Shearman & Sterling, along with the Asian American Legal Defense and Education Fund (AALDEF) and LatinoJustice, secured a trial victory for 11 former employees of Kum Gang San, a Korean restaurant located in Queens, New York, in an action to undo real estate transfers from the restaurant’s owner to members of his family as fraudulent conveyances. Judge Robert Sweet presided over the five-day bench trial in the Southern District of New York and issued his decision on April 18, 2018.
The fraudulent conveyance action was initiated to collect an earlier judgment of $2.7 million for wage theft and other labor law violations that plaintiffs had obtained against the restaurant and its owner, Ji Sung Yoo, in 2015 (with help from AALDEF and a team of Shearman & Sterling lawyers). The restaurant filed for Chapter 11 bankruptcy in 2015, leaving only its owner as a source of funds to satisfy the majority of the judgment. Mr. Yoo claimed he did not have the assets to satisfy the judgment, but was later found to have transferred to his wife and children in 2010 and 2011 the following assets that could have been used to satisfy his debts to plaintiffs: (i) one-third of his 50% interest in a condo on Fifth Avenue in Manhattan; (ii) his 100% ownership stake in a commercial property in Brooklyn; and (iii) his ownership of 50% of his home in Little Neck, New York. These property interests were worth at least $1.6 million at the times they were conveyed and have likely appreciated since then.
After the trial and extensive post-trial briefing, Judge Sweet found that all three of the challenged transfers were fraudulent under New York’s Debtor-Creditor Law. Specifically, he found Mr. Yoo’s transfer of his interest in the condo “constructively fraudulent” because Mr. Yoo did not receive fair consideration and was insolvent at the time of the transfer. Judge Sweet also found that Mr. Yoo’s transfers of the Brooklyn property and his interest in his home were both constructively and actually fraudulent. To obtain a finding of “actual fraud,” plaintiffs were required to prove “by clear and convincing evidence” that Mr. Yoo made those transfers with the intent to hinder, obstruct and/or delay creditors. Because Mr. Yoo’s wife and son both took out mortgages on the home and the Brooklyn property after Mr. Yoo transferred his interests to them, Judge Sweet also entered a monetary judgment against Mr. Yoo’s wife to the extent necessary to satisfy those mortgages. Lastly, Judge Sweet awarded the plaintiffs their reasonable attorneys’ fees in prosecuting the actions.