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Posted: July 24, 2017

Court Declines to Award Attachment Due to Lack of Evidence of Intent to Defraud

On July 17, 2017, Justice Ash of the Kings County Commercial Division issued a decision in Del Forte USA, Inc. v. Blue Beverage Group, Inc., 2017 NY Slip Op. 31525(U), refusing to grant an attachment due to a lack of evidence of fraudulent intent, explaining:

In order to be granted an order of attachment under CPLR S. 6201[3], a plaintiff must demonstrate that the defendant has concealed or is about to conceal property in one or more of several enumerated ways, and has acted or will act with the intent to defraud creditors, or to frustrate the enforcement of a judgment that might be rendered in favor of the plaintiff. Attachment is a provisional remedy designed to secure a debt by preliminary levy upon the property of the debtor to conserve it for eventual execution, and the courts have strictly construed the attachment statute in favor of those against whom it may be employed. Accordingly, fraud is not lightly inferred, and the intent to defraud creditors may not be presumed from the mere disposition or removal of property.

Under DCL 9279, where a conveyance made or obligation incurred is fraudulent as to a creditor whose claim has not matured, the creditor may proceed in a court of competent jurisdiction against any person against whom he could have proceeded had his claim matured, and the court may, (a) restrain the defendant from disposing of his property; (b) appoint a receiver to take charge of the property; (c) set aside the conveyance or annul the obligation; or (d) make any order which the circumstances of the case may require. DCL 9276 provides that every conveyance made and every obligation incurred with actual intent to hinder, delay, or defraud either present or future creditors, is fraudulent as to both present and future creditors. Because direct evidence of fraudulent intent is often elusive, courts consider certain badges of fraud, the presence of which give rise to an inference of intent. Badges of fraud include: (l) a close relationship between the parties to the transfer; (2) the inadequacy of consideration; (3) the transferor’s knowledge of the creditor’s claims and the transferor’s inability to pay them; (4) the retention of control of the property by the transferor after the conveyance; (5) the fact that the transferred property was the only asset sufficient to pay the transferor’s obligations; (6) the fact that the same attorney represented the transferee and transferor; and (7) a pattern or course of conduct by the transferor after it incurred its obligation to the creditor.

Here, upon consideration of the foregoing and the record before the Court, the Court finds that Plaintiff has not sufficiently satisfied its burden to obtain the relief that it seeks. Specifically, Plaintiff has not demonstrated that the Blue Beverage Defendants are entering into the subject transaction with the intent to defraud creditors. Plaintiff also fails to establish that $5 million constitutes inadequate consideration for what the Kuzari Group seeks to purchase from Blue Beverage and, further, what the value or worth of Blue Beverage is overall. Although Plaintiff provides plenty of evidence of potential judgment creditors of Blue Beverage, there is no evidence that the proposed transaction between the Kuzari Group and Blue Beverage is one that aims to defraud or frustrate potential creditors, nor is there any indication that the proposed sale will render Blue Beverage an empty shell of a corporation. Accordingly, the relief that Plaintiff seeks must be denied at this time.

(Internal quotations and citations omitted).

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