Protective Order Denied in Case Involving a Fraudulent Conveyance

The case[1] appeared in the New York Law Journal three days ago. It's wildly fascinating as it touches on various aspects of judgment enforcement.

An individual judgment debtor moved for a protective order when she learned that a bank account in which she held an indirect business interest became restrained. Berkshire Bank was enforcing a $901,935 judgment against the defendant for having defaulted on three promissory notes.

Below is a bulleted summary of the case:

  • The debtor's tax return revealed an account at Wells Fargo Advisors for which the debtor reported interest income or dividend income that caused the creditor to restrain that account (see here for information as to how creditors acquire such information).
  • The frozen bank account was in the name of a limited partnership (defendant is general partner), which is 98% owned by a trust for which the debtor is a trustee.
  • The debtor challenged the creditor's use of the restraining notice, arguing that 1) she had an indirect —thus unattachable — interest in that account; and 2) the restraint improperly affected out-of-state property. In response to these two arguments, respectively, the court held that 1) the money transferred to the subject bank account represented a fraudulent conveyance through a series of controlled entities that she owned; and 2) Koehler v. Bank of Bermuda permits restraint of out-of-state property belonging to a garnishee so long as jurisdiction exists over that bank in New York.
  • The debtor fell short in arguing application of the separate entity rule discussed in this blog post. The court held that the debtor failed to "provide authority for the separate entity rule applying to a brokerage account, carried out by a broker dealer."
  • Federal law confers authority to state law involving the execution of money judgments, hence this court's application of CPLR § 5240.

If you have questions regarding judgment enforcement, contact us. We'd love to hear from you.



[1] Berkshire Bank v. Tedeschi, 1:11-CV-0767.

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