DECISION AND ORDER The facts of this matter are set forth in the prior decision of this Court and will not be repeated at length (67 Misc 3d 1233[A], 2020 NY Slip Op 50707[U] [Sup Ct, Warren County 2020]). Briefly stated, in May 2018 petitioners commenced an action alleging the intentional diversion of Lien Law trust funds by respondent JNK Home Enterprises, LLC (hereinafter JNK) and its principals, respondents Kevin Knobloch and Jean Knobloch. This underlying action was settled with respondents consenting to the entry of a Judgment by Confession in the amount of $1,093,456.70. With this Judgment only partially satisfied, petitioners commenced the instant proceeding pursuant to CPLR article 52. Upon commencement of the proceeding petitioners sought an Order (1) compelling respondent Edward Jones & Co, L.P. (hereinafter Edward Jones) to turn over all monies held in accounts belonging to Kevin Knobloch and/or Jean Knobloch and, further, to produce all records concerning accounts belonging to Kevin Knobloch and/or Jean Knobloch from September 2015 to date; and (2) compelling Jean Knobloch to turn over a certain 2017 Subaru Crosstrek, 2016 Honda CRV and 2016 Subaru Crosstrek to petitioners. That being said, it was subsequently discovered that Jean Knobloch had sold the subject vehicles in January and February of 2019 and the second aspect of the proceeding was withdrawn, leaving only the first aspect for consideration. A Decision and Order was issued in this regard on June 22, 2020, with the Court finding “simply too many unknowns…to render a meaningful and informed determination” (2020 NY Slip Op 50707[U], at *3). The Court thus granted the petition in part, directing Edward Jones to produce the requested records, with petitioners then given an opportunity “to supplement their papers with respect to the possible turnover of monies” and respondents given an opportunity “to submit a response to these supplemental papers” (2020 NY Slip Op 50707[U], at *3-4). These supplemental submissions have been received, with the Court now able to proceed to a determination on the merits. At the outset, the Court notes that the current version of Debtor and Creditor Law §273 (a) that petitioners relied upon in their reply papers and the Court then quoted in its Decision and Order had an effective date of April 4, 2020. To the extent that the current version of Debtor and Creditor Law §273 (a) was not given retroactive effect, it is inapplicable to the transactions under consideration here — all of which occurred between 2016 and 2018. This is largely irrelevant, however, as the current Debtor and Creditor Law §273 (a) is based upon former Debtor and Creditor Law §276, with the language being substantially similar. Specifically, the current Debtor and Creditor Law §273 (a) provides that “[a] transfer made…by a debtor is voidable as to a creditor, whether the creditor’s claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer…with actual intent to hinder, delay or defraud any creditor of the debtor.” Former Debtor and Creditor Law §276 then provides that “[e]very conveyance made and every obligation incurred with actual intent…to hinder, delay, or defraud either present or future creditors, is fraudulent as to both present and future creditors.” Focusing now upon former Debtor and Creditor Law §276, “[a] creditor asserting a claim under [this section] bears the burden of proof by clear and convincing evidence” (De Walle v. De Walle, 68 Misc 3d 1224[A], 2020 NY Slip Op 51064[U], *7 [Sup Ct, Nassau County 2020], quoting Matter of U.S. Bancorp Equip. Fin., Inc. v. Rubashkin, 98 AD3d 1057, 1060 [2012]). “‘[F]raudulent intent, by its very nature, is rarely susceptible to direct proof and must be established by inference from the circumstances surrounding the allegedly fraudulent act’” (De Walle v. De Walle, 2020 NY Slip Op 51064[U] at *12, quoting Marine Midland Bank v. Murkoff, 120 AD2d 122, 128 [1986]). “[A] creditor asserting a claim under [former] Debtor and Creditor Law §276 may rely on badges of fraud to establish intent” (Dowlings, Inc. v. Homestead Dairies, Inc., 88 AD3d 1226, 1231 [2011]; see Matter of Shelly v. Doe, 249 AD2d 756, 758 [1998]). Factors that are considered badges of fraud are “(1) a close relationship between the parties to the transaction, (2) a secret and hasty transfer not in the usual course of business, (3) inadequacy of consideration, (4) the transferor’s knowledge of the creditor’s claim and his or her inability to pay it, (5) the use of dummies or fictitious parties, and (6) retention of control of the property by the transferor after the conveyance” (Matter of Shelly v. Doe, 249 AD2d at 758; see Dowlings, Inc. v. Homestead Dairies, Inc., 88 AD3d at 1231; De Walle v. De Walle, 2020 NY Slip Op 51064[U] at *7).1 Here, petitioners’ supplemental submissions demonstrate that Kevin Knobloch and Jean Knobloch maintained five accounts with Edward Jones between 2015 and 2020: (1) Jean Knobloch’s IRA No. 1, opened in 2013; (2) Jean Knobloch’s IRA No. 2, opened in 2014; (3) Kevin Knobloch’s IRA No. 1, opened in 2013; (4) Kevin Knobloch’s IRA No. 2, opened in 2014; and (5) Kevin Knobloch and Jean Knobloch’s Joint Investment Account, date of opening unspecified. The submissions further demonstrate that, beginning in February 2016 — shortly after JNK contracted with petitioner ROK Builders, LLC (hereinafter ROK) to perform renovations to the Hotel Saranac — sizeable deposits (i.e, in the thousands and sometimes tens of thousands) were made by petitioners from JNK’s payroll account to each of the IRA accounts as well as the Joint Investment Account. Finally, the submissions demonstrate that JNK used moneys paid by ROK to fund its payroll account, among other accounts that are not entirely relevant to this inquiry. Turning first to Jean Knobloch’s IRA No. 1, in April 2018 — one month prior to commencement of the underlying action — the account was valued at $15,421.93 and Jean Knobloch made a gross distribution of $13,333.32, with $12,000.00 being transferred to the Joint Investment Account. The remainder was then liquidated in October 2018 — five months after commencement of the original lawsuit — with $2,772.16 transferred to the Joint Investment Account. With respect to Jean Knobloch’s IRA No. 2, in July 2018 — two months after commencement of the underlying action — the account was valued at $41,345.10 and Jean Knobloch liquidated $36,000.00, transferring the net proceeds of $32,400.00 to the Joint Investment Account. In October 2018, she then liquidated the remainder of the account, receiving net proceeds of $4,977.55 which were transferred to the Joint Investment Account. Turning now to Kevin Knobloch’s IRA No. 1, in October 2018 — five months after commencement of the underlying action — he liquidated the sum of $5,642.63, transferring the net proceeds of $5,078.37 to the Joint Investment Account. He then liquidated the remainder of the account in February 2019 and transferred the net proceeds of $11,775.53 to the Joint Investment Account. Insofar as Kevin Knobloch’s IRA No. 2 is concerned, Kevin Knobloch transferred net proceeds of $3,125.07 to the Joint Investment Account in February 2019. He then transferred net proceeds of $10,000.00 to the Joint Investment Account in March 2019, with the account now having a balance of $27,902.94 as of June 26, 2020. Finally, the Joint Investment Account had a balance of $101,087.55 in December 2017, at which time the Knoblochs liquidated the sum of $53,057.76. In February 2018 — only three months before the underlying action was commenced — the Knoblochs liquidated an additional $98,742.70. They then liquidated the remaining $25,000.00 from the account in October 2018. Thus, of all the accounts maintained by Kevin Knobloch and Jean Knobloch with Edward Jones, only the $27,902.94 balance in Kevin Knobloch’s IRA No. 2 remains. Petitioners have demonstrated by clear and convincing evidence that the deposits made by Kevin Knobloch and Jean Knobloch into their several Edward Jones accounts were made with an actual intent “to hinder, delay, [and] defraud” (former Debtor and Creditor Law §276) petitioners and, as such, that petitioners are entitled to the money (see CPLR 5205 [c] [5]). Indeed, in analyzing the several factors deemed “badges of fraud,” the Court observes that the parties to the transaction clearly have a close relationship, as Kevin Knobloch and Jean Knobloch are married. Further, the accounts were all liquidated either immediately prior to commencement of the underlying action or soon after it was commenced, thereby raising red flags and making liquidation of the accounts most suspicious. Finally, Kevin Knobloch and Jean Knobloch retained control of the funds after they were liquidated, with the record unclear as to how the funds were ultimately used. Jean Knobloch has submitted an affidavit in response to petitioners’ supplemental submissions stating that all deposits made into the IRA accounts “were made in the ordinary course of JNK’s business.” She further states as follows: “We [were] forced to liquidate all accounts — including my 401(K) account and every other investment and savings account held by me, Kevin and JNK — in an effort to meet our financial obligations and to make ends meet. We did not do so in an effort to ‘defraud’ anyone. We did this to survive.” That being said, Jean Knobloch has failed to submit any evidence in support of these self serving and conclusory statements — there are no records to demonstrate that the deposits were made in the ordinary course of business, nor that the liquidated funds were used to pay bills or satisfy other obligations. Jean Knobloch also states that “JNK had a variety of projects underway — each of which was a separate source of income for the company,” and attaches contracts entered into by JNK on March 29, 2017, April 29, 2017 and July 20, 2017, respectively. The bank records, however, reveal that no payments were made on these contracts until the summer of 2017. Meanwhile, ROK deposited millions of dollars into JNK’s corporate account between August 2016 and January 2018, with the bank records evincing ongoing transfers from this corporate account to JNK’s payroll account beginning in October 2016, with contemporaneous transfers from the payroll account to the Knoblochs’ IRA accounts and Joint Investment Account at Edward Jones. Aside from these transfers, it also bears noting that JNK purchased a $438,142.72 home in Colorado in the Knoblochs’ names in March 2017, as well as a $34,499.66 vehicle in October 2016, a $18,750.00 vehicle in January 2017 and a $44,293.00 vehicle in May 2017. This in fact is not an exhaustive list, with several other purchases having been made as well. Jean Knobloch’s statements notwithstanding, JNK relied heavily if not entirely on the millions of dollars paid by ROK to fund not only the Knoblochs’ accounts at Edward Jones, but also their lifestyle — which certainly does not appear to be the lifestyle of people struggling “to survive.” As succinctly stated by counsel for petitioners, “[i]t is…impossible to separate legitimate payments from illegitimate payments as the whole pattern and practice is tainted in fraud…. ” The record amply demonstrates that Kevin Knobloch and Jean Knobloch essentially viewed the moneys paid by ROK for the Hotel Saranac project as theirs to do with as they pleased. Some of the money was perhaps used in connection with the project but much of it was not — and the arguments made in response to this proceeding appear largely disingenuous. In sum, the fraud can clearly be inferred from the circumstances surrounding the allegedly fraudulent acts (see Marine Midland Bank v. Murkoff, 120 AD2d at 128; De Walle v. De Walle, 2020 NY Slip Op 51064[U] at *12). The petition, by such clear and convincing evidence, is granted with Edward Jones directed to pay petitioners the remaining funds in Kevin Knobloch’s IRA No. 2. Therefore, having considered NYSCEF documents 1-9, 15-18, 21-29, 31, 33, 40-62, 65-79, and oral argument having been heard on May 12, 2021 with Merritt S. Locke, Esq. appearing on behalf of petitioners, Scott C. Paton, Esq. appearing on behalf of respondents JNK Home Enterprises, LLC, Kevin Knobloch and Jean Knobloch, and David G. Buffa, Esq. appearing on behalf of respondent Edward Jones & Co., L.P., it is hereby ORDERED that the petition is granted; and it is further ORDERED that Edward Jones is directed to pay petitioners the remaining funds in Kevin Knobloch’s IRA No. 2. The above constitutes the Decision and Order of this Court The original of this Decision and Order has been e-filed by the Court. Counsel for petitioners is directed to obtain a filed copy of the Decision and Order for service with notice of entry upon counsel for counsel for respondents in accordance with CPLR 5513. Dated: May 21, 2021
