467 B.R. 556
Bankr. E.D.N.Y.2012Background
- Agape World, Inc. and related entities were denominated substantively consolidated in bankruptcy; Nicholas Cosmo led a Ponzi scheme that raised >$400 million from >5,500 investors under the guise of short-term secured loans.
- The Chapter 7 trustee sued Meister Seelig & Fein, LLP for (i) avoiding and recovering certain payments to the firm as fraudulent transfers and (ii) damages for alleged negligence or malpractice.
- The Complaint asserts that the firm advised Agape against securities registration and provided other negligent legal services that facilitated Cosmo’s scheme.
- Defendant moved to dismiss under Rule 12(b)(6) and 9(b), arguing lack of standing and tolling agreement issues.
- Court denied dismissal as to Counts 1–6 (fraudulent transfers) and granted dismissal as to Counts 7–11 (attorneys’ fees, malpractice, and contribution) based on standing and pleading standards.
- Tolling and forbearance agreement existed extending the statute of limitations, but the court did not resolve its enforceability at this stage.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing to sue on wrongful acts | Trustee has standing via estate rights and 544/defrauding claims | Trustee lacks standing for investor injuries and Wagoner bar | Trustee lacks standing for Counts Nine–Eleven; Wagoner bar applies; Counts Eight and others dismissed |
| Actual fraudulent transfer claims viability | Ponzi presumption shows intent to defraud transfers to the Defendant | Good faith/for value defenses may bar claims | Counts One and Six survive; Counts Seven dismissed; presumption applies to transferor’s intent only |
| Constructive fraudulent transfer claims viability | Counts Two–Five allege lack of reasonably equivalent value or fair consideration | Agape received fair consideration as a paying client; value analysis fact-intensive | Counts Two–Five survive initial pleading; depend on fact-intensive value analysis; Counts not dismissed at this stage |
| Contribution claim under NY CPLR 1401 | Trustee may seek contribution for excess distributions to creditors | Wagoner and lack of viable underlying liability bar contribution; standing issues | Counts Eight dismissed; contribution right not viable given Wagoner and Iqbal standards; remaining aspects not addressed |
Key Cases Cited
- Picard v. Cohmad Sec. Corp. (In re Bernard L. Madoff Inv. Sec. LLC), 454 B.R. 317 (Bankr.S.D.N.Y.2011) (trustee standing; liability rules for Ponzi-era transfers; liberal pleading for trustees)
- Picard v. Madoff, 458 B.R. 87 (Bankr.S.D.N.Y.2011) (Ponzi scheme presumption; actual fraudulent transfer framework)
- Churchill Mortgage Inv. Corp. v. Balaber-Strauss, 256 B.R. 664 (Bankr.S.D.N.Y.2000) (reasonably equivalent value; fact-intensive analysis typically not resolved on motion to dismiss)
- In re Dreier LLP, 452 B.R. 467 (Bankr.S.D.N.Y.2011) (pleading standards for complex professional liability claims)
- In re Granite Partners, 194 B.R. 318 (Bankr.S.D.N.Y.1996) (illustrates contribution and in pari delicto considerations)