Blakeslee v. Rabinor

• Decision Date: 02 April 1992
• Citation: 582 N.Y.S.2d 132,182 A.D.2d 390
• Parties: Grace BLAKESLEE, Plaintiff-Respondent, v. Arnold J. RABINOR, Marvin B. Tepper, Kenneth Gladstone, Lucille Gladstone and Edwin Glickman, individually and doing business as Madison Associates, and 329 Holding Corp., Defendants-Appellants.
• Court: New York Supreme Court — Appellate Division

Page 132

582 N.Y.S.2d 132

182 A.D.2d 390

Grace BLAKESLEE, Plaintiff-Respondent, v. Arnold J. RABINOR, Marvin B. Tepper, Kenneth Gladstone Lucille Gladstone and Edwin Glickman, individually and doing business as Madison Associates, and 329 Holding Corp., Defendants-Appellants.

Supreme Court, Appellate Division First Department.

April 2, 1992.

Before SULLIVAN, J.P., and ROSENBERGER, ELLERIN, ASCH and RUBIN, JJ.

MEMORANDUM DECISION.

Order of the Supreme Court, New York County (Phyllis Gangel-Jacob, J.), entered on or about May 23, 1991, as modified by the order of the same court entered on or about July 16, 1991 which, to the extent appealed from, granted plaintiff's motion for summary judgment on the issue of liability, severed the issues of the amount of actual and punitive damages and attorneys' fees for assessment before a special referee to hear and report with recommendations, and denied defendants' cross-motion to dismiss the complaint insofar as it seeks monetary damages, unanimously modified, on the law, and the cross-motion granted to the extent of dismissing plaintiff's claim for punitive damages and, except as so modified, affirmed, without costs.

Plaintiff Grace Blakeslee discovered that the owners of several adjoining properties were using her sewer pipes to discharge waste into the City sewer system, resulting in flooding and damage to her property. Plaintiff commenced a previous action against defendant 329 Holding Corp. and, upon an appeal from an order denying plaintiff summary judgment, this court found an unlawful encroachment and continuing trespass and directed the corporation to discontinue the flow of sewage into and through plaintiff's property (48 A.D.2d 641, 368 N.Y.S.2d 216). However, while the motion was pending, the corporation transferred title of the adjoining property to Madison Associates, the partners of which are the individual defendants herein. Significantly, Arnold Rabinor had been a partner in Madison Associates since 1969 and was vice president of 329 Holding Corp. In 1976, a bona fide purchaser took title to the property from Madison Associates for $88,000. In 1977, judgment was entered in the action which included an award of $6,000 against 329 Holding Corp.

In addition to demonstrating that 329 Holding Corp. and Madison Associates had interlocking principals at the time of the transfer, plaintiff's proof on the instant motion established that the conveyance was made without fair consideration, that transferor 329 Holding Corp. was the defendant in an action for money damages at the time of the conveyance and that the judgment remains unsatisfied. As such, plaintiff has established a prima facie case of fraudulent conveyance (Debtor and Creditor Law § 273-a; see, Schoenberg v. Schoenberg, 113 Misc.2d 356, 449 N.Y.S.2d 137, mod. on other grounds, 90 A.D.2d 827, 456 N.Y.S.2d 14), and is entitled to summary judgment in view of defendants' failure to raise any material issue of fact. Defendants' reliance on Federal Deposit Ins. Corp. v. Porco, 75 N.Y.2d 840, 552 N.Y.S.2d 910, 552 N.E.2d 158) is misplaced. That case holds only that Debtor and Creditor Law § 273-a does not create a creditor's cause of action in conspiracy against a party who merely assisted in the conveyance of a debtor's assets and who does not have dominion or control over those assets and derived no benefit from their conveyance.

Plaintiff is also not entitled to an award of punitive damages. Originally, punitive damages were recoverable in fraud actions only where the fraud was aimed at the general public, was gross and wanton in nature and involved high moral culpability (Walker v. Sheldon, 10 N.Y.2d 401, 223 N.Y.S.2d 488, 179 N.E.2d 497). Applying this standard in James v. Powell, 19 N.Y.2d 249, 260, 279 N.Y.S.2d 10, 225 N.E.2d 741), the Court of Appeals held that punitive damages did not apply to fraudulent conveyances, stating, "effective remedies are provided against fraudulent conveyances, * * * and there is no need to offer the prospect of punitive damages as an inducement to institute suit." However, in Borkowski v. Borkowski, 39 N.Y.2d 982, 983, 387 N.Y.S.2d 233, 355 N.E.2d 287, the Court declared that it is "not essential * * * that punitive damages be allowed in a fraud case only where the acts had been aimed at the public generally." Therefore, punitive damages may now be awarded in a case of fraudulent conveyance, but only if the defendant's conduct was gross and wanton and involved high moral culpability.

As to the question regarding whether defendant's conduct justifies an award of punitive damages, we note that the courts have construed the Debtor and Creditor Law strictly. The Court of...