Opinion
6503 Index 652771/16
06-07-2018
In re WIMBLEDON FINANCING MASTER FUND, LTD., Petitioner–Respondent, v. WIMBLEDON FUND, SPC ON BEHALF OF CLASS C SEGREGATED PORTFOLIO, Respondent–Appellant, Wimbledon Real Estate Financing Master Fund Ltd., et al., Respondents.
Sadis & Goldberg, LLP, New York (Douglas Hirsch of counsel), for appellant. Kaplan Rice LLP, New York (Joseph A. Matteo of counsel), for respondent.
Sadis & Goldberg, LLP, New York (Douglas Hirsch of counsel), for appellant.
Kaplan Rice LLP, New York (Joseph A. Matteo of counsel), for respondent.
Richter, J.P., Manzanet–Daniels, Webber, Oing, Moulton, JJ.
Order, Supreme Court, New York County (Shirley Werner Kornreich, J.), entered February 1, 2017, which, insofar as appealed from, denied the motion by respondent Wimbledon Fund, SPC on behalf of Class C Segregated Portfolio to dismiss the petition, and ordered respondent to pay $700,000 and attorneys' fees to petitioner, unanimously affirmed, without costs.
Petitioner, the assignee of nonparty Weston Capital Partners Master Fund II, Ltd. (Partners), seeks to collect on a judgment that Partners obtained against nonparty Arius Libra, Inc., after Arius defaulted on a loan it received from Partners. Petitioner alleges that Partners' investment managers caused Partners to make the loan "and then promptly authorized" the transfer of $700,000 of the loan proceeds to respondent Wimbledon Fund, SPC on behalf of Class C Segregated Portfolio (Class C), another investment fund they managed. Petitioner contends that since Arius owed no debts to Class C and Class C provided no services to Arius in exchange for the $700,000, the transfer was a fraudulent conveyance.
Class C makes various arguments as to why the transfer was not a fraudulent conveyance. We decline to consider most of them because they are based on new facts that are not in the record (see e.g. DeBenedictis v. Malta , 140 A.D.3d 438, 33 N.Y.S.3d 232 [1st Dept. 2016] ), and the facts of which Class C asks us to take judicial notice are not the types of facts of which such notice may properly be taken (see Walker v. City of New York , 46 A.D.3d 278, 282, 847 N.Y.S.2d 173 [1st Dept. 2007] ).
Class C's fraudulent conveyance arguments that are based on the record are unavailing. To determine whether a transfer is fraudulent, "its economic substance must be evaluated" ( Stillwater Liquidating LLC v. Partner Reins. Co., Ltd., 2017 N.Y. Slip Op. 30257(U), *8, 2017 WL 318658 [Sup. Ct., N.Y. County 2017], affd 151 A.D.3d 585, 59 N.Y.S.3d 8 [1st Dept. 2017] ). Thus, it is of no moment that, technically, the money was wired from Partners' bank account rather than from Arius.
Class C argues that the court improperly accepted petitioner's allegation that Arius was insolvent at the time of the transfer. However, because Class C moved to dismiss the petition for failure to state a cause of action, the court was obligated to accept the petition's allegations as true unless Class C refuted them (see Matter of Nistal v. Hausauer , 308 N.Y. 146, 149, 124 N.E.2d 94 [1954], cert denied 349 U.S. 962, 75 S.Ct. 894, 99 L.Ed. 1284 [1955] ; Matter of Schwab v. McElligott , 282 N.Y. 182, 184–186, 26 N.E.2d 10 [1940] ).
Class C (the transferee) argues that it acted in good faith. However, "[g]ood faith is required of both the transferor and the transferee" ( Matter of CIT Group/Commercial Servs., Inc. v. 160–09 Jamaica Ave. Ltd. Partnership , 25 A.D.3d 301, 303, 808 N.Y.S.2d 187 [1st Dept. 2006] [internal quotation marks omitted] ).
On appeal, Class C now argues that petitioner's claims are barred by the doctrine of in pari delicto. This doctrine may be raised for the first time on appeal (see Janke v. Janke, 47 A.D.2d 445, 449–450, 366 N.Y.S.2d 910 [4th Dept. 1975] [unclean hands can be considered for first time on appeal], affd 39 N.Y.2d 786, 385 N.Y.S.2d 286, 350 N.E.2d 617 [1976] ); FIA Leveraged Fund Ltd. v. Grant Thornton LLP , 50 Misc.3d 1213(A), 2016 N.Y. Slip Op. 50093(U), *5, 2016 WL 350932 [Sup. Ct., N.Y. County 2016] [in pari delicto is equivalent to unclean hands], affd 150 A.D.3d 492, 56 N.Y.S.3d 12 [1st Dept. 2017] ). However, the argument does not avail Class C. We have already held that "in pari delicto is not a defense to a fraudulent conveyance suit" ( FIA Leveraged Fund Ltd. v. Grant Thornton LLP , 150 A.D.3d 492, 497, 56 N.Y.S.3d 12 [1st Dept. 2017] [internal quotation marks omitted] ). The court properly denied Class C's motion to dismiss, finding that the $700,000 transfer to Class C was both constructively fraudulent ( Debtor and Creditor Law § 273 ) and intentionally fraudulent ( Debtor and Creditor Law § 276 ).
We have considered the remaining arguments and find them unavailing.