Preview
INDEX NO. EF002205-2023
FILED: ORANGE COUNTY CLERK 04710/2024 11:45 AM
NYSCEF DOC. NO. 61 RECEIVED NYSCEF: 04/10/2024
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF ORANGE
eee nen ene eee nee eee eee eee eee ne eee ene eenee
YAAKOV ABELES,
Plaintiff, NOTICE OF ENTRY
Vv.
Index Number: EF002205-2023
BERISH “BERNIE” FREILICH, MIRIAM
FREILICH, HERSHEY GOLDBERGER,
5 PATTERSON PASS LLC, 4 PATTERSON
PASS LLC, 2 PATTERSON PASS LLC, BLINK
SUPPLIES INC, BLINK ENTERPRISE, LLC,
BLINK CAPITAL HOLDINGS, LLC, DRAF
HOLDINGS LLC,
Defendants.
eee nen ene eee nee eee eee eee eee ne eee ene eenee
PLEASE TAKE NOTICE:
The within is a true and correct copy of the Decision and Order of the Honorable Sandra B.
Sciortino J.S.C., dated A pril 9, 2024 and entered in the Orange County Clerk’s Office on April
10, 2024.
Dated: Rye, New York
April 10, 2024
DORF NELSON & ZAUDERER LLP
By —_— SS
JonathawB. Nelson
The mational Corporate Center
555 Theodore Fremd Avenue
Rye, New Y ork, 10580
(914) 381-7600
Attorneys for Defendant
DRAF HOLDINGS LLC
TO Y ifat V ered Schnur, Esq.
YVLS ESQ LLC
26 Broadway Suite 1900
New York, NY 10004
Phone: 3472685347
Attorney for Plaintiff
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Meyer Y. Silber, Esq.
The Silber Law Firm, LLC
2361 Nostrand Avenue, Fifth Floor
Brooklyn, NY 11210
Phone: 212-765-4567
Attorney for Defendant BERISH FREILICH BERNIE
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To commence the statutory time
for appeals as of right (CPLR 5513 [a]),
you are advised to serve a copy of this
order, with notice of entry, upon all parties.
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF ORANGE
neeee: na-e ann ane. wenee:
YAAKOV ABELES, DECISION AND ORDER
Plaintiff, INDEX NO.: EF002205-2023
Motion Date: 2/16/2024
-against- Sequence No. 2& 3
BERISH “BERNIE” FREILICH, MIRIAM
FREILICH, HERSHEY GOLDBERGER,
5 PATTERSON PASS LLC, 4 PATTERSON
PASS LLC, 2 PATTERSON PASS LLC, BLINK
SUPPLIES INC., BLINK ENTERPRISE, LLC,
BLINK CAPITAL HOLDINGS, LLC, DRAF
HOLDINGS LLC, and HERBERT TEPFER,
Defendants.
X
SCIORTINO, J.
The following papers were considered in connection with defendant Draf Holdings LLC “s
(Draf) application for an order dismissing the Amended Complaint pursuant to CPLR 3211(a)(4);
3211(a)(7) and RPAPL §1501 et seq. (Sequence #2); and plaintiff's cross-motion seeking leave to file
a Second Amended Complaint (Sequence #3) :
PAPERS NYSCEF DOCS.
Notice of Motion (Seq. #2)/Attorney’s Affirmation (Nelson)/Exhibits
A-B/Memorandum of Law 30
- 34
Notice of Cross-Motion (Seq. #3)/Memorandum in Opposition and in
Support of Cross-Motion/Exhibit A/Exhibits E-H 46
- 52
Memorandum in Opposition to Cross-Motion and in Reply/Affirmation
in Opposition and in Reply (Nelson)/Affirmation (Rosenberg)/
Exhibit A 55-59
Background and Procedural History
Plaintiff alleges that, on September 23, 2022, plaintiff and defendant Freilich entered into a
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contract which is referred to as a Partnership Agreement.' Under its terms, plaintiff provided funds
to Freilich, which were to be repaid ,with interest, within four weeks. To induce plaintiff to enter into
the agreement, Freilich represented he was the owner of three parcels of land in Orange County
(defendants 5 Patterson Pass, LLC; 4 Patterson Pass, LLC, and 2 Patterson Pass, LLC), He provided
a title report to plaintiff showing the properties were unencumbered, and pledged them to plaintiff as
security for the loan.
Between October 2022 and March 2023, plaintiff and Freilich extended the terms of the
original agreement, via text messages sent over the WhatsApp platform. The Partnership Agreement
was not recorded.
It is not disputed that Freilich defaulted in payment under the terms of the Partnership
Agreement.
On February 1, 2023, defendants 5 Patterson Pass, LLC; 4 Patterson Pass, LLC, and 2
Patterson Pass, LLC, by and through the managing member, Freilich, executed a mortgage to
defendant Draf in the sum of $2,850,000, encumbering all three parcels.. The mortgage was recorded
on March 6, 2023. At the same time, Freilich executed a declaration of restrictions preventing himself
from disposing or encumbering any of the parcels without the consent of defendant Tepfer, a principal
of Draf.
It is not disputed that Freilich defaulted under the terms of the mortgage.
This matter was commenced on April 5, 2023. On July 31, 2023 Draf. filed a motion to
dismiss three causes of action against it. Plaintiff thereafter filed an Amended Complaint (NYSCEF
20), as of right. Draf subsequently withdrew its motion on November 8, 2023.
'The contract was apparently entered into in Yiddish, and called a “Shtar Heskem
Shtuphot” in that language.
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The Amended Complaint dropped the conversion and unjust enrichment claims (the second
and third causes of action) against Draf. It added additional facts to the action to quiet title (fourth
cause of action) and asserted four new causes of action seeking to void the mortgage pursuant to
sections 273 and 274 of the Debtor and Creditor Law.
Motion to Dismiss (Seq. #2)
By Notice of Motion filed December 13, 2023, Draf seeks to dismiss all causes of action in the
Amended Complaint asserted against it.
Draf first asserts that the Amended Complaint should be dismissed on the grounds of another
action pending. It is asserted, and plaintiff does not deny, that, on April 5, 2023, the same date as this
action was commenced, plaintiff filed another action against Freilich in Supreme Court, Kings County,
under Index Number 510299/2023, by filing a Confession of Judgment executed by defendant Freilich
individually, and authorizing entry of judgment against him in the sum of $11,639,000. Judgment by
Confession was awarded to plaintiff in that action on April 11,2023. (NYSCEF 32-33) Draf contends
that, on that basis, this Court has discretion to dismiss this action on the ground of the pending action
in Kings County, which has substantial, if not entire, identity of parties and arises out of the same
subject matter or series of alleged wrongs as the matter at bar.
The fourth cause of action in the Amended Complaint seeks an order and declaratory judgment
extinguishing Draf’s mortgage on the subject properties. That cause of action asserts that Freilich
“inappropriately granted a mortgage to Draf.” (NYSCEF 20 at 39) Draf contends that, as a lender,
it had no duty of care to ascertain the validity of Freilich’s authority to bind the LLCs.
‘Plaintiff acknowledges that Freilich was the managing member of the borrowers. Draf argues
that plaintiffs argument that Draf should have known that plaintiff had “full right and legal title to”
the subject property is contrary to settled law. Even a contract of sale is void against a subsequent bona
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fide purchaser for value, unless it was recorded. Draf’s mortgage, as the first and only duly recorded
encumbrance, is entitled to priority.
Draf further contends that the fraudulent conveyance claims fail to state viable causes of action.
The Amended Complaint states, at length, that “upon information and belief”:
. Draf was aware that Freilich had no right to grant a mortgage, as it was “common
knowledge in the ultra-Orthodox community” that Freilich was involved in substantial
investment fraud;
The mortgage was not given to secure a contemporaneous loan, but to secure prior
debt, as part of a scheme to prevent other defrauded investors from recovering what
they were owed by Freilich;
The mortgage was not given in an arm’s length transaction, but in furtherance of a
scheme to file a “collusive foreclosure action’ 299 where Freilich would retain some
interest in the properties;
The signature on the foreclosure complaint was itlegible because Draf sought to
conceal its members’ identities;
The mortgage was given with actual intent to hinder, delay and defraud plaintiff;
The mortgage was given without defendants receiving a reasonably equivalent value;
Freilich and the LLCs were engaged in a transaction in which the remaining assets
were unreasonably small in relation to the transaction;
Freilich and the LLCs intended to incur a debt beyond his ability to pay;
Freilich and the LLCs were insolvent at the time of such transfer or rendered insolvent
thereby;
Draf was an “insider” and had reasonable cause to believe that Freilich and the LLCs
were insolvent.
Draf argues that plaintiff failed to show actual intent to hinder, delay or defraud any creditor
of the debtor. All allegations are pled “on information and belief” and, as such, are insufficient to
satisfy the requirement of particularized pleading. Nor did plaintiff show any claim for constructive
fraud, which requires an objective showing of the debtor’s distressed financial condition or inadequate
consideration received. Such pleading cannot be based on speculative or conclusory allegations that
the mortgagor-defendants did not receive a reasonably equivalent value. Plaintiff's failure to document
*Draf filed a foreclosure action against the LLC borrowers on September 20, 2023, under
Index Number EF006396-2023,
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or otherwise show that the transfer was made without consideration or that it rendered the debtor
insolvent is fatal to his claim.
Finally, Draf contends that plaintiff made no showing other than his conclusory allegation,
upon information and belief, that Draf was an “insider.” In fact, Draf relied on the same clean title
report that plaintiff relied on. Draf had no reasonable cause to believe Freilich to be insolvent.
On such basis, the complaint must be dismissed as against Draf.
Opposition and Cross-Motion to Amend (Seq. #3)
By Notice of Cross-Motion filed January 25, 2024 (NYSCEF 47 et seq.), plaintiff seeks to
again amend his pleading, noting New York’s policy to freely permit amendment in the absence of
prejudice to defendants. He argues that, at this early juncture, there is no prejudice to defendants’
ability to properly prepare their cases.
Plaintiff states that he was unaware of the identity of any member of Draf until he reviewed
Draf’s motion for default judgment in the foreclosure action against the LLCs. By counsel, he asserts
that “Draf sought to conceal who its members are, to avoid the collusive nature of the foreclosure
being revealed.” Further, upon review, plaintiff states that the default document evidenced that “Draf
did not receive contemporaneous consideration for the mortgage, [rather the mortgage] was given on
account of an antecedent debt.”
Plaintiff made his motion promptly after he learned the identity of the members of Draf and
that the mortgage given to Draf’ was not for a contemporaneous exchange of value.
The proposed Second Amended complaint, which removes the allegations which were
originally pled “upon information and belief,” is intended to assert the newly-acquired facts, Since
these assertions formed the basis for Draf’s motion to dismiss, plaintiff argues that the motion to
amend should be granted, and the motion to dismiss denied.
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Further, plaintiff argues that the Kings County judgment does not warrant dismissal of this
action, Drafis not a party to the Kings County action, and the confession of judgment is not an action
against Draf, These are not “substantially the same parties” as required by CPLR 321 1{a)(4). There
is no evidence that Freilich had any control over Draf, or any other connection.’ Asa result, they are
not substantially identical parties, and the cases do not arise out of the same transaction. The Kings
County action addresses a confession of judgment, while the Orange County action seeks to invalidate
a mortgage, The parties are different, the transactions are different and the relief sought is different.
CPLR 321 1(a)(4) does not provide a basis for dismissal,
Plaintiff further contends that the four quiet title causes of action survive because Draf was
aware, when receiving the mortgage, that Freilich was involved in substantial investment fraud,
“common knowledge within the Satmar Chassidic community, of which Draf’s member, Israel
Michael Rosenberg, belonged.” As such, plaintiff argues, Draf cannot be a good faith purchaser for
value. No money was advanced by Draf in exchange for the mortgage. The mere fact that Freilich
and the LLCs gave a mortgage to Draf, which at most held an unsecured antecedent debt, shows there
is “something undisclosed about the true nature of the agreement between the mortgagee [sic]
defendants and Draf.” Plaintiff alleges the true motivation for the mortgage was a collusive
foreclosure action in which Freilich would maintain a hidden interest, supported by the declaration of
restrictions signed in favor of Draf’s counsel Tepfer.
Plaintiffasserts that, since Draf had actual knowledge of the plaintiff’s claim, it was not a bona
fide encumbrancer and cannot claim priority under RPL §291, regardless of recording. Moreover,
Draf’s acknowledgment in the foreclosure action that the mortgage was given for an antecedent debt
>The Court notes the contradiction between this claim, and the claim that Draf was an
“insider” colluding with Freilich.
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is fatal to its claim that it was a bona fide encumbrancer.
With respect to plaintiff's DCL claims, plaintiff argued that the transfer was “plainly made
with intent to hinder, delay or defraud plaintiff.” Plaintiff's assertion of a “hidden agreement”
providing Freilich with a continuing interest in the foreclosed properties constitutes a sufficient “badge
of fraud.” Further badges of fraud include the fact that there was no equivalent value given for the
mortgage, together with the fact that the defendants were insolvent at the time. In fact, the mortgagor
defendants received nothing for the mortgage. Since at the time of the mortgage execution, Freilich
and the LLCs owed a debt to plaintiff, and they did not receive. reasonably equivalent value, the
conveyance to Draf was fraudulent.
Under the circumstances, the motion to dismiss must be denied.
Reply and Opposition to Cross-Motion
Draf’s reply reiterates its prior points at length, not repeated here. It is also argued that the
RPAPL Article 15 complaint is procedurally defective,as it fails to identify it as brought pursuant to
that Article, and fails to set forth facts specific to demonstrate a cause of action. Moreover, the claim
that Draf had any notice of Freilich’s prior conveyance turns solely on the assertions that his
investment fraud was “common knowledge in the ultra-orthodox Jewish community.” This is nothing
more than conjecture, insufficient as a matter of law to constitute notice, actual or constructive.
While plaintiffs proposed Second Amended Complaint removes the words “upon information
and belief” from some assertions, it remains based on bare legal conclusions, which are both unreliable
and insufficient to support amendment. Draf notes that the proposed amendment is again verified by
counsel, and contains no information by any party with personal knowledge. The allegation of lack of
adequate consideration is without merit. The affirmation of Draf’s principal, Rosenberg (NYSCEF 57)
and documentary evidence (NYSCEF 58) show that on the date of the execution of the mortgage
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documents, a wire transfer was sent by Tepfer’s IOLA account to the order of defendant Blink
Enterprises, LLC, an entity controlled by Freilich. The substantial funds transferred evidence not only
that adequate consideration was given, but that Freilich and the LLCs were not insolvent then, or
rendered insolvent by the encumbrance. Plaintiff has not provided any showing of insolvency as would
be required to substantiate a DCL §274(a) claim.
The Court has fully considered the submissions of the parties.
Discussion
For the reasons which follow, Draf's motion to dismiss is granted. Plaintiff's motion to amend
is denied as academic.
It is fundamental that, on a motion to dismiss pursuant to Civil Practice Law & Rules
§3211(a)(7), the pleading is to be afforded a liberal construction. The Court must accept the facts as
alleged in the complaint to be true, and accord the plaintiff the benefit of every possible favorable
inference, determining only whether the facts as alleged fit within any cognizable legal theory. CPLR
3211(a)(7); (Bua v. Purcell & Ingrao, P.C., 99 AD3d 843 [2d Dept 2012}) However, dismissal is
warranted where the allegations in the complaint are merely conclusory and speculative. (/d. at 848)
In this matter, Draf contends that it is entitled to dismissal, as follows:
Other Action Pending
Draf argues that it is entitled to relief under CPLR 321 1{a)(4) by reason of the Kings County
action, in which judgment by confession has already been entered against Freilich. Draf contends that
the relief is largely the same, the two actions are sufficiently similar, and there is substantial identity
of parties.
The Court disagrees. A court has “broad discretion in determining whether an action should
be dismissed based upon another pending action where there is a substantial identity of the parties, the
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two actions are sufficiently similar, and the relief sought is substantially the same.” (Jaber v. Elayyan,
168 AD3d 693, 694 [2d Dept 2019)) It is not necessary that the precise legal theories be presented in
the first action and the second, as long as the relief sought is the same or substantially the same, (Jd.)
As Draf argues, there need not be complete identity of the parties, but. there must’ be at least
“substantial identity,” generally present when at least one plaintiff and one defendant is common in
each action. (id.)
In Jaber, the plaintiff sought to impose a constructive trust on certain real property owned by
one defendant, as well as a declaration that he was the property’s beneficial and equitable owner.
Defendant moved to dismiss on the ground of a prior pending action commenced by plaintiff's brother
and others against him in another county. The Court found that there was no common plaintiff, and
the subject matter of the two actions, although related, was not sufficiently similar to warrant dismissal
of the second action. The relief sought was different, and resolution of the former action would not
necessarily resolve the plaintiff's claim. (id. at 694-695)
Abeles was the plaintiff in the Kings County action, which remains pending. Of note, the
Kings County action is not a “prior” action as both that matter and the instant one were commenced
the same day, April 5, 2023. More importantly, although Freilich was a defendant common to both
actions, the Kings County action was based strictly upon a confession of judgment signed by him in
Abeles’ favor. Judgment has been entered against Freilich for the relief sought in the Kings County
action, But that isnot the relief sought against Draf in the Orange County action. Rather, this action
seeks to extinguish a mortgage executed by Freilich, on behalf of the LLCs; and a declaration of
plaintiff's ownership of those properties,
The entry of a money judgment against Freilich does not resolve the instant action. The Court
declines to dismiss this action on those grounds.
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Quiet Title (Fourth Cause of Action)
Were CPLR 3211(a)(4) the sole ground for dismissal, the discussion would end here.
However, Draf also seeks relief under CPLR 321 1(a)(7), failure to state a cause of action, as related
to the causes of action to quiet title and for voidable transfer, To maintain a cause of action to quiet
title, a plaintiff must allege actual or constructive possession of the property, and the existence of a
removable cloud on the property, an apparent title such as a deed or other instrument that is actually
invalid or inoperative. (Nurse v. Rios, 160 AD3d 888 [2d Dept 2018]) The fourth cause of action
claims that Freilich inappropriately granted a mortgage to Draf, secured by the properties which had
previously been given over to plaintiff, and to which plaintiff had complete right and legal title to by
virtue of the parties’ Partnership agreement. Plaintiff further asserts that, at the time the mortgage was
granted, Draf was aware that Freilich had no right to grant it, (NYSCEFP 20 at §f 39, 43)
It is well-established that a mortgagee is not a bona fide encumbrancer where, despite being
aware of facts that would lead “a reasonable prudent lender to make inquiries of the circumstances of
the transaction at issue, it fails to make such inquiries” (Lebovits v. Bassman, 120 AD3d 1198, 1199
[2d Dept 2014]). In Lebovits, plaintiff alleged that the borrower defendant omitted a material fact
when entering into the mortgage with Sovercign Bank. The Second Department held that, in such a
circumstance, plaintiff failed to state a cause of action. against “either the representor or the
representee” (/d.).
In 334 Corp. v. Jericho Plaza, LLC, 128 AD3d 679 [2d Dept 2015], a mortgagor submitted
documents at the closing which indicated that he was the sole member of the LLC and had authority
to enter into the mortgage on behalf of the LLC. The Second Department held that “mortgagees do not
have a duty of care to ascertain the validity of the documentation presented by an individual who
claims to have the authority to act on behalf of a borrower corporation or entity” (/d. at 680).
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Inthe matterat bar, plaintiff's claim that Draf had awareness of Freilich’s inability to mortgage
the properties was not based on a document, but on “common knowledge within the ultra-orthodox
Jewish community, in which the parties and/or their officers and attorneys are members, ‘that
Defendant [Freilich] was involved in substantial investment fraud. As such, Draf had reason to be
aware that the Subject Properties were conveyed to other investors” (NYSCEF 20 at §43). Draf
argues that plaintiffs claim that an unrecorded Partnership agreement gave plaintiff “full right and
legal title” to the subject property is contrary to the law. An executory contract for the sale, purchase
or exchange of real property, or an instrument containing a power to convey such property, may be
recorded in the Office of the Clerk of the county in which the property is situated. RPL §294 In this
matter, there is no dispute that plaintiff never recorded the Partnership agreement. Moreover, plaintiff
does not dispute that Draf relied on the same title report as he did, showing the properties to be
unencumbered.
Plaintiff's assertion that Draf was aware because of “community common knowledge” is
unsupported by even as much as an affidavit of a person with familiarity with such “common
knowledge.” The logical leap between such knowledge, even if Draf had it (which it denies) and Draf’s
collusive mortgage is not explained. Plaintiff made no other allegation that Draf had constructive
notice of the Partnership Agreement. As such, it.is nothing but speculation, and unentitled to the
presumption of truth generally attaching to the allegations of a pleading on a motion to dismiss. (See,
Bua, 99 AD3d at 848) While the proposed Second Amended Complaint (NYSCEF 48) eliminates the
“community common knowledge” allegation, there is still nothing to support the conclusory allegation
that Draf knew Freilich was defrauding plaintiff and other creditors.
Accordingly, the Fourth Cause of Action is dismissed on the grounds of CPLR 321 I{a)(7).
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Voidable Transfer (Fifth, Sixth, Seventh and Eighth Causes of Action)
Draf characterizes plaintiff's fraudulent conveyance/voidable transfer claims made pursuant
to DCL §§ 273 and 274 as “bare-bones allegations, verified by counsel, made ‘upon information and
belief.’” As such, they are insufficient to show concrete and specific circumstances giving rise to its
claims, or that any transfer was made without fair consideration.
Section 273 of the Debtor and Creditor Law provides that a transfer or obligation incurred by
a debtor is voidable as to a creditor ... if the debtor made the transfer or incurred the obligation:
(ly with actual intent to hinder, delay or defraud any creditor of the debtor;
(2) without receiving a reasonably equivalent value in exchange for the transfer or
obligation; and the debtor
@ was engaged or about to engage in a business or a transaction for which the
remaining assets of the debtor were unreasonably small in relation to the
business or transaction; or
ii) intended to incur, or believed or reasonably should have believed that the
debtor would incur, debts beyond the debtor’s ability to pay as they became
due.
In determining actual intent, a court may consider factors derived from common law “badges
of fraud,” including whether: the transfer or obligation was to an insider; the debtor retained control
or possession of the property after the transfer; the transfer or obligation was disclosed or concealed;
before the.transfer was made or obligation was incurred, the debtor had been sued or threatened with
suit; the transfer was of substantially all the debtor’s assets; the debtor absconded; the debtor removed
or concealed assets; the value of the consideration received by the debtor was reasonably equivalent
to the value of the asset transferred or the obligation incurred; the debtor was insolvent or became
insolvent shortly after the transfer was made or the obligation incurred; the transfer occurred shortly
before or shortly after a substantial debt was incurred; and the debtor transferred the essential assets
of the business to a lienor that transferred the assets to an insider of the debtor.
Claims under DCL 273(a)(1), plaintiff's Fifth Cause of Action, must be plead with sufficient
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particularity pursuant to CPLR 3016(b). Allegations concerning such transfers cannot be alleged “on
information and belief.” (Bd. of Managers of the 165 E. 62"! Street Condominium v, Churchill E 62™
LLC, 2023 WL 3725042 [New York Co. May 25, 2023]; citing, Avilon Auto. Group v. Leontiev. 194
AD3d 547, 549 [1% Dept 2021})
Plaintiff's Amended Complaint (NYSCEF 20) is based on a bare allegation that the mortgage
was made with the actual intent to hinder, delay and defraud plaintiff. Such a conclusory allegation
fails to meet the particularity standards required by DCL §273(a)(1).4
The Fifth Cause of Action is dismissed on the ground of CPLR 3211(a)(7).
The Sixth Cause of Action is pled under DCL §273(a)(2). Such a claim does not require proof
of actual intent; but instead concerns whether the debtor received reasonably equivalent value in
exchange for the transfer and was either about to engage in a transaction for which the debtor’s assets
were unreasonably small, or intended to incur debt he should have known was beyond his ability to
pay. “The voidability of [constructive-fraud] transactions ... turns on the objective facts concerning
the debtor’s distressed financial condition and the inadequate consideration received.” (VIahakis v.
Viahakis, 2023 WL 6849617 [Kings Co. Oct. 12, 2023]; citing, James Gadsden and Alan Kolod,
Supplementary Practice Commentaries, McKinney’s Debtor and Creditor Law §273) In Viahakis, the
Supreme Court found that plaintiff sufficiently stated a claim under DCL §273(a)(2) by amplifying the
complaint with the affidavit of plaintiff, alleging that the transfers made by defendant were for less
than adequate consideration, and at a time when defendant was in debt beyond his ability to pay.
(Hn4)
Here, no such affidavit on personal knowledgé is provided. Even the proposed Second
‘The Court notes that the cause of action is plead identically in the proposed Second
Amended Complaint. (NYSCEF 48)
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Amended Complaintis verified by counsel, who does not allege personal knowledge. As such, plaintiff
fails to assert a cause of action under DCL §273(a)(2).
The Sixth Cause of Action is dismissed on the ground of CPLR 321 1(a)(7).
The Seventh and Eighth Causes of Action are made pursuant to DCL §274(a) and (b). Sub-
section (a) provides that a transfer or obligation incurred by a debtor may be voidable if made “without
receiving a reasonably equivalent value in exchange for the transfer ... and the debtor was insolvent
at the time, or became insolvent as a result of the transfer.” Sub-section (b) provides that a transfer
may be voidable as to a creditor whose claim arose before the transfer was made, if the transfer was
made to an insider, at a time when the debtor was insolvent, and the insider had reasonable cause to
know of the insolvency.” The debtor must prove these elements by a preponderance of the evidence.
McKinney’s DCL §274
Again, plaintiff's claims are not supported by any facts which show Freilich’s insolvency,
either before or after the transfer. These claims, both in the Amended Complaint and the proposed
Second Amended Complaint are again stated “upon information and belicf.”
As has already been discussed, the wire transfer, together with the affirmation of Rosenberg
(NYSCEF 57-58) constitute sufficient evidence to show that new money was transferred to Freilich.
What is not shown is any non-conjectural reason for Draf to have believed either that Freilich was
insolvent, or that he had any predecessor obligations. In response, plaintiffasserts only that Draf was
not a bona fide encumbrancer, because it had actual notice (still unsubstantiated) of plaintiff's claim.
The Seventh and Eighth Causes of Action are dismissed pursuant to CPLR 321 1(a)(1) and
(a7). The Amended Complaint is dismissed as against Draf.
Cross-Motion to Amend(Sequence #2)
The Court having dismissed al! causes of action against Draf, the cross-motion to amend is
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(FILED: ORANGE COUNTY CLERK 0471072024 09:45 AM INDEX NO. EF002205-2023
NYSCEF DOC. NO. 60 RECEIVED NYSCEF: 04/00/2024
denied as academic. The amended paragraphs in the proposed Second Amended Complaint concern
only the causes of action against Draf. A motion to amend should be denied where the amendment
is palpably insufficient or devoid of merit. (Kennedy v. Bracey, 219 AD3d 889 [2d Dept 2023])
Should plaintiff wish to amend as against the remaining plaintiffs, a further motion may be made.
Conclusion
On the basis of the foregoing, it is ORDERED:
1 Defendant Draf’s motion to dismiss the fourth, fifth, sixth, seventh and eighth causes
of action as against it is granted.
Plaintiff's cross-motion to amend the complaint is denied.
The remaining parties shall appear for in-person status conference on May 6, 2024 at
9:15 am in Courtroom 2.
All matters not decided herein are denied.
This decision shall constitute the order of the Court.
ENTER:
Dated: April 9, 2024
Goshen, New York
Hon. Sandra B. Sciortino, JSC
To: Counsel of Record via NYSCEF
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Preview
INDEX NO. EF002205-2023 FILED: ORANGE COUNTY CLERK 04710/2024 11:45 AM NYSCEF DOC. NO. 61 RECEIVED NYSCEF: 04/10/2024 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF ORANGE eee nen ene eee nee eee eee eee eee ne eee ene eenee YAAKOV ABELES, Plaintiff, NOTICE OF ENTRY Vv. Index Number: EF002205-2023 BERISH “BERNIE” FREILICH, MIRIAM FREILICH, HERSHEY GOLDBERGER, 5 PATTERSON PASS LLC, 4 PATTERSON PASS LLC, 2 PATTERSON PASS LLC, BLINK SUPPLIES INC, BLINK ENTERPRISE, LLC, BLINK CAPITAL HOLDINGS, LLC, DRAF HOLDINGS LLC, Defendants. eee nen ene eee nee eee eee eee eee ne eee ene eenee PLEASE TAKE NOTICE: The within is a true and correct copy of the Decision and Order of the Honorable Sandra B. Sciortino J.S.C., dated A pril 9, 2024 and entered in the Orange County Clerk’s Office on April 10, 2024. Dated: Rye, New York April 10, 2024 DORF NELSON & ZAUDERER LLP By —_— SS JonathawB. Nelson The mational Corporate Center 555 Theodore Fremd Avenue Rye, New Y ork, 10580 (914) 381-7600 Attorneys for Defendant DRAF HOLDINGS LLC TO Y ifat V ered Schnur, Esq. YVLS ESQ LLC 26 Broadway Suite 1900 New York, NY 10004 Phone: 3472685347 Attorney for Plaintiff 1 of 17 INDEX NO. EF002205-2023 FILED: ORANGE COUNTY CLERK 04710/2024 11:45 AM NYSCEF DOC. NO. 61 RECEIVED NYSCEF: 04/10/2024 Meyer Y. Silber, Esq. The Silber Law Firm, LLC 2361 Nostrand Avenue, Fifth Floor Brooklyn, NY 11210 Phone: 212-765-4567 Attorney for Defendant BERISH FREILICH BERNIE 2 of 17 —, = 7” (FILED: ORANGE COUNTY CLERK 0471072024 09:45 AM ~ “INDEX NO. EF002205-2023 NYSCEF DOC. NO. 60 RECEIVED NYSCEF: 04/00/2024 To commence the statutory time for appeals as of right (CPLR 5513 [a]), you are advised to serve a copy of this order, with notice of entry, upon all parties. SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF ORANGE neeee: na-e ann ane. wenee: YAAKOV ABELES, DECISION AND ORDER Plaintiff, INDEX NO.: EF002205-2023 Motion Date: 2/16/2024 -against- Sequence No. 2& 3 BERISH “BERNIE” FREILICH, MIRIAM FREILICH, HERSHEY GOLDBERGER, 5 PATTERSON PASS LLC, 4 PATTERSON PASS LLC, 2 PATTERSON PASS LLC, BLINK SUPPLIES INC., BLINK ENTERPRISE, LLC, BLINK CAPITAL HOLDINGS, LLC, DRAF HOLDINGS LLC, and HERBERT TEPFER, Defendants. X SCIORTINO, J. The following papers were considered in connection with defendant Draf Holdings LLC “s (Draf) application for an order dismissing the Amended Complaint pursuant to CPLR 3211(a)(4); 3211(a)(7) and RPAPL §1501 et seq. (Sequence #2); and plaintiff's cross-motion seeking leave to file a Second Amended Complaint (Sequence #3) : PAPERS NYSCEF DOCS. Notice of Motion (Seq. #2)/Attorney’s Affirmation (Nelson)/Exhibits A-B/Memorandum of Law 30 - 34 Notice of Cross-Motion (Seq. #3)/Memorandum in Opposition and in Support of Cross-Motion/Exhibit A/Exhibits E-H 46 - 52 Memorandum in Opposition to Cross-Motion and in Reply/Affirmation in Opposition and in Reply (Nelson)/Affirmation (Rosenberg)/ Exhibit A 55-59 Background and Procedural History Plaintiff alleges that, on September 23, 2022, plaintiff and defendant Freilich entered into a Filed in Orange County 04/10/2024 09:14:53 AM $0.00 Bk:310f 13 Pg: 994 Index: # EF002205-2023 Clerk: MB ~ INDEX NO. EF002205-2023 (FILED: ORANGE COUNTY CLERK 0471072024 09:45 AM NYSCEF DOC. NO. 60 RECEIVED NYSCEF: 04/00/2024 contract which is referred to as a Partnership Agreement.' Under its terms, plaintiff provided funds to Freilich, which were to be repaid ,with interest, within four weeks. To induce plaintiff to enter into the agreement, Freilich represented he was the owner of three parcels of land in Orange County (defendants 5 Patterson Pass, LLC; 4 Patterson Pass, LLC, and 2 Patterson Pass, LLC), He provided a title report to plaintiff showing the properties were unencumbered, and pledged them to plaintiff as security for the loan. Between October 2022 and March 2023, plaintiff and Freilich extended the terms of the original agreement, via text messages sent over the WhatsApp platform. The Partnership Agreement was not recorded. It is not disputed that Freilich defaulted in payment under the terms of the Partnership Agreement. On February 1, 2023, defendants 5 Patterson Pass, LLC; 4 Patterson Pass, LLC, and 2 Patterson Pass, LLC, by and through the managing member, Freilich, executed a mortgage to defendant Draf in the sum of $2,850,000, encumbering all three parcels.. The mortgage was recorded on March 6, 2023. At the same time, Freilich executed a declaration of restrictions preventing himself from disposing or encumbering any of the parcels without the consent of defendant Tepfer, a principal of Draf. It is not disputed that Freilich defaulted under the terms of the mortgage. This matter was commenced on April 5, 2023. On July 31, 2023 Draf. filed a motion to dismiss three causes of action against it. Plaintiff thereafter filed an Amended Complaint (NYSCEF 20), as of right. Draf subsequently withdrew its motion on November 8, 2023. 'The contract was apparently entered into in Yiddish, and called a “Shtar Heskem Shtuphot” in that language. 2 of 13 INDEX NO. EF002205-2023 (FILED: ORANGE COUNTY CLERK 0471072024 09:45 AM NYSCEF DOC. NO. 60 RECEIVED NYSCEF: 04/00/2024 The Amended Complaint dropped the conversion and unjust enrichment claims (the second and third causes of action) against Draf. It added additional facts to the action to quiet title (fourth cause of action) and asserted four new causes of action seeking to void the mortgage pursuant to sections 273 and 274 of the Debtor and Creditor Law. Motion to Dismiss (Seq. #2) By Notice of Motion filed December 13, 2023, Draf seeks to dismiss all causes of action in the Amended Complaint asserted against it. Draf first asserts that the Amended Complaint should be dismissed on the grounds of another action pending. It is asserted, and plaintiff does not deny, that, on April 5, 2023, the same date as this action was commenced, plaintiff filed another action against Freilich in Supreme Court, Kings County, under Index Number 510299/2023, by filing a Confession of Judgment executed by defendant Freilich individually, and authorizing entry of judgment against him in the sum of $11,639,000. Judgment by Confession was awarded to plaintiff in that action on April 11,2023. (NYSCEF 32-33) Draf contends that, on that basis, this Court has discretion to dismiss this action on the ground of the pending action in Kings County, which has substantial, if not entire, identity of parties and arises out of the same subject matter or series of alleged wrongs as the matter at bar. The fourth cause of action in the Amended Complaint seeks an order and declaratory judgment extinguishing Draf’s mortgage on the subject properties. That cause of action asserts that Freilich “inappropriately granted a mortgage to Draf.” (NYSCEF 20 at 39) Draf contends that, as a lender, it had no duty of care to ascertain the validity of Freilich’s authority to bind the LLCs. ‘Plaintiff acknowledges that Freilich was the managing member of the borrowers. Draf argues that plaintiffs argument that Draf should have known that plaintiff had “full right and legal title to” the subject property is contrary to settled law. Even a contract of sale is void against a subsequent bona 3 3 of 13 INDEX NO. EF002205-2023 NYSCEF DOC. NO. 60 RECEIVED NYSCEF: 04/00/2024 fide purchaser for value, unless it was recorded. Draf’s mortgage, as the first and only duly recorded encumbrance, is entitled to priority. Draf further contends that the fraudulent conveyance claims fail to state viable causes of action. The Amended Complaint states, at length, that “upon information and belief”: . Draf was aware that Freilich had no right to grant a mortgage, as it was “common knowledge in the ultra-Orthodox community” that Freilich was involved in substantial investment fraud; The mortgage was not given to secure a contemporaneous loan, but to secure prior debt, as part of a scheme to prevent other defrauded investors from recovering what they were owed by Freilich; The mortgage was not given in an arm’s length transaction, but in furtherance of a scheme to file a “collusive foreclosure action’ 299 where Freilich would retain some interest in the properties; The signature on the foreclosure complaint was itlegible because Draf sought to conceal its members’ identities; The mortgage was given with actual intent to hinder, delay and defraud plaintiff; The mortgage was given without defendants receiving a reasonably equivalent value; Freilich and the LLCs were engaged in a transaction in which the remaining assets were unreasonably small in relation to the transaction; Freilich and the LLCs intended to incur a debt beyond his ability to pay; Freilich and the LLCs were insolvent at the time of such transfer or rendered insolvent thereby; Draf was an “insider” and had reasonable cause to believe that Freilich and the LLCs were insolvent. Draf argues that plaintiff failed to show actual intent to hinder, delay or defraud any creditor of the debtor. All allegations are pled “on information and belief” and, as such, are insufficient to satisfy the requirement of particularized pleading. Nor did plaintiff show any claim for constructive fraud, which requires an objective showing of the debtor’s distressed financial condition or inadequate consideration received. Such pleading cannot be based on speculative or conclusory allegations that the mortgagor-defendants did not receive a reasonably equivalent value. Plaintiff's failure to document *Draf filed a foreclosure action against the LLC borrowers on September 20, 2023, under Index Number EF006396-2023, 6 of 13 INDEX NO. EF002205-2023 © NYSCEF DOC. NO. 60 RECEIVED NYSCEF: 04/00/2024 or otherwise show that the transfer was made without consideration or that it rendered the debtor insolvent is fatal to his claim. Finally, Draf contends that plaintiff made no showing other than his conclusory allegation, upon information and belief, that Draf was an “insider.” In fact, Draf relied on the same clean title report that plaintiff relied on. Draf had no reasonable cause to believe Freilich to be insolvent. On such basis, the complaint must be dismissed as against Draf. Opposition and Cross-Motion to Amend (Seq. #3) By Notice of Cross-Motion filed January 25, 2024 (NYSCEF 47 et seq.), plaintiff seeks to again amend his pleading, noting New York’s policy to freely permit amendment in the absence of prejudice to defendants. He argues that, at this early juncture, there is no prejudice to defendants’ ability to properly prepare their cases. Plaintiff states that he was unaware of the identity of any member of Draf until he reviewed Draf’s motion for default judgment in the foreclosure action against the LLCs. By counsel, he asserts that “Draf sought to conceal who its members are, to avoid the collusive nature of the foreclosure being revealed.” Further, upon review, plaintiff states that the default document evidenced that “Draf did not receive contemporaneous consideration for the mortgage, [rather the mortgage] was given on account of an antecedent debt.” Plaintiff made his motion promptly after he learned the identity of the members of Draf and that the mortgage given to Draf’ was not for a contemporaneous exchange of value. The proposed Second Amended complaint, which removes the allegations which were originally pled “upon information and belief,” is intended to assert the newly-acquired facts, Since these assertions formed the basis for Draf’s motion to dismiss, plaintiff argues that the motion to amend should be granted, and the motion to dismiss denied. 5 3 of 13 = — INDEX NO. EF002205-2023 NYSCEF DOC. NO. 60 RECEIVED NYSCEF: 04/00/2024 Further, plaintiff argues that the Kings County judgment does not warrant dismissal of this action, Drafis not a party to the Kings County action, and the confession of judgment is not an action against Draf, These are not “substantially the same parties” as required by CPLR 321 1{a)(4). There is no evidence that Freilich had any control over Draf, or any other connection.’ Asa result, they are not substantially identical parties, and the cases do not arise out of the same transaction. The Kings County action addresses a confession of judgment, while the Orange County action seeks to invalidate a mortgage, The parties are different, the transactions are different and the relief sought is different. CPLR 321 1(a)(4) does not provide a basis for dismissal, Plaintiff further contends that the four quiet title causes of action survive because Draf was aware, when receiving the mortgage, that Freilich was involved in substantial investment fraud, “common knowledge within the Satmar Chassidic community, of which Draf’s member, Israel Michael Rosenberg, belonged.” As such, plaintiff argues, Draf cannot be a good faith purchaser for value. No money was advanced by Draf in exchange for the mortgage. The mere fact that Freilich and the LLCs gave a mortgage to Draf, which at most held an unsecured antecedent debt, shows there is “something undisclosed about the true nature of the agreement between the mortgagee [sic] defendants and Draf.” Plaintiff alleges the true motivation for the mortgage was a collusive foreclosure action in which Freilich would maintain a hidden interest, supported by the declaration of restrictions signed in favor of Draf’s counsel Tepfer. Plaintiffasserts that, since Draf had actual knowledge of the plaintiff’s claim, it was not a bona fide encumbrancer and cannot claim priority under RPL §291, regardless of recording. Moreover, Draf’s acknowledgment in the foreclosure action that the mortgage was given for an antecedent debt >The Court notes the contradiction between this claim, and the claim that Draf was an “insider” colluding with Freilich. 6 of 13 INDEX NO. EF002205-2023 NYSCEF DOC. NO. 60 RECEIVED NYSCEF: 04/00/2024 is fatal to its claim that it was a bona fide encumbrancer. With respect to plaintiff's DCL claims, plaintiff argued that the transfer was “plainly made with intent to hinder, delay or defraud plaintiff.” Plaintiff's assertion of a “hidden agreement” providing Freilich with a continuing interest in the foreclosed properties constitutes a sufficient “badge of fraud.” Further badges of fraud include the fact that there was no equivalent value given for the mortgage, together with the fact that the defendants were insolvent at the time. In fact, the mortgagor defendants received nothing for the mortgage. Since at the time of the mortgage execution, Freilich and the LLCs owed a debt to plaintiff, and they did not receive. reasonably equivalent value, the conveyance to Draf was fraudulent. Under the circumstances, the motion to dismiss must be denied. Reply and Opposition to Cross-Motion Draf’s reply reiterates its prior points at length, not repeated here. It is also argued that the RPAPL Article 15 complaint is procedurally defective,as it fails to identify it as brought pursuant to that Article, and fails to set forth facts specific to demonstrate a cause of action. Moreover, the claim that Draf had any notice of Freilich’s prior conveyance turns solely on the assertions that his investment fraud was “common knowledge in the ultra-orthodox Jewish community.” This is nothing more than conjecture, insufficient as a matter of law to constitute notice, actual or constructive. While plaintiffs proposed Second Amended Complaint removes the words “upon information and belief” from some assertions, it remains based on bare legal conclusions, which are both unreliable and insufficient to support amendment. Draf notes that the proposed amendment is again verified by counsel, and contains no information by any party with personal knowledge. The allegation of lack of adequate consideration is without merit. The affirmation of Draf’s principal, Rosenberg (NYSCEF 57) and documentary evidence (NYSCEF 58) show that on the date of the execution of the mortgage 7 9 of 13 INDEX NO. EF002205-2023 NYSCEF DOC. NO. 60 RECEIVED NYSCEF: 04/00/2024 documents, a wire transfer was sent by Tepfer’s IOLA account to the order of defendant Blink Enterprises, LLC, an entity controlled by Freilich. The substantial funds transferred evidence not only that adequate consideration was given, but that Freilich and the LLCs were not insolvent then, or rendered insolvent by the encumbrance. Plaintiff has not provided any showing of insolvency as would be required to substantiate a DCL §274(a) claim. The Court has fully considered the submissions of the parties. Discussion For the reasons which follow, Draf's motion to dismiss is granted. Plaintiff's motion to amend is denied as academic. It is fundamental that, on a motion to dismiss pursuant to Civil Practice Law & Rules §3211(a)(7), the pleading is to be afforded a liberal construction. The Court must accept the facts as alleged in the complaint to be true, and accord the plaintiff the benefit of every possible favorable inference, determining only whether the facts as alleged fit within any cognizable legal theory. CPLR 3211(a)(7); (Bua v. Purcell & Ingrao, P.C., 99 AD3d 843 [2d Dept 2012}) However, dismissal is warranted where the allegations in the complaint are merely conclusory and speculative. (/d. at 848) In this matter, Draf contends that it is entitled to dismissal, as follows: Other Action Pending Draf argues that it is entitled to relief under CPLR 321 1{a)(4) by reason of the Kings County action, in which judgment by confession has already been entered against Freilich. Draf contends that the relief is largely the same, the two actions are sufficiently similar, and there is substantial identity of parties. The Court disagrees. A court has “broad discretion in determining whether an action should be dismissed based upon another pending action where there is a substantial identity of the parties, the 8 B off17 INDEX NO. EF002205-2023 NYSCEF DOC. NO. 60 RECEIVED NYSCEF: 04/00/2024 two actions are sufficiently similar, and the relief sought is substantially the same.” (Jaber v. Elayyan, 168 AD3d 693, 694 [2d Dept 2019)) It is not necessary that the precise legal theories be presented in the first action and the second, as long as the relief sought is the same or substantially the same, (Jd.) As Draf argues, there need not be complete identity of the parties, but. there must’ be at least “substantial identity,” generally present when at least one plaintiff and one defendant is common in each action. (id.) In Jaber, the plaintiff sought to impose a constructive trust on certain real property owned by one defendant, as well as a declaration that he was the property’s beneficial and equitable owner. Defendant moved to dismiss on the ground of a prior pending action commenced by plaintiff's brother and others against him in another county. The Court found that there was no common plaintiff, and the subject matter of the two actions, although related, was not sufficiently similar to warrant dismissal of the second action. The relief sought was different, and resolution of the former action would not necessarily resolve the plaintiff's claim. (id. at 694-695) Abeles was the plaintiff in the Kings County action, which remains pending. Of note, the Kings County action is not a “prior” action as both that matter and the instant one were commenced the same day, April 5, 2023. More importantly, although Freilich was a defendant common to both actions, the Kings County action was based strictly upon a confession of judgment signed by him in Abeles’ favor. Judgment has been entered against Freilich for the relief sought in the Kings County action, But that isnot the relief sought against Draf in the Orange County action. Rather, this action seeks to extinguish a mortgage executed by Freilich, on behalf of the LLCs; and a declaration of plaintiff's ownership of those properties, The entry of a money judgment against Freilich does not resolve the instant action. The Court declines to dismiss this action on those grounds. D1 off 157 INDEX ‘NO. EF002205-2023 (FILED: ORANGE COUNTY CLERK 0471072024 09:45 AM NYSCEF DOC. NO. 60 RECEIVED NYSCEF: 04/00/2024 Quiet Title (Fourth Cause of Action) Were CPLR 3211(a)(4) the sole ground for dismissal, the discussion would end here. However, Draf also seeks relief under CPLR 321 1(a)(7), failure to state a cause of action, as related to the causes of action to quiet title and for voidable transfer, To maintain a cause of action to quiet title, a plaintiff must allege actual or constructive possession of the property, and the existence of a removable cloud on the property, an apparent title such as a deed or other instrument that is actually invalid or inoperative. (Nurse v. Rios, 160 AD3d 888 [2d Dept 2018]) The fourth cause of action claims that Freilich inappropriately granted a mortgage to Draf, secured by the properties which had previously been given over to plaintiff, and to which plaintiff had complete right and legal title to by virtue of the parties’ Partnership agreement. Plaintiff further asserts that, at the time the mortgage was granted, Draf was aware that Freilich had no right to grant it, (NYSCEFP 20 at §f 39, 43) It is well-established that a mortgagee is not a bona fide encumbrancer where, despite being aware of facts that would lead “a reasonable prudent lender to make inquiries of the circumstances of the transaction at issue, it fails to make such inquiries” (Lebovits v. Bassman, 120 AD3d 1198, 1199 [2d Dept 2014]). In Lebovits, plaintiff alleged that the borrower defendant omitted a material fact when entering into the mortgage with Sovercign Bank. The Second Department held that, in such a circumstance, plaintiff failed to state a cause of action. against “either the representor or the representee” (/d.). In 334 Corp. v. Jericho Plaza, LLC, 128 AD3d 679 [2d Dept 2015], a mortgagor submitted documents at the closing which indicated that he was the sole member of the LLC and had authority to enter into the mortgage on behalf of the LLC. The Second Department held that “mortgagees do not have a duty of care to ascertain the validity of the documentation presented by an individual who claims to have the authority to act on behalf of a borrower corporation or entity” (/d. at 680). 10 18 of 13 — INDEX NO.” EF002205 - 2023 NYSCEF DOC. NO. 60 RECEIVED NYSCEF: 04/00/2024 Inthe matterat bar, plaintiff's claim that Draf had awareness of Freilich’s inability to mortgage the properties was not based on a document, but on “common knowledge within the ultra-orthodox Jewish community, in which the parties and/or their officers and attorneys are members, ‘that Defendant [Freilich] was involved in substantial investment fraud. As such, Draf had reason to be aware that the Subject Properties were conveyed to other investors” (NYSCEF 20 at §43). Draf argues that plaintiffs claim that an unrecorded Partnership agreement gave plaintiff “full right and legal title” to the subject property is contrary to the law. An executory contract for the sale, purchase or exchange of real property, or an instrument containing a power to convey such property, may be recorded in the Office of the Clerk of the county in which the property is situated. RPL §294 In this matter, there is no dispute that plaintiff never recorded the Partnership agreement. Moreover, plaintiff does not dispute that Draf relied on the same title report as he did, showing the properties to be unencumbered. Plaintiff's assertion that Draf was aware because of “community common knowledge” is unsupported by even as much as an affidavit of a person with familiarity with such “common knowledge.” The logical leap between such knowledge, even if Draf had it (which it denies) and Draf’s collusive mortgage is not explained. Plaintiff made no other allegation that Draf had constructive notice of the Partnership Agreement. As such, it.is nothing but speculation, and unentitled to the presumption of truth generally attaching to the allegations of a pleading on a motion to dismiss. (See, Bua, 99 AD3d at 848) While the proposed Second Amended Complaint (NYSCEF 48) eliminates the “community common knowledge” allegation, there is still nothing to support the conclusory allegation that Draf knew Freilich was defrauding plaintiff and other creditors. Accordingly, the Fourth Cause of Action is dismissed on the grounds of CPLR 321 I{a)(7). 11 13 of 13 7 INDEX NO. EF002205-2023 NYSCEF DOC. NO. 60 RECEIVED NYSCEF: 04/00/2024 Voidable Transfer (Fifth, Sixth, Seventh and Eighth Causes of Action) Draf characterizes plaintiff's fraudulent conveyance/voidable transfer claims made pursuant to DCL §§ 273 and 274 as “bare-bones allegations, verified by counsel, made ‘upon information and belief.’” As such, they are insufficient to show concrete and specific circumstances giving rise to its claims, or that any transfer was made without fair consideration. Section 273 of the Debtor and Creditor Law provides that a transfer or obligation incurred by a debtor is voidable as to a creditor ... if the debtor made the transfer or incurred the obligation: (ly with actual intent to hinder, delay or defraud any creditor of the debtor; (2) without receiving a reasonably equivalent value in exchange for the transfer or obligation; and the debtor @ was engaged or about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or ii) intended to incur, or believed or reasonably should have believed that the debtor would incur, debts beyond the debtor’s ability to pay as they became due. In determining actual intent, a court may consider factors derived from common law “badges of fraud,” including whether: the transfer or obligation was to an insider; the debtor retained control or possession of the property after the transfer; the transfer or obligation was disclosed or concealed; before the.transfer was made or obligation was incurred, the debtor had been sued or threatened with suit; the transfer was of substantially all the debtor’s assets; the debtor absconded; the debtor removed or concealed assets; the value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the obligation incurred; the debtor was insolvent or became insolvent shortly after the transfer was made or the obligation incurred; the transfer occurred shortly before or shortly after a substantial debt was incurred; and the debtor transferred the essential assets of the business to a lienor that transferred the assets to an insider of the debtor. Claims under DCL 273(a)(1), plaintiff's Fifth Cause of Action, must be plead with sufficient 12 12 of 13 INDEX NO. EF002205-2023 (FILED: ORANGE COUNTY CLERK 04710/2024 9:45 AM NYSCEF DOC. NO. 60 RECEIVED NYSCEF: 04/00/2024 particularity pursuant to CPLR 3016(b). Allegations concerning such transfers cannot be alleged “on information and belief.” (Bd. of Managers of the 165 E. 62"! Street Condominium v, Churchill E 62™ LLC, 2023 WL 3725042 [New York Co. May 25, 2023]; citing, Avilon Auto. Group v. Leontiev. 194 AD3d 547, 549 [1% Dept 2021}) Plaintiff's Amended Complaint (NYSCEF 20) is based on a bare allegation that the mortgage was made with the actual intent to hinder, delay and defraud plaintiff. Such a conclusory allegation fails to meet the particularity standards required by DCL §273(a)(1).4 The Fifth Cause of Action is dismissed on the ground of CPLR 3211(a)(7). The Sixth Cause of Action is pled under DCL §273(a)(2). Such a claim does not require proof of actual intent; but instead concerns whether the debtor received reasonably equivalent value in exchange for the transfer and was either about to engage in a transaction for which the debtor’s assets were unreasonably small, or intended to incur debt he should have known was beyond his ability to pay. “The voidability of [constructive-fraud] transactions ... turns on the objective facts concerning the debtor’s distressed financial condition and the inadequate consideration received.” (VIahakis v. Viahakis, 2023 WL 6849617 [Kings Co. Oct. 12, 2023]; citing, James Gadsden and Alan Kolod, Supplementary Practice Commentaries, McKinney’s Debtor and Creditor Law §273) In Viahakis, the Supreme Court found that plaintiff sufficiently stated a claim under DCL §273(a)(2) by amplifying the complaint with the affidavit of plaintiff, alleging that the transfers made by defendant were for less than adequate consideration, and at a time when defendant was in debt beyond his ability to pay. (Hn4) Here, no such affidavit on personal knowledgé is provided. Even the proposed Second ‘The Court notes that the cause of action is plead identically in the proposed Second Amended Complaint. (NYSCEF 48) 13 13 of 13 INDEX NO. EF002205-2023 (FILED: ORANGE COUNTY CLERK 04710/2024 9:45 AM NYSCEF DOC. NO. 60 RECEIVED NYSCEF: 04/00/2024 Amended Complaintis verified by counsel, who does not allege personal knowledge. As such, plaintiff fails to assert a cause of action under DCL §273(a)(2). The Sixth Cause of Action is dismissed on the ground of CPLR 321 1(a)(7). The Seventh and Eighth Causes of Action are made pursuant to DCL §274(a) and (b). Sub- section (a) provides that a transfer or obligation incurred by a debtor may be voidable if made “without receiving a reasonably equivalent value in exchange for the transfer ... and the debtor was insolvent at the time, or became insolvent as a result of the transfer.” Sub-section (b) provides that a transfer may be voidable as to a creditor whose claim arose before the transfer was made, if the transfer was made to an insider, at a time when the debtor was insolvent, and the insider had reasonable cause to know of the insolvency.” The debtor must prove these elements by a preponderance of the evidence. McKinney’s DCL §274 Again, plaintiff's claims are not supported by any facts which show Freilich’s insolvency, either before or after the transfer. These claims, both in the Amended Complaint and the proposed Second Amended Complaint are again stated “upon information and belicf.” As has already been discussed, the wire transfer, together with the affirmation of Rosenberg (NYSCEF 57-58) constitute sufficient evidence to show that new money was transferred to Freilich. What is not shown is any non-conjectural reason for Draf to have believed either that Freilich was insolvent, or that he had any predecessor obligations. In response, plaintiffasserts only that Draf was not a bona fide encumbrancer, because it had actual notice (still unsubstantiated) of plaintiff's claim. The Seventh and Eighth Causes of Action are dismissed pursuant to CPLR 321 1(a)(1) and (a7). The Amended Complaint is dismissed as against Draf. Cross-Motion to Amend(Sequence #2) The Court having dismissed al! causes of action against Draf, the cross-motion to amend is 14 16 of 13 (FILED: ORANGE COUNTY CLERK 0471072024 09:45 AM INDEX NO. EF002205-2023 NYSCEF DOC. NO. 60 RECEIVED NYSCEF: 04/00/2024 denied as academic. The amended paragraphs in the proposed Second Amended Complaint concern only the causes of action against Draf. A motion to amend should be denied where the amendment is palpably insufficient or devoid of merit. (Kennedy v. Bracey, 219 AD3d 889 [2d Dept 2023]) Should plaintiff wish to amend as against the remaining plaintiffs, a further motion may be made. Conclusion On the basis of the foregoing, it is ORDERED: 1 Defendant Draf’s motion to dismiss the fourth, fifth, sixth, seventh and eighth causes of action as against it is granted. Plaintiff's cross-motion to amend the complaint is denied. The remaining parties shall appear for in-person status conference on May 6, 2024 at 9:15 am in Courtroom 2. All matters not decided herein are denied. This decision shall constitute the order of the Court. ENTER: Dated: April 9, 2024 Goshen, New York Hon. Sandra B. Sciortino, JSC To: Counsel of Record via NYSCEF 15 13 of 13