494 B.R. 799
Bankr. E.D.N.Y.2013Background
- Peter J. Garcia, Chapter 11 debtor and DIP, alleges that his expulsion from JMP Properties, LLC and All-Boro Management Co. LLC via resolutions on Aug 19, 2011 transferred his membership interests to the remaining members.
- Expulsions changed ownership from 1/3 each to 50/50 between Peter and the Individual Defendants (his relatives), affecting asset distributions and control.
- Plaintiff seeks avoidance of transfers as preferential under §547(b) or as constructively fraudulent under §548(a)(1)(B) or DCL §273.
- Operating Agreements' Article XI govern dissociation; they contemplate payments to dissociated members, not automatic termination of rights, and do not terminate the agreements.
- Removed prepetition state court actions (Money Damages Action and Dissolution Action) were filed, stayed, then removed to this Court, providing context for value and rights in dispute.
- Court granted dismissal under Rule 12(b)(6), holding transfers were not for or on account of an antecedent debt and Plaintiff failed to plead reasonably equivalent value.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether expulsions were transfers under §547(b) and §548(a)(1)(B). | Garcia contends expulsions caused transfers of his LLC membership interests. | Defendants contend expulsions terminated contractual rights, not transfers. | Expulsions constitute transfers under §547(b) and §548(a)(1)(B). |
| Whether expulsions were for or on account of an antecedent debt under §547(b)(2). | Expulsion reduced debts previously owed by Peter to the LLCs. | Expulsions were not for or on account of an antecedent debt but were tied to misconduct. | Transfers were not for or on account of an antecedent debt under §547(b)(2). |
| Whether Garcia received reasonably equivalent value for the transfers under §548(a)(1)(B) and DCL §273. | Garcia supposedly did not receive equivalent value for his interests. | Any value was future contractual payments under §11.2(b). | Complaint fails to plead plausible reasonably equivalent value; dismissed under §548(a)(1)(B) and DCL §273. |
| Whether the complaint states a plausible claim under Bell Atlantic/Iqbal standard. | Plaintiff alleges deficits in value and improper transfers. | Defendants argue legal conclusions and lack of factual support. | Court applies Twombly/Iqbal; claims insufficiently pleaded and dismissed. |
Key Cases Cited
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (pleading must show plausible entitlement to relief)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (plausibility standard governs Rule 12(b)(6) pleadings)
- Begier v. IRS, 496 U.S. 53 (U.S. 1990) (policy aims of equality of distribution in bankruptcy)
- In re S.W. Bach & Co., 435 B.R. 866 (Bankr.S.D.N.Y. 2010) (fraudulent transfer scope and improper avoidance considerations)
- In re Reisner, 357 B.R. 206 (Bankr.E.D.N.Y. 2006) (reasonably equivalent value analysis and value determinations)
- Madoff, 458 B.R. 87 (Bankr.S.D.N.Y. 2011) (value and transfer avoidance in complex bankruptcy contexts)
- In re Enron Corp., 357 B.R. 32 (Bankr.S.D.N.Y. 2006) (interpretation of claim/debt and avoidance standards)