By: Alexander A. Miuccio Gregory J. Spaun Published: November 2018

Corporate Owner Personally Liable for Fraudulent Transfers of Money

New York’s Debtor and Creditor Law prohibits the transfer of assets in an attempt to evade creditors. A corporate representative who participated in the fraudulent transfer may be held personally liable, regardless of whether the representative acted on behalf of the corporation in the course of his official duties.

In the case of Eastern Concrete Materials, Inc. v Allstar Ready Mix Corp., et. al., the court addressed the issue of personal liability by a 50% corporate shareholder for participating in fraudulent transfers of money.  The transfers were intended to evade enforcement of a judgment against a corporate ready-mix concrete supplier.

Background

In September of 2014, petitioner Eastern Concrete Materials, Inc. obtained a default judgment against Allstar Ready Mix Corp., in the amount of $82,739.40. Allstar was 50% owned by respondent Dominick P. Frantelizzi (“Dominick P.”), who also owned respondent City View Contracting Corp.  His son, Dominick M. Frantellizzi, owned Transit Mix Corp. and his father, Dominick Frantellizzi, Sr., owed DF, LLC.  These companies, including Allstar, maintained bank accounts at Chase Bank, and Dominick P. was a signatory on all of the accounts.  Transit Mix was formed one month after the judgment was entered against Allstar.  All of these entities were located at the same address as Allstar.  Within days after the judgment was entered, Allstar transferred a total of $82,850.00 to City View, Transit Mix, and DF, LLC.  

Based on these facts, Eastern moved for summary judgment against all respondents in the amount of $38,988.48, the amount left outstanding on the Allstar judgment, plus attorney’s fees, claiming that the money transfers out of Allstar’s bank accounts into other entities that either Dominick P. or a close family member controlled, were fraudulent acts intended to defeat Eastern’s right to enforce the judgment entered against Allstar.

Decision

New York’s Debtor and Creditor law protects judgment creditors from attempts by judgment debtors to frustrate collection of judgments.  The law provides that any transfer undertaken with the intent to hinder, delay or defraud creditors is fraudulent and, therefore, void. The “badges of fraud” which evidence that intention include a close relationship between the parties to the transaction, the inadequacy of consideration for the money transfers, the transferor’s knowledge of the claims and its inability to pay them, and the effective retention of the property after the transfer. The law also provides that all transfers made without fair consideration by a defendant or a judgment debtor are per se fraudulent.

The court granted summary judgment to Eastern against Allstar, Transit Mix and Dominick P. for the full remaining amount of the judgment, plus $42,875.91 in attorney’s fees. In doing so, the court focused on the post-judgment transfer of money without consideration after Allstar ceased doing business and for no apparent purpose, the overlapping common control of the companies, the close family members’ disregard of separate corporate identities, and their existence at the same location.  

In its judgment, the court pierced the corporate veil of the corporate entities to impose liability upon Dominick P. personally.  His actions in undertaking the fraudulent transfers, failing to respect separate corporate identities, and in gifting Allstar’s assets to his son were found to be evidence of fraud sufficient to hold him personally liable for the full amount of the judgment.

Finally, the Debtor and Creditor law provides for an award of attorney’s fees where the fraudulent transfers demonstrate “actual intent”. The court held that Dominick P. and the corporate respondents failed to prove any legitimate purposes for these transfers.  Under the circumstances, the court found there was actual intent to defraud.  Therefore the court awarded attorney’s fees and costs to Eastern.

Comment

The Debtor and Creditor Law is a powerful tool for creditors to use against debtors who seek to frustrate enforcement of judgments.  Here the court did not hesitate to declare the money transfers null and void and award attorney’s fees—which exceeded the principal amount of the judgment.  Courts will pierce the corporate veil between corporations and individuals and hold corporate representatives personally liable for fraudulent transfers designed to evade the collection of a money judgment.

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