Claim for Contrauctive Fraudulent Conveyance Does not Require Allegations of Scienter

On February 18, 2020, Justice Borrok of the New York County Commercial Division issued a decision in Acacia Invs., B.S.C.(C) v. West End Equity I, Ltd., 2020 NY Slip Op. 50222(U), holding that a claim for constructive fraudulent conveyance does not require allegations of scienter, explaining:

Acacia also maintains that the Complaint fails to state a claim for constructive fraudulent conveyance (the third cause of action). To state such a claim under NY Debtor & Creditor Law § 273, a plaintiff must allege that: (1) a transfer was made without fair consideration, and (2) the transfer rendered the conveyor insolvent. Alternatively, under § 273-a a plaintiff must allege that: (1) a transfer was made without fair consideration, (2) at the time of transfer, the conveyor was a defendant in an action for money damages or had a judgment in such an action docketed against him; and (3) a final judgment has been rendered against the conveyor that remains unsatisfied. Fair consideration is defined as: (i) when in exchange for such property, or obligation, as a fair equivalent therefor, and in good faith, property is conveyed or an antecedent debt is satisfied, or (ii) when such property, or obligation is received in good faith to secure a present advance or antecedent debt in amount not disproportionately small as compared with the value of the property, or obligation obtained.

Unlike claims under NY Debtor & Creditor Law § 276, the transferor's actual intent is irrelevant under § 273. A person/entity is considered insolvent when the present fair salable value of his assets is less than the amount that will be required to pay his probable liability on his existing debts as they become absolute and matured. The AION Entities do not dispute that DCD became insolvent. As referenced in the Complaint, the tax returns are clear that DCD had over $5,000,000 in assets in 2010/2011 while liable on a potential $10,000,000 guaranty to TAIB. Thus, the only question is whether the conveyances from DCD to the AION Entities were made for fair consideration. This is not a question that can be determined on the facts here at the pleading stage. For purposes of this motion, it is sufficient that Acacia alleges that the AION Entities paid no consideration for DCD's assets and the AION Entities have not put forth any evidence to the contrary. The motion to dismiss the third cause of action for failure to state a claim, therefore, must be denied at this stage of the proceeding.

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