480 B.R. 480
S.D.N.Y.2012Background
- Debtors MFS and FLI filed Chapter 11 petitions on November 17, 2006; Banks were secured creditors.
- GUC Trust, as Trustee, alleges a scheme where Banks loaned Debtors, whose proceeds were allegedly reconveyed to Fortgang-family Affiliate entities.
- Trustee seeks avoidance of transfers under 11 U.S.C. §§ 544, 548 and related NY law, plus preferences under § 547 and disallowance relief.
- Bankruptcy Court dismissed Counts I–IV, VIII–X, XI and XII in part or whole; some claims were allowed to proceed only for certain defendants.
- Bankruptcy Court’s rulings were reviewed de novo for legal conclusions; fraud claims require Rule 9(b) specificity and plausibility under Twombly/Iqbal.
- Court affirms Bankruptcy Court’s dismissal of collapsing fraudulent conveyance and preference claims, with count-specific reasoning, and closes the case.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Counts I–IV plausibly allege collapsing fraudulent conveyance | GUC Trust contends transfers should be collapsed into a single scheme. | Banks contend no specific loan-to-Affiliate pairings alleged; no single integrated transaction shown. | Counts I–IV properly dismissed; no plausible collapse pleaded. |
| Whether Counts VIII–X satisfy Rule 9(b) for intentional fraud | Trustee asserts granular, loan-by-loan detail suffices. | Aggregate transfers fail to identify specific transfers, dates, and amounts. | Counts VIII–X dismissed for lack of particularity. |
| Whether Count XI’s Preference Claims are timely or relate back | FCCO deadline applies to new avoidance claims; amendments relate back to timely pleading. | Relation back not allowed; separate transactions require separate pleading. | Count XI dismissed as untimely and not properly related back. |
| Whether Count XII’s disallowance claim survives for certain banks | Disallowance should follow from successful avoidance claims. | Relies on earlier dismissals; some banks already dismissed with prejudice. | Count XII affirmed as to banks where fraudulent conveyance/preferences upheld; otherwise dismissed. |
Key Cases Cited
- HBE Leasing Corp. v. Frank, 48 F.3d 623 (2d Cir. 1995) (collapse requires a single integrated transaction with knowledge of the scheme)
- Orr v. Kinderhill Corp., 991 F.2d 31 (2d Cir. 1993) (defines single, integrated transaction concept for fraudulent conveyance)
- In re Sunbeam Corp., 284 B.R. 355 (Bankr.S.D.N.Y. 2002) (fraud pleading specifics rejected when conclusion-only)
- In re NextWave Personal Communications, Inc., 200 F.3d 43 (2d Cir. 1999) (fraudulent transfer standards and value consideration)
- In re 360networks (USA) Inc., 867 B.R. 428 (Bankr.S.D.N.Y. 2007) (relation back and avoidance claims timing in bankruptcy)
- United Feature Syndicate, Inc. v. Miller Features Syndicate, Inc., 216 F. Supp. 2d 198 (S.D.N.Y. 2002) (Rule 9(b) specificity required for fraud claims)
- Adelphia Recovery Trust v. Bank of Am., N.A., 624 F. Supp. 2d 292 (S.D.N.Y. 2009) (avoidance claims and relation back principles)
- Barr v. Charterhouse Group Int’l, Inc., 238 B.R. 558 (Bankr.S.D.N.Y. 1999) (pleading notice and relation back standards)
- In re Global Crossing, Ltd., 385 B.R. 52 (Bankr.S.D.N.Y. 2008) (avoidance claims and separate transaction treatment)
- Metzeler, 66 B.R. 977 (Bankr.S.D.N.Y. 1986) (separate transaction rule for avoidance litigation)