In a May 2018 Decision, the Appellate Division of the New York State Supreme Court, First Department, vacated a $661,000 judgment entered against a corporate insider for a company debt incurred from a commercial lease. The lawsuit was commenced in January of 2013 and ran its course some 5 years later. Recall from our earlier article Take My Business, Not My Home, the New York Debtor Creditor Law is violated when assets of an insolvent company are transferred for no consideration rendering the company unable to meet its obligations. The plaintiff’s petition invoked Debtor and Creditor Law § 273, which requires insolvency. The petition also quoted Debtor and Creditor Law § 271(1), which states, “A person is insolvent when the present fair salable value of his assets is less than the amount that will be required to pay his probable liability on his existing debts as they become absolute and matured.” The petition filed in the lawsuit contained 89 paragraphs of detailed factual allegations that clearly took a great deal of time and effort to obtain. The petition was dismissed by a unanimous court, some five (5) years after the document was filed reasoning that “the petition made no allegations about the fair salable value of the companies assets” thereby fail[ing] to make a prima facie case.”
The corporate insider slipped away due to a minor pleading error that paragraph numbered “90” would have remedied. This case serves reminder to practitioners that pleadings matter, and should serve as a reminder to business owners that they must exercise caution in their business dealings.