Gowan v. Westford Asset Management LLC (In Re Dreier LLP)
462 B.R. 474
Bankr. S.D.N.Y.2011Background
- Dreier LLP operated a Ponzi scheme masterminded by Marc Dreier selling forged Solow Notes to investors.
- Westford Asset Management and related entities (Westford) invested in multiple Solow Note deals through Westford funds and WGAM, with Westford’s agents signing Term Loan Agreements.
- Dreier LLP escrow and payment arrangements (e.g., 5966 Account) and fake Solow financial statements concealed the fraud from many investors.
- Westford made seven investments totaling $115 million and received over $137.6 million in principal, interest and fees; numerous deals carried excessive fees and fictitious returns.
- Plaintiff trustee seeks to avoid and recover fraudulently transferred funds under federal and New York law, plus equitable subordination and, potentially, attorney’s fees under NY DCL 276-a.
- Westford moved to dismiss under Rule 12(b)(6), arguing it paid value and acted in good faith; trustee contends Westford’s knowledge and failures to inquire negate good faith.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Westford’s transfers were actual fraudulent conveyances | Trustee argues transfers were made with actual intent to defraud creditors | Westford contends it paid value and acted in good faith, defeating claims | Counts I and V survive; facially adequate to plead actual fraud defense does not bar |
| Whether the state-law transfers were constructively fraudulent | Trustee asserts lack of fair consideration and Westford’s knowledge negate good faith | Westford argues repayment of principal equates to fair consideration; lack of inquiry not enough | Counts II–IV survive; plaintiff adequately pleads lack of good faith under DCL 272 |
| Whether equitable subordination is available given lack of proof of claim filings | Subordination should be permitted to address the creditors’ misbehavior | No proofs of claim filed by defendants foreclose equitable subordination | Count VII dismissed without prejudice |
| Whether attorney’s fees under DCL 276-a are ripe | Fees should follow from successful fraudulent-transfer remedy if proven | Fees depend on proving actual fraudulent transfer at trial | Fees claim preserved; not ripe for dismissal at pleading stage |
Key Cases Cited
- In re Sharp Int’l Corp., 403 F.3d 43 (2d Cir. 2005) (discusses fair consideration and purpose of fraudulent transfer law under NY and federal regimes)
- HBE Leasing v. Frank, 48 F.3d 623 (2d Cir. 1995) (good faith standard and inquiry notice in constructive fraud; conscious turning away concept later treated as standard under DCL §272)
- HBE Leasing II, 61 F.3d 1054 (2d Cir. 1995) (expands on good-faith theories and intra-family transfers under fraud theories)
- McKenna v. Wright, 386 F.3d 432 (2d Cir. 2004) ( Rule 12(b)(6) dismissals when affirmative defenses appear on face of complaint)
- United States v. Rodiek, 120 F.2d 760 (2d Cir. 1941) (interest and restitution principles; relevance to timing of interest calculations)
- Scholes v. Lehmann, 56 F.3d 750 (7th Cir. 1995) (recognizes that payments in Ponzi contexts can be unlawful where value is not provided)