Opinion
Index No. 57464/2023 Motion Seq. 1
12-08-2023
SCOTT GREENBERG and ANNA MASSION- GREENBERG, Plaintiff, v. WESTCHESTER COUNTRY CLUB, INC., E. VINCENT IORIO a/k/a VINCENT IORIO, and EASTRIDGE CONSTRUCTION MANAGEMENT CORPORATION, Defendants.
Unpublished Opinion
DECISION & ORDER
HAL B. GREENWALD, J.S.C.
In an action to set aside various checks from Eastridge Construction Management Corporation (Eastridge) to Westchester Country Club, Inc. (WCC) as fraudulent transfers to avoid satisfaction of a judgment against Eastridge and Vincent Iorio, defendants move for an order dismissing the complaint pursuant to CPLR 3211 (a)(5) on the ground that the applicable statute of limitations has run and/or dismissing the third cause of action pursuant to CPLR 3211 (a)(7) for failing to state a cause of action (Motion Seq. 1).
Papers Considered
NYSCEF Doc. Nos. 9-12,15-33
1. Notice of Motion/Affirmation of Leonard Spielberg, Esq./Exhibit A/Memorandum of Law
2. Affidavit of Robert C. Lubus, Jr., Esq. in Opposition/Exhibit 1/Affirmation of Todd Strassberg, Esq. in Opposition/Exhibits 1-7/Memorandum of Law
3. Affirmation of Leonard Spielberg, Esq. in Reply/Exhibit 1/Memorandum of Law
Discussion
By way of background, plaintiffs commenced this action by filing a summons and complaint on March 5, 2023. Non-party Meridian Development Corp. (Meridian), an entity owned and/or controlled by Iorio, provided home renovation work on plaintiffs' property in Greenwich, Connecticut. Plaintiffs became unhappy with the work and Meridian filed a demand for arbitration in March 2017. In October 2017, defendant Eastridge was joined into the arbitration. (Iorio is the president of Eastridge.) In May 2018, a final judgment was entered in the Superior Court of the State of Connecticut's Judicial District of Stamford in favor of plaintiffs and against Meridian and Eastridge in the sums of $176,049.00 with interest, $22,500.00 in liquidated damages, $3,604.00 in compensation for a joinder arbitrator, along with fees and expenses. There is now due and owing the sum of $187,959.59 with interest on the $176,049.00 amount. On July 30, 2019, the Connecticut judgment was domesticated in New York under Westchester County Supreme Court index No. 61272/2019.
The complaint alleges that Eastridge issued seven checks to defendant WCC for charges incurred by Iorio. The dates of the checks range from March 6, 2017 to October 26, 2017 in amounts from $300.00 to $4,321.96. Each of the checks were signed by Iorio. The complaint further alleges that Eastridge is not a member of WCC and that these transfers occurred after September 20, 2016, or the date Eastridge had incurred the indebtedness to plaintiffs, and that all transfers except the first one occurred after the commencement of the arbitration.
The complaint further alleges that these transfers were, among other things, made without fair consideration or good faith, rendered Eastridge insolvent, made at a time when Eastridge believed it would incur debts, and made with actual intent to hinder, delay or defraud present or future creditors of Eastridge.
The complaint asserts three causes of action: (1) fraudulent transfers in violation of DCL §§ 273, 274, 275, 276, 278 and/or 279; (2) constructive fraud in violation of DCL § 273-a; and (3) actual fraud entitling them to attorney's fees pursuant to DCL § 276-a.
Defendants now move, pre-answer, for an order dismissing the complaint pursuant to CPLR 3211 (a)(5) on the ground that the applicable statute of limitations has run and/or dismissing the third cause of action pursuant to CPLR 3211(a)(7) for failing to state a cause of action.
In support, defendants contend that the complaint should be dismissed because all the claims in the complaint are untimely because they are untimely under Connecticut law. Defendants also contend that the third cause of action for actual fraud must be dismissed because the complaint fails to allege the elements of fraud.
Defendants contend that the essential elements of fraud are: (1) "misrepresentation or a material omission of fact which was false and known to be false by defendant"; (2) "made for the purpose of inducing the other party to rely upon it"; (3) "justifiable reliance of the other party on the misrepresentation or material omission"; and "injury" (defendants' mem. of law at 7).
In opposition, plaintiffs submit an affidavit from Robert C. Lubus, Jr., Esq., an attorney who represented plaintiffs in the arbitration, wherein he attests that on September 30, 2021, he applied for an "Examination of Judgment Debtor Hearing" in that matter and was granted a hearing date of December 15, 2021. A hearing notice and subpoena were issued in December 2021. The hearing was extended and eventually held in mid-February 2022, but the deponent did not provide any of the subpoenaed records. A subsequent hearing with another deponent (Iorio) was scheduled, extended and eventually conducted on August 9, 2022, wherein Iorio for the first-time produced bank statements from Sterling National Bank (Sterling Bank).
Plaintiffs contend that they first became aware of Sterling Bank, the bank that issued the subject checks, on August 9, 2022 and commenced this action seven months later. Plaintiffs further contend that defendants had objected to producing any information before January 2018, but defendants knew the corporate bank accounts were active in 2017 and that they had become dormant in 2018. Plaintiffs argue that, among other things, the Sterling Bank records were withheld and/or concealed and those records are private in nature as opposed to publicly filed records like land deeds.
As to the third cause of action, plaintiffs contend that it is sufficient to identify the sender, recipient, amounts, and approximate date of the challenged transfers.
Dismissal of the Complaint pursuant to CPLR 3211(a)(5)
CPLR 202 provides:
An action based upon a cause of action accruing without the state cannot be commenced after the expiration of the time limited by the laws of either the state or the place without the state where the cause of action accrued, except that where the cause of action accrued in favor of a resident of the state the time limited by the laws of the state shall apply.
Since plaintiffs are out-of-state, for this action to be timely it must be within the statute of limitations under Connecticut State law (National Auditing Servs. &Consulting, LLC v Assa, 217 A.D.3d 503, 503 [1st Dept 2023]).
Conn. Gen. Stat. § 52-552j provides, in relevant part:
A cause of action with respect to a fraudulent transfer or obligation under sections 52-552a to 52-552I, inclusive, is extinguished unless action is brought: (1) Under subdivision (1) of subsection (a) of section 52-552e, within four years after the transfer was made or the obligation was incurred or, if later, within one year after the transfer or obligation was or could reasonably have been discovered by the claimant.
Thus, under Connecticut law, plaintiff had to bring its action: (A) within four years of the allegedly fraudulent transfers; or (B) within one year after the transfer could reasonably have been discovered by plaintiff.
There is no real dispute that the instant action is beyond the statute of limitations provided in the first prong. Plaintiff's memorandum of law concedes that the four-year statute of limitations expired on October 12, 2022 for the most recent transaction, which includes a 346-day tolling period resulting from Executive Orders enacted by Governor Ned Lamont, and the instant action was commenced on March 5, 2023.
Therefore, dismissal of the complaint turns on whether plaintiffs brought this action within one year after the alleged transactions were or "could reasonably have been discovered by the claimant" (Conn. Gen. Stat. § 52-552j[1]). Plaintiffs contend that they only discovered the transactions (or the existence of the Sterling Bank account) on August 9, 2022 when Iorio disclosed bank statements from Sterling Bank in post-judgment discovery and that they brought this action seven months thereafter. However, defendants contend that plaintiffs do not account for their three-year delay (or two-year delay after Covid-19 tolling provisions are considered) in seeking post-judgment discovery. Its defendants' position that the second prong of Section 52-552j is not applicable to this case because plaintiffs were not diligent in their efforts to conduct postjudgment discovery.
Here, there is an unexplained 22-month gap in post-judgment discovery from the award of the Connecticut judgment in May 2018 to the March 2020 shutdown resulting from Executive Orders in response to the Covid-19 pandemic. Among all of defendants' arguments in support of their application to dismiss the complaint, the lack of diligence during that period before the Covid-19 shutdown is the strongest. A similar period of inactivity during post-judgment discovery was addressed in Felshman v Yamali (2011 NY Slip Op 33110[U] [Sup Ct, Nassau County 2011]) and Felshman v Yamali (106 A.D.3d 948 [2d Dept 2013]).
Initially, the lower court in Felshman found:
As the judgment in this matter was obtained on June 21, 2007, plaintiff could have discovered the alleged fraudulent transfer shortly thereafter through reasonable diligence by the use of post-judgment discovery. Plaintiff served an information subpoena on or about July 9, 2007, but never sought enforcement of same until two years thereafter. In an order by Justice Marilyn G. Diamond, dated June 24, 2009. Justice Diamond held that "plaintiff has inexplicably taken almost two years after the issuance of these subpoenas to seek their enforcement." It strains credibility that the plaintiff could not have discovered the alleged fraudulent transfers shortly after the judgment was awarded in June 2007 (2011 NY Slip Op 33110[U] at *2-3 [emphasis added]).
However, on appeal, the Second Department disagreed with the lower court's conclusion holding instead that:
since it is unclear when the plaintiff should have first been aware of the alleged fraud, the defendants failed to establish that the causes of action alleging actual fraud under Debtor and Creditor Law § 276 should be dismissed as time-barred (106 A.D.3d at 949).
The Panel reached its determination after noting that:
[a] cause of action based upon actual fraud under Debtor and Creditor Law § 276 must be brought within six years of the date that the fraud or conveyance occurs, or within two years of the date the fraud should have been discovered, whichever is longer (id. [internal quotation marks and citation omitted]).
Consequently, the Felshman cases make clear that defendants cannot establish when plaintiffs should have first been aware of the fraudulent transfers by pointing to gaps in post-judgment discovery. The facts before the Court establish that plaintiffs became aware of the Sterling Bank account, from which the subject checks were drawn, on August 9, 2022, and plaintiff commenced this action seven months later.
Accordingly, the branch of defendants' motion to dismiss the complaint as beyond the statute of limitations is DENIED.
Dismissal of the Third Cause of Action pursuant to CPLR 3211(a)(7)
The third cause of action realleges all the prior allegations levied in the complaint and seeks attorney's fees pursuant to DCL § 276-a. Plaintiffs' entitlement to attorney's fees hinges on their success with their claim pursuant to DCL § 276 (see Trinity Centre LLC v Prosurance Brokerage Assoc., Inc., 2020 NY Slip Op 31770(11), *5 [Sup Ct, New York County 2020]). Now, as to the pleading sufficiency of the third cause of action, CPLR 3016(b) provides:
[w]here a cause of action or defense is based upon misrepresentation, fraud, mistake, wilful default, breach of trust or undue influence, the circumstances constituting the wrong shall be stated in detail.
"To adequately plead a cause of action based upon DCL § 276, which involves an intent to defraud, plaintiff is required to comply with the pleading requirements of CPLR 3016(b)" (Trinity Centre LLC v Gen Media Partners LLC, 2023 NY Slip Op 31978(U), *4 [Sup Ct, New York County 2023]). "Direct evidence of fraudulent intent is often elusive. Therefore, 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" (Pen Pak Corp, v LaSalle Nat'l Bank, 240 A.D.2d 384, 386 [2d Dept 1997] [internal quotation marks and citation omitted]). "Badges of fraud" can include:
(1) the close relationship among the parties to the transaction, (2) the inadequacy of consideration, (3) the transferor's knowledge of the creditor's claims, or claims so likely to arise as to be certain, and the transferor's inability to pay them, and (4) the retention of control of property by the transferor after the conveyance (id.).
Here, a close relationship is not alleged between Eastridge and WCC, rather the contrary is alleged, i.e., that Eastridge is not a member of WCC. However, that inures to plaintiffs' benefit on the second "badge," wherein plaintiff alleges the transfers were without consideration. As for the third "badge," a creditor's "claim" under the DCL is defined as a right to payment, whether or not the right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured (DCL § 270 [c] [emphasis added]).
The complaint alleges that the transfers all took place after September 20, 2016, or the date Eastridge had incurred the indebtedness to plaintiffs, and all transfers except the first one, occurred after the commencement of the arbitration. Given the arbitration commenced prior to all but one of the transfers, Eastridge and Iorio were on notice at the time of those transfers of plaintiffs claim, albeit disputed. Further, the complaint alleges the transfers rendered Eastridge insolvent and unable to pay its debts when they came due. The complaint does not allege the fourth "badge" as it would relate to Eastridge and Iorio.
On balance, plaintiffs allege sufficient "badges of fraud" to establish Eastridge and Iorio's intent to defraud plaintiffs thereby warranting denial of defendants' application (see Pen Pak Corp., 240 A.D.2d at 384). Defendants' arguments are inapposite to the pleadings here because defendants' arguments pertain to fraud premised on misrepresentation or material omission. However, plaintiffs' third cause of action is premised on actual fraudulent transfer pursuant to DCL § 276, which if proven, would entitle plaintiffs to attorney's fees pursuant to DCL § 276-a.
Accordingly, the branch of defendants' motion to dismiss the third cause of action for failing to state a cause of action is DENIED.
All other remaining contentions have been considered and are either without merit or rendered moot by the above determination.
Based on the foregoing, it is hereby ORDERED that defendants' motion (Motion Seq. 1) is DENIED in its entirety; and it is further
ORDERED that defendants shall answer the complaint within twenty (20) days of entry of this Decision and Order.