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MCCABE & MACK LLP, ATTORNEYS AT LAW, POST OFFICE BOX 509, POUGHKEEPSIE, NY 12602

UNITED STATES DISTRICT COURT

SUPREME COURT OF THE STATE OF NEW YORK

-----------------------------------------------------------------------x

MELINDA THEW COOPER,

Plaintiff,

-againstLARRY THEW; JOHN THEW; LARRY THEW, as Executor of

the Estate of Richard Thew; JOHN THEW, as Executor of the

Estate of Richard Thew; LARRY THEW, as successor cotrustee of the Gerald Thew Family Trust; JOHN THEW, as

successor co-trustee of the Gerald Thew Family Trust; LARRY

THEW as co-trustee of the R.W. Thew Trust a/k/a the R.W.

Thew Irrevocable Living Trust; JOHN THEW, as co-trustee of

the R.W. Thew Trust a/k/a the R.W. Thew Irrevocable Living

Trust; THE CURRY FAMILY PARTNERSHIP; TACONIC 82,

INC.; LARRY THEW, as an officer and/or director of TACONIC

82, INC.; JOHN THEW, as an officer and/or director of

TACONIC 82, INC.; REED SMITH, LLP; STEPHEN P.

O’HARE, ESQ.; WILLIAM J. O’HARE, ESQ.; O’HARE &

O’HARE, P.C.; MICHELE THEW; and PATRICIA CARSON,

Defendants.

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 04 CV 8928

 Assigned Judge: Hon.

 Colleen McMahon, USDJ

_______________________________________________

PLAINTIFF’S MEMORANDUM OF LAW IN OPPOSITION

TO MOTION TO DISMISS BY DEFENDANTS THEW

_______________________________________________

McCABE & MACK, LLP

Attorneys for Plaintiff

63 Washington Street

P.O. Box 509

Poughkeepsie, NY 12602-0509

(914) 486-6800

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MCCABE & MACK LLP, ATTORNEYS AT LAW, POST OFFICE BOX 509, POUGHKEEPSIE, NY 12602 -iTABLE OF CONTENTS

PRELIMINARY STATEMENT .................................................. 1

ARGUMENT ............................................................... 1

POINT I THIS COURT HAS SUBJECT MATTER

JURISDICTION OVER THIS ACTION ......................... 1

A. Complete Diversity Exists Among the Parties ................... 1

B. The Probate Exception to Diversity Jurisdiction Does

Not Apply to This Action .................................... 3

POINT II THIS COURT SHOULD NOT ABSTAIN FROM

EXERCISING JURISDICTION ............................... 5

A. The Princess Lida Doctrine Does Not Apply .................... 5

B. Colorado River Doctrine Does Not Apply ....................... 7

POINT III PLAINTIFF HAS STANDING TO BRING THIS ACTION ............ 8

POINT IV PLAINTIFF MAY BRING SUIT IN HER INDIVIDUAL

CAPACITY AS A MINORITY SHAREHOLDER .................. 9

POINT V DEFENDANTS’ REMAINING ARGUMENT ARE

MERITLESS ............................................ 10

A. Plaintiff’s Claims for Fraudulent Conveyances Must

Stand Because Plaintiff is a Creditor ......................... 10

B. Failure to Verify Allegations of the Complaint May

Be Remedied and Does Not Mandate Dismissal ............... 12

C. Plaintiff Has Stated Valid Claims for Aiding and Abetting

Breach of Fiduciary Duty .................................. 13

D. Plaintiff Has Stated a Legally Cognizable Claim for

Conspiracy to Defraud .................................... 14

E. Plaintiff Has Stated a Valid Claim for Unjust Enrichment ......... 14

CONCLUSION ............................................................ 15

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PRELIMINARY STATEMENT

Plaintiff submits this Memorandum of Law in opposition to the motion by defendants

Larry Thew, John Thew, Taconic 82, Inc. and Michelle Thew seeking dismissal of the

complaint.

ARGUMENT

POINT I

THIS COURT HAS SUBJECT MATTER JURISDICTION OVER THIS ACTION

A. Complete Diversity Exists Among the Parties

Defendants’ attempt to defeat diversity jurisdiction based on a single count brought

derivatively against the officers and directors of Taconic 82, Inc. falls flat. There is no dispute

that plaintiff is a citizen of Kentucky, and that no defendants are citizens of Kentucky. Thus,

diversity jurisdiction exists unless the "real collision" of issues dictates that Taconic 82 must

be realigned as a plaintiff. The weight of the case law is squarely against realignment in

cases such as this one.

While the cause of action in a derivative suit technically belongs to the corporation, the

corporation is properly aligned as a defendant if the corporation is antagonistic to the lawsuit

or to the shareholder bringing the lawsuit. Smith v. Sperling, 354 U.S. 91, 95-98 (1957). 

Diversity jurisdiction exists where “the ‘actual controversy’ is between citizens of different

States. This is a practical not a mechanical determination and is resolved by the pleadings

and the nature of the dispute.” Id. at 97 (internal citations omitted). 

Where the nature of the lawsuit reveals that the “corporation has become through its

managers hostile and antagonistic to the enforcement of the claim,” the corporation will

remain aligned as a defendant. Smith, 354 U.S. at 97. Accord Koster v. (American)

Lumbermans Mutual Casualty Co., 330 U.S. 518, 523 (1947); Doctor v. Harrington, 196 U.S.

579, 587-88 (1905); Rogers v. Valentine, 426 F.2d 1361 (2nd Cir. 1970) (upholding as “clearly

correct” the district court’s refusal to realign corporation as plaintiff in derivative suit, where

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management was antagonistic to the suit); Stoner v. Walsh, 772 F.Supp. 790, 792-93

(S.D.N.Y. 1991). “If the management of the corporation is actively aligned against the plaintiff

shareholder and [her] lawsuit, then the shareholder and the corporation are actually on

opposing sides of the controversy, and the corporation is properly named as a defendant.” 

Liddy v. Urbanek, 707 F.2d 1222, 1224 (11th Cir. 1983).

Courts will routinely find such antagonism to exist where, as here, the case “charge[s]

fraud by a dominant director and stockholder to his advantage and to the detriment of the

minority stockholders.” Smith, 354 U.S. at 97; Doctor, 196 U.S. at 587; Z.B. Holdings, Inc. v.

White, 144 F.R.D. 42, 46 (S.D.N.Y. 1992) (“Ample authority holds that if the complaint in a

derivative action alleges that the controlling shareholders or dominant officials of the

corporation are guilty of fraud or malfeasance, then antagonism exists, and the corporation

should be aligned as a defendant.”); Chamarac Properties, Inc. v. Pike, 1993 U.S. Dist. LEXIS

14593, at *17 (S.D.N.Y. 1993) (treating corporation in derivative action as defendant for

purposes of assessing diversity jurisdiction where the controlling individuals were alleged to

have participated in the fraud at issue in the lawsuit); Liddy, 707 F.2d at 1224. The requisite

antagonism will also be found where those who are alleged to have caused the harm would

have to consent to any action to redress the harm. See Sonn v. Korein, 1988 U.S. Dist.

LEXIS 4426 (S.D.N.Y. 1988).

The allegations relevant to Taconic 82 allege that John and Larry Thew, as officers

and/or directors of Taconic 82, fraudulently conveyed certain parcels of real estate to the

R.W. Thew Trust for no consideration. The parcels that were transferred comprised a

significant percentage of the assets of the corporation. John and Larry Thew stood to

substantially benefit from the fraudulent transfers, as the conveyance was made to a trust in

which they are the sole beneficiaries. The fraudulent conveyances were part of a larger

scheme to divert assets in which plaintiff had an interest. It would be difficult to conjure a

better example of a case involving “fraud by a dominant director and stockholder to his

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advantage and to the detriment of the minority stockholders.” Smith, 354 U.S. at 96, n.3. 

Moreover, as controlling shareholders, John and Larry Thew have been managing the

corporation. Both are individual defendants in this lawsuit with numerous causes of action

alleged against them. In an instance such as this one, “where the management . . . is

definitely and distinctly opposed to the institution of this litigation, . . . the corporation [is]

properly made a defendant” for purposes of determining diversity jurisdiction. Swanson v.

Traer, 354 U.S. 114, 116 (1957).

The antagonisms between the controlling shareholders and the plaintiff here are

clearly evident, and are precisely the sort that mandate the corporation’s alignment as a

defendant in this action. Thus, diversity jurisdiction properly exists.

B. The Probate Exception to Diversity Jurisdiction Does Not 

Apply to This Action

Defendants’ contention that the “probate exception” precludes subject matter

jurisdiction over this action is completely without merit. Quite simply, the probate exception

does not apply to actions involving trusts. Weingarten v. Warren, 753 F.Supp. 491, 494

(S.D.N.Y. 1990); Barnes v. Brandrup, 506 F.Supp. 396, 399 (S.D.N.Y. 1981); Schonland v.

Schonland, 1997 U.S. Dist. LEXIS 17718, at *7 (D. Conn. 1997). In Barnes, for example,

much like in this action, the plaintiff was a trust beneficiary suing the successor trustee for

breach of fiduciary duty and trust mismanagement. Barnes, 506 F.Supp. at 397-98. The

Court denied the defendant’s motion to dismiss for lack of subject matter jurisdiction, noting

that the “historical limitation on the exercise of diversity jurisdiction is therefore inapplicable

[to] [c]ontroversies concerning trusts.” Id. at 399.

Even if it were somehow applicable to actions concerning trusts, the exception

precludes federal jurisdiction over an action only if it would interfere with the in rem

administration of an estate. Markham v. Allen, 326 U.S. 490, 494 (1946); Lamberg v.

Callahan, 455 F.2d 1213, 1216 (2nd Cir. 1972). The exception is limited in scope:

federal courts of equity have jurisdiction to entertain suits ‘in

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favor of creditors, legatees and heirs” and other claimants

against a decedent’s estate “to establish their claims” so long

as the federal court does not interfere with the probate

proceedings or assume general jurisdiction of the probate or

control of the property in the custody of the state court.

Lamberg, 455 F.2d at 1216 (quoting Markham, 325 U.S. at 494). The instant action would not

interfere with any estate. Defendant’s memorandum relies heavily on an action currently

pending which relates to the administration of Gerald Thew’s estate, and repeatedly refers to

the fact that the assets of that estate are under the jurisdiction and control of the Surrogate

Court. This is meaningless to this action. The Gerald Thew Family Trust is not an asset of

Gerald Thew’s estate. Even if it were, that would not prevent this Court’s jurisdiction over

plaintiff’s claims, which seek redress for torts committed and which do not seek or require

the administration of the estate or the distribution of assets from the estate. See, e.g.,

Weingarten, 753 F. Supp. at 494 (holding that this Court had jurisdiction over claims against

an estate’s executor for breach of fiduciary duty and unlawful conversion of assets, even

though the Bahamas Supreme Court had prior exclusive jurisdiction over the res of the

estate). 

The cases upon which Defendants place great weight are easily distinguishable and

are irrelevant to this action. For example, in Ganoe v. Lummis, the plaintiffs, who claimed to

be seventh generation relatives of billionaire Howard Hughes, sued the administrator of

Hughes’ estate, challenging the final judgment of the Texas Probate Court regarding the

proper intestate distributees, claiming the judgment to be the result of an illegal conspiracy by

the administrator and the Probate Court. Ganoe, 662 F.Supp. 718, 720-21 (S.D.N.Y. 1987). 

This Court held that jurisdiction over certain claims – those seeking to vacate the judgment of

the Probate Court, an accounting of the estate, and an order requiring the estate to pay

plaintiffs two billion dollars – were barred by the probate exception. See id. at 721. This

holding has no bearing on this case, as plaintiff here does not seek any relief which would

involve accounting of an estate or distribution of the assets of an estate. Moreover, the

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Ganoe court went on to recognize that the standard for determining the applicability of the

probate exception is “whether under state law the dispute would be cognizable only by the

probate court.” Id at 722 (emphasis added) (quoting Lamberg, 455 F.2d at 1216). As such,

the Ganoe court held that other claims asserted by plaintiffs – those seeking a ruling that

plaintiffs were entitled to a portion of the estate – were not barred by the probate exception. 

Clearly, the claims alleged by plaintiff here – based on allegations of fraudulent conveyances

and breaches of fiduciary duties – are not within the exclusive jurisdiction of the probate court,

and could have been brought in a state court of general jurisdiction. Thus, the probate

exception does not prevent federal jurisdiction. See Lamberg, 455 F.2d at 1216 (in suit

alleging claims “enforceable in a state court of general jurisdiction, federal diversity

jurisdiction will be assumed”).

POINT II

THIS COURT SHOULD NOT ABSTAIN FROM

EXERCISING JURISDICTION

A. The Princess Lida Doctrine Does Not Apply

The Thew defendants urge this Court to hold that Princess Lida of Thurn and Taxis v.

Thompson, 305 U.S. 456, 59 S.Ct. 275, 83 L.Ed. 285, 1939 US Lexis 935 (1939) applies to

this case. It does not.

Princess Lida and cases decided thereafter applying the "doctrine" formulated by the

Supreme Court in Princess Lida first consider whether, in fact, in rem or quasi in rem

jurisdiction is being exercised by a state court and whether in rem or quasi in rem jurisdiction

is sought to be asserted in a later Federal action. As the Court posed the question:

This case presents the question of whether the exercise of jurisdiction by a

State court over the administration of a trust deprives a Federal court of

jurisdiction of a later suit involving the same subject matter.

Princess Lida, 305 U.S. 456, 457.

Here, the Thew defendants claim that the Surrogate’s Court in Dutchess County has

in fact exercised some sort of jurisdiction over the matters set forth in plaintiff’s complaint. 

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The only document they point to is annexed to the Beller Affidavit at Exhibit "C". As the Thew

defendants’ Memorandum concedes, and as the Exhibit plainly shows, the Surrogate’s Court

has only exercised jurisdiction over the estate of Gerald Thew. There is no evidence that the

Surrogate’s Court has exercised any jurisdiction over the trust or the assets in the trust

created under the Declaration dated April 1, 1994. Nor is there any suggestion that the

Surrogate’s Court of Dutchess County has exercised jurisdiction over the administration of

that Trust over the last ten years.

Nor is jurisdiction in this Court either in rem or quasi in rem. In pertinent part, plaintiff’s

complaint asks this Court to set aside certain conveyances of real property which were made

out of the Gerald Thew Family Trust. The assets in question are therefore not, by definition,

"part of the trust". They are at this point in time held in the names of other entities besides the

Gerald Thew Family Trust. That is precisely the problem.

As this Court held in Reliance Group Holdings, Inc. Securities Litigation, 2004 U.S.

Dist. Lexis 7666 (2004) it is clear in this Circuit that Princess Lida sets forth a prudential rule

of comity, rather than a jurisdictional rule. See, Carvel v. Thomas & Agnes Carvel

Foundation, 188 F.3d 83, 86 (2d Circuit, 1999).

In Princess Lida, the Supreme Court stated that the doctrine which it was announcing

"has no application to a case in a Federal court based upon diversity of citizenship, wherein

the plaintiff seeks merely an adjudication of his right or his interest as a basis of a claim

against a fund in the possession of a State court." Princess Lida at Thurn and Taxis, supra,

305 U.S. 466, Fn. 18; see, Commonwealth Trust Co. v. Bradford, 297 U.S. 613, 56 S.Ct. 600,

80 L.Ed. 920, 1936 U.S. Lexis 948 (1936).

This Court considered the application of the Princess Lida doctrine in Von Bulow v.

Von Bulow, 634 F.Supp 1284, 1986 U.S. Dist. Lexis 25904 (S.D.N.Y. 1986). There the Court

stated as follows:

Defendant’s reliance on Princess Lida is misplaced. In that case, the

Supreme Court made it clear that the principle allowing a Court first assuming

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jurisdiction over property to maintain and exercise that jurisdiction to the

exclusion of another Court is an exception to the general rule that a State and

Federal Court may simultaneously adjudicate the same issues. . . . The

longstanding rule that a Federal Court may adjudicate a right to a fund in the

exclusive custody of a State Court was articulated in Markham v. Allen, 326

U.S. 490, 90 L.Ed. 256, 66 S.Ct. 296 (1946) . . . 

Von Bulow v. Von Bulow, 634 F.Supp. 1284 at 1296.

As stated above, no lower Court has exercised any jurisdiction over the fraudulently

conveyed properties. This case does not present facts sufficient to support this Court’s

abstention under the doctrine announced in Princess Lida of Thurn and Taxis, supra.

B. Colorado River Doctrine Does Not Apply

The Thew Defendants next ask this Court to abstain pursuant to Colorado River

Water Conservation District v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483

1976 U.S. Lexis 22 (1976). 

Plaintiff has no dispute with the Thew defendants regarding the test established in the

Colorado River, supra. Our objection with their proposal that this Court must abstain is over

the lack of facts supporting their request. As discussed above, there is no evidence that the

Dutchess County Surrogate’s Court or any state court has assumed jurisdiction over any

property.

The Thew defendants do not suggest that litigating this action in Federal court is

inconvenient. Counsel for the Thew defendants are in New York City as are counsel for Reed

Smith, LLP.

As to "piece meal litigation", again, the Thew defendants have not put forth any

evidence that the issues raised in the complaint, and the allegations made by plaintiff against

the Thew defendants and the other parties have been raised in any other forum. There is no

suggestion that inconsistent verdicts or judgments are a potential.

There is no other action pending between these parties for the same or similar relief. 

As the Supreme Court stated in the Colorado River Water Conservation District, supra: "No

one factor is necessarily determinative; a carefully considered judgment taking into account

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both the obligation to exercise jurisdiction and a combination of factors counseling against

that exercise is required. See, Landis v. North American Co., [299 U.S. 248, 254-55; 57 S.Ct.

163, 81 L.Ed. 153 (1936)]. Only the clearest of justifications will warrant dismissal." 

Colorado River Water Conservation Dist., supra, 424 U.S. 800, 818-819

For all of the above reasons, this Court should refrain from abstaining. Rather, this

Court should exercise its jurisdiction to its fullest extent permissible.

POINT III

PLAINTIFF HAS STANDING TO BRING THIS ACTION

Plaintiff has standing to sue in her individual capacity as a beneficiary of the Gerald

Thew Family Trust. It is axiomatic that a trustee owes a fiduciary duty to the beneficiaries of

the trust. A trustee must act in good faith in the administration of a trust, and this

requirement means that he must act honestly and with the finest and undivided loyalty to the

trust, not merely with that “standard of honor required of persons dealing at arms length in the

workaday world,” but with “the punctilio of an honor the most sensitive.” Meinhard v. Salmon,

249 N.Y. 458 (1928); In Re Estate of Van Deusen, 37 A.D.2d 131 (3rd Dep’t 1971). Where,

as here, that duty has been breached by the trustee, the beneficiary has a claim against the

trustee. See, e.g., Barnes v. Brandrup, 506 F.Supp. 396, 399 (S.D.N.Y. 1981).

Defendants’ contention that plaintiff’s claims are derivative and not direct is specious. 

Defendants rely on a maxim of law, inapplicable to the facts present here, that a beneficiary of

a trust may not bring a claim against a third person unless the trustee proves unwilling or

unable to bring the claim himself. See, e.g., Gebbie Foundation v. Rogerson, 62 Misc.2d 944

(1970). For example, in Modjeska v. Greer, upon which Defendants rely, the grantor

established a trust for shares of stock he owned in a corporation. 233 A.D.2d 589, 589 (3rd

Dep’t 1996). The grantor was trustee, with his wife successor trustee. His son and

grandchildren were the designated beneficiaries. Id. Due to some family disagreement,

however, he delivered the stock to his son’s wife rather than to his son. Id. The grantor later

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died, and then the son’s wife sold the assets of the corporation, rendering the stock

worthless. Id. The grantor’s son and grandchildren, as intended beneficiaries, sued the wife. 

The Court held that, as beneficiaries, they could not bring the action, as the trust was the

owner of the shares and thus owned the cause of action. Id.

Here, unlike in Gebbie Foundation and Modjeska, it is not a claim against a third

person for a wrong against the trust that the beneficiary attempts to bring, but rather a claim

against the trustee (and his estate’s representative) for violations of his duties of good faith

and loyalty.

Defendants make much of the fact that plaintiff is a successor co-trustee of the

Gerald Thew Family Trust. The Complaint alleges that the trust document named Larry,

John, and Melinda Thew as successor co-trustees. However, Melinda relinquished her

position as successor co-trustee, leaving only defendants Larry and John Thew as

successor trustees. See DuVall Affidavit, Exhibit “10”.

POINT IV

PLAINTIFF MAY BRING SUIT IN HER INDIVIDUAL

CAPACITY AS A MINORITY SHAREHOLDER

Count V alleges that John and Larry Thew, as majority shareholders of Taconic 82,

Inc., breached their fiduciary duty to plaintiff, as a minority shareholder. Defendants’ contend

that this claim is derivative and that plaintiff may not bring the claim in her individual capacity. 

There is no question that the majority shareholders in a closely held

corporation owe a duty of utmost care and loyalty to the minority shareholders. Ingle v.

Glamore Motor Sales, Inc., 73 N.Y.2d 183, 535 N.E.2d 1311, 538 N.Y.S.2d 771, 1989 NY

Lexis 258 (1989). It is true that claims for breach of such duty will generally belong to the

corporation if the claim seeks recovery of corporate assets and profits diverted from plaintiff. 

However, an exception to that general rule exists where, as here, there exists a “special

relationship between the suing shareholder and the defendant, creating a special duty.” 

Vincel v. White Motor Corp., 521 F.2d 113, 1118 (2nd Cir. 1975). Such a special relationship

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exists here, where all of the shareholders were close family members and the corporation

was essentially a conduit for holding property belonging to the family. An exception to the

general rule is also found where plaintiff suffers injury distinct from that of other shareholders. 

See Sax v. World Wide Press, 809 F.2d 610, 614 (9th Cir. 1986). Here, the other

shareholders – namely defendants Larry and John Thew – did not suffered the same injury as

plaintiff resulting from the conveyance of corporate assets without consideration, as they

conveyed the assets into a trust for which they are beneficiaries, and they stand to reap

substantial benefit from the subsequent sale of such properties. In fact, they are in a better

position than they would have been had the assets remained with the corporation. 

Moreover, a minority shareholder may sue for money damages where a

corporation sells all or substantially all of its assets, the sale is not made in the usual or

regular course of business, and the corporation fails to give plaintiff proper notice of the sale. 

See, e.g., Collins v. Telcoa Int’l Corp., 283 A.D.2d 128, 129 (2nd Dep’t 2001) (reversing

dismissal of claims based on breach of fiduciary duty and aiding and abetting a breach of

fiduciary duty). Here, the fraudulent conveyances alleged in the complaint disposed of

substantially all of Taconic 82’s assets, without the consent of plaintiff and not in the usual

course of business. Thus, the individual claim for breach of fiduciary duty should stand. 

POINT V

PLAINTIFF IS A CREDITOR WITH STANDING TO

PROSECUTE COUNTS I AND II

A. Plaintiff’s Claims for Fraudulent Conveyances Must Stand 

Because Plaintiff is a Creditor

The question raised by defendants’ motion with respect to plaintiff’s standing to

prosecute her claims under Article 10 of the New York Debtor and Creditor Law (New York

Debtor & Creditor Law §§270-281) should be easily resolved. Debtor & Creditor Law §270

defines a creditor as follows:

"Creditor" is a person having any claim, whether matured or unmatured,

liquidated or unliquidated, absolute, fixed or contingent.

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Debtor & Creditor Law §270 goes on to define "Debt" as follows:

"Debt" includes any legal liability, whether matured or unmatured, liquidated or

unliquidated, absolute, fixed or contingent.

The two mirror image definitions are drawn in very broad terms. The question thus is

whether, today, plaintiff has any claim against the Estate of Richard Thew arising out of the

conveyances made by Richard Thew during his lifetime. The answer to that question is

clearly yes. When Richard Thew exceeded the authority granted to him as Trustee under the

Gerald Thew Family Trust, he rendered himself personally liable for a surcharge as fiduciary. 

See, e.g., Estate of Janes, 90 N.Y.2d 41, 659 N.Y.S.2d 165, 1997 NY Lexis 758 (1997). 

Because the definition of creditor includes one holding an unmatured and unliquidated claim,

the fact that Richard Thew’s liability was not established prior to his death, and in fact has not

been established to this day, does not render Melinda Thew Cooper not a creditor.

Holders of unliquidated personal injury claims have standing under the Debtor and

Creditor Law to prosecute fraudulent conveyance actions. See, e.g., Gatto v. Boyd, 137 Misc.

156, 241 N.Y.S. 626, 1930 N.Y.Misc. Lexis 1229 (Sup. Ct. Kings Co. 1930). There the Court

held that:

"the plaintiff here, of course, is not certain of recovery in his suit for the

negligence of the defendant. But at least his claim on the defendant is a

contingent one. As such, I think he comes within the definition of "creditor" as

set forth in §270 in the Debtor and Creditor Law. . . . The general rule has been

aptly expressed in 15 Corpus Juris, 1374, where it is stated: "the term

‘creditor’ has been held sufficiently comprehensive to include those holding

claims arising out of tort; persons entitled to damages for torts - being broadly

construed in furtherance of the purposes of remedial statutes. When used in

this sense, the term includes not only the holder of a certain and fixed present

debt, but everyone having a right to damages capable of judicial enforcement,

whether growing out of tort or contract."

Boyd, 173 Misc. 156; 241 N.Y.S. 626 at 628

Of similar import is Cablevision Systems Development Co. v. Annasonic Electronic

Supply, 1984 Dist. Lexis 15789 (E.D.N.Y. 1984).

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In addition to the well established law and the clear meaning of the statute, there are

sound reasons why plaintiff should be permitted to prosecute this fraudulent conveyance

action. If she is forced to wait to institute an action for fraudulent conveyance until she has

achieved a money judgment against her brothers as successor trustees under the Gerald

Thew Family Trust, or against them as executors of their father’s estate, based upon their

father’s estate’s liability for the breaches of fiduciary duty committed by Richard during his

life, it would appear highly likely that the statute of limitations would have expired before she

had acquired judgment creditor standing. As the quote from Corpus Juris set forth above

establishes, the fraudulent conveyance statute is remedial in nature and should be construed

in order to effectuate its purposes rather than to frustrate its purposes. Here, where the

conveyances were clearly without consideration and made to related entities, the

conveyances bear many of the "badges of fraud". See, Shelly v. Doe, 249 A.D.2d 756, 758,

671 Misc2d 803, 806 (3d Dept. 1998).

Defendants fail to cite any authority for the notion that a beneficiary may not be a

creditor. Accordingly, plaintiff has standing for the reasons set forth above to prosecute the

fraudulent conveyance claims.

B. Failure to Verify Allegations of the Complaint May Be Remedied

and Does Not Mandate Dismissal

The moving defendants correctly note that the complaint was not verified, and that it

should have been verified pursuant to F.R.C.P. §23.1.

The appropriate remedy, however, is not to dismiss the action, but, rather to require

the plaintiff to submit a verifying affidavit. As this Court held in Zucker v. Katz, 708 F.Supp.

525, 1989 U.S. Dist. Lexis 2157 (S.D.N.Y. 1989):

This Court has stated that "the verification requirement of Rule 23.1 is intended

only to clear the Courts of strike suits and not to be a general impediment to

shareholder derivative actions. Markowitz v. Brody, [90 F.R.D. 542, 549-550

(S.D.N.Y. 1981)] (citing Surowitz v. Hilton Hotels Corp., 383 U.S. 363, 371, 15

L.Ed.2d. 807, 86 S.Ct. 845 (1966)) In an action such as this that does not on

its face appear to be a strike suit, and where the failure to verify the complaint

was merely an oversight, a Court may decline to dismiss the complaint and

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instead require the plaintiff simply to submit a verifying affidavit . . . If the

plaintiff in this action files another complaint to cure the Counts dismissed

without prejudice, then that complaint should comply with Federal Rule of Civil

Procedure 23.1. Alternatively, plaintiff may simply file and an affidavit within

thirty (30) days of this opinion to comply with the requirements of Rule 23.1."

Zucker v. Katz, 708 F.Supp. 525, 534-535. (citations omitted)

Even the case annexed as Exhibit "E" to the Beller Affidavit permits the plaintiff to file a

verified complaint within twenty-one (21) days from the date of the Order "dismissing" the

complaint for failure to have it verified.

The undersigned assures this Court that the lack of a verification was purely an

oversight, and if this Court retains jurisdiction of this matter, a curative affidavit will promptly

be filed.

Accordingly, the complaint should not be dismissed, but rather plaintiff should be

permitted an opportunity to cure the defect.

C. Plaintiff Has Stated Valid Claims for Aiding and Abetting Breach

of Fiduciary Duty

Again, plaintiff has no substantial dispute with defendants about the test to be applied

to the pleadings. The question is whether the pleading on its face meets the test articulated

in, inter alia, S&K Sales Co. v. Nike, 816 F.2d 843, 1987 U.S. App. Lexis 5275 (2d Circuit

1987).

The complaint, when read as a whole, adequately ties together the conduct of Larry

and John Thew, as sons of Richard Thew, and the sole remainder beneficiaries of the R.W.

Thew Trust, which received the largest portion of the benefit from Richard Thew’s breaches

of fiduciary duty. The complaint satisfies the particularity requirements. As the Court stated

in M&T Mortgage Corp. v. Miller, 323 F.Supp.2d 405, 2004 US Dist. Lexis 12523 (E.D.N.Y.

2004):

"Plaintiffs need not at this stage, plead scienter with great specificity, . . . and

conclusory allegations of scienter are adequate where a complaint provides a

minimal factual basis that gives rise to a strong inference or fraudulent intent . .

. This ‘strong inference’ may be demonstrated by showing that defendants

had a motive and opportunity to commit fraud or strong circumstantial

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evidence of conscious misbehavior . . .When assessing the specificity of a

fraud complaint, the reviewing Court should read the complaint liberally,

drawing all inferences in favor of the non-moving party. Cosmas v. Hassett,

886 F.2d 8 (2d Circuit 1989).

M&T Mortgage Corp. v. Miller, 323 F.Supp.2d 405 at 412.

Here, Count VIII adequately sets forth, when read together with all of the other

allegations of the complaint, a claim for aiding and abetting the breach of fiduciary duty.

D. Plaintiff Has Stated a Legally Cognizable Claim for Conspiracy to Defraud

Defendant’s contention that “New York law does not recognize a cause of action for

conspiracy to defraud,” see Memorandum of Law in Support of Motion to Dismiss at 22, is a

misstatement of the law. While it is true that conspiracy to defraud alone will not support an

independent cause of action, where underlying fraudulent acts are properly alleged, those

who conspire to commit such wrongful acts will be held liable for conspiracy to defraud. 

Fraudulent conveyances or transfers, such as those alleged in this case, can provide the

necessary predicate for a conspiracy to defraud claim. See, e.g., Werbelovsky v. Rosen, 260

A.D. 222, 226 (2nd Dep’t 1940) (affirming trial court’s refusal to dismiss conspiracy to defraud

claim based on fraudulent transfers); Saxton v. Sebring, 96 A.D. 570, 573 (4th Dep’t 1904)

(where transfer was made for inadequate consideration and bearing all the usual indicia of

fraud, prima facie cause of action for conspiracy existed against those who acted collusively

with the transferor).

E. Plaintiff Has Stated a Valid Claim for Unjust Enrichment

Defendants attempt to argue that the Complaint fails to allege a benefit to defendants

John and Larry Thew sufficient to state a claim for unjust enrichment. Clearly, the Complaint

alleges that a benefit was received, and alleges the circumstances that resulted in the receipt

of such benefit. See Compl. ¶¶ 181-90. Defendants argue that no real benefit has yet been

received, which is an issue of fact not appropriately decided on a motion to dismiss.

Even if this factual inquiry were proper at this stage, it is simply untrue that

Defendants have not received a benefit. On December 29, 2003, Richard Thew died. 

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According to the terms of the Trust Agreement, upon Richard’s death, the trust was to

terminate and Larry and John Thew – who were both successor trustees and sole

beneficiaries – were to receive the corpus of the trust. See DuVall Affidavit, Exhibit “4”. Since

discovery has not yet occurred in this action, it is not known if Larry and John Thew actually

distributed the corpus to themselves, but certainly they could have under the terms of the

Trust. Clearly, then, they have received the “benefit” of the real estate conveyances to the

Trust, as their receipt and ownership of the trust properties was contingent upon nothing

other than their own action. 

Similarly, the Complaint alleges that Defendants received a benefit from the sale of

the Orchard Property to the Curry Family Partnership. See Compl. ¶ 195-198. It is

undisputed that only one-third of the proceeds of that sale remain. Despite numerous

requests, the sellers attorneys – defendant Reed Smith – have failed to account for the

distributions that were made from the proceeds of the sale. Thus, it is uncertain whether

distributions were made to defendants John and Larry Thew. At the very least, discovery is

needed to determine the extent of the benefit actually received by defendants, and

defendants’ motion must be denied.

CONCLUSION

For all the foregoing reasons, the Thew Defendants’ motion should be denied.

DATED: Poughkeepsie, New York

February 2, 2005

Yours, etc.

McCABE & MACK LLP

By: 

RICHARD R. DuVALL (RRD-8967)

Attorneys for Plaintiff

63 Washington Street

P.O. Box 509

Poughkeepsie, NY 12602-0509

Tel: (845) 486-6800

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