FRAUDULENT CONVEYANCES Nassau Academy of Law CLE Live ...

302 B.R. 760 Page 4302 B.R. 760(Cite as: 302 B.R. 760)Fed.Rules Civ.Proc.Rule 9(b), 28 U.S.C.A.[24] Fraudulent Conveyances 14186k14 Most Cited CasesBadges of fraud, such as court may consider underNew York law in deciding whether transfer wasmade with actual intent to defraud creditors, include:(1) lack or inadequacy of consideration; (2) family,friendship or close associate relationship betweenparties; (3) retention of possession, benefit or use ofproperty in question by debtor; (4) financial conditionof the party sought to be charged both before andafter transfer; (5) existence or cumulative effect ofpattern or series of transactions, or course of conduct,after debt was incurred, financial difficulties began,or creditor suits were initiated or threatened; and (6)general chronology of events and transactions underinquiry. N.Y.McKinney's Debtor and Creditor Law §276.[25] Fraudulent Conveyances 16186k16 Most Cited CasesUnder New York law, while presence of any particularbadge of fraud is by no means prerequisite to findingthat transfer was made with actual intent to defraudcreditors, badges of fraud appropriately focuscourt's inquiry on circumstances that suggest thatconveyance was made with fraudulent intent, i.e.,with purpose of placing debtor's assets out of reach ofcreditors.N.Y.McKinney's Debtor and Creditor Law § 276.*764 Kramer Levin Naftalis Frankel LLP, New YorkCity, for Debtors.James C. McCarroll, Kramer, Levin, Naftalis &Frankel, LLP, New York City, for Trustee.Bingham McCutchen, New York City, Jonathan B.Alter, Bingham, McCutchen LLP, Hartford, CT, forCreditor Committee.Scott D. Corrigan, Peter Neil Wang, Freidman,Wang & Bleiberg, PC, New York City, for Plaintiff/Appellant.Michael R. Young, Willkie, Farr & Gallagher, LLP,New York City, for Defendant.Kelley Drye, Neil Matthew Merkl, Kelley, Drye &Warren, LLP, New York City, for Appellee.TRAGER, District Judge.Memorandum and OrderPlaintiff-Appellant Sharp International Corp.("Sharp") appeals an order of the Bankruptcy Courtfor the Eastern District of New York (Craig, J.), dismissingin its entirety an adversary complaint filed bySharp against its former secured lender, State StreetBank and Trust Company ("State Street"). The complaintasserts a claim against State Street under NewYork common law for aiding and abetting Sharp'sthree officers in breaching their fiduciary duties tothe company. Sharp further claims that a $12 millionpayment Sharp made to State Street in April 1999 insatisfaction of a valid antecedent debt is avoidable asa constructive and/or intentional fraudulent conveyancepursuant to New York Debtor & Creditor Law(the "D.C.L.") §§ 273-276. Lastly, Sharp asserts thatany claim State Street may subsequently raise byvirtue of its return of the $12 million payment--ifsuch relief were to be ordered-- should be equitablysubordinated to the claims of Sharp's other unsecuredcreditors.Background(1)Sharp is a closely-held New York corporation,which, at all times relevant to this case, was engagedprimarily in the business of importing, assemblingand distributing wrist watches, clocks, pens and mechanicalpencils. See Compl. 5, 9. This adversaryproceeding arises out of a massive fraud againstSharp and its creditors perpetuated by Sharp's formerofficers, Herbert, Lawrence, and Bernard Spitz (the"Spitzes").In 1993, the Spitzes purchased 100 percent ofSharp's common stock. From then until October1999, the Spitzes served as Sharp's sole officers, withresponsibility *765 over Sharp's day-to-day affairs.[FN1] See id. 10. In January 1995, the Spitzes solda 13 percent ownership interest in Sharp to an outsideinvestor, Bohoradzaner, Inc. Pursuant to agreementsexecuted in connection with this sale, Bohoradzaner,Inc. had "the right to a seat on Sharp's Board of Directors,the right to inspect Sharp's books and records,the right to veto certain corporate transactions,and a variety of other corporate governance rights."Id. 11. Jaime Bohoradzaner, the principal of Bo-© 2009 Thomson Reuters. No Claim to Orig. US Gov. Works.