Techno-Comp Inc. v. Arcabascio
MEMORANDUM & ORDER: Arcabascio's 25 Motion to Dismiss for Failure to State a Claim is granted in part and denied in part. Techno-Comp's fraud, tortious interference with contract, conversion, and unjust enrichment claims ar e dismissed. Techno-Comp may proceed with its claims under DCL §§ 273, 274, 2 76, and 278. Techno-Comp's 17 Motion to Amend its complaint is denied with leave to renew within thirty days of the date of this order. So Ordered by Judge Sandra L. Townes on 9/3/2015. (Lee, Tiffeny)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
MEMORANDUM & ORDER
- against -
14-cv-5152 (SL T) (VMS)
TOWNES, United States District Judge,
Plaintiff Techno-Comp, Inc. ("Techno-Comp") filed this action on September 9, 2014,
invoking the Court's diversity jurisdiction to recover monies from Defendant Anthony
Arcabascio. Currently before the Court are (1) defendant's motion to dismiss pursuant to Rule
12(b)(6) of the Federal Rules of Civil Procedure, and (2) plaintiffs cross-motion seeking leave
to amend the complaint. For the following reasons, Arcabascio's motion to dismiss is granted in
part and denied in part and Techno-Comp's cross-motion to amend is denied with leave to renew
within thirty days of the date of this order.
During the second half of2007, Techno-Comp, a New Jersey corporation, and Crimson
Technologies, Inc., ("Crimson"), a New York corporation entered into an agreement
("Agreement") under which Techno-Comp would provide consulting services to Crimson.
Crimson is owned and controlled by Arcabascio and his business partner, Maria
Connelly, both residents of New York. Per the Agreement, Connelly represented to TechnoComp's president, Sanjay Gundala, that Crimson would "promptly" pay Techno-Comp for
services rendered. (Compl.
Thereafter, Techno-Comp provided consulting services to Crimson, but Crimson paid
only a few of the many invoices sent by Techno-Comp. (Compl. ~ 13.) Connelly and Gundala
exchanged emails about Crimson's failure to make payments, in which Connelly allegedly
misled Techno-Comp into continuing to provide services despite Crimson's non-payment. For
example, on October 3, 2008, Connelly emailed Gundala that she had sent a check in the mail,
however several weeks later, on October 24, 2008, Connelly admitted that no check had been
20-21.) By April 2009, all ofTechno-Comp's contracted for services had been
rendered to Crimson. At that point, Crimson's outstanding balance to Techno-Comp was over
According to plaintiff's complaint, on March 28, 2013, Techno-Comp filed a complaint
against Crimson and Connelly in the Superior Court of New Jersey, captioned Techno-Comp Inc.
v. Crimson Technologies Inc. and Maria Connelly. ("New Jersey Action") (Compl.
Techno-Comp's complaint alleged, among other things, that Connelly's actions constituted fraud
and conversion. In the New Jersey Action, on June 18, 2013, a default judgement order was
entered against Connelly and Techno-Comp. (Exhibit #4, Deel. of Michael S. Hom.)
Arcabascio was not joined as a party in the New Jersey Action.
When filing the New Jersey Action, Techno-Comp was unaware that there was a pending
bankruptcy case involving Connelly. On or about April 12, 2010, Connelly had filed a voluntary
petition for relief under Chapter 7 of the United States Bankruptcy Code, 11 U.S.C. §§ 101, et
seq. On June 19, 2013, Techno-Comp filed a motion to reopen Connelly's bankruptcy case to
add Techno-Comp as a creditor. (Compl.
47.) On August 5, 2013, the Bankruptcy Court
granted Techno-Comp's motion. Accordingly, on September 19, 2013, Techno-Comp filed an
adversarial proceeding seeking recovery for Connelly's fraudulent and negligent
49.) Discovery is currently ongoing in that case. (Compl.
During discovery in the bankruptcy proceedings, Techno-Comp learned from
Arcabascio's bank records that from August 2008 to December 2009, there were numerous
transfers of funds from Crimson's accounts to Arcabascio's personal account, including transfers
that took place after Techno-Comp had rendered its services and was owed payment. Indeed, the
last four transfers occurred at a time when the company was insolvent. (Compl.
Additionally, Crimson's 2009 federal tax returns revealed that Crimson loaned Arcabascio
41.) Connelly testified that the loan amount exceeded any funds that
Arcabascio had put into Crimson. (Compl.
42.) Further, Techno-Comp alleges that Crimson
had drawn down its business line of credit with Wilbur National Bank.
On September 9, 2014, Techno-Comp commenced the instant action against Arcabascio
for money damages in the amount of $177,450 - the amount due to Techno-Comp under the
contract. The Complaint alleges (1) tortious interference with a contract, (2) fraud, (3)
fraudulent conveyance under New York Debtor and Creditor Law§§ 273, 274, 276, and 278, (4)
unjust enrichment, and (5) conversion.
Motion to Dismiss
A. Legal Standard
Arcabascio brings this motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules
of Civil Procedure, arguing that Techno-Comp failed to state a claim upon which relief can be
granted, and that the claims are barred by res judicata.
A complaint must plead "enough facts to state a claim to relief that is plausible on its
face." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim is plausible "when
the plaintiff pleads factual content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
"[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of
misconduct, the complaint has alleged-but it has not 'show[n]'-'that the pleader is entitled to
relief."' Id. at 679 (quoting Fed. R. Civ. P. 8(a)(2)). All factual allegations contained in the
complaint are assumed true, however this assumption is "inapplicable to legal conclusions" or
"[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory
statements." Id. at 678.
A pleading that does nothing more than recite conclusory statements is
inadequate to "unlock the doors of discovery." Id. at 678-679.
A court is generally restricted
to consider only facts stated in the complaint and documents incorporated therein by reference.
Roth v. Jennings, 489 F.3d 499, 509 (2d Cir. 2007).
B. Techno-Comp 's Complaint is not Barred by Res Judicata
As a preliminary matter, Arcabascio argues that this action is barred by the doctrine of
res judicata because Techno-Comp sued Crimson and Connelly for claims arising out of
Crimson's breach of the Agreement in the New Jersey Action and failed to join Arcabascio in
"[A] federal court must give to a state-court judgment the same preclusive effect as
would be given that judgment under the law of the State in which the judgment was rendered."
Migra v. Warren City Sch. Dist. Bd. of Educ., 465 U.S. 75, 81 (1984); 28 U.S.C. § 1738.
Accordingly, this Court gives the default judgment entered against Crimson and Connelly in the
New Jersey Action the same preclusive effect as it would have in a New Jersey state court.
New Jersey applies the so-called 'entire controversy doctrine,' which "is essentially New
Jersey's specific, and idiosyncratic, application of traditional resjudicata principles." Rycoline
Products, Inc. v. C & W Unlimited, 109 F.3d 883, 886 (3d Cir. 1997); see also McNeil v.
Legislative Apportionment Comm 'n ofState, 177 N.J. 364, 395 (2003) (describing the "closely
linked concepts of res judicata and the entire controversy doctrine"). The entire controversy
doctrine "embodies the principle that the adjudication of a legal controversy should occur in one
litigation in only one court; accordingly, all parties involved in a litigation should at the very
least present in that proceeding all of their claims and defenses that are related to the underlying
controversy." Wadeer v. New Jersey Mfrs. Ins. Co., 220 N.J. 591, 605 (2015) (citations and
quotation marks omitted). "In determining whether a subsequent claim should be barred ... , the
central consideration is whether the claims against the different parties arise from related facts or
the same transaction or series of transactions." Id. (citations and quotation marks omitted). "It is
the core set of facts that provides the link between distinct claims" and there "is no requirement
that there be a commonality oflegal issues." Id. (citations and quotation marks omitted).
However, the "polestar of the application of the rule is judicial fairness." Id. (citations and
quotation marks omitted). Thus, "[t]he entire controversy doctrine is inapplicable to, and does
not apply to bar component claims either unknown, unarisen or unaccrued at the time of the
original action." Thurman v. Lindenwold Ctr. LLC, No. A-5364-12T4, 2015 WL 998716, at *6
(N.J. Super. Ct. App. Div. Mar. 9, 2015). "When 'considering fairness to the party whose claim
is sought to be barred, a court must consider whether the claimant has had a fair and reasonable
opportunity to have fully litigated that claim in the original action."' Id. (quoting Gelber v. Zito
P'ship, 147 N.J. 561, 565 (1997).
In New Jersey, a default judgment is "a valid and final adjudication on the merits" and
may be given preclusive effect. Garris-Bey v. Aurora Loan Servs., LLC, No. CIV.A. 11-6115
JLL, 2012 WL 694719, at *2 (D.N.J. Mar. 1, 2012); Mori v. Hartz Mountain Dev. Corp., 193
N.J. Super. 47, 56 (N.J. App. Div. 1983) ("[T]he entire controversy should be invoked,
notwithstanding that a default judgment has been entered," where a party, "with full knowledge
of the earlier litigation, withheld his legal fire."). However, under the circumstances here, given
the procedural posture of the case, the Court cannot determine that the entire controversy
doctrine bars Techno-Comp's claims. Techno-Comp alleges that it dealt exclusively with
Connelly and was unaware of the allegedly fraudulent conveyances made by Arcabascio until
late 2013 during discovery in the adversarial proceeding in Connelly's bankruptcy. Given that
Techno-Comp did not discover Arcabascio's allegedly fraudulent conveyances until after the
June 18, 2013 default judgment order was entered, at this juncture while drawing all reasonable
inferences in Techno-Comp's favor, it would be unfair to apply the entire controversy doctrine to
bar claims against Arcabascio.
C. Choice of Law
Techno-Comp's common law claims arise under either New York or New Jersey law. A
federal court sitting in diversity applies the choice-of-law principles of the state in which it sits.
Klaxon Co. v. Stentor Electric Manufacturing Co., 61 S.Ct. 1020 (1941 ). In undertaking the
choice of law analysis, New York courts first address whether an actual conflict of laws exists.
In re Allstate Ins. Co. (Stolarz), 81N.Y.2d219, 223 (1993). If there is a conflict of law, New
York Courts apply an "interest analysis" to decide which state's law to apply. Conney v. Osgood
Mach, Inc., 81N.Y.2d66, 72 (1993); Auten v. Auten, 308 N.Y. 155, 161 (1954) (noting "the
merit of [the interest analysis test] approach is that it gives to the place having the most interest
in the problem paramount control over the legal issues arising out of a particular factual context)
(quotation marks and citation omitted). In deciding which jurisdiction's law to apply in a tort
dispute, courts consider "the significant contacts are, almost exclusively, the parties' domiciles
and the locus of the tort." Schultz v. Boy Scouts of Am., Inc., 65 N.Y.2d 189, 197 (1985).
Here, the parties agree that there are multiple actual conflicts of law. Arcabascio is a
resident of New York and his company, Crimson, operates out of New York. Techno-Comp is a
New Jersey corporation. The causes of action arise out of Arcabascio's allegedly fraudulent
conduct in New York. Additionally, Techno-Comp, which provides the only link to New Jersey,
argues that New York law should apply. Given that the interactions at the heart of this case all
occurred in New York, and that the only link to New Jersey - the plaintiff - advocates for the
application of New York law, this Court finds that New York has the greatest interest in
resolving the instant action. Accordingly, the Court will apply New York law.
D. Techno-Comp 's Fraud Claims Are Not Pleaded With Sufficient Particularity
Techno-Comp brings a common law fraud claim on the grounds that Arcabascio
represented to the outside world that Crimson was a legitimate company, while, in reality, the
corporation could not pay its debts because Arcabascio was diverting its funds into his personal
accounts. (Compl. ,-i 59.) The complaint alleges, in a conclusory fashion, that Techno-Comp
relied on these representations when it agreed to provide computer consulting services to
Crimson. (Compl. ,-i 60.)
Under New York law, the elements of a fraud claim are "misrepresentation or
concealment of a material fact, falsity, scienter by the wrongdoer, justifiable reliance on the
deception, and resulting injury." Zanett Lombardies, Ltd. v. Maslow, 29 A.D.3d 495 (N.Y. App.
Div. 1st Dep't 2006). Rule 9(b) of the Federal Rules of Civil Procedure requires that allegations
of fraud be pleaded with particularity. Fed. R. Civ. P. 9(b). This heightened pleading
requirement is intended to '"provide a defendant with fair notice of a plaintiffs claim, to
safeguard a defendant's reputation from improvident charges of wrongdoing, and to protect a
defendant against the institution of a strike suit."' Rombach v. Chang, 355 F.3d 164, 171 (2d
Cir. 2004) (quoting 0 'Brien v. Nat 'l Property Analysts Partners, 936 F.2d 674, 676 (2d Cir.
Under Rule 9(b ), a fraud claimant must allege "the time, place, speaker, and sometimes
even the content of the alleged misrepresentation." Ouakine v. MacFarlane, 897 F.2d 75, 79 (2d
Cir. 1990). However, "[ m]alice, intent, knowledge, and other condition of mind of a person may
be averred generally." Fed. R. Civ. P. 9(b). "Thus, while the actual ... fraud alleged must be
stated with particularity[,] ... the requisite intent of the alleged perpetrator of the fraud need not
be alleged with great specificity." Wight v. BankAmerica Corp., 219 F.3d 79, 91 (2d Cir. 2000).
Rule 9(b) does not do away with Rule 8(a); rather, the Court must "balance the requirements
of Rule 9(b) and their overall purposes with the requirements of notice pleading under Rule
8(a)." Goldin Associates, L.L.C. v. Donaldson, Lufkin & Jenrette Sec. Corp., No. 00 CIV.
8688(WHP), 2003 WL 22218643, at *6 (S.D.N.Y. Sept. 25, 2003).
As noted above, a fraud claimant must allege "the time, place, speaker, and sometimes
even the content of the alleged misrepresentation." Ouakine, 897 F.2d at 79. Thus, a plaintiff's
complaint cannot survive a motion to dismiss if it does not allege any specific communications
whatsoever with the defendant. See Mills v. Polar Molecular Corp., 12 F.3d 1170, 1175 (1993)
(in a securities fraud case, noting that "Rule 9(b) is not satisfied where the complaint vaguely
attributes the alleged fraudulent statements to 'defendants"' and "[t]he mere fact that the
[individual defendants] were controlling persons at [the defendant company] does not link them
to the statements;" Rule 9(b) requires that "plaintiffs ... allege that the [individual defendants]
personally knew of, or participated in, the fraud") (emphasis in original).
Here, the complaint alleges in a conclusory fashion that Techno-Comp relied on
Arcabascio's fraudulent misrepresentations of Crimson's legitimacy. But the complaint does not
include any factual allegations of any specific statement or representation made by Arcabascio to
Techno-Comp, let alone any false or misleading statements. 1 The only specific statements
alleged in the complaint - made in a series of emails beginning in October 2008 - were made by
Connelly. There is no reason to impute those statements to Arcabascio. 2 Therefore, plaintiff has
failed to meet the heightened pleading requirement of Rule 9(b) and Arcabascio' s motion to
dismiss Techno-Comp's fraud claim is granted.
E. Techno-Comp's Tortious Interference with Contract and Conversion Claims are TimeBarred
Arcabascio argues that Techno-Comp's claims for tortious interference with contract and
conversion are time barred by the three-year statute of limitations applicable to such claims.
Techno-Comp responds that the statute of limitations should be tolled because it did not learn of
Arcabascio's conduct until 2013.
Under New York law, claims for tortious interference with contract and conversion are
governed by a three-year statute oflimitations. St. John's Univ., New York v. Bolton, 757 F.
In support of its opposition, Techno-Comp submits the declaration of its president,
which this Court does not consider because of the procedural posture of the case. However, the
Court observes that Gundala declares that "[a]t the time when the agreement was formed
between T echno-Comp and Crimson, [she] was not aware of the existence of Anthony
Arcabascio ... [and] was led to believe by Connelly that she was the only owner of Crimson and
... would be the only person that [sic] would control the funds that were designated to be paid to
Techno-Comp." (Deel. of Gundala ~ 4.)
Indeed, Connelly's October 2008 misstatements have already been the basis of a lawsuit
by Techno-Comp against Connelly and Crimson. (Hom Deel. Ex. 1, New Jersey Action Compl.,
Supp. 2d 144, 174, 179 (E.D.N.Y. 2010) (citingN.Y. C.P.L.R. §§ 214(3), (4)). Tortious
interference with contract claims accrue when the injury is sustained, not at the time the plaintiff
discovers the injury. Kronos, Inc. v. AVXCorp., 612 N.E.2d 289, 292 (N.Y. 1993). Likewise,
conversion claims accrue from the time of theft regardless of a plaintiff's knowledge of the
conversion. Solomon R. Guggenheim Found v. Lubell, 77 N. Y.2d 311, 318 (1991 ). Here,
Techno-Comp's tortious interference with contract claim accrued when Crimson breached its
contract in April 2009, when Techno-Comp completed all of the consulting services due under
the Agreement and Crimson failed to promptly pay nine outstanding invoices. (Compl. if l 6.)
Thus, Techno-Comp had until April 2012 to commence its tortious interference with contract
claims. Techno-Comp's conversion claim accrued at the time of theft, at the latest, December
2009 - the date of the last transfer from Crimson to Arcabascio. (Comp!. if39hh.) Thus, TechnoComp had until December 2012 to commence its conversion action. However, this action was
not commenced until September 2, 2014, and, accordingly, Techno-Comp's tortious interference
with contract and conversion claims are time barred unless the applicable statutes of limitations
There are certain circumstances under which a court will toll the statute of limitations.
Under the doctrine of equitable tolling, the statute of limitations may be tolled if: "(1) the
plaintiff timely filed the complaint in the wrong forum, (2) the defendant actively misled the
plaintiff, or (3) the plaintiff in some extraordinary way had been prevented from complying with
the limitations period." O'Hara v. Bayliner, 82 N.Y.2d 636, 646 (1997). As relevant here, the
"statute of limitations may be tolled while a defendant fraudulently conceals facts that would
have alerted the plaintiff to his cause of action." Solow v. Stone, 994 F. Supp. 173, 182 (1998).
Allegations of fraudulent concealment are held to the heightened pleading requirements set out
in Rule 9(b). Armstrong v. McAlpin, 699 F.2d 79, 90 (2d Cir. 1983) (finding statute of
limitations not tolled by "generalized and conclusory allegations of fraudulent concealment[,
which] do not satisfy the requirements of Rule 9(b).").
Techno-Comp's complaint does not plead any basis for tolling. Techno-Comp does not
allege that it filed its complaint in the wrong forum. Indeed, it did not commence the New Jersey
Action until March 28, 2013, after the New York limitations period had already run. Nor does
Techno-Comp allege that it was prevented from complying with the limitations period by any
extraordinary circumstances. Nowhere in the complaint does Techno-Comp allege fraudulent
concealment, let alone with particularity. Indeed, the complaint does not allege any conduct by
Arcabascio after 2009 that might have impeded Techno-Comp in filing a timely complaint.
Accordingly, since Techno-Comp has failed to allege facts sufficient to justify tolling the
limitations period, the claims for tortious interference with contract and conversion are dismissed
F. Techo-Comp 's Unjust Enrichment Claims are not Adequately Pleaded
Techno-Comp alleges that Arcabascio was unjustly enriched when he took money from
Crimson, because Crimson received Techno-Comp's consulting services and neither Crimson
nor Arcabascio ever paid for those services.
"[T]he theory of unjust enrichment lies as a quasi-contract claim and contemplates an
obligation imposed by equity to prevent injustice, in the absence of an actual agreement between
the parties." Georgia Malone & Co. v. Rieder, 19 N.Y.3d 511, 516 (2012) (internal citations and
quotation marks omitted). It is "rooted in the equitable principle that a person shall not be
allowed to enrich himself unjustly at the expense of another." Id. Under New York law, to state
a claim for unjust enrichment, a plaintiff must allege "(I) that the defendant benefitted; (2) at the
plaintiffs expense; and (3) that equity and good conscience require restitution." Kaye v.
Grossman, 202 F.3d 611, 616 (2d Cir. 2000). "[T]he essential inquiry in any action for unjust
enrichment ... is whether it is against equity and good conscience to permit the defendant to
retain what is sought to be recovered." Sperry v. Crompton Corp., 8 N.Y.3d 204, 215 (2007).
An unjust enrichment claim will be dismissed if the connection between the parties is
"too attenuated." Sperry, 8 N.Y.3d at 216. New York courts have not enunciated a clear test for
determining whether a relationship is "too attenuated." However, it is clear that privity is not
required. Id. Nor does New York law "require an unjust enrichment plaintiff to plead 'direct
dealing,' or an 'actual, substantive relationship' with the defendant." Waldman v. New Chapter,
Inc., 714 F. Supp. 2d 398, 403 (E.D.N.Y. 2010) (collecting cases for the proposition that an
indirect purchaser may bring an unjust enrichment claim against the manufacturer of an endproduct, but may not sue the manufacturers of its component parts). However, some minimum
dealings or contacts are required. Georgia Malone & Co. v. Rieder, 19 N.Y.3d 511, 517-18
(2012) (holding there could be no unjust enrichment claim where the parties "simply had no
dealings with each other" and no "contact regarding the purchase transaction" from which
defendant benefited, although the defendant "knew at all times" that plaintiff was providing
In Georgia Malone, the New York Court of Appeals affirmed the Appellate Division,
First Department's rejection of an "awareness" standard, under which a defendant could be liable
for accepting a benefit while "aware" that the plaintiff was owed compensation for its services.
Id. ("[M]ere knowledge that another entity created [a benefit without receiving compensation] is
Cf Bradkin v. Leverton, 26 N. Y.2d 192, 198 (1970) (holding that corporation insider
who learned of an opportunity from the plaintiff and privately arranged to take it himself, thereby
depriving his corporation of the opportunity and the plaintiff of his finder's fee "obtained the
benefit of the plaintiffs labors and must compensate him for such services.").
insufficient to support a claim for unjust enrichment."). The Appellate Division had reasoned
A mere awareness standard would result in liability for anyone who simply knew
of the plaintiff's existence. Similarly, ... an unjust enrichment claim can[not] exist
solely because defendants may have profited, in one form or another, from
plaintiff's work [because s]uch a broad reading improperly expands the claim of
unjust enrichment, absent any contention that defendants induced plaintiff to do the
work. It is this lack of reliance or inducement that is fatal to the unjust enrichment
claim against the third parties[.]
Georgia Malone & Co. v. Rieder, 86 A.D.3d 406, 409 aff'd by Georgia Malone, l 9 N. Y.3d 511.
Likewise, in Mandarin Trading Ltd. v. Wildenstein Mandarin, the Court of Appeals rejected an
attempt by the buyer of a painting to sue the provider of an inflated appraisal letter for unjust
enrichment because the connection between the buyer and the appraiser was too attenuated. 16
N.Y.3d 173, 182 (2011). The court observed that the pleadings failed to establish a relationship
between the parties that would have caused reliance or inducement. Id. ("[T]here are no indicia
of an enrichment that was unjust where the pleadings failed to indicate a relationship between the
parties that could have caused reliance or inducement."). Together, Georgia Malone and
Mandarin Trading teach that some relationship between the plaintiff and defendant which would
justify the plaintiff's expectation of payment is required.
Here, the connection between Arcabascio and Techno-Comp is too attenuated to support
a claim for unjust enrichment. Techno-Comp does not allege that Arcabascio and Techno-Comp
had any relationship, dealings or contact. The complaint does not allege that Arcabascio knew of
Crimson's agreement with Techno-Comp. Moreover, while the complaint is filled with factual
allegations of conversations between Connelly and Techno-Comp, it is devoid of any
interactions between Arcabascio and Techno-Comp, let alone any interactions which could have
caused reliance or inducement. Accordingly, the unjust enrichment claims are dismissed.
G. Techno-Comp's Fraudulent Conveyance Claims Survive
Techno-Comp alleges that, as a creditor of Crimson, it has a claim against Arcabascio for
fraudulently transferring funds to himself instead of paying Techno-Comp in violation of New
York Debtor and Creditor Law ("DCL") §§ 273, 274, 276 and 278. (Compl. if 69.)
A. DCL § 276
To survive a motion to dismiss on a DCL § 276 claim, a plaintiff must allege that a
defendant acted with "actual intent to hinder, delay, or defraud" creditors and must plead its
allegations with particularity as required by Rule 9(b). Atlanta Shipping Corp., Inc. v. Chem.
Bank, 818 F.2d 240, 251 (2d Cir. 1987); DCL § 276. Due to the difficulty of proving intent,
plaintiffs may rely on "badges of fraud" - "circumstances so commonly associated with
fraudulent transfers that their presence gives rise to an inference of intent." In re Sharp Int 'I
Corp., 403 F.3d 43, 56 (2d Cir. 2005) (internal citation and quotation marks omitted). The
"badges of fraud" include: "a close relationship between the parties to the alleged fraudulent
transaction; a questionable transfer not in the usual course of business; inadequacy of the
consideration ... and retention of control of the property by the transferor after the conveyance."
Id. "Of course, the flip side of these badges of fraud is that their absence-or evidence that fair
consideration was paid, the parties dealt at arm's-length, the transferor was solvent, the transfer
was not questionable or suspicious, the transfer was made openly, or the transferor did not retain
control-would constitute evidence that there was no intent to defraud." Lippe v. Bairnco Corp.,
249 F. Supp. 2d 357, 375 (S.D.N.Y. 2003).
Here, the complaint does not provide any direct evidence of intent to defraud, but does
include a number of factual allegations that support an inference that Arcabascio took money
from Crimson with an intent to defraud its creditors. First, there is a close relationship between
the parties to the alleged fraudulent transaction. Arcabascio was one of the two co-owners of
Crimson. Second, the transfers were not made in the usual course of business. The complaint
alleges that the $943,129 loan given by Crimson to Arcabascio "far exceeded" any amount of
money that Arcabascio put into Crimson (Compl.
42), and Arcabascio had no commercial basis
to move over $130,000 of the Crimson's funds to his personal bank account in a series of over 30
cash transfers. (Compl.
39-40.) Third, there was no adequate consideration, or indeed, any
consideration, given by Arcabascio to Crimson in exchange for the loan or cash transfers.
Finally, the timing of these conveyances is suspicious. Arcabascio took cash out of the
Crimson's accounts when Techno-Comp was owed money and the last four transfers took place
when Crimson was insolvent. These allegations are sufficient to plead a claim for a fraudulent
conveyance undertaken with intent to defraud under DCL § 276.
B. DCL §§ 273, 274
In addition to 'actual' fraud, New York law permits fraudulent conveyance claims based
on 'constructive' fraud. "Constructive fraud may be defined as a breach of duty which,
irrespective of moral guilt and intent, the law declares fraudulent because of its tendency to
deceive, to violate a confidence, or to injure public or private interests which the law deems
worthy of special protection." Brown v. Lockwood, 76 A.D.2d 721, 730-731 (N.Y. App. Div. 2d
Dep't 1980). Under DCL §§ 273-274, a conveyance by a debtor is constructively fraudulent if it
is made without "fair consideration" and if either (1) the transferor is insolvent or will be
rendered insolvent by the transfer in question, DCL § 273, or (2) the transferor is engaged in or is
about to engage in a business transaction for which its remaining property constitutes
unreasonably small capital, DCL § 274. Such claims need not be pleaded with particularity
under Rule 9(b ), but instead, "the pleading standards of Rule 8 ... apply, subject, of course, to
the 'plausibility' requirements of Iqbal and Twombly." Safety-Kleen Sys., Inc. v. Silo gram
Lubricants Corp., No. 12-CV-4849 ENV CLP, 2013 WL 6795963, at *6-8 (E.D.N.Y. Dec. 23,
Here, there is no claim that Arcabascio gave any consideration for either the $943, 129
loan or over $130,000 in cash he took from Crimson. (Compl. ,-i,-i 39-41.) Moreover, it is
undisputed that Techno-Comp qualifies as a creditor of Crimson under DCL § 270. Finally, the
complaint sufficiently alleges that transfers were made at a time when the company was nearing
insolvency, and indeed, the last four cash transfers took place when Crimson was insolvent, and
2009 - the year of the $943, 129 loan - was Crimson's last year in operation. (Com pl. ,-i,-i 40-41.)
Arcabascio's assertions that Techno-Comp has failed to plead intent to defraud are irrelevant, as
intent is not an element of a fraud claim under DCL §§ 273 and 274. HBE Leasing Corp. v.
Frank, 48 F.3d 623, 633 (2d Cir. 1995) ("[A] transfer made [from an insolvent or near insolvent
entity] without fair consideration constitutes a fraudulent conveyance, regardless of the intent of
the transferor."). Accordingly, Techno-Comp's DCL§§ 273 and 274 claims are sufficiently
C. N.Y. DCL § 278
DCL § 278(1) provides:
Where a conveyance or obligation is fraudulent as to a creditor, such creditor, when
his claim has matured, may, as against any person except a purchaser for fair
consideration without knowledge of the fraud at the time of the purchase, or one
who has derived title immediately or immediately from such a purchaser,
a. Have the conveyance set aside or obligation annulled to the extent necessary to
satisfy his claim, or
b. Disregard the conveyance and attach or levy execution upon the property
"The purpose of the remedy fashioned by D.C.L. § 278 is to grant the creditor the right 'to be
paid out of assets to which he is actually entitled and to set aside the indicia of ownership which
apparently contradict that right."' Gasser v. lnfanti Int'!, Inc., 353 F. Supp. 2d 342, 356
(E.D.N.Y. 2005) (internal citation omitted).
Here, as the Court has already explained, Techno-Comp's complaint sufficiently alleges
that the conveyances in question were fraudulent, and thus, Techno-Comp may move to set them
Plaintiff's Cross-Motion to Amend
Courts freely grant leave to amend pleadings "when justice so requires." Fed. R. Civ. P.
l 5(a)(2). After responsive pleadings have been filed, a party may amend its pleading "by leave
of court or by written consent of the adverse party." Id. A "district court has discretion to deny
leave for good reason, including futility, bad faith, undue delay, or undue prejudice to the
opposing party." Holmes v. Grubman, 568 F.3d 329, 334 (2d Cir. 2009) (internal quotation
marks omitted). "A proposed amendment to a pleading would be futile if it could not withstand
a motion to dismiss pursuant to Rule 12(b)(6)." Martin v. Dickson, 100 F. App'x 14, 16 (2d Cir.
June 2, 2004) (summary order); See Hayden v. County of Nassau, 180 F.3d 42, 53 (2d Cir. 1999)
("[W]here the plaintiff is unable to demonstrate that he would be able to amend his complaint in
a manner which would survive dismissal, opportunity to replead is rightfully denied.").
Techno-Comp moves to amend its complaint to add additional factual allegations about
the Agreement, the New Jersey Action, Connelly's bankruptcy proceedings, and additional
financial records. However, the factual allegations the plaintiff seeks to add would not alter the
Court's analysis. The additional factual allegations only confirm that Techno-Comp was not
aware of Arcabascio at the time that it entered into the Agreement and their relationship has
remained attenuated - thus, Techno-Comp cannot state a claim for fraud or unjust enrichment
against Arcabascio. Likewise, the factual allegations are irrelevant to the timeliness of the
tortious interference with contract and conversion claims. Thus, the motion for leave to amend is
denied because the proposed amendments would be futile. If Techno-Comp nevertheless desires
to amend its complaint to add further factual allegations in support of its remaining claims under
the DCL, it may renew this motion by submitting a pre-motion conference letter and attaching its
proposed amended complaint within 30 days of the date of this order.
Arcabascio's motion to dismiss is granted in part and denied in part. Techno-Comp's
fraud, tortious interference with contract, conversion, and unjust enrichment claims are
dismissed. Techno-Comp may proceed with its claims under DCL §§ 273, 274, 276, and 278.
Techno-Comp's motion to amend its complaint is denied with leave to renew within thirty days
of the date of this order.
s/Sandra L. Townes
lsANDRArL~ TOwNES l
United States District Judge
Dated: Brooklyn, New York
September 2> , 2015
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?