The Dual-Track Test for Fraudulent Conveyance Claims: Pine Valley Center, LLC v. Jacobs Refines Summary-Judgment Standards under former N.Y. Debtor & Creditor Law §§ 273 and 276

1. Introduction

In Pine Valley Center, LLC v. Jacobs (237 A.D.3d 1115 [2d Dep’t 2025]), the Appellate Division, Second Department, delivered a nuanced opinion that simultaneously tightened and clarified the proof requirements for motions for summary judgment brought under New York’s former Debtor & Creditor Law (“DCL”) §§ 273 (constructive fraud) and 276 (actual fraud).

The case arises out of a nursing-home collection dispute involving Gail Sherman (the patient), her niece and attorney-in-fact Francene Jacobs, Francene’s husband Jeffery Jacobs, and entities they controlled. While Pine Valley sued Sherman and Francene in an earlier action, the present lawsuit targets Jeffery, his solely-owned transportation company Country Services, Inc., and Jeffery’s father, Henry Jacobs, alleging that Sherman’s assets were siphoned away to avoid paying the nursing home.

Key issues before the appellate court included:

• Whether transfers made in satisfaction of an antecedent debt can still be set aside as actual fraud under § 276 when multiple “badges of fraud” are present.
• Whether the same transfers are protected from a constructive fraud attack under § 273 when fair consideration and an antecedent debt exist.
• The interaction between a prior settled action and the doctrines of res judicata and necessary parties.

2. Summary of the Judgment

The Second Department modified the Supreme Court’s order in three critical ways:

1. § 276 (Actual Fraud): The court denied summary judgment to both sides. Although Pine Valley showed multiple badges of fraud, the defendants produced evidence of fair consideration and an antecedent debt, creating triable issues as to intent. Therefore, the plaintiff was not entitled to judgment as a matter of law, but defendants were equally unable to carry their initial burden to disprove actual intent.
2. § 273 (Constructive Fraud): The court granted defendants’ motion for summary judgment. Evidence of an antecedent debt and invoices established fair consideration, defeating the plaintiff’s constructive-fraud theory, which hinges on the absence of such consideration.
3. Res Judicata & Necessary Parties: The transfer defendants were not parties to the prior action, nor in privity with those parties; hence claim preclusion did not bar the present suit, and Francene was not a necessary party.

3. Analysis

3.1 Precedents Cited and Their Influence

• Winegrad v. NYU Medical Center, 64 N.Y.2d 851 (1985) & Zuckerman v. City of New York, 49 N.Y.2d 557 (1980)
  — Recited for the baseline standard governing summary-judgment burdens.
• Matter of Argyle Funds SPC, Inc. v. Barrick, 226 A.D.3d 673 (2024)
  — Provided the statutory language for former § 276 and confirmed its application despite subsequent statutory amendments.
• Kreisler Borg Florman Gen. Constr. Co. v. Tower 56, LLC, 58 A.D.3d 694 (2009); Dempster v. Overview Equities, 4 A.D.3d 495 (2004)
  — Emphasized that clear and convincing evidence is required and that intent can be inferred from circumstantial “badges of fraud.”
• Pen Pak Corp. v. LaSalle Nat’l Bank, 240 A.D.2d 384 (1997); Grumman Aerospace Corp. v. Rice, 199 A.D.2d 365 (1993)
  — Demonstrated that even with fair consideration, an action under § 276 persists if badges of fraud exist.
• Joslin v. Lopez, 309 A.D.2d 837 (2003) & Prudential Farms of Nassau County v. Morris, 286 A.D.2d 323 (2001)
  — Clarified that antecedent debt may constitute fair consideration under § 273, defeating constructive-fraud claims.
• HSBC Bank USA, N.A. v. Pantel, 179 A.D.3d 650 (2020) & Cullen v. Moschetta, 207 A.D.3d 699 (2022)
  — Applied to reject the defendants’ res judicata defense for lack of privity.

3.2 The Court’s Legal Reasoning

Step 1 – Actual Fraud (§ 276). The defendants were required, as summary-judgment movants, to negate actual intent. They produced evidence of invoices, monthly transportation services, and an antecedent debt—thereby showing “fair consideration.” However, the court noted four strong badges of fraud:

1. Close familial relationship (transferor and transferee spouses).
2. Transferor’s awareness of Pine Valley’s claim and that the transfer would exhaust Sherman’s assets.
3. Transferor’s continued dominion over funds after transfer.
4. A pattern of transfers after the debt was incurred.

Because these badges could support an inference of fraudulent intent, defendants failed to eliminate all triable issues, and summary judgment was inappropriate for either side.

Step 2 – Constructive Fraud (§ 273). For constructive fraud, intent is irrelevant; instead, the plaintiff must show (a) lack of fair consideration and (b) insolvency resulting from the transfer. The defendants’ documentary proof of an antecedent debt satisfied the statutory definition of “fair consideration” (former § 272[a]), neutralizing Pine Valley’s case. With that single element missing, the court was required to—and did—grant defendants judgment on this count.

Step 3 – Procedural Defenses. On res judicata, the court underscored the “same parties or those in privity” requirement: Jeffery, Country, and Henry Jacobs were strangers to the prior suit; mere familial ties to Francene did not create privity. The “necessary party” argument similarly failed because Francene’s personal rights or obligations would not be altered by any judgment in the present action.

3.3 Likely Impact of the Decision

1. Sharper Pleading Strategy. Litigants can no longer assume that proof of an antecedent debt insulates them from § 276 claims. Conversely, plaintiffs must recognize that the same evidence is potent against § 273 theories.

2. Summary-Judgment Roadmap. The opinion establishes a “dual-track” framework:

• Under § 273, defendants should focus on demonstrating fair consideration or solvency.
• Under § 276, defendants must go further—proving the absence of fraudulent intent, which often entails rebutting badges of fraud.

3. Nursing-Home Collection Litigation. Facilities frequently sue family members who control patients’ finances. The decision arms both sides with clearer guidance on when transfers to relatives or family businesses will survive judicial scrutiny.

4. Post-2020 DCL Amendments. Although the Legislature replaced §§ 273–276 with Article 10 (2020), the court’s reasoning remains relevant, because new § 276-a and § 273 retain the same conceptual divide between actual and constructive fraud. Pine Valley will thus inform how courts apply the revised statute to legacy and future transfers alike.

4. Complex Concepts Simplified

• Actual Fraud (§ 276): Requires proof of a subjective intent to hinder, delay, or defraud creditors. Proved through “badges of fraud”—objective circumstances suggesting intent.
• Constructive Fraud (§ 273): Focuses on the economic effect of a transfer (insolvency + lack of fair consideration); intent is immaterial.
• Fair Consideration: Value exchanged for the asset transferred; an antecedent debt (a pre-existing obligation) satisfies this requirement.
• Badges of Fraud: Common indicators (e.g., family relationship, secrecy, insolvency) permitting courts to infer intent without direct evidence.
• Privity: A legal connection so close that one party can be bound by a judgment involving another; mere kinship or indirect benefit does not suffice.
• Res Judicata (Claim Preclusion): Once a claim is adjudicated on the merits, the same parties or their privies cannot re-litigate it in a later action.

5. Conclusion

Pine Valley Center, LLC v. Jacobs delivers a refined and highly practical rule set for New York fraudulent-conveyance litigation. The decision crystallizes a pivotal distinction:

Fair consideration—especially via antecedent debt—bars constructive-fraud claims under former § 273, yet
does not automatically defeat actual-fraud claims under former § 276 when potent badges of fraud exist.

By bifurcating the analysis and applying distinct burden-shifting principles, the court furnishes litigants with a clearer map to navigate summary-judgment motions in the fraudulent-transfer arena. Going forward, defendants must anticipate that transfers among relatives, even if supported by invoices and legitimate debts, will face rigorous scrutiny for fraudulent intent. Plaintiffs, on the other hand, must be prepared to marshal more than circumstantial badges when chasing summary judgment on actual-fraud claims. The Second Department has thus recalibrated the balance between debtor autonomy and creditor protection, establishing a precedent likely to resonate across New York’s commercial and family-finance disputes.