Cohen v. Cohen (1st Dep’t 2026): Releases and Litigation-Settlement Payments as Fraudulent Conveyances; Alter-Ego Theory Properly Pleaded by Alleged Diversion to Render a Judgment Pyrrhic

1. Introduction

In Cohen v Cohen, the Appellate Division, First Department, reviewed a pleading-stage dismissal of claims against an individual defendant, Jeffrey Cohen, in a dispute arising from alleged transfers by several related entities (the “Judgment Debtors”) while plaintiff Jeri Cohen remained unpaid on promissory notes. Plaintiff contended that the entities’ transfers and related acts were fraudulent conveyances under the pre–April 4, 2020 New York Debtor and Creditor Law (“former DCL”) and that Jeffrey Cohen should be liable as a beneficiary of those conveyances and under an alter-ego (veil-piercing) theory.

The central issues were whether the complaint adequately alleged (i) that Cohen “benefited” from specified transfers/release transactions sufficient to keep claims against him in the case at the CPLR 3211 stage, (ii) that use of entity funds to settle litigation implicating Cohen personally could lack “fair consideration” due to absence of good faith, and (iii) that plaintiff adequately pleaded the “fraud or wrong” element necessary to support piercing the corporate veil as a theory of liability.

2. Summary of the Opinion

The First Department modified the judgment of dismissal and reinstated:

the sixth cause of action (alter-ego/veil-piercing theory), and
so much of the first and fifth causes of action as were based on:
1. Orchard Street Funding, LLC (“OSF”)’s release of its $776,500 loan to Cred Partners, LLC (“Cred P”), and
2. Recet, LLC’s use of Judgment Debtor funds to settle Belmont Brothers Realty Co. et al. v Golden Pear Merchant Capital LLC et al. (the “Belmont action”).

The court otherwise affirmed dismissal of other theories against Cohen—most notably theories resting merely on his minority ownership interests in entities that received payments (e.g., rent paid to a nonparty), or on “floating” funds that were later returned.

The appeal from the intermediate order was dismissed as subsumed in the appeal from the judgment.

3. Analysis

3.1 Precedents Cited (and How They Shaped the Result)

Federal Deposit Ins. Corp. v Porco, 75 NY2d 840, 842 [1990]
Role in the decision: The court cited this as general support for the proposition that, at the pleading stage, it is enough to allege facts showing the defendant benefited to some extent from challenged transfers. This underpinned the reinstatement of claims tied to (i) the loan “release” and (ii) the Belmont settlement payment.
Matter of White Plains Plaza Realty, LLC v Cappelli, 188 AD3d 898 [2d Dept 2020]
Role in the decision: Used (as a “cf.”) to support the plausibility of plaintiff’s allegation that the loan release generated financial/tax consequences (e.g., effects tied to capital accounts and losses) that could constitute a cognizable “benefit” to Cohen. The point was not that tax benefits are always actionable, but that they can make a “benefit” allegation plausible enough to survive CPLR 3211.
Ultramar Energy v Chase Manhattan Bank, 191 AD2d 86, 90-91 [1st Dept 1993]
Role in the decision: The court acknowledged the general rule that paying an antecedent debt while insolvent is not automatically fraudulent merely because it prefers one creditor. This was the baseline against which plaintiff’s “lack of good faith” theory was measured regarding the Belmont settlement payment.
Sardis v Frankel, 113 AD3d 135, 141-142 [1st Dept 2014]
Role in the decision: Central to the court’s analysis of “fair consideration.” It reinforced that “fair consideration” under the former DCL requires good faith by both transferor and transferee—allowing plaintiff to challenge a transfer even if it appeared to satisfy a debt, where the surrounding circumstances plausibly suggest bad faith.
Farm Stores v School Feeding Corp., 102 AD2d 249, 254 [2d Dept 1984], affd 64 NY2d 1065 [1985]
Role in the decision: Provided the key refinement to Ultramar: preferential transfers that benefit insiders of an insolvent entity can fail the good-faith component of “fair consideration.” This supported reinstatement of the Belmont-settlement-based theory where plaintiff alleged Judgment Debtor funds were used to settle claims against Cohen personally.
D'Mel & Assoc. v Athco, Inc., 105 AD3d 451, 452-453 [1st Dept 2013], citing Roselink Invs., LLC v Shenkman, 386 F Supp 2d 209, 227 [SD NY 2004]
Role in the decision: These authorities were used to reject an overbroad “benefit” theory: it is not enough to plead that an entity received a loan and became profitable and the defendant held some ownership interest. The decision draws a line between plausible direct/transactional benefit (loan release; personal litigation settlement) and attenuated benefit (corporate profits).
Matter of 4042 E. Tremont CafÃ‰ Corp. v Sodono, 177 AD3d 456, 458 [1st Dept 2019]
Role in the decision: Supported dismissal of claims predicated on rent paid to a separate entity (GVS) in which Cohen allegedly held a minority interest. The court emphasized separateness and the insufficiency of alleging “benefit” where the payment is to a distinct entity and the alleged benefit is unclear.
TLC Merchant Bankers, Inc. v Brauser, 2003 US Dist LEXIS 3564, *12, 2003 WL 1090280, *4 [SD NY, March 11, 2003, No. 01 Civ. 3044 GEL]
Role in the decision: Cited to reject a theory based on “floating” funds through an entity where the funds were ultimately returned—undercutting the inference of a net fraudulent depletion as pleaded.
Nonas v Romantini, 271 AD2d 292, 292-293 [1st Dept 2002]
Role in the decision: Supported the adequacy of pleading “badges of fraud” under former DCL § 276 (actual intent). The court relied on classic indicia: lack of consideration, insider interests/nominee ownership, continued control post-transfer, and awareness of plaintiff’s unpaid debt.
Chiomenti Studio Legale, L.L.C. v Prodos Capital Mgt. LLC, 140 AD3d 635, 636 [1st Dept 2016] and Matter of Morris v New York State Dept. of Taxation & Fin., 82 NY2d 135, 141 [1993]
Role in the decision: Confirmed that New York does not recognize a standalone “cause of action” for veil piercing, but veil piercing remains a viable theory of liability. This framing allowed reinstatement of the sixth cause of action at the pleading stage under the “any cognizable legal theory” lens.
Morone v Morone, 50 NY2d 481, 484 [1980]
Role in the decision: Supplied the motion-to-dismiss standard: whether the facts alleged fit within any cognizable legal theory. The court used this to treat alter ego as a theory that can be pursued even if mislabeled as a “cause of action.”
Baby Phat Holding Co., LLC v Kellwood Co., 123 AD3d 405, 407-408 [1st Dept 2014] citing TNS Holdings v MKI Sec. Corp., 92 NY2d 335, 339 [1998]
Role in the decision: Established that “wrongdoing” for veil piercing is not limited to common-law fraud; inequity or malfeasance can suffice. Critically, Baby Phat supported the proposition that diversion of corporate funds to make an entity judgment-proof can satisfy the wrongdoing requirement.
Aspire Music Group, LLC v Cash Money Records, Inc., 169 AD3d 441, 441-442 [1st Dept 2019] and JTS Trading Ltd. v Trinity White City Ventures Ltd., 139 AD3d 630, 631 [1st Dept 2016]
Role in the decision: These cases reflect a line of First Department authority sometimes requiring allegations of a purpose to harm the plaintiff where the conduct is “legitimate business activity.” The court distinguished that line as not controlling on the pleaded facts, and in any event found plaintiff’s allegations sufficient under favorable inferences.
Baltic Fourth LLC v Stern, 193 AD3d 630, 633 [1st Dept 2021]
Role in the decision: Clarified that the “purpose of harming plaintiff” requirement does not apply where the alleged conduct includes fraud and malfeasance. This helped the court avoid imposing an elevated intent-to-harm pleading requirement on plaintiff’s alter-ego theory.
Rich v J.A Madison, LLC, 241 NYS3d 639, 644 [1st Dept 2025] and GNHC 1703-518, LLC v Venari Partners, LLC, 2024 NY Slip Op 32388[U], *12 [Sup Ct, NY County 2024]
Role in the decision: Provided a modern articulation of the harm alleged: stripping assets so that a judgment becomes a “pyrrhic victory.” The court used this to conclude the complaint adequately pleaded the “fraud or wrong” element for veil piercing.
CWCapital Invs. LLC v CWCapital Cobalt VR Ltd., 182 AD3d 448, 452-453 [1st Dept 2020]
Role in the decision: Guided the court’s third-party-beneficiary analysis: being an intended beneficiary of one section of an agreement does not make one a beneficiary of another section. This supported affirmance of dismissal of the seventh cause of action.
Kasowitz, Benson, Torres & Friedman, LLP v Duane Reade, 98 AD3d 403, 406 [1st Dept 2012], affd 20 NY3d 1082 [2013]
Role in the decision: Reinforced the parol evidence rule in this context: extrinsic evidence (including deposition testimony) cannot be used to alter unambiguous contract terms. This prevented plaintiff from using Cohen’s deposition to create third-party beneficiary rights not found in the operating agreements’ text.

3.2 Legal Reasoning

A. “Benefit” Allegations Can Be Transaction-Specific and Concrete

The court rejected the all-or-nothing approach taken below. While some “benefit” theories were too attenuated (profits of a transferee corporation; rent paid to a separate entity; funds that were floated but returned), the complaint plausibly alleged Cohen benefited in two concrete ways:

Loan release as a conveyance with personal benefit: Plaintiff alleged Cohen caused OSF to forgive/release Cred P’s obligation to repay $776,500. Under former DCL § 270 (as noted in Footnote 1), a “release” can be a “conveyance.” The court held plaintiff plausibly pleaded a personal benefit (including alleged tax-related consequences and elimination of recourse exposure) sufficient to proceed.
Entity funds used to settle litigation accusing Cohen of fraud: Plaintiff alleged Cohen directed Recet to apply $300,000 of Judgment Debtor funds to settle the Belmont action, resolving claims asserted against him personally. The court held that, even if characterized as satisfying an antecedent obligation, plaintiff adequately pleaded lack of good faith—particularly because the settlement allegedly protected Cohen personally at plaintiff’s expense, and indemnification was not “entirely clear” given the nature of the Belmont allegations (forgery/fraud not merely “by reason of” being a manager).

B. “Fair Consideration” Under Former DCL Requires Good Faith—Especially in Insider Contexts

The opinion’s most instructive move is its application of the good-faith component of “fair consideration.” While the law generally permits preferences among creditors (Ultramar Energy v Chase Manhattan Bank), the court emphasized that “fair consideration” also requires good faith (Sardis v Frankel), and insider-preferential transfers that derogate general creditors’ rights can fail that requirement (Farm Stores v School Feeding Corp.). On the pleaded facts, the Belmont settlement payment could be viewed as an insider-directed deployment of insolvent-entity funds for the dominator’s personal litigation peace—an allegation sufficient to survive dismissal.

C. Veil Piercing: Not a Standalone Claim, But a Properly Pleaded Theory Here

The court reaffirmed that “New York does not recognize a separate cause of action to pierce the corporate veil” (Chiomenti Studio Legale, L.L.C. v Prodos Capital Mgt. LLC; Matter of Morris v New York State Dept. of Taxation & Fin.), yet reinstated the sixth cause of action because, on a motion to dismiss, the question is whether allegations fit any cognizable theory (Morone v Morone).

Applying Morris, the court noted Cohen did not dispute domination. The dispute was wrongdoing. The court held plaintiff pleaded wrongdoing by alleging diversion of funds owed to her to affiliated entities to circumvent payment, rendering any judgment “pyrrhic” (Rich v J.A Madison, LLC). The opinion also clarified the First Department’s intent-to-harm gloss: where allegations include “fraud and malfeasance,” the stricter “purpose of harming plaintiff” requirement does not apply (Baltic Fourth LLC v Stern), and even if it did, plaintiff’s pleaded purpose (circumventing payment to her) sufficed under favorable inferences.

D. Contract-Based Claim Properly Dismissed: No Third-Party Beneficiary; No Extrinsic Evidence

The court affirmed dismissal of the seventh cause of action because plaintiff was not an intended beneficiary of the relevant operating-agreement provision, and the agreement was unambiguous. Deposition testimony could not be used to vary that meaning (Kasowitz, Benson, Torres & Friedman, LLP v Duane Reade), and the fact that a person may be a beneficiary of one section does not extend to other sections (CWCapital Invs. LLC v CWCapital Cobalt VR Ltd.).

3.3 Impact

Pleading-stage discipline in fraudulent conveyance cases involving individuals: The decision underscores that individual-liability theories often rise or fall on whether a complaint alleges a specific, transaction-linked benefit—rather than generalized allegations that “an entity he owned made money.”
Releases and litigation settlements are high-risk transfers under former DCL: By reinstating claims tied to (i) a loan “release” (explicitly treated as a “conveyance” under former DCL § 270) and (ii) use of entity funds to settle litigation accusing the insider of fraud, the opinion signals that such transactions are fertile grounds for good-faith challenges, particularly where insolvency and insider control are alleged.
Alter-ego theory remains potent where the injury is judgment-proofing: The decision strengthens pleading viability where plaintiffs allege that an insider diverted assets to thwart collection—even absent a fully developed evidentiary record—so long as the allegations plausibly show domination and wrongdoing.
Clarifies the “purpose to harm” line of cases: The court’s discussion harmonizes prior First Department cases by indicating that heightened “purpose” allegations are associated with “legitimate business activity,” but not where fraud/malfeasance is pleaded; and, regardless, allegations aimed at circumventing payment can satisfy the wrongdoing prong at the CPLR 3211 stage.

4. Complex Concepts Simplified

Fraudulent conveyance (former DCL): A debtor’s transfer of value that the law may unwind if it was made without proper value (“consideration”) or with improper intent, especially when the debtor can’t pay creditors.
“Release” as a conveyance (former DCL § 270): Not only sending money counts as a transfer. Forgiving a debt—i.e., releasing a borrower from repayment—can also be treated as a “conveyance” because it gives up an asset (the right to collect).
“Fair consideration” and “good faith”: Even if a payment appears to satisfy a debt, it may still be challenged if made in bad faith—particularly where insiders arrange the payment to protect themselves at the expense of other creditors.
Preferential transfer: Paying one creditor over others. Preferences are often permitted, but insider preferences can be attacked where they lack good faith or function as self-dealing.
Badges of fraud: Indirect clues courts use to infer actual intent to defraud (e.g., no consideration, insider relationships, continued control of assets after transfer, awareness of unpaid debts).
Piercing the corporate veil / alter ego: A way to hold an owner/controller personally liable when they dominate the entity and use it to commit a wrong that injures the plaintiff—such as diverting assets to make the company unable to satisfy a judgment.
Third-party beneficiary: Someone not a party to a contract who can sue on it only if the contract shows the parties intended to benefit that person—not merely because the person would incidentally gain from performance.

5. Conclusion

Cohen v Cohen meaningfully reinforces two practical rules in former-DCL and veil-piercing litigation: (1) at the pleading stage, a plaintiff can proceed against an individual where the complaint ties that individual to a specific, plausible personal benefit from a challenged conveyance—such as a debt release or using entity funds to settle the individual’s own litigation exposure—and (2) alter-ego liability can be pursued as a cognizable theory where domination is alleged and the wrongdoing consists of diversion of assets to defeat collection, turning a judgment into a “pyrrhic victory.”

At the same time, the opinion draws limiting lines: minority ownership plus corporate profits, rent paid to a separate entity, or temporary “float” transactions that are repaid do not, without more, plead the kind of personal benefit or wrongful depletion needed to keep an individual in the case. The net result is a calibrated roadmap for pleading (and challenging) insider-directed transfers and veil-piercing theories under New York’s former fraudulent conveyance regime.