U.S. Court of Appeals for the Second Circuit
Bankruptcy — Fraud
Severance — Prejudgment Interest
In re: Douglas Palermo
Judges Kearse, Pooler and Livingston
Background: The defendant appealed from a jury verdict finding that he had received fraudulent transfers under New York’s Debtor and Creditor Law from the debtor. The plaintiff amended the complaint to drop all parties but the defendant. On appeal, he alleges that the complaint was untimely and that the court erred in failing to provide a rationale for its award of prejudgment interest.
Ruling: The Second Circuit held that the bankruptcy judge entered a de facto severance pursuant to Bankruptcy Federal Rule of Civil Procedure 7021, which made the refiled complaint timely. However, the court vacated the award of prejudgment interest. While it is a matter of discretion, the court failed to explain whether it knew it had the discretion and what rationale it used in granting the prejudgment interest.
Carl W. Oberdier of Oberdier Ressmeyer for the defendant-appellant; Lita Beth Wright of Storch Amini & Munves for the plaintiff-appellee