In Re: West 125th Street Liquors

Background

West 125th Street Liquors Inc. filed for bankruptcy under Chapter 11, and the bankruptcy court later converted the case to Chapter 7 and appointed Albert Togut as trustee. The trustee brought an adversary proceeding against Vanessa Rodriguez to recover 23 payments totaling $140,450 that the debtor allegedly made to her between 2012 and 2014.

Rodriguez, who was representing herself, filed an answer stating that Hamlet Peralta or his agents had fraudulently deposited and withdrawn the checks by forging her signature. The record described Peralta as the brother of the debtor’s owner. Rodriguez participated in some pretrial proceedings but did not appear for the November 20, 2018 trial. The trustee presented testimony from Andrew Plotzker, a forensic-accounting expert, and introduced the checks and related bank records.

The bankruptcy court found that the payments were deposited into an account maintained solely in Rodriguez’s name, that Rodriguez received the transfers, that she provided no consideration or reasonably equivalent value, and that the debtor was insolvent when it made the transfers. It entered judgment against Rodriguez for $140,450.

Issues on Appeal

Rodriguez challenged the bankruptcy court’s decision to proceed with the trial in her absence. She also challenged the factual finding that she received the payments, arguing that the checks and endorsements could have been forged and that Peralta could have withdrawn the funds without her knowledge.

District Court’s Analysis

Judge Analisa Torres explained that Federal Rule of Civil Procedure 55, as applied to bankruptcy adversary proceedings, treats a defendant’s failure to appear for trial as a failure to defend. When a defendant does not appear but witnesses are present, the trial court may take testimony and complete the trial record. The district court therefore held that the bankruptcy court properly proceeded with the trial despite Rodriguez’s absence.

The district court reviewed the bankruptcy court’s factual findings for clear error, meaning it could reverse only if left with a firm conviction that a mistake had been made. Under the bankruptcy statute governing constructive fraudulent transfers, a transfer may be avoided when the debtor received less than reasonably equivalent value and was insolvent when the transfer was made.

The district court held that the evidence supported the bankruptcy court’s finding that Rodriguez received the transfers. Plotzker testified that each payment appeared in both the debtor’s and Rodriguez’s bank records, that the corresponding checks were debited from the debtor’s account, and that Rodriguez’s account was maintained solely in her name. The district court also held that Rodriguez had not presented evidence showing that Peralta forged the checks and endorsements, deposited the checks, and withdrew the money without her knowledge. The bankruptcy court’s conclusion was therefore a permissible view of the evidence and was not clearly erroneous.

Disposition

The district court affirmed the bankruptcy court’s judgment and directed the clerk to close the case.