Supreme Court of the State of New York, County of New York, March 12, 2019
Facts and Procedural History
90 William St. Development Group LLC (“Sponsor”) is the sponsor of the Be@William Condominium (the “Condominium”), and sold units in the Condominium building, located at 90 William Street, New York, New York (the “Building”), based on the Condominium’s offering plan (the “Offering Plan”). The Offering Plan made representations regarding how the Building would be constructed, including representing that the Building would be constructed in accordance with applicable laws and building codes The Offering Plan also represented that Sponsor would obtain a permanent certificate of occupancy (“PCO”) for the Building. Once the unit owners began moving into the Building, they discovered an array of defects and code violations. Sponsor also failed to obtain a PCO for the Building.
The Board of Managers (the “Board”) of the Condominium, commenced an action against Sponsor based on the defects in the Building, Sponsor’s failure to construct the Building in accordance with the Offering Plan, and Sponsor’s failure to obtain a PCO. The Board also asserted claims for fraudulent conveyances against Sponsor and several of its members and investors, based on their wrongful funneling of money out of the Sponsor and leaving it without assets.
When the complaint was initially filed, the Board did not know the identities of all of the recipients of such conveyances. However, it was able to identify them through discovery. At the end of discovery, the Board was granted permission to amend its complaint to add the recipients of the transfers to the action as defendants in the fraudulent conveyance claims.
Decision 1
At the close of discovery, the Board moved for partial summary judgment as to liability against Sponsor on its breach of contract claim, based on Sponsor’s failure to construct certain elements of the Building in accordance with the Offering Plan and failure to obtain a PCO. The Board also moved for summary judgment on its fraudulent conveyance claims with respect to Sponsor and one of its members, SDS Procida Equities LLC (“Procida Equities”). Sponsor subsequently cross-moved for dismissal of the complaint and sanctions, based on the argument that previously-granted extensions of time to serve the complaint had been improper and that, accordingly, the complaint had not been served within the time required by the CPLR.
The Court granted the Board’s motion almost in its entirety. The Court held that the Sponsor had failed to construct a number of elements of the Building in accordance with the Offering Plan and applicable laws and held that the Department of Building’s issuance of temporary certificates of occupancy did not demonstrate that the Building was properly constructed. It also held that Sponsor was liable for its failure to obtain a PCO and directed Sponsor to procure one within 90 days.
With respect to the fraudulent conveyance claims, the Court held that Sponsor was liable for both actual and constructive fraudulent conveyances in transferring most of its funds to its members and investors, leaving it insolvent. In its decision, the Court rejected Sponsor’s argument that the Board needed to have a fiduciary relationship with Sponsor in order to prevail on a constructive fraudulent conveyance claim. It also held that there were sufficient “badges of fraud” surrounding the transfers to find that they were made with actual fraudulent intent. Procida Equities was held liable as a recipient of some of the conveyances.
Finally, the Court denied Sponsor’s cross-motion. It held that Sponsor’s argument was untimely, had already been rejected by the Court in a prior motion, and was refuted by several prior Court decisions granting the Board additional time to serve the complaint.
Decision 2
After the Board served its amended complaint, which named certain members and investors in Sponsor as defendants based on their status as recipients of fraudulent conveyances, several of those defendants – Steven M. Etkind, Rachel Foster, Alain Kodsi, and Gamcrefk Trust (the “Moving Defendants”) – moved to dismiss the amended complaint as asserted against them. They also moved for renewal or reargument of the Court’s earlier decision granting the Board leave to amend the complaint (the “Prior Decision”).
The Court denied both parts of the Moving Defendants’ motion. It held that the Moving Defendants were not entitled to renewal of the Prior Decision because they had not identified any new facts that would require reversal, and that they were not entitled to reargument because they could not identify any legal or factual issue that the Court had overlooked in making the Prior Decision. It further held that the Moving Defendants were not entitled to dismissal of the amended complaint because it adequately alleged the elements of both constructive and actual fraudulent conveyance claims against them, and because it was not necessary for the Board to establish the existence of a fiduciary relationship with the defendants in order to state a claim for constructive fraudulent conveyances.