Jalbert v. Flom et al

OCR transcription for search; preserved printed pages are authoritative

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UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK

In re : Chapter 11
BICOM NY, LLC, et al., : Case No. 17-11906 (MEW)
Debtors. : (Jointly Administered)

CRAIG R. JALBERT, in his capacity as
Liquidation Trustee,

Plaintiff,
-against- : Ady. Proc. No. 19-01315 (MEW)
GARY FLOM, VENIAMIN NILVA,
ALEXANDER BOYKO and BNF PARTNERS
NY LLC,

Defendants.

x

DECISION AFTER TRIAL

APPEARANCES:

DUNNEGAN & SCILEPPI LLC
New York, New York
Attorneys for Craig R. Jalbert as Liquidation Trustee
By: William Dunnegan, Esq.
Laura Scileppi, Esq.
Richard Weiss, Esq.

KESTENBAUM, DANNENBERG & KLEIN, LLP
New York, New York
Attorneys for Defendant Alexander Boyko

By: Jeffrey C. Dannenberg, Esq.

HONORABLE MICHAEL E. WILES
UNITED STATES BANKRUPTCY JUDGE

Plaintiff Craig R. Jalbert is the Liquidation Trustee (the “Trustee’’) of a Liquidation Trust

that was established under the confirmed plan of reorganization for three affiliated automobile

AUTHENTICATED
U.S. GOVERNMENT
INFORMATION

GPO


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Originally the joint bank account was to be used to allow Nilva to pay expenses that related
to Boyko’s apartment. Over time, however, the account was used to transfer monies for other
business purposes as well. Boyko was aware that the account was being used for those business
purposes and approved that use.

At one time (the date was not specified) Boyko learned that Nilva had transferred some
funds out of the joint account to Nilva’s personal account, and that Nilva had later returned the
money. Boyko was not pleased with this discovery and he so informed Nilva. However, Boyko
did not close the joint account, did not terminate Nilva’s access to the account, and did not establish
any other accounts to be used for his business purposes in the United States.

Nilva introduced Boyko to Flom at some time prior to 2009. Nilva informed Boyko that
Nilva and Flom hoped to open an automobile dealership in Brooklyn, and Nilva persuaded Boyko
to become a shareholder in that dealership. BRAC was then formed in 2009, with Flom, Nilva
and Boyko as owners. Flom owned a 40% share, and Nilva and Boyko owned 30% each. Boyko
and Nilva each contributed $1.2 million in exchange for their equity interests, while it was
understood that Flom would receive his ownership interest in exchange for his contacts and for
being the primary manager of the business.

Later, the parties decided to form new dealerships and also to change the ownership
structure. BICOM was formed on September 18, 2014, and ISCOM was formed on October 28,
2015. Other dealerships were also formed at times that are not clear; those other dealerships did
not file bankruptcy petitions. The parties also formed BNF to act as a holding company for the
Debtors and the other dealerships, and BNF was the sole owner of BICOM, ISCOM and BRAC at
the times of the transfers that are relevant to this case. Flom, Nilva and Boyko each owned one-

third of the equity interests in BNF at the times of those transfers.


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Main Document

Transfers to Flom

Date BICOM ISCOM BRAC
4/1/15 $125,000

4/2/15 $11,000

4/3/15 $3,500
4/9/15 $11,000
4/10/15 $920
4/16/15 $11,000
4/23/15 $11,000
4/30/15 $11,000

6/4/15 $11,000 $3,500
6/11/15 $11,000 $3,500
6/18/15 $11,000 $3,500
6/25/15 $11,000 $3,500
T/A/AS $11,000

7/9/15 $11,000

7/16/15 $11,000

7/23/15 $11,000

7/30/15 $7,000

8/6/15 $11,000

8/13/15 $11,000

8/17/15 $240,000

8/20/15 $11,000

8/27/15 $11,000

9/1/15 $100,000 $3,500
9/1/15 $75,000

9/3/15 $11,000

9/10/15 $11,000

9/17/15 $11,000

9/24/15 $11,000

9/30/15 $3,500
10/1/15 $3,500
10/8/15 $3,500
10/13/15 $675
10/15/15 $3,500
10/22/15 $3,500
10/29/15 $3,500
11/05/15 $3,500
11/12/15 $3,500
11/19/15 $3,500
11/23/15 $250,000
11/25/15 $3,500
12/1/15 $5,918.35
12/3/15 $3,500
12/10/15 $3,500

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Main Document

Transfers to Flom

Date BICOM ISCOM BRAC
12/17/15 $3,500

1/8/16 $3,500
1/14/16 $3,500
1/22/16 $3,500
1/28/16 $3,500
2/4/16 $3,500
2/11/16 $3,500
2/19/16 $3,500
2/25/16 $3,500
2/29/16 $8,000

3/3/16 $3,500
3/10/16 $3,500
3/24/16 $3,500
4/7/16 $3,500
4/11/16 $3,875
4/14/16 $3,500
4/21/16 $3,500
4/28/16 $3,500
5/1/16 $100,000

5/1/16 $125,000

5/4/16 $3,500
5/12/16 $4,000 $3,500
5/16/16 $1,028
5/19/16 $4,000 $3,500
5/20/16 $3,107.52
5/27/16 $3,500

6/2/16 $4,000 $3,500

6/9/16 $4,000 $3,500
6/16/16 $4,000 $3,500
6/23/16 $4,000 $3,500
6/30/16 $3,500

7/5/16 $25,000

7/6/16 $4,000

7/7/16 $3,500
7/14/16 $4,000 $3,500
7/21/16 $4,000 $3,500
7/28/16 $4,000 $3,500

8/4/16 $4,000 $3,500
8/11/16 $4,000 $3,500
8/18/16 $4,000 $3,500
8/25/16 $3,500

9/1/16 $4,000 $3,500

9/7/16 $4,000


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The evidence at trial showed that from 2014 through the date of the bankruptcy filings
BICOM was indebted to the City of New York Department of Finance based on a variety of tax
payment and tax filing deficiencies. BICOM also was indebted to Sid Paterson Advertising, Inc.
based on a small claims court judgment entered February 1, 2015, which BICOM never paid. In
addition, BICOM was indebted to Peter Pierce for amounts accruing May 22, 2015 that remained
unpaid at the time of the bankruptcy filing. The Trustee established that those claims existed at
the times of the relevant transfers and that they are allowable claims in BICOM’s bankruptcy case.
The Trustee therefore has standing to pursue claims under section 273 on behalf of BICOM and
against Boyko and Flom.

The evidence at trial showed that ISCOM was indebted to the Internal Revenue Service
based on ISCOM’s failure to file a 2015 tax return. This debt preceded the relevant transfers by
ISCOM to Boyko, it represented an allowable claim in ISCOM’s case, and it is sufficient to give
the Trustee standing to pursue claims against Boyko under section 273 in the case of ISCOM. The
same indebtedness preceded all but $8,000 of the challenged transfers that ISCOM made to Flom.
The evidence at trial also showed that ISCOM was continually indebted to Motorsports
Consultants LLC from and after February 14, 2016 and that Motorsports held an allowable claim
at the time of the ISCOM bankruptcy filing. The initial debt to Motorsports occurred prior to all
of the challenged transfers to Boyko and to Flom. The Trustee therefore has standing to pursue
claims under section 273 on behalf of ISCOM and against Flom and Boyko.

The evidence showed that BRAC was continually indebted to Alpha Fire and Security from
and after July 31, 2014, and that Alpha Fire and Security held an allowable claim at the time of

BRAC’s bankruptcy filing. The indebtedness to Alpha Fire and Security predated all of the

13


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Boyko seeks a similar ruling, but the facts of his case are vastly different from the admitted facts
in Gryaznova’s case.

Gryaznova was not an owner, officer or director of any of the Debtors. She opened a
relatively small joint account with Nilva with a deposit of $15,000 in order to cover expenses of
a visa application. It was admitted that the account was not supposed to be used for other
purposes. In 2016, however, Nilva used the Gryaznova joint account as a way of hiding the
source of a transfer that he wished to make. More particularly, Nilva sought to transfer $1
million from BICOM’s account at Wells Fargo to another dealership (Kings Automotive). A
direct transfer from BICOM to King Automotive would have violated provisions of BICOM’s
agreements with Chase. A direct transfer also would have revealed that BICOM had secretly
opened the separate bank account at Wells Fargo, which was another violation of BICOM’s
agreements with Chase. In order to make the transfer while concealing the source of the funds —
and admittedly without the knowledge of Gryaznova — Nilva wrote a check payable to
Gryaznova from BICOM’s Wells Fargo account, endorsed it himself and deposited it in the joint
account. Simultaneously, Nilva wrote a check in favor of Kings Automotive and payable from
the joint account, and immediately deposited that check in the Kings Automotive account.
Gryaznova knew nothing about this until long afterwards. It was admitted that she was not an
intended beneficiary of Nilva’s actions and that she had not actually benefited from them.

In a separate adversary proceeding, the Trustee contended that Gryaznova (as a joint
owner of the account into which Nilva had deposited funds) was a “transferee” and was liable to
repay the $1 million that BICOM had transferred. This Court held otherwise, based on the
uncontested facts in that case. 619 B.R. at 799. The Court noted that a “recipient” of funds is

not necessarily a “transferee,” citing the decision in Jn re Finley, Kumble, Wagner, Heine,

17

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Underberg, Manley, Myerson & Casey, 130 F.3d 52, 56-57 (2d Cir. 1977), and noted that
Gryaznova had less actual control over the relevant funds than the alleged transferee had had in
the Finley Kumble case. 619 B.R. at 799. The Court further held that Gryaznova had not had
any actual opportunity to use the relevant funds; that the Trustee’s arguments about Gryaznova’s
theoretical legal rights as a joint account holder “pushed legal fictions to extremes that make no
sense and that are inconsistent with the teachings of the Finley Kumble decision;” and that Ms.
Gryaznova’s bank account was just “a brief waystation for the funds, not a destination.” 619
B.R. at 799, 801. Judge Rakoff affirmed the Court’s rulings on appeal for substantially similar
reasons.

The facts as to the transfers that Boyko received were radically different. It was admitted
that Gryaznova’s account was supposed to be used only to hold the funds that Gryaznova herself
had provided. By contrast, Boyko admitted that his own joint account with Nilva was used for
business purposes, and he acknowledged that the account was used to receive transfers from the
Debtors that were intended for Boyko.

In addition, the admitted intended transferee of the $1 million that was transferred
through Gryaznova’s account was Kings Automotive, not Gryaznova herself. 619 B.R. at 797.
Gryaznova’s account was used solely for the purpose of concealing Nilva’s tracks. Jd. In the
case of Boyko, however, the evidence at trial showed that Boyko himself was the intended
transferee of the transfers that are at issue. Nilva and Flom both so testified.

Furthermore, the $1 million deposit in the Gryaznova account was subject to an
immediate and offsetting claim (the check that Nilva had written in favor of Kings Automotive),
and the funds actually disappeared from the Gryaznova joint account within two days, when the

Kings Automotive check formally cleared. /d.. at 799. Gryaznova never knew about the funds

18

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and had no real-world opportunity to use them. /d. Boyko tried to suggest that similar things
might have happened in his case. He testified generally that Nilva told him, after the fact, that
there were occasions when money was moved out of the joint account and sent to other
companies and that sometimes this was done almost immediately. However, Boyko offered no
specifics as to any particular transfer of funds out of the joint account or as to Nilva’s alleged use
of the funds involved in any particular transfer. Although Nilva admitted his wrongful and
deceptive use of the Gryaznova account during his deposition testimony, Nilva denied that any
similar thing had been done using Boyko’s joint account. Instead, Nilva testified that no
transfers had been made from the Boyko joint account without Boyko’s knowledge and approval.

Boyko’s primary argument is that Nilva had access to the joint account and that when the
account ultimately was closed Boyko discovered that Nilva had allegedly removed more than $3
million from it. Again, however, Boyko made no effort to retrieve relevant bank records and
offered no actual evidence that Nilva had taken funds, or as to when Nilva had done so. Boyko
also admitted that at least some of the monies that were transferred to the joint account were used
to pay Boyko’s expenses or otherwise redounded to Boyko’s benefit. Even if Nilva ultimately
removed some monies from the account (which Boyko never showed), that merely would make
Boyko the victim of a theft that post-dated the transfers that were made to him. The possibility
that Nilva at some time may have engaged in such theft, involving an unspecified amount of
funds and with no specifics as to the timing or as to any of the accompanying circumstances,
does not negate Boyko’s status as the initial transferee of the funds that were transferred by
BICOM, ISCOM and BRAC.

I conclude based on the evidence at trial that Boyko was an actual and intended transferee

in the case of the challenged transfers, and was not a mere “conduit” as Gryaznova was.

19


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Boyko testified that he made other loans to BRAC to facilitate the construction of BRAC’s
premises. However, Boyko offered no supporting evidence as to the existence of these loans. He
stated that he believed that there was a loan agreement but that Nilva had possession of it and did
not turn it over to Boyko after the dealerships failed. Boyko similarly did not know what
repayments he had received from BRAC and what the balances of the loans were at any given
points in time. Boyko also did not retrieve any bank records that might have shown the movement
of funds by Boyko to BRAC, and offered no evidence as to these alleged loans other than his own
incomplete recollection. By contrast, the Trustee offered evidence that the Trustee had found no
record of any such loans in BRAC’s books and records, and that none of the transfers to Boyko
were recorded in the general ledgers of BICOM, ISCOM and BRAC as repayments of loans.

Boyko testified that he also made a loan in connection with the formation of BICOM.
However, the BICOM operating agreement showed a $12 million capital contribution by BNF.
When confronted with the operating agreement, Boyko acknowledged that his loan “probably”
had been made to BNF and not directly to BICOM. No evidence of a loan made directly to BICOM
was offered.

The testimony at trial also included deposition testimony by Nilva and Flom. They
testified very generally that Boyko invested sums as both capital contributions and loans and that
transfers to Boyko were made as returns of his “investments.” However, they could not identify
specifically which entities had been recipients of such investments from Boyko. They also
testified that they did not distinguish among the group of commonly owned companies, which
consisted of the three Debtors, the Debtors’ holding company (BNF) and other non-debtor
affiliated companies that operated other dealerships. Instead, they Flom and Nilva caused

repayments of portions of Boyko’s total investments in all of the companies to be made to Boyko

22


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“capital contributions and loans” to BRAC, BICOM and two other entities (Kings Automotive
Holdings, LLC and White Plains Auto Company) in the amounts of $22,142,500 (capital
contributions) and $21,387,636.86 (loans, including interest). Notably, this document actually
contradicts Boyko’s testimony as to whether he made capital contributions apart from his initial
equity contribution in BRAC. In addition, no breakdowns were provided as to any loans that had
been provided. In the agreement, BNF agreed to assume the repayment of all of the capital
contributions and loans, but without the release of any of the original borrowers. There is nothing
in this exhibit, however, that permits the Court to identify any particular loans that might have
been made to BRAC or to BICOM (as opposed to being made to other entities), and ISCOM is not
even mentioned in the exhibit.

Boyko also offered into evidence another agreement that stated that Boyko had made a
loan to BICOM in February 2016 in the amount of $1.1 million and that on or about September
16, 2016 Boyko had also repaid an obligation that BICOM, ISCOM and BRAC jointly owed to
Chase in the amount of $16,042,646. BICOM, ISCOM and BRAC agreed in September 2016 to
repay the aggregate of those amounts within one year, but the bankruptcy filings occurred before
that one-year anniversary was reached. This exhibit supports a finding that the three debtors
became jointly and severally obligated to Boyko in the amount of $17,142,646 as of September
2016. However, before that date the only evidence of an outstanding loan is a loan to BICOM in
the amount of $1.1 million in February 2016, for which there is no evidence that the other Debtors
had any liability until September 2016.

Boyko filed proofs of claim against each Debtor that purported to reflect his claims to
recover the amounts he had provided as loans. The BICOM and BRAC proofs of claim (PTX 107

and PTX 109) each sought repayment of $21,387,645.86, but in support of those claims Boyko

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attached only the two September 2016 agreements that were admitted into evidence at trial. As
noted above, the September 29, 2016 “Assumption Agreement” merely stated that Boyko had
made total loans to BICOM, BRAC, Kings Automotive and White Plains Auto Company, Inc. in
the amount of $21,387,646.86. No evidence was offered showing that any part of these sums were
loaned to BICOM or to BRAC. In the case of ISCOM (PTX 108), Boyko only sought repayment
of $16,042,646, which reflects the “joint” liability that ISCOM, BICOM and BRAC incurred when
Boyko repaid a portion of the Chase floor plan debt in September 2016. The proof of claim thereby
confirmed that no other debts were owed to him by ISCOM.

I find based on the evidence at trial that Boyko made a loan of $1.1 million to BICOM in
February 2016; that the three Debtors became jointly and severally obligated to Boyko in the
amount of $17,142,646 in September 2016 as the result of Boyko’s repayment of a portion of the
Debtors’ obligation to Chase; and that Boyko made no other loans to BICOM, ISCOM and BRAC.

Virtually all of the transfers made to Boyko by BICOM were made before February
2016. Even if Boyko has a “loan repayment” defense to transfers by BICOM after February
2016, that would only result in a defense to the three transfers that BICOM made in or after
February 2016, which totaled $100,000. In addition, all of the transfers to Boyko by BRAC and
ISCOM occurred before September 2016. Even if Boyko has a “loan repayment” defense to
transfers by BRAC and ISCOM after September 2016, that defense would be irrelevant because
no transfers were made after that date. I therefore find, based on the evidence at trial, that all of
the transfers to Boyko by BRAC and ISCOM, and all of the transfers made by BICOM prior to
February 2016, were without consideration. Only the final $100,000 of payments made by

BICOM constituted repayments of an antecedent debt.

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As noted above, a defendant may be barred from contending that there was “fair
consideration” for a loan repayment if the defendant is an officer, director or shareholder and if
the payment was made at a time when the company was insolvent. Boyko’s contention that he
was not an “insider” of BICOM, and the evidence at trial as to BICOM’s solvency at the times of
the transfers, are discussed below in parts 5 and 6(A) of this Decision.

B. Transfers to Flom

The regularity of some of the transfers to Flom, and the amounts thereof (in particular the
many $11,000 payments by BICOM, the many $4,000 payments by ISCOM, and the many
$3,500 payments by BRAC) suggest the possibility that some of the relevant transfers may have
constituted wage or salary payments in exchange for services that Flom provided. However,
Flom did not appear at trial, and no evidence was offered to suggest that any consideration
actually was provided for any of the transfers that were made to Flom. There was no evidence of
any salary agreements, no evidence of wage payments, no evidence that Flom had ever made
loans that were being repaid, and no evidence of any other consideration. Flom also has
defaulted and is deemed to have admitted the Trustee’s allegations that there was no
consideration for the transfers. I therefore find that the transfers to Flom were without
consideration.

5. Whether Boyko Was An “Insider”

At trial, Boyko’s counsel argued that Boyko played no role in the day-to-day
management of BICOM, ISCOM and BRAC, and elicited testimony to that same effect from
Boyko. Boyko’s counsel also argued that as a result Boyko should not be regarded as an

“insider” of the three Debtors and should not be subject to the presumption (under New York

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The evidence at trial as to the solvency or insolvency of BICOM, ISCOM and BRAC was
incomplete, to say the least.

The Trustee offered into evidence copies of the monthly financial statements that
BICOM, ISCOM and BRAC submitted to the automobile companies for which they acted as
dealers. The Trustee did not vouch for the accuracy of these statements, and in fact suggested
they were unreliable. The purpose of offering them was to show that even if they were presumed
to be correct, certain required adjustments allegedly showed that the entities were insolvent. The
Trustee offered a separate exhibit (PTX 30) that corrected the net equity calculations in the
monthly statements in two ways; (1) by correcting the listed cash balances so that they would
correspond to bank statements, and (2) by eliminating a $70 million “goodwill” entry that
suddenly appeared (without any support or justification) on BICOM’s financial statements in
May 2015. The problem, however, is that those adjustments alone still did not show that the
Debtors had “negative” net equities or were insolvent throughout the relevant periods, as the
Trustee alleged. Even after the Trustee’s proposed changes the BICOM calculations showed a
positive equity value from October 2015 through March 2017, which is the period during which
almost all of the challenged transfers by BICOM were made. The same exhibit showed that
BRAC had a positive value (even after adjustments) throughout the period from January 2015
through March 2017. ISCOM’s calculated values were positive from February 2016 through
April 2016, then negative from May 2016 through August 2016, then positive for September
2016, and then negative from October 2016 through the bankruptcy filing in March 2017.

The Trustee also suggested that BICOM listed marketable securities in its monthly
financial statements and that the Trustee found no evidence that BICOM ever owned marketable

securities. The Trustee did not offer an exhibit at trial showing what effects the removal of

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“marketable securities” would have, but Schedule B to the Trustee’s post-trial submission of
proposed findings of fact and conclusions of law sets forth such calculations based on other
evidence at trial. However, even if the entries for “marketable securities” were removed and if
the Trustee’s other proposed adjustments were made, BICOM’s reported equity still would have
been positive from October 2015 through March 2017, except for two negative calculations in
October 2016 and December 2016.

More importantly, all of the Trustee’s calculations represent adjustments to “book”
figures. During most of the relevant period the dealerships were operating businesses. The real
value of an operating business lies in the profits it may generate from operations, and not just in
the static and likely historical “book” values of the assets that it holds. The Trustee asserted very
generally that the Debtors were not profitable, but the financial statements say otherwise (at least
for some time periods), and no contrary proof was offered.

The Trustee testified that a glaring error in the monthly financial statements occurred in
August 2016, when the dealers allegedly understated their liabilities to Chase under a floor plan
financing arrangement. However, the liability was a joint liability shared by the three Debtors
and also by some non-debtor companies. No evidence was offered as to how the Debtors had
determined their individual obligations under the floor plan arrangement or as to whether that
was a reasonable estimate of each Debtor’s liability while the three Debtors were still in
operation. Furthermore, the Trustee’s evidence was limited to the month of August 2016. The
Trustee speculated that prior statements probably also understated the floor plan liabilities, but
no proof was offered. It should have been a simple matter to obtain (from Chase) statements of
the actual loan balances from time to time and to compare those to the monthly financial

statements, but the Trustee did not do so.

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The Trustee also offered evidence showing that the actual dollar amounts of the proofs of
claim that were filed vastly exceeded the amounts of the liabilities shown on the Debtor’s
monthly financial reports. The Trustee only offered evidence as to “claimed” amounts, not as to
“allowed” or verified debts. More importantly, the Trustee offered no evidence as to the sources
of the disparities or as to the times when any debts arose that were not reflected in the monthly
financial reports, or to show that the liability figures in the monthly reports actually were
understated at the times when the relevant transfers were made.

Finally, the Trustee offered into evidence BRAC’s tax return for the calendar year 2015,
which showed a net loss. However, the Trustee himself cast doubt on the accuracy of BRAC’s
financial records and particularly of its reporting of vehicle sales. No explanation was offered as
to the various income and expense items that were listed, or as to the accuracy of the
calculations, or as to whether there was any difference between BRAC’s loss for tax purposes
and its actual operating results.

The Trustee opined, based on all of the foregoing, that it should be clear that the Debtors
were insolvent and that further details should not be needed. But the Trustee did not testify as an
expert witness, and in any event the Trustee’s or even my own instincts and suspicions as to what
might have been the case are not a proper substitute for actual evidence.

On the other hand, Boyko offered no evidence that the Debtors were solvent at any time.
Boyko disclaimed any knowledge of the Debtors’ financial condition, and instead confirmed his
own understanding that the dealerships never made money and always were behind in paying
bills or unable to pay bills. Flom similarly offered no evidence, having failed even to appear for
the trial. The monthly financial statements were in evidence, but the Trustee disavowed their

accuracy, and no contrary evidence was offered that would permit the Court to put faith in them.

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Nilva acknowledged that at some point BICOM and the other Debtors could not pay their debts,
though his testimony was vague as to when that occurred.

Deciding whether the Debtors were “insolvent,” then, boils down to which party had the
burden of proof. Ifthe Trustee had the burden to prove “insolvency” then the evidence was
insufficient. To the extent that the transfers to Boyko and Flom were made without
consideration, however, Boyko and Flom had the burden to prove that the Debtors were solvent
at the times of the transfers. They failed to do so, as no evidence was offered as to the reliability
of any of the debtors' financial reports or as to the Debtors’ actual assets, liabilities and earnings.

I therefore find that the Debtors were insolvent at the times when they made transfers to
Boyko without consideration, and those transfers are subject to avoidance and recovery under
sections 544 and 550. This includes all of the transfers to Boyko with the exception of the final
$100,000 of transfers that BICOM made. I find that the final $100,000 of transfers that BICOM
made constituted repayments of debts and therefore were made in exchange for consideration. I
therefore cannot indulge a “presumption,” as to Boyko, that BICOM was insolvent at the times
of those particular transfers. If the Trustee had proved that BICOM was insolvent then the
Trustee could have invoked the separate presumption that a debt repayment to Boyko was not in
“good faith.” However, the Trustee did not prove insolvency at the times of those transfers, and
therefore the Trustee is not entitled to invoke the New York rule against payments by an
insolvent entity to its insiders. I therefore find that the Trustee has failed to sustain his burdens
as to that last $100,000 of transfers that BICOM made to Boyko.

All of the transfers to Flom were without consideration, and Flom failed to show that the

Debtors were solvent at the times of those transfers. I therefore find that the Debtors were

33


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The Trustee failed to prove that the Debtors made transfers at a time when they actually
believed or intended that they were incurring debts that they would be unable to pay. In fact,
little or no evidence at all was offered as to the subjective beliefs of Nilva, Flom and Boyko in
this regard.

The Trustee argues that BICOM negotiated a lease and that Nilva allegedly knew that
BICOM would not be able to satisfy that obligations under that lease going forward, but in the
cited deposition testimony Nilva merely confirmed that he had asked questions about this, and
that Flom had showed him spreadsheets showing that BICOM would generate a profit. Nilva
also testified that there were times when the Debtors had “difficulty” paying debts, but that
vague testimony falls well short of proof that the Debtors incurred liabilities with the actual
intent or belief that they would be unable to pay them in the future. Vague doubts or
uncertainties fall well short of proving an actual belief or intent that the Debtors were incurring
debts that they would be unable to pay.

I conclude that the Trustee failed to carry his burden to prove that the Debtors made
transfers at times when they intended or believed that they were incurring debts that they would
be unable to pay as they came due.

7. Prejudgment Interest

The Trustee exercised the rights granted to him by section 544 of the Bankruptcy Code to
pursue claims that creditors could have pursued under New York law. Since the Trustee’s claims
invoked the New York statutes, the Trustee has sought prejudgment interest at the rate of 9%,
citing section 5004 of the New York Civil Practice Law and Rules. See N.Y.C.P.L.R. § 5004.
The Court of Appeals for the Second Circuit has held, however, that when a trustee pursues

claims under the authority granted by section 544 of the Bankruptcy Code the trustee does not

37


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commencement of the cases, I believe that the commencement date is the appropriate date from
which to measure the accrual of prejudgment interest. This is consistent with other authorities.
See McHale, 439 B.R. at 89; see also Murray v. Louisiana State Univ. Found. (In re Zohdi), 234
B.R. 371, 385 (Bankr. M.D. La. 1999) (noting that the purpose of prejudgment interest in a case
under section 544 is to compensate the estate itself for the time it was without the use of the
transferred funds).

As Judge Glenn observed in the McHale case, courts have adopted many different
methodologies for determining an appropriate prejudgment interest rate. Some courts prefer to
use the treasury-bill rate that is used in computing post-judgment interest on federal judgments;
others have used the New York statutory rate, and still others have used prime or other market
interest rates. Jd. at 88-89. I do not believe that use of the 9% New York statutory rate would be
appropriate in this case. The 9% rate was put in place at a time when market interest rates were
much higher than they are now. Awarding interest at a 9% rate would over-compensate the
Trustee for delays in obtaining funds, and would punish the defendants and grant a windfall to
the Trustee. On the other hand, the current federal post-judgment interest rate (which is only
.08%) is lower than the post-judgment rates that were in effect between 2017 and today, and
would not adequately compensate the estates for the actual time value of money during the
periods when these cases were pending. For example, the federal post-judgment interest rate on
the date of the commencement of these cases was 1.22%. While other interest rates may have
been higher, bankruptcy rules limit the investments that debtors may make, and the federal
judgment rate approximates what the estates could have earned if cash had been available to

them. I believe that the federal post-judgment rate on the date of the commencement of these

39


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19-01315-mew Doc 93 Filed 08/05/21 Entered 08/05/21 12:37:58 Main Document
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