
obligation.
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2008); RCM Tech., Inc. v. Constr. Servs. Assocs., Inc., 149 F.Supp.2d 109, 114 (D.N.J.
2001))). Accordingly, the Court will limit its consideration to New York law.
“Under New York law, a plaintiff asserting a claim of unjust enrichment must
show that the defendant was enriched at the plaintiff’s expense and that equity and good
conscience require the plaintiff to recover the enrichment from the defendant.” Golden
Pacific Bancorp v. F.D.I.C., 375 F.3d 196, 203 n.8 (2d Cir. 2004). “The ‘essence’ of such
a claim ‘is that one party has received money or a benefit at the expense of another.’”
Kaye v. Grossman, 202 F.3d 611, 616 (2d Cir. 2000) (citation omitted). Unjust
enrichment “is available only in the unusual situation when, though the defendant has
not breached a contract or committed a recognized tort, circumstances create an
equitable obligation owed by the defendant to the plaintiff.” Corsello v. Verizon New
York, Inc., 967 N.E.2d 1177, 1185 (N.Y. 2012). The typical case is one “in which the
defendant, though guilty of no wrongdoing, has received money to which he or she is not
entitled,” and “[a]n unjust enrichment claim is not available where it simply duplicates,
or replaces, a conventional contract or tort claim.” Id.
The fraudulent transfer claim sounds in tort, and the unjust enrichment claim, as
pleaded and argued, duplicates the Trustee’s constructive fraudulent transfer claim.
The Amended Complaint alleges that Harrah’s was unjustly enriched because the
Debtor did not receive reasonably equivalent value or fair consideration in exchange for
the Transfers. (Amended Complaint ¶¶ 97, 99.) Similarly, the Trustee argues that he is
entitled to summary judgment on his unjust enrichment claim because the Debtor did
not derive a benefit and did not receive any consideration for the transfers. (Trustee’s
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Motion at 24.) As it duplicates the Trustee’s constructive fraudulent transfer claim,
Count 7 is dismissed.
CONCLUSION
The Trustee’s Motion is granted to the extent of granting summary judgment on
his constructive fraudulent transfer claim asserted in Count 2 and is otherwise denied.
Harrah’s Motion is granted to the extent of granting summary judgment dismissing
Counts 1 and 3 through 7 and is otherwise denied. The Court has considered the parties’
other arguments and concludes that they lack merit. As this opinion disposes of all of
the claims in the case, the Trustee is directed to settle a judgment on notice consistent
with this opinion.
So ordered.
Dated: New York, New York
July 24, 2020
/s/ Stuart M. Bernstein
STUART M. BERNSTEIN
United States Bankruptcy Judge
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