Fraud and Fraudulent Transfer Counterclaims Against Corporate Individuals Survive Motion to Dismiss, Says The First Department

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Posted on: Jun 18 2025

In One River Run Acquisition, LLC v. Milde, 2025 N.Y. Slip Op. 03653 (1st Dept. June 17, 2025) (here), the Appellate Division, First Department reinstated counterclaims for fraud and fraudulent transfers after they had been dismissed at the motion court level. The case arose from a failed joint venture between One River Run Acquisition, LLC (“ORRA”) and Greenwich Group International LLC (“GGI”) to develop a luxury resort in Colorado. In its counterclaims, GGI alleged that ORRA and certain individuals misrepresented ORRA’s financial contributions and later fraudulently transferred the project property to insiders, rendering ORRA judgment proof. The trial court dismissed the counterclaims against the individuals. On appeal, the Court reversed, holding that GGI adequately alleged that ORRA’s transfer lacked reasonably equivalent value and left it with insufficient assets, satisfying elements of a fraudulent transfer under both New York and Colorado law. The Court also reinstated the fraud claim against ORRA’s principal, finding sufficient allegations of misrepresentation and reliance to survive a motion to dismiss.

Factual Background

One River Run was a dispute that arose out of a letter agreement, dated December 7, 2020, by and between ORRA[1] and GGI.[2] Pursuant to terms of the Agreement, ORRA and GGI agreed that they would, through a joint venture, develop a luxury condominium, hotel, and ski resort (the “Project”). The Agreement set out in detail each party’s roles, as well as their shared roles, in the Project. Under the Agreement, GGI served as the financier and ORRA served as the manager of the Property.

The Agreement contemplated that both GGI and ORRA would invest in the Project as co-owners but anticipated additional financing via first-lien construction debt, mezzanine, or CPACE debt, and/or additional equity infusions. GGI undertook to “make best efforts to secure the most efficient capital structure for the Project” and to “use best efforts to maximize the most efficient sources of capital.” GGI had “the exclusive right to arrange for any capital needs associated with the Venture.”

Ultimately, the joint venture did not work out as planned.

Plaintiffs commenced the action by filing a summons with notice. In plaintiffs’ amended complaint, plaintiffs alleged that ORRA was fraudulently induced into signing the Agreement and that, among other things, defendants never intended to deliver on their promises. In particular, plaintiffs alleged that prior to executing the Agreement, defendants lied about, among other things, GGI’s competency, ability to deliver financing, and their experience.

Plaintiffs also alleged that GGI was a sham business that shared office space and phone numbers with another business, Richbell, which was a corporate affiliate of GGI. According to plaintiffs, Richbell end up providing ancillary services to GGI in its performance under the Agreement.

GGI moved to dismiss all claims in the amended complaint, except for ORRA’s breach of contract claim. The motion court granted the motion in its entirety, leaving only ORRA’s claim for breach of the Agreement.

GGI answered the amended complaint and filed its counterclaims. Relevant to the appeal, GGI asserted: (i) a breach of contract claim against ORRA and its successor-in-interest, ORRA Keystone, arising from ORRA’s breaches of the Agreement; (ii) fraud claims against ORRA’s principal arising from his alleged misrepresentations to GGI about the amount of cash and cash equity ORRA invested into the Project; (iii) a fraudulent transfer claim against each of the ORRA Individuals[3]; and (iv) a tortious interference claim against each of the ORRA Individuals, arising from their alleged interference with the Agreement between GGI and ORRA.

Plaintiffs moved to dismiss the counterclaims. The motion court sustained GGI’s fraud claim against ORRA. However, the motion court declined to dismiss the fraudulent transfer claim against ORRA and ORRA Keystone, noting that at the pleading stage, a plaintiff may rely on “badges of fraud” to allege “intent to hinder, delay, or defraud creditors.” The motion court concluded, “giving GGI every favorable inference[,] that ORRA ‘transferred the Property to insiders making ORRA judgment proof by divesting ORRA of its primary asset, which was the Property on which the Project was to be built and developed’ …, [and that] dismissal of this claim simply is not appropriate at this stage of the litigation.”

Despite sustaining the fraudulent transfer claim against ORRA, the motion court dismissed the breach of contract claim against ORRA Keystone on grounds that it could not be liable as ORRA’s successor. The motion court found that ORRA Keystone did not expressly assume contractual liability under the Agreement, or impliedly assume contractual liability, “because there was no consolidation or merger, there are insufficient allegations of continuation of ORRA (which still exists) and there are insufficient independent allegations that a transaction was entered into to fraudulently escape obligations other than those supporting the fraudulent conveyance claim.” The motion court further held that the Agreement “contemplate[d] the creation of NewCo and the transfer which took place.”

At the conclusion of oral argument, the motion court reserved decision on whether the ORRA Individuals could face personal liability for the alleged fraud and fraudulent transfers. Thereafter, the motion court issued a supplemental order, dismissing all counterclaims against the ORRA Individuals.

GGI appealed. The Appellate Division, First Department unanimously reversed.

The Court held that the motion court “should not have dismissed the fraudulent conveyance counterclaim against the ORRA Individuals.”[4] The Court explained that “[d]espite the letter agreement, which GGI reasonably reads to contemplate that the venture would hold the property, ORRA transferred the property to insiders, divesting the project of its principal asset and allegedly making ORRA judgment proof.”[5] Since “ORRA [did] not claim to have received reasonably equivalent value for the transfer,” said the Court, GCI “sufficiently alleged that, after the transfer, ORRA’s assets were unreasonably small in relation to the business of developing the project and honoring ORRA’s obligations to GGI under the letter agreement.”[6] Accordingly, concluded the Court, “the actual and constructive fraudulent conveyance counterclaims should not have been dismissed.”[7]

The Court rejected ORRA’s argument that its supplemental filings utterly refuted the fraudulent conveyance allegations. The Court noted that “[w]hile [the supplemental filings] suggest that ORRA transferred the property to the ORRA Individuals as a first step in a simultaneous set of transfers that led to Keystone owning the property, that [did] not refute that ORRA gave the property for no consideration, effecting a fraudulent conveyance.”[8] “Indeed,” said the Court, ORRA [did] not respond to GGI’s argument that the ORRA Individuals may be liable for fraudulent conveyance even absent any direct personal benefit because they were ‘first transferees’ within the meaning of the Colorado Uniform Fraudulent Transfer Act § 38-8-109(2) and the New York Debtor and Creditor Law § 277(b)(1)(i).”[9]

Finally, the Court held that the motion court “should not have dismissed the fraud counterclaim against Russell.”[10] In the amended complaint, GGI alleged that ORRA and Russell misrepresented how much cash equity ORRA had invested in the project and that GGI relied on that stated amount when signing the letter agreement.”[11] That was sufficient, held the Court. “In actions for fraud, corporate officers and directors may be held individually liable if they participated in or had knowledge of the fraud,” observed the Court.[12] Moreover, the Court held that “[w]hether GGI justifiably relied on the cash equity statement [could not] be resolved on [a] motion to dismiss.”[13]

Takeaway

One River Run is notable because it makes clear that corporate officers may face personal liability for fraudulent conveyance and fraudulent inducement claims, even if they did not directly benefit from the alleged fraud or transfer, as long as they participated in or orchestrated the fraudulent conduct.

One River Run also affirms the principle that creditors can rely on “badges of fraud” and asset-stripping behavior to survive dismissal and pursue recovery from insiders who render entities judgment proof.

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Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

[1] ORRA is a developer based in Aspen, Colorado.

[2] GGI is a New York City real estate investment banking firm.

[3] Scott Russell (“Russell”), Shervin Rashidi, and Ryan Geller are collectively defined in the case as the ORRA Individuals. The ORRA Individuals operated ORRA.

[4] Slip Op. at *1.

[5] Id.

[6] Id.

[7] Id. (citations omitted).

[8] Id.

[9] Id. at *1-*2. Defendants argued that Colorado law applied, though the result would be the same under New York law.

[10] Id. at *2.

[11] Id.

[12] Id. (quoting Polonetsky v. Better Homes Depot, 97 N.Y.2d 46, 55 (2001)).

[13] Id. (quoting DirecTV, LLC v. Nexstar Broadcasting, Inc., 230 A.D.3d 439, 441 (1st Dept. 2024)).