524 B.R. 536
Bankr. S.D.N.Y.2015Background
- Debtors STi Prepaid, Vivaro, and affiliates filed Chapter 11 on Sept. 5, 2012; the Official Committee of Unsecured Creditors (the Committee) sued to avoid ~ $50M in alleged fraudulent transfers upstream to Baldwin and related entities.
- STi purchased Telco in 2007; between June 2007 and Dec. 2008 STi made four transfers totaling $37M to Baldwin; STi’s books allegedly show deteriorating balance-sheet positions in 2007–2008.
- In Oct. 2010 Vivaro acquired STi from Baldwin for $20M (cash + $19.4M note, guaranteed by STi); payments and amendments followed and Baldwin ultimately received about $12.4M in satisfaction of the note, some funded by STi receivables factored in 2011.
- Committee asserted six claims: constructive and actual fraudulent transfer claims under Bankruptcy Code and NY Debtor & Creditor Law (NYDCL) aimed at Baldwin, Leucadia and several corporate parents/affiliates; recovery claims under §550/551 and NYDCL.
- Defendants moved to dismiss for untimeliness and failure to state claims, arguing (inter alia) §548 limitations, NY LLC statute of repose for member distributions, inadequate insolvency and lack-of-value pleading, Rule 9(b) deficiencies for actual fraud, and insufficient allegations against upstream transferees.
- Court: granted motion in part, denied in part, dismissed several claims without prejudice and gave leave to amend; preserved avoidance of the June 2007 STi transfer (Count I) but dismissed other transfers/claims subject to repleading and dismissed §548-based Count VI as time‑barred.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Timeliness of §548 actual-fraud claim (Count VI) for 2007–2008 transfers | Transfers avoidable under §548/NYDCL; timely under NYDCL statute | §548 has 2-year lookback; transfers predate petition | Court: §548 claim time-barred as to 2007–2008 transfers; §548-based Count VI dismissed with prejudice |
| Applicability of NY LLC Law §508(c) 3-year repose (member distributions) vs. NYDCL 6-year limitation for STi transfers | Transfers went to Baldwin (not an STi member) so §508(c) repose doesn't apply; NYDCL six-year governs | Transfers were effectively LLC member distributions routed through Baldwin; §508(c) 3-year repose applies | Court: factual dispute whether transfers were distributions to members; cannot resolve on 12(b)(6); denied dismissal on NYDCL timeliness grounds for June 2007 transfer, some claims survived |
| Sufficiency of constructive-fraud pleading (Counts I–IV) — fair consideration and insolvency | Complaint alleges lack of fair consideration, specific transfer dates/amounts, and STi insolvency in 2007–2008 | Allegations are conclusory; fails to allege reasonably equivalent value, arm’s-length terms, or balance-sheet figures for some transfers/periods | Court: allegations adequate as to lack of fair consideration and insolvency for June and Nov 2007 transfers; inadequate re July & Dec 2008 transfers and for Acquisition (2010–11) claims — Counts II–IV dismissed without prejudice to amend |
| Sufficiency of actual-fraud pleading under Rule 9(b) (Count VI, NYDCL) — intent to hinder/delay/defraud | Badges of fraud alleged (insolvency, series of transfers, defendant knowledge) support inference of intent | Pleading lacks particularized allegations tying STi’s intent or adequate badges of fraud; focuses on transferee intent and ownership without factual basis | Court: Rule 9(b) not satisfied for Count VI (NYDCL portion); Count VI dismissed without prejudice to amend (except §548 portion dismissed with prejudice) |
| Claims against upstream transferees (Leucadia, BEI Prepaid, BEI Prepaid Holdings, Phlcorp) | Alleged they participated, had dominion and control, and benefited — therefore recoverable transferees/beneficiaries | Allegations are pleading-by-belief and too attenuated; no specific transfers or participation alleged | Court: claims against BEI Prepaid, BEI Prepaid Holdings, and Phlcorp dismissed without prejudice for failure to allege participation/benefit; Leucadia claims survived in part |
| Recovery under §550/551 (Count V) dependent on underlying avoidance claims | If avoidance claims survive, recovery claim stands | Dependent on dismissal of underlying counts | Court: Count V dismissed to extent underlying Counts II–IV and some Count I transfers were dismissed; leaves open recovery as to surviving avoidance allegations |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (plausibility standard governs Rule 12(b)(6) review)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (pleading must be more than labels and conclusions)
- Vaughn v. Air Line Pilots Ass’n, 604 F.3d 703 (applying plausibility standard in the Second Circuit)
- Pension Benefit Guar. Corp. v. Morgan Stanley Inv. Mgmt., 712 F.3d 705 (two-pronged pleading approach informed by Iqbal/Twombly)
- Kiobel v. Royal Dutch Petroleum Co., 621 F.3d 111 (courts assume well-pleaded nonconclusory factual allegations are true)
- Rubin v. Manufacturers Hanover Trust Co., 661 F.2d 979 (value in guaranty/three-sided transactions — must assess economic benefit to guarantor)
- Salomon v. Kaiser (In re Kaiser), 722 F.2d 1574 (badges of fraud may establish actual fraudulent intent)