Commercial Division Blog

Posted: January 24, 2022 / Written by: Jeffrey M. Eilender, Samuel L. Butt, Christopher R. Dyess, Joshua Wurtzel, Hillary S. Zilz / Categories Commercial, Fraudulent Conveyance, Unjust Enrichment

Claim Dismissed Against Husband Even Though He Benefited From Allegedly Misappropriated Funds

On December 2, 2021, in Lanaras v Premium Ocean, LLC, 2021 NY Slip Op 51128(U), Justice Reed dismissed claims of fraudulent conveyance under NY DCL § 273, unjust enrichment and constructive trust against the husband of a businesswoman who allegedly misappropriated money received to start a business venture. The complaint identified the husband as a beneficiary of the allegedly fraudulent conveyances by virtue of his and his wife’s joint property holdings and joint bank accounts. Dismissing the complaint against the husband, the Court explained:

To adequately plead unjust enrichment, a plaintiff must allege "that (1) the other party was enriched, (2) at that party's expense, and (3) that it is against equity and good conscience to permit the other party to retain what is sought to be recovered" (Georgia Malone & Co. v Rieder, 19 NY3d 511, 516 [2012]; see also Mandarin Trading Ltd. v Wildenstein, 16 NY3d 173, [*3]182 [2011]). The Court of Appeals held in Georgia Malone that an unjust enrichment claim need not establish privity between the parties, but at a minimum must "assert a connection between the parties that [is] not too attenuated" (19 NY3d at 517). There, the Court held that the relationship was too attenuated where plaintiff and defendant had no dealings with one another (id. at 518). The Court of Appeals in Mandarin Trading Ltd. made clear that "there were no indicia of an enrichment that was unjust where the pleadings failed to indicate a relationship between the parties that could have caused reliance or inducement" (16 NY3d at 183). Sarrigeorgiou is the husband of Lanaras's long-time friend Paparizou. While the two know one another, there were no dealings between Lanaras and Sarrigeorgiou. The pleadings do not include any allegations of a relationship between Sarrigeogiou and Lanaras that could have caused reliance or inducement. Sarrigeorgiou's proximity to Paparizou and her businesses does not establish direct dealings with Lanaras. There is little mention of the interaction between Lanaras and Sarrigeorgiou at all. The motion to dismiss the unjust enrichment claim against Sarrigeorgiou is granted.

. . . .

To establish Sarrigeorgiou as a beneficiary of the allegedly fraudulent conveyance, plaintiff relies on the fact that Paparizou and Sarrigeogiou share accounts and that money from the shared account has gone to maintain shared property and make mortgage payments. While Sarrigeorgiou may be a beneficiary, there is still the issue of whether plaintiff's allegations suffice to state a claim for fraudulent conveyance.

. . . .

Plaintiff alleges that Paparizou and the Basons authorized regular distributions of company assets and revenues to themselves and/or to entities controlled by them. Plaintiff's submissions, including a bank account statement, show that Paparizou's distributions were deposited into personal accounts and joint accounts with her husband Sarrigeorgiou (Shapiro Aff. ¶ 9). To establish Sarrigeorgiou as a beneficiary of the allegedly fraudulent conveyance, plaintiff relies on the fact that Paparizou and Sarrigeogiou share accounts and that money from the shared account has gone to maintain shared property and make mortgage payments. While Sarrigeorgiou may be a beneficiary, there is still the issue of whether plaintiff's allegations suffice to state a claim for fraudulent conveyance.

Plaintiff argues that, because each of these distributions allegedly was made without fair consideration and because the individual and collective insolvency of the Corporate Defendants, the distributions are fraudulent conveyances under NY DCL § 273. Defendant argues that plaintiff does not present evidence that the transfers made to Sarrigeorgiou were made without fair consideration. Plaintiff counters that conveyances made to controlling shareholders, officers or directors of an insolvent corporation are "presumptively fraudulent"(CIT Grp./Commercial Servs., Inc. v 160-09 Jamaica Ave. Ltd. P'ship, 25 AD3d 301, 303 [1st Dept 2006]).

Plaintiff's arguments are unconvincing. Plaintiff neither pleads facts nor provides evidence to support the claim of no fair consideration. On the contrary, plaintiff admits that Sarrigeorgiou had previously loaned money to Paparizou's business. This undercuts the claim that there was no fair consideration. Further, Sarrigeorgiou is not an officer and does not hold any role in the corporations, so the transfer is not presumptively fraudulent. Because the pleadings fail to establish an element of fraudulent conveyance, the motion to dismiss the DCL § 273 claim is granted.

. . . .

To state a cause of action for a constructive trust, a plaintiff must allege "a confidential or fiduciary relationship, a promise, a transfer in reliance thereon, and unjust enrichment" (Abacus Fed. Sav. Bank v Lim, 75 AD3d 472, 473 [1st Dept 2010]). Plaintiff argues that the First Department has been liberal in its definition of constructive trusts.

Being family friend, without more, is not enough to satisfy even a liberal definition. Plaintiff cites cases that are factually distinct from the instant case. In both Panetta v. Kelly and Forbes v. Clarke, the parties purchased property together (Panetta v Kelly, 17 AD3d 163, 163 [1st Dept 2005]; Forbes v Clarke, 194 AD2d 393, 393 [1st Dept 1993]). In Brand v. Lipton, the complaint set forth specific allegations that the defendant had "agreed to act as 'constructive trustee' of and to administer the tickets . . . or to reconvey the tickets to their equitable owners," an arrangement the court noted was "pregnant with opportunity for abuse and unfairness" (Brand v Lipton, 274 AD2d 534, 535 [2d Dept 2000]). The relationship between Lanaras and Sarrigeorgiou is not comparable to those in the cases cited by plaintiff. Further, Lanaras makes no allegations that Sarrigeorgiou promised her anything. The constructive trust claim is deficient and the motion to dismiss is granted.

The attorneys at Schlam Stone & Dolan frequently litigate claims based on fraud.  Please contact the Commercial Division Blog editors at commercialdivisionblog@schlamstone.com if you or a client have questions concerning claims for unjust enrichment and fraudulent conveyance.