Commercial Division Blog

Posted: November 1, 2019 / Categories Commercial, Fraudulent Conveyance

Fraudulent Conveyance Claims Dismissed for Insufficient Allegations of Fraud

On October 21, 2019, Justice Borrok of the New York County Commercial Division issued a decision in Lynx Capital Partners of NJ, LLC v. Bardown Capital LLC, 2019 NY Slip Op. 33134(U), dismissing fraudulent conveyance claims for insufficient allegations of fraud, explaining:

Under Debtor & Creditor Law § 273, a plaintiff should plead that (1) the debtors made a conveyance, (2) they were insolvent before the conveyance or rendered insolvent, and (3) the conveyance was made without fair consideration. Under Debtor & Creditor Law § 275, a conveyance must also be incurred without fair consideration. Debtor and Creditor Law § 276 addresses actual fraud and requires that a conveyance be incurred with actual intent to hinder, delay, or defraud either present or future creditors. As it is difficult to prove actual intent of fraud, the plaintiff may rely on badges of fraud to support the case, including: (1) a close relationship between the parties to the alleged fraudulent transaction, (2) a questionable transfer not in the usual course of business, (3) inadequacy of the consideration, (4) the transferor's knowledge of the creditor's claim and the inability to pay it, and (5) and retention of control of the property by the transferor after the conveyance. A claim for fraud is also subject to the heightened pleading standard under CPLR § 3016 (b).

Here, the complaint fails to specify any factual allegations to support the requisite elements of fraudulent conveyance. Significantly, the Plaintiff is unable to identify with particularity what was transferred or when the transfer occurred. The Plaintiff also fails to plead that the alleged fraudulent conveyance under Debtor & Creditor Law §§ 273, 275, and 276 was made without fair consideration. During oral argument, the Plaintiff indicated it possessed facts to meet the heightened pleading standard (which alleged facts were not included in the complaint) and requested dismissal of the fraud claims be without prejudice. Accordingly, the Defendants' motion to dismiss the sixth and seventh causes of action is granted without prejudice.

(Internal quotations and citations omitted).

We have substantial experience in helping judgment creditors collect on judgments and search for and attach assets worldwide. A big part of that effort is using the legal tools--such as claims for fraudulent conveyance discussed in this opinion--for recovering property that has been transferred to a third party to avoid its being seized to satisfy a judgment. Contact Schlam Stone & Dolan partner John Lundin at if you or a client need help collecting on a judgment.