On June 5, 2024, the Second Department issued a decision in Louis Monteleone Fibres, Ltd. v. Hudson Baylor Brookhaven, LLC, 2024 NY Slip Op. 03039, discussing the role of scienter in fraudulent conveyance claims:
Pursuant to the version of Debtor and Creditor Law § 273 applicable at the time of the subject conveyances, a conveyance that renders the conveyor insolvent is fraudulent as to creditors without regard to actual intent, if the conveyance was made without fair consideration. Pursuant to the version of Debtor and Creditor Law § 274 applicable at the time of the subject conveyances, a conveyance is fraudulent as to creditors without regard to actual intent when it is made without fair consideration when the person making it is engaged or is about to engage in a business or transaction for which the property remaining in his or her hands after the conveyance is an unreasonably small capital. The version of Debtor and Creditor Law § 275 applicable at the time of the subject conveyances provided that a conveyance made without fair consideration at a time when the person making the conveyance intends or believes that he or she will incur debts beyond his or her ability to pay as they mature, is fraudulent as to both present and future creditors. Pursuant to this constructive fraud provision, a conveyance made by a person who has a good indication of oncoming insolvency is deemed to be fraudulent. To constitute fair consideration, the value given in exchange must be fairly equivalent and proportionate to the value of the property conveyed. A creditor for the purposes of these former Debtor and Creditor Law sections is defined as any person having any claim, whether matured or unmatured, liquidated or unliquidated, absolute, fixed or contingent.
Here, the amended complaint alleged sufficient facts to state causes of action alleging fraudulent conveyances pursuant to Debtor and Creditor Law former §§ 273, 274, and 275. Valid claims of violations of Debtor and Creditor Law former §§ 273, 274, and 275 do not require proof of actual intent to defraud and are not required to be pleaded with the particularity required by CPLR 3016(b). The plaintiff sufficiently alleged that it is a creditor of HBB and, thereby a creditor of the Core defendants, Joseph Winters, and WBGSIH since it asserted a breach of contract cause of action against HBB, even though that cause of action was unmatured at the time of the alleged conveyances. Accordingly, the Supreme Court properly denied those branches of the separate motions of the Core defendants and Joseph Winters and WBGSIH which were pursuant CPLR 3211(a) to dismiss the tenth through twelfth causes of action insofar as asserted against each of them.
Pursuant to Debtor and Creditor Law former § 276, every conveyance made with actual intent to hinder, delay, or defraud either present or future creditors is fraudulent. The requisite intent required by this section need not be proven by direct evidence, but may be inferred from the circumstances surrounding the allegedly fraudulent transfer. In determining whether a conveyance was fraudulent, the courts will consider badges of fraud, which are circumstances that accompany fraudulent transfers so commonly that their presence gives rise to an inference of intent. A pleading asserting a cause of action pursuant to Debtor and Creditor Law former § 276 is required to be pleaded with particularity. When, however, the operative facts are peculiarly within the knowledge of the party alleged to have committed the fraud, it may be impossible at the early stages of the proceeding for the plaintiff to detail all the circumstances constituting the fraud. Accordingly, the pleading requirement will be deemed to have been met when the facts are sufficient to permit a reasonable inference of the alleged conduct. A prime example of this type of fraud is where a debtor transfers his [or her] property to another while retaining the use thereof so as to continue in business free from the claims of creditors.
Here, the plaintiff alleged facts establishing sufficient indicia of fraud to support a cause of action of actual fraud pursuant to Debtor and Creditor Law former § 276, including that HBB’s agents sought to put off the plaintiff by continuing settlement negotiations, while simultaneously transferring HBB’s and/or GS’s assets among the Core defendants and Joseph Winters and WBGSIH, removing HBB from the agreement, and having other companies controlled by Joseph Winters and Core continue to provide recycling services for the Town. Accordingly, the Supreme Court properly denied those branches of the separate motions of the Core defendants and Joseph Winters and WBGSIH which were pursuant CPLR 3211(a) to dismiss the thirteenth cause of action insofar as asserted against each of them.
(Internal quotations and citations omitted).