507 B.R. 452
Bankr. S.D.N.Y.2014Background
- Jesup & Lamont, Inc. (JLI) and its wholly owned broker‑dealer subsidiary Jesup & Lamont Securities Corp. (JLSC) filed chapter 11 (JLI July 30, 2010; JLSC Sept. 24, 2010); a liquidating trust was created and the Trustee sued.
- In May–June 2009 JLI borrowed $2.1 million from New Jersey Community Bank (NJCB); JLSC deposited $2.1 million and executed an Assignment of Deposit Account granting NJCB rights against JLSC’s deposits as collateral.
- In June 2010 regulatory concerns (FINRA) led to transfers: funds moved from Roma Bank to Hopewell Valley, then Hopewell wired $2,000,000 to NJCB on June 25, 2010; NJCB applied the funds to repay the JLI loan on June 28, 2010.
- Trustee alleges the June 25 transfer of $2M (JLSC property) to NJCB was either a § 547 preference (if antecedent debt existed) or a § 548/New York fraudulent conveyance (if no antecedent debt/consideration).
- Court held Trustee established a prima facie preference (§ 547) and granted summary judgment on that claim; the Trustee’s § 548 and state‑law fraudulent conveyance claims raise factual disputes (value and insolvency), so summary judgment was denied; aiding‑and‑abetting claim survives because choice‑of‑law is unresolved.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether June 25 transfer is an avoidable preference under 11 U.S.C. § 547 | Transfer made for benefit of NJCB, was on account of antecedent claim against JLSC property (Assignment of Deposit Account), within 90‑day look‑back, and JLSC was insolvent (presumed for 90 days) | NJCB contends it was not a creditor of JLSC in personam, transfer was outside the 90‑day period for JLSC (petition 91/92 days later), and no antecedent debt of JLSC existed | Court: preference proven; applied Bankruptcy Rule 9006 to count backward so transfer falls within 90 days; § 547(b)(2) satisfied because NJCB had claim against JLSC property; summary judgment for Trustee on § 547 claim granted |
| Proper computation of 90‑day preference period (Bankruptcy Rule 9006 effect) | Rule 9006 applies to statutes that do not specify computation method; counting backwards and Rule 9006(a)(1)(C) places June 25 within 90 days | Relies on In re Greene (9th Cir.) to argue Rules cannot enlarge substantive rights and thus should not extend § 547 look‑back | Court: Rule 9006 (as amended 2009) applies; counting backwards is proper and does not impermissibly alter substantive rights; transfer is within 90 days |
| Whether transfer is a fraudulent conveyance under 11 U.S.C. § 548 / New York D&C law (reasonably equivalent value; insolvency) | Trustee: JLSC received less than reasonably equivalent value (it only made its funds available to secure its parent) and JLSC was insolvent at the transfer date | Defendants: JLSC received value (credit to account, indirect benefit to JLI, bank forbearance); challenges Trustee’s insolvency showing | Court: material factual disputes exist as to whether JLSC received reasonably equivalent value (indirect benefits hard to quantify) and whether JLSC was insolvent on transfer date; summary judgment denied on § 548 and state‑law fraudulent conveyance claims |
| Whether Trustee may pursue aiding‑and‑abetting breach of fiduciary duty (standing/choice of law; Wagoner rule) | Trustee: Wagoner (New York rule barring suit) should not apply; choice of law unresolved and Wagoner may not control | NJCB/O’Donnell: Wagoner should bar trustee’s claim under New York law | Court: choice‑of‑law cannot be resolved on pleadings; because it is unclear which state’s law controls, cannot apply Wagoner now — motion to dismiss denied without prejudice |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (plausibility standard for Rule 12(b)(6))
- Ashcroft v. Iqbal, 556 U.S. 662 (pleading requirements and plausibility inquiry)
- Johnson v. Home State Bank, 501 U.S. 78 (claim against property counts as a claim under the Code)
- In re Greene, 223 F.3d 1064 (9th Cir.) (holding Rule 9006 could not extend preference period; discussed and distinguished)
- Matter of Nelson Co., 959 F.2d 1260 (3d Cir.) (counting rules for preference look‑back period)
- Rubin v. Manufacturers Hanover Trust Co., 661 F.2d 979 (2d Cir.) (subsidiary’s payment for parent’s debt—need for reasonably equivalent value to avoid constructive fraudulent conveyance)