Williams v. Infra Commerc Anstalt

• Decision Date: 06 February 2001
• Docket Number: No. 00 CIV. 3575(BDP).,00 CIV. 3575(BDP).
• Citation: 131 F.Supp.2d 451
• Parties: Donna Lee H. WILLIAMS, Insurance Commissioner of the State of Delaware as Receiver for National Heritage Life Insurance Company in Liquidation, Petitioner, v. INFRA COMMERC ANSTALT, a Liechtenstein Anstalt, South Star Management Company, Inc., a dissolved Florida Corporation, Respondents.
• Court: U.S. District Court — Southern District of New York

131 F.Supp.2d 451

Donna Lee H. WILLIAMS, Insurance Commissioner of the State of Delaware as Receiver for National Heritage Life Insurance Company in Liquidation, Petitioner, v. INFRA COMMERC ANSTALT, a Liechtenstein Anstalt, South Star Management Company, Inc., a dissolved Florida Corporation, Respondents.

No. 00 CIV. 3575(BDP).

United States District Court, S.D. New York.

February 6, 2001.

Thomas Lindgren, O'Keefe & Lindgren LLP, White Plains, NY, for Petitioner.

David Wittenberg, Hughes Hubbard & Reed LLP, New York City, for Respondents.

MEMORANDUM DECISION AND ORDER

BARRINGTON D. PARKER, Jr., District Judge.

Petitioner, the Honorable Donna Lee H. Williams, Commissioner of Insurance for the State of Delaware, in her capacity as the Receiver of National Heritage Life Insurance Company ("NHL"), seeks in this action to set aside the transfer of an interest in a mortgage on real property located in Texas as a fraudulent conveyance under New York law.

Before this Court are the Receiver's Petition for Delivery of Property (the "Petition"), see Fed.R.Civ.P. 69; C.P.L.R. § 5225(b), Petitioner's ex parte motion for an order of pre-judgment attachment, see Fed.R.Civ.P. 64; C.P.L.R. §§ 6212 and 6201(1), and Infra Commerc Anstalt's cross-motion to dismiss the Petition. See Fed.R.Civ.P. 12(b). For the reasons set forth below, Infra Commerc's motion to dismiss is granted, and Petitioner's motion for pre-judgment attachment is denied and the Petition is dismissed.

BACKGROUND

For purposes of deciding Infra Commerc's cross-motion, the Court is obligated to construe the pleadings in Petitioner's favor, and to accept as true all factual allegations in the Petition. See Cooper v. Parsky, 140 F.3d 433, 440 (2d Cir.1998); Serrano v. 900 5th Avenue Corp., 4 F.Supp.2d 315, 316 (S.D.N.Y.1998). The following facts relevant to this dispute are construed accordingly.

NHL is a Delaware insurance company in receivership and liquidation pursuant to a Rehabilitation Order entered by the Delaware Chancery Court in May 1994, and a Liquidation and Injunction Order entered in Delaware in December 1995. The Orders authorized the Delaware Commissioner of Insurance, in its capacity as receiver, to prosecute law suits on behalf of NHL for the benefit of NHL's policyholders and creditors.

According to the Petition, during the period relevant to this proceeding, NHL was a creditor of South Star Management Company, Inc. ("South Star") — a defunct Florida company incorporated on August 20, 1993 and dissolved one year later. In 1997, Petitioner commenced a law suit in the United States District Court for the Middle District of Florida against South Star and various other defendants, in part to recover damages related to the alleged systematic looting of NHL. Donna Lee H. Williams v. Michael Blutrich, et al., No. 97 Civ. 1221. On December 22, 1999, a default judgment was entered against South Star in favor of the Petitioner in the amount of $204 million. To date, South Star has not satisfied the judgment. This action followed.

The Petition alleges that in 1994, South Star held a mortgage on real property located in Texas known as the Sunchase Square Apartments (the "Sunchase Property"). On October 11, 1994, South Star transferred its interest in the mortgage to Infra Commerc, a Liechtenstein company, in exchange for consideration which was not paid directly to South Star but rather to Sholam Weiss, a predicate felon affiliated with South Star and recently convicted on a variety of federal criminal charges arising from the massive looting of NHL. Several months after the October 1994 transfer, Infra Commerc reduced the principal balance of the mortgage, after which the borrower under the mortgage made several principal and interest payments, and ultimately paid the remaining balance to Infra Commerce on December 29, 1995.¹ Upon receipt of the funds, Infra Commerc released the mortgage.

The Petition claims that the October 11, 1994 transfer by South Star to Infra Commerc was a fraudulent conveyance. Specifically, Petitioner alleges that South Star was insolvent at the time of transfer and that fair consideration was not paid in exchange for the property interest. See New York Debtor and Creditor Law ("New York DCL") § 273. Moreover, Petitioner claims that the transaction was conducted with actual intent to defraud South Star's creditors. See New York DCL § 276. Consequently, as a creditor of South Star at the time of the fraudulent transfer, Petitioner contends that it is entitled to satisfy the December 22, 1999 judgment through the recovery of the assets wrongfully conveyed to Infra Commerc.

Before this Court are Petitioner's motion seeking judgment on the pleadings, and Petitioner's ex parte motion for an order of pre-judgment attachment of property. Petitioner contends that there are no material issues of fact, and that the Court may make a summary determination in its favor based on the pleadings and papers before it.

Infra Commerc, however, has cross-moved to dismiss the Petition under Fed. R.Civ.P. 12(b)(1), (2) and (6). In particular, Infra Commerc contends that the Petition should be dismissed on the grounds that, inter alia, (1) subject matter jurisdiction is lacking; (2) the Court lacks personal jurisdiction over Infra Commerc; and (3) the fraudulent conveyance claims under the New York DCL are time-barred under the applicable statute of limitations.

DISCUSSION

A district court may grant a motion to dismiss pursuant to Fed.R.Civ.P. 12(b) if `it appears beyond doubt that the [Petitioner] can prove no set of facts in support of his claim which would entitle him to relief.' Tarshis v. Riese Organization, 211 F.3d 30, 35 (2d Cir.2000) (quoting Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957)). In making its determination, this Court must construe the Petition's allegations in a light most favorable to the Petitioner. See Desiderio v. National Ass'n of Sec. Dealers, Inc., 191 F.3d 198, 202 (2d Cir.1999).

I. Fraudulent Conveyance Under New York Law

Petitioner brings this suit pursuant to Fed.R.Civ.P. 69, which permits a judgment creditor to use any execution method consistent with the procedures of the state in which the district court sits. Accordingly, Petitioner seeks to utilize § 5225(b) of the New York Civil Practice Law & Rules, providing for a special "turn over" action by a judgment creditor against a third-party transferee of property from the judgment debtor, so long as the creditor can show that its rights are superior to those of the transferee.²

In order to show that Petitioner's rights are superior to those of Infra Commerc, Petitioner relies upon §§ 273 and 276 (but not § 273-a) of the New York DCL — New York's fraudulent conveyance statutes.³ See Gelbard v. Esses, 96 A.D.2d 573, 576, 465 N.Y.S.2 264 (1983) ("In proceedings pursuant to C.P.L.R. § 5225 .... [w]hether such rights are superior is a matter to be determined by applying the fraudulent conveyance provisions of the Debtor and Creditor Law."). Accordingly, Petitioner contends that if it can show that the October 11, 1994 transfer was a fraudulent conveyance under §§ 273 or 276 of the New York DCL, its rights to the property interest would be superior to those of Infra Commerc, entitling it to recover the transferred assets from Infra Commerc.⁴

II. Statute of Limitations

Infra Commerc argues that Petitioner cannot show that its rights are superior because its causes of action under §§ 273 and 276 are time barred. In order to determine whether Infra Commerc is correct, this Court must first determine the applicable statute of limitations.

Where, as here, jurisdiction rests upon diversity of citizenship,⁵ this Court must apply New York's choice-of-law rules and its statute of limitations. See Guaranty Trust Co. v. York, 326 U.S. 99, 108-09, 65 S.Ct. 1464, 89 L.Ed. 2079 (1945); Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). As a general rule, New York's statute of limitations will apply, even when the injury giving rise to the law suit occurred outside the state. See Stafford v. International Harvester Co., 668 F.2d 142, 147 (2d Cir.1981). One notable exception to this rule, however, is New York's "borrowing" statute. C.P.L.R. § 202.⁶

Under this statute, when a nonresident sues based upon a cause of action that accrued outside of New York, "the court must apply the shorter limitations period, including all relevant tolling provisions, of either: (1) New York; or (2) the state where the cause of action accrued." Stuart v. American Cyanamid Co., 158 F.3d 622, 627 (2d Cir.1998); C.P.L.R. § 202. Since the parties do not dispute that Petitioner is a nonresident of New York, the applicability of C.P.L.R. § 202 depends upon whether Petitioner's fraudulent conveyance claims "accrued" outside of New York. Stuart, 158 F.3d at 627.

"For purposes of the New York borrowing statute, a cause of action accrues where the injury is sustained rather than where the defendant committed the wrongful acts." Gordon & Co. v. Ross, 63 F.Supp.2d 405, 408 (S.D.N.Y.1999); see also Global Financial Corp. v. Triarc Corp., 93 N.Y.2d 525, 529, 715 N.E.2d 482, 693 N.Y.S.2d 479 (1999) ("we have consistently employed the traditional definition of accrual — a cause of action accrues at the time and in the place of the injury — in tort cases involving the interpretation of C.P.L.R. § 202."). Where "an alleged injury is purely economic, the place of injury usually is where the plaintiff resides and sustains the economic impact of the loss." Id.

Here, Petitioner is the Insurance Commissioner residing in Delaware, and is acting as receiver for NHL, which is a resident of both Delaware and Florida. Accordingly, the cause of action arose in either Delaware or Florida, and the New York borrowing statute applies. Since New York's statute of limitations for fraudulent conveyance is six years, see C.P.L.R. § 213, and Delaware and...