490 B.R. 84
Bankr. S.D.N.Y.2013Background
- Trustee (chapter 7) of Operations N.Y. LLC sues to avoid and recover three transfers totaling $279,839.61.
- Transfers occurred 9/9/2008 ($100,000); 9/28/2009 ($100,000); 9/29/2009 ($79,839.61); same amounts deposited into Edidin Associates and Franklin accounts.
- Edidin Defendants (Gary Edidin, Edidin Associates, Franklin Capital) are alleged insiders; documents show factoring agreement and security interests with Franklin; transfers routed through Edidin Associates or directly to Franklin.
- CVA leased the Ninth Avenue store; Workshop formed in May 2009, assets transferred to Workshop; Debtor allegedly concealed assets and later CVA obtained judgment; involuntary petition against Debtor filed 6/29/2010; relief ordered 8/19/2010; trustee appointed 8/3/2012.
- Complaint asserts nine counts: I-VI fraudulent transfer (intentional/constructive), VII unjust enrichment, VIII insider preference, IX conspiracy; Defendants move to dismiss for failure to state a claim.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Pleading of intentional fraudulent transfer against Edidin Defendants | Plaintiff asserts facts and badges of fraud support scienter. | Edidin lacks sufficient facts showing intent; some allegations are conjectural/group pleading. | Count I/Count V survive as to September 2009 transfers; scienter adequately pled for those transfers. |
| Constructive fraudulent transfer (insolvency and related tests) | Plaintiff pleads insolvency and lack of fair consideration; supports § 548/NY equivalents. | Defendant argues insufficient facts for solvency, unreasonably small capital, and ability-to-pay tests. | Insolvency and unreasonably small capital theories dismissed for some counts; insolvency-based and ability-to-pay theories not sustained; remaining constructive claims limited. |
| Preference claim against Franklin and Edidin Associates | Insider status and antecedent debt/greater-amount elements pleaded. | Franklin not proven insider; Edidin Associates not shown to hold an antecedent debt or improvement in position. | Preference claim against Edidin Associates dismissed; Franklin insider status not established, but potential recovery from Franklin via §550 possible. |
| Unjust enrichment claim viability | Unjust enrichment overlaps with fraudulent transfer but may stand where restitution is appropriate. | Claim duplicative of fraudulent transfer; briefing inadequate to sustain independent relief. | Unjust enrichment claim denied only to the extent it mirrors voided fraud claims; overall disposition preserves some relief under other theories. |
| Conspiracy claim viability | Conspiracy to defraud creditors alleged against individual defendants. | Count IX group-pleads and fails to specify each conspirator’s conduct; no overt act linking to the conveyance. | Conspiracy claim (Count IX) dismissed. |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (two-step plausibility standard; no bare conclusions)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (probability of relief requires plausible facts, not mere recitals)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (U.S. 2007) (strong inference standard for scienter)
- Sharp Int’l Corp. v. State St. Bank & Trust Co., 403 F.3d 43 (2d Cir. 2005) (pleading fraud with particularity; strong inference of intent)