Allstate Insurance v. Countrywide Financial Corp.
2012 U.S. Dist. LEXIS 15199
| C.D. Cal. | 2012Background
- Allstate alleges Countrywide RMBS sales between 2005 and 2007 involved misrepresentations by Countrywide entities and officers, with Bank of America acquiring Countrywide in 2008 via reverse triangular merger.
- Post-merger, Bank of America formed Red Oak Merger Corp. and executed LD1 and LD100 asset sales, transferring assets to Bank of America entities for substantial consideration; Countrywide assets were largely divested.
- Allstate amended its complaint to add BAC Home Loans Servicing, LP and theories of successor liability and fraudulent conveyance based on the LD1/LD100 transactions.
- The Court previously dismissed some Bank of America defendants in Allstate I, granting leave to amend; the current motion challenges Counts Nine (successor liability), Ten (actual/predictive fraudulent transfer), and Eleven (constructive fraudulent transfer).
- The Court applies Illinois law to fraudulent transfer claims and New York law for other state-law claims, with Illinois requiring lack of reasonably equivalent value and intent in constructive transfers, and New York applying UFCA for some governing questions with an interest-analysis approach.
- Plaintiff relies on badges of fraud and the alleged disparities between Countrywide’s pre- and post-sale asset values to argue solvency issues, while BoA argues there is no plausible assertion of inadequate consideration or intended fraud.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Constructive fraudulent transfer elements | Allstate argues LD1/LD100 lacked reasonably equivalent value. | BoA contends consideration was adequate and benefits existed from asset sales. | Constructive fraudulent transfer claims pleaded inadequately; dismissed with prejudice. |
| Actual fraudulent transfer requirement | Allstate asserts actual intent to defraud creditors via insider transfers. | BoA claims lack of persuasive facts of intent and insubstantial badges. | Actual fraudulent transfer claims dismissed; insufficient facts of intent. |
| Assumption of liabilities by BoA | Allstate contends BoA implicitly/explicitly assumed Countrywide’s RMBS liabilities. | BoA argues statements show voluntary payment intent but no formal assumption. | Assumption of liabilities claims dismissed with prejudice. |
| De facto merger liability under Delaware law | Allstate contends LD1/LD100/Red Oak form an integrated plan collapsing into a de facto merger. | BoA argues asset sales and merger were independent; no integration sufficient to support liability. | De facto merger claims dismissed with prejudice. |
Key Cases Cited
- In re Zeigler, 320 B.R. 362 (Bankr.N.D. Ill. 2005) (six badges may be insufficient when innocent explanation exists)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (pleading must be plausible, not merely consistent with liability)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (plausibility standard for pleading originally established)
- Cromer Finance Ltd. v. Berger, 137 F. Supp. 2d 452 (S.D.N.Y. 2001) (conflict-of-law-based interest analysis for choice-of-law)
- In re Tribune Co., 464 B.R. 126 (Bankr.D. Del. 2011) (three-factor test for integrating multi-step transactions)
- North American Catholic Educational Programming Foundation, Inc. v. Gheewalla, 930 A.2d 103 (Del. 2007) (fiduciary duties limited to corporation and shareholders; derivative protection in insolvency)
- In re Hechinger Inv. Co. of Delaware, 274 B.R. 71 (Del. 2002) (LBO-like contexts and integration considerations)
- In re Zeigler (duplicate allowed for emphasis), 320 B.R. 362 (Bankr.N.D. Ill. 2005) (see above)
- Lindholm v. Holtz, 221 Ill. App. 3d 330 (Ill. App. 1991) (badges of fraud interpreted flexibly; not determinative)