452 B.R. 467
Bankr. S.D.N.Y.2011Background
- Gowan, the Chapter 11 Trustee for Dreier LLP, seeks to avoid and recover $16,801,025 of prepetition transfers to Novator entities under §§544, 547, 548(a), 550 and NYDCL.
- Defendants comprise Transferee Defendants (Novator Funding BV, Novator Master Fund, Novator Luxembourg) and Non-Transferee Defendants (NCML, Novator Advisors LLC, Novator Opportunities Fund, Novator Opportunities Fund LLC, Novator Partners LLP).
- Transfers occurred in the course of Marc Dreier’s Ponzi scheme; the alleged transfers were to entities tied to the Novator fund structure.
- Trustee concedes Novator was a “net loser” on the Note fraud, receiving less than the face value of two fake Solow Notes; this affects value analyses under constructive fraud theories.
- Court grants in part and denies in part the motion to dismiss; Non-Transferee claims are dismissed with leave to amend; Transferee claims: constructive fraud under NYDCL and Code dismissed, actual fraud survives, and preferences/equitable subordination rulings follow from analysis.
- Core issues mirror those in Patriot Group Opinion and involve whether transfers were for the benefit of or to subsequent transferees and whether Ponzi-scheme presumption establishes actual intent.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Liability of Non-Transferee Defendants | Non-Transferee Defendants benefited from transfers via Novator structure. | No direct, ascertainable, or quantifiable benefit shown to Non-Transferee Defendants; no proof of subsequent transfers to them. | Counts dismissed with leave to amend. |
| Constructive fraudulent transfer under NYDCL and Code (Transferee Defendants) | Transferees participated in transfers that were not fair consideration. | Transfers constituted fair consideration; Novator provided value; debtor was solvent/ net loser adjustment acknowledged. | Counts II, IV, V, VI dismissed. |
| Actual fraudulent transfer under NYDCL and Code (Transferee Defendants) | Transfers were made with actual intent to hinder, delay, or defraud creditors via Ponzi scheme. | No allegations sufficient to show actual intent by transferees; reliance on Ponzi presumption targeted at transferor. | Counts I and II (actual fraud under Code and NYDCL) survive; Dismissal denied for Count I; Count II denied. |
| Preferential transfers | Transfers to transferees within 90 days of petition are preferential. | Unclear how transfers were property of the estate; potential defenses exist. | Count VII denied as to dismissal; remains pending. |
| Equitable subordination | Novator’s claim should be subordinated due to knowledge of fraud. | Equitable subordination fact pattern requires factual development; not appropriate on 12(b)(6). | Count VIII denied at motion to dismiss. |
Key Cases Cited
- In re Enron Creditors Recovery Corp., 407 B.R. 17 (S.D.N.Y. 2009) (benefit must be direct, ascertainable, and quantifiable for §550(a)(1))
- In re Allou Distribs., Inc., 379 B.R. 5 (E.D.N.Y. 2007) (necessary vital statistics for subsequent transferee under §550(a)(2))
- In re Saba Enters., Inc., 421 B.R. 626 (S.D.N.Y. 2009) (circumstantial evidence sufficient to establish fraudulent intent in bankruptcy context)
- Stratton Oakmont, Inc., 234 B.R. 293 (S.D.N.Y. 1999) (circumstantial evidence standard for fraudulent intent)
- HBE Leasing Corp. v. Frank, 48 F.3d 623 (2d Cir. 1995) (antecedent debt generally constitutes fair consideration)