The “Transaction Attacked” Is the One That Emptied the Till

Matter of UBS Sec. LLC v Dondero

2026 NY Slip Op 05460

September 24, 2026

Appellate Division, First Department

Higgitt, J.

Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.

This decision is uncorrected and subject to revision before publication in the Official Reports.

In the Matter of UBS Securities LLC, et al., Petitioners-Respondents,

v

James Dondero et al., Respondents-Appellants, Highland CDO Holding Company, et al., Respondents.

Supreme Court, Appellate Division, First Judicial Department

Decided and Entered: September 24, 2026

Index No. 650744/23|Appeal No. 6517|Case No. 2025-02596|

Troy K. Webber

Peter H. Moulton Manuel Mendez John R. Higgitt Marsha D. Michael

Friedman Kaplan Seiler Adelman & Robbins LLP, New York (Robert J. Lack, Jeffrey R, Wang, Kaelyn E. Gustafson and Emma Evans of counsel), for Scott Ellington, appellant.

Stinson LLP, Dallas TX (Deborah Deitsch-Perez and Jeffrey T. Prudhomme of the bar of the State of Texas, admitted pro hac vice, of counsel), for James Dondero, appellant.

Latham & Watkins LLP, New York (Andrew B. Clubok and Melange T. Gavin of counsel), and Latham & Watkins LLP, Washington DC (Roman Martinez and Sakina J. Haji of the bar of the District of Columbia, admitted pro hac vice, of counsel), for respondents.

Certain respondents appeal from an order, Supreme Court, New York County (Melissa A. Crane, J.), entered on or about March 26, 2025, which denied the motions of respondents James Dondero and Scott Ellington to dismiss the turnover petition as against them.

Higgitt, J.

[*1]

This appeal by respondents in a special proceeding to enforce a pair of judgments that together exceed $1 billion raises a number of interesting issues relating to alter ego liability, including the meaning of the phrase "transaction attacked" in the first element of a corporate veil-piercing claim (Matter of Morris v New York State Dept. of Taxation & Fin., 82 NY2d 135, 141 [1993]). For the reasons that follow, we largely affirm the well-reasoned decision of Supreme Court denying respondents' CPLR 3211 motion.

I.

In 2007 and 2008, petitioners UBS Securities LLC and UBS AG London Branch (together, UBS) entered into a securitization transaction with respondent Highland Capital Management, L.P. (HCM) and two of its hedge fund affiliates, respondent Highland CDO Opportunity Master Fund, L.P. (CDO Fund) and respondent Highland Special Opportunities Holding Company (SOHC, and together with CDO Fund, the Funds). The Funds agreed to bear 100% of the risk of loss associated with the transactions. Those transactions, known together as the "Knox Transaction," incurred substantial losses as a result of the 2008 financial crisis.

In 2008, the Funds failed to satisfy a $10 million collateral call, thereby breaching their contractual promise to bear 100% of the losses. UBS subsequently terminated the contracts underlying the Knox Transaction.

In February 2009, UBS sued HCM and the Funds in Supreme Court, New York County, for breach of contract and fraudulent inducement (the underlying action). UBS also sued the Funds and respondent Highland Financial Partners, L.P. (HFP, and together with the Funds, the judgment debtors) for fraudulent conveyance, alleging that HFP was SOHC's alter ego. Neither James Dondero, who founded HCM and was its president and CEO until 2020, nor Scott Ellington, who was HCM's chief legal officer and general counsel from 2010 until 2021, executed the Knox Transaction agreements, and neither was named as a defendant in the underlying action.

In 2020, a judgment exceeding $1 billion was entered in UBS' favor against the Funds; a second judgment was rendered that year against HFP for SOHC's portion of the first judgment. Those judgments remain unsatisfied.

II.

In 2023, UBS commenced this CPLR 5225 turnover proceeding asserting, as relevant on this appeal, a cause of action for fraudulent conveyance (former Debtor and Creditor Law § 276) and voidable transactions (Debtor and Creditor Law § 273), and a claim to pierce the corporate veils of the judgment debtors and related entities to impose alter ego liability on Dondero and Ellington. The crux of the allegations in the turnover petition was that Dondero and Ellington had shuffled the judgment debtors' assets during the pendency of the underlying action to render the debtors judgment proof.

[*2]

Regarding the veil piercing/alter ego claim, UBS alleged that, after it secured the first judgment, it discovered that Dondero and Ellington had conspired to frustrate UBS's ability to recover against the judgment debtors. UBS alleged that Dondero and Ellington, exercising complete domination over the judgment debtors and other related entities, transferred the debtors' assets to themselves or other entities that they controlled in an effort to avoid paying UBS any of the obligations stemming from the Knox Transaction, including the judgments. In particular, UBS detailed several transactions that Dondero and Ellington used to drain the judgment debtors of assets that could have been used to satisfy their obligations to UBS: a December 2008 transfer of $3.7 million from SOHC to HFP and ultimately Dondero; a 2010 asset transfer from HFP to a newly created entity (CLO HoldCo) involving approximately $39.6 million; and a scheme to move the judgment debtors' remaining assets (totaling approximately $105 million) to Sentinel Reinsurance Ltd., a company that Dondero and Ellington allegedly controlled through ownership interests in Mainspring, Ltd. and Montage Holdings Ltd., and, later as the sole members of Sentinel's advisory board. The Sentinel transaction entailed the Funds' purchase of $100 million in "after-the-event" insurance from Sentinel to cover UBS's claims in its action against the Funds; the "premium" for this insurance was the Funds' remaining assets.

As to the fraudulent conveyance/voidable transfer cause of action, UBS asserted that Ellington, Montage and Mainspring were liable under the Debtor and Creditor Law for millions of dollars in reimbursements and distributions made to them by Sentinel.

Dondero and Ellington separately moved to dismiss the turnover petition as against them. The moving defendants challenged the veil piercing/alter ego claim for failure to state a cause of action (see CPLR 3211[a][7]), and the fraudulent conveyance/ voidable transaction cause of action on statute of limitations grounds (see CPLR 3211[a][5]). UBS opposed the motions.

In a thorough decision, Supreme Court denied Dondero and Ellington's CPLR 3211 motions.

III.

[*3]

On appeal, Dondero and Ellington argue that they are entitled to dismissal of the alter ego claim because the turnover petition fails to allege (1) that Dondero and Ellington dominated the judgment debtors, Mainspring or Montage; (2) that Dondero and Ellington's actions specifically constituted domination related to the Knox Transaction; and (3) that Dondero and Ellington's alleged domination proximately caused UBS's injury. Dondero and Ellington also argue that the alter ego claim regarding HFP and CDO Fund must be dismissed because veil piercing does not apply to limited partnerships. As to the fraudulent conveyance cause of action, Dondero and Ellington maintain that it is time-barred by applicable Texas law. Lastly, Dondero and Ellington insist that if either or both causes of action are sustained, the special proceeding should be converted into a plenary proceeding.

UBS responds that Dondero and Ellington systematically drained the assets of the corporate entities within their control to keep those entities from satisfying their obligations relating to the Knox Transaction and the judgments, placing and maintaining the assets in the individuals' control. UBS maintains that its detailed turnover petition sufficiently alleges that Dondero and Ellington were alter egos of the judgment debtors, Mainspring and Montage. UBS contends that Dondero and Ellington's domination did not have to relate to the Knox Transaction itself to support the veil piercing/alter ego claim, and that UBS's allegations regarding proximate cause supported that cause of action. New York law, not Texas law, applies to the fraudulent conveyance/voidable transaction cause of action, argues UBS, because New York has a superior interest in the subject matter. Finally, UBS insists that Supreme Court providently exercised its discretion in declining to convert this special proceeding into a plenary action.

IV.

A.

1.

A corporation exists independently of its owners as a separate legal entity. The owners, therefore, are normally not liable for the debts of the corporation (Matter of Morris, 82 NY2d at 140). A corporate obligation may, however, be imposed on the corporation's owners under the equitable doctrine of piercing the corporate veil, which permits a court to go behind the corporate existence to circumvent the limited liability typically enjoyed by the owners (id. at 140-141; see Cortlandt St. Recovery Corp. v Bonderman, 31 NY3d 30, 47 [2018]).

[*4]

Although, "[b]roadly speaking, the courts will disregard the corporate form, or, to use accepted terminology, pierce the corporate veil, whenever necessary to prevent fraud or to achieve equity" (Cortlandt St. Recovery Corp., 31 NY3d at 47, quoting Matter of Morris, 82 NY2d at 140 [internal quotation marks omitted]), two prime elements for a veil-piercing claim have emerged: "that (1) the owners exercised complete domination of the corporation in respect to the transaction attacked; and (2) that such domination was used to commit a fraud or wrong against the plaintiff which resulted in plaintiff's injury" (id. at 47; Conason v Megan Holding, LLC, 25 NY3d 1, 18 [2015] [internal quotation marks omitted]; Matter of Morris, 82 NY2d at 141).

2.

The procedural posture of this proceeding is material to our consideration of the various issues raised by the parties.

" '[O]n a motion to dismiss pursuant to CPLR 3211, the pleading is to be afforded a liberal construction. We accept the facts as alleged in the complaint as true, accord plaintiffs the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory' (Leon v Martinez, 84 NY2d 83, 87-88 [1994] [citation omitted]). Whether plaintiff can ultimately prove its allegations is not a consideration in determining a motion to dismiss (see EBC I, Inc., 5 NY3d at 19). Furthermore, a fact-laden claim to pierce the corporate veil is unsuited for resolution on a pre-answer, pre-discovery motion to dismiss (see e.g. Holme v Global Mins. & Metals Corp., 22 Misc 3d 1123[A], 2009 NY Slip Op 50252[U] [Sup Ct, NY County 2009], affd 63 AD3d 417 [1st Dept 2009])" (Cortlandt St. Recovery Corp, 31 NY3d at 46-47).

For pleading purposes, a party seeking to pierce the corporate veil does not have to satisfy the heightened pleading requirement imposed on one interposing a cause of action for fraud (see CPLR 3016); rather, the party must plead facts that would establish that the individual defendant's domination of the corporation was used to perpetrate a wrong or injustice against the party, and the allegations of domination must be adorned with particularized allegations of consequent wrongs (see 1B PJI3d 2:266, at 931 [2026] [collecting cases]).

3.

[*5]

The well-pleaded allegations in the turnover petition adequately allege that Dondero exercised complete domination over the judgment debtors. The fulsome allegations relating to Dondero identify numerous badges of domination, including disregard of corporate formalities; overlap of ownership, officers and directors; common office space; limited discretion demonstrated by the corporations; and that the corporations were not treated as independent profit centers (see Cortlandt St. Recovery Corp. v Bonderman, 226 AD3d 103, 105 [1st Dept 2024], affd 45 NY3d 990 [2025]; Tap Holdings, LLC v Orix Fin. Corp., 109 AD3d 167, 174 [1st Dept 2013]). The allegations suggest that Dondero exercised complete domination of the corporations in respect to the transactions attacked; i.e., the transactions employed to denude the judgment debtors of their assets and render them judgment proof.

We reject Dondero's contentions that the "transaction attacked" for the purposes of ascertaining alter ego liability was necessarily the Knox Transaction itself, and that UBS's failure to plead that Dondero dominated the judgment debtors with respect to the execution or initial breach of that transaction is fatal to UBS's veil piercing/alter ego claim. Case law supports the conclusion that the "transaction attacked" need not be the underlying transaction itself, but can be a subsequent transaction designed to frustrate a party's ability to recover for obligations stemming from the underlying transaction, such as a judgment (see Grigsby v Francabandiero, 152 AD3d 1195, 1197 [4th Dept 2017]; Olivieri Constr. Corp. v WN Weaver St., LLC, 144 AD3d 765, 767 [2d Dept 2016]; Colonial Sur. Co. v Lakeview Advisors, LLC, 93 AD3d 1253, 1255 [4th Dept 2012]; Rotella v Derner, 283 AD2d 1026, 1027 [4th Dept 2001], lv denied 96 NY2d 720 [2001]; see also Flushing Plaza Assoc. #2 v Albert, 102 AD3d 737, 738-739 [2d Dept 2013]). This conclusion is consistent with the fundamental purposes of veil piercing, which are preventing fraud and achieving equity (Cortlandt St. Recovery Corp., 31 NY3d at 47; Matter of Morris, 82 NY2d at 140). Additionally, accepting Dondero and Ellington's position that the "transaction attacked" must necessarily be the underlying transaction itself would perversely encourage abuse of the corporate form to avoid judgment debts. Ultimately, a plaintiff or petitioner will identify the "transaction attacked," and bear the burden of pleading, and subsequently proving, the elements of a veil-piercing claim as to that transaction (see Morris, 82 NY2d at 141 ["Because a decision whether to pierce the corporate veil in a given instance will necessarily depend on the attendant facts and equities, the New York cases may not be reduced to definitive rules governing the varying circumstances when the power may be exercised"]).

[*6]

The well-pleaded allegations in the turnover petition also adequately allege that Dondero's domination was used to commit wrongs against UBS that resulted in UBS's injury. Specifically, the turnover petition alleges that Dondero's domination of the judgment debtors caused them to transfer approximately $145 million in assets, preventing those assets from being available to satisfy the debtors' obligations stemming from the Knox Transaction, including the judgments. The wrongs identified by UBS are the transfers of the judgment debtors' assets, and the injury is the deprivation of recovery on the judgments (see Cohen v Cohen, 245 AD3d 508, 511-512 [1st Dept 2026]; Rich v J.A. Madison, LLC, 246 AD3d 1, 7-8 [1st Dept 2024], lv dismissed 45 NY3d 954 [2026]; Baby Phat Holding Co., LLC v Kellwood Co., 123 AD3d 405, 407-408 [1st Dept 2014]).

Contrary to Dondero's contention, UBS was not required to plead that the judgment debtors would have been able to satisfy the judgments in the absence of his conduct, or that, but for his domination, the judgment debtors would have had the means to pay judgments. UBS was required only to plead facts establishing that Dondero's domination of the judgment debtors was used to perpetrate a wrong or injustice against UBS, and the allegations of domination must be adorned with particularized allegations of consequent wrongs. As discussed above, the turnover petition satisfies those requirements. UBS will eventually have to establish that Dondero's domination of the judgment debtors was used to commit wrongs that were the proximate cause of UBS's losses, in whole or in part (see Fantazia Intl. Corp. v CPL Furs N.Y., Inc., 67 AD3d 511, 512-513 [1st Dept 2009]; Musman v Modern Deb, 50 AD2d 761, 762-763 [1st Dept 1975]).

Therefore, Supreme Court correctly denied that aspect of the CPLR 3211 motion seeking dismissal of the veil piercing/alter ego liability claim as against Dondero.

4.

[*7]

UBS's allegations relating to Ellington's domination, however, are insufficient to withstand CPLR 3211(a)(7) scrutiny. The allegations concerning Ellington's roles in the various corporate entities and the acts he took relevant to those entities' assets paint the picture of an important deputy to Dondero. But, unlike the allegations leveled against Dondero, the allegations directed at Ellington do not suggest that Ellington exercised complete domination of the judgment debtors (see Matter of Berisha v 4042 E. Tremont CafÉ Corp., 220 AD3d 608, 609 [1st Dept 2023] ["Even if an individual is not a record owner of a corporation, he [or she] may nonetheless be found to be an equitable owner and alter ego thereof if he [or she] dominated and controlled it to such an extent that he [or she] may be considered its equitable owner] [emphasis added and internal quotation marks and brackets omitted]). That Ellington was an influential corporate officer who served as the right-hand of the individual who allegedly dominated the corporate entities does not expose Ellington to alter ego liability.

5.

Notwithstanding the foregoing, we conclude that UBS's alter ego claim against Dondero relating to HFP and CDO Fund must be dismissed for failure to state a cause of action. The allegations in the turnover petition regarding that claim are cast in terms of piercing the corporate veils of HFP and CDO Fund. Yet those entities are not corporations; rather, they are limited partnerships. Whether a veil-piercing claim directed at a limited partnership is cognizable under New York law, the identity of the elements and contours of any such claim, and whether UBS can muster sufficient allegations to plead any such claim are not properly before us.FN1 We therefore dismiss the corporate veil piercing/alter ego claim as against Dondero predicated on the obligations of limited partnerships HFP and CDO Fund (see CPLR 3211[a][7]). UBS is afforded leave to replead those aspects of the veil-piercing claim, should it choose to do so.

B.

The lone issue raised by the parties with respect to UBS's cause of action for fraudulent conveyance/voidable transfer is whether that claim is time barred. Dondero and Ellington insist that the cause of action is subject to Texas law, under which the cause of action would be time-barred. UBS maintains that the fraudulent conveyance/voidable transfer cause of action is governed by New York law and timely thereunder. We agree with UBS, and conclude that Supreme Court correctly denied that aspect of the CPLR 3211 motion seeking dismissal of the fraudulent conveyance/voidable transfer cause of action.

[*8]

Under New York choice-of-law principles, with regard to substantive issues, courts apply the law of the jurisdiction with the most significant relationship to the dispute (Eccles v Shamrock Capital Advisors, LLC, 42 NY3d 321, 335—336 [2024]). For a tort claim, the relevant inquiry is which forum has the greatest policy interest in the outcome of the dispute in light of the parties' contacts with each forum (id. at 336). If the rule of tort law at issue "regulates primary conduct," the law of the place of the tort's commission will typically govern (id.).

In Matter of Wimbledon Fund, SPC [Class TT] v Weston Capital Partners Master Fund II, Ltd. (184 AD3d 448, 450 [2020]), we wrote that

"Given that fraudulent conveyance laws are conduct regulating, the law of the jurisdiction where the tort occurred will generally apply because that jurisdiction has the greatest interest in regulating behavior within its borders (Atsco Ltd. v Swanson, 29 AD3d 465, 466 [1st Dept 2006], citing Cooney v Osgood Mach., Inc., 81 NY2d 66, 72 [1993] [internal quotations omitted]). The locus jurisdiction's interests in protecting the reasonable expectations of the parties who relied on it to govern their primary conduct, and in the admonitory effect that applying its law will have on similar conduct in the future, assume critical importance (Atsco Ltd., 29 AD3d at 466, citing Schultz v Boy Scouts of Am., 65 NY2d 189, 198 [1985]). Further, as the purpose of fraudulent conveyance laws is to aid creditors who have been defrauded by the transfer of property, consideration of the residency of the parties, particularly the creditors, is also required to determine their reasonable expectations (Atsco Ltd., 29 AD3d at 466; see also Padula, 84 NY2d at 521)" (internal quotation marks, ellipsis and brackets omitted).

Here, New York law controls because UBS Securities LLC, one of the judgment creditors that claims to have been defrauded, is headquartered and has its principal place of business in New York (see JAO Acquisition Corp. v Stavitsky, 192 Misc 2d 7, 12 [Sup Ct, NY County 2002], affd 293 AD2d 323 [1st Dept 2002]). Further, in addition to New York's interest in protecting its domiciliary from fraud, the State has an interest in protecting the integrity of the judgments issued by its courts, an interest that is undermined when one engages in a fraudulent transfer to frustrate the satisfaction of a New York State judgment. While Dondero and Ellington are Texas residents and the judgment debtors were operated by personnel there, any interest Texas may have in regulating the fraudulent-conveyance-related conduct at issue here pales in comparison to New York's interest. As between Texas and New York, the latter has the most significant relationship to the dispute and the greater policy interest in the outcome of this judgment-enforcement dispute.

C.

[*9]

Finally, Supreme Court providently exercised its discretion in denying that aspect of Dondero and Ellington's motion seeking to convert this CPLR 5225(b) special proceeding into a plenary action. Dondero and Ellington may seek discovery under CPLR 408, should they be so advised.

Accordingly, the order, Supreme Court, New York County (Melissa A. Crane, J.), entered on or about March 26, 2025, which denied the motions of respondents James Dondero and Scott Ellington to dismiss the turnover petition as against them, should be modified, on the law, to the extent of granting those aspects of the motions seeking (1) dismissal of the cause of action for alter ego liability as against Ellington, and (2) dismissal of the claim for alter ego liability as against Dondero insofar as predicated on piercing the corporate veils of HFP and CDO Fund, and otherwise affirmed, without costs.

Order, Supreme Court, New York County (Melissa A. Crane, J.), entered on or about March 26, 2025, modified, on the law, to the extent of granting those aspects of the motions seeking (1) dismissal of the cause of action for alter ego liability as against Ellington, and (2) dismissal of the claim for alter ego liability as against Dondero insofar as predicated on piercing the corporate veils of HFP and CDO Fund, and otherwise affirmed, without costs.

Opinion by Higgitt, J. All concur.

Webber, J.P., Moulton, Mendez, Higgitt, Michael, JJ.

THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.

ENTERED: September 24, 2026

Footnotes

Footnote 1

The parties' briefs recognize that HFP and CDO are limited partnerships, and make some modest arguments regarding whether, under New York law, corporate veil piercing principles apply to limited partnerships. We note that those arguments do not address the relevance (if any) of the place-of-formation of the limited partnerships (for HFP, Delaware, and for CDO Fund, Bermuda). Because the allegations in the turnover petition regarding the alter ego claim against Dondero relating to HFP and CDO Fund are cast in terms of piercing corporate veils, and in light of our concern for the informed, orderly development of the law, we decline at this juncture to consider the issue of whether, under New York law, a veil piercing claim lies against the limited partnerships HFP and CDO.