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Appeals Court Upholds Pleading of Fraudulent Conveyance Cause of Action in Condo Board’s Action Against Sponsor

A Condominium Board of Managers sued the Sponsor and two of the Sponsor’s principals, alleging defective design and construction. The complaint also asserted claims for fraudulent conveyance under New York Debtor and Creditor Law §§ 273 and 274, claiming that the Sponsor transferred assets to its principals.  These sections provide that a transfer of assets will be deemed fraudulent as to creditors, without regard to the transferor’s actual intent, if the transfer was made without fair consideration and leaves the transferor either insolvent or with unreasonably small capital.

A lower court dismissed the fraudulent transfer claims, finding that the Board failed to establish that it was a creditor of the Sponsor, but an appeals court has reinstated the claims.  The court noted that for purposes of the fraudulent conveyance laws, a “creditor” includes any “person having any claim, whether matured or unmatured, liquidated or unliquidated, absolute, fixed, or contingent.”  Here, the Board has asserted a claim against the Sponsor for breach of contract and therefore was considered a creditor, “even though said cause of action was unmatured at the time of the alleged conveyances.”

In addition, while defendants argued that the claims were pleaded without the level of detail required for a fraud claim, the court held that because “claims of violations of Debtor and Creditor Law §§ 273 and 274 do not require proof of actual intent to defraud, such claims are not required to be pleaded with the particularity” applicable to claims based on an actual intent to defraud. Board of Managers of East River Tower Condominium v. Empire Holdings Group, LLC, 2019 N.Y. Slip Op. 6587, 2019 N.Y. App. Div. LEXIS 6621 (2d Dep’t Sept. 18, 2019).