599 B.R. 730
Bankr. S.D.N.Y.2019Background
- Debtor 45 John Lofts LLC (the "Debtor") alleges that one of its members, Chaim Miller, executed an unauthorized sale of the Debtor's only asset (an 84‑unit condominium) and diverted the $14,330,000 purchase down payment to third parties to fund an unrelated buy‑out transaction.
- The down payment (less $1,000,000) plus additional mezzanine financing were routed through Riverside Abstract and disbursed to multiple defendants (lawyers, lenders, individuals, and entities); many disbursements were later reallocated among defendants.
- Debtor filed an adversary complaint asserting 81 counts: federal and New York fraudulent transfer claims (intentional and constructive) and a cause of action seeking disallowance of defendants’ proofs of claim under §502(d).
- Multiple defendants moved to dismiss on Rule 12(b)(6)/12(c) grounds, raising standing, Rule 9(b) particularity for intentional fraud, failure to plead elements of constructive fraud (insolvency, undercapitalization, inability to pay), §546(e) safe‑harbor, and that disallowance claims were premature because most defendants had not filed proofs of claim.
- The Court denied the dismissal motions as to the avoidance (fraudulent transfer) causes of action, finding the complaint adequately pleaded badges of fraud and constructive‑fraud elements; it granted dismissal of the §502(d) disallowance claim as to all defendants except Reliable (the only non‑insider claimant who filed a proof of claim).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing under §544(b) | Debtor may proceed without naming a specific unsecured creditor; existence of unsecured claims is contested factual issue | No qualifying unsecured creditor identified; suit benefits equity, not creditors | Court: Plaintiff need not identify a specific creditor at pleading stage; question is factual and premature to dismiss |
| Intentional fraudulent transfer (Rule 9(b)) | Allegations of Miller’s misconduct, unauthorized sale, diversion of funds, fabrication of letter and badges of fraud show intent | Insufficient particularity; Miller not agent of Debtor (adverse‑interest/agency arguments raised) | Court: Intent adequately pleaded via Miller’s role and badges of fraud; agency/imputation questions cannot be resolved on reply or on the record now |
| Constructive fraudulent transfer (§548(a)(1)(B) / NY DCL) | Alleged lack of value received and plausibly pleaded insolvency, undercapitalization, and likely inability to pay debts | Complaint lacks balance‑sheet details; asserted solvency; no showing transfer left Debtor with unreasonably small capital | Court: Complaint sufficiently alleges lack of equivalent value and at least one disjunctive §548 element (insolvency/undercapitalization); survives dismissal |
| Disallowance of claims under §502(d) | Debtor seeks disallowance unless defendants return transfers | Most defendants have not filed proofs of claim; claim therefore premature | Court: §502(d) disallowance only applies to filed claims; §502(d) counts dismissed as to all defendants except Reliable (who filed a claim) |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (standards for pleading conclusory allegations)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (plausibility pleading standard)
- Sharp Int'l Corp. v. State St. Bank & Tr. Co., 403 F.3d 43 (badges of fraud for inferring actual intent)
- Silverman v. Actrade Capital, Inc. (In re Actrade Fin. Techs., Ltd.), 337 B.R. 791 (badges of fraud and pleading standards in fraudulent conveyance context)
- Kirschner v. KPMG LLP, 15 N.Y.3d 446 (imputation of agent’s knowledge and acts to entities)
- Merit Mgmt. Grp., L.P. v. FTI Consulting, Inc., 138 S. Ct. 883 (Supreme Court decision affecting §546(e) safe‑harbor analysis)