must be assessed from Cuneo's standpoint rather than from the standpoint of a creditor. He asserts that the partnership interests are just as valuable as the property he exchanged, arguing that the partnership interests he received in exchange for $ 1.4 million in cash and securities are worth $ 1.4 million to him. Cuneo argues also that the extent of his control over the assets of the partnership and his wife's presumed acquiescence in his wishes will leave him in no worse position after the transfer than before.
Cuneo's argument is without merit. The existence of a fair exchange must be determined from the perspective of creditors rather than from the vantage point of the debtor. See In re Prejean, 994 F.2d 706, 708 (9th Cir. 1993); Tesmetges v. Herman, 85 Bankr. 683, 696 (Bankr. E.D.N.Y. 1988); Megabank Financial Corp. v. Alpha Gamma Rho Fraternity, 841 P.2d 318, 320 (Colo. App. 1992); Hansen v. Cramer, 39 Cal. 2d 321, 324-25, 245 P.2d 1059, 1061 (1952) (en banc). The Tesmetges court, for example, held that a conveyance is not an exchange for equivalent value when it makes the debtor "execution proof" and the debtor's assets unreachable by creditors. In determining whether a conveyance is fraudulent, "the touchstone is the unjust diminution of the estate of the debtor that otherwise would be available to creditors." Tesmetges, 85 Bankr. at 697 (quoting G. GLENN, THE LAW OF CONVEYANCES § 195 (1931)). Viewing the fairness of a transfer from the perspective of a creditor is consistent with the policy underlying statutes against fraudulent conveyances, which were enacted in order to protect the rights of creditors by preventing debtors from making transfers that would "hinder, defraud or delay" creditors. G. GLENN, FRAUDULENT CONVEYANCES AND PREFERENCES §§ 61d, 195 (Rev. ed. 1940).
Cuneo has done just that by rendering his $ 1.4 million in property virtually unreachable by the judgment creditor. Cuneo exchanged $ 1.4 million in cash and securities for general and limited partnership interests in RMC in which he received essentially three rights -- the right to receive income and capital distributions from the partnership, the rights in the specific partnership property, and the right to participate in management. Creditors can reach only Cuneo's right to the receipt of whatever distributions that the partnership -- consisting only of Cuneo and his wife -- chooses to makes, but cannot reach his rights in specific partnership property or, far more important, his right to participate in management. Viewing the transfer from the standpoint of Cuneo's creditors and their legal rights vis-a-vis Cuneo's partnership interests, the conveyance was not an exchange for equivalent value.
The conclusion that Cuneo did not receive equivalent value alone suffices to establish that the transaction was not made for fair consideration and, in consequence, that it must be set aside under New York law. Under Section 272 of the Debtor and Creditor law, moreover, a conveyance is made for "fair consideration" only if a fair equivalent was received and it was made in good faith. The Court, in the alternative, concludes also that the transfer was not made in good faith under Debtor and Creditor Law § 272. This independently requires the conclusion that the transfer was not for fair consideration and was constructively fraudulent.
A conveyance is not made in good faith under Section 272 when any of the following factors is missing: (i) an honest belief in the propriety of the activities in question; (ii) no intent to take unconscionable advantage of others; and (3) no intent to, or knowledge of the fact that the activities in question will, hinder, delay or defraud others. In re Ahead By A Length, Inc. v. Feiner, 100 Bankr. 157, 169 (Bankr. S.D.N.Y. 1989); Southern Industries, Inc. v. Jeremias, 66 A.D.2d 178, 411 N.Y.S.2d 945, 949 (2d Dep't 1978) (citing Sparkman & McLean Co. v. Derber, 4 Wash. App. 341, 481 P.2d 585 (1971)). Both the statute and the cases demonstrate, moreover, that actual intent to defraud need not be established in order to find an absence of good faith.
Section 273-a, as noted above, renders fraudulent certain transfers made without fair consideration "without regard to the actual intent of the defendant. . . . " The use of the quoted phrase thus demonstrates that the good faith essential under Section 272 to a conclusion of fair consideration requires more than the absence of an improper motive.
In United States v. Tabor Court Realty Corp., 803 F.2d 1288, 1295-96 (3d Cir. 1986), cert. denied, 483 U.S. 1005, 97 L. Ed. 2d 735, 107 S. Ct. 3229 (1987), for example, the Court held that the transferee did not act in good faith within the meaning of the Pennsylvania counterpart to Section 272, without regard to its subjective intent or motive, because it knew that the transaction would render the transferor insolvent and deprive it of fair consideration. It thus held, in a phrase, that the transferee lacked good faith because it knew that the transfer would hinder the transferor's creditors.
Under this objective standard, the Court finds that Cuneo lacked good faith. The presence of the so-called "protective provisions" in the partnership agreement and the trust instrument coupled with the imminence of the trial make it inconceivable that Cuneo was unaware of the fact that the transfer of his property to the partnership would hinder or delay the judgment creditor even if he did not make the transfer for that purpose.
The Court concludes that under New York law the conveyances were made without fair consideration because Cuneo did not receive a fair equivalent transfer and, in any case, because they were not made in good faith. In consequence, they were constructively fraudulent on each of two independent grounds and should be set aside.
The result is the same under Florida law. Section 726.105(1)(b) of the Florida Uniform Fraudulent Transfers Act provides that a transfer may be set aside as constructively fraudulent if the transfer was made for less than a reasonably equivalent value.
The Court finds that the transfer to RMC was unsupported by reasonably equivalent value both because Cuneo has failed to sustain, and without regard to, the burden of proof.
One of the purposes of setting aside transfers unsupported by reasonably equivalent value is "to protect creditors against the depletion" of an estate. See In re Rodriguez v. General Elec. Credit Corp. of Tenn., 895 F.2d 725, 727 (11th Cir. 1990). There is no precise test by which to ascertain whether a reasonably equivalent value has been received in a transfer. While market value once played a controlling, or at least dominant role, it now appears that the Court must consider the facts and circumstances of each case in order to determine whether reasonably equivalent value was given. In re Morris Communications NC, Inc. v. Ashley Communications, Inc., 914 F.2d 458, 466-67 (4th Cir. 1990); Hall v. Quigley, 131 Bankr. 213, 216 (Bankr. N.D.Fla. 1991).
The trier of fact should consider also any direct or indirect benefits conferred as a result of the transfer, as well as whether the transfer was at arm's length. Thus, the meaning of value under the "reasonably equivalent" Florida standard differs in no material way from the "fair consideration" analysis under New York law. Hence, the transfer fails to meet the reasonably equivalent value requirement for the same reasons that it lacked fair consideration under New York law.
Actual Intent to Defraud
The Court need not address the issue of Cuneo's actual intent to defraud in view of the conclusion that the transfers were constructively fraudulent. Accordingly, there would be no need to reopen the evidentiary hearing record even if the Court were persuaded that Cuneo had established a basis for doing so.
The Request for a Turnover Order
Interpool seeks also an order directing defendants to turn over to the United States Marshal all of the property transferred by Cuneo to RMC.
Rule 69 of the Federal Rules of Civil Procedure provides in substance that federal court proceedings with respect to the enforcement of judgments generally follow the procedure employed in the courts of the State in which the federal court sits. In consequence, we look to Section 5225 of the New York Civil Practice Law and Rules ("CPLR"), which deals with turnover orders.
Section 5225(b) provides in relevant part:
"Upon a special proceeding commenced by the judgment creditor, against a person in possession of custody of money or other personal property in which the judgment debtor has an interest, or against a person who is a transferee of money or other personal property from the judgment debtor, where is it shown that the judgment debtor is entitled to possession of such property or that the judgment creditor's rights are superior to those of the transferee, the court shall require such person to pay the money, or so much of it as is sufficient to satisfy the judgment. . . .
A special proceeding under Section 5225 may serve as the means by which the Court sets aside a transfer made by a judgment debtor to defraud his or her creditors if the Court finds that the transfer at issue is fraudulent. See Gelbard v. Esses, 96 A.D.2d 573, 465 N.Y.S.2d 264, 267 (2d Dep't 1983).
Interpool, having commenced the second action, No. 95-2868, properly has brought before the Court all parties who are transferees of Cuneo's property -- namely, Cuneo, Mrs. Cuneo, RMC and RAC. In view of the holding that Cuneo's transfers lacked both fair consideration and reasonably equivalent value, a turnover order is appropriate with respect to the property that was fraudulently transferred.
For all of the foregoing reasons, Interpool's motion in No. 89-8501 is granted, and it is entitled to judgment in No. 95-2868. The transfers by Cuneo of (1) his limited partnership interest in RMC Holdings Limited Partnership to himself and his wife as trustees of the RAC Family Trust and (2) his stock in Intermodal Services, Inc. ("ISI"), notes made payable to him by Mitchell Greene in the aggregate amount of $ 110,000, and cash and cash equivalents totalling $ 47,600 to RMC are declared to have been constructively fraudulent as to Interpool and set aside. Plaintiff shall settle on two days' notice an order in No. 89-8501 and a judgment in No. 95-2868 providing, in addition to such other relief as is appropriate in light of this decision, for the turnover of the property at issue to the United States Marshal for the Southern District of New York and its subsequent disposition. Pending settlement of that order and judgment, defendants RMC Holdings Limited Partnership and RAC Family Trust and their partners and trustees are enjoined from transferring in any manner any property in their possession, custody or control. The Court's prior orders as to the other defendants remain in effect.
Dated: June 15, 1995
Lewis A. Kaplan
United States District Judge