We last heard about the Kremen v. Cohen case at http://onforb.es/tANk8n where Kremen had won a large judgment against Stephen Cohen for stealing Kremen's web domain sex.com (since regained by Kremen and sold), and Kremen had sued Stephen Cohen's cousin, Michael Cohen, for fraudulent transfers received from Stephen Cohen, after Stephen Cohen had fled to Mexico to avoid payment of the balance of Kremen's $65 million judgment.
In this episode, Kremen loses to Michael Cohen on summary judgment -- apparently the first hiccup in Kremen's quest to collect.
Kremen's evidence of a fraudulent transfer against Michael Cohen was summarized by the Court as follows:
- Kremen presented evidence that Stephen Cohen had engaged in a pattern of using his family members to hide assets;
- Kremen presented evidence of deposits (less than $30,000) into a Wells Fargo account; and
- Kremen presented evidence of a series of transactions involving two Mexican companies through Michael Cohen's PayPal account.
But the Court pointed out that Kremen had failed to prove the two Mexican companies were Stephen Cohen's alter ego, and was skeptical of these minor cash transfers to avoid the payment of a $65 million judgment:
In sum, Plaintiff has produced some evidence suggesting suspicious behavior on the part of S. Cohen and the various companies with which he appears to be involved. But as in Plaintiff's opposition to Defendants' previous summary judgment motion, Plaintiff has not adduced prima facie evidence of an actual fraudulent transfer of assets from S. Cohen to M. Cohen. To prevail under the UFTA, Plaintiff must prove that there was an actual transfer of assets from S. Cohen to M. Cohen, and that S. Cohen had actual or constructive intent to hinder, delay, or defraud Plaintiff. The only actual potential transfer of any kind Plaintiff has identified was for an amount so negligible in the context of the large judgment at issue here that there can be no genuine issue of fact concerning S. Cohen's intent in making that transfer.
The Court also pointed out that it had been liberal in the time given to Kremen to prove his fraudulent transfer case, but at the end of the day this paucity of evidence was not going to get him past summary judgment.
The lesson here is one for creditors: It is not particularly easy to bring a fraudulent transfer action, especially where foreign transactions and entities are involved such that proof of the fraudulent transfer may be difficult to obtain. A creditor should normally consider such things in light of a cost-benefit analysis, keeping in mind that to fail on a minor transfer may damage momentum and make future courts more skeptical as to whether a fraudulent transfer has been proven.
In other words, you have to be careful to pick the ground upon which you fight -- and in retrospect (hindsight and Monday-morning quarterbacking being both easy and accurate) perhaps the relatively minor sums here were not worth pursuing.
On the debtor side, this case illustrates how a person who deals with a debtor can themselves get caught up in a collection case and have to defend themselves against allegations such as these. The Opinion does not say what attorney fees that Michael Cohen had to spend to defend this action (the Court refused to allow Stephen Cohen to intervene), but we can guess that the fees were substantial. Unfortunately for him, California law is so protective of creditor's attempts to collect on their judgments that it is highly unlikely that he will recover his attorney's fees or other damages.
Stated differently, a creditor can lose, but an innocent transferee can lose too.
Stay tuned.
Kremen v. Cohen, 2013 WL 61194 (N.D.Cal., Jan 2, 2013). http://goo.gl/LKyAJ
This article at http://onforb.es/WtSidK and http://goo.gl/MFqy4
