Estate of Leon Tawil v Sutton 2024 NY Slip Op 30575(U)
February 23, 2024
Supreme Court, Kings County Docket Number: Index No. 527569/2023 Judge: Leon Ruchelsman
Cases posted with a "30000" identifier, i.e., 2013 NY Slip Op 30001(U), are republished from various New York State and local government sources, including the New York State Unified Court System's eCourts Service. This opinion is uncorrected and not selected for official publication.
FILED: KINGS COUNTY CLERK 02/23/2024 08:58 AM INDEX NO. 527569/2023 NYSCEF DOC. NO. 94 RECEIVED NYSCEF: 02/23/2024
SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF KINGS : CIVIL TERM: COMMERCIAL 8 - ----------- ------ - --------- ------· -x ESTATE OF LEON TAWIL,
Plaintiff, Decision and order
- against - Index No. 527569/2023
MEIR SUTTON, ISAAC SUTTON, ABRAHAM DUSHEY, arid lSS0 EAST 5TH LLC, De-fendants, February 23, 2024 - -·- - - - . . -.-.. - - - - -· - - - - - - -·-.. _ .. - - -·- - - -·- --------2{ PRESENT: HON. LEON ROCHELSMAN Moti6n Seq. #1 & #2
The defendants have moved and cross-moved seeking to dismiss the complaint pursuant to CPLR §3211 oh the grounds it fails to allege any causes of action. The plaintiff opposes the motion. Papers were submitted by the parties and arguments held. After reviewing all the arguments this court how makes the following determination.
On February 9, 2016 Abraham Dushey obtained a judgement against Isaac Sutton in the amount of $741,287.20. TQ satisfy the judgement, on September 27, 2017 Isaac sold property loca,ted at 1580 East 5ti, Street in Kings county to Dushey. The purchase price was-agreed upon as $1,650,000 arid the prope~ty ~as sold for $919, 119·. 47 which included a satisfaction of the amount Sutton owed Dushey satisfying the judgement. Oh May 7, 2020 Dus.hey sold
the property to Isaac's son Meir, the defendant in this action., :i:hrou,gh an ent:Lty calied 1580 East 5 th LLC for $'1; 700, doo. .That
amount was based upOn an ~pprai:Sal conducted by Wells Farg'ci Barik which loaned eighty percent of the purchase price and then
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obtained a mortgage on the property.
The plaintiff has now instituted the within lawsuit. The plaintiff, the estate of Leon Tawil, obtained a judgement against Isaac Sutton on June 29, 2022 in the amount of $3,254, 537 .4 0 which remains unsatisfied. That judgement was the result of a lawsuit Corrimenced in 2015. The complaint alleges that the sale
between Dushey and Meir Sutton was made to he1p Isaac avoid paying its judgement to the plaintiff. The compl 9 int alleges
three Causes of action pursuant to the Debtor Creditor Law (§§273, 275, 276 and 278). The defendants, the Suttons and Dushey have moved seeking to dismiss the law$uit on the grounds it fails to allege any valid causes of action. As noted, the motions have been opposed.
Conclusions of Law
It is well settled that upon a motion to dismiss the court must determine, accepting the allegations of the complaint as true, whether the party can succeed upon any reasonable view of those facts (Perez v. Y & M Transportation Corpo.ration, 219 AD3d 14 49; 196 NYS3d 145 [2d Dept., 2023]) . Further, all the allegations in the complaint are deemed true and all reasoriable inferences .may .be drawn in favor of the. plaintiff (Archival Inc .. ,·. V. 177 Realty- Corp., 220 AD3d 909,. 198 NYS2d 567 [2d Dept. 1 2023] i ~. Whether the c::ompiaint will late+ svrvive a motion fol:' surrtmary judgment, or whether the plaintiff wil.l ultimately be
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-able ·to p,rove its. c.la.im:-s, of course·, plays no part in. t:he cieterm:j.;nation of a pre-tjiscovery C.P-LR -~3.2)1 motion. t.o d.i,smiss .(see; Lam v. Weiss, 219 AD3d 713, 195 NYS3d 488 [2d Dept.,
20231).
Pursuant to §2.73 cif the Debt.ar Creditor Law every conveyance
made- by a: party which then render-s. the party inscilv.ent i=s fr·audulent without regard to intetit if the conveyance is made Without ·tair consideration ( Paragon v. Paragon, 164 AD3d 14 60, 84
NY'S3d 582 [2d Dept., 2018]). Further, .such transfers are fraudul.ent if the transferor intende.d ._or believed the tr_ansferor
woµ-ld i._ncur debts beyo.r:id his or her ab-ility to pay the:m. whE?n tl;l.ey ma·t.ured (Dept.or (:,re_d.i,.to"t Law §275.) or ev.en if fair consideration was present the trans-fer was made with. the intent to defraµd (Debtor Creditor Law §27.6). Pursuant to Debtor Creditor Law §278 ·any c:redi tor may have f ra-udulent conveyances set aside exc·ept aga:irtst any good. faith, :_purchaser for v_alue, which is. ciefin~q as ,.any- -pe.rson who te:nd_eretj -f ai;r considE?rati..o:n without ·-knowledge of any fraud (.::,ee, Cornmodi ty Futures T.rading Conimi::,::,ion v .. Walsh, l 7 NY3d 162, 927'~YS2d 821 [2011]}.
The plaintif.f has -only oppos.ed ·the- motion seeking ·to dismiss ·oebto_r _Creditor _Law §_2i.76 and Debto.r Cr.editor Law §2.7H. Thus, the motion s.eek:irtg- to dismiss any c-1.aims based upo.n Debtor Credi.to.r Law §2 7 3 and Debtor Crecii tor Law §275 is gr:anted;
The fraudulent transfer law contained -within the Debtor
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Creditor Law is designed to prevent debtors from avoiding the payment of their debts (Leifer v. Murphy, 149.Misc 455, 267 NYS 701 [Supreme Court Bronx County 19331). Debtor Creditor Law former §27.6 states that "every conveyance made . . . with actual intent . . to hinder, delay, or defraud either present or future creditors; is fraudulent" (id), Thus, a creditor must demonstrate, by clear and convincing evidence that a defendant had the actual intent to hinder, delay or defraud creditors (see, Jensen v. Jensen, 256 AD2d 1162, 682 NYS2d 77 4 [ 2d Dept., 1998 ]) . Since fraudulent or improper intent is difficult to prove, courts have developed 'badges of fraud' which can give rise to intent. Badges of fraud include: ''a close relationship between the_parties to the alleged fraudulent transaction; a questionable transfer not in the usual course of business; inadequacy of the consideration; the transferorls knowledge Of the creditor's claim
and the inability to pay it; and retention of control of the property by the transferor after the conveyance1' (Goldenberg v.
Friedman, 191 AD3d 641, 141 NYS3d 111 [2d Dept., 2021]).
In this case, as notedi the plaintiff first became a creditor bf Isaac on June 29; 2022 when a jury awarded the plaintiff a judgement against Isaac in the amount of $3254,547.40.
There are three overlapping rec:1sons the plaintiff cannot maintain any fraudulent conveyance claims against the defendants.
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. .
First, the two transfers, from Isaac to Dushey and then Dushey to Meir all concluded two years before tll.e plaintiff obtained ariy judgement. Tn fact, the transfer from Isaac to Dushey occurred almost five years before the judgement was obtained. It is true that a fraudulent conveyance can be found even where the debt was not in existence at the time of the conveyance. Howeve:r:, all cases that have relied on that proposition·concern ed events far closer in time. Tn Nonas v. Romantini, 271 A:D2d 292, 706 NYS2d 109 fl"t Dept., 20001 the court £01.ihd a fraudulent conveyance could exist because when the conveyance was made "there were ample indications that such obligation was being discussed at or about the time of s,uch transfer'' (id) . In First Keystone Consultants T:hc. , v. Schlesinger Electrical Contractors Inc., 871 F. Supp2d 103 [E.D.N.Y. 2012] the court h.eld conveyances could be fraudulent when they wer·e made within weeks of arbitration appearances and arbitratio.n rulings against an entity, KFC, that was the subject 6f those arbitratioris. The court concluded that "the timing and circumstan.:::E:s of :these transactions constitute clear and convinbing evidence that FKC acted With intent to defraud its creditors'; (id). Similarly, In Cathay Bank v. Bonilla, 2023 WL 6812274 [E,D.N.Y. 20231 the court found a fraudulent conveyance existed, when among other factors, a transfer to◊-k place one month after :the transferor was named in a lawsuit.
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In this case, although Isaac was aware of a lawsuit filed in 2015, the transfers took place in 2017 and 2022. A mere lawsl1it
filed, the merits of which required a jury determination ye.ars later, cannot support a finding the transfers were fraudulent. Moreover, this reality, without any other factors is insufficient tb establish a fraudulent transfer.
In truth, as not'ed, this argument is really one factor when assessing whether badges of fraud exist. Indeed, Federal courts
include additional factors that can be utilized to evaluate whether badges of fraud support the intent necessary to establish a fraudulent conveyance, including "the general chronology of the
events and transactions under inquiry" {see; Kim v. Ji Sung Yoo, . .
311 F.Supp3d 598 [S.D.N.Y. 2018]). That additipnal factor is not found in any appellate decision in New Ybrk but is found in lower
court decisions ( ~ , Nixon: v. Jackson, 2009 WL 1574117 [Supreme Court Nassau County 200.9] and ATSCO LTD. et al v. Haryati Zainudin Swanson; 2004 WL 5329667 [Supreme Court New York County 2004]). The allusion to this additional factor in Nonas (supra) and the strength ot weakness of its relevance demands its consideration along with an examination of all the badges of fraud.
Second, evaluating the badges of fraud necessary demonstrates tha1: plaintiff has not adequately pled intent of a fraudulent conveyance. The plaintiff asserts the two
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transactions must be viewed as one composite transaction. The court will address that argument, however, to maintain a fraudulent conveyance action premised on badges of fraud, requires, first, a close relationship between the parties to the alleged fraudulent tr:ansaction. The two transactions involve
Isaac and Dushey and oushey and Meir. While. Isaac . . and Meir
. . I as
...
fathek and son, obviously maintain a close relationship~ there is no such relationship with Dushey. The complaint states that
Isaac and Dushey were friends .fo.r twenty years (Complaint, 'l4 [NYSCEF Doc. No. 8]}. However, Dushey sued Isaac ahd obtained a judgement against l:lim in an action in Kings County entitled Abraham Dushey, et al. v. Isaac Sutton, Index No. 51025/2015 and secured a judgemen:t against Isaac for $741,287 .DO. Thus, the sort of "close'; relationship required to maintain a fraudulent conveyance action premised on badges of fraud does not
exist here.
✓ .
Next, plaintiff does not allege facts sufficient to suggest that the transactions were questionable transfers not in the usual course of business. For example, "a corporation does not usually transfer money to; or for the benefit of, people who provide ho consideration. Nor does a corporation properly prepare and file W-2 forms for people who are not employed by the c::orporation'; ( see, Federal National Mortgage Association v. Olympia Mortgage Corporation, 792 F.Supp2d 645 IE.D.N, Y. 2011]).
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Moreover, a transaction made with an unusual amount of secrecy or made with efforts to conceal thi2 transaction from others
inclU9ing debtors principles are further indications the transaction was not made in the ordinary course of business (Tn
re 45 John Lofts LLC; 650 BR 602 [United States Bankruptcy Court . .
Southern District of New York 2023]), The first transfer was made to satisfy a debt and cart hardly be classified as improper in any way. There is also no indicia that Isaac preferred certain creditors to the detriment of the plaintiff and that such preference constitutes fraud (see, Priestly v. Partmedix Inc., 18 F. Supp3d 4 86 [S. D. N. Y. 2014] ) . At the time of the conveyance, Dushey had a judgement against Isaac and plaintiff did riot. There can be no fraudulent preference-s paying the debt owed to D11shey thereby frustrating the plaintiff's claim that would not ripen for five years. The unpredictability of that claim, in 2017, negates any assertions the transfer to Dushey .somehow consisted of any improper pre£erence (see, In re Sharp International Corp., 4.03 F3d 43 [2d Cir. 2005 J l The second transfer did hot involve Isaac the debtor and in isolation was not done in any unusual manner to raise any badge of fraud at alJ. The transfer was for full cohs-ideratioh, was made with a publicly recognized bank as mortgagee and was not done secretly or hastily. The fact the property may not have been publicly available to other potential
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purchas·ers does not me-an the· conveyance·- was fraudulent in ·any -manner.
Next, inadequacy of the consip.eration is. considered a ·\\.particularly · impottan_t,,. badge- establishing a: fraudulent conveyance (Axginc Corporation v. Plaza Automall Ltd., 2022 WL 21354 74 [E. ·i:). N. Y. ·2022'] ") . While the plaintif·f acknowledges that inadequacy o"f consider:atio n is a badge o:f fraud nec.e-ssary to establish intent (see, Memorandum of Law in Oppositipn, page 7 [ NYSC~)F Doc. · No . 6·5] ) the: pJ_ai"n ti f·f argu(;!·s that inadequacy· 6 f
consid~rati.on is not rieces-sary to· establish a: claim .purSµq.nt t,o Debtor Creditor Law former §276. It is true that where actual
iptent to defraud· -has been proven then th.e adequa~y _of consideration is not relevant to: set as.ide the conveyance {.filffi., In re Sharp Internation·a l Corp., supra). However, where there 1-s no indi_c,ic1 _of actual i·ntent ·-1;1.no instead the pl-aintiff seeks to establi§h fr~ud by reliance upon badges 0£ fraud tben surely the inadequacy .of corrs.iqerat-,io n _i~ i3. £-actor that -m,tist be considered (see,. Wall Street Associates v. Brodsky_, 257 :AD.2:d 5_2_Q, 6$ 4 NYS2d 244 [lst Dept., 19:99]) In Wall street, the court explained that "DCL "§ -276, unlike.· sect.i:Ons' 27.3 and 275, addres.ses actual -fraud, as opposed to constructive fraµd, and does not require proof of unfair c·on·sicteratio n or i.ns·bl ven-cy ... Due to the difficulty of· proving actual intent t,o hincter·, cielay, or def r~ud creditqrs, the ple.ader is allowed to re1y on "badges of fraud" to support his
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case, i.e., circumstance s so. c·ommo.nly as.soc::ii;l_ted with fprndµlent trans.rers "that t_heir presence gives. rise to an inference of
interit" ... Among such c"ircu:mstaitce s are: a clos·e. rel·ationship t.,etwe.en- the parties to the a.lJeged. fraudulent transactiqn;· a questionable. tri::l.nsfer not in the usual course bf business; inadequacy .of the ·cons·iderati-o n; the tra-risferor' s knowledg.e of the er.editor's c-laim and the inability to pay it; a.nd re.tention
of control of the property by the transferor after the <;::-9nveyance" (id) .
T.he ,adequacy .of co.nsidera_tio.ri .. conc$.rning .the tr~nsfE;ixs in
this case i$ apparent. Indeed, . the
. plaintiff
. _does not even
question their a_dequacy ·other than tci no.te the second transaction
was not arms..:..alength because the price wcis virtually the same as the 2017 transfer and the property was riot listed fo-r sale on the
open m,a:rket.- However, those facto:.ts do not impugn adequate consideration at a.11. In any event, those objections are equally _u_navailing and .fail to :raise- any question of fraud. While the
two transfers, thre$ years apart, were for almost identici:ll prices,. tha_t does nc:it evince any questi.on of fraud. This .is
:particulariy· tru·e where. :ther~- is no quest.ion fair -c.or;isideratio n was ex-changed and Well.a Fargq Bank provided an appraisal arid ,obta:·ined a mortgage in the second trap-$~ctipn. Any qµestio.n in thi-s reg~rd is_ sheer speculation. Moreover:,- the -fact the property may not have beeri offered to sale to others does not
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undermine. the adequacy of consideration. That is an irrelevant fact that has no bearing upon this litigation.
The next badge of fraud is the transferor's knowledge of the creditor's claim and the inability to pay it. This badge is entirely absent in these transactions and to be sure the badge makes little sense considering the specifics facts. DUshey as
one of the transferors was never a debtor and whether Dushey knew of Isaac's debts is entirely irrelevant. As the court observed
in In re Tribune Co. Fraudulent Conveyance Litigation, 2017 WL 8-2391 [S. D. N. Y. 2017] "when considering whether a debtor had an actual intent to hinder, delay, or defraud its crE'!ditors, courts focus on the intent of the transferor not on the intent of the transferee" (id). Thus, the intent of Dushey or Meir as transferees is entirely irrelevant.
The last badge of fraud demonstrating intent recited by New York cases is whether there is any retention of control of the property by the transferor after the conveyance. Th this case that badge. Of fraud is not even asserted. There is no dispute that after Isaac transferred the property to Dushey he did not ma.in ta in any retention Cir control ov_er the property. Likewise, upon Dushey's sale of· the property to Meir, again, Isaac retained no control over the property.
As noted, the Federal courts include further badges of fraud, namely, the financial condition of the party sought to be
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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 the incurring of debt, onset of financial difficulties, or pendency or threat of suits by creditors c:rnd the general chronology of the events and trarisactioris under inquiry (see, Emerson Electric Company v. Asset Management Associates of New York, 2023 WL 4850528 [E. n. N. Y. 2023]) . These badges of fraud are also absent in this case.
The financial cortdi tion of the party sought 1:o be charged, Isaac in this case, is similar to the transferor's knowledge of
the creditor's claim and the inability to pay it. That badge has adequately been discus·sed. The next bad.ge, a series of transactions will be dealt with presently regarding the collapsing doctrine. The last badge, the chronology of events surely provides no indicia that any intent existed to frauciulently convey the property. As already explained, a lawsuit was comrri.enced against Is.a:ac .in 2015. In 2016 Dushey obtained a judgement against Isaac. As a result of that judgement Isaac sold his property to Du.Shey to satisfy the debt that arose from the 2016 lawsuit. The further transaction from Dushey to Meir in 2020 did not involve Ts.aac at all and the c:hronology of these events does not serve to indicate any fraud .. The mere fact the 2015 lawsuit was concluded with a judgement
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against Isaac in 2022, a full two years after the property was sold to Meir fails to allege any fraudulent conveyances in any manner. Thus, considering all the badges of fraud, the. only one that could possibly be utilized to infer fraudulent intent is the fact Isaac and Meir are related to each other. However, that one possible badge is entirely inadequate. As the court Observed in In re Tops Holding II Corporation, 646 BR 617 [United States Bankruptcy Court Southern District of New York 2022] ''the presence or absence of any single badge of fraud is not conclusive; The proper inquiry is whether the badges of fraud are present, not wh?ther some facts are absent. Although the presence of a single facto'r, i.e. a badge of f:r-aud, may cast suspicion .Oh the transferor's intent, the confluence of several
in one transaction generally provides conclusive evidence of an actual intent to defraud" (id). Thus, when no badges of fraud
are found no such intent to engage in any fraudµlent conveyance has been presented.
Lastly, the plaintiff asserts the collapsing doctrine can enable both transactions to be viewed as one overall transaction wherein Isaac really transferred the property to his son establishing a fraudulent conveyance.
This doctrine permits mµltiple trarisactions to be viewed as steps in a single transaction when analyzing a fraudulent conveyance allegation (HBE Leasing Corporation v. Frank, 48 F.3d
B
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623. [-2d Cir. 1995]) -. Fo-r example in HBE the court explain'ed the doctrin.e would apply wh·ere ~'one tran.s-f~J:"_ee gives fair v-~l_µe to the debtor in exchange for the debtors properiy, and the debtor then gratuitously trans.fers the proceeds of the first exchange tc.i a s~c:c.ind transferee. The first transferee thereby receives the
d.e-bt.or:s prope.rty, and the se.cond trar:i.sfer~e . rece!ive.fi· the ..
··¢.ons.-idf,!ra-i:ion, wh11'3, th_e debtor retains -nothiri.g" (id:) .• Thus, for this doctrine to apply the party seeking .its applicability must
demonstrate t!J.at the qoqsideration the debtor gave the first transferee was th:e:n ;:r~convey~d by the debtor for less.. than fair
,c.oris-ideration or with· art actual intent to defraud cred-i.to,r~ . .Howeve.r,. if the df.!btor ,does not transf.e_r the conside,ra-:t,io.n. but rather keeps it then the first transfer is not fraudulent. Furthe.r, "the initial transferee must have a,ctual or construct:Lve _lcn-owle<;i_ge of the entire .scheme that re_nders the exchange- with the
·.tjep.tor f:raudulent" ("se'e, In re M. -Fabrikant &. Sons Inc., ·.3-94 BR 721 [United States Ba·nkruptcy Court s:o.:uthern bistri.ct o_f" N.ew York
2>ooa J ) •
In this case none. of the elements o.f the collapsing doctrine
.are present. Firs·t, the debtor di"d ·not. gratuitously tran.s.f er the ·p_r-oc.eeq_s to any t.hird pa-rty. Rather_, s·ome of the proc~~ds were used to s:ati-sf.y a debt ow·ea to Dushey and the remainder of the proceeds were :retained by Isaac. Second, th.ere is. no allegation that Dusheyi tbci initial ttansferee, had any tnbwledge of any
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.scheme· ·to defraud. the plaintiff. t:-3'-or could Dus.hey possibly have .a_ny sue}} kJ:"l.Qwledge of a!l.y int_ent t:o defx;a_ud Isa_ac s_ince .nq j\idge::inent had even been obtained arid thus. there was ho fraudulent .a.ctlvi.ty. Es·sentia1ly, the plaintiff argues that in 2017 Isaa.c
thought that perh,aps he may owe the plaintiff money ciue to a iawsui t commenced. two years ea·rlier and embarked upon a ~rnheine-.
Pursuant t.o. this -scl:1.eme Isaac wo.uld sell prope·rty to Dushey (to satisfy a debt) then wait three years and allow Dushey to sell the property to h:i,.-s son Meil;' for full v-alue be.lievin:9 that at some future point he rnay los-e the-. lawsuit to .the plainti!f.. Even if all those facts are true that do.e-s not atiege any frauciulent conveyance f9.r the rea·9:ons e_xplain.ed. Therefo--r.et the motion seeking_ to dismiss all causes of action :pursuant to Debtor_ Credi tor Law ·§27 6 is granted, Conseque·ntly , ·there cah b"e no claims against Met.t pursuant to Debtor Creditor Law §278 a.nd the motion seeking to dismiss all those claims is likewise. granted. T.hus, • the motions ~eek:i.:ng tq qismis-s the entire complaint is
.fully granted.
..;
.So ordered.
ENTER:
DATED: Febr:uary ,?3, 2024 Brooklyn N.Y. Bon.
JSC
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