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U.S. Securities Exchange Comm. v. Univ. Express

United States District Court, S.D. New York
Apr 30, 2008
04 Civ. 2322 (GEL) (S.D.N.Y. Apr. 30, 2008)


04 Civ. 2322 (GEL).

April 30, 2008

Leslie J. Hughes, Securities and Exchange Commission Central Regional Office, Denver, CO, and Robert B. Blackburn, Securities and Exchange Commission Northeast Regional Office, New York, NY,for plaintiff.

Carl Francis Schoeppl, Schoeppl Burke, P.A. Boca Raton, FL, for intervenor The Estate Department, Inc.


This opinion addresses a dispute arising from the sale by Richard Altomare, a defendant in this Securities and Exchange Commission ("SEC") enforcement action, of jewelry purchased in part with funds originating from defendant Universal Express. In September 2007, six months after judgment was entered against Altomare ordering him to pay a total of $3,121,123, consisting of $1,419,025 in disgorgement of ill-gotten gains, $283,073 in prejudgment interest, and $1,419,025 in civil penalties (Judgment of March 8, 2007, at 9), Altomare transferred, in exchange for cash, a number of pieces of jewelry, some watches, and two bars of silver ("the jewelry" or "the property") to The Estate Department, Inc. ("TED"). On October 4, 2007, the Clerk issued a writ of execution as to Altomare in the amount of $1,419,025. That same day, the SEC faxed a copy of the writ to the United States Marshals Service in Boca Raton, Florida. (Declaration of Leslie J. Hughes, dated Nov. 5, 2007, ¶ 4.) The Marshal subsequently seized the property transferred from Altomare to TED, and turned it over to Universal Express's receiver, in whose possession it remains. (Id. ¶¶ 5-7 Ex. C; see also infra note 4.)

The background to the underlying action is set forth in detail in a series of opinions of this Court. See SEC v. Universal Express, Inc., 475 F. Supp. 2d 412, 415-21 (S.D.N.Y. 2007); SEC v. Universal Express, Inc., No. 04 Civ. 2322, 2007 WL 2469452, at *1-3 (S.D.N.Y. Aug. 31, 2007); SEC v. Universal Express, Inc., No. 04 Civ. 2322, 2008 WL 1790437, at *1 (S.D.N.Y. April 18, 2008). The parties' familiarity with this background is assumed, and other interested readers are referred to those opinions.

Following the seizure, on November 5, 2007, the SEC moved to set aside the transfer of the property from Altomare to TED, to direct the United States Marshals Service to sell the seized property and deposit the proceeds into the registry of the Court, and to determine the proper application of the proceeds. The SEC also prays for an order pursuant to 28 U.S.C. § 2361 restraining all claimants from instituting or prosecuting proceedings affecting the property until further order of the Court. The SEC argues that, because Altomare purchased some of the jewelry with stolen or misappropriated funds (Hughes Decl. ¶ 8), he was a "thief" who could not have conveyed good title to the property to any subsequent purchaser. In the alternative, the SEC contends that, assuming Altomare could convey title, either TED took title subject to a judgment lien created by the delivery of the writ to the United States Marshals Service in Boca Raton or the transfer was fraudulent. In contrast, TED argues that it purchased the jewelry in good faith, for fair consideration, and without knowledge of the unpaid judgment against Altomare. TED insists that Altomare's assets were not diminished by the transfer, but merely converted from jewelry to cash, and challenges the manner in which the jewelry was seized and the judgment was executed.

For the following reasons, the dispute cannot be resolved without an evidentiary hearing.


Altomare and his wife purchased various pieces of jewelry and watches from Les Bijoux, a retail jeweler in Boca Raton (Deposition of Gregory Osipov — Les Bijoux, dated December 10, 2007, at 9-25), to add to their collection of jewelry and watches. Among the pieces was an eleven-carat diamond ring sold for $485,000 in April 2006 (id. at 20-21; TED Supp. Ex. A), and a seven-carat fancy yellow diamond ring sold for $85,000 but yet to be fully paid for, initially commissioned in September 2006, and ultimately handed over to Altomare in September 2007 (Osipov Dep. 21-22, 31-32, 38, 51). Between April 13, 2006, and May 16, 2007, Altomare caused Universal Express to wire at least $588,900 from its accounts to Les Bijoux, and Les Bijoux applied those payments to Altomare's balance. (Id. at 60-62.)

The invoice from Les Bijoux asserts that the sale, although from a Boca Raton jeweler to a Boca Raton resident, was an "Out-of-state sale, exempt from sales tax." (TED Supp. Ex. A.) In addition to the eleven-carat stone, two other diamonds were set in the ring. Les Bijoux purchased the three stones for a total of $433,000, with the eleven-carat stone invoiced at $430,000. (TED Supp. Ex. B.) On March 2, 2006, Les Bijoux appraised the ring at $500,000. (TED Supp. Ex. C.)

The following payments were made from the Universal Express commercial checking account to Les Bijoux: $325,000 on April 13, 2006, $30,000 and $40,000 on April 26, 2006, $33,900 on June 5, 2006, $30,000 on June 27, 2006, $50,000 on August 21, 2006, $20,000 and $40,000 on January 26, 2007, and $20,000 on May 16, 2007. (Hughes Decl. Ex. D.) The account reflects two instances, on January 26, 2007, and April 26, 2006, where two payments were made only two minutes apart. (Id.) The record is unclear regarding which particular payments were applied to which particular purchases at Les Bijoux, and for how much and from whom Altomare purchased the non-Bijoux jewelry.

In September 2007, Altomare engaged in two separate transactions with TED, exchanging a portion of his watch and jewelry collection, including the eleven — and seven-carat diamonds, for $571,000 in cash. These transactions were registered on secondhand dealer's property forms. The parties agree that one of the transactions occurred on September 24, 2007. TED contends that the other transaction occurred on September 5, 2007. (See TED Answer at 7; Affidavit of Marc Kravit, dated October 23, 2007, ¶¶ 18-26.) The SEC, in contrast, contends that the second transaction occurred on September 25, 2007. (See Declaration of Keith Conley, dated January 16, 2008, ¶ 2.)

On September 24, 2007, ultimately in exchange for $481,000 in cash, Altomare transferred to TED a thirteen-carat diamond necklace, an eleven-carat loose emerald cut diamond, a nine-carat diamond bracelet, a 1.85-carat pear shaped diamond ring, a set of pearl earrings and necklace, a nine-carat diamond eternity band, an eighteen-carat yellow gold necklace, a two-carat diamond bracelet, a diamond and pearl necklace, two A. Lange Sohne watches, a Jaeger Le Coultre watch, a Franck Voller steel watch, a Breguet yellow gold watch, two Rolex watches, an Arnold and Sons steel watch, a Corum yellow gold watch, an F.P. Journe watch, and an Audemors Piaget watch. (Declaration of Keith Conley, dated January 16, 2008, Ex. 1.) On another date, in exchange for $90,000 in cash, Altomare transferred a seven-carat fancy yellow diamond ring, a five-carat aquamarine brooch, two bars of silver, and a 17.50-carat diamond straight line bracelet. (Id. Ex. 2.)


I. Preliminary Issues Regarding Interpleader

Although the SEC moves "in the nature of interpleader," it is unclear that the SEC has the sort of "real and reasonable fear of double liability or vexatious, conflicting claims," that could warrant an interpleader action. Washington Elec. Coop., Inc. v. Paterson, Walke Pratt, P.C., 985 F.2d 677, 679 (2d Cir. 1993) (citation and internal quotation marks omitted). The SEC is not even in possession of the property. The jewelry is being held, through its receiver, by Universal Express, which has a technically competing claim over the property. Instead of being subjected to multiple claims, the SEC is asserting a particular claim (or set of claims) as a judgment creditor against property held by another party, with an interest in the property insofar as it can be sold in satisfaction of the judgment docketed in this case. In contrast, Universal Express, which maintains current possession of the jewelry, is not a judgment creditor like the SEC but a judgment debtor like Altomare, with an alleged interest in the property (or its proceeds) superior to Altomare's insofar as portions of the property were purchased with funds allegedly misappropriated from Universal Express.

Universal Express might have been in a position to bring an interpleader motion, but has not even submitted papers in this dispute.

Although an interpleader action may not be the procedurally appropriate mechanism to resolve this dispute, the Court undoubtedly has the authority to resolve the disputed issues as among the SEC and Universal Express, original parties in the action, and TED, a party that voluntarily sought, and was granted, intervention in this matter to protect its interests in the jewelry. (See Order of March 14, 2008.) As TED's citation toSEC v. Antar, 120 F. Supp. 431, 439-40 (D.N.J. 2000), appears to implicitly acknowledge (see TED Answer at 32 n. 30), federal courts have "consistently approved the exercise of ancillary jurisdiction over a broad range of enforcement proceedings involving third parties, including actions to set aside fraudulent conveyances by judgment debtors." Antar, 120 F. Supp. 2d at 439 (citations omitted). As the Second Circuit has recognized, "[w]here the post-judgment proceeding is an effort to collect a federal court judgment, the courts have permitted judgment creditors to pursue, under the ancillary enforcement jurisdiction of the court, the assets of the judgment debtor even though the assets are found in the hands of a third party."Epperson v. Entm't Express, Inc., 242 F.3d 100, 106 (2d Cir. 2001). Critical for this Court's jurisdiction over the present dispute is that the action against TED seeks not to establish TED's liability for the judgment that has been docketed, such as via alter ego liability, but to collect on a docketed judgment against Altomare or Universal Express. Id. at 105. As all parties consent to having the Court resolve this dispute, and the Court has jurisdiction to do so, we turn to the merits.

II. Legal Standards

A. Stolen Goods, Stolen Funds, Goods Purchased With Stolen Funds

It is a long-established general rule that "a thief cannot convey a good title to stolen property." Newton v. Porter, 69 N.Y. 133, 137 (1877). However, that rule admits of an equally long-established exception in the case of "money or negotiable securities transferable by delivery, which have been put into circulation and have come to the hands of bona fide holders. The right of the owner to pursue and reclaim the money and securities there ends, and the holder is protected in his title." Id.; see also Rakin v. Chase Nat'l Bank, 188 U.S. 557, 565 (1903); Regions Bank v. Provident Bank, Inc., 345 F.3d 1267, 1276 (11th Cir. 2003). Simply put, "one acting in good faith may obtain title to money from a thief." Regions Bank, 345 F.3d at 1279 (citation and internal quotation marks omitted). Similarly, a holder in due course of a negotiable instrument "stolen and negotiated by a thief" had superior title "even as against the real owner."Antonacci v. Denner, 149 So. 2d 52, 53 (Fla.App. 3d Dist. 1963);accord George Gleason Bogert, et al., The Law of Trusts Trustees § 476 (2d ed. rev. 1978).

Embezzlement is "the willful taking, or conversion to one's own use, the property of another which the wrongdoer acquired lawfully by reason of some office or employment or position of trust." Computer Prods., Inc. v. Nahabedian (In re Nahabedian), 87 B.R. 214, 215 (Bkrtcy. S.D. Fla. 1988). "Under Florida law, the crimes of embezzlement, conversion and larceny, are consolidated into a single theft statute." Id. at 216, citing Fla. Stat. § 812.014.

Assuming the seller had good title to the property before it was exchanged for the stolen money, that title is conveyed by the sale to the embezzler or thief. A "good faith seller from which the thief purchases property intends to pass both title and possession of the property sold to the thief." Kitchen v. Boyd (In re Newpower), 233 F.3d 922, 930-31 (6th Cir. 2000), citing 53A Am. Jur. 2d Stolen Money § 23 (1996). As a general rule, "[a] purchaser of goods acquires all title which her or his transferor had or had power to transfer." N.Y. U.C.C. § 2-403(1); Fla. Stat. § 672.403(1); see also In re Newpower, 233 F.3d at 930-931, citing 1 Thomas M. Quinn, Quinn's Uniform Commercial Code Commentary and Law Digest, ¶ 2-403[A][2] (2d ed. 1991).

Although the victim of the theft may not recover the stolen money from a good faith seller, he may be able to recover the property purchased with the stolen money (and over which the thief has title) by virtue of "a constructive trust . . . imposed on the proceeds held by the thief or embezzler." In re Newpower, 233 F.3d at 931, citing Bogert, Trust Trustees § 476; see also United States v. Brimberry, 779 F.2d 1339, 1347-49 (8th Cir. 1985); 5 W. Collier, Bankruptcy ¶ 541.11[3] (15th ed. rev.). Courts will generally impose a constructive trust on property "traceable" to the stolen or misappropriated property. See, e.g.,United States v. Peoples Benefit Life Ins. Co., 271 F.3d 411, 416 (2d Cir. 2001); In re Fin. Federated Title Trust, Inc. v. Kozvak (In re Fin. Federated Title Trust, Inc.), 347 F.3d 880, 891 (11th Cir. 2003); In re Van Meter, 135 F. Supp. 781, 785-86 (D.C. Ark. 1955). "Where a person holding title to property is subject to an equitable duty to convey it to another on the ground that he would be unjustly enriched if he were permitted to retain it, a constructive trust arises." Collier, ¶ 541.11[3] (citation and internal quotation marks omitted); see also McMertv v. Herzog, 710 F.2d 429, 431 (8th Cir. 1983). Thus, the victim may recover against the thief regardless of the form into which the thief has converted the stolen property.

As New York's highest court has recognized,

The extent to which the common law goes to protect the title of the true owner has a striking illustration in those cases in which it is held that where a willful trespasser converts a chattel into a different species, as for example, timber into shingles, wood into coal, or corn into whiskey, the product in its improved and changed condition belongs to the owner of the original material.
Newton, 69 N.Y. at 136 (citation omitted).

Where property purchased with stolen funds (to which the thief has title) is then sold, however, the victim of the initial theft of the funds used to purchase the property in the first place has no recourse against a bona fide purchaser for value, and the bona fide purchaser takes good title to the property. The general rule "that a constructive trust will arise when stolen or embezzled funds are used to purchase other property . . . often is qualified by the provision that the owner may follow and recover the property or its proceeds as long as it has not been transferred to a bona fide purchaser." J.A. Bryant, Annotation,Imposition of a Contructive Trust in Property Bought with Stolen or Embezzled Funds, 38 A.L.R.3d 1354 § 3. "Equity only stops the pursuit [of a constructive trust] when the means of ascertainment fails, or the rights of a bona fide purchaser for value, without notice of the trust, have intervened." Newton, 69 N.Y. at 139;see also Pioneer Mining Co. v. Tyberg, 215 F. 501, 504-505 (9th Cir. 1914). Under both New York and Florida law, "[a] person with voidable title has power to transfer a good title to a good faith purchaser for value." Fla. Stat. § 672.403(1); N.Y. U.C.C. § 2-403(1). Although the victim of the initial theft may not have recourse against the bona fide purchaser, he would have recourse against the wrongdoer, who now holds the consideration paid by the bona fide purchaser.

Thus, whether or not recovery may be had, on a theory of constructive trust or failure of title, against one who purchased property previously bought by a thief with stolen money will often depend on whether the purchaser was a bona fide purchaser for value.

B. Registering or Enforcing a Monetary Judgment

"[A] money judgment is enforced by a writ of execution, unless the court directs otherwise." Fed.R.Civ.P. 69(a). The procedures on execution of a judgment, and in supplemental proceedings, "must accord with the procedure of the state where the court is located, but a federal statute governs to the extent it applies." Id. In enforcing a judgment from one district court in another, the SEC can proceed pursuant to 28 U.S.C. § 1963, the federal registration statute, or 28 U.S.C. § 2413, the long-arm statute. When a judgment is registered by the "filing [of] a certified copy of the judgment in any other district" pursuant to § 1963, it "shall have the same effect as a judgment of the district court of the district where registered and may be enforced in like manner." 28 U.S.C. § 1963. Section 1963 provides a method by which any party can domesticate a foreign judgment. Section 2413, in contrast, is only available "for use of the United States," and provides that "[a] writ of execution on a judgment . . . shall be issued from and made returnable to the court which rendered the judgment, but may be executed in any other State. . . ." 28 U.S.C. § 2413. Section 2413 allows for the direct execution of a foreign judgment in a particular district without registering the judgment in that district. United States v. Palmer, 609 F. Supp. 544, 548 (E.D. Tenn. 1985). While the law of the state where the judgment is to be registered governs registration proceedings, the law of the state where the court of judgment sits governs execution proceedings. Id.

Under New York law, a "judgment lien is created when a writ of execution is delivered to the sheriff." Mongelli v. Mongelli, 849 F. Supp. 215, 219 (S.D.N.Y. 1994); see also Balaber-Strauss v. Marine Midland Bank, N.A. (In re Maceca), 129 Bankr. 369, 370 (Bankr. S.D.N.Y. 1991). As a general rule, a judgment creditor who has delivered an execution to a sheriff has rights in "an interest of the judgment debtor in personal property," superior to transferees of that property, except for those "who acquired the . . . property for fair consideration before it was levied upon." N.Y. C.P.L.R. § 5202(a).

In short, an effort to recover property transferred by a judgment debtor will depend on whether the transferee acquired the property for fair consideration.

C. Fraudulent Conveyances

Even assuming unencumbered title to property previously owned by a judgment debtor has passed to someone else, that transaction still may be unwound if the conveyance was fraudulent. "Every conveyance made and every obligation incurred with actual intent, as distinguished from intent presumed in law, to hinder, delay, or defraud either present or future creditors, is fraudulent as to both present and future creditors." N.Y. Debt. Cred. § 276. Moreover, when the person making a transfer "is a defendant in an action for money damages" or where "a judgment in such an action has been docketed against him," the transfer 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" and the transaction is made "without fair consideration." Id. § 273-a.

The parties agree that New York's fraudulent conveyance law governs. (See, e.g., TED Answer at 23 n. 26; SEC Response to TED Supp. Answer at 4.)

Likewise, a conveyance made by a "person who is or will be thereby rendered insolvent is fraudulent as to creditors without regard to his actual intent if the conveyance is made . . . without a fair consideration." N.Y. Debt. Cred. § 273. No party has alleged that Altomare was rendered insolvent by the sale of the jewelry.

When a conveyance is fraudulent as to a particular creditor, that creditor may "[h]ave the conveyance set aside . . . to the extent necessary to satisfy his claim," or "[d]isregard the conveyance and attach or levy execution upon the property conveyed" as long as the person who now holds the goods conveyed is not a "purchaser for fair consideration without knowledge of the fraud at the time of the purchase, or one who has derived title immediately or mediately from such a purchaser." N.Y. Debt. Cred. § 278(1). A purchaser who has given less than fair consideration for the conveyance or obligation, but has not acted with "actual fraudulent intent . . . may retain the property or obligation as security for repayment." Id. § 278(2). "Fair consideration" is given where, in exchange for property, "as a fair equivalent therefor, and in good faith, property is conveyed." Id. § 272.

In New York, "the concept of fair consideration has two components — the exchange of fair value and good faith — and both are required," Lippe v. Bairnco Corp., 249 F. Supp. 2d 357, 376-77 (S.D.N.Y. 2003), although it is "not entirely clear . . . just how the 'good faith' requirement under section 272 operates in the context of a fraudulent conveyance claim under . . . a constructive fraud statute where the issue of intent is irrelevant." United States v. McCombs, 30 F.3d 310, 326 n. 1 (2d Cir. 1994). It is clear, though, that "[f]or purposes of § 272, the 'good faith' at issue is the good faith of the transferee, as opposed to, in the case of actual fraud under § 276, the good faith of the transferor." Lippe, 249 F. Supp. 2d at 377, citing HBE Leasing Corp. v. Frank, 61 F.3d 1054, 1059 n. 5 (2d Cir. 1995). The concept of "fair consideration" is an "elusive one that defies any one precise formula," and "[w]hat constitutes fair consideration under [section 272] must be determined upon the facts and circumstances of each particular case." McCombs, 30 F.3d at 326 (citation and internal quotation marks omitted, alterations in original). As a "general rule[,] . . . the party asserting the claim of fraudulent conveyance bears the burden of establishing the element of unfair consideration." Id. at 323, citing, inter alia,American Inv. Bank v. Marine Midland Bank, 595 N.Y.S.2d 537, 538 (2d Dep't 1993).

Thus, an effort to set aside a transaction as a fraudulent conveyance also turns on whether the purchaser acted in good faith and gave fair value.

III. Legal Standards Applied

A. Passage of Title

The SEC's initial contention that Altomare did not, under any circumstances, have title to convey the jewelry is unconvincing. Assuming the SEC's allegations to be true, Altomare stole money from Universal Express, not jewelry from Les Bijoux. That allegedly stolen money was then used to purchase some (but not all) of the jewelry. (See Hughes Decl. ¶ 8.) The SEC nowhere contends that Les Bijoux did not properly have title to the jewelry sold to Altomare, or that Altomare stole the jewelry from Les Bijoux. Although Altomare may have held the jewelry subject to a constructive trust in favor of Universal Express, TED, as long as it was a good faith purchaser for value, would have taken good title to the property free of any constructive trust. See Fla. Stat. § 672.403(1); N.Y. U.C.C. § 2-403(1). In such case, Universal Express still would have recourse against Altomare for the proceeds of the sale of that jewelry, and all would come full circle, as Universal Express would have an interest superior to Altomare in a sum of money, which is in effect the money that Altomare allegedly stole from Universal Express in the first place, having converting it once from cash to jewels, and then again from jewels to cash.

Altomare claims that he did not steal these funds and booked them against his salary. The Court expresses no opinion regarding whether Altomare's direction of funds from Universal Express to Les Bijoux constituted theft or embezzlement.

This is not a situation, where, for example, Universal Express had purchased the property for some business purpose and Altomare thereafter stole or embezzled it. Here, no party appears to contest that Altomare took cash, not jewelry, from Universal Express.

The SEC next argues that the fifteen-day hold mandated by Florida's statutory scheme to regulate "Secondhand Dealers and Secondary Metals Recyclers," Fla. Stat. § 538.03 et seq., alters this analysis, by preventing the passage of title during the holding period. The argument is unpersuasive.

The Florida statute mandates that a secondhand dealer cannot "sell, barter, exchange, alter, adulterate, use, or in any way dispose of" secondhand goods within fifteen calendar days from their "acquisition." Id. § 538.06(1). "'[A]cquire' means to obtain by purchase, consignment, or trade." Id. § 538.03(e). "Secondhand goods" includes "personal property previously owned or used . . . and which is purchased, consigned, or traded as used property." Id. § 538.03(f). The parties note that the Florida Pawnbroking Act, separate legislation, mandates a thirty-day holding period, expressly providing that title to pawned goods vests and is deemed conveyed by operation of law to the pawnbroker after the passage of the holding period, subject to any restrictions contained in the pawn transaction contract. See Fla. Stat. § 539.001(10); id. § 539.001(16)(b); see also Frey v. William, No. 6:99 Civ. 1244, 2000 WL 35527254, at *4-5 (M.D. Fla. Aug. 21, 2000). In contrast, the Secondhand Dealer Statute contains no similar provision.

The relevant statute provides in full:

A secondhand dealer shall not sell, barter, exchange, alter, adulterate, use, or in any way dispose of any secondhand goods within 15 calendar days of the date of acquisition of the goods. Such holding periods are not applicable when the person known by the secondhand dealer to be the person from whom the goods were acquired desires to redeem, repurchase, or recover the goods, provided the dealer can produce the record of the original transaction with verification that the customer is the person from whom the goods were originally acquired.

Fla. Stat. § 538.06(1).

The relevant statute provides in full:

Pledged goods not redeemed by the pledgor on or before the maturity date of a pawn must be held by the pawnbroker for at least 30 days following such date or until the next business day, if the 30th day is not a business day. Pledged goods not redeemed within the 30-day period following the maturity date of a pawn are automatically forfeited to the pawnbroker; absolute right, title, and interest in and to the goods shall vest in and shall be deemed conveyed to the pawnbroker by operation of law; and no further notice is necessary. A pledgor has no obligation to redeem pledged goods or make any payment on a pawn.

Fla. Stat. § 539.001(10).

Citing no cases, and engaging in no real form of statutory construction, the SEC insists that "by analogy," title should not vest in TED until the end of the fifteen-day holding period for secondhand goods transactions. (SEC Reply at 5 n. 6.) TED argues that the absence of similar language expressly dealing with purchased as opposed to pawned goods demonstrates that neither statute was intended to affect the passage of title for purchased items. (TED Answer at 21.)

The SEC's assertion that the statute operates automatically to vest the dealer with title to the goods at the end of the fifteen-day holding provision, but not before, is unconvincing. The Secondhand Dealer Statute applies to goods "purchased, consigned, or traded as used property," Fla. Stat. § 538.03(f), and the holding period provisions apply to consignments as well as purchases and trades. An automatic vesting provision would make no sense in the context of consignment transactions, as title normally does not vest with a consignee/dealer at any point in the transaction. Moreover, in the same section of the statute, Florida's legislature specifically regulates one aspect the passage of title of goods to dealers. See Fla. Stat. § 538.06(2) (forbidding the passage of title to the dealer "in lieu of actual physical possession"). Although this provision does not explicitly regulate the passage of title during the holding period, it does demonstrate that Florida's legislature chose to regulate certain aspects of the passage of title, but not others, in the particular statutory section at issue.

To consign is to "give (merchandise or the like) to another to sell, usually with the understanding that the seller will pay the owner for the goods from the proceeds." Black's Law Dictionary 327 (8th ed. 2004) ("consign"). In other words, a secondhand dealer who enters into a consignment arrangement, agrees to sell a particular good on behalf of the consignor/owner, and when such a good is sold title passes directly from the consignor to the purchaser. The consignee/secondhand dealer merely serves as a bailee of the goods, and "[u]nlike a sale or gift of personal property, a bailment involves a change in possession but not in title." Id. at 151-52 ("bailment").

Florida's legislature has enacted a comprehensive scheme regulating both secondhand dealers and pawnbrokers. In the absence of an explicit provision to the contrary, or at least more guidance, this Court declines to read into a statute a provision that alters the passage of title in all transactions involving secondhand goods, especially where the legislature has demonstrated its ability to understand and regulate the passage of title at various points in the legislative scheme, and where, critically, the provision would make no sense for a subset of the transactions to which the provision at issue applies. The holding provision therefore has no effect on the passage of title. Thus, whether TED obtained good title to the property depends on whether it was a good faith purchaser for value, and not on the holding provision.

B. Effect of Judgment Lien

The SEC argues in the alternative that, even assuming TED took title to the property, it did so subject to a judgment lien created on October 4, 2007, when the writ was delivered to the United States Marshals Service in Boca Raton. As a general matter, title passes as the parties explicitly agree, and "[u]nless otherwise explicitly agreed title passes to the buyer at the time and place at which the seller completes her or his performance with reference to the physical delivery of the goods . . . even though a document of title is to be delivered at a different time or place." Fla. Stat. § 672.401(2); N.Y. U.C.C. § 2-401(2).

The parties dispute the date of one of the two sales, but all agree that TED took physical possession of all of the jewelry before October 4, 2007. The SEC feebly argues that because "TED delivered the balance of the $70,000 [owed on part of the transaction] to Barbara Altomare on October 5, 2007," and because Mrs. Altomare on that date "asked whether she could return at a later date and repurchase the diamond ring," title to the jewelry passed on October 5, 2007, or some time thereafter. (SEC Reply at 5-6.) As a general rule, though, title passes not when the purchaser completes the payment obligation, but when the seller "completes her or his performance with reference to the physical delivery of the goods." Fla. Stat. § 672.401(2); N.Y. U.C.C. § 2-401(2). No party contends that physical delivery of any of the jewelry occurred after September 25, 2008, and therefore the presumption would be that title passed before the judgment lien was created.

TED claims that part of the property was delivered on September 5, 2007, and part of the property was delivered on September 24, 2007. The SEC, in turn argues that all of the property was conveyed on September 24, 2007, and September 25, 2007.

Of course, the parties could have explicitly agreed to have title pass at another time, or in another manner, but a few stray comments made not at the time of contract formation by a person who was not even the principal in the transactions comes nowhere close to demonstrating an "explicit" agreement that title should pass at a time other than when TED first acquired possession of the goods. Since the SEC delivered the writ of execution to the United States Marshal in Boca Raton no earlier than October 4, 2007, and since title to all of the goods passed to TED before then, TED took title to the property free of any lien that would have been created on or after October 4, 2007, as long as TED paid fair consideration for the jewelry. N.Y. C.P.L.R. § 5202(a).

The sale documents reflect that Richard Altomare, not his wife, sold the goods, and placed his signature and thumb print on the papers.

C. Fraudulent Transfer

Even assuming TED took title to the jewelry free of the lien or any other encumbrances, the transaction still could be unwound if it were a fraudulent conveyance. Altomare is a defendant in an action for money damages where a judgment had been docketed against him, and has failed to satisfy the judgment. Therefore, the transfer is fraudulent as to the SEC, the plaintiff in this action, if TED received the jewelry without paying fair consideration. N.Y. Debt. Cred. § 273-a. In order to succeed against a fraudulent transfer action, TED must have paid fair value for the purchased property and acted in good faith.

D. Factual Issues Regarding Good Faith and Fair Value

Thus, whether viewed through the lens of a constructive trust or of a fraudulent transfer, the critical question is whether TED took the jewelry in good faith without fraudulent intent and for fair value. Similarly, whether a judgment lien may attach to the property that was transferred before the judgment was executed may depend on whether TED paid fair consideration for the jewelry. See N.Y. C.P.L.R. § 5202(a). These, however, are factual questions that cannot be resolved on the papers before the Court.

TED requests that it be awarded "summary judgment," because it acted in good faith and paid fair value for the property. In the alternative, TED requests an evidentiary hearing before this Court to present its case and challenge the SEC's allegations and evidence. TED's initial request must be denied, but its alternative request will be granted. An evidentiary hearing will allow the Court to resolve the significant factual dispute between the parties regarding whether TED acted in good faith during the transaction, and whether it paid fair consideration for the jewelry. Although TED insists that it was an innocent and bona fide purchaser for value, the SEC has proffered evidence, in particular the testimony of Gregory Osipov, a partner in Les Bijoux, that raises questions about TED's good faith.

Specifically, Osipov testified that, during a visit to Les Bijoux around the time of the transactions at issue, Marc Kravit, an agent of TED, "went on Google, and showed me who . . . Mr. Altomare is, and that he's basically . . . under investigation and that . . . there was a lot of money involved in shareholders, that are suing him, and that is why Mr. Altomare is selling his stuff." (Osipov Dep. at 38.) According to Osipov, Kravit said that Altomare is "a crook," and further stated "I did my research and look what I found, that this guy . . . screwed a lot of people." (Id. at 43.) Osipov also gave testimony from which a reasonable factfinder could conclude that, as part of the transaction with Altomare, Kravit misled Osipov into giving up a diamond of Altomare's being held by Les Bijoux as part of the transaction involving the seven-carat yellow diamond. Ospirov also testified that Marc Kravit "indicated himself that he knew that Mr. Richard Altomare did not pay for that [fancy yellow] ring" that TED purchased from Altomare. (Id. at 38; see also id. at 40.) In general, Osipov's testimony raises questions regarding TED's complicity in a transaction the purpose (or at least the result) of which may have been to defraud Altomare's creditors.

According to Osipov, Marc Kravit entered Les Bijoux "and he says, give me that stone. Give me that oval diamond, I will square with you guys right now. . . . It's in my car." (Osipov Dep. 48-49.) After Osipov gave Kravit the diamond, Kravit returned not with cash to cover the unpaid balance on Altomare's purchase of the yellow diamond (id. at 37-38, 51), but with a damaged clock that Altomare had purchased from Les Bijoux approximately one year earlier (id. at 49-51).

Other evidence in the record also calls the credibility TED's agents into question. For example, although both Marc and Andrew Kravit testified that a particular transaction occurred on September 5, 2007 (see Marc Kravit Aff. ¶¶ 18-26; Affidavit of Andrew Kravit, dated Oct. 23, 2007, ¶¶ 8-19), the secondhand dealer report indicates that the transaction occurred on September 25, 2007 (see Conley Decl. ¶ 2 Ex. 2). Marc Kravit testified that, on September 5, he purchased, among other things, "a 7.00 ct fancy yellow diamond ring." (Marc Kravit Aff. ¶ 25.) However, Osipov, the individual who made the ring, testified that the Altomare did not even take final possession of the ring until sometime after September 20, 2007. (Osipov Dep. 32-33.) These dates would have been relevant had the secondhand dealers legislation prevented title from passing until the end of the fifteen-day holding period — while a September 25 date would have meant that a judgment lien was created before TED took title to the jewelry purchased on that date, a September 5 date would have meant that title to the jewelry purchased on that date passed free from the judgment lien, provided fair consideration was paid. While the Court has concluded that the statute does not affect the passage of title, a reasonable factfinder would consider the possibility that the version put forth by Marc and Andrew Kravit was tailored to avoid the risk that a court would see the issue differently.

Marc Kravit also testified by affidavit that Barbara Altomare produced a sales receipt recording that the eleven-carat diamond was purchased for $400,000. (See Marc Kravit Aff. ¶ 34 n. 5.) However, the receipt produced during the course of these pleadings reflects a purchase price of $485,000 for the stone set in a ring. (See TED Supp. Answer Ex. A.) This difference is significant, and is relevant to the question of whether TED paid fair value for the particular stone, and for the rest of the jewelry. These inconsistencies raise questions about the credibility of individuals who provide key testimony for TED.

Based on this evidence, a reasonable factfinder could conclude that TED may have known or suspected that Altomare was attempting to hide his funds from his present and future creditors, and willfully participated in the transaction with the hope that TED could purchase the jewelry at an unfairly low price. Although the writ against Altomare was not issued until October 2007, by September 2007 the extent of Altomare's obligations to creditors, including the SEC, was clear to any interested observer — a monetary judgment had been entered six months earlier on March 7, 2007, for millions of dollars, and on August 31, 2007, less than a month before the later of the two transactions, the Court had issued an opinion stating in no uncertain terms that Altomare's continued noncompliance with the disgorgement obligations was unacceptable. Although knowledge of these publicized events may not simply be imputed to a purchaser as a matter of course, there is evidence in this record that agents of TED knew or suspected that Altomare had significant debts to pay and may have wanted to convert traceable jewelry into untraceable cash to frustrate the efforts of his creditors. There is thus a genuine factual dispute, sufficient to prevent a summary disposition, regarding TED's good faith throughout the transaction. Resolution of the factual issues turns in part on witness credibility determinations, for which an evidentiary hearing is necessary.

Given this conclusion, the Court need not decide at this time whether TED paid fair value for the jewelry, except to say that, under the present circumstances, the value (in both form and amount) paid by TED does not eliminate the possibility that TED failed to act in good faith. The question of fair value also presents issues of fact. The present record contains little evidence suggesting that fair consideration was not paid. In contrast to TED, which puts forth the affidavit of a licensed jewelry appraiser, the SEC fails to provide any evidence from a qualified appraiser regarding the value of the jewelry. Instead, the SEC merely points to the testimony of Osipov, the retail jeweler who originally sold much of the jewelry, that the property sold by Altomare was "worth" much more than the $571,000 paid by TED. This evidence is problematic for a number of reasons. First, it is common knowledge both that the markup between wholesale and retail is often significant, and that the amount a retail purchaser pays for an item is often substantially more than that purchaser could obtain by reselling that item in a secondhand market. Second, Osipov has a clear interest in not having his customers think that they have been or will be gouged by paying full retail price at his high-end shop. Third, Osipov admitted that Les Bijoux routinely "appraises" the pieces they sell in amounts in excess of their current market price, largely for reasons of insurance coverage. (See Osipov Dep. at 159-60, 161.) The determinative issue, about which the SEC has provided little evidence, is what a willing buyer and a willing seller at arm's length would have agreed upon as a price for the jewelry sold by Altomare, and whether, on that basis, the consideration paid by TED was unfair. Since an evidentiary hearing will be necessary in any event, the parties will be permitted to offer evidence on this issue as well.

In short, the various legal theories proffered by the SEC to set aside Altomare's jewelry sale to TED all turn on some variation of the essentially factual questions of whether TED acted in good faith and paid fair value. These factual questions can only be resolved after a hearing.


For the reasons stated above, the SEC's motion to set aside the transfer cannot be granted or denied summarily on the present record. An evidentiary hearing will be held to determine whether TED acted in good faith and paid fair value for the property.


Summaries of

U.S. Securities Exchange Comm. v. Univ. Express

United States District Court, S.D. New York
Apr 30, 2008
04 Civ. 2322 (GEL) (S.D.N.Y. Apr. 30, 2008)
Case details for

U.S. Securities Exchange Comm. v. Univ. Express

Case Details


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

Date published: Apr 30, 2008


04 Civ. 2322 (GEL) (S.D.N.Y. Apr. 30, 2008)

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