Fair Consideration Remains the Critical Defense in New York Fraudulent Transfer Litigation

By: Jeffrey M. Haber

New York’s former Debtor and Creditor Law (“DCL”) imposed a straightforward but powerful rule: transfers made by an insolvent debtor without fair consideration may be set aside for the benefit of creditors. A recent decision from the Appellate Division, Second Department, Ardent Harmony Fund, Inc. v. Fuschetto Home Improvements, LLC, 2026 N.Y. Slip Op. 04919 (2d Dept. August 12, 2026), underscores the principle that defendants seeking dismissal of fraudulent conveyance claims at the summary judgment stage bear the burden of establishing, with admissible evidence, that the transfers they received were supported by fair consideration. Mere assertions that services were performed are not enough. In Ardent Harmony, the Second Department reversed an order of the Supreme Court, Nassau County, holding that defendant failed to establish its entitlement to judgment as a matter of law on claims brought under former DCL §§ 273, 274, and 278, as well as a related claim for unjust enrichment.

Background

Plaintiffs commenced the action in 2018 seeking, among other relief, to set aside transfers to non-parties allegedly made by defendants, who were judgment debtors of the plaintiffs. According to the complaint, defendants transferred substantial sums of money to a home improvement company while owing unsatisfied judgments to the plaintiffs.

Plaintiffs alleged that the transfers were made without fair consideration and had the effect of rendering the defendants insolvent or leaving them with unreasonably small capital. Plaintiffs sought relief under former DCL §§ 273, 274, and 278 and also asserted a cause of action for unjust enrichment.

Defendants moved for summary judgment dismissing the complaint. The Supreme Court granted the motion. On appeal, the Second Department reversed and reinstated the claims.

The Second Department’s Decision

Under former DCL §§ 273 and 274, a conveyance could be deemed constructively fraudulent where it was made without fair consideration and the transferor was thereby rendered insolvent or left with unreasonably small capital. Former DCL § 278 permitted a creditor to set aside a fraudulent conveyance unless the transferee qualified as a purchaser for fair consideration.

Significantly, defendant did not dispute that the transfers at issue rendered the judgment debtors insolvent or left them with unreasonably small capital.[1] Instead, the dispute centered on whether the defendant had established that the funds it received constituted fair consideration for work allegedly performed on behalf of the judgment debtors.

The Court concluded that it had not. Although defendant claimed that the transfers related to work it performed, it failed to submit sufficient evidentiary proof in admissible form demonstrating that the payments represented fair consideration for those services:

Contrary to the determination of the Supreme Court, the defendant did not submit sufficient evidentiary proof in admissible form to establish that the transfers of funds it received from the [judgment debtors] constituted “fair consideration” for the work it purported to have undertaken for them.[2]

“Consequently,” concluded the Court, “the [Supreme Court] should have denied those branches of the defendant’s motion which were for summary judgment dismissing the causes of action alleging violations of Debtor and Creditor Law former §§ 273, 274, and 278 insofar as asserted against it as the defendant failed to establish its prima facie entitlement to judgment as a matter of law dismissing those causes of action insofar as asserted against it.”[3] 

The Court also held that defendant “failed to establish its prima facie entitlement to judgment as a matter of law dismissing the cause of action to recover for unjust enrichment insofar as asserted against it.”[4] Under New York law, to plead a claim for unjust enrichment, the plaintiff must alleged “(1) the defendant was enriched, (2) at the plaintiff’s expense, and (3) that it is against equity and good conscience to permit the defendant to retain what is sought to be recovered.”[5] The Court held that defendant failed to demonstrate that “it was not enriched at the plaintiffs’ expense and that it [was] not against equity and good conscience to permit it to retain the sums sought to be recovered.”[6] 

Takeaway

Ardent Harmony highlights the role that fair consideration plays in constructive fraudulent conveyance litigation under former DCL §§ 273 and 274. Where a creditor establishes, or a defendant does not dispute, that challenged transfers rendered a debtor insolvent or left the debtor with unreasonably small capital, the litigation often turns on whether the transferee can demonstrate that reasonably equivalent value was provided in exchange for the transferred assets. The Court’s decision makes clear that conclusory assertions that services were performed or value was provided in connection with the conveyance are insufficient to defeat a claim for violation of the former DCL’s constructive fraud provisions.

The decision also serves as a reminder concerning the proof required to prevail on summary judgment. A defendant moving for summary judgment must affirmatively establish its entitlement to judgment as a matter of law before the burden shifts to the plaintiff. Here, because defendant failed to submit evidentiary proof in admissible form demonstrating that the payments it received constituted fair consideration for work allegedly performed, it failed to satisfy its prima facie burden. As a result, the Court denied summary judgment.

Equally significant is the Court’s treatment of the unjust enrichment claim. The decision underscores that equitable remedies may remain viable even where a defendant contends that it received funds in exchange for services. To obtain dismissal of an unjust enrichment claim, a defendant must establish, prima facie, that it was not enriched at the plaintiff’s expense and that equity and good conscience permit it to retain the benefit received. Where the record leaves unresolved questions regarding the legitimacy of the transfers or the value allegedly provided in return, dismissal is inappropriate.

Ultimately, Ardent Harmony Fund reinforces a fundamental principle of New York fraudulent conveyance law: where an allegedly insolvent debtor transfers assets, the recipient must be prepared to demonstrate through admissible evidence that the transfer was supported by fair consideration. Absent that showing, fraudulent conveyance and related equitable claims will survive and proceed to further litigation.

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Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP.

This article is for informational purposes only and is not intended to be, and should not be, taken as legal advice.

Unless otherwise stated, Freiberger Haber LLP’s articles are based on recently decided published opinions or litigation releases and not on matters handled by the firm. ___________________________________

[1] Slip Op. at *1.

[2] Id. 

[3] Id., citing Can Man Carting, LLC v. Spiezio, 165 A.D.3d 1029, 1031 (2d Dept. 2018).

[4] Id.

[5] Deerin v. Ocean Rich Foods, LLC, 158 A.D.3d 603, 606 (2d Dept. 2018) (internal quotation marks omitted).

[6] Slip Op. at *1 (citation omitted).