Piccarreto v Mura
2016 NY Slip Op 50882(U) [51 Misc 3d 1230(A)]
Decided on June 6, 2016
Supreme Court, Monroe County
Dollinger, J.
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
As corrected in part through June 13, 2016; it will not be published in the printed Official Reports.

Decided on June 6, 2016
Supreme Court, Monroe County

Carla L. Piccarreto, Plaintiff,


David J. Mura and Ann Marie Mura, Defendants.


Maureen A. Pineau, Esq.
Attorney For Plaintiff
Rochester, New York

Philip B. Abramowitz, Esq.
Attorney for Defendant David J. Mura
Williamsville, New York

Frank A. Aloi, Esq. and Robert J. Lunn, Esq.
Attorneys for Defendant Ann Marie Mura
Rochester, New York

Richard A. Dollinger, J.

Fraud can be like magic: an asset can be there one minute, available to satisfy eager creditors, and then be gone the next. In this matter, the court must decide whether a seemingly "magical" and timely transfer by a husband to his wife of an interest in a marital residence, just as a child support creditor was poised to enter a judgment against him, is a fraud, or a prudent transfer pursuant to a pre-existing agreement between a married couple.

1. The facts before the Court

The facts are essentially undisputed. The plaintiff is the former wife of the defendant ("the husband"). The husband's then-current-wife is the co-defendant ("the wife"). In March 2011, the plaintiff filed a petition to enforce a child support order against her former husband in the Monroe County Family Court. The petition sought [*2]two forms of relief: to collect a judgment for $25,226 for "accrued child support" granted in 1993 and to enforce an order from November 1993 for weekly child support in the amount of $504.36. The petition stated that the husband had not paid "any of the child support ever." On May 23, 2011, the plaintiff filed a second petition "seeking to enforce the child support provisions within a judgment of divorce, date November 4, 1993." The new petition was filed in the Ontario County Family Court and was served on the defendant. The action was ultimately dismissed because the referee concluded that the action should be brought in Monroe County Supreme Court.[FN1] It is undisputed that the husband, at least as of June 1, 2011, was aware of the potential for a judgment against him for more than 15 years of unpaid child support. The husband, in his affidavits before this court, acknowledges that he had been served with both petitions.

Importantly, the plaintiff in her family court petitions, both in Monroe and Ontario Counties, sought two forms of relief: collection of the old judgment for $25,226, and current unpaid child support, calculated using the amount set forth in the original default divorce judgment. Based on these facts, it is inconceivable that the husband, after receipt of the family court petitions, would assume that the only judgment he might encounter in the future was the $25,226 judgment from 1993. It is undisputed that he had never paid any child support to the plaintiff in the period from 1993 until 2011, and that he had never sought to modify the prior child support award during that time.[FN2]

In early September, 2011, the husband owned a home in Victor, new York, in Ontario County. He was the sole title holder on the property. On September 6, 2011, when the Ontario County Family Court proceeding was still pending, the husband transferred his interest in the Victor property to himself and his wife at that time, co-defendant Ann Marie Mura. The couple thereafter owned equal shares of the Victor property. The parties later sold the Victor property to a third-party on May 2, 2012. The proceeds from the sale were equally divided: the husband received half (approximately $95,000) and his wife received the other half. After the transfer between husband and wife, and before the final sale, the plaintiff (the husband's first wife) filed a judgment against him on September 16, 2011. The judgment totaled $25,226.72, based on the 1993 judgment of divorce. Importantly, that judgment was only the liquidated portion of the amount that the plaintiff sought from her former husband. The judgment did not include the amount that the plaintiff was seeking for unpaid child support from 1993 through the date of the application. There is no evidence in this record that the plaintiff, in seeking the liquidated judgment amount, waived or in any manner released the claim for the remainder of the child support owed to her.

In fact, at the time of the transfer, the husband was still the respondent in the Ontario County Family Court matter, in which the plaintiff had asserted a claim for the unpaid child support since 1993. The husband was represented by counsel in the proceeding. The matter was not resolved until September 22, 2011 (after the transfer). At that time, the family court referee, noting that there was dispute over the circumstances of the entry of the 1993 judgment and the husband's contention that the child support judgment had been re-opened, declined to render a decision and deferred to Supreme Court.[FN3] However, the pending request for a judgment for more than 15 years of unpaid child support - which the husband knew he had never paid - was before a tribunal when the transfer occurred. The proceeding was not dismissed with prejudice - the magistrate made no decision on the validity of the wife's claims for unpaid child support and instead deferred to Supreme Court to resolve the underlying legal issues. On October 7, 2011, the plaintiff filed an order to show cause in Supreme Court to collect the unpaid support and hold the husband in contempt for his failure to pay. On November 28, 2011, this court issued a no-transfer order against the husband to prevent the transfer of any real property, but is undisputed that the horse was out of the barn: the husband's interest in the Victor property had been transferred, in part, by the husband to his then-wife eight weeks earlier.

Armed only with a judgment for the liquidated amount, the plaintiff, and her counsel, proceeded to collect that judgment from the husband. Eventually, the Victor property was sold to a third-party and the husband's share of the proceeds were placed in escrow by order of this court. Under the watchful eye of this court, the husband's share of the proceeds were paid, in part to the plaintiff, and in part to her counsel. In that proceeding, the $25,226.72 judgment was eventually satisfied and was recorded in both the Monroe and Ontario County Clerk's Offices. At that point, the original judgment, dating back to the unpaid child support in 1993, was paid.

The unliquidated portion of the child support claim was, at that point, unresolved. The actual amount owed to the plaintiff was not settled until after a hearing in September 2013, and the final judgment, totaling $506,300.83, was filed in the Monroe County Clerk's Office in February 2014. The court's determination was upheld by the Appellate Division, Fourth Department. Mura v Mura, 133 AD3d 1324 (4th Dept. 2015).

Meanwhile, after the sale of the Victor property to a third-party, the wife was given her half share of the net proceeds. The wife took those proceeds and loaned them to a Florida limit liability company ("the Florida LLC"). However, the wife was not the sole payee on the loan: the husband utilized his own limited liability company ("the husband's LLC") and the loan of the wife's share of the house proceeds was payable to either the wife or the husband's LLC. Importantly, the wife's loan was canonized in a promissory note, in which the Florida LLC agreed to repay the loan to either the wife or the husband's LLC. In short, when the funds were loaned, the husband retained an [*3]interest in the note, and proceeds of the loan - which were sourced in the proceeds from the sale of the real property - could be paid to the husband.

2. The competing motions for judgment

Based on these facts, the plaintiff moves for summary judgment on her claims under the New York Debtor/Creditor Law. The husband and wife oppose that motion, arguing for summary judgment to dismiss the claims or, in the alternative, a determination that there are factual disputes that preclude summary judgment and require a hearing. The wife and husband also seek to amend their answer and assert new affirmative defenses.

In considering the competing motions for summary judgment, the black letter standard is found in CPLR 3212. Summary judgment may not be granted unless there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Marks v. New York University, 61 F. Supp.2d 81, 87 (SDNY 1999). In this case, because both parties seek summary judgment, they face the same standard. The plaintiff must establish that undisputed facts lead to only one conclusion: that the husband and wife violated the Debtor/Creditor Law when he transferred a portion of the real property to her. The defendants, in seeking to dismiss the claims, must set forth evidence that there is no factual issue and that he and his wife are entitled to a judgment, dismissing this application. Forrest v. Jewish Guild for the Blind, 3 NY3d 295, 315 (2004) citing Zuckerman v City of New York, 49 NY2d 557 (1980). If the husband establishes a basis for a grant of summary judgment, then the plaintiff must present evidence that there is a triable issue of fact and vice versa. Forrest v. Jewish Guild for the Blind at 315. The facts must be viewed in the light most favorable to the party moved against. The husband and wife are entitled to any discrepancies or doubts about the plaintiff's proof, and the plaintiff is entitled to same leeway when assessing the husband and wife's proof. Id.

3. The claims under the New York Debtor/Creditor Law

A brief survey of New York's Debtor-Creditor Law guides this analysis. The transfer of the title from the husband individually to himself and his wife was a conveyance under Section 270 of the New York Debtor-Creditor Law. The plaintiff was the husband's creditor and she had a debt, both in the form of a liquidated judgment for $25,226.72, and in an unliquidated form in unpaid child support from 1993 forward. In addition, it is undisputed that the husband was insolvent, as there is no allegation by him in the papers before this court that he had sufficient assets to pay either the liquidated or any unliquidated judgment against him. Section 273 of the Debitor-Creditor Law provides:

Every conveyance made and every obligation incurred by a person who is or will be thereby rendered insolvent is fraudulent as to creditors without regard to his actual intent if the conveyance is made or the obligation is incurred without a fair consideration.

The Legislature carried this concept a step further in Section 273-a, mandating that if a defendant in an action for money damages conveyed a property without fair consideration, then the conveyance was fraudulent, regardless if the defendant had an intent to defraud.

The Legislature extended the reach of the law even further by dictating that any conveyance without fair consideration made when the person making the conveyance or entering into the obligation intends or believes that he will incur debts beyond his ability to pay as they mature, is fraudulent as to both present and future creditors. Debtor-Creditor Law § 275. As the icing on this cake of remedies, the Legislature directed any conveyance made with actual intent to hinder, delay, or defraud either present or future creditors, is fraudulent as to both present and future creditors. Debtor-Creditor Law § 276.

The Legislature also realized that a defrauded creditor needed a mechanism to reach into the hands of a third-party and retrieve the property fraudulently transferred, so it gave defrauded creditors the power to reach the transferred property (unless the transferee could prove that they bought the property for fair consideration and without knowledge of the fraud). Debtor-Creditor Law § 278. The creditor had a statutory right to have the conveyance set aside to the extent necessary to satisfy their claim, or could disregard the conveyance and attach or levy execution upon the property conveyed. As another described it:

The primary remedy for any fraudulent conveyance is avoidance, which permits a plaintiff creditor to recover the transferred assets from the third-party recipient.

Am. Federated Title Corp. v. GFI Mgmt. Servs., 126 FSupp 3d 388, 401 (SDNY 2015)[FN4]

4. The plaintiff's claim for summary judgment for violation of the Debtor/Creditor Law

Case law makes clear that the plaintiff in this matter must prove its claim under DCL § 276 - actual intent to hinder, delay or defraud present and future creditors — by clear and convincing evidence. See United States v. McCombs, 30 F3d 310, 328 (2nd Cir. 1994); U.S. Bancorp Equip. Fin., Inc. v. Rubashkin, 98 AD3d 1057, 1060 (2nd Dept. 2012). The burden of proof under Section 273 and 273-a seems somewhat in dispute. In 2003, a federal court in New York held that a preponderance standard governs claims under § 273, for reasons that apply with equal force to § 273-a. See Lippe v. Bairnco Corporation, 249 FSupp2d 357, 376 n.6 (SDNY 2003). The Second Circuit affirmed that decision, Lippe v. Bairnco Corp., 99 F. Appx. 274 (2d Cir. 2004), and several subsequent federal decisions have taken the same approach. See In re Dreier LLP, 452 B.R. 391, 442 (Bankr. SDNY 2011); In re Borriello, 329 B.R. 367, 373 (Bankr. E.D.NY 2005).

However, New York appeal courts seem to require the higher standard in order to sustain claims in Section 273 and 273-a. Matter of U.S. Bancorp Equip. Fin., Inc. v. Rubashkin, 98 AD3d 1057, 1060 (2nd Dept. 2012) (reversing judgment in plaintiff's favor because the plaintiff "failed to establish, by clear and convincing evidence, . . . a [*11]fraudulent conveyance under either section 273 or section 275 of the Debtor and Creditor Law"); Farkas v. D'Oca, 305 AD2d 237, 237 (1st Dept. 2003) ("The trial court properly dismissed the complaint upon the ground that plaintiff had failed to establish by clear and convincing evidence that the payments at issue . . . were fraudulent conveyances under either section 273 or section 273-a of the Debtor and Creditor Law."). The conflict between these lines of cases remains unresolved. See Fannie Mae v. Olympia Mortgage Corp., No. 04-CV-4971, 2011 U.S. Dist. LEXIS 63669, 2011 WL 2414685, at 8 (EDNY. June 8, 2011) (noting, without resolving, the "dispute as to the appropriate standard of proof required to prove constructive fraud under § 273"). In the face of this unresolved judicial dispute, this court will apply the higher standard - clear and convincing evidence - to all of the plaintiff's claims under the Debtor/Creditor Law.

As numerous courts have noted, an intent to defraud a creditor through transfer of a property is difficult to prove. Most parties will never admit to any unfavorable inference from their real property transactions. This case is proof of that proposition: the husband and his wife deny any intent to defraud anyone and offer a series of factual defenses. Faced with denunciations from alleged perpetrators, the New York courts have sought out "badges of fraud," which are circumstances that accompany fraudulent transfers so "commonly that their presence gives rise to an inference of intent." Ohana v Levy, 2015 NY Slip Op 30877 (U) (Sup. Ct. Kings Cty. 2015); 5706 Fifth Ave., LLC v. Louaieh, 108 AD3d 589, 590 (2nd Dept. 2013); see also Dempster v Overview Equities, 4 AD3d 495, 498 (2nd Dept. 2004). The "badges of fraud" from which fraudulent intent may be inferred include:

(1) a close relationship between the parties to the transaction;
(2) secrecy and haste in making the transfer;
(3) the inadequacy of consideration;
(4) the transferor's knowledge of the creditor's claim, or a claim so likely to arise as to be certain, and the transferor's inability to pay it; and,
(5) the retention of control of property by the transferor after the conveyance (see Matter of Steinberg v Levine, 6 AD3d 620, 621 (2nd Dept. 2004); Dempster v Overview Equities , 4 AD3d at 498; Board of Mgrs. of 14 Hope St. Condominium v Hope St. Partners, LLC, 40 Misc 975 NYS2d 708 (Sup Ct, Kings Cty. 2013).

The Second Circuit has identified other examples of "badges," including "the financial condition of the party sought to be charged both before and after the transaction in question, the existence or cumulative effect of a pattern or series of transactions or course of conduct after incurring of debt, onset of financial difficulties, or pendency or threat of suits by creditors,"and "the general chronology of events and transactions under inquiry." Salomon v. Kaiser, 722 F2d 1574, 1582-83 (2nd Cir. 1983); Chapin Home for the Aging v. McKimm, 2014 U.S. Dist. LEXIS 132545( EDNY 2014).

Here, the plaintiff need not establish all of the badges of fraud to give rise to an inference of intent, nor are all the badges necessarily relevant in every case. Chapin Home for the Aging v. McKimm, 2014 U.S. Dist. LEXIS 132545, supra. See also MFS/Sun Life Trust-High Yield Series v. Van Dusen Airport Servs., Co., 910 FSupp 913, 935 (SDNY 1995) ("depending on the context, badges of fraud will vary in significance, through the presence of multiple indicia will increase the strength of the inference"); Sharp Int'l Corp v. State Street Bank and Trust Co. (In re Sharp Int'l Corp), [*12]302 B.R. 760, 784 (Bankr. EDNY. 2003), aff'd, 403 F3d 43 (2nd Cir. 2005) ("Although the presence of any particular badge of fraud is by no means a prerequisite to a finding of actual intent to defraud, the badges of fraud appropriately focus the inquiry on the circumstances that suggest a conveyance was made with fraudulent intent, viz. with the purpose of placing a debtor's assets out of the reach of creditors."). At the same time, this court is cognizant that such "badge[s] merely permit an inference of fraudulent intent and are not conclusive," and to set aside a conveyance as fraudulent it must be shown by clear and convincing evidence that there was an actual intent to defraud. Sybax, Inc. v Bingaman, 219 AD2d 552 (1st Dept. 1995); Guerrand-Hermes v Guerrand-Hermes, 30 AD3d 339 (1st Dept. 2006) (fact question as to whether borrower-son had "honest purpose" in making a judgment by confession in favor of lender-father warranted a hearing on motion by borrower's ex-wife to vacate judgment by confession as a fraudulent conveyance under DCL § 276). The Appellate Division, Fourth Department has cautioned that the presence of one or more badges of fraud does not necessarily compel the conclusion that a conveyance is fraudulent. A & M Global Mgmt. Corp. v. Northtown Urology Assocs., P.C., 115 AD3d 1283 (4th Dept. 2014). In that case, even though there was a close relationship, the transferor had sufficient assets to pay off the underlying debt, the transferor did not retain any control over the transferred assets, and the transfer did not result in an inability to pay off the debt. Faced with only one proven "badge," and the remaining proof of the other badges was equivocal, at best, the appeals court affirmed the trial court determination that the plaintiff had "failed to establish sufficient badges of fraud to give rise to an inference of fraud." Id. at 1289. In short, the courts, in seeking to infer actual fraud, do not engage in an accounting of the "badges," but the existence of multiple badges of fraud can "constitute the requisite clear and convincing evidence of actual intent to defraud." Singh v. Sooklall (In re Singh), 434 B.R. 298, 312 (EDNY Bankr. 2011).

In this case, every "badge of fraud," identified under state or federal case law, is present.[FN5] The defendants are husband and wife, which meets the "close relationship" test. Ohana v Levy, 2015 NY Slip Op 30877 (U) at 7. The "haste" is easily apparent. Before transferring the property, the couple waited for three years after signing the alleged prenuptial agreement, after they were aware that the plaintiff was seeking a sizable judgment for back child support, and less than 10 days before the initial judgment was actually filed. There was no adequate consideration. The wife paid nothing for the property, and only afterward claimed that it was transferred pursuant to [*4]a prenuptial agreement, which the wife had never complied with prior to the contested transfer. See infra. The husband knew of the child support claim - it had been heard in Ontario County months before and he knew it was in the offing. There is no evidence that the husband, at any time on or before the transfer, had funds to pay the judgment. Finally, the husband retained control of the proceeds (eventually paid to the wife by a third-party buyer). These sums were loaned to a Florida LLC, and the note provided that husband's LLC, of which the husband was the sole member, was a co-payee on the note. The wife admitted in her testimony during depositions that the Florida LLC was run by "someone [her husband] knew" and someone she had barely met. Simply put, the wife acknowledged that she loaned the proceeds to a friend of her husband. The husband unmistakably retained control over the property after it was transferred to his wife and after she converted the real property interest into cash through the sale to a third party.

Several of the federal "badges" are also present. There is no evidence that the husband had other assets to repay the judgment - other than his interest in the house - when the transfer occurred. There is no dispute that the husband had financial difficulties in 2011 and no evidence before this court that he was solvent at the time of the transfer. Under the "general chronology" of events, the court can draw the same inference: just as the judgment was nearing, the husband tried to deplete his assets by shifting half of the house's net equity to his wife. Gordon v. Tese-Milner (In re Gordon), 535 B.R. 531 (SDNY 2015). Importantly, intra-spousal transfers are not immune to the reach of the Debtor/Creditor Law which has been used to upend transfers between spouses and family members, if designed to avoid creditors. See Hohenrath v Wallach, 37 AD2d 248 (2nd Dept. 1971); Geltzer v. Borriello (In re Borriello), 329 B.R. 367 (Bk. EDNY 2005) (husband's transfer of one-half interest in the marital residence to his wife could be invalidated and the trustee could claim that value of the transfer from the wife); United States v. Carlin, 948 FSupp 271 (SDNY 1996); William J. Jenack Estate Appraisers and Auctioneers, Inc. v Rabizadeh, 131 AD3d 960 (2nd Dept. 2015) (complaint stated cause of action when husband, faced with a judgment against him, transferred his interest in the marital residence to his wife); 5706 Fifth Ave., LLC v. Louajeh, 108 AD3d 589, 590 (2nd Dept. 2013) ("badges of fraud" used to void a transfer between husband and wife). The ease and speed of transfer, the last-second transfer of a marital residence, the silence from the recipient spouse - "I had no idea why we did it" - and unreliable claims that a spouse was unaware of a precarious financial condition by the donor have heightened scrutiny by courts over these intra-family transfers without reasonable or fair consideration. Under that scrutiny, the conclusion is inescapable that this transfer is laden with fraudulent conduct by both defendants.

With every "badge" present, this court can easily find no factual issues that prevent this court from concluding that the September 6, 2011 transfer of the real property from the husband to the husband and wife was fraudulent and must be vacated. Unless the husband - or wife - has a cognizable affirmative defense, the plaintiff is entitled to summary judgment on her claims.

5. The defendant's defenses - the prenuptial agreement does not equate to "fair consideration"

The husband claims that he transferred the property pursuant to a pre-nuptial agreement that he entered into with his wife in 2008, three years before the potential judgment appeared against him, and that this antecedent obligation constitutes fair consideration for the transfer, rendering it outside the scope of the Debtor/Creditor Law. See Am. Federated Title Corp. v. GFI Mgmt. Servs., 126 F. Supp. 3d 388, 401 (SDNY 2015) (a transfer of assets is made for fair consideration if the transferor receives [or has received] "fair equivalent" value in return and, in most cases, the repayment of an antecedent debt is made for fair consideration); HBE Leasing Corp. v. Frank, 48 F3d 623, 634 (2nd Cir. 1995) (stating that "the preferential repayment of pre-existing debts to some creditors" generally "does not constitute a [constructively] fraudulent conveyance" under New York law). Chapin Home for the Aging v. McKimm, 2014 U.S. Dist. LEXIS 131779 (EDNY 2014).

To sustain a claim for constructive fraudulent conveyance, the plaintiff must establish the "essential element" of a lack of fair consideration. Atlanta Shipping Corp., Inc. v. Chem. Bank, 818 F2d 240, 248 (2nd Cir. 1987). The fair consideration requirement has two components: "the exchange of fair value and good faith." Lippe v. Bairnco Corp., 249 F. Supp. 2d 357, 376-77 (SDNY 2003) (citations omitted). The exchange of fair value does not require "dollar-for-dollar equivalence," but rather the amount must not be "disproportionately small" in relation to the value of the transferred property. Id. at 376 (citation omitted). In the context of transfers among family members, "family affection . . . does not constitute fair consideration' for purposes of Debtor and Creditor Law." St. Teresa's Nursing Home v. Vuksanovich, 268 AD2d 421, 422 (2nd Dept. 2000); Leonard Nursing Home, Inc. v. Kay, 2003 NY Misc. LEXIS 201 (Sup. Ct. Saratoga Cty. 2003) ("Intra-familial asset transfers are presumed to be without fair consideration where the effect is to render the transferor or his estate insolvent").

The co-called prenuptial agreement, offered a "fair consideration" for this transfer, is not an enforceable prenuptial agreement in New York. It is not executed and acknowledged in a form sufficient to record a deed. Galetta v. Galetta, 21 NY3d 186 (2013). Domestic Relations Law § 236 (B) (3) provides "an agreement by the parties, made before or during the marriage, shall be valid and enforceable in a matrimonial action if such agreement is in writing, subscribed by the parties, and acknowledged or proven in the manner required to entitle a deed to be recorded." NY DRL § 236 (B)(3). Under these circumstances, the unacknowledged agreement is not enforceable. Ballesteros v Ballesteros, 137 AD3d 722 (2nd Dept. 2016) (agreement that is signed, but not acknowledged is invalid and unenforceable in a matrimonial action). The unenforceable agreement does not create enforceable rights sufficient to be considered fair consideration for the transfer of the Victor property from the husband to his wife.

In addition, the prenuptial agreement does not recite any consideration for the transfer, and there is no evidence that the wife even partially performed her portion of the bargain struck in prenuptial agreement. Krause-Edelman v Edelman, 2016 NY Slip Op 03268 (1st Dept. 2016) (partial performance can create binding obligations on the non-performing party). The undisputed evidence proves that the wife agreed, in the prenuptial agreement, to transfer property she solely owned in the suburb of Chili, New York to her husband in exchange for the husband's transfer of an interest in the Victor [*5]property to her. However, she never transferred that title, and on August 29, 2011 - a week before receiving an interest in the Victor property - she sold the Chili property without ever having put her husband on the title. There is no evidence before this court that either party took any actions in reliance on the alleged prenuptial agreement before the transfer of the Victor property. For these reasons, the court concludes that the prenuptial agreement is not sufficient consideration to support the last-minute transfer of the Victor property from husband to wife. It is not "fair consideration" for this transfer. NY Debtor/Creditor Law § 272.

Where, as here, the plaintiff has met the burden of establishing no fair consideration for the transfer, the law presumes that the transfer rendered the husband insolvent. The burden of proof thus "shifts to the defendant to rebut the presumption of insolvency." Geltzer v. Borriello (In re Borriello) 329 B.R. 367, 373 (Bankr. EDNY 2005) citing Hassett v. Far West Fed. Sav. and Loan Assoc. (In re O.P.M. Leasing Servs., Inc.), 40 B.R. 380, 393 (Bankr. SDNY 1984). Kramer v. Chin (In re Chin), 492 B.R. 117 (Bk. EDNY 2013) (if lack of fair consideration has been established, a defendant must provide evidence of solvency). In this case, there is not a scintilla of evidence - no financial statements, no tax returns - that the husband was solvent after the transfer. In the absence of any proof, the court concludes that this transfer rendered him insolvent.

6. The "innocent spouse" defense is not tenable

During the oral argument of this matter, wife's counsel argued repeatedly that his client was not a party to the fraud. He claims that she simply sought to claim her right to half the equity in the Victor property, as she was promised in the prenuptial agreement.

However, the wife is a proper defendant in this action. She participated in this fraud when she received the property interest without advancing fair consideration. Such a claim "can . . . be maintained against a person who participates in the fraudulent transfer as either the transferee of the assets or the beneficiary of the conveyance." Fundacion Presidente Allende v. Banco de Chile, 2006 U.S. Dist. LEXIS 71105, (SDNY May 29, 2006), citing Stochastic Decisions, Inc. v. DiDomenico, 995 F2d 1158, 1172 (2nd Cir. 1993)). Plaintiff, in order to succeed on her claims, need not prove that the recipient of the fraudulent transfer has a fraudulent intent, but only that she benefitted from the fraud. The major allegations of fraud in this matter are directed against the husband, who transferred the property well aware of the potential money judgment against him. This court, as a matter of law, is not required to determine whether that the wife was a party to the fraud, in order to grant summary judgment on the fraudulent conveyance claim against the husband. If the husband transferred the property, without fair consideration, with intent to defraud the plaintiff, then the conveyance can be overturned without any fraud on the part of the wife. DCL Law § 278.

However, in this court's view, the evidence establishes a prima facie case of fraud against the wife. The same "badges of fraud" that implicate the husband, implicate the wife. The wife had a close relationship to her husband: they lived together in the marital residence, which was the subject of the transfer. There is an easy inference to be made that the wife knew what the husband knew: that a potential judgment was in the offing. The wife knew, on the day of the transfer, that she had not transferred her interest in the Chili, New York property to her husband as she claims [*6]she was required to do by the prenuptial agreement. In fact, its undisputed that she had already sold the Chili property prior to receiving the interest in the Victor property and there is no evidence that any portion of the Chili proceeds were paid to the husband.

In short, the wife knew that her husband, facing a potential judgment, could not receive any proceeds from the sale of her home. She sold her home a week before the transfer of the Victor home from the husband, and there is no evidence that she gave him any portion of the proceeds. It is easily inferrable that she knew that he was facing a sizable judgment, did not want to pay him any sums that could be subject to claims by his former wife, and that she took the Victor property knowing that her husband was seeking to shelter some portion of the proceeds from his former wife. She knew there was no consideration for the transfer - it was, at best, a gift. In her responding papers to this court, she never asserts that her husband was solvent or that he had the resources to pay a large child support judgment. Finally, she allowed her husband to continue to control her share of the proceeds. She loaned these funds to "someone her husband knew," and the proceeds (from the eventual sale), when loaned to this third-party, were then made payable to the Florida LLC, owned by the husband. These facts led to an inescapable inference, unrebutted by the wife's feigned ignorance or self-serving denials. She knew the reason for the transfer was the pending family court action and the threat of a substantial judgment for the unpaid child support.

Under New York law, the remedy for a successful fraudulent conveyance claim is to have the conveyance set aside. FDIC. v. Porco, 75 NY2d 840, 842 (1990) ("A creditor's remedy for the transfer of its debtor's assets, where undertaken prior to a judgment on the debt, is still to obtain a nullification of the conveyance [see, § 279] and, where undertaken after judgment, additionally to secure the assets in satisfaction of the debt [see, § 278].") "Even then, the liability of transferees is limited to a judgment in the amount of monies wrongfully received,' regardless of the total amount of the conveyance(s)." Sullivan v. Kodsi, 373 Fsupp 2d 302, 309 (2005). For these reasons, the court concludes that the plaintiff is entitled to summary judgment on her claim against the co-defendant wife, that she participated in the fraudulent conveyance of the husband's interest in the Victor home to her.

7. The affirmative defense of satisfaction and accord

The final question to be resolved is whether the husband has a claim for offset against the proceeds of the note. In that regard, the wife's counsel argues that the plaintiff's counsel, after proceeding to recover the original judgment against the husband, entered into a satisfaction of that judgment and, in essence, waived any claims against the husband related to the diverted proceeds from the sale that were transferred to the wife. Oparaji v. Madison Queens-Guy Brewer, LLC, 302 AD2d 439 (2nd Dept. 2003). In that regard, it is undisputed that the plaintiff, through her counsel, was paid the amount of the original judgment, $25,226.72, and that the plaintiff's attorney at that time, took those sums in satisfaction of the original judgment. The plaintiff admits that the actual sum paid to her was approximately $68,000. The husband and the wife now argue that the plaintiff's receipt of this sum constitutes a satisfaction of all the claims that the wife had against the husband and, as wife's counsel argues, the "fraudulent conveyance claims were subsumed in the terms of the [*7]settlement."

The facts do not provide any support for this conclusion. First, the statement for judgment, filed shortly after the husband transferred his interest to himself and his wife, refers only to the $25,226,72 judgment from 1993. It makes no reference to the outstanding sums for child support owed from 1993 forward. Second, on or about the time of the sale of the marital residence to a third-party in 2012, the husband's share of the house proceeds were deposited in an escrow agreement and the agreement, executed by the parties, only refers to the 1993 judgment against the husband. Third, later in 2012, plaintiff's collection counsel wrote the husband's then counsel, and calculated the interest on the 1993 judgment, plus the original balance, in the amount of $68,252.45, and he demanded this amount. He never demanded any sum for the child support owed from 1993 forward. When this sum was paid by the escrow agent, the only sums paid were directed against the 1993 judgment. There is no evidence in this record that the sums paid from the escrow account were paid in satisfaction of the unliquidated child support that had accrued from 1993 to the date of the property transfer. When pressed at oral argument on whether the plaintiff had released her claims against her former husband, the wife's attorney could not produce a release from the plaintiff or any other written evidence of a waiver to her right to claim the entire amount due and owing to her. In the absence of an express waiver,[FN6] the New York courts have repeatedly held that child support arrears cannot be modified retroactively. Matter of Dox v Tynon, 90 NY2d 166, 173-174 (1997). Implied waivers, such as the husband asserts here, are not "permissible." Williams v. Chapman, 22 AD3d 1015, 1016 (3rd Dept. 2005). This court has no discretion to cancel, reduce or otherwise modify child support arrears accrued prior to the making of an application for such relief. Matter of Weintrob v Weintrob, 87 AD3d 749 (2nd Dept. 2011); Matter of Zaid S. v Yolanda N.A.A., 24 AD3d 118 (1st Dept. 2005).[FN7] For these reasons, this court concludes that the husband's claim that his wife "satisfied" her claim for unpaid child support has no factual support in this record.

8. The affirmative defense of offset

Finally, the wife claims - and the husband supports - that any recovery against [*8]the wife's share of the proceeds should be offset by any recoveries that the plaintiff obtained - or will obtain - from legal malpractice actions against either of her two prior counsel. This court acknowledges that the plaintiff cannot be paid an amount in excess of the underlying debt. Mfrs. and Traders Trust Co. v. Lauer's Furniture Acquisition, Inc., 226 AD2d 1056 (4th Dept. 1996) (reducing the amount of the judgment entered against the individual defendant to reflect the $150,000 she actually received); Farm Stores, Inc. v. School Feeding Corp., 102 AD2d 249 (2nd Dept. 1984), aff'd, 64 NY2d 1065 (1985) ("[W]here a fraudulent conveyance has been established, each transferee. . . is liable to the creditor to the extent of the value of the money or property he or she wrongfully received."). This defense does not improve the wife's legal position. First, the now liquidated loss sustained by the plaintiff - encapsulated in the second judgment - totals more than $500,000. The most the plaintiff can collect through the fraudulent conveyance action is the amount that the husband fraudulently transferred to the wife - $95,000 plus interest from the date of transfer. This court can order the wife to return those sums to the husband and have the husband pay them over to the plaintiff under Section 278 of the Debtor/Creditor Law. The husband still owes the wife substantially more than the $95,000 on the new judgment, and only the husband - the obligor on the original debt - would be entitled to any offset. The wife does not get the benefit of the sums paid by husband for his debts. The husband may be entitled to reduce his obligations by any third-party payments. There is no evidence of such payments and the court declines to grant any such offset to the husband.

Even if the wife were entitled to an offset based on what these attorneys paid to the plaintiff for their alleged negligent failure to intercept the house sale before their transfer to the wife, the attorneys would be entitled to be equitably subrogated to the plaintiff's claims against the wife to the extent of their payments, and up to the amount that the wife would have otherwise recovered in that action. Thus, even if an offset were granted in an amount equal to what the wife must return to the plaintiff, the plaintiff's attorneys have a claim for equitable subrogation against her for the amount of the offset. Delos Ins. Co. v Smith & Laquercia LLP, 2010 NY Slip Op 30798 (U) (Sup. Ct. New York Cty. 2010), aff'd 84 AD3d 668 (1st Dept 2011).

9. The asserted affirmative defenses in the amended answer are without merit

In the proposed amended answer, the defendants offer a series of affirmative defenses. While the prevailing judicial preference is to grant amendments to pleadings freely, courts may review the merits of such amendments in deciding the application. Clarke v Laidlaw Tr., Inc., 125 AD3d 920 (2nd Dept 2015); Ancrum v St. Barnabas Hosp., 301 AD2d 474, 475 (1st Dept. 2003) ("We have consistently held . . . that in an effort to conserve judicial resources, an examination of the proposed amendment is warranted and leave to amend will be denied when the proposed pleading is palpably insufficient as a matter of law"); see also Blueberry Investors Co. v Ilana Realty Inc., 184 AD2d 906, 907 (3rd Dept. 1992) (denying defendants' request to amend answer to assert three affirmative defenses after examining the proposed affirmative defenses and finding they were insufficient to defeat plaintiff's action); Heller v Louis Provenzano, [*9]Inc., 303 AD2d 20, 25 (1st Dept. 2003) ("While it is true that motions for leave to amend pleadings are to be liberally granted in the absence of prejudice or surprises . . . it is equally true that the court should examine the sufficiency of the merits of the proposed amendment when considering such motions").

Based on the court's analysis above, and reviewing the record to determine the merits of these affirmative defenses, none has any merit. In the first three defenses, the wife alleges that she paid fair consideration for the property transfer, she had no intent to defraud any creditors, and she held an equitable interest in the property. The court's analysis above demonstrates that these defenses are without merit.

In the fourth affirmative defense, the defendants allege that the plaintiff waived her right to claim child support under the 1993 divorce judgment. This court has previously disposed this claim in affirming, with approval of the Appellate Division, that the plaintiff was entitled to claim child support under that decree. In the fifth affirmative defense, the wife asserts a claim of satisfaction, which the court's analysis above, based on the facts and law, rebuts as a matter of law. In the sixth affirmative defense, she pleads an offset based on the plaintiff's claim against her former attorneys. This defense is also untenable in view of the court's analysis above. In the seventh affirmative defense, the defendants claim that the plaintiff was made whole by the earlier recoveries. There is no evidence that the second judgment, granted by this court for an amount in excess of $500,000, has ever been satisfied. As a result, this defense is also meritless. In the eighth affirmative, the defendants plead accord and satisfaction, which is also without legal or factual foundation. Because these defenses are without merit, no amendment to the answer is permitted, and the motion to amend is denied.

10. Conclusion

The plaintiff's motion for summary judgment on her claims under the Debtor/Creditor Law against both the husband and wife are granted. The court finds that the husband was rendered insolvent by the September 9, 2011 transfer, and it was made without fair consideration and hence, Section 273 of the Debtor/Creditor Law was violated. Further, the husband was a respondent in a family court matter at the time of the transfer, and the plaintiff, in that action, was seeking both to collect an aging judgment and unpaid child support for more than a decade. The transfer on that date, without fair consideration, violated Section 273-a of the same statute. Even if the family court matters, pending at the time, were dismissed - as happened - the husband still knew that the judgment for unpaid child support would mature - after all, he had never paid any child support since 1993 - and hence, the transfer violates Section 275. This court also finds that the husband's actual intent was to hinder, delay or defraud a future creditor and therefore Section 276 of that statute was violated. With these findings before the court, the conveyance of the half interest in the marital residence, transferred by the husband to himself and his wife on September 9, 2011, is declared null and void. The wife's share of the proceeds, created as a result of the fraudulent conveyance and eventually realized through the sale of the entire property in 2012, are hereby ordered to be turned over to the plaintiff and applied against the judgment held by the plaintiff against the husband. The plaintiff is awarded legal fees under Section 278 and shall submit an affidavit for such fees within 10 days of the entry of the order resulting from this decision. The plaintiff is awarded pre-judgment interest at the statutory rate from the date of the [*10]fraudulent conveyance until the date of the filing of the order and judgment.

The wife's and husband's motion for summary judgment dismissing the claims are both denied, as is their motion to amend their answer.


DATED: June 6, 2016


Footnote 1:The husband also admits that the Ontario County petition was not dismissed until after he transferred half of the marital residence to his then-wife on September 6, 2011.

Footnote 2:The husband notes that he was entitled to deduct any sums paid for health insurance for his sons from his child support under the 1993 judgment. The husband seeks to introduce these payments as the basis for an argument that the wife had waived her right to child support. In an earlier proceeding, the husband sought to introduce these business records and the court refused to admit them because they were not offered in compliance with the business records exception to the hearsay rule. CPLR 4518. This court similarly declines to consider them now.

Footnote 3:The support magistrate concluded that the Supreme Court had clearly re-opened the issue of child support after the 1993 judgment, that no decision had been made, and that the validity of an order not properly filed required that the matter be brought to Supreme Court. This court resolved those questions, holding that the unfiled order meant the original judgment was still enforceable against the husband. Piccarreto v Mura, 39 Misc 3d 1227 (A) (Sup. Ct. Monroe Cty. 2012)

Footnote 4:If the recipient has since "spent or dissipated the property conveyed," CPLR § 5225 (b) "furnishes a mechanism for obtaining [an equivalent] money judgment against the recipient." F.D.I.C. v. Conte, 204 AD2d 845, 846 (2nd Dept. 1994).

Footnote 5:In A & M Global Mgmt. Corp. v. Northtown Urology Assocs., P.C., 115 AD3d 1283 (4th Dept. 2014), the appeals court added another "badge" to this analysis; i.e., fraud could be inferred if the same attorney represented the transferee and the transferor. In a review of the September 9, 2011 deed, there is no evidence on the face of the deed to determine whether an attorney represented the couple when that transfer occurred. However, the attorney who represented the husband during the family court proceedings also represented the wife when she sold her Chili, New York property, 10 days before the Victor property was transferred. The husband's attorney in the family court matters notarized his wife's signature when she transferred the Chili property. The same attorney was representing both husband and wife in nearly simultaneous transactions, which is evidence that this "badge" - identified by the Fourth Department - further supports this court's decision to infer fraud.

Footnote 6:The husband and wife argued that the plaintiff's acceptance and use of health insurance cards, given to her by the husband in the period from 1993 until 2011, combined with her silence for 16 years without demanding child support constitutes a waiver of her claim for the support. This argument was rejected by the court in an earlier decision. The affirmance of that decision, but the Appellate Division, Fourth Department, renders this argument moot. Furthermore, this court dealt with the issue of waiver in this case previously. Piccarreto v Mura, 39 Misc 3d 1227 (A) (Sup. Ct. Monroe Cty. 2012), and its decision is the law of the case and equitably estops the husband from making this claim now.

Footnote 7:The husband also claims that the plaintiff waived any claim to the child support arrears when she failed to file a claim for child support in the husband's bankruptcy proceeding. She did not need to take that step, as the child support obligation was non-dischargeable. 11 U.S.C. § 523 (a) (5), (a) (15); Forney v. Forney (In re Forney), 2015 Bankr. LEXIS 1297 (EDNY 2015) (any amounts awarded for child support, maintenance and childcare in a judgment of divorce are non-dischargeable under the Bankruptcy Code). This court will not infer a waiver from her failure to undertake a pointless exercise when the husband filed for bankruptcy.