Skip to main content

A recent federal decision is instructive on the elements of fraudulent transfer claims and the type of evidence needed to prove such claims. Rosario v. 251 East 123rd Street Realty, LLC, No. 1:20-CV-07387, 2021 U.S. Dist. LEXIS 100664 (S.D.N.Y. May 27, 2021). The plaintiff in this case had obtained two judgments against an LLC and the sole member of the LLC. One month after the second judgment was docketed, the LLC member had a deed recorded, reflecting that he had transferred the LLC’s real property to a trust for the benefit of family members, for no consideration. Although the deed was recorded shortly after the judgments were docketed, it bore a date nine months earlier. The transfer rendered the LLC insolvent.

Plaintiff asserted that the deed reflected a fraudulent transfer and should be set aside. Defendants contended that the transfer was not fraudulent because it had occurred before the judgments were docketed. The court disagreed, observing that the transfer undisputedly took place after the underlying litigation was commenced, thereby creating a potential debtor-creditor relationship, even if the judgment had not yet been entered. Defendants also argued that the transfer had not rendered all the parties insolvent, but the court held there is no such requirement.

Defendants further argued that the transfer did not reflect an intent to commit fraud, but that it was an estate-planning transaction undertaken in order to manage family property given the LLC member’s failing health. The court rejected this contention as well, observing that this individual had been in failing health for three years, and where the transfer took place just eight days before the trial was to begin in the underlying litigation.

Defendants had sought to address the fraudulent transfer claim by re-conveying the property back to the LLC. The court held that the re-transfer did not render the issues moot, because there was no evidence that the beneficiaries of the trust to which the property had purportedly been transferred consented to the re-transfer or whether their consent would be required, moreover, even if such re-transfer had been effectuated it would not obviate the fraudulent act. The court held that the deed transferring the property was void, thereby putting the property undisputedly back in the LLC’s name and making it available to satisfy plaintiff’s judgments. Having granted rescission, the court declined to award plaintiff money damages for the fraudulent transfer, but did allow plaintiff to recover his reasonable attorneys’ fees.