Opinion
95-CV-0251E(Sc)
December 12, 2002
MEMORANDUM AND ORDER
This decision may be cited in whole or in any part.
This litigation stems from Gavenda's employment discrimination suit against defendants (hereinafter "Creditors"), which resulted in a jury verdict in favor of Creditors on June 17, 1998. As of such date, Gavenda owned real property located at 13911 Drake Island Road Extension in Albion, N.Y. (the "Property"). On the next day, Gavenda conveyed a remainder interest in the Property to her sisters, Mary L. Walter and Suellen E. Holler (collectively the "Transferees"), for $1.00, but reserved a life estate (the "Conveyance"). Gavenda and her sisters now allege that the Transferees agreed: (1) to assume a mortgage encumbering the Property in an amount of approximately $56,000 and (2) to provide Gavenda with future support. Although the deed stated that one dollar was the consideration for the Conveyance, it did not mention future support, nor was the alleged assumption of the mortgage referenced or otherwise memorialized in writing.
The circumstance that the tax bill for the Property is sent to Gavenda c/o the Transferees is of little significance.
After Gavenda's post-trial motions had been denied, the jury verdict was entered September 21, 2000. The parties subsequently litigated the issue of costs pursuant to Rule 54(d)(1) of the Federal Rules of Civil Procedure ("FRCvP"), which ultimately resulted in a determination by the Clerk of this Court that the Creditors are entitled to collect from Gavenda costs in the amount of $60,031.26 as described in Exhibit H of the Affidavit of Robert A. Doren, Esq. In Support Of Motion For Expedited Hearing. Consequently, on August 16, 2002, Creditors moved for an expedited hearing seeking a declaration that the Conveyance had been fraudulent within the meaning of section 270 et seq. of New York's Debtor and Creditor Law and an order setting aside and annulling the Conveyance.
Although the Transferees did not discuss whether the presumption that the prevailing party will be awarded costs under FRCvP 54(d)(1) constitutes a "claim" within the meaning of section 270's definition of "creditor," this Court assumes arguendo that it does — but does not necessarily adopt the reasoning employed by the Creditors.
Section 273 of New York's Debtor and Creditor Law states:
"[e]very conveyance made and every obligation 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."
Accordingly, there are three elements to such a claim: (1) a conveyance (2) made by a person who is or will be thereby rendered insolvent that is (3) made without fair consideration. See United States v. Nirelli, 1997 WL 718443, at *3 (W.D.N.Y. 1997); see also United States v. Alfano, 34 F. Supp.2d 827, 844 (E.D.N.Y. 1999) (same). Although the burden of proof is generally on the party challenging the conveyance, it shifts to an intra-family transferee where there is (1) no tangible consideration or (2) "a clandestine transfer of property designed to conceal the nature and value of the consideration." United States v. McCombs, 30 F.2d 310, 325 (2d Cir. 1994). The Conveyance was not clandestine; however, for the reasons discussed below, the Court will assume arguendo that the Transferees provided no tangible consideration. See McCombs, at 323-325; United States v. Lamontagne, 2000 WL 1728357, at *2 (N.D.N.Y. 2000); cf. Nirelli, at 3. Accordingly, the Transferees carry the burden of persuasion.
See McCombs, at 325-326; Alfano, at 845.
Although not expressly stated, it appears that courts equate "no tangible consideration" with "no fair consideration." See e.g., McCombs, at 323-325.
With respect to the first element of section 273, the existence of the Conveyance is undisputed. Second, it is relatively undisputed that Gavenda either was insolvent on June 18, 1998 or was rendered insolvent by the Conveyance. See Gavenda Aff. dated October 17, 2002, at ¶¶ 9, 12, 15, 19; see also Gavenda Aff. dated Mar. 28, 1998, at ¶ 16. "Moreover, the element of insolvency is presumed when a conveyance is made without fair consideration and the burden of overcoming such presumption is on the transferee." Alfano, at 845. Third, the Transferees did not provide Gavenda with any fair consideration in that they provided only (1) one dollar and/or (2) an oral assumption of Gavenda's mortgage and/or (3) oral promises of future support. See N.Y. Debt. Cred. Law § 272; Schmitt, at 935-936 (finding that $1.00 and oral promises to assume mortgage and provide future support were not fair consideration within the meaning of section 273); Nirelli, at *4-5 (finding no fair consideration under section 273 where husband transferred his interest in marital home to wife in exchange for $1.00 and an oral agreement to pay taxes and mortgage payments as well as an oral agreement to forgive her husband's failure to pay child support); Alfano, at 848 (finding that $10 and an agreement to "make the monthly [mortgage] payments" did not constitute fair consideration because defendants did not "assume the existing mortgage"); Elmore Milling Co. v. Carkees, 255 A.D. 410, 410-411 (3d Dep't 1938) (finding that oral promises to pay creditors and to provide future support were not fair consideration for debtor's conveyance of real estate to his son); ACLI Gov't Sec., Inc. v. Rhoades, 653 F. Supp. 1388, 1390 (S.D.N.Y. 1987) (finding that $1.00 and satisfaction of an undocumented antecedent debt were not fair consideration), aff'd, 842 F.2d 1287 (2d Cir. 1988); United States v. Scharfman, 1981 WL 1855, at *5-6 (S.D.N.Y. 1981) (finding that a promise of future support was not fair consideration). Moreover, the fact that Gavenda and the Transferees did not have an appraisal of the Property before the Conveyance further supports the finding that no fair consideration was given for the Property. See Nirelli, at *4. Accordingly, the Conveyance is fraudulent within the meaning of section 273 because Gavenda conveyed a remainder interest in the Property in exchange for unenforceable oral promises — and stated consideration of $1.00.
Section 271(1) of New York's Debtor Creditor Law states that "a person is insolvent when the present fair salable value of his assets is less than the amount that will be required to pay his probable liability on his existing debts as they become absolute and matured."
Although an assumption of a mortgage may constitute "fair consideration" within the meaning of Section 273, such must be in writing. See McCombs, at 326-327 (finding that transferee provided "fair consideration" where father conveyed property to daughter in exchange for her written assumption of the mortgages); Schmitt v. Morgan, 98 A.D.2d 934, 935-936 (3d Dep't 1983) (holding that oral assumption of mortgage was insufficient consideration), appeal dismissed, 62 N.Y.2d 914 (1984). Indeed, section 5-705 of New York's General Obligations Law provides in relevant part that
"[n]o grantee of real property shall be liable upon any indebtedness secured by a mortgage thereon executed prior to the time of the conveyance * * * unless such grantee shall simultaneously with the conveyance to him of such real property execute and acknowledge * * * a statement in writing stating in substance that such grantee assumes and agrees to pay such mortgage debt and giving the specific amount of the debt assumed."
Consequently, the Transferees did not assume the continuing obligation on her mortgage — and therefore gave no fair consideration for the Property. See Alfano, at 847 (citing McCombs). In the event that Gavenda conveys the Property to her sisters in exchange for a written assumption of the mortgage, the Court would have to revisit this issue.
See footnote 7.
The timing of the Conveyance — just one day after the Creditors had obtained a defense verdict — further supports this Court's finding that no fair consideration was provided. See N.Y. Debt. Cred. Law § 272(a) (requiring good faith); Ede v. Ede, 193 A.D.2d 940, 941-942 (3d Dep't 1993) (finding that conveyance of real estate for $1.00, which was made soon after two judgments were rendered against debtor, was fraudulent because "fair consideration requires that the exchange not only be for equivalent value, but also that the conveyance be made in good faith."); cf. ACLI Gov't Sec., Inc., at 1395 (finding that the timing of the conveyance — nine days after the jury verdict and one day after the judgment was signed — supported a finding of actual fraud).
The Transferees submitted an appraisal that concludes that such remainder interest was worth $21,962 on June 18, 1998.
Accordingly, it is hereby ORDERED that defendants' motion is granted, that this Court finds that Gavenda's conveyance of a remainder interest in real property located at 13911 Drake Island Road Extension in Albion, N.Y. to Mary L. Walter and Suellen E. Holler on June 18, 1998 was fraudulent within the meaning of section 273 of New York's Debtor Creditor Law, that such conveyance is declared null and void and is hereby set aside, that Walter and Holler may claim a credit for any documented costs incurred in maintaining the property — including mortgage and tax payments — and that counsel shall appear before Part III of this Court on January 10, 2003 at 3:00 p.m. for a status conference concerning the possible judicial sale of 13911 Drake Island Road Extension.
The parties are encouraged to entertain settlement discussions prior to the status conference. See e.g., Wilder v. G.L. Buslines, 258 F.3d 126, 129-130 (2d Cir. 2001) (noting that FRCvP 54(d)(1) "permits a court to refuse to impose costs on the losing party at all.").