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Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: June 5, 2021

Brokers Not Transferees for Purposes of Fraudulent Conveyance Claim

On June 1, 2021, the First Department issued a decision in McCormack Family Charitable Found. v. Fidelity Brokerage Servs., LLC, 2021 NY Slip Op. 03414, holding that brokers were not transferees for purposes of a fraudulent conveyance claim, explaining:

The brokers were not transferees as contemplated by Debtor and Creditor Law § 276. A defendant must have dominion and control over transferred assets to be liable as a transferee for a fraudulent conveyance. Dominion and control is the right to put the money to one’s own purposes. Here, defendants, as financial institutions, cannot be fairly said to be transferees when Caspersen retained dominion and control over the assets in his account, trading as was his pattern. Defendants simply had no discretion over the way in which the funds in the account were deployed.

Plaintiffs’ constructive fraudulent conveyance claims were also properly dismissed. To state a cause of action for constructive fraudulent conveyance under Debtor and Creditor Law §§ 273, 274, and 275, the complaint must allege that the transferor transferred assets without receiving fair consideration in exchange. Plaintiffs have made no such allegation. Moreover, that Caspersen obtained the funds ultimately transferred to the brokers by fraud is not relevant to this analysis. There is no allegation that the transactions were anything but arm’s length, and New York’s fraudulent conveyance law is primarily concerned with transactions that shield company assets from creditors, not the manner in which specific debts were created.

(Internal quotations and citations omitted) (emphasis added).

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 jlundin@schlamstone.com if you or a client need help collecting on a judgment.

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