Court Denies Motion To Dismiss Fraudulent Transfer Claim

On April 19, 2024, Justice Joel M. Cohen denied a motion to dismiss plaintiff’s claim for fraudulent transfer. The plaintiff in Monex Canada, Inc. v. Bank of America, N.A. et al., Index No. 655076/2023, alleged that a non-party had defrauded it out of millions of dollars by unlawfully reversing Pre-Authorized Debit (“PAD”) transfers, which funds were in turn ultimately directed to the moving defendants. Plaintiff asserted a claim for fraud under the New York Uniform Voidable Transactions Act and in particular Sections 273(a)(1) and 276 of the New York Debtor Creditor Law. The Court rejected the moving defendants’ argument that plaintiff had failed to state a claim for actual fraudulent transfer, explaining:

The Court finds that Monex adequately alleges a viable claim for actual fraudulent transfer, including significant badges of fraud, to survive a motion to dismiss pursuant to CPLR 3016 and 321 l(a)(7). Specifically, Monex alleges that (1) the PAD funds were transferred by Handwear to Serwin and SKI in Hong Kong; (2) Handwear unlawfully reversed the PAD transactions; (3) the Hong Kong Court issued an injunction; (4) the PAD funds were distributed, in part, to Moving Defendants; (5) that the distributions were made via New York accounts; (6) that Handwear and Kochkine have absconded; (7) that the transfers to Moving Defendants were part of a scheme "to launder the proceeds of the fraud;" and (8) the transfers left Handwear insolvent.

Notably, Moving Defendants do not dispute that Handwear's alleged actions vis-à-vis Monex were fraudulent. Instead, Moving Defendants attack the sufficiency of the Complaint and argue that any transfers they received were in good faith. Whether the facts alleged by Monex are ultimately proven and whether Moving Defendants have viable good faith defenses cannot be resolve[d] on a pre-answer motion to dismiss. Moving Defendants may of course raise their arguments again on a full evidentiary record at the summary judgment stage or at trial.

The attorneys at Schlam Stone & Dolan frequently counsel clients regarding fraudulent transfers. Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning such issues.