FRAUDULENT CONVEYANCES Nassau Academy of Law CLE Live ...

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Page 3257 A.D.2d 526, 684 N.Y.S.2d 244, 1999 N.Y. Slip Op. 00749(Cite as: 257 A.D.2d 526, 684 N.Y.S.2d 244)Due to the difficulty of proving actual intent to hinder,delay, or defraud creditors, the creditor in afraudulent conveyance action under Debtor andCreditor Law is allowed to rely on “badges of fraud”to support his claim for actual fraud, i.e., circumstancesso commonly associated with fraudulenttransfers that their presence gives rise to an inferenceof intent. McKinney's Debtor and Creditor Law §276.[8] Fraudulent Conveyances 186 14186 Fraudulent Conveyances186I Transfers and Transactions Invalid186I(A) Grounds of Invalidity in General186k13 Badges of Fraud186k14 k. In General. Most Cited CasesFactors that are considered “badges of fraud” forpurposes of claim for actual fraud under fraudulentconveyance provisions of Debtor and Creditor Laware: (1) a close relationship between parties to allegedfraudulent transaction; (2) a questionable transfer notin the usual course of business; (3) inadequacy ofconsideration; (4) transferor‘s knowledge of creditor'sclaim and the inability to pay it; and (5) retention ofcontrol of property by transferor after conveyance.McKinney's Debtor and Creditor Law § 276.[9] Limitation of Actions 241 99(2)241 Limitation of Actions241II Computation of Period of Limitation241II(F) Ignorance, Mistake, Trust, Fraud,and Concealment or Discovery of Cause of Action241k98 Fraud as Ground for Relief241k99 In General241k99(2) k. Fraud in the Purchase,Sale, or Acquisition of Property. Most Cited CasesA claim for constructive fraud under fraudulent conveyanceprovisions of Debtor and Creditor Law accruesat the time the fraud or conveyance occurs.McKinney's Debtor and Creditor Law §§ 270, 273;McKinney's CPLR 213, subd. 1.[10] Fraudulent Conveyances 186 248186 Fraudulent Conveyances186III Remedies of Creditors and Purchasers186III(F) Time to Sue186k248 k. Time to Sue and Limitations.Most Cited CasesLimitation of Actions 241 99(2)241 Limitation of Actions241II Computation of Period of Limitation241II(F) Ignorance, Mistake, Trust, Fraud,and Concealment or Discovery of Cause of Action241k98 Fraud as Ground for Relief241k99 In General241k99(2) k. Fraud in the Purchase,Sale, or Acquisition of Property. Most Cited CasesLimitation of Actions 241 100(3)241 Limitation of Actions241II Computation of Period of Limitation241II(F) Ignorance, Mistake, Trust, Fraud,and Concealment or Discovery of Cause of Action241k98 Fraud as Ground for Relief241k100 Discovery of Fraud241k100(3) k. Fraud in ObtainingPossession of or Title to Property. Most Cited CasesClaim for actual fraud under fraudulent conveyanceprovisions of the Debtor and Creditor Law is timelyif brought either within six years of the date that thefraud or conveyance occurs or within two years of thedate that the fraud or conveyance is discovered orshould have been discovered, whichever is longer.McKinney's Debtor and Creditor Law § 276;McKinney's CPLR 203(g).**246 Joseph S. Rosenthal, for Plaintiff-Appellant.Richard L. Spinogatti, for Defendants-Respondents.ROSENBERGER, J.P., WILLIAMS, ANDRIAS andSAXE, JJ.MEMORANDUM DECISION.*526 Judgment, Supreme Court, New York County(Edward Lehner, J.), entered May 12, 1997, which,upon defendants' CPLR 3211(a)(7) motion, dismissedplaintiff's second amended legal malpractice complaint,unanimously reversed, on the law, with costs,and plaintiff granted leave to file and serve the thirdamended complaint. Appeal from order, same courtand Justice entered May 6, 1997, unanimously dismissedas subsumed within the appeal from thejudgment. Appeal from order, same court and Justice,© 2009 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 4257 A.D.2d 526, 684 N.Y.S.2d 244, 1999 N.Y. Slip Op. 00749(Cite as: 257 A.D.2d 526, 684 N.Y.S.2d 244)entered November 17, 1997, which denied plaintiff'smotion deemed to be one for reargument, unanimouslydismissed, without costs, as taken from anon-appealable order.[1][2] In the context of a CPLR 3211 motion to dismiss,where we must take the factual allegations ofthe complaint as true, consider the affidavits submittedon the motion only for the limited purpose of determiningwhether the plaintiff has stated a claim, notwhether he has one and, in the absence of proof *527that an alleged material fact is untrue or beyond significantdispute, must not dismiss the complaint(Guggenheimer v. Ginzburg, 43 N.Y.2d 268, 275,401 N.Y.S.2d 182, 372 N.E.2d 17; Rovello v. OrofinoRealty Co., 40 N.Y.2d 633, 634-36, 389 N.Y.S.2d314, 357 N.E.2d 970), we find that plaintiff's allegationsare sufficient to support its contentions that itsfraudulent conveyance claims were viable and potentiallysuccessful when brought to defendants' attentionin 1986, that as a consequence, its claims forlegal malpractice and breach of contract to performlegal services were sufficiently alleged, and that themotion court erred in granting dismissal of the complaint.We also grant leave to amend the complaint,notwithstanding the motion court's denial of plaintiff'smotion for reargument, where plaintiff had previouslysought, and the court failed to address, suchrelief in its opposition to defendants' motion to dismiss,and where the proposed third amended complaintclearly sets forth an adequate basis for plaintiff'sclaims. It is well-settled that leave to amendshould be freely granted (Dittmar Explosives v. A.E.Ottaviano, 20 N.Y.2d 498, 502, 285 N.Y.S.2d 55,231 N.E.2d 756; Lambert v. Williams, 218 A.D.2d618, 621, 631 N.Y.S.2d 31), and that strong publicpolicy favors resolving cases on the merits (see,Amer. Continental Properties v. Natl. Union Fire Ins.Co., 200 A.D.2d 443, 446, 608 N.Y.S.2d 807; Segallv. Heyer, 161 A.D.2d 471, 473, 555 N.Y.S.2d 738).Plaintiff alleged in its legal malpractice action thatdefendants successfully obtained for it a $6.1 millionjudgment in the underlying arbitration proceedingagainst, inter alia, its former general managing partners,Michael Wise and Monroe Friedman, for fraud,conversion, breach of fiduciary duty and negligence,but failed to bring an action against them, pursuant tothe Debtor and Creditor Law, to set aside allegedfraudulent conveyances to their spouses of their respective25% ownership interests in Enseco, Inc..Plaintiff further alleged that these conveyances renderedWise and Friedman judgment-proof, **247 andresulted in plaintiff's recovery of only $500,000.[3][4] The plaintiff in a legal malpractice action mustestablish that the attorney in question was negligent,that the attorney's negligence was the proximatecause of the loss sustained, and that actual damageswere sustained. It must be established that “but for”the attorney's negligence, the underlying actionwould have succeeded (Greenwich v. Markhoff, 234A.D.2d 112, 114, 650 N.Y.S.2d 704; Lauer v. Rapp,190 A.D.2d 778, 593 N.Y.S.2d 843). In addition, inorder to establish the proximate cause and actualdamages elements, plaintiff must show that the Statuteof Limitations on the underlying claim had run bythe time that it discharged defendants as its attorneys(see, C & F Pollution Control v. Fidelity and CasualtyCo. of New York, 222 A.D.2d 828, 829, 653N.Y.S.2d 704).[5] *528 With regard to plaintiff's DCL § 273 claim,for example, it had to establish that the debtors madea conveyance, that they were insolvent prior to theconveyance or rendered insolvent thereby, and thatthe conveyance was made without fair consideration(United States v. McCombs, 30 F.3d 310, 323; UnitedStates v. Carlin, 948 F.Supp. 271, 277). The motioncourt, in dismissing the second amended complaint,found that plaintiff failed to plead the existence of aconveyance and did not allege the insolvency element.However, DCL § 270 defines “conveyance”broadly and it has been held that the term includes aprospective debtor's arrangement to have stock issuedin the name of his wife (see, Levy v. Braverman, 24A.D.2d 430, 260 N.Y.S.2d 681). Applying this definitionto the instant matter, where the complaint citesFriedman's arbitration testimony that his Ensecostock was placed in his wife's name to insulate itfrom anticipated judgment creditors, it is clear thatthe complaint adequately alleges that a conveyanceoccurred. The insolvency element can be sufficientlymade out from the complaint in that it alleges thatWise and Friedman were judgment-proof when plaintiffattempted to enforce its judgment (see, UnionNatl. Bank v. Russo, 64 A.D.2d 759, 760, 406N.Y.S.2d 930). Finally, triable issues of fact wereraised as to the fairness of the consideration paid forthe conveyance, since the spouses' purchase of theshares at such a favorable price here appears to bedubious. Fairness of the consideration is a question of© 2009 Thomson Reuters. No Claim to Orig. US Gov. Works.
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BAKER & HOSTETLER LLP45 Rockefeller
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usiness of defendant Bernard L. Mad
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BACKGROUND, THE TRUSTEE, AND STANDI
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Madoff who received fraudulent tran
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ased on fictitious profits and for
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28. BLMIS funds were also used to p
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Madoff, and her niece, Shana Madoff
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FIRST CAUSE OF ACTIONTURNOVER AND A
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Transfers; (b) directing that the S
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EIGHTH CAUSE OF ACTIONUNDISCOVERED
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TENTH CAUSE OF ACTIONDISALLOWANCE O
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111. Mrs. Madoff benefited from the
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WHEREFORE, the Trustee respectfully
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Page 152 and 153: example, from net 15 to COD; or cha
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