Bank of Communications v. Ocean Development American, Inc.
2012 U.S. Dist. LEXIS 161267
| S.D.N.Y. | 2012Background
- Ocean, a California corporation owned by Shantou, faced insolvency with substantial debt and dwindling assets.
- Ocean borrowed from Bank of China and refinanced a mortgage, plus a $5.5 million loan from BOC routed to Shantou; Ocean defaulted on the BOC loan in 2001.
- In 2004, Ocean conveyed the Baldwin Park real property to Zhang and Li for $520,000, attempting to place it beyond BOC’s reach.
- BOC obtained a default judgment in New York for approximately $4.87 million and sought to execute on Ocean’s remaining assets.
- The Baldwin Park sale proceeds largely paid off the Far East National Bank mortgage, leaving a small residue distributed to Ocean’s employees; Ocean then largely ceased operations.
- Plaintiff filed suit in 2007; after prior rulings and a vacatur of the default against the insiders, the case proceeded to summary judgment briefing in 2012.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the transfer violated NY D&CL sections 273 and 273-a. | BOC contends no fair consideration; insolvency and pendency of suit. | Zhang/Li contend fair value and good faith; disputed valuation. | Summary judgment denied; issues of fact on fair consideration exist. |
| Whether the transfer violated NY D&CL section 276 (actual intent to defraud). | Facts show intent to hinder creditors; badges of fraud present. | Arguments about legitimate business motive and timing; facts disputed. | Summary judgment denied; issues of fact on actual intent remain. |
| Whether the transaction can be deemed to have been made in good faith despite insider status. | Insider transfer to insiders typically bad faith in insolvency. | Possible legitimate aim to preserve Ocean; no dummy parties; price argued fair. | Issues of fact; Farm Stores and related factors not conclusive; no summary judgment. |
Key Cases Cited
- Sharp Int’l Corp. v. State St. Bank & Trust Co., 403 F.3d 43 (2d Cir. 2005) (definition of fair consideration and good faith in DCL §§273, 273-a)
- United States v. McCombs, 30 F.3d 310 (2d Cir. 1994) (good faith requirement and consideration standards)
- Julien J. Studley, Inc. v. Lefrak, 66 A.D.2d 208, 412 N.Y.S.2d 901 (2d Dep’t 1979) (good faith requirement for fair consideration)
- Farm Stores, Inc. v. School Feeding Corp., 102 A.D.2d 249, 477 N.Y.S.2d 374 (2d Dept. 1984) (insider transfers as bad faith generally; limits to rule)
- HBE Leasing Corp. v. Frank, 48 F.3d 623 (2d Cir. 1995) (insider sales to insolvent entities may be exceptions when fair value benefits creditors)
- MFS/Sun Life Trust-High Yield Series v. Van Dusen Airport Servs. Co., 910 F.Supp. 913 (S.D.N.Y. 1995) (badges of fraud guiding intent inference in §276 actions)