An order of attachment is a provisional remedy that prevents a defendant from disposing of assets during the pendency of an action. In cases in which a defendant disposes of property with intent to defraud creditors or frustrate the enforcement of a judgment, Article 62 of the CPLR provides a mechanism to preserve those assets. Westchester Commercial Division Justice Linda Jamieson recently granted this remedy in Richard Stadtmauer et al. v. Mark Nordlicht et al., Index No. 51825/2020.
In 2003, Nordlicht co-founded the Platinum Funds, a Manhattan-based family of hedge funds. PPVA was Platinum Funds’ signature fund and a master fund with three feeder funds. Plaintiffs are two investors in PPVA who lost millions of dollars following the fund’s collapse. Nordlicht personally guaranteed repayment of certain promissory notes issued to Plaintiffs by PPVA.
In January 2020, in a JAMS arbitration commenced by Plaintiffs against Nordlicht to enforce the personal guaranty, Hon. Bernard Fried (Ret.) issued a final award in favor of Plaintiffs in the amount of $14,896,316.16. Immediately thereafter, Plaintiffs commenced a proceeding in the Southern District of New York to confirm the award. Nordlicht sought to have the award set aside on the grounds that he lacked the resources to pay it.
Plaintiffs simultaneously commenced an action in the Westchester Commercial Division, asserting claims for constructive fraudulent transfer, actual fraudulent transfer, and reverse veil piercing to unwind Nordlicht’s scheme, and seeking a prejudgment order of attachment preventing Defendants from transferring, encumbering, or otherwise affecting title to the properties in New Rochelle and New York City.
Applicable Legal Standards
As Justice Jamieson held, “[t]he law on attachments is well-settled” and Plaintiffs’ burden “is onerous.” The Second Department has explained: “Attachment is a provisional remedy designed to secure a debt by preliminary levy upon the property of the debtor to conserve it for eventual execution, and the courts have strictly construed the attachment statute in favor of those against whom it may be employed.” Hume v. 1 Prospect Park ALF, LLC, 137 A.D.3d 1080, 1081, 28 N.Y.S.3d 125, 126 (2d Dep’t 2016).
“In order to obtain an order of attachment under CPLR 6201(3), the plaintiff must demonstrate that the defendant has or is about to conceal his or her property in one or more of several enumerated ways, and has acted or will act with the intent to defraud his or her creditors, or to frustrate the enforcement of a judgment in favor of the plaintiff.” Mineola Ford Sales Ltd. v. Rapp, 242 A.D.2d 371, 371, 661 N.Y.S.2d 281, 282 (2d Dep’t 1997) (citations omitted).
Further, “[t]he moving papers must contain evidentiary facts – as opposed to conclusions – proving the fraud.” Id. “In addition to proving fraudulent intent, plaintiffs must also show probable success on the merits of the underlying action ….” Id. (citations omitted). Finally, “the movant must show that the amount demanded from the defendant exceeds all counterclaims known to the plaintiff.” Reed Smith LLP v. LEED HR, LLC, 156 A.D.3d 420, 420, 67 N.Y.S.3d 9 (1st Dep’t 2017).
Plaintiffs argued that Nordlicht strategically disposed of substantially all of his assets by placing them beyond the reach of his creditors under the names of his wife, various LLCs, trusts, overseas entities and other shell entities. They explained Nordlicht’s modus operandi for disclaiming legal ownership of his assets while still exercising control:
“Mr. Nordlicht has arranged his affairs to transfer and keep assets out of his name and to avoid being held accountable to creditors. To carry out this scheme, Mr. Nordlicht has adopted a specific modus operandi in his financial arrangements. First, Mr. Nordlicht organizes a shell company with his wife, Ms. Kalter, having nominal ownership and control. Second, notwithstanding his ownership in name, Mr. Nordlicht in fact controls and dominates the shell company, directing or participating in substantially all financial decisions for it. Third, any funds or interests in the shell company are extracted to accounts held by Ms. Kalter or another closely affiliated party, such as a family-owned LLC or trust.”
Justice Jamieson found that Plaintiffs adequately explained Defendants’ “intricate attempts to insulate Nordlicht from his significant creditors, with ample, substantiated details” and that Defendants acted with the required fraudulent intent.
Further, many of Defendants’ positions – for example, that Ms. Kalter was the only one with control over a given LLC – were rejected as “entirely implausible or directly contradicted by evidence that plaintiffs submit on reply.” Although Ms. Kalter claimed to be the only one who ever had control over a particular entity, Plaintiffs submitted emails showing that Nordlicht in fact had control. Plaintiffs also submitted, among other evidence, documents with “two extremely different versions of Kalter’s signature, claiming that one of those versions is a forgery.”
Finally, the amount demanded against Defendants exceeded the value of any counterclaims as the arbitration award conclusively resolved all counterclaims against Nordlicht, who received nothing.
Accordingly, Plaintiffs were granted an order of attachment.
Takeaways: Disposing of one’s assets that should be subject to execution to satisfy outstanding debts will not render oneself “judgment proof.” And, to obtain an order of attachment, plaintiffs must satisfy an onerous burden.
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George Krikorian, a law student at Elisabeth Haub School of Law at Pace University, assisted with the preparation of this post.