820 F. Supp. 2d 510
S.D.N.Y.2011Background
- Amusement deposited $13 million into escrow in July 2007 to fund a Portfolio purchase arranged by Mark Stern/FRG, with FRG Corp. and FRG LLC ultimately involved in the acquisition plan.
- Frenkel (escrow) transferred funds to various accounts at Stern’s direction, diverting substantial sums away from the escrow for use unrelated to the Portfolio.
- Defendants include Stephen Stern, Mark Stern, Midland Avenue Associates, SME, Shapiro, Niederman, Kesef Properties, Malik group, IRWIN, Solof, and others; Amusement asserts misappropriation, falsified expenses, and concealment surrounding the transfer of funds.
- Amusement’s amended complaint (Sept. 17, 2010) asserts constructive and intentional fraudulent conveyances, aiding and abetting fraudulent conveyance, conversion, aiding and abetting conversion, and unjust enrichment, seeking damages for lost funds.
- The court granted some motions to dismiss and held that several claims against Sterns, Malik Defendants, Shapiro, and Niederman could be dismissed or limited, while others proceeded against remaining defendants.
- Procedural posture involves motions to dismiss the amended complaint under Fed. R. Civ. P. 12(b)(6) and related rules, with the magistrate judge’s R&R and the district court’s rulings remaining subject to appeal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing to sue in federal court | Amusement has standing despite assignments because it seeks return of its funds. | Assigning notes to Practical undermines standing; causation/redressability questionable. | Amusement has standing; assignment to Practical does not defeat jurisdiction. |
| Section 470 NY Judiciary Law applicability | Sragow admitted to the bar of this Court; NY law does not govern admission before federal courts. | State law governs attorney admission; precludes Sragow’s appearance. | Section 470 does not bar Sragow from appearing; federal admission suffices. |
| Constructive fraudulent conveyance (Count 1) under NY law | Transfers were without fair consideration, rendering the transfer fraudulent. | Insolvency/small capital and good faith contested; some transfers may be supported. | Claim survives against several defendants; Stephen Stern’s involvement dismissed for lack of particularity as to fair consideration. |
| Intentional fraudulent conveyance (Count 2) under NY law | Badges of fraud show intent to defraud creditors; transfers were designed to hinder Amusement. | Intent difficult to prove; need for particularized pleading. | Count 2 not dismissed; issue reserved for further proceedings with pleading specifics. |
| Aiding and abetting fraudulent conveyance (Counts 3 & 4) and aiding and abetting fraud (Count 8) | Aiding-and-abetting theories amplify fraud claims and pierce liability. | Aiding claims are improper where primary transferor/ transferee liability governs; limited liability. | Counts 3, 4, and 8 dismissed as to applicable defendants; remaining theories limited. |
Key Cases Cited
- Lujan v. Defenders of Wildlife, 504 U.S. 555 (1992) (standing requires injury, causation, redressability)
- Carver v. City of New York, 621 F.3d 221 (2d Cir. 2010) (standing elements; concrete injury, causation, redressability)
- Makarova v. United States, 201 F.3d 110 (2d Cir. 2000) (subject-matter jurisdiction; burden on defendant to establish lack of jurisdiction)
- Curtis v. Citibank, N.A., 226 F.3d 133 (2d Cir. 2000) (stay/dismiss duplicative federal actions balancing equities)
- Atl. Shipping Corp. v. Chem. Bank, 631 F. Supp. 335 (S.D.N.Y. 1986) (recognizes limitations of aiding-and-abetting fraud claims in fraudulent conveyance context)