CPLR 6201, CPLR 3211(a)(1), CPLR 3211(a)(7), Order of Attachment, Motion to Dismiss, Fraudulent Transfer
By: Ivelina Popova | Staff Writer
VNB New York Corp. (“Plaintiff”) extended credit to non-party Unique Gems, Inc. (“Unique”). Defendant Michael Braun (“Braun”) and his wife served as the personal guarantors for such credit by mortgaging their home (“Monsey Property”) as collateral. Unique, however, defaulted on the loans. Several months later, Plaintiff sent a notice of default and payment demand to Unique and Braun. Before Plaintiff’s action against Braun commenced, Braun transferred another property, located at 88 Morton St, Unit 90, Brooklyn, NY (“Property”), to Defendant and relative Eliezer Rappaport (“Rappaport”), for no consideration. Importantly, the transfer accompanied a document indicating that the Property belonged to Rappaport and Braun’s name would remain on the deed for security until all mortgage payments were completed.
Later, Plaintiff applied for a restraining order prohibiting the transfer or sale of the Property. By an Order to Show Cause, Plaintiff moved to attach the Property, alleging that: (1) the transfer of the Property was without consideration; (2) Rappaport received the benefit of the transfer; (3) Braun was insolvent at the time, or rendered insolvent as a result of the transfer; 4) the transfer was made at a time Braun believed he would incur debts beyond his ability to pay as they matured and with the intent to defraud creditors in violation of sections §§ 273, 274, 275, 276, and 276-a of the Debtor and Creditor Law. In opposition, Rappaport cross-moved to dismiss the action on two bases: (1) pursuant to a handwritten document dated and signed by Braun, Rappaport was the owner of the Property despite the deed listing only Braun; (2) the Debtor and Creditor Law causes of action must fail because he had provided consideration by paying the loan on the Property.
Rappaport’s cross-motion to dismiss, arguing that: (1) Rappaport’s handwritten document was missing Braun’s signature, making the date it was written questionable; (2) Rappaport failed to provide an explanation as to why the Property was not transferred earlier; (3) the transfer occurring months after the default notices were sent supports Plaintiff’s claim the transfer was fraudulent; and (4) the Monsey Property would not be sufficient to cover the entire amount of the outstanding loan.
The Court denied Rappaport’s motion to dismiss and granted Plaintiff’s Order of Attachment with respect to the Property. First, the Court found the Plaintiff’s claims under the Debtor and Creditor Law were sufficient to withstand the motion. To succeed under the claims of the Debtor and Creditor Law, a plaintiff must prove: that the transfer was without consideration, the transferee received the benefit of the transfer, transferor was insolvent at the time, or rendered insolvent as a result of the transfer, and that the transfer was made at a time the transferor believed he would incur debts beyond his ability to pay and with the intent to defraud creditors. Here, Plaintiff alleged sufficient arguments to support such claims because Rappaport was unable to demonstrate the Property was transferred in exchange for consideration. Simply put, both Defendants admitted they transferred the property in an attempt to shield the Property from creditors after Braun became aware of his inability to pay significant judgments he owed. Moreover, both Defendants failed to present documentary evidence proving Rappaport was the owner of the Property or that he paid the mortgage on the property.
Second, the Court held that granting an Order of Attachment was warranted in this case because Plaintiff had submitted sufficient documentary evidence demonstrating that it will likely succeed on its Debtor and Creditor Law causes of action. To retrieve an Order of Attachment of property in a suit, a party must prove the required elements: (1) the plaintiff has demanded and would be entitled, in whole or in part, or in the alternative, to a money judgment against one or more defendants; (2) the defendant, with intent to defraud his creditors or frustrate the enforcement of a judgment that might be rendered in plaintiff’s favor, has assigned, disposed of, encumbered or secreted property, or removed it from the state or is about to do any of these acts. Here, Plaintiff put forth sufficient evidence of both elements because it showed: (1) that it sent numerous notices of default and demand of payment; (2) that there were the following “badges of fraud” that permit the inference of fraud: a familial relationship between defendants, the quick transfer after notices of default were sent, no actual proof Rappaport made payments towards the purchase of the Property, and that both Defendants admitted the Property was transferred to protect it from creditors seeking recovery from Braun.
VNB New York, as successor in interest by merger to VNB New York Corp., LLC v. Eliezer Rappaport and Michael Braun, Index No.508810/2015, 1/29/16 (Demarest, J.).