Screen Capital International Corp. v. Library Asset Acquisition Co. (In re R2D2, LLC)
510 B.R. 248
C.D. Cal.2014Background
- SCIC (standing from the Chapter 11 Trustee) sued TFC, LAAC, and others alleging a scheme by Bergstein and Tutor to divert assets (notably a 539-film "TFC Library") through intercompany transfers, backdated agreements (an October 24, 2008 APA), and loan manipulation to benefit insiders and defeat creditors.
- LAAC purchased certain Zwirn-related loans (allegedly including the ThinkFilm and BWT Loans) under a March 12, 2009 Note Purchase Agreement; SCIC alleges these transactions enabled LAAC/TFC to obtain rights in the TFC Library wrongfully.
- SCIC’s Second Amended Complaint asserted multiple claims against LAAC: avoidance/recovery of fraudulent and preferential transfers, accounting, declaratory relief (including challenge to LAAC’s §1111(b) election), recharacterization of LAAC’s debt as equity, conspiracy / aiding-and-abetting breach of fiduciary duty, and injunctive relief.
- The Bankruptcy Court granted LAAC’s motion to dismiss the SAC, dismissed several claims (some without prejudice but ordered equitable subordination to be pursued by motion), and denied SCIC leave to amend. SCIC appealed.
- The District Court reviewed de novo the dismissal rulings and for abuse of discretion the denial of leave to amend; it affirmed dismissal of most claims, reversed the ruling that equitable subordination must be brought only by motion, and remanded that issue.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Sufficiency of fraudulent-transfer pleading (actual and constructive) | SAC alleges transfers of film rights to TFC/LAAC and a coordinated scheme; chart summarizes chain of title supporting avoidance | Alleged chain-of-title summary is vague; fails to identify which debtor transferred what interests, when, or how LAAC benefited; Rule 9(b)/8 not satisfied | Dismissed: pleadings inadequate under Rule 8 and Rule 9(b); dismissal affirmed |
| Sufficiency of preferential-transfer claim | LAAC was an insider who received prepetition transfers of debtor property within one year | SAC fails to plead a specific prepetition transfer of a debtor’s property or timing required by §547(b) | Dismissed: claim inadequately pleaded; dismissal affirmed |
| Accounting and declaratory relief (foreclosure and §1111(b) election) | SCIC seeks accounting of amounts paid to LAAC and declarations that LAAC lacks foreclosure rights and that its §1111(b) election is invalid | Relief depends on properly pleading which debtor rights were transferred; declaratory relief sought to adjudicate past acts rather than future rights | Dismissed: accounting and declaratory claims inadequately pleaded and/or seek retrospective relief; dismissal affirmed |
| Recharacterization of LAAC’s purchased debt as equity | LAAC’s purchase should be treated as equity contribution to the Appealing Debtors | SAC does not allege the Appealing Debtors were obligors on the loans or that state-law analysis of claim-vs-equity applies to these debtors | Dismissed: insufficient factual predicate to recharacterize; dismissal affirmed |
| Aiding-and-abetting / conspiracy to breach fiduciary duty | LAAC conspired with or substantially assisted Bergstein/Tutor in breaches harming R2D2 | SAC fails to allege LAAC owed duty or provided substantial assistance causally linked to R2D2’s harm; no separate "conspiracy to aid-and-abet" tort under California law | Dismissed: claim fails as pleaded and as a distinct cause of action; dismissal affirmed |
| Injunctive relief to stop foreclosure | Irreparable harm and likelihood of success on merits because transfers/foreclosure are wrongful | Underlying claims (fraudulent/preference) were inadequately pleaded so no likelihood of success; injunction improper | Dismissed: preliminary relief denied; dismissal affirmed |
| Procedural vehicle for equitable subordination | SCIC contends subordination can be brought in an adversary proceeding | LAAC (and Bankruptcy Court) required relief by objection/motion under Rules 3007/9014 | District Court: Bankruptcy Court erred; equitable subordination is an adversary matter under Rule 7001(8); reversed and remanded for merits consideration |
| Denial of leave to amend | SCIC sought another chance to cure pleading defects | LAAC argued three prior complaints and futility; further amendment would be futile and prejudicial | Denial affirmed: district court finds no abuse of discretion given multiple prior amendments and futility |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (pleading must state a plausible claim)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (plausibility standard for pleadings)
- Leatherman v. Tarrant County Narcotics Intelligence & Coordination Unit, 507 U.S. 163 (accept nonconclusory factual allegations)
- In re JTS Corp., 617 F.3d 1102 (trustee may avoid fraudulent transfers under §544/§550)
- In re United Energy Corp., 944 F.2d 589 (§548 federal fraudulent transfer parallels state law)
- Begier v. Internal Revenue Service, 496 U.S. 53 (§547(b) limited to transfers of property of the debtor)
- Winter v. Natural Resources Defense Council, 555 U.S. 7 (standard for preliminary injunction)
- Leadsinger, Inc. v. BMG Music Publishing, 512 F.3d 522 (review of denial of leave to amend)
- In re Fitness Holdings Int’l, Inc., 714 F.3d 1141 (recharacterization inquiry requires state-law analysis of whether obligation is a claim)