| Matter of National Enters., Inc. v Clermont Farm Corp. |
| 2007 NY Slip Op 10008 [46 AD3d 1180] |
| December 20, 2007 |
| Appellate Division, Third Department |
| In the Matter of National Enterprises, Inc.,Respondent-Appellant, v Clermont Farm Corporation et al., Respondents, and ClermontII, Inc., et al., Appellants-Respondents. |
—[*1] Phillips Lytle, L.L.P., Buffalo (Preston L. Zarlock of counsel), forrespondent-appellant.
Mercure, J.P. Cross appeals (1) from an order of the Supreme Court (Egan, Jr., J.), enteredApril 11, 2006 in Columbia County, which, among other things, granted petitioner's application,in a proceeding pursuant to CPLR article 52, to nullify the conveyance of certain real property,(2) from an order of said court, entered August 14, 2006 in Columbia County, which, amongother things, granted petitioner's motion to find respondents Thomas F. Cunningham andClermont II in contempt, (3) from an order of said court, entered August 15, 2006 in ColumbiaCounty, which granted petitioner's motion for counsel fees, and (4) from an order and judgmentof said court, entered August 28, 2006 in Columbia County, incorporating portions of theprevious orders.
The instant proceeding arises out of petitioner's attempt to satisfy a $75,000 judgmententered in 1999 in its favor by reaching property that belongs to respondent Thomas F. [*2]Cunningham (hereinafter Cunningham). The property involved isthe 230-acre Clermont Farm located on State Road 9G in the Town of Clermont, ColumbiaCounty. In 2000, respondent Clermont Farm Corporation—which is purportedly owned bythe MSKCT trust set up by Cunningham for the benefit of his family—received a deed tothe farm from Columbia County. In 2001, Clermont Farm Corporation and Cunningham enteredinto a contract for sale pursuant to which Cunningham purchased a 50-acre parcel of the farm(hereinafter Property I) for $375,000. Cunningham obtained a $225,000 mortgage on Property Iand received a deed to the parcel. In 2002, a deed was recorded in Columbia County indicatingthat Cunningham transferred Property I to respondent Clermont II, another entity purportedlyowned by the MSKCT trust, for no consideration.[FN1]
Thereafter, petitioner commenced this proceeding, seeking to satisfy its judgment fromrespondents' interests in the Clermont Farm property and shares of Clermont Farm Corporation,and seeking reimbursement of its counsel fees pursuant to Debtor and Creditor Law §276-a. In April 2006, Supreme Court rendered an order in petitioner's favor, finding that PropertyI was fraudulently conveyed by Cunningham to Clermont II in 2002 and, pursuant to Debtor andCreditor Law § 273-a, nullifying that conveyance and every conveyance thereafter. Thecourt directed respondents to "immediately deliver Property [I] to the Columbia County Sherifffor sale to satisfy the Judgment" plus interest and costs. In addition, the court dismissed thepetition with respect to the remaining acreage of Clermont Farm and the stock of Clermont FarmCorporation.
In August 2006, Supreme Court entered two additional orders and an order and judgment. Inthe first order, the court concluded that various undertakings filed by respondents wereineffective to give rise to an automatic stay, and held Cunningham and Clermont II in contemptfor failing to deliver Property I to the sheriff. The court also determined that respondent MariaCunningham was not prohibited from acting as a surety, and fixed the amount of an undertakingat $172,000. In the second order, Supreme Court awarded petitioner counsel fees pursuant toDebtor and Creditor Law § 276-a upon its finding that Cunningham had transferredProperty I to Clermont II with the intent to hinder, delay or defraud petitioner. Finally, the courtentered an order and judgment embodying certain of the findings of the previous orders andawarding petitioner counsel fees. Cunningham and Clermont II (hereinafter collectively referredto as respondents) appeal and petitioner cross-appeals from the various orders.
Initially, we reject respondents' argument that Supreme Court erred in determining thatProperty I could be reached pursuant to Debtor and Creditor Law § 273-a. That provisionstates: "Every conveyance made without fair consideration when the person making it is adefendant in an action for money damages or a judgment in such an action has been docketedagainst him, is fraudulent as to the plaintiff in that action without regard to the actual intent of thedefendant if, after final judgment for [*3]the plaintiff, thedefendant fails to satisfy the judgment" (Debtor and Creditor Law § 273-a). As SupremeCourt concluded, petitioner established the elements necessary to prevail under section273-a—Cunningham admitted that he was aware of the 1999 judgment entered against himin favor of petitioner, that he has never made any payments against that judgment, and that heconveyed Property I to Clermont II for no consideration (see Fane v Howard, 13 AD3d 950, 951-952 [2004]; Matter of Mega Personal Lines, Inc. vHalton, 9 AD3d 553, 555 [2004]). Cunningham's argument that section 273-a isinapplicable because he did not have an equitable interest in Property I (see Matter ofWeismann v Robins, 191 AD2d 497, 498 [1993]; A. J. Armstrong Co. v Halikman,45 AD2d 995, 995-996 [1974]) is unsupported by the record, which belies his contention that hetook legal title to the property only as a nominee of the trust.
Accordingly, Supreme Court properly determined that Property I was fraudulently conveyedto Clermont II and directed sale of that parcel to satisfy petitioner's judgment.[FN2] Moreover, inasmuch as petitioner established at the hearing on counsel fees that Cunninghamacted with actual intent to hinder, delay or defraud a creditor in conveying Property I, petitioneris entitled to counsel fees pursuant to Debtor and Creditor Law § 276-a (see B.M.H. Mgt., Inc. v 81 & 3 ofWatertown, Inc., 13 AD3d 1182, 1182 [2004], lv denied 5 NY3d 701 [2005]; Posner v S. Paul Posner 1976 IrrevocableFamily Trust, 12 AD3d 177, 179 [2004]; Matter of Capalbo v Capalbo, 256AD2d 575, 577 [1998]).
Regarding the contempt order, in light of petitioner's demonstration that it was prejudiced asa result of respondents disobeying a lawful order of which they had knowledge and whichexpressed an unequivocal mandate, Supreme Court properly held Cunningham and Clermont IIin contempt (see Judiciary Law § 753 [A] [3]; McCain v Dinkins, 84NY2d 216, 226 [1994]). Contrary to respondents' arguments, a good-faith belief that an order isdefective or invalid does not entitle a party to disregard it, and an erroneous belief that anautomatic stay exists is not a defense to contempt (see Ulster Home Care v Vacco, 255AD2d 73, 78 [1999]; Peters v Sage Group Assoc., 238 AD2d 123, 123 [1997]).
Turning to petitioner's cross appeals, we agree that Supreme Court erred in dismissing thepetition insofar as it sought to satisfy the outstanding judgment from the stock shares ofClermont Farm Corporation and the remaining land comprising Clermont Farm. Summarytreatment of a special proceeding is governed by the same standards that apply on a motion forsummary judgment (see CPLR 409 [b]; Matter of People v Applied Card Sys., Inc., 27 AD3d 104, 106[2005], lv dismissed 7 NY3d 741 [2006]). In light of Cunningham's claim on his taxreturns that he owned 100% of the shares of Clermont Farm Corporation and his representations[*4]on personal financial statements that he owned the assets ofClermont Farm, petitioner raised a triable issue of fact regarding Cunningham's ownershipinterest in the stock and assets of Clermont Farm Corporation. We therefore remit for a hearingon the issue of Cunningham's ownership of that property and its availability to petitioner forsatisfaction of the judgment, as well as for a determination on petitioner's request for disclosurepursuant to CPLR 408 (see StapletonStudios v City of New York, 7 AD3d 273, 274-275 [2004]). Finally, in the interest ofjudicial economy, we note that Maria Cunningham remains a party to the proceedings by virtueof the cross appeals and, in any event, petitioner demonstrated that her assets are "inextricablyentwined" with those of Cunningham such that she may not act as a surety herein (CenturificoDelveneto [USA] v Switzerland Gen. Ins. Co., 180 AD2d 547, 547 [1992]; see Alex vGrande, 29 AD2d 616, 616 [1967]).
Respondents' remaining arguments are either not properly before us, rendered academic byour decision, or, upon consideration, have been found to be lacking in merit.
Mugglin, Rose, Lahtinen and Kane, JJ., concur. Ordered that the order entered April 11, 2006and the order and judgment entered August 28, 2006 are modified, on the law, without costs, byreversing so much thereof as dismissed the claims for the stock shares of respondent ClermontFarm Corporation and properties other than Property I; direct that the sale of Property I beconducted in conformance with CPLR 5236 and matter remitted to the Supreme Court for furtherproceedings not inconsistent with this Court's decision; and, as so modified, affirmed. Orderedthat the order entered August 14, 2006 is modified, on the law, without costs, by reversing somuch thereof as ordered that respondent Maria Cunningham could act as a surety herein, and, asso modified, affirmed. Ordered that the order entered August 15, 2006 is affirmed, without costs.
Footnote 1: Subsequently, Clermont IItransferred Property I to Cunningham and his wife, respondent Maria Cunningham, for noconsideration. Cunningham and his wife, in turn, transferred the property back to Clermont II in2005, again for no consideration.
Footnote 2: Petitioner concedes that any saleof Property I must be conducted in conformity with CPLR 5236 (see generally Guardian LoanCo. v Early, 47 NY2d 515, 521 [1979]; Matter of Preston Farms v Nacri, 42 AD2d668, 669-670 [1973]). We therefore modify the order and judgment entered August 28, 2006 todirect that the sheriff conduct the sale of Property I as required by CPLR 5236.