First Keystone Consultants, Inc. v. Schlesinger Electrical Contractors, Inc.
871 F. Supp. 2d 103
E.D.N.Y2012Background
- SEC moved for summary judgment on its first through fifth counterclaims; court grants partial judgment.
- Parties include SEC (defendant) and plaintiffs FKC and the Solomons; dispute centers on an arbitration award from a Coney Island joint venture.
- FKC and Solomons allegedly diverted funds from FKC to personal accounts before and after SEC’s arbitration filing.
- Arbitration panel awarded SEC $545,147.48 plus interest; Kings County Supreme Court later entered judgment in SEC’s favor.
- SEC asserts fraudulent conveyances and veil-piercing theories to reach assets; FKC opposition lacked admissible evidence and Rule 56.1 response.
- Court applies NYDCL §§ 270, 273, 273-a, 274, 275, 276, and 278 to determine constructively and actually fraudulent transfers and to pierce the corporate veil.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Fraudulent conveyances under NYDCL constructively fraudulent | SEC contends transfers lacked fair consideration and predated insolvency. | FKC argues preexisting transfers, some pre-arbitration, should not be deemed fraudulent. | Constructive fraud established for $1,049,600 to Solomons and $45,000 to Robert Solomon; lack of fair consideration proved. |
| Actual fraud under NYDCL § 276 | SEC seeks actual fraud finding for October 2009 transfers (315,000) to Jane Solomon. | FKC argues insufficient evidence of intent and timing to show actual fraud. | Actual intent to defraud found for $315,000 transfer; other pre-October 2009 transfers not proven to be actual fraud. |
| Piercing the corporate veil | SEC seeks to hold Solomons personally liable due to domination of FKC. | FKC contends no veil piercing; owners should not be liable. | Domination proven; veil pierced; Solomons jointly and severally liable with FKC for the arbitration judgment. |
Key Cases Cited
- Sharp Int’l Corp. v. State St. Bank & Trust Co., 403 F.3d 43 (2d Cir. 2005) (badges of fraud and fair consideration standards for NYDCL)
- HBE Leasing Corp. v. Frank, 48 F.3d 623 (2d Cir. 1995) (preferences to directors/officers lack fair consideration)
- Grace v. Bank Leumi Trust Co., 443 F.3d 180 (2d Cir. 2006) (section 273-a requires conveyance to be without fair consideration and in action for money damages)
- Salomon v. Kaiser, 722 F.2d 1574 (2d Cir. 1983) (badges of fraud and corporate domination concepts)
- Capital Distrib. Servs. v. Ducor Express Airlines, Inc., 440 F.Supp.2d 195 (E.D.N.Y. 2006) (badges of fraud and insolvency presumptions in NYDCL)