| Matter of Bernasconi v Aeon, LLC |
| 2013 NY Slip Op 02435 [105 AD3d 1167] |
| April 11, 2013 |
| Appellate Division, Third Department |
| In the Matter of Beatrice Bernasconi, Respondent, v Aeon,LLC, et al., Appellants. |
—[*1] The Crossmore Law Office, Ithaca (Edward Y. Crossmore of counsel), forrespondent.
Spain, J. Appeal from an order of the Supreme Court (Mulvey, J.), entered February9, 2012 in Tompkins County, which granted petitioner's application, in a proceedingpursuant to CPLR 5225 and 5227, to, among other things, set aside a transfer of assetsfrom respondent Aeon, LLC to respondent Aeon Property Management, LLC.
In 2008, a money judgment in the amount of $54,000 was rendered againstrespondent Aeon, LLC (hereinafter Aeon) in favor of petitioner. Aeon did not satisfy thejudgment and filed a petition for chapter 11 bankruptcy in April 2010. Thereafter, whileAeon was insolvent and had been instructed not to incur any debts without thepermission of the Bankruptcy Court, respondent Aeon Property Management, LLC(hereinafter APM) incurred expenses to improve a rental property managed by APM andowned by Aeon located at 727 West Court Street in the City of Ithaca, Tompkins County.Aeon and APM have one sole managing member, Cynthia Yahn. After the BankruptcyCourt ordered that Aeon's bankruptcy petition be dismissed on January 13, 2011, butbefore the order of dismissal was entered the next day, Aeon transferred its entireremaining bank balance of $3,173.10 to APM's bank account. Petitioner thereaftercommenced this proceeding to set aside the transfer as fraudulent. Supreme Court heldthat the transfer was both actually and constructively fraudulent under the Debtor andCreditor Law. Respondents appeal, and we now affirm.
Actual fraud exists where a transfer is made with the intent "to hinder, delay, ordefraud either present or future creditors" (Debtor and Creditor Law § 276)."Because direct proof of [*2]actual intent is rare,creditors may rely on badges of fraud to establish an inference of fraudulent intent"(Matter of Shelly v Doe, 249 AD2d 756, 758 [1998] [internal quotation marksand citation omitted]). We have held such indicators of fraudulent intent to include "(1) aclose relationship between the parties to the transaction, (2) a secret and hasty transfernot in the usual course of business, (3) inadequacy of consideration, (4) the transferor'sknowledge of the creditor's claim and his or her inability to pay it, (5) the use of dummiesor fictitious parties, and (6) retention of control of the property by the transferor after theconveyance" (id. at 758).
Here, a close relationship exists between the parties to the transfer, as Yahn is thesole member and manager of both Aeon and APM. She clearly made the transfer inimmediate response to the Bankruptcy Court's order of dismissal with full knowledge ofAeon's outstanding debt to petitioner and, following the transfer, she remained in controlof the property through her control of APM. Proof also was presented that the transferlacked fair consideration in that the alleged debt that Aeon owed to APM for theimprovements to 727 West Court Street is undermined by an affidavit submitted byAeon's counsel in conjunction with a motion in opposition to dismissal of the bankruptcyproceeding, which states that Aeon incurred no debt while the bankruptcy petition waspending.[FN*]Under these circumstances, we find no basis to disturb Supreme Court's conclusion thatpetitioner met its burden of proving that several "badges of fraud" support the finding ofactual fraud (see Pritchard vCurtis, 95 AD3d 1379, 1380 [2012]; Insilco Corp. v Star Servs., Inc. of Del., 2 AD3d 343, 344[2003]).
An ample basis also exists for the conclusion that the transfer was the product ofconstructive fraud. Under the Debtor and Creditor Law, "[e]very conveyance made andevery obligation incurred by a person who is . . . insolvent is fraudulent asto creditors without regard to his [or her] actual intent if the conveyance is made or theobligation is incurred without a fair consideration" (Debtor and Creditor Law §273; see Murin v Estate ofSchwalen, 31 AD3d 1031, 1032 [2006]). A transfer will also be consideredconstructively fraudulent if, at the time of the transfer, a money judgment has beendocketed against the transferor, the transferor has failed to satisfy the judgment and thetransfer was made without fair consideration (see Debtor and Creditor Law§ 273-a; Murin v Estate of Schwalen, 31 AD3d at 1035; Matter ofSuperior Leather Co. v Lipman Split Co., 116 AD2d 796, 796-797 [1986]). Fairconsideration requires not only equivalency, but also that the transferor and transfereeeach conduct the transaction in good faith (see Debtor and Creditor Law §272; Fane v Howard, 13AD3d 950, 951-952 [2004]).
As discussed, evidence exists that the transfer lacked fair consideration becauseAeon took the position in Bankruptcy Court that it had not incurred any debt during thebankruptcy [*3]proceeding. Further, where, as here, acorporate insider participates in both sides of the transfer and the insider controls thetransferee, the transfer will be deemed to have been made in bad faith if made to acreditor's detriment because "there can be no factual dispute that the purpose of thetransfer was to confer on the insider a preference over other creditors" (Matter of Mega Personal Lines,Inc. v Halton, 9 AD3d 553, 555 [2004]; see Matter of Superior Leather Co.v Lipman Split Co., 116 AD2d at 797). Here, Yahn's decision to incur variousexpenses for repairs to property owned by Aeon during the pendency of its bankruptcypetition and while it was insolvent is sufficient to establish that the transfer immediatelyfollowing the dismissal of the bankruptcy petition was not made in good faith and,therefore, was made without fair consideration (see State of New York v FranklinHealth Lab., 229 AD2d 641, 643 [1996], lv dismissed 88 NY2d 1065[1996]; Matter of Superior Leather Co. v Lipman Split Co., 116 AD2d at796-797; compare Mega Personal Lines, Inc. v Halton, 9 AD3d at 555-556). Thelack of fair consideration, Aeon's insolvency at the time that the transfer was made andthe unsatisfied judgment in favor of petitioner conclusively establish that the transfer wasconstructively fraudulent (see Debtor and Creditor Law §§ 273,273-a; Murin v Estate of Schwalen, 31 AD3d at 1035-1036; State of NewYork v Franklin Health Lab., 229 AD2d at 643).
Finally, we turn to respondents' contention that Supreme Court erred in admittingseveral of petitioner's exhibits into evidence. Although no proper foundation was laid toadmit the challenged records as business records (see CPLR 4518 [a];Tomanelli v Lizda Realty, 174 AD2d 889, 890 [1991]), five of the six challengedexhibits are records from Aeon's bankruptcy proceeding of which Supreme Court wasentitled to take judicial notice (see Matter of Lagano v Soule, 86 AD3d 665, 667 n 5[2011]). Further, respondents suffered no prejudice by the introduction of the finalcontested exhibit—an affidavit of service stating that respondents were servedwith petitioner's notice to admit—inasmuch as respondents did not object to thenotice to admit itself. Accordingly, any error in admitting the challenged records washarmless (see Matter of Justin EE., 153 AD2d 772, 774 [1989], lv denied75 NY2d 704 [1990]; Tomanelli v Lizda Realty, 174 AD2d at 890).
Rose, J.P., Stein and Egan Jr., JJ., concur. Ordered that the order is affirmed, withcosts.
Footnote *: Respondents' assertionthat the debt was not incurred until Aeon was invoiced, after the bankruptcy proceedingwas discharged, is unavailing. It is uncontested that APM paid for the services andmaterials used to improve Aeon's property prior to the dismissal of Aeon's bankruptcypetition and, as such, Aeon became indebted to APM at that point, as opposed to whenAPM chose to invoice Aeon for the debt (see In re First Jersey Sec., Inc., 180F3d 504, 511 [3d Cir 1999]; Matter of Emerald Oil Co., 695 F2d 833, 837 [5thCir 1983]).