Opinion
Case No. 89-CV-692 (FB).
May 25, 2000.
Appearances:
JANET RENO, ESQ., United States Department of Justice, BY: GLENN M. KATON, ESQ., Assistant Attorney General, Tax Division, 555 4th Street, NW, Washington, D.C. 20001, For the Plaintiff.
RICHARD METLI, ESQ., Meyer Meyer Metli, 28 Manor Road, Smithtown, New York 11787, For the Defendants.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
On March 2, 1989, the United States commenced this tax recovery action, pursuant to 26 U.S.C. § 6672, 7401 and 7403, against defendants Dennis Laronga ("Laronga") and his former wife Alison Condie Laronga ("Condie"), seeking to: 1) reduce to judgment federal tax liabilities assessed against Laronga for his failure to pay certain federal taxes; 2) set aside a 1982 conveyance from Laronga to Condie of real property located at 59-21 156th Street, Flushing, New York (the "Property"); 3) foreclose on tax liens on the Property; and 4) obtain attorneys' fees.
During the late 1970s and early 1980s, Laronga worked for PWT Industries and S L Transportation. As part of his employment, he was the person responsible for paying withheld federal income and FICA taxes to the government, but he failed to fulfill his obligations. By February 1982, Laronga had accrued tax liabilities of approximately $33,000 in connection with his employment, but they had not yet been assessed. Pursuant to 26 U.S.C. § 6672, the government may collect the unpaid taxes directly from the person responsible for the nonpayment of withholding and FICA taxes. By Memorandum and Order dated March 8, 1996, the Court granted the United States's motion for partial summary judgment holding Laronga personally liable for these taxes. See United States v. Laronga, 89-CV-692, 1996 WL 118545 (E.D.N.Y. Mar. 8, 1996).
By memorandum and order dated January 6, 1998, the Court denied the United States's motion for partial summary judgment to set aside the 1982 conveyance as fraudulent under New York Debtor Creditor Law ("DCL") §§ 273 and 276. The Court concluded that questions of fact existed regarding whether Condie gave fair consideration for the Property, and whether the defendants acted with "actual intent . . . to hinder, delay or defraud" the government. See United States v. Laronga, 89-CV-692, 1998 WL 5408 (E.D.N.Y. Jan. 6, 1998). Consequently, the Court also denied the government's motion for attorneys' fees and for a judgment of foreclosure. See id. On January 4, 2000, these factual issues were tried before the Court without a jury.
"Mindful of competing social considerations, the protection of creditors on the one hand and the encouragement of orderly and amicable settlement of financial affairs between husband and wife on the other hand," FDIC v. Malin, 802 F.2d 12, 14 (2d Cir. 1986) (quotation marks and citation omitted), the Court concludes that because Condie was a good faith purchaser of her husband's interest in the Property without knowledge of the federal tax obligations accrued against him, DCL § 278 bars this action. See DCL § 278 (court cannot set aside a fraudulent conveyance against "a purchaser for fair consideration without knowledge of the fraud at the time of the purchase").
FINDINGS OF FACT
I. Stipulation
Prior to trial, the parties stipulated to the following:
1. In April 1971, title to the Property at 59-21 156th Street, Flushing, New York was taken in Laronga's name.
2. On February 25, 1982, Laronga conveyed the Property to Condie, his then wife.
3. The value of the Property at the time of conveyance was $105,000.
4. Taxes due for failure to withhold taxes on behalf of PWT Industries, Inc. and S L Transportation, Inc. were assessed against Laronga personally on April 11, 1983, September 12, 1983, and July 29, 1985.
5. Notice of federal tax liens concerning the April 11, 1983 and September 12, 1983 assessments were filed in the Queen's County Clerk's Office on June 17, 1983, and January 13, 1994, respectively.
6. On July 28, 1993, a judgment of divorce was entered dissolving the marriage of Laronga and Condie. No award for maintenance was made.
7. New York Domestic Relations Law § 236, as amended effective July 19, 1980, providing for equitable distribution of property and for maintenance, governs the marital relationship between Laronga and Condie on February 25, 1982, and thereafter.
II. The Court's Findings of Fact
Pursuant to Rule 52(a) of the Federal Rules of Civil Procedure, the following are the Court's findings of fact:
"In all actions tried upon the facts without a jury or with an advisory jury, the court shall find the facts specially and state separately its conclusions of law thereon, and judgment shall be entered pursuant to Rule 58." Fed.R.Civ.P. 52(a).
1. In April 1971, Laronga purchased the Property for $32,000, with a down payment of between $6,000 and $7,500 and a mortgage of between $24,500 to $26,000. Condie provided approximately two-thirds of the down payment, while Laronga provided the remainder. Condie and Laronga were married in 1971, after the purchase.
2. Between 1971 and 1982, Condie paid for most of the expenses on the Property, including the mortgage, taxes and maintenance. Laronga occasionally contributed to household expenses.
3. Condie and Laronga had two children, Dennis, Jr., who was born November 29, 1976, and Mark, who was born November 17, 1980.
4. Condie and Laronga's marriage was troubled. Laronga philandered during much of their marriage. For instance, he had a girlfriend within two years of the wedding, and in 1981 had another girlfriend within months of the birth of Condie's second child. At an unspecified date, Laronga and Condie visited a marriage counselor in an effort to reconcile their differences.
5. Several times prior to the transfer of the Property, Condie considered obtaining, but did not obtain, a divorce. On at least three instances, she spoke with different attorneys about possible divorce proceedings, and at least one attorney advised Condie that should she and Laronga separate, she should endeavor to obtain title to the Property.
6. Prior to the date of the conveyance, Condie and Laronga agreed to separate. In connection with the separation, they came to an oral agreement that Laronga would transfer to Condie full title to the Property. Pursuant to their arrangement, Laronga conveyed by deed the Property and its furnishings to Condie because 1) their marriage had failed and they needed to divide their possessions so that they could lead separate lives; 2) she wanted the security of knowing that she and her children could continue to live in the Property; 3) she did not plan to seek maintenance from him; and 4) she did not plan to seek to enforce any child support order she might obtain.
7. The deed conveying the Property contains boilerplate language stating that the Property was conveyed for a consideration of Ten Dollars. It also contains non-boilerplate language stating that Condie took the property subject to the balance of mortgage owned and held by the Long Island Savings Bank.
8. The conveyance was recorded, but a transfer tax was not assessed. At the time of the transfer, the outstanding mortgage on the Property was approximately $23,500.
9. At the time of the conveyance, Laronga and Condie had not entered into a written separation agreement; nor had they obtained an assessment of the value of the Property, or sought to calculate the child support payments and maintenance that a court would require Laronga to make.
10. At the time of the conveyance, Condie was unaware of Laronga's unpaid tax obligations.
11. In early 1982, Laronga moved to Massachusetts to live with a girlfriend.
12. In February 1982, Laronga's only other valuable asset was a Mercedez-Benz car valued at approximately $20,000.
13. Between 1982 and 1992, Laronga occasionally stayed at the Property when visiting his children. In 1986, he lived in the basement of the Property for approximately six months. Between 1986 and 1992, he lived in apartments in New York, sometimes alone, at other times with a girlfriend.
14. Between 1982 and 1992, Condie intended to divorce Laronga but did not have sufficient funds to hire an attorney, which she believed was necessary to obtain a divorce.
15. During the same period, Laronga did not make alimony or child support payments, although he occasionally gave Condie money to help their children. Since 1982, Laronga has performed repairs and done remodeling on the Property.
16. In 1992, Condie's employer helped her pay for a divorce lawyer's services. On July 28, 1993, Condie and Laronga were granted a judgment of divorce by a New York court on the grounds of cruel and inhuman treatment of Condie by Laronga. Under the decree, Condie received sole custody of the children with Laronga having only limited visitation rights, as they had agreed when they separated in 1982. The decree ordered Laronga to pay $250 per week in child support beginning on July 16, 1993, but it did not require him to pay arrears for the ten previous years during which he had made only minimal contributions to his children's support. No marital property was distributed; however, the decree stated that it was "[o]rdered and adjudged that [Condie] is awarded possession of the marital residence in which [Condie] is solely in title, to wit: 59-21 156th Street, Flushing, New York, until the youngest child is 21, or sooner emancipated. . . ." Government's Trial Exhibit 2, Judgment of Divorce, at 2.
17. In 1992, Laronga began to live in the basement of the Property, although between 1992 and 1995, he also lived with a girlfriend in a different location.
18. In October 1995, Condie moved to California. Soon thereafter, without Condie's knowledge, Laronga moved from the basement into the main part of the house. At the time of trial, Laronga resided at the Property but did not pay rent. He paid the utility bills and contributes to the needs of his son Dennis, who lived with him at the Property. Condie paid the taxes on the Property.
19. In approximately 1995, the mortgage on the Property was paid in full by Condie.
20. In 2000, Condie plans to move from California to New York to reside permanently at the Property, which Laronga has agreed to vacate.
21. Condie does not intend to sell the house and divide the proceeds with Laronga after this action is concluded.
CONCLUSIONS OF LAW
Pursuant to Rule 52(a) of the Federal Rules of Civil Procedure, the following are the Court's conclusions of law:
In a federal tax lien enforcement action such as the present action, the Court must look to state law to determine whether a taxpayer has a property interest in the property subjected to the lien. See United States v. McCombs, 30 F.3d 310, 323 (2d Cir. 1994) (citing Aquilino v. United States, 363 U.S. 509, 512 (1960)). Thus, the Court must look to New York law to determine whether Laronga has an interest in the Property or whether the conveyance of the Property must be said aside as fraudulent. Id.; see United States v. Hansel, 42 F. Supp.2d 201, 201-02 (N.D.N.Y. 1999) (deciding action to satisfy tax lien by setting aside alleged fraudulent conveyance under New York's Debtor and Creditor Law).
In New York,
the theory upon which the law of fraudulent conveyances is based is that the assets or resources of a debtor constitute a fund out of which the creditors have the right to be paid, and it therefore embraces any business affair or transaction which places his property beyond the reach of creditors. However, this theory does not preclude a property owner from exercising an extended discretion in the disposition of his property if he exercises such discretion fairly and honestly with due regard to the equitable rights of his creditors and without any intention of delaying, hindering or preventing their exercise of such rights.
30 N.Y.Jur.2d Creditor's Remedies § 300. Accordingly, one New York statute, DCL § 273, deems certain conveyances as fraudulent without regard to the debtor's intent when the conveyances are made under circumstances which unfairly curtail creditors' rights. The statute states: "Every 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." DCL § 273. "Fair consideration is given for property, or obligation . . . [w]hen in exchange for such property, or obligation, as a fair equivalent therefor, and in good faith, property is conveyed or an antecedent debt is satisfied. . . ." DCL § 272. DCL § 273 is a "presumptive" or "constructive" fraud statute because under the statute a debtor's intent to become insolvent and commit fraud is presumed as a matter of law when the debtor conveys property for less than fair consideration. See Miner v. Edwards, 634 N.Y.S.2d 306, 307-08 (4th Dep't 1995); Hickland v. Hickland, 472 N.Y.S.2d 951, 954 (3d Dep't 1984); Heimbinder v. Berkovitz, 670 N.Y.S.2d 301, 305 (Kings County Supreme Court 1998). This presumption can be rebutted if the debtor can show that the conveyance did not render him or her insolvent. See Elliott v. Elliott, 365 F. Supp. 450, 453 (S.D.N.Y. 1973).
In contrast, another New York statute, DCL § 276, deems certain conveyances as fraudulent when they are made with intent to defraud creditors, and punishes debtors who intentionally avoid payments to creditors. This statute states: "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." DCL § 276.
Additionally, DCL § 276-a provides that a party which is successful in setting aside a fraudulent conveyance in which there was actual fraud may recover attorneys' fees. See DCL § 276-a.
A third New York statute, DCL § 278, offers protection to the recipient of the property who acts without improper intent and whose actions do not harm the debtor's creditors because the purchaser pays fair consideration for the debtor's property. Thus, DCL § 278 protects certain bona fide purchasers regardless of the intent of the debtor who fraudulently transferred property to the purchasers. This statute states:
Where a conveyance or obligation is fraudulent as to a creditor, such creditor, when his claim has matured, may, as against any person except a purchaser for fair consideration without knowledge of the fraud at the time of the purchase, or one who has derived title immediately . . . from such a purchaser.
a. Have the conveyance set aside or obligation annulled to the extent necessary to satisfy his claim, or
b. Disregard the conveyance and attach or levy execution upon the property conveyed.
DCL § 278 (emphasis added). In the leading federal case interpreting this statute, FDIC v. Malin, 802 F.2d 12 (2d Cir. 1986), the Second Circuit applied § 278 and determined that even if it were to conclude that the conveyance of property from the husband to his wife was intended to defraud the husband's creditor, the creditor could not maintain an action against the debtor's wife because she was entitled to the protection afforded by § 278. In determining that the § 278 bona fide purchaser protection was available, the Court specifically avoided making a determination as to whether fraud existed under § 273 or § 276.
In order for a transferee to have priority over a judgment creditor by virtue of the good faith purchaser exemption under § 278, the conveyance must have occurred prior to the time the judgment creditor obtained a lien on the property. See N YC.P.L.R. § 5203. Once such a conveyance has been completed, a purchaser without knowledge of the seller's fraud occupies a preferred position, thereby barring any suit by a subsequent judgment creditor attempting to levy on the property.
The transfer of the Property from Laronga to Condie under the deed recorded February 26, 1982 is a conveyance within the scope of New York's Real Property Law, which occurred eighteen months before the first federal tax lien was filed with the Queens County Clerk's Office; thus it satisfies the timing requirement of N YC.P.L.R. § 5203.
Section 290(3) of New York Real Property Law defines the term "conveyance" as follows:
The term "conveyance" includes every written instrument, by which any estate or interest in real property is created, transferred, mortgaged or assigned, or by which the title to any real property may be affected, including an instrument in execution of a power, although the power be one of revocation only, and an instrument postponing or subordinating a mortgage lien; except a will, a lease for a term not exceeding three years, an executory contract for the sale or purchase of lands, and an instrument containing a power to convey real property as the agent or attorney for the owner of such property.
N Y Real Prop. Law § 290(3).
The Court must now determine whether Condie satisfies the remaining requirements of the § 278 bona fide purchaser defense. "[U]nder section 278, the focus is on the good faith of the transferee as opposed to the transferor." Malin, 802 F.2d at 20 (citing Epstein v. Goldstein, 107 F.2d 755 (2d Cir. 1939)); Epstein, 107 F.2d at 757 (applying New York law and upholding a conveyance from a husband to his wife even where it may have been conveyed with the actual intent to defraud his creditors because of the wife's ignorance of her husband's insolvency or indebtedness to the plaintiff)) (other citations omitted); Atlantic Bank of N.Y. v. Toscanini, 536 N.Y.S.2d 132, 132 (2d Dep't 1988) (denying summary judgment to set aside conveyance when evidence did not show that wife/purchaser had acted in bad faith); Schmitt v. Morgan, 523 N.Y.S.2d 252, 252 (3d Dep't 1988). As to Condie's good faith, the Court has determined that she did not have knowledge of her husband's tax liabilities, which had accrued but had not been assessed at the time of the conveyance. Accordingly, Condie acted in good faith when she purchased the Property.
The remaining element of the § 278 bona fide purchaser defense is whether Condie purchased the property from her husband for "fair consideration." As stated in Malin, "[i]n the domestic relations context, it is well settled in New York that a husband's obligation to support his wife is an antecedent debt sufficient to satisfy the definition of fair consideration." Malin, 802 F.2d at 19 (citing Vinlis Construction Co. v. Roreck, 325 N.Y.S.2d 457, 462 (1971), aff'd, 351 N.Y.S.2d 648, motion for leave to appeal dismissed in part, denied in part, 361 N.Y.S.2d 645 (1974)). In Malin, the Second Circuit summarized the leading New York case, Safie v. Safie, 268 N.Y.S.2d 561 (1966), in which the New York Court of Appeals affirmed the dismissal of an action brought by a judgment creditor of a husband against his ex-wife:
Evidence in that case established that the judgment debtor and his wife had been living apart since 1958. On June 4, 1962, the husband conveyed the marital home to his wife and then travelled to Europe. The judgment creditor obtained a default judgment against the husband on August 29 of that same year. In a memorandum decision, the Court of Appeals affirmed the Supreme Court's holding that a husband's obligation of support was an antecedent debt satisfying the definition of fair consideration as set forth in section 272. The appellant, therefore, was not able to maintain an action to set aside the conveyance under section 273 of New York Debtor and Creditor Law.Malin, 802 F.2d 18-19.
At trial, the government argued that Safie was distinguishable from the present case because, in Safie, "the parties were separated in 1958. The conveyance was in 1962. A debt arose from 1958 to 1962 that arguably was extinguished by the [separation] agreement." Tr. at 105. In Safie, the New York Court of Appeals noted that the wife/defendant, who had been living apart from her husband since 1958, testified that her husband "had sent her money up to the time of the conveyance but had not sent her any money after leaving for Europe [immediately after the conveyance]." Safie, 17 N.Y.2d at 602-02. Contrary to the government's suggestion, in upholding the conveyance in Safie, the Court of Appeals did not rely on a finding that the husband owed the wife any pre-agreement maintenance.
In Malin, the Second Circuit applied the § 272 definition of fair consideration, as refined by New York precedent, and concluded that the conveyance at issue was entered into for fair consideration based on the following factors: 1) "At the time the separation agreement was executed, the [husband] was under an affirmative obligation to provide support to his wife." id. at 19 (citing N.Y.Fam. Ct. Act § 412; Haas v. Haas, 298 N.Y. 69, 71-72 (1948); Goldman v. Goldman, 282 N.Y. 296, 299 (1940)); 2) "the consideration was the agreed upon distribution of the [defendants'] marital property in connection with the . . . dissolution of [their] marriage . . . after a five-year separation"; 3) "the defendants' separation agreement ha[d] the earmark of a `bargained for' contract, particularly in the non-boilerplate language relating specifically to this couple and their children"; 4) the husband admitted that he had been living with a woman other than his wife for several years prior to his divorce; 5) two years after the conveyance, the husband received an uncontested divorce in exchange for a house, alimony and other benefits to his wife; 6) "the house that he gave up would provide a home for his minor child;" and 7) the defendant had antecedent liability for maintenance and child support. Id. at 19-20. Notably, the Court did not limit its analysis to consideration of the husband's missing payments for maintenance and child support. The Court determined that "[t]his exchange thus satisfies the element of fair consideration as defined by section 272," and "the district court clearly erred in finding that there was no proof of such." Id. (citation omitted).
The Court notes that prior to Malin, two New York courts had held that a wife did not create a triable issue of fact as to whether fair consideration was exchange for property when, inter alia, she did not show that at the time of the conveyance, her husband had accrued a debt to her by failing to pay maintenance and child support. See Century Ctr., Ltd. v. Davis, 473 N.Y.S.2d 492 (2d Dep't 1984); Merman v. Miller, 439 N.Y.S.2d 428 (2d Dep't 1981).
Other New York cases have touched on whether a waiver of child support and maintenance constitutes fair consideration. Although it is generally against New York public policy to allow a father to limit his child support obligations by requiring his former wife to indemnify him for future child support payments, see First Fed. S L Ass'n of Rochester v. Kasmer, 528 N.Y.S.2d 218, 217 (3d Dep't 1988), "[t]he transfer to an ex-wife by a husband of all of his interest in marital property as payment for child support is not a fraud on creditors, as it is supported by valid consideration." United States v. Nirelli, 92-CV-536C, 1997 WL 718443, at *3 (W.D.N.Y. Sept. 16, 1997) (acknowledging principle but finding that fair consideration had not been exchanged, in part because during deposition, the parties admitted that nothing of value had been paid for the conveyed property); Kasmer, 528 N YS.2d at 217 (recognizing as a valid conveyance an agreement in which a father conveyed a family residence to his children's mother in payment of all past, present and future child support payments, except certain arrears; and for her indemnification of him against any future child support application).
The arrangement between Laronga and Condie as to the conveyance of the Property has many of the same indicia of fair consideration as the conveyance in Malin, as well as in other precedents. The following facts, in light of the relevant law, evidence payment of fair consideration by Condie for the Property:
1. Laronga, at the time of the conveyance, was under an affirmative obligation to provide support for his wife. See N Y Fam. Ct. Act § 412 ("A married person is chargeable with the support of his or her spouse. . . .").
2. At the time of the conveyance, Laronga was also under an affirmative obligation to provide for his two minor children. See Fam. Ct. Act § 413 ("The parents of a child under the age of twenty-one years are chargeable with the support of such child. . . . "). In making the conveyance, Laronga provided a home and security for his minor children.
3. It is clear that Laronga actually transferred control of the Property to Condie, not merely control in name only, and moved out of the house for more than seven years after the conveyance. Prior to 1982, Laronga had frequently lived away from the Property. In 1982, he vacated the Property and moved to Massachusetts to live with his girlfriend. He did not live in the Property between 1982 and 1992, except for brief periods when he visited his children and made repairs on the Property. Laronga did not live with Condie in the main portion of the house for any period after the conveyance of the Property. See, e.g., Schmitt v. Morgan, 471 N.Y.S.2d 365, 367 (3d Dep't 1983) (one indicator of lack of adequate consideration was transferors' continued residency on conveyed farm); Merman v. Miller, 439 N.Y.S.2d 428, 429 (transferor/husband's two-week absence from marital home prior to conveyance to his wife did not support conclusion that property was transferred for fair consideration).
4. The divorce decree gave Condie custody of their children, and required Laronga to pay child support of $250 per week from beginning in mid-1993, but did not require him to make payments the prior ten years during which he had failed to pay support.
The United States argues that even if Laronga were permitted to exchange the Property for consideration from Condie, that consideration was not "fair" because the value of the consideration was grossly disproportionate to the value of the house. At trial, the United States argued that even if the house were worth $75,000 in 1982, and interest at the time was approximately ten percent, if "you withdrew from the principal and interest in monthly payments, what you would receive for ten years would be more than enough to satisfy child support." Tr. at 79.
The record does not include sufficient information for the Court to determine exactly what amount of child support payments Laronga would likely have been required to pay if Condie and Laronga had divorced in 1982; however, the record does not support the government's estimates. Although Condie was awarded child support in mid-1992, the record does not indicate that Laronga paid this support, except for making recent contributions for his son Dennis's needs. Laronga was responsible for child support until 1997 for his son Dennis, Jr., and until 2001 for his son Mark. See Family Ct. Act § 413.
If the state court's figure of $250 in maintenance per week represents a mean estimate of the child support Laronga would have paid between 1982 and 2001, his payments would total approximately $208,000 (13 years x 52 weeks x $125 for Dennis plus 19 years x 52 weeks x $125 for Mark). Based on the government's calculations, the Property would have produced a return of at most $210,000 since 1982 ((18 years x (10% x $75,000)) plus $75,000), without discounting for the declining principal. These calculations indicate that the Property has almost exactly the same value as the child support payments for which it was exchanged in part.
5. Upon her divorce, Condie did not receive maintenance payments or a distribution of marital property. Although the divorce decree contains an ambiguous reference as to possession, it acknowledges that "plaintiff is solely in title" of the Property. This decree was consistent with New York law, which provides for equitable distribution of marital property upon divorce. In making a distribution, a court may consider "the need of the custodial parent to occupy or own the marital residence and to use or own its household effects," N.Y. Dom. Rel. L. § 236, Part B, 5(c), 5(d)(3) as well as "any equitable claim to, interest in, or direct or indirect contribution made to the acquisition of such marital property by the party not having title . . .," id., Part B, 5(c), 5(d)(6). Condie contributed the majority of the down payment for the purchase and made most of the mortgage payments between 1971 and 1982. She had custody of her two sons, and her husband had left the state to live with another woman. Under these circumstances, in all likelihood, any equitable distribution of the Condie-Laronga marital property in 1982 would have resulted in Condie receiving title to the Property.
6. Between 1971 and 1982, Laronga only made minimal contributions to the household expenses and support for his children. It is likely that had Condie and Laronga divorced in 1982 or soon thereafter, she would also have received an award of some arrears for Laronga's failure to support his children during at least some of the periods when he lived away from home with his girlfriends. See Soldano v. Soldano, 411 N.Y.S.2d 395, 398-99 (2d Dep't 1978) (denying husband's motion for summary judgment although he was not in arrears on payments owing under separation agreement but his wife had incurred expenses to support herself and their child prior to formal separation).
Although Malin shares these indicia with the present case, there is at least one notable difference between them in that in the present case the details of Laronga and Condie's separation arrangement were not committed to writing in the same sophisticated or exacting terms present in Malin. According to Condie, this was because she and Laronga arranged their separation and conveyance without the involvement of divorce attorneys. Because this explanation is entirely credible, Condie should not be penalized for her inability to afford legal counsel in order to create a written record when the arrangement can be substantiated through testimony and other documents. See, e.g., Winston v. Mediafare Entertainment Corp., 777 F.2d 78, 80 (2d Cir. 1985) (guiding courts in determining whether parties intended to be bound by an oral settlement agreement in the absence of a document executed by both sides, and noting that relevant circumstances may be shown by oral testimony or other documents); see also Kasinski v. Questel, 472 N.Y.S.2d 807, 808 (4th Dep't 1984) (Under New York law, "[a] dependent wife who is separated from her husband may be a creditor within the meaning of section 270 of the [DCL] even though she has not entered into a separation agreement or obtained an order of support."); Rand v. Rand, 524 N.Y.S.2d 327, 330 (Supreme Court Nassau County 1987) (citing Kasinski, 472 N.Y.S. at 808) (same).
Finally, the government argues that the present case should be evaluated under HBE Leasing Corporation v. Frank, 61 F.3d 1054 (2d Cir. 1995), rather than under Malin, because, according to the government, "[t]he purported consideration given by Alison Laronga in the instant case is very much analogous to that in the HBE Leasing case. The rights she claims to have given up that might otherwise accrue to her were contingent. . . . " United States's Post-Trial Brief, at 4. In HBE Leasing, the agreement at issue was a prenuptial agreement, but the HBE Leasing court distinguished its situation from that in Malin by noting that in HBE Leasing the future husband did not owe his future wife any antecedent debts, nor did he have an affirmative duty to support her. See HBE Leasing, 61 F.3d at 1060. A similar analysis distinguishes the present case from HBE Leasing because the agreement here involved a husband and father's affirmative duty to support his wife and children, rather than the contingent rights of a future spouse.
In sum, the facts prove that Laronga and Condie came to an oral agreement prior to the conveyance that they would separate and that Laronga would convey to Condie the Property in payment for all of his maintenance and child support obligations, and as a portion of the marital property in which Condie had an overwhelming equitable interest. Because at the time of the conveyance, Condie did not know of her husband's tax liabilities, paid fair consideration for the Property and was a good faith purchaser, she is entitled to the protection of DCL § 278.
Consequently, the government is not entitled to counsel fees under DCL § 276-a. See Malin, 802 F.2d at 20 (denying § 276-a counsel fees when § 278 defense was applicable).
Judgment shall be entered in favor of the defendants dismissing the complaint insofar as it seeks to set aside the conveyance of the Property as fraudulent. In addition, the Court declares that Condie holds title to the Property, free of any and all encumbrances created by the federal tax liens at issue. Accordingly, the judgment shall specifically provide that the federal tax liens on the Property are extinguished.
SO ORDERED.
____________________________ FREDERIC BLOCK United States District Judge DATE: Brooklyn, New York May 25, 2000