Opinion
650097/2009.
Decided March 1, 2011.
Cadwalader, Wickersham Taft LLP, New York, NY, (Gregory A. Markel, Esq., Jason Jurgens, Esq.), for Plaintiff.
Lackey Hershman, L.L.P., New York, NY, (Kieran M. Corcoran, Esq.), for Defendants.
Paul B. Lackey, Pro Hac Vice, Michael P. Aigen, Pro Hac Vice, Baron T. Oursler, Pro Hac Vice, Dallas, TX.
Defendants Highland Financial Partners, L.P. (Highland Financial), Highland Credit Opportunities CDO, L.P. (Credit Opportunities), and Strand Advisors, Inc. (Strand) move, pursuant to CPLR 3211 (a) (1), (5), and (7), and 3016 (b), for an order dismissing the fifth, seventh, and eighth causes of action for a declaratory judgment and fraudulent conveyances asserted in the first amended complaint as against movants, on the grounds of failure to state a viable cause of action, failure to plead fraud with sufficient particularity, documentary evidence, and res judicata.
The underlying facts and procedural history of this action are fully set forth in my decision and order dated June 17, 2010 (the June 17 order), granting in part and denying in part the motion by plaintiffs UBS Securities LLC and UBS AG, London Branch (collectively, UBS) for leave to serve a first amended complaint, and will not be repeated here, except as is necessary for clarification of the issues raised in the motion now before me. This action arises out of defendant/counterclaim plaintiff Highland Capital Management, L.P.'s (Highland Capital) failed efforts in Spring 2007 to sponsor a collateralized debt obligation securitization (original engagement). In the first amended complaint, UBS alleges that UBS incurred approximately $686.9 million in losses as the direct result of fraudulent conduct by Highland Capital, a Texas-based hedge fund organized under the laws of Delaware as a limited partnership that manages Credit Opportunities' assets, and two of its affiliates, defendants Highland CDO Opportunity Master Fund, L.P. (CDO Fund), a Bermuda limited partnership, and Highland Special Opportunities Holding Company (SOHC), a Cayman Islands corporation, (collectively, the Fund Counterparties). UBS is now seeking to recover its losses from the Fund Counterparties, and certain of their affiliates, including: movants Highland Financial, a Delaware corporation, and, allegedly, SOHC's alter ego; Credit Opportunities, a Delaware limited partnership whose assets are managed by Highland Capital; and Strand, a Delaware corporation engaged in the business of serving as Highland Capital's general partner.
UBS alleges that Highland Capital and the Fund Counterparties fraudulently induced UBS to restructure the original engagement transaction and enter into the restructured transaction in order to avoid their contractual obligations to pay UBS more than $86 million ( see First Amended Complaint, ¶¶ 2, 45-61, 115-27). UBS further alleges that, once they succeeded in misleading UBS into restructuring the original transaction, Highland Capital and its affiliates intentionally made it impossible for the Fund Counterparties to meet their payment obligations to UBS by stripping them of their valuable assets through payment of improper dividends and other fraudulent conveyances, including note offerings in Fall 2008 and a fraudulent conveyance in March 2009, and by otherwise interfering with their contractual obligations to pay UBS more than $250 million, that were about to mature ( see id., ¶¶ 2, 69-73, 80-89, 98, 108-114, 167-188).
UBS alleges that, with the Fall 2008 note offerings, made at a time when SOHC and its alter ego, Highland Credit, were insolvent, or on the verge of insolvency, to creditors other than UBS (including nonparties Barclays Bank and Citigroup), Highland Credit, Highland Financial, and the Fund Counterparties interfered in bad faith with the Fund Counterparties' ability to meet their contractual obligations to UBS ( see id., ¶¶ 80-89).
UBS further alleges that, on December 3, 2008, UBS terminated the restructured transaction and demanded payment from the Fund Counterparties and Highland Capital ( see id., ¶ 99). UBS alleges that, at that time, UBS was owed more than $686 million that the Fund Counterparties could not pay, largely because of the misappropriations and improper transfers of assets that occurred during the course of 2008 ( see id., ¶¶ 106-109).
UBS alleges that, in March 2009, after UBS demanded payment and commenced this action, and under the guise of cancelling the Fall 2008 notes, defendants engaged in further fraudulent conduct by making fraudulent transfers of more than $239 million in assets from SOHC's alter ego, Highland Financial, and to Highland Capital, as well as to certain affiliated defendants, and Citigroup. At the time of the transfers, Highland Financial, CDO Fund, and SOHC were insolvent. See id., ¶¶ 111-114.
Highland Financial, Credit Opportunities, and Strand now seek to dismiss the declaratory judgment and fraudulent conveyance claims asserted against them.
On a motion addressed to the sufficiency of the pleadings, the court must accept each and every allegation as true and liberally construe the allegations in the light most favorable to the pleading party ( Guggenheimer v Ginzburg, 43 NY2d 268, 275; see CPLR 3211 [a] [7]). "We . . . determine only whether the facts as alleged fit within any cognizable legal theory" ( Leon v Martinez, 84 NY2d 83, 87-88). However, "'allegations consisting of bare legal conclusions, as well as factual claims either inherently incredible or flatly contradicted by documentary evidence,' are not presumed to be true and [are not] accorded every favorable inference" ( Biondi v Beekman Hill House Apt. Corp., 257 AD2d 76, 81 [1st Dept 1999], affd 94 NY2d 659, quoting Kliebert v McKoan, 228 AD2d 232, 232 [1st Dept], lv denied 89 NY2d 802; see CPLR 3211 [a] [1]).
With regard to UBS's October 19, 2010 letter, I will consider UBS's corrections to erroneous citations of first amended complaint paragraph numbers in its opposition brief, and will disregard the additional paragraph numbers cited by UBS in the letter.
Movants contend that the eighth cause of action for a declaratory judgment asserted against Highland Financial regarding the relationship between it and SOHC is fatally defective on the ground that UBS has failed to allege adequate facts from which an inference may be drawn that Highland Financial is the alter ego of SOHC, a Cayman Islands corporation, and, upon piercing the corporate veil between the two companies, may be held liable for SOHC's alleged breach of the warehouse agreements and fraudulent misconduct.
The parties initially dispute whether I decided this issue in the June 17 order. I did not. Contrary to UBS's contention, the law-of-the-case doctrine has no application here. In granting in part, UBS's motion to amend the complaint to assert a declaratory judgment claim against Highland Financial, I stated that, "I do not consider" defendants' arguments in opposition to the proposed declaratory judgment causes of action inasmuch as the arguments were not made by the proposed new defendants' counsel (June 17 Order, at 11). I also stated that, "I offer no final opinion on the merits of any of the proposed new claims" ( id.). Although I refer briefly to UBS's alter ego allegations ( see id. at 9), I did not determine whether the factual allegations underlying the claim, if proven, are sufficient to demonstrate whether Highland Financial is SOHC's alter ego.
Next, the parties dispute whether the law of New York or the law of the Cayman Islands regarding when the corporate veil may be disregarded should be applied in determining whether the eighth cause of action is legally cognizable or fatally defective. Movants contend that the internal affairs doctrine mandates application of the law of SOHC's state of incorporation — the Cayman Islands. UBS urges application of the law of the forum state — New York.
The determination of whether one corporation is another corporation's alter ego does not involve consideration of corporate internal affairs. As the United States Supreme Court has explained, "[t]he internal affairs doctrine is a conflict of laws principle which recognizes that only one State should have the authority to regulate a corporation's internal affairs — matters peculiar to the relationships among or between the corporation and its current officers, directors, and shareholders — because otherwise a corporation could be faced with conflicting demands" ( Edgar v MITE Corp., 457 US 624, 645, citing Restatement [Second] of Conflict of Laws § 302, comment b, at 307-308 [1971]). In contrast, alter ego liability and the related doctrine of piercing the corporate veil involve the abuse of the corporate form to the detriment of third parties ( Matter of Morris v New York State Dept. of Taxation Fin., 82 NY2d 135, 140-141), and do not implicate the corporation's internal affairs. Inasmuch as, here, UBS seeks a declaration that Highland Financial is SOHC's alter ego for purposes of contracts and conduct between UBS and SOHC, New York law governs the issue.
Application of the law of New York is also mandated on the ground that SOHC has almost no ties to the Cayman Islands. When determining conflicts issues, the courts of this state do not automatically apply the "internal affairs" choice-of-law rule ( see Greenspun v Lindley, 36 NY2d 473, 478). Instead, the courts take into account whether the corporate wrongdoer had contacts with its place of incorporation, and the nature of the contacts, and the location of the transactions of which the plaintiff complains ( see Serio v Ardra Ins. Co., Ltd., 304 AD2d 362, 362 [1st Dept], appeal dismissed 100 NY2d 576). Other than being incorporated in the Cayman Islands, SOHC has no obvious ties to that jurisdiction. SOHC conducts business in New York and Texas with entities based in New York, including UBS and Barclays Bank. SOHC's sole shareholder, Highland Financial, is a Delaware corporation. The contracts between SOHC and UBS at issue here were negotiated through counsel in New York and, by their terms, are governed by the law of New York. None of the tortious conduct and contractual breaches by SOHC alleged in the first amended complaint are alleged to have occurred in the Cayman Islands.
Pursuant to New York law, courts will disregard the corporate form in order to achieve equity, to prevent fraud, or to prevent the improper avoidance of a corporate obligation ( Wm. Passalacqua Bldrs., Inc. v Resnick Devs. S., Inc., 933 F2d 131, 138-139 [2d Cir 1991] [applying New York law]; Walkovszky v Carlton, 18 NY2d 414, 417-418) or "[w]hen a corporation has been so dominated by an individual or another corporation and its separate entity so ignored that it primarily transacts the dominator's business instead of its own and can be called the other's alter ego" ( Austin Powder Co. v McCullough, 216 AD2d 825, 827 [3d Dept 1995]).
Generally, a plaintiff seeking to pierce the corporate veil must show that: "(1) the owners exercised complete domination of the corporation in respect to the transaction attacked; and (2) that such domination was used to commit a fraud or wrong against the plaintiff which resulted in plaintiff's injury" ( Matter of Morris v New York State of Dept. of Taxation Fin., 82 NY2d at 141). Further, "[a] plaintiff is not required to plead or prove actual fraud in order to pierce the corporate defendant's corporate veil; but [must prove] only that the individual defendant's control of the corporate defendant was used to perpetrate a wrongful or unjust act toward plaintiff" ( Rotella v Derner, 283 AD2d 1026, 1027 [4th Dept], lv denied 96 NY2d 720 [internal citation and quotation marks omitted]). Ultimately, a determination of whether an owner is a corporation's alter ego turns on the specific facts and equities of the case ( Matter of Morris v New York State of Dept. of Taxation Fin., 82 NY2d at 141; Gateway I Group, Inc. v Park Ave. Physicians, P.C. , 62 AD3d 141 , 146 [2d Dept 2009]).
Indicia of a situation warranting veil-piercing include: '(1) the absence of the formalities and paraphernalia that are part and parcel of the corporate existence, i.e., issuance of stock, election of directors, keeping of corporate records and the like, (2) inadequate capitalization, (3) whether funds are put in and taken out of the corporation for personal rather than corporate purposes, (4) overlap in ownership, officers, directors, and personnel, (5) common office space, address and telephone numbers of corporate entities, (6) the amount of business discretion displayed by the allegedly dominated corporation, (7) whether the related corporations deal with the dominated corporation at arms['] length, (8) whether the corporations are treated as independent profit centers, (9) the payment or guarantee of debts of the dominated corporation by other corporations in the group, and (10) whether the corporation in question had property that was used by other of the corporations as if it were its own' ( Shisgal v Brown , 21 AD3d 845 , 848-849 [1st Dept 2005], quoting Wm. Passalacqua Bldrs., Inc. v Resnick Devs. S., Inc., 933 F2d at 139).
UBS alleges that "SOHC breached the Warehouse Agreements and otherwise harmed UBS by engaging in fraudulent conduct. Highland Financial is SOHC's alter ego and should be held responsible for SOHC's breach of the Warehouse Agreements and fraudulent misconduct" (First Amended Complaint, ¶ 194). UBS further alleges that Highland Financial completely controlled SOHC ( see id., ¶ 195) and exercised that control to perpetrate a fraudulent scheme against UBS by masking SOHC's under-capitalization, and thereby fraudulently induce UBS to enter into the restructured transaction ( see id., ¶¶ 25, 130-144). UBS further alleges that Highland Financial exacerbated UBS's losses by removing assets from SOHC and paying off Highland Financial's preferred creditors, such as Barclays Bank and Citigroup, as SOHC's insolvency deepened, from December 2007 to April 2009 ( see id., ¶¶ 25, 170).
UBS alleges that these allegations are corroborated by minutes from Highland Financial's board meetings held in 2007, 2008, and 2009, incorporated by reference in the first amended complaint, which demonstrate that Highland Financial, its board of directors, including James D. Dondero, Highland Capital's president and founder, and Highland Capital all treated SOHC and its sister affiliates as Highland Financial's alter ego and instrumentality ( see id., ¶ 25). UBS alleges that the minutes establish that, in connection with the restructured transaction, Dondero, Highland Capital, and Highland Financial's board of directors did not distinguish between Highland Financial's debts and obligations, and the debts and obligations of its subsidiaries, including SOHC ( see id., ¶¶ 25, 80-98). UBS further alleges that they operated Highland Financial and its subsidiaries, including SOHC, as a single economic entity, regularly commingling assets among the affiliates to achieve their own goals ( see id.).
UBS specifically alleges that SOHC had no independent business discretion, and did not exercise any; that its sole board member, Dondero, also sat on the board of Highland Financial and dominated both SOHC and Highland Financial; that Highland Financial shared common officers, directors, and employees, as well as common office space, with SOHC; that Highland Financial operated itself and its subsidiaries, including SOHC, as a single entity; that SOHC was operated without regard for corporate formalities to benefit Highland Financial and its members; that Highland Financial, through Highland Capital, made assets from SOHC's sister entities available to UBS to satisfy margin calls made by UBS to SOHC in connection with the restructured transaction; and that Highland Financial's board of directors considered UBS's original complaint and action against SOHC to be an action against Highland Financial ( see id., ¶¶ 194-196).
These allegations, when deemed true, are sufficient to support a claim to pierce SOHC's corporate veil and impose alter ego liability against Highland Financial. Therefore, that branch of the motion to dismiss the eighth cause of action for a judgment declaring that Highland Financial is SOHC's alter ego is denied.
Next, movants seek to dismiss the fifth cause of action for fraudulent conveyances in violation of the Debtor Creditor Law (DCL) asserted against Highland Financial, contending that the claim is fatally defective on the grounds that no debtor-creditor relationship existed between Highland Financial and UBS during the relevant time period, and that the claim is not pleaded with sufficient particularity, as required by CPLR 3016 (b).
In opposition, UBS contends that, among other things, it has adequately alleged with sufficient particularity numerous fraudulent transfers of SOHC's assets that occurred upon instructions by Highland Financial, acting as SOHC's alter ego.
Pursuant to New York law, a claim for fraudulent conveyance exists where the transferor makes the transfer without fair consideration and: the transferor is or will be rendered insolvent as a result ( see DCL § 273); or is a defendant in an action for money damages ( see id. § 273-a); or is in business and, after the conveyance, is undercapitalized ( see id. § 274); or intends to, or believes that it will, incur debt beyond its ability to pay ( see id. § 275); or makes the transfer with an intent to hinder, delay, or defraud present or future creditors ( see id. § 276). In order to state a legally viable claim for relief from a fraudulent conveyance, a plaintiff must demonstrate that the defendant is indebted to the plaintiff ( see id. §§ 273, 273-a, 274, 275, 276).
Contrary to movants' numerous arguments, the fraudulent conveyances claim is legally cognizable.
If UBS proves that Highland Financial is SOHC's alter ego, the requisite debtor-creditor relationship will be found to have existed between Highland Financial and UBS during the relevant time period. There is no dispute that SOHC was contractually required to pay UBS certain sums by certain dates, and failed to do so. Assuming, without deciding, that Highland Financial is SOHC's alter ego, Highland Financial and SOHC will be treated as one and the same for purposes of the fraudulent conveyance claim ( see Holme v Global Mins. Metals Corp. , 63 AD3d 417 , 417-418 [1st Dept 2009]). Therefore, Highland Financial, as UBS's alter ego, will be held to be UBS's debtor.
UBS has alleged adequate facts with sufficient particularity in support of the fraudulent conveyances claim. To the extent that the fraudulent conveyances claim arises out of alleged violations of DCL §§ 273, 273-a, 274, and 275, the heightened pleading requirement set forth in CPLR 3016 (b) is not applicable because these sections do not require proof of an actual intent to defraud ( see Gateway I Group, Inc. v Park Ave. Physicians, P.C., 62 AD3d at 149-150). Section 3016 (b) of the CPLR requires that, "[w]here a cause of action or defense is based upon misrepresentation, fraud, mistake, willful default, breach of trust, or undue influence, the circumstances constituting the wrong shall be stated in detail." The allegations must be sufficiently particularized to give adequate notice to the court and to the parties of the transactions and occurrences intended to be proved ( Foley v D'Agostino, 21 AD2d 60, 63-64 [1st Dept 1964], citing CPLR 3013, 3016 [b]).
UBS alleges that Highland Financial was the transferee in connection with cash transfers made by SOHC during the restructured transaction, and in connection with the assets transferred by CDO Fund in connection with the Fall 2008 note offerings ( see First Amended Complaint, ¶ 174). UBS further alleges that, in connection with the March 2009 fraudulent conveyance, Highland Financial acted as the transferor when it wrongfully transferred, among other things, assets received from CDO Fund, to Highland Capital and the affiliated transferee defendants, as well as to Citigroup ( see id., ¶¶ 73, 82-88, 109-114, 170, 178). UBS alleges that Highland Financial caused various fraudulent transfers to be made by SOHC ( see id.) and that Highland Financial and its largest shareholder, Highland Capital, benefitted from these transactions, to UBS's detriment ( see id., ¶¶ 11-16, 76, 98). UBS also alleges that Highland Financial engaged in these transactions with the knowledge that UBS would be harmed by the transfers ( see id., ¶ 114). With these allegations, UBS has adequately alleged that Highland Financial violated DCL §§ 273, 273-a, 274, and 275 ( see Holme v Global Minerals Metals Corp., 63 AD3d at 417-418; Joel v Weber, 197 AD2d 396, 396 [1st Dept 1993]).
To the extent that the fraudulent conveyances claim arises out of alleged violations of DCL § 276, UBS has alleged facts regarding a scheme to intentionally defraud UBS in detail sufficient to satisfy the heightened pleading requirement ( see Gateway I Group, Inc. v Park Ave. Physicians, P.C., 62 AD3d at 150; Marine Midland Bank v Zurich Ins. Co., 263 AD2d 382, 382-383 [1st Dept 1999]).
Section 276 of the DCL provides that: "Every conveyance made and every obligation incurred with actual intent, as distinguished from intent presumed by law, to hinder, delay, or defraud either present or future creditors, is fraudulent as to both present and future creditors." Because direct proof of actual intent to hinder, delay, or defraud creditors is rare, creditors may rely on 'badges of fraud' to establish an inference of fraudulent intent. Factors that are considered 'badges of fraud' are (1) a close relationship between the parties to the transaction, (2) a secret and hasty transfer not in the usual course of business, (3) inadequacy of consideration, (4) the transferor's knowledge of the creditor's claim and his or her inability to pay it, (5) the use of dummies or fictitious parties, and (6) retention of control of the property by the transferor after the conveyance ( Shelly v Doe, 249 AD2d 756, 758 [3d Dept 1998] [internal citation omitted]; Wall St. Assoc. v Brodsky, 257 AD2d 526, 529 [1st Dept 1999]).
UBS alleges that Highland Financial engaged in these transactions with the knowledge and intent that UBS would be harmed by the transfers ( see First Amended Complaint, ¶¶ 114, 176-178) and, as discussed in detail above, has alleged the existence of numerous "badges of fraud" with sufficient particularity.
Similarly, UBS has pleaded adequate facts in sufficient detail, to the extent that UBS seeks to hold Highland Financial liable for conveyances in which it is alleged to have aided and abetted the fraud ( see Joel v Weber, 197 AD2d at 396).
The essential elements of a viable claim of fraud are representation of a material existing fact, falsity, scienter, deception, and resulting injury ( Sabo v Delman, 3 NY2d 155, 159). Where the claim asserted is aiding and abetting fraud, the plaintiff must plead that the alleged aider had knowledge of the fraudulent nature of the representations and rendered substantial assistance to the principal actor ( National Westminster Bank USA v Weksel, 124 AD2d 144, 147-148 [1st Dept], lv denied 70 NY2d 604). When alleging a nexus between the proposed aider and the primary fraud, the plaintiff must strictly adhere to the pleading requirements for fraud claims mandated by the CPLR ( id.; see CPLR 3013, 3016 [b]). However, "[a]lthough under [CPLR] section 3016 (b)[,] the complaint must sufficiently detail the allegedly fraudulent conduct, that requirement should not be confused with unassailable proof of fraud" ( Pludeman v Northern Leasing Sys., Inc. , 10 NY3d 486 , 492).
As discussed above, UBS has adequately alleged that Highland Financial participated in a scheme to avoid Highland Capital's and the Fund Counterparties' contractual obligations and liabilities to UBS ( see First Amended Complaint, ¶¶ 11-19, 69-76, 80-89, 108-114) and has adequately alleged sufficient factual details about numerous fraudulent transfers involving Highland Financial as the transferor, transferee, and as the party which caused the transfers by SOHC ( see id., ¶¶ 12, 70-73, 82-89, 111-113, 170-178).
Next, movants seek to dismiss the branch of the fraudulent conveyances claim in which UBS alleges that Credit Opportunitieswas a transferee, contending that UBS has failed to plead the claim with sufficient particularity.
That branch of the claim is legally viable. UBS alleges in sufficient detail that Credit Opportunities, sometimes referred to by UBS as one of the affiliated transferee defendants, received assets during the Fall 2008 note offerings and March 2009 fraudulent conveyances, with the intent to defraud UBS, in violation of DCL § 276 ( see id., ¶¶ 30, 82-84). Contrary to movants' contention, as discussed in detail above, the entity that transferred the assets to Credit Opportunities, Highland Financial, may be held to be a debtor of UBS's, if it is held to be SOHC's alter ego.
Movants next contend that the doctrine of res judicataprecludes all of UBS's claims asserted against them. Movants argue that these claims are barred by the Appellate Division, First Department's order dismissing UBS's engagement letter-based contractual indemnification claim asserted against Highland Capital ( see UBS Sec. LLC v Highland Capital Mgt., L.P. , 70 AD3d 526, 526 [1st Dept 2010]).
In opposition, UBS contends that I previously held that res judicata does not apply in these circumstances, and because, in the claims now challenged by movants, UBS alleges conduct that occurred after service of the original complaint, and prior to joinder of Highland Financial and Credit Opportunities as defendants in this action.
The branch of the motion to dismiss on res judicata grounds is denied. As I held in the branch of the June17 order rejecting the res judicata argument proffered by Highland Capital, CDO Fund, and SOHC in opposition to UBS's motion to amend the complaint,
[i]n determining whether particular claims are part of the same transaction for res judicata purposes, a 'pragmatic test' has been applied, analyzing 'whether the facts are related in time, space, origin, or motivation, whether they form a convenient trial unit, and whether their treatment as a unit conforms to the parties' expectations or business understanding or usage'. Chen, 6 NY at 100-01 (internal quotations omitted).
Applying this standard, I conclude that res judicata would not apply to preclude the new claims. The original complaint did not state the majority of the allegations that form the basis of the proposed new claims; it did not allege that Highland Capital stripped the Funds of assets, provided false financial information about the Funds, undercapitalized the Funds, co-mingled the Funds' assets with affiliates' assets, or fraudulently transferred assets among its affiliates, or that any affiliates were Highland Capital's alter egos. The evidence that UBS needs to prove the new claims is entirely different from the evidence that it needed to prove the contract claim that was dismissed (June 17, 2010 Order, at 5-6). Clearly, I have previously resolved the issue of whether the doctrine of res judicata may operate to bar the new claims that movants now seek to dismiss.
Last, the branch of the motion to dismiss the seventh cause of action for a judgment declaring that Strand is Highland Capital's general partner is denied as moot. By order dated November 1, 2010, I granted UBS's motion to consolidate the actions bearing index numbers 650097/2009 and 650752/2010. Therefore, this action now includes as a defendant Highland Capital, a Delaware limited partnership, for which Strand, its general partner and a Delaware corporation, may be held liable. "In Delaware limited partnerships, a general partner is liable for the debts of the limited partnership" ( Sandvik AB v Advent Intl. Corp., 83 F Supp 2d 442, 448 [D Del 1999], affd 220 F3d 99 [3d Cir Del 2000], citing Del Code Ann Tit 6, § 17-403 [b]). The law is the same in New York. "When partnership assets are insufficient to pay partnership debts, creditors may look to the general partners to satisfy the debts" ( Belgian Overseas Sec. Corp. v Howell Kessler Co., 88 AD2d 559, 559 [1st Dept 1982], citing NY Partnership Law §§ 26, 98).
For this reason as well, that branch of the motion to dismiss the fraudulent conveyance claim asserted against Strand is denied. Inasmuch as Strand is Highland Capital's general partner, Strand may be held liable for Highland Capital's fraudulent conveyances, if any.
Accordingly, it is
ORDERED that the motion to dismiss is denied in its entirety; and it is further
ORDERED that defendants are directed to serve an answer to the first amended complaint within 20 days after service of a copy of this order with notice of entry; and it is further
ORDERED that counsel are directed to appear for a preliminary conference before Part 60, in room 248, at 60 Centre Street, New York, NY, on March 21, 2011 at 10:00 a.m.