481 B.R. 752
Bankr. D.N.M.2012Background
- Bankruptcy Trustee Judith A. Wagner sues Michelle Cunningham in an adversary proceeding involving assets diverted from The Vaughan Company, Realtors (VCR) to investors in a alleged Ponzi scheme.
- Complaint asserts nine counts seeking to recover fraudulent transfers under 11 U.S.C. § 548 and New Mexico fraud transfer law; Cunningham moves to dismiss under Rule 12(b)(6).
- Allegations describe VCR's promissory note program, investor investments (including Cunningham's $102,000) and purported high returns funded by new investor money.
- Complaint alleges Cunningham received at least $184,359.99 in transfers (2000–Petition Date), with specific tallies for 2006–Petition Date and 2008–Petition Date; alleges signs of a Ponzi scheme.
- Court applies Twombly/Iqbal standard, discusses Rule 9(b) heightened pleading for actual fraud, and analyzes each count’s sufficiency.
- Court concludes Counts 2–6 survive; Count 7 (NM UFTA § 56-10-19(B)) is deficient; Counts 1, 8, 9 denied without prejudice or not addressed, as to others.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether actual fraud claims meet Rule 9(b) plausibility | Wagner asserts Ponzi scheme allegations provide particularized fraud facts. | Cunningham argues allegations are conclusory and fail Rule 9(b) specificity. | Counts 2–6 plead sufficiently under Rule 9(b). |
| Whether constructive fraud claims satisfy Rule 8 notice pleading | Plaintiff contends insolvency and lack of reasonably equivalent value stated under §548(a)(1)(B) and NM UFTA. | Cunningham argues insufficient specificity for insolvency dates and value assertions. | Constructive fraud claims survive under Rule 8 pleading standards. |
| Whether Count 7 under NM UFTA § 56-10-19(B) is viable | Counts 7 alleges transfer to an insider for an antecedent debt with insolvency and insider knowledge. | No insider-relationship allegations; deficit in pleading. | Count 7 dismissed. |
| Status of Counts 1, 8, and 9 at dismissal stage | Counts 1, 8, 9 should proceed or be decided on the merits. | Not clearly addressed; potential dismissal arguments exist. | Counts 1 and 8 denied without prejudice; Count 9 not dismissed, but unresolved. |
| Scope of pleading standards (Twombly/Iqbal) in trustee cases | Trustee pleading should reflect second-hand knowledge with plausible inferences from Ponzi context. | Twombly/Iqbal applied; require more concrete facts. | Twombly/Iqbal applied; pleading adequate for Counts 2–6 and 8–9 status remains. |
Key Cases Cited
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (plausibility standard for pleading a claim)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (requires plausibility and disallows bare conclusions)
- Koch v. Koch Indus., Inc., 203 F.3d 1202 (10th Cir. 2000) ( Rule 9(b) must provide fair notice of fraud allegations)
- In re Bernard L. Madoff Inv. Sec. LLC, 454 B.R. 317 (S.D.N.Y. 2011) (actual fraudulent transfer claims require Rule 9(b) specificity)
- In re Crescent Oil Co., Inc., 2011 WL 3878377 (Bankr. D. Kan. 2011) (Ponzi scheme presumptions and pleading relevance discussed)
- In re 1031 Tax Group, LLC, 439 B.R. 47 (S.D.N.Y. 2010) (Ponzi scheme presumption and insolvency considerations)