135 F. Supp. 3d 1
D. Mass.2015Background
- North Beacon is an unsecured creditor of Spectrowax for ~ $400,000 and alleges Spectrowax fraudulently transferred assets to entities (Supreme, Dynasol, Pinnacle) to avoid creditor claims.
- Mesirow was retained by Spectrowax as a "Liquidation Agent" (per a Broadcast Letter) to receive certain funds from a secured creditor (Rosenthal & Rosenthal) and distribute to creditors; Mesirow does not allege possession of the transferred assets.
- North Beacon filed an amended equity complaint seeking declaratory relief, specific performance, class treatment, and imposition of a constructive trust against Mesirow for failing to marshal Spectrowax assets.
- Massachusetts state-court litigation between North Beacon and the transferees (re fraudulent transfers) is pending; that court denied summary judgment to defendants noting "badges of fraud."
- Mesirow moved to dismiss under Fed. R. Civ. P. 12(b)(6); the district court evaluated whether any duty from contract, trusteeship, "zone of insolvency," third-party beneficiary status, or fraud could bind Mesirow to North Beacon.
- The Court concluded North Beacon failed to plead facts establishing any duty owed by Mesirow and dismissed all counts with prejudice.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Mesirow owed North Beacon a duty to marshal/distribute Spectrowax assets | Mesirow, labeled "Liquidating Trustee/Agent," had duties by virtue of the Broadcast Letter, alleged agency, and because Spectrowax was in the zone of insolvency | No contract, no trust relationship, no facts showing Mesirow possessed assets or acted as trustee/director; Broadcast Letter did not create contractual duties to creditors | No duty; plaintiff failed to plead facts creating contractual, trust, zone-of-insolvency, third-party beneficiary, or fraud-based duty |
| Declaratory relief demanding Mesirow collect/distribute assets | A declaratory judgment would clarify Mesirow’s role and compel it to gather and remit assets to unsecured creditors | No legal relationship exists; key transferee parties are not before the court; parallel state proceedings address the core dispute | Denied — declaratory relief inappropriate given no duty and parallel state litigation |
| Specific performance to compel Mesirow to gather and distribute assets | Specific performance is appropriate to force Mesirow to perform its alleged liquidation duties | No contract with North Beacon; no contractual provision obligating Mesirow to recover third-party assets for unsecured creditors | Denied — no contractual basis or duty to compel specific performance |
| Constructive trust and class claim (imposition of trust; class action on behalf of unsecured creditors) | Equitable remedies and class relief necessary to prevent unjust enrichment and to represent all unsecured creditors | Constructive trust requires liability and possession/unjust enrichment by Mesirow; no underlying individual claim supports class certification | Denied — no basis to impose a constructive trust on Mesirow; class claim fails because named plaintiff’s claims are untenable |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (plausibility pleading standard)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility requirement and dismissal standard)
- Quadrant Structured Prods. Co. v. Vertin, 102 A.3d 155 (Del. Ch. 2014) (discussion of creditors’ standing in zone of insolvency)
- N. Am. Catholic Educ. Programming Found., Inc. v. Gheewalla, 930 A.2d 92 (Del. 2007) (creditors as residual claimants in insolvency contexts)
- Wilton v. Seven Falls Co., 515 U.S. 277 (1995) (discretion to decline declaratory relief when parallel proceedings exist)
- In re Handy, 624 F.3d 19 (1st Cir. 2010) (constructive trust is remedial, not a substantive cause of action)
- Barry v. Covich, 332 Mass. 338 (1955) (constructive trust elements under Massachusetts law)
- Watterson v. Page, 987 F.2d 1 (1st Cir. 1993) (documents considered on motion to dismiss)
- Ernst & Young v. Depositors Econ. Prot. Corp., 45 F.3d 530 (1st Cir. 1995) (purpose and discretion under the Declaratory Judgment Act)