Jeri Cohen v. Jeffrey Cohen, Cred Partners d/b/a Corporate Bailout Partners LLC, et al.
Attorneys and Parties
Brief Summary
Creditors’ rights, fraudulent conveyance, and veil-piercing claims arising from transfers among closely held finance/merchant-cash-advance entities.
The Supreme Court, New York County dismissed all claims against Jeffrey Cohen under CPLR 3211(a)(1) and (7) [motion to dismiss based on documentary evidence and failure to state a cause of action] and denied plaintiff’s cross-motion for summary judgment.
The Appellate Division modified to reinstate the sixth cause of action (alter-ego) and parts of the first and fifth causes of action limited to claims 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 OSF and Capital and Cash Partners, LLC funds to settle the Belmont litigation; the remainder was affirmed.
Plaintiff plausibly alleged that Jeffrey Cohen benefited from and directed transfers that could be fraudulent under Debtor and Creditor Law (DCL) former § 270 [defines “conveyance,” including a “release”] and former § 276 [actual intent to hinder, delay, or defraud creditors], including forgiving a related‑party loan to capture tax advantages and using debtor funds to settle a personal fraud suit. The court also held the alter‑ego claim was sufficiently pleaded given allegations of domination and diversion of assets to render plaintiff’s judgment hollow.
Background
From 2016–2018, two entities—Orchard Street Funding, LLC (OSF) and Capital and Cash Partners, LLC (together, the Judgment Debtors)—were allegedly dominated by Jeffrey Cohen. Plaintiff Jeri Cohen held promissory notes and later obtained a judgment against the Judgment Debtors. She alleges Jeffrey Cohen orchestrated transfers to related entities, including Cred Partners, LLC (Cred P) and Recet, LLC, to avoid paying her. Specific transactions include: (1) OSF’s forgiveness and release of Cred P’s $776,500 debt, allegedly eliminating Comarc’s recourse and enabling Jeffrey Cohen to claim tax losses; and (2) directing Recet to use $300,000 of Judgment Debtors’ funds to settle Belmont Brothers Realty Co. et al. v Golden Pear Merchant Capital LLC et al. (the Belmont action), which accused him personally of fraud relating to a forged letter converting a loan to Gold Pear Funding, LLC (GPF) into a loan to OSF. Plaintiff also alleged other benefits to Jeffrey Cohen, including rent paid to General Vision Services, LLC (GVS), in which he owns 16%, and the temporary “floating” of funds through Recet to keep GPF (in which he owns 16%) afloat prior to a sale.
Lower Court Decision
The Supreme Court (Justice Louis L. Nock) granted Jeffrey Cohen’s CPLR 3211(a)(1) and (7) motion, dismissing all claims against him and denying plaintiff’s cross-motion for summary judgment. The court concluded the complaint failed to state claims tying Cohen personally to fraudulent conveyances or alter‑ego liability and rejected plaintiff’s third‑party beneficiary theory under the operating agreements.
Appellate Division Reversal
The Appellate Division unanimously modified. It reinstated: (a) the sixth cause of action for alter‑ego liability, holding plaintiff sufficiently alleged domination and diversion of corporate funds to frustrate collection; and (b) portions of the first and fifth causes of action under the former DCL, limited to claims based on OSF’s $776,500 loan release to Cred P and Recet’s use of Judgment Debtors’ funds to settle the Belmont action. The court held that forgiving a related‑party debt and settling a principal’s personal fraud suit with debtor funds may lack good faith and constitute fraudulent conveyances, especially as insider preferences do not satisfy the DCL’s good‑faith requirement. The panel rejected Cohen’s indemnification defense as not clearly applicable given the Belmont allegations of personal fraud rather than acts solely in a managerial capacity. The court affirmed dismissal of DCL claims premised on rent paid to GVS, purported benefits from Cred P’s profits, and the temporary ‘floating’ of funds through Recet (as the funds were returned). It also affirmed dismissal of the seventh cause of action, holding plaintiff was not an intended third‑party beneficiary of the operating agreements, and extrinsic evidence could not be used to create ambiguity. The appeal from the November 22, 2024 order was dismissed as subsumed.
Legal Significance
Clarifies under former New York DCL that a ‘release’ of a related‑party loan can be a conveyance and that insider‑directed payments resolving a principal’s personal fraud exposure may be actionable fraudulent transfers lacking good faith. Reaffirms pleading standards for DCL § 276 actual‑intent claims via badges of fraud and allows veil‑piercing claims to proceed where domination and diversion are alleged to render a judgment uncollectible.
At the pleading stage, allegations that an insider used judgment‑debtor funds to forgive related‑party debt and to settle his own fraud suit suffice to revive fraudulent conveyance and alter‑ego claims, while speculative or returned transfers and indirect benefits (like rent to an entity the insider partly owns) are insufficient.