FRAUDULENT CONVEYANCES Nassau Academy of Law CLE Live ...

302 B.R. 760 Page 15302 B.R. 760(Cite as: 302 B.R. 760)United Feature Syndicate, Inc. v. Miller FeaturesSyndicate, Inc., 216 F.Supp.2d 198, 225(S.D.N.Y.2002). However, even accepting the adequacyof Sharp's pleading under Rule 9(b), it is difficultto see how State Street could be held accountablefor inducing a fraudulent scheme that was well underwaybefore State Street is alleged to have evenhad any knowledge of it. The allegations of the complaintamply demonstrate that the Spitzes required noencouragement or inducement to defraud creditors orto breach the duties of loyalty that they owed Sharp.Indeed, more than half of the $44 million stolen bythe Spitzes had already been diverted by the timeState Street allegedly discovered the fraud.Although Sharp has adequately pled State Street'sknowledge of the Spitzes' scheme, the failure of thecomplaint to identify any affirmative act of participationin the Spitzes' breach of their fiduciary duties toSharp necessitates the dismissal of the complaint forfailure to state a claim.(2)Fraudulent Conveyance ClaimsConstructive Fraudulent Conveyance[17] The D.C.L., under which Sharp brings the second,third, fourth and fifth counts of its complaint, isNew York's version of the Uniform Fraudulent ConveyancesAct (the "U.F.C.A."). The statute *778codifies a set of legal principles that are intended to"protect creditors by invalidating certain transactionsthat render debtors' assets unreachable." Note, GoodFaith & Fraudulent Conveyances, 97 Harv. L.Rev.495, 495 (1983).In the second, third, and fourth counts of the complaint,Sharp alleges that the $12 million paymentthat State Street received from Sharp in April 1999,in satisfaction of Sharp's valid pre-existing debt toState Street, constitutes a constructive fraudulentconveyance under the D.C.L.Pursuant to the D.C.L. a conveyance by a debtor isdeemed constructively fraudulent if it is made without"fair consideration," as defined in the statute, andany of the following conditions is met: 1) the transferoris insolvent or will be rendered insolvent by thetransfer in question [FN9]; 2) the transferor makingthe conveyance is a defendant in an action for moneydamages who fails to satisfy a judgment enteredagainst him [FN10]; 3) the transferor is engaged or isabout to engage in a business transaction for whichits remaining property constitutes unreasonably smallcapital [FN11]; or 4) the transferor believes that itwill incur debts beyond its ability to pay. [FN12]FN9. See D.C.L. § 273 ("Every conveyancemade ... by a person who is or will bethereby rendered insolvent is fraudulent asto creditors without regard to his actual intentif the conveyance is made ... without afair consideration.").FN10. See D.C.L. § 273a ("Every conveyancemade without fair consideration whenthe person making it is a defendant in an actionfor money damages or a judgment insuch an action has been docketed againsthim, is fraudulent as to the plaintiff in thataction without regard to the actual intent ofthe defendant if, after final judgment for theplaintiff, the defendant fails to satisfy thejudgment.").FN11. See D.C.L. § 274 ("Every conveyancemade without fair consideration whenthe person making it is engaged or is aboutto engage in a business or transaction forwhich the property remaining in his handsafter the conveyance is an unreasonablysmall capital, is fraudulent as to creditorsand as to other persons who become creditorsduring the continuance of such businessor transaction without regard to his actualintent.").FN12. See D.C.L. § 275 ("Every conveyancemade ... without fair considerationwhen the person making the conveyance ...intends or believes that he will incur debtsbeyond his ability to pay as they mature, isfraudulent as to both present and futurecreditors.").Sharp alleges that the challenged payment to StateStreet was made while Sharp was insolvent; that atthe time of the payment Sharp was engaged or wasabout to engage, in a transaction for which the propertyremaining in its possession constituted unreasonablysmall capital; and that Sharp believed itwould incur debts beyond its ability to pay. See© 2009 Thomson Reuters. No Claim to Orig. US Gov. Works.