FRAUDULENT CONVEYANCES Nassau Academy of Law CLE Live ...

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.