Lee v. So
N14C-08-173 PRW
| Del. Super. Ct. | Nov 17, 2016Background
- On October 23, 2009, Lee and defendant So executed a $300,000 promissory note; Lee alleges So defaulted and owes him money.
- In 2013 So allegedly transferred commercial subleases at 1209B Maryland Avenue to her daughter, co-defendant Kim; Lee claims the transfers were intended to hinder, delay, or defraud his ability to collect under the Note and that So was insolvent when transfers occurred.
- Lee filed a DUFTA action (actual fraud under §1304(a)(1); constructive fraud under §1304(a)(2); creditor fraud under §1305) seeking avoidance/attachment of the transfers, an injunction, and an accounting.
- Defendants moved for judgment on the pleadings under Rule 12(c), arguing Lee failed to plead fraud with the particularity required by Rule 9(b) and that the Superior Court lacked equitable authority to issue the requested injunction.
- Lee sought leave to amend after scheduling deadlines; the motion to amend was denied. The Court considered only the pleadings (declining to convert to summary judgment).
- The Court granted judgment on the pleadings for all three counts, holding Lee’s allegations were conclusory, often pleaded ‘‘upon information and belief,’’ and insufficient under Rule 9(b) (for actual fraud) and Rule 8(a) (for constructive and creditor claims).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Count I (actual fraudulent transfer under §1304(a)(1)) satisfies Rule 9(b) | Lee alleges So transferred subleases to hinder/delay/defraud creditors; pleads intent generally and on information and belief | Allegations are conclusory and based on information and belief; fail to meet Rule 9(b) particularity for intent and the transfer circumstances | Dismissed: Rule 9(b) not satisfied; Count I fails |
| Whether Count II (constructive fraud under §1304(a)(2)) satisfies Rule 8(a) | Lee alleges transfers were for less than reasonably equivalent value and rendered So insolvent | Pleadings are bare recitation of statutory elements without supporting facts | Dismissed: Rule 8(a) insufficient; Count II fails |
| Whether Count III (§1305 creditor claim) pleads required elements | Lee alleges creditor claim existed prior to transfer, transfer was for less than reasonably equivalent value, and So was insolvent | Complaint fails to plead the specific elements (and does not state whether bringing (a) or (b)); no factual support for insolvency or unequal exchange | Dismissed: Count III fails for lack of factual allegations |
| Whether the Superior Court has jurisdiction/power to grant injunctive relief requested by Lee | Lee contends Superior Court may provide equitable DUFTA relief and cites authority on appointment of Superior judges to sit in Chancery | Defendants note Superior Court is a court of law and generally lacks equitable power to issue injunctions (Chancery has exclusive jurisdiction over injunctions) | Court found jurisdictional argument moot after dismissal but noted Superior Court generally lacks equitable jurisdiction to grant injunctions |
Key Cases Cited
- Quadrant Structured Prods. Co. v. Vertin, 102 A.3d 155 (Del. Ch.) (describing pleading requirements for fraudulent transfer claims)
- Desert Equities, Inc. v. Morgan Stanley Leveraged Equity Fund, II, L.P., 624 A.2d 1199 (Del. 1993) (standard for judgment on the pleadings)
- Trenwick Am. Litig. Trust v. Ernst & Young, L.L.P., 906 A.2d 168 (Del. Ch.) (requirements to plead insolvency with supporting facts)
- In re PHP Healthcare Corp., [citation="128 F. App'x 839"] (3d Cir.) (Delaware fraudulent transfer law compared to federal bankruptcy fraudulent transfer principles)
- China Res. Prods. (U.S.A.) Ltd. v. Fayda Int'l, Inc., 788 F. Supp. 815 (D. Del. 1992) (Rule 9(b) applies to actual fraudulent transfer claims)