Greystone Bank v. Neuberg et al
Filing
23
MEMORANDUM AND ORDER denying 6 Motion to Dismiss; denying 15 Motion to Dismiss. For the foregoing reasons, the motions to dismiss (Docket Entries 6, 15) are DENIED. So Ordered by Judge Joanna Seybert on 8/25/11. C/ECF (Valle, Christine)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
------------------------------------X
GREYSTONE BANK,
Plaintiff,
-against-
MEMORANDUM AND ORDER
10-CV-5225 (JS)(ETB)
DAVID NEUBERG, MALKIE NEUBERG,
NEUBERG CHILDREN’S TRUST, IAN
RUBINSTEIN and TRUDY RUBINSTEIN,
Defendants.
------------------------------------X
APPEARANCES:
For Plaintiff:
Barry Felder, Esq.
Rachel Esther Kramer, Esq.
Foley & Lardner LLP
90 Park Avenue
New York, NY 10016
For Defendants:
Neuberg
Defendants:
Donald F. Schneider, Esq.
Schneider, Goldstein & Bloomfield, LLP
90 Broad Street, 6th Floor
New York, NY 10004
Rubinstein
Defendants:
Steven Andrew Weg, Esq.
Goldberg & Rimberg PLLC
115 Broadway, 3rd Floor
New York, NY 10006
SEYBERT, District Judge:
In
this
diversity
action,
Plaintiff
Graystone
Bank
sued Defendants David and Malkie Neuberg (the “Neubergs”), the
Neuberg Children’s Trust (the “Trust” and, with the Neubergs,
the “Neuberg Defendants”), and Ian and Trudy Rubinstein (the
“Rubinstein Defendants”) alleging constructive and actual fraud
arising
out
of
Plaintiff.
an
Both
alleged
the
scheme
Neuberg
to
shield
Defendants
and
assets
the
from
Rubinstein
Defendants moved to dismiss the Complaint; for the following
reasons, these motions are DENIED.
BACKGROUND
In
2008,
Plaintiff
approximately $3.7 million.
lent
Mr.
and
Mrs.
Neuberg
The loan was secured by a note (the
“Note”) and a mortgage (the “Mortgage”) on a property known as
15 Hoover Street in Inwood, New York (the “Hoover Property”).
The
Hoover
Property
was
owned
by
15
Hoover
LLC,
a
liability company of which the Neubergs are members.
7, 13-14.)
limited-
(Compl. ¶¶
In applying for the loan, the Neubergs submitted
financial statements indicating that they owned two homes: a
house in Lawrence, New York (the “Lawrence Property”) and a
condominium in Miami, Florida (the “Miami Property”).
(Compl. ¶
15.)
In
early
2009,
the
Neubergs
asked
Plaintiff
for
permission to transfer 75% of their interest in 15 Hoover LLC-and thus the majority ownership in the Hoover Property, the
property securing the Note--to Mr. Rubinstein.
Plaintiff’s
approval
of
the
transfer,
on
To help obtain
April
2,
2009
Mr.
Rubinstein gave Plaintiff a financial statement indicating that
he
owned
a
home
in
Woodmere,
2
New
York
(the
“Rubinstein
Property”).
(Compl. ¶¶ 17-19).
This statement was false--just
two weeks before he submitted the statement to Plaintiff, Mr.
Rubinstein conveyed the Rubinstein Property to Mrs. Rubinstein,
his wife, for no consideration.
this
false
statement,
and
(Compl. ¶ 20.)
in
exchange
for
In reliance on
Mr.
Rubinstein’s
guarantee on the loan, Plaintiff approved the transfer of 15
Hoover LLC from the Neubergs to Mr. Rubinstein.
(Compl. ¶ 21.)
At the same time Mr. Rubinstein was preparing to sign
the
guaranty,
the
Neubergs
were
preparing
to
transfer
the
Lawrence and Miami properties to the Trust (whose beneficiaries
are the Neubergs’ children) in an attempt to shield their assets
from Plaintiff.
The Neubergs executed a deed transferring the
Lawrence Property on April 1, 2009 and a deed transferring the
Miami Property on April 27, 2009.
until
after
Plaintiff
approved
the
Neither deed was recorded
loan
modification.
The
Lawrence deed was recorded on May 14, 2009 and the Miami deed
was recorded on June 11, 2009.
(Compl. ¶¶ 22-25.)
In January 2010, the Neubergs defaulted on the Note
and Mortgage.
The unpaid principal balance is approximately
$3.6 million.
Plaintiff commenced a foreclosure proceeding in
New York Supreme Court, Nassau County, naming the Neubergs as
borrowers and Mr. Rubinstein as guarantor.
pending.
(Compl. ¶ 26.)
3
That action remains
DISCUSSION
Plaintiff asserts three causes of action: (1) against
the Neuberg Defendants, a claim under Section 273 of New York’s
Debtor and Creditor Law (“Section 273”) for constructive fraud;
(2) against the Neuberg Defendants, a claim under Section 276 of
the Debtor and Creditor Law (“Section 276”) for actual fraud;
and (3) against the Rubinstein Defendants, a claim under Section
276 for actual fraud.
For the following reasons, the Nueberg
Defendants’ and Rubinstein Defendants’ motions to dismiss are
denied.
I. Legal Standard on a Motion to Dismiss
To survive a Rule 12(b)(6) motion, a plaintiff must
plead sufficient factual allegations in the complaint to “state
a claim [for] relief that is plausible on its face.”
Bell
Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S. Ct. 1955,
1974, 167 L. Ed. 2d 929, 949 (2007).
The complaint does not
need “detailed factual allegations[,]” but it demands “more than
labels
and
conclusions,
and
a
formulaic
elements of a cause of action will not do.”
recitation
of
the
Id. at 555.
In
addition, the facts pleaded in the complaint “must be enough to
raise
a
right
Determining
to
relief
whether
a
above
plaintiff
the
speculative
has
met
his
level.”
burden
Id.
is
“a
context-specific task that requires the reviewing court to draw
4
on its judicial experience and common sense.”
572 F.3d 66, 72 (2d Cir. 2009).
of
the
elements
of
a
cause
Harris v. Mills,
However, “[t]hreadbare recitals
of
action,
conclusory statements, do not suffice.”
supported
by
mere
Ashcroft v. Iqbal, __
U.S. __, 129 S. Ct. 1937, 1949, 173 L. Ed. 2d 868 (2009).
Additionally, under Federal Rule of Civil Procedure
9(b),
claims
pleading
sounding
requirement.
in
fraud
Under
are
this
subject
to
standard,
a
heightened
plaintiffs
must
“allege facts that give rise to a strong inference of fraudulent
intent.”
Cohen v. Cohen, __ F. Supp. 2d __, 2011 WL 1157283, at
*7 (S.D.N.Y. Mar. 29, 2011) (quoting Moore v. PaineWebber, Inc.,
189 F.3d 165, 173 (2d Cir. 1999)).
II. Application
The Court addresses the Neuberg Defendants’ and the
Rubinstein Defendants’ motions in turn.
A. The Neuberg Defendants’ Motion
The
Neuberg
Defendants
argue
that
Plaintiff’s
Complaint contains insufficient factual allegations to satisfy
the pleading requirements of either Rules 8 or 9(b).
disagrees.
1. Constructive Fraud under Section 273
Section 273 provides:
Every conveyance made and every obligation
5
The Court
incurred by a person who is or will be
thereby rendered insolvent is fraudulent as
to creditors without regard to his actual
intent if the conveyance is made or the
obligation
is
incurred
without
a
fair
consideration.
Plaintiffs maintain that the Neubergs transferred the Lawrence
Property
and
the
Miami
consideration,
and
that
the
that
to
these
the
Neuberg
Defendants
argue
Trust
transfers
(See Compl. ¶¶ 27-32).
Neubergs insolvent.
dismiss,
property
for
rendered
no
the
In their motion to
that
these
allegations
See Neuberg Br. at 4.
should be disregarded as conclusory.
Before turning to Plaintiff’s allegations, the Court
notes that Rule 8, not Rule 9, sets the pleading standard for
constructive fraudulent transfers.
Waite v. Schoenbach, No. 10-
CV-3439, 2010 WL 4456955, at *6 (S.D.N.Y. 2010); DLJ Mortg.
Capital,
Inc.
v.
Kontogiannis,
594
F.
Supp.
2d
308,
330
(E.D.N.Y. 2009); Care Environmental Corp. v. M2 Technologies,
Inc., No. 05-CV-1600, 2006 WL 148913, at * 10 (E.D.N.Y. 2006);
Eclaire Advisor Ltd. v. Daewoo Eng’g & Constr. Co., Ltd., 375 F.
Supp. 2d 257, 268 (S.D.N.Y. 2005).
But see Cargo Partner AG v.
Albatrans
86,
Inc.,
207
F.
Supp.
2d
115-16
(S.D.N.Y.
2002)
(adopting report and recommendation).
Accordingly, all that is
required
is
of
Plaintiff
at
this
stage
“a
short
statement” of facts giving rise to a plausible claim.
6
and
plain
See FED.
R. CIV. P. 8(a)(2).
Given the presumptions that arise from intra-family
transfers, the Court finds that Plaintiff’s constructive fraud
allegations are sufficient.
Ordinarily, even allegations made
“upon information and belief” must be supported by facts upon
which a plaintiff’s belief is founded, see Waite v. Schoenbach,
No. 10-CV-3439, WL 4456955, at *6-7 (S.D.N.Y. Oct. 29, 2010).
In
this
case,
presumptions.
though,
Plaintiff
gets
the
benefit
of
two
First, where a creditor challenges a transfer and
information about the consideration paid is exclusively within
the knowledge of the parties to the transfer, the parties to the
transfer have the burden of establishing that the consideration
was fair.
Gelbard v. Esses, 96 A.D.2d 573, 576, 465 N.Y.S.2d
264, 268 (2d Dep’t 1983).
an
intra-family
consideration.
This is true where, as here, there is
transfer
without
any
signs
of
tangible
United States v. Alfano, 34 F. Supp. 2d 827
(E.D.N.Y. 1999) (“Courts view intrafamily transfers made without
any
signs
fraudulent.”).
of
tangible
Second,
consideration
“insolvency
is
as
presumptively
presumed
when
a
conveyance is made without fair consideration, and the burden of
overcoming such presumption is on the transferee.”
Alfano, 34
F. Supp. 2d at 845 (citing Snyder v. United States, No. 88-CV2136, 1995 WL 724529, at *10 (E.D.N.Y. 1995)).
7
In
this
case,
Plaintiff
alleges
an
intra-family
transfer where the nature of the consideration paid, if any, is
outside its knowledge.
At the motion to dismiss stage, the
Court will presume the consideration to be inadequate and, in
turn, the transferors to be insolvent.
Plaintiff’s constructive
fraud allegations thus suffice to state a plausible claim for
See In re Norstan Apparel Shops, Inc., 367 B.R. 68, 79
relief.
(Bankr.
E.D.N.Y.
2007)
(“Thus
the
complaint,
when
read
most
favorably to the Committee, contains allegations which give rise
to
a
presumption
of
insolvency.
These
allegations
are
sufficient at the pleading stage.”).
The cases cited by the Neuberg Defendants in favor of
dismissal, Cargo Partner AG v. Albatrans Inc., 207 F. Supp. 2d
86
(S.D.N.Y.
Waite
v.
(S.D.N.Y.
Partner,
2002)
(adopting
Schoenbach, No.
Oct.
the
29,
court
report
10-CV-3439,
2010),
are
dismissed
a
and
2010
recommendation),
WL
4456955,
at
distinguishable.
In
constructive
claim
fraud
and
*6
Cargo
by
applying Rule 9(b)’s heightened pleading standard, which this
Court has already ruled inapplicable.
16.
207 F. Supp. 2d at 115-
More to the point, neither Cargo Partner nor Waite involved
intra family-transfers.
Cargo Partner, 207 F. Supp. 2d at 92;
Waite, 2010 WL 4456955, at *1.
Accordingly, the Neuberg Defendants’ motion to dismiss
8
Plaintiff’s constructive fraud claim is denied.
2. Actual Fraud under Section 276
Plaintiff’s
Defendants
also
actual
survives
fraud
the
claim
motion
against
to
the
dismiss.
Neuberg
Unlike
constructive fraud under Section 273, claims of actual fraud are
subject to Rule 9’s heightened pleading requirement.
2010 WL 4456955, at *5-6.
See Waite,
Section 276 provides that:
Every conveyance made and every obligation
incurred
with
actual
intent,
as
distinguished from intent presumed in law,
to hinder, delay, or defraud either present
or future creditors, is fraudulent as to
both present and future creditors.
According to Plaintiff, the Lawrence and Miami transfers were
made with actual intent to cheat Plaintiff out of its ability to
collect
on
the
Note.
(See
Compl.
¶¶
33-40.)
The
Neuberg
Defendants argue that Plaintiff has not alleged their fraudulent
intent with the requisite particularity (see Neuberg Br. at 5)
and that there is no allegation that the Trust, as the purported
transferee, had any fraudulent intent whatsoever (id. at 7.).
Neither argument is persuasive.
a. The Neubergs’ Fraudulent Intent
Plaintiff
fraudulent intent.
has
adequately
alleged
the
Neubergs’
Because fraudulent intent can be difficult
to prove, plaintiffs may rely on circumstances surrounding a
9
suspicious transfer that give rise to an inference of intent.
These
so-called
“badges
of
fraud”
include
“(1)
the
lack
or
inadequacy of consideration; (2) the family, friendship or close
associate relationship between the parties; (3) the retention of
possession, benefit or use of the property in question; (4) the
financial
condition
of
the
party
sought
to
be
charged
both
before and after the transaction in question; (5) the existence
or cumulative effect of a pattern or series of transactions or
course
of
financial
conduct
after
difficulties,
or
the
incurring
pendency
of
or
debt,
threat
onset
suits
of
of
by
creditors; and (6) the general chronology of the events and
transactions under inquiry.”
Sullivan v. Kodsi, 373 F. Supp. 2d
302, 306-07 (S.D.N.Y. 2005) (citing In re Kaiser, 722 F.2d 1574,
1582-83 (2d Cir. 1983)).
Plaintiff’s
badges.
allegations
touch
on
several
these
Plaintiff alleges a family relationship between the
transferors--a
husband
and
wife--and
the
transferee--a
whose beneficiaries are the transferors’ children.
8, 23.)
of
Trust
(Compl. ¶¶
Plaintiff also alleges a suspicious chronology--the
alleged fraudulent transfers coincide with the Neubergs’ loan
modification
application
and
Mr.
Rubinstein’s
fraudulent conduct in connection with that application.
22-24.)
allegedly
(Id. ¶¶
Further, Plaintiff alleges that the Neubergs hid the
10
transfers from Plaintiff by waiting until the loan modification
was
approved
to
record
the
transfers.
(Id.
¶
37.)
Taken
together, these alleged facts give rise to a strong inference of
fraud.
b. The Trust’s Fraudulent Intent
Plaintiff did not allege that the Trust, as opposed to
Mr.
and
Mrs.
Plaintiff,
and
Neuberg,
the
acted
Neuberg
to
hinder,
Defendants
delay
argue
actual fraud claim be dismissed as a result.
that
or
defraud
Plaintiff’s
Plaintiff did not
address this argument in its opposition, and there appears to be
conflicting authority as to whether a plaintiff alleging Section
276 claims must plead that both the transferor and transferee
acted with fraudulent intent.
Compare In re Marketxt Holdings
Corp., 361 B.R. 369, 396 (Bankr. S.D.N.Y. 2007) (plaintiff must
plead fraud of both transferor and transferee) with In re Bruno
Machinery Corp., 435 B.R. 819, 853-54 (Bankr. N.D.N.Y. 2010)
(transferor’s
intent
is
dispositive).
The
Court
thinks
the
better view is that the transferor’s intent is what matters, and
consequently it is not persuaded that the actual fraud claim
should
be
dismissed
for
Plaintiff’s
1999);
In
Oakmont,
re
Inc.,
Jacobs,
234
394
to
allege
the
See Sec. Investor Prot. Corp. v.
Trust’s fraudulent intent.
Stratton
failure
B.R.
B.R.
11
293,
646,
318
(Bankr.
S.D.N.Y.
658-59
(Bankr.
E.D.N.Y.
2008); In re Sharp Intern. Corp., 281 B.R. 506, 522 (Bankr.
E.D.N.Y. 2002) (“It is the intent of the transferor and not the
intent of the transferee that is dispositive under DCL § 276.”),
aff’d, 302 B.R. 760 (E.D.N.Y. 2003), aff’d, 403 F.3d 43 (2d Cir.
2005); see also HBE Leasing Corp. v. Frank, 61 F.3d 1054, 1059
n.5 (2d Cir. 1995).
B. The Rubinstein’s Motion to Dismiss
Plaintiff
claim
against
the
asserts
only
Rubinsteins,
a
Section
essentially
276
actual
arguing
fraud
that
Mr.
Rubinstein secretly transferred the Rubinstein property to Mrs.
Rubinstein and then falsely claimed ownership of that property
in the financial statement he submitted to Plaintiff during the
loan modification approval process.
(See Compl. ¶¶ 41-47.)
The
Rubinstein Defendants argue that Plaintiff failed to allege that
the transfer left Mr. Rubinstein insolvent and that Plaintiff’s
claim fails as a matter of law because Plaintiff was not a
creditor of the Rubinsteins at the time of the transfer.
Both
arguments are unavailing.
On a plain reading of Section 276, Plaintiff is not
required to plead insolvency.
unlike
Section
273,
N.Y. D.C.L. § 273.
which
In this respect, Section 276 is
includes
an
insolvency
component.
The Rubinstein Defendants cite a 1956 case
for the proposition that a transferor may convey property to a
12
spouse for no consideration as long as the transfer does not
leave the transferor unable to pay his bills.
See First Natl.
Bank of Batavia v Frank, 1 A.D.2d 539, 151 N.Y.S.2d 596 (4th
Dep’t 1956), aff’d, 3 N.Y.2d 849, 144 N.E.2d 727, 166 N.Y.S.2d
84 (1957).
bar
The Rubinstein Defendants would extend this case to
Plaintiff
claim
unless
from
(Rubinstein
it
Br.
maintaining
can
at
an
establish
5.)
Such
actual
Mr.
a
fraudulent
Rubinstein’s
showing
is
transfer
insolvency.
simply
not
a
requirement of Section 276, and Frank is not to the contrary.
Rather, Frank stands for the idea that an intra-family transfer
made four years before the transferor incurred significant debts
cannot
support
a
fraudulent
transfer
claim,
even
when
the
transferred property shows up in a later, false statement of the
transferor’s assets.
In that case, the transferor listed the
transferred properties on a loan application four years after
the transfer, but the court explained that because the transfers
were
valid
at
the
time
they
were
made,
“they
would
not
be
invalidated by [the transferor’s] later fraud in representing
that he was the owner of the property in question.”
541,
151
alleging
N.Y.S.2d
at
a
fraud;
later
598.
Plaintiff,
it
asserts
by
that
1 A.D.2d at
contrast,
Mr.
is
not
Rubinstein’s
fraudulent transfer was contemporaneous with his false financial
statement and the Neubergs’ attempt to shield the Lawrence and
13
Miami Properties from Plaintiff.
The Rubinstein Defendants’ argument that they cannot
be held liable for actual fraud because Plaintiff was not a
creditor
of
theirs
unpersuasive.
at
the
time
of
the
transfer
is
also
On its face, Section 276 applies to both present
and future creditors.
United States v. Cohn, 682 F. Supp. 209,
217 (S.D.N.Y. 1988).
In furtherance of an alleged scheme to
hide
assets
from
Plaintiff,
Mr.
Rubinstein
conveyed
the
Rubinstein property to his wife at the same time the Neubergs
approached Plaintiff for a loan modification and only two months
before
he
property.
falsely
On
told
these
Plaintiff
facts,
Mr.
that
he
still
owned
the
Rubinstein
surely
knew
that
Plaintiff was likely to become a creditor of his in the near
future.
See Arar v. Ashcroft, 585 F.3d 559, 617 (2d Cir. 2009)
(noting the court’s duty to draw inferences in plaintiff’s favor
on a motion to dismiss).
In addition to the above-discussed two arguments, the
Rubinstein Defendants, for the first time in their reply, argue
that Plaintiff’s “badges of fraud” are insufficient to plead its
actual fraud claim against the Rubinstein Defendants with the
requisite particularity.
(Rubenstein Reply at 4.)
The Court
will not consider arguments raised for the first time in a reply
brief, see United States v. Hatfield, __ F. Supp. 2d __, 2011 WL
14
2446430, at *20 (E.D.N.Y. Jun. 14, 2011), but in any event this
argument is unavailing for many of the same reasons the Court
described in its discussion the actual fraud claim against the
Neuberg Defendants.
Plaintiff alleges an intra-family transfer
(between Mr. and Mrs. Rubinstein) that was made under suspicious
circumstances (Mr. Rubinstein transferred the property just two
months before concealing the transfer on a financial statement
designed to convince Plaintiff to allow the Neubergs to transfer
their LLC to him).
CONCLUSION
For
the
foregoing
reasons,
the
motions
to
dismiss
(Docket Entries 6, 15) are DENIED.
SO ORDERED.
/s/ JOANNA SEYBERT______
Joanna Seybert, U.S.D.J.
Dated:
August
25 , 2011
Central Islip, New York
15
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