Tom, J.P.
At issue is whether defendant Sofia Frankel's conveyance of a Manhattan condominium apartment to her son, defendant Michael Frankel, was constructively fraudulent pursuant to Debtor and Creditor Law §§ 273-a and 278. This Court concludes that the transaction fails to comply with the good faith requirement of section 272 of the statute and was without fair consideration. Thus, the transfer was properly set aside.
During the time Sofia Frankel was employed as a broker for Goldman Sachs & Co., plaintiffs entrusted her with some $19 million to invest on their behalf, and they remained her clients when she later left Goldman to join Lehman Brothers, Inc. By 2004, however, plaintiffs alleged that they had sustained more than $9.6 million in losses as a result of Sofia's fraudulent churning of their account. They commenced arbitration proceedings before the Financial Industry Regulatory Authority (FINRA) in May of that year, naming Sofia and Lehman Brothers
Within days after the October 2008 award was issued, Sofia met with David Pratt, a partner at the firm of Proskauer Rose LLP, to engage the firm's services. Proskauer's attorney time records for November 2008 describe a conversation of November 7 "with Sofia and Michael re: asset protection plan," followed two days later by a conversation "with Michael Frankel re: asset protection planning." The various items under consideration included the "sale/transfer of NY Condos," "homestead waiver issues," the "option of filing claim in bankruptcy court to obtain indemnification for arbitration award" and "efforts to identify insurance coverage or indemnification for arbitration award."
At the time the award was rendered, Sofia's assets included (1) a beachfront condominium apartment in Miami Beach, Florida owned with her husband, Yan Frankel, as tenants in the entirety and claimed as a homestead; (2) a condominium apartment in Manhattan also owned with her husband as tenants in the entirety; (3) a condominium apartment in Manhattan owned by Sofia in fee simple (the subject apartment); (4) a 100% ownership interest in Applied Medicals LLC, a medical supply company headquartered in Florida; and (5) sole interest in a Fidelity Investment account valued at $4,052,813.16.
The asset protection plan was put into action in early 2009. In January, Sofia withdrew $3,296,431.51 from her Fidelity account, depleting its value to $16,371.88. That same month, she paid $2.9 million in cash for another beachfront condominium apartment in Miami Beach, title to which is unencumbered and held solely in her name. This property, also claimed by Sofia as a homestead, is the subject of another action pending in Miami-Dade County, Florida.
At some time before August 25, 2009, Sofia's sole interest in Applied Medicals LLC was relinquished when Michael became a 10% member of the company. Florida law provides that a court may "order a judgment debtor to surrender all right, title, and interest in the debtor's single-member LLC to satisfy an outstanding judgment" (Olmstead v Federal Trade Commn., 44 So.3d 76,
Finally, on February 20, 2009, Sofia transferred fee simple title to the subject apartment, which had previously been appraised at $1.175 million, to Michael for one dollar and other valuable consideration. This action to set aside the conveyance ensued.
The complaint alleges five causes of action: (1) fraudulent conveyance in violation of Debtor and Creditor Law §§ 273-a and 278; (2) fraudulent conveyance in violation of Debtor and Creditor Law §§ 275 and 278; (3) fraudulent conveyance in violation of Debtor and Creditor Law §§ 276, 276-a and 278; (4) resulting trust under section 7-1.3 of the Estates, Powers and Trusts Law; and (5) constructive trust. In their respective answers, defendants alleged that they had entered into an oral agreement in late 1999 under which Michael was to purchase the apartment and, thus, they assert that the conveyance of the premises in February 2009 was merely the culmination of defendants' existing obligations under this agreement.
Thereafter, plaintiffs moved for summary judgment on the record. Defendants submitted opposing affidavits outlining the terms of the 1999 oral agreement.
In their opposing affidavits, defendants suggest that Michael's payment of the carrying charges over the last 10 years constitutes past consideration for their written 2009 agreement to transfer the premises and, as expressed by Sofia, that such amount is not "disproportionately small when viewed in the context of the entire transaction." Apart from their self-serving
Supreme Court granted summary judgment on plaintiffs' first cause of action. The court reasoned that while payment of the carrying expenses might constitute past consideration sufficient to make out a valid contract, such consideration must be expressed in a writing (General Obligations Law § 5-1105). Because the documentary evidence does not show that the past consideration "was bargained for in exchange for a promise to sell buyer the unit ... expressed in writing as payments of a sum certain at a date certain and said to be consideration for the promise," the court held that defendants had failed to demonstrate that such payments comprise fair consideration under Debtor and Creditor Law § 272 (2012 NY Slip Op 32601[U], *6, citing Delacorte v Transcontinental Land & Cattle Corp., 127 Misc.2d 707, 709 [Sup Ct, NY County 1985]).
On appeal, defendants argue that summary judgment was improperly granted because genuine issues of fact preclude the finding that the transfer of the condominium apartment to Michael was constructively fraudulent. They contend that Michael took title to the premises in good faith as part of an executory contract with his mother to convey the property to him on his 30th birthday. Further, defendants assert that the motion court improperly applied the statute of frauds to void their 2009 agreement transferring title to Michael.
As this Court observed long ago, "It is difficult to see how the [s]tatute of [f]rauds can be availed of to set aside a completed transaction" (De Hierapolis v Reilly, 44 App Div 22, 24 [1st Dept 1899], affd 168 N.Y. 585 [1901]). Any flaw in the motion court's reasoning notwithstanding, the record fails to support defendants' contention that the conveyance was made pursuant to a previous agreement rather than as part of an asset protection plan contrived to insulate property from the claims of judgment creditors.
Plaintiffs' first cause of action alleges that the subject conveyance was fraudulent under Debtor and Creditor Law §§ 273-a
Debtor and Creditor Law § 278 provides that a fraudulent conveyance may be set aside on behalf of a creditor whose claim has matured "as against any person except a purchaser for fair consideration without knowledge of the fraud at the time of the purchase." Debtor and Creditor Law § 273-a provides:
It is uncontested that arbitration proceedings before FINRA had been concluded and an award rendered against Sofia Frankel prior to the transfer of the condominium apartment to Michael. It is further uncontested that the ensuing judgment against Sofia has not been satisfied. An arbitration proceeding is "an action for money damages" under the statute (Dixie Yarns, Inc. v Forman, 906 F.Supp. 929, 936 [SD NY 1995]), and whether the conveyance should be set aside turns on whether it was made for fair consideration (see Cabrera v Ferranti, 89 A.D.2d 546 [1st Dept 1982], appeal dismissed 67 N.Y.2d 869 [1986]).
"Fair consideration" under Debtor and Creditor Law § 272 is not only a matter of whether the amount given for the
To prevail on their claim that the conveyance of the subject condominium apartment meets the requirements of Debtor and Creditor Law § 273-a, defendants must demonstrate that Sofia was a good-faith seller of the property under section 272 or that Michael Frankel was a good-faith purchaser for fair consideration without knowledge of any fraud under section 278 (see Gitlin v Chirinkin, 98 A.D.3d 561, 562 [2d Dept 2012]). Where the transferor has knowledge of a judgment, the transfer of funds available to satisfy the judgment made at the judgment debtor's direction will be set aside as lacking in good faith (see Berner Trucking v Brown, 281 A.D.2d 924, 925 [4th Dept 2001]). Likewise, where the transferee is aware of an impending enforceable judgment against the transferor, the conveyance does not meet the statutory good faith requirement and generally will be set aside as constructively fraudulent (see Matter of Lipsitz, Green, Fahringer, Roll, Salisbury & Cambria v Upstate Bldg. Corp., 262 A.D.2d 981 [4th Dept 1999]).
By citing In re Sharp Intl. Corp. (403 F.3d 43, 54 n 4 [2d Cir 2005], citing HBE Leasing Corp. v Frank, 61 F.3d 1054, 1059 n 5 [2d Cir 1995]) for the proposition that, in a constructive fraudulent conveyance action, the requirement to exercise good faith is limited to the transferee, defendants do not accurately portray New York law (see Matter of Bernasconi v Aeon, LLC, 105 A.D.3d 1167,
It is apparent that Sofia's conveyance of the subject Manhattan condominium apartment to her son was but one of a series of transactions undertaken as part of an "asset protection plan" devised with the assistance of counsel immediately after the arbitration award was rendered against her. The emptying of a brokerage account, the purchase of Florida real estate claimed as a homestead and the transfer of the subject apartment held in fee simple demonstrate not merely a series of transactions coincidental to estate planning, as her affidavit intimates, but a concerted effort to place her assets beyond the reach of impending judgment creditors. Finally, the addition of Michael as a member of Applied Medicals LLC, of which Sofia was formerly the sole member, precludes plaintiffs from obtaining an order from a Florida court directing the surrender of her entire interest in the company to satisfy the award against her. Notably, defendants do not contend that Sofia acted in good faith, and the record before us affords no basis for such finding.
While the lack of good faith on the part of Sofia, as transferor, affords a sufficient basis to set aside this transfer as constructively
The attempt to represent the conveyance of the subject apartment as simply the culmination of an outstanding agreement between mother and son is unavailing. As an initial consideration, an agreement must be sufficiently definite so that a court can ascertain and apply its terms, and the burden of establishing the provisions of a purported contract rests on the proponent (see Allied Sheet Metal Works v Kerby Saunders, Inc., 206 A.D.2d 166, 169 [1st Dept 1994]; Paz v Singer Co., 151 A.D.2d 234, 235 [1st Dept 1989]). This Court has observed that "the primary purpose of a contract is not to serve as a vehicle for litigation but to document the respective rights and obligations of the parties to a particular transaction" (Charles Hyman, Inc. v Olsen
Even accepting the terms of the purported 1999 agreement as related by Michael in his opposing affidavit, no contract was formed. He states that at the approach of his 30th birthday, the parties would "obtain an appraisal and opinions regarding the fair rental values" and calculate a purchase price by subtracting from the arrived-at appraisal value various credits for payments made by Michael towards the mortgage, carrying charges, taxes and capital improvements less the estimated rental or use-and-occupancy value of the premises. No financing terms are set forth beyond the recital that "[t]he net balance owed would be reflected in a promissory note to my mother."
The lack of definite terms is fatal to defendants' contention that the transfer was made subject to an executory contract. What can be discerned from their description of their understanding is a failure to reach a binding agreement on material terms, that is, an agreement to enter into a future contract. As stated in Joseph Martin, Jr., Delicatessen v Schumacher, (52 N.Y.2d 105, 109-110 [1981] [citations omitted]), "it is rightfully well settled in the common law of contracts in this State that a mere agreement to agree, in which a material term is left for future negotiations, is unenforceable. This is especially true of the amount to be paid for the sale or lease of real property." It is equally true with respect to financing (see Willmott v Giarraputo,
That no dispute arose with regard to the contract terms is merely fortuitous. Had either party to the purported agreement chosen to ignore it, the other would have been without recourse. Nor are defendants aided by the doctrine of part performance. The amount ultimately agreed upon as the fair value for Michael's use and occupancy of the apartment between 1999 and 2009 ($322,300) is roughly the same as the amount he actually paid in expenses for the premises during that time period ($343,733.66). Therefore, his payments are not "unequivocally referable to the oral agreement" so as to constitute "`acts of part performance which go along with, relate to, and confirm the agreement, ... and thus with the parol evidence establish the existence of the agreement'" (Bright Radio Labs. v Coastal Commercial Corp., 4 A.D.2d 491, 494 [1st Dept 1957] [internal quotation marks omitted], affd 4 N.Y.2d 1021 [1958], quoting Wheeler v Reynolds, 66 N.Y. 227, 231-232 [1876]). To the contrary, the facts conceded by defendants fail to demonstrate that, prior to the February 2009 conveyance of the apartment, Michael was anything more than a month-to-month tenant paying less than fair market rent for the premises. As to defendants' suggestion that the 2009 agreement to transfer title was supported by past consideration, the amounts previously paid by Michael exceed the use and occupancy value agreed upon by defendants by a mere $21,433.66, a little more than 2% of the purchase price. As plaintiffs point out, when the transfer tax and filing charge are taken into account, the amount of past
In sum, the record amply demonstrates that Sofia's transfer of the apartment to her son was made in the absence of good faith. The purported oral agreement of 1999 does not constitute a binding agreement, and no other evidence has been provided sufficient to raise a question of fact as to the absence of good faith or fair consideration. Finally, Michael has not alleged, let alone demonstrated, that he was a good-faith purchaser for value without knowledge of the fraud at the time of conveyance so as to render immaterial the lack of good faith in making the conveyance. Once again, this was clearly indicated by Michael's participation in the asset protection plan with his mother and Proskauer Rose before the 2009 alleged transfer.
Accordingly, the order and judgment (one paper) of the Supreme Court, New York County (Eileen A. Rakower, J.), entered November 9, 2012, which, to the extent appealed from as limited by the briefs, granted plaintiffs' motion for summary judgment on their first cause of action to set aside the transfer of a condominium unit by debtor Sofia Frankel to her son Michael Frankel as a fraudulent conveyance under Debtor and Creditor Law §§ 273-a and 278, dismissed Sofia Frankel's fourth affirmative defense based on a 1999 oral agreement to convey the subject condominium to Michael Frankel, and dismissed Michael Frankel's first counterclaim based on the 1999 oral agreement for a declaration that he is the rightful owner of the condominium, should be affirmed, with costs.
Order and judgment (one paper), Supreme Court, New York County, entered November 9, 2012, affirmed, with costs.