Marine Midland Bank v. Murkoff, 504 N.E.2d 841 (N.Y. 1986)
Under New York law, a creditor has no cause of action against a party who merely assists a debtor in transferring assets if the assisting party did not receive the assets or benefit from the transfer, and the creditor lacked a lien or judgment on the debt at the time of the transfer.
Summary
Marine Midland Bank, as a creditor, sought damages from two bank officials (defendants) who allegedly assisted a debtor in transferring assets to Switzerland to avoid a judgment. The bank had previously obtained a $6 million judgment against the debtor in federal court. The bank did not claim that the defendants received any of the transferred funds or otherwise benefitted from the transfer. The New York Court of Appeals held that the bank had no cause of action against the defendants because they were mere participants in the transfer, and the bank had no lien or judgment on the assets when the transfer occurred. The court clarified that Sections 278 and 279 of the Debtor and Creditor Law did not create a new remedy against non-transferees.
Facts
Marine Midland Bank obtained a $6 million judgment in federal court against a director of a bank’s parent corporation for losses suffered by the bank due to the director’s financial dealings.
During the pendency of the federal suit, two officials of the bank (defendants) allegedly assisted the director in transferring funds to an account in Switzerland.
The bank did not allege that the defendants received any of the funds or benefitted in any way from the transfer.
Procedural History
The bank brought an action against the two officials, alleging they fraudulently deprived the bank of funds by assisting the director’s transfer.
The Supreme Court initially denied the defendants’ motion to dismiss.
The Appellate Division reversed, holding that no cause of action existed under New York law for merely assisting a debtor in transferring assets without a lien or judgment.
The New York Court of Appeals affirmed the Appellate Division’s decision.
Issue(s)
Whether, under New York law and the Debtor and Creditor Law, a creditor has a cause of action against a party who merely assists a debtor in transferring assets, when the assisting party does not receive the assets or benefit from the transfer, and the creditor did not have a lien or judgment on the assets at the time of the transfer.
Holding
No, because under longstanding New York law, a creditor has no cause of action against a party who merely assists a debtor in transferring assets where there was neither a lien on those assets nor a judgment on the debt, and Sections 278 and 279 of the Debtor and Creditor Law did not explicitly or implicitly create such a remedy.
Court’s Reasoning
The court reaffirmed the traditional New York rule that a creditor cannot sue a party for merely participating in the transfer of a debtor’s property before obtaining a judgment or lien. The court cited Braem v. Merchants’ Natl. Bank, 127 N.Y. 508, 515, stating that plaintiff conceded to this traditional rule. The court rejected the argument that Sections 278 and 279 of the Debtor and Creditor Law changed this rule. These sections allow a creditor to seek nullification of the conveyance or secure the assets to satisfy the debt, but do not create a remedy for money damages against non-transferees who did not benefit from the transfer.
Regarding Section 273-a of the Debtor and Creditor Law, the court clarified that it defines a fraudulent conveyance but does not create a cause of action for conspiracy against non-transferees who assist in the conveyance. The court emphasized that it is not within its power to create a new remedy through judicial construction where the statute does not provide one. The court stated, “It is not for us to write such a remedy into the statute by judicial construction.”