Arnold v. First Citizens National Bank (In re Cornerstone Homes, Inc.)Arnold v. First Citizens National Bank (In re Cornerstone Homes, Inc.)
DECISION AND ORDER DENYING MOTIONS TO DISMISS CAUSES OF ACTION ALLEGING ACTUAL AND CONSTRUCTIVE FRAUD
The Chapter 11 Trustee (“Trustee”) brought suit against several commercial lenders in connection with similarly structured — but distinct — loans made to Cornerstone Homes, Inc., the Chapter 11 debtor (“Cornerstone”). For the sake of simplicity, the commercial lenders will be referred to collectively as “banks” — with apologies to the dictionary definition of the word. The adversary proceedings in the caption of this decision are two of those actions. The causes of action at issue in each of the Trustee’s complaints allege substantially similar facts and identical causes of action. The defendant in each of these actions has moved to dismiss certain of the causes of action in the complaints, under Rule 12(b) FRCP. Because the relevant causes of action in each complaint and the corresponding motion to dismiss are substantially similar in all meaningful respects, the Court will address the issues raised by both motions to dismiss in a single decision, as permitted by Rule 42(a)(1) FRCP. However, the actions are not being consolidated by the Court under Rule 42(a)(2) FRCP, at this time.
In both complaints, the Trustee claims that cash infusions provided by the banks enabled David Fleet (“Fleet”), Cornerstone’s tarnished former principal, to operate a Ponzi scheme
Rather than answering the complaints, Community Preservation Corporation (“CPC”) and First Citizens National Bank (“First Citizens”) have each moved under Rule 12(b) FRCP to dismiss those causes of action alleging both actual and constructive fraud under New York Debtor Creditor Law (“NYDCL”). (Case No. 16-2007, ECF No. 14 ¶¶ 3-5; Case No. 16-2005, ECF No. 16 at 2-3). The causes of action alleging actual and constructive fraud make up only a portion of the many causes of action asserted in the Trustee’s complaints.
Under the pleading standard established by the Supreme Court in Iqbal and Twombly, and the heightened pleading standard required for claims alleging fraud as required by Rule 9(b) FRCP, the Court finds that the Trustee has adequately pled the claims for actual and constructive fraud, to survive a motion to dismiss under Rule 12(b)(6). See Ashcroft v. Iqbal,
I.
JURISDICTION
The Court has jurisdiction of these actions under 28 U.S.C. §§ 157(a), 157(b)(1) and 1334. This is a core proceeding under 28 U.S.C. § 157(b)(2)(H).
II.
FACTS
A. Cornerstone’s Business Model
Fleet founded Cornerstone in 1999.
According to the Trustee, at some point Fleet began operating Cornerstone as a Ponzi scheme, by using the money from new private investor loans to repay the notes held by earlier private investors. (Id. ¶21). Cornerstone, acting through Fleet, needed more cash to continue its operations. (Id.). To attract additional investments in Cornerstone, Fleet sent letters and informational packets to both existing and potential new investors concerning Cornerstone’s sound business model and financial health. (Id. ¶¶ 28-38). In these communications, Fleet promised investors double-digit returns and a “safe refuge” for their‘money away from the volatile stock market, protected by the self-proclaimed sound financial footing of Cornerstone. (Id.). Fleet also represented to investors that Cornerstone did not use any bank financing — a more expensive source of financing that Fleet proudly avoided— or so he claimed. (See id. ¶ 30).
Cornerstone’s real estate empire became quite large. By 2005, Cornerstone had borrowed in excess of $12.7 million from individual investors. (Id. ¶ 45). For a time, Cornerstone’s individual investors received a mortgage on Cornerstone real property, as collateral security for their loans to Cornerstone. (See id. ¶¶ 30, 38). However, Cornerstone was unable to generate the cash flow necessary to make good on Fleet’s promise to investors of double-digit returns on their investments. (Id. ¶¶ 44-46). Beginning in 2006, Fleet also sought and obtained loans from commercial lenders, including CPC and First Citizens, while continuing to represent to investors that Cornerstone did not utilize bank financing. (Id. ¶ 46). The Trustee claims that, at the time of the loans at issue, Cornerstone was insolvent. (Id. ¶ 39).
B. CPC’s Loans to Cornerstone
From 2006 to 2009, CPC entered into five separate loan transactions with Cornerstone (CPC# 1 Loan, CPC# 2 Loan, CPC# 3 Loan, CPC# 4 Loan, CPC# 5 Loan), by which CPC loaned Cornerstone in excess of $12.7 million. (Id. ¶¶ 15, 69-70, 73-74, 82, 90-91, 93). The purpose of the various CPC loans was to refinance the debt that Cornerstone owed to its hundreds of private investors. (Id. ¶ 47, 83, 94). To that end, the CPC# 1, CPC# 2, CPC# 4, and CPC# 5 Loans consolidated the debt owed on certain of the private investor notes and mortgages. (Id. ¶¶ 69-70, 73-74, 90-91, 93-94). Before closing on the CPC# 1 and CPC# 2 Loans, CPC required that private investors execute written assignments to CPC of their Cornerstone notes and the mortgages securing
As a part of its due diligence in making those loans, CPC required Cornerstone to provide audited financial statements and tax returns. (Id. ¶ 57). Cornerstone’s tax returns and financial statements for 2003 to 2005 reported net losses and estimated that its total liabilities exceeded its total assets — showing, in the Trustee’s view, that Cornerstone was insolvent. (Id. ¶¶ 60, 63, 66). For 2006 to 2009, Cornerstone’s tax returns reported insolvency, but its financial statements reported solvency. (Id. ¶¶ 78-79, 86-87, 126-27, 129-30). The financial statements explained that there were discrepancies between Cornerstone’s 2006-2009 tax returns and financial statements because the financial statements recognized, as income, amounts that had not actually been received by Cornerstone. (Id. ¶¶ 79, 87, 127, 130).
C. First Citizens’ Loans to Cornerstone
Also from 2006 to 2009, First Citizens entered into five separate loan transactions with Cornerstone (“FC# 1 Loan, FC# 2 Loan, FC#3 Loan, FC#4 Loan, FC#5 Loan”), by which First Citizens loaned Cornerstone in excess of $7.1 million. (Case No. 16-2005, ECF No. 7 ¶¶ 15, 74, 82, 93, 105, 111). The purpose of the First Citizens loans was to refinance the debt that Cornerstone owed to its hundreds of private investors. (Id. ¶ 47). Before making the FC# 1 and FC# 2 Loans, First Citizens required that Cornerstone transfer 83 parcels of real property that would secure those loans to a separate, newly formed entity called CNY Homes. (Id. ¶¶ 69-71, 73, 81). According to the Trustee, this was done “in an apparent attempt to insulate [First Citizens] from Debtor’s suspicious business” and to “insulate such real property from the claims of Debtor’s other creditors.” (Id. ¶¶ 69, 71). Before closing on the FC# 1 and FC# 2 Loans, First Citizens also required that private investors execute written assignments to First Citizens of their Cornerstone notes and the mortgages securing those notes. (Id. ¶¶ 76, 84). After the transfers to CNY Homes were complete, and after the private investors executed written assignments, First Citizens made the FC# 1 and FC# 2 Loans to Cornerstone. (Id. ¶¶ 74-75, 82-83). These loans consolidated the debt owed on certain of the private investor notes and mortgages.
The subsequent three loans made by First Citizens to Cornerstone were structured differently. The FC# 3 Loan was a revolving credit facility secured by a second mortgage on the FC# 1 and FC# 2 properties. (Id. ¶ 94). The FC# 4 and FC#5 Loans, on the other hand, were extended to “restructure a portion of Cornerstone Homes, Inc. debt to private investors.” (Id. ¶¶ 106, 112). Unlike First Citizens’ first two loan agreements with Cornerstone, First Citizens did not require assignment of the private investors’ notes and mortgages in connection with those loans. (Id. ¶¶ 110, 116). Additionally, none of the proceeds of those, loans were designated for payment to the private investors — instead directing payment to Cornerstone. (Id.).
Like CPC, First Citizens performed due diligence before entering into loan agreements with Cornerstone. As a part of that due diligence, First Citizens required Cornerstone to provide audited financial statements and tax returns from 2003 to 2009. (Id. ¶ 57). As was previously mentioned, those financial statements and tax returns reflected insolvency in some documents and solvency in others. (Id. ¶¶ 59, 62, 65, 90, 102, 149, 152).
D. Collapse of the Alleged Ponzi Scheme
' By 2005, Cornerstone had over $11 million in private investor loans that were secured by real estate collateral. (Case No. 16-2007, ECF No. 7 ¶ 103; Case No. 16-2005, ECF No. 7 ¶ 124). Until 2005, each of the private investor loans was secured by a mortgage on real property. (Case No. 16-2007, ECF No. 7 ¶ 103; Case No. 16-2005, ECF No. 7 ¶ 124). Beginning in 2006, Fleet began to solicit unsecured loans from Cornerstone’s private investors. (Case No. 16-2007, ECF No. 7 ¶¶ 98-101; Case No. 16-2005, ECF No. 7 ¶¶ 120-22). By 2010, private individuals had invested over $15 million in Cornerstone, on an unsecured basis. (Case No. 16-2007, ECF No. 7 ¶ 103; Case No. 16-2005, ECF No. 7 ¶ 124). According to the Trustee, “[tjhe financing provided by [CPC and First Citizens] enabled Debtor to pay ‘private investors’ and contributed to the false impression that Fleet was operating a legitimate, profitable business. Fleet used the false sense of security resulting from the payment of the secured ‘private investor’ loans to entice individuals to loan additional funds to Debtor on an unsecured basis, thus enabling Fleet to perpetuate and expand the Ponzi scheme.” (Case No. 16-2007, ECF No. 7 ¶ 100; Case No. 16-2005, ECF No. 7 ¶ 121).
The Trustee alleges that, in 2010, as the alleged Ponzi scheme was collapsing, Fleet paid off the remaining mortgages held by private investors — using the newly unencumbered real property as collateral to attempt to negotiate forbearance agreements with CPC and First Citizens, (Case No. 16-2007, ECF No. 7 ¶ 132; Case No. 16-2005, ECF No. 7 ¶¶ 137-39). Fleet successfully negotiated a forbearance agreement with First Citizens, by which First Citizens accepted millions of dollars of additional collateral from Cornerstone, as further security for the obligations incurred by Cornerstone (“Forbearance Transfers”). (Case No. 16-2005, ECF No. 7 ¶ 154). Fleet continued to make debt service payments to CPC and First Citizens — to protect against personal liability on guarantees he had given to the banks—
Because CPC and First Citizens had detailed information concerning Cornerstone’s precarious financial footing — obtained through their pre-loan due diligence investigations — the Trustee alleges that the banks knew or should have known that Cornerstone “was, at all relevant times, insolvent, raising millions of dollars each year from ‘private investors,’ and dependent upon these ‘private investor’ loans to fund [Cornerstone’s] financial obligations, including its obligations to the ‘private investors’ and [CPC and First Citizens].” (Case No. 16-2007, ECF No. 7 ¶ 58; Case No. 16-2005, ECF No. 7 ¶ 58). The Trustee alleges that CPC and First Citizens knew or should have known that Cornerstone was operating as a Ponzi scheme; that the high-risk purchasers of Cornerstone’s properties would likely default on their obligations to repay Cornerstone; that private investor loans were being used to support' Cornerstone’s negative cash flow arising from its operations and prior financial obligations; and that upon the inevitable collapse of the Ponzi scheme, the debt to CPC and First Citizens would be collaterally secured by real property, while the debt owed to the private investors would be unsecured. (Case No. 16-2007, ECF No. 7 ¶ 96; Case No. 16-2005, ECF No. 7 ¶ 117). In the complaints, the Trustee asserts multiple causes of action against the banks, alleging both actual fraud and constructive fraud. The Trustee seeks, as a remedy, avoidance of the obligations incurred and the conveyances made by Cornerstone to CPC and First Citizens (to be specific, the “CPC# 1 Transfer, CPC# 2 Transfer, CPC# 3 Transfer, CPC# 4 Transfer, CPC# 5 Transfer, FC# 1 Transfer, FC# 2 Transfer, FC# 3 Transfer, FC# 4 Transfer, FC#5 Transfer, Forbearance Transfer”).
III.
QUESTION PRESENTED
The issue is whether the Trustee has sufficiently pled each of the causes of action alleging either actual fraud or constructive fraud, to survive the motions to dismiss by CPC and First Citizens. In the Court’s view, the answer is yes.
IV.
DISCUSSION
A. The Trustee Has Adequately Pled Claims for Actual Fraud and Constructive Fraud Under Rule 12(b)(6), Rule 9(b), and Rule 8(a) FRCP.
1. Motions to Dismiss Under Rule 12(b)(6) — Standard Applied
When considering a motion under Rule 12(b)(6), seeking dismissal of a complaint for failure to state a claim upon which relief can be granted, the Court must accept factual allegations in the complaint as true. Ashcroft v. Iqbal,
2. Claims Alleging Actual Fraud (Counts I-V of CPC Complaint & Counts I-VI of First Citizens Complaint)
Counts I through V of the Trustee’s complaint against CPC allege causes of action sounding in actual fraud — under NYDCL §§ 276 and 276-a — seeking, as a remedy, to set aside each of the transfers made in connection with the CPC# 1 through CPC# 5 Loans. (Case No. 16-2007, ECF No. 7 ¶¶ 147-181). Counts I through VI of the Trustee’s complaint against First Citizens also allege causes of action for actual fraud under New York Law — seeking, as a remedy, to set aside each of the transfers made in connection with the FC# 1 through FC# 5 Loans and the Forbearance Transfers. (Case No. 16-2005, ECF No. 7 ¶¶ 171-212). Section 276 of the NYDCL provides:
Every conveyance made and every obligation incurred with actual intent, as distinguished from intent presumed in law, to hinder, delay, or defraud either present or future creditors, is fraudulent as to both present and future creditors.
Rule 9(b) FRCP and Rule 7009 FRBP establish a heightened pleading standard for claims alleging intentional fraud — such as claims brought under NYDCL § 276. In re Bernard L. Madoff Inv. Secs. LLC,
While Rule 9(b) requires that a plaintiff alleging actual fraud identify with particularity the facts and circumstances giving rise to the claim, the element of intent may be alleged generally. See Rule 9(b) FRCP; Shields v. Citytrust Bancorp, Inc.,
(i) a close relationship among the parties to the transaction;
(ii) a questionable or hasty transfer not in the ordinary course of business;
(Hi) the existence of an unconscionable discrepancy between the value of the property transferred and the consideration received therefor;
(iv) the chronology of the events and transactions under inquiry;
(v) the existence or cumulative effect of a pattern or series of transactions or course of conduct after the incurrence of debt, onset of financial difficulties, or pendency or threat of suits by creditors; and
(vi) whether the debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred.
In re Lehman Bros. Holdings Inc.,
Courts in the Second Circuit are divided on whether the plaintiff need only plead the fraudulent intent of the transferor under the NYDCL—or whether the fraudulent intent of the transferee must also be pled. In re Bernard L. Madoff Inv. Secs. LLC,
When the plaintiff asserting a claim sounding in actual fraud is the bankruptcy trustee, the court should adopt “a
CPC argues that the Trustee’s claims sounding in actual fraud should be dismissed under Rule 12(b)(6) and Rule 9(b) FRCP because the Complaint is “rife with eonclusory allegations and is bereft of actual factual allegations that would support the conclusions plead [sic].” (Case No 16-2007, ECF No. 14 ¶ 42). In the motion to dismiss, CPC quibbles over certain of the facts alleged in the complaint — offering alternative facts — and even offering additional facts not asserted in the complaint. {See id. ¶¶ 46-62). For instance, in response to the claim that Cornerstone expanded the alleged ongoing Ponzi scheme by refinancing individual investor loans with the proceeds of CPC loans, CPC argues that the terms of its loans to Cornerstone — with lower interest rates and longer amortization than the individual investors’ notes — demonstrate that CPC’s lending allowed Cornerstone to retire debt to the individual investors holding mortgages. (Id. ¶¶ 46-48). CPC also asserts that the facts do not support a showing that CPC had knowledge of an ongoing Ponzi scheme. (Id. ¶ 50), Rather, “CPC made the loans based on the values of the real estate being pledged as collateral ....” (Id.). Attempting to refute the Trustee’s allegation that Cornerstone’s financial statements and tax returns showed Cornerstone to be insolvent, CPC offers its own extensive history of the due diligence that CPC performed in making the loans to Cornerstone — complete with details about appraisals, its treatment of the Cornerstone properties as inventory, its accountants’ views of Cornerstone’s financial ability to perform, and so on. (Id. ¶¶ 51-62). These facts do not appear in the complaint.
The counter-statement of facts offered by CPC is of no use in connection with its motion to dismiss the complaint under Rule 12(b)(6) and Rule 9(b) FRCP. The Court is required to limit its consideration to the facts asserted in the complaint, and the Court must draw all reasonable inferences in favor of the plaintiff. See Columbia Univ.,
First Citizens also attacks the sufficiency of the fraud claims in the Trustee’s complaint, arguing that the complaint merely recites the elements of actual fraud without factual support. (Case No. 16-2007, ECF No. 16 at 10-14). First Citizens asserts that the complaint does not identify with particularity the “conveyances” and “obligations” that the Trustee seeks to avoid, by failing to allege the specific property that was conveyed, the timing, and the consideration. (Id. at 11-12.). Additionally, First Citizens claims that the complaint does not contain factual allegations describing how and why the transfers were fraudulent. (Id. at 12-14).
The Trustee has also sufficiently pled the element of intent in connection with the fraudulent conveyance claims, by alleging the existence of certain badges of fraud. The Court will assume, for purposes of the motions to dismiss, - that both the intent of the transferor and the transferee must be pled in the complaint. See Bernard L. Madoff Inv. Secs. LLC,
Additionally, the Trustee has adequately pled the fraudulent intent of Cornerstone — again by alleging the existence of several badges of fraud. The Trustee has alleged that Fleet, as principal of Cornerstone, used the CPC and First Citizens Loans to create the illusion of Cornerstone’s profitability, to pay off individual investor loans, to solicit individuals to make unsecured investments in Cornerstone, and to perpetuate the alleged Ponzi scheme. (Case No. 16-2007, ECF No. 7 ¶ 96; Case No. 16-2005, ECF No. 7 ¶ 117). According to the complaint, Fleet continued to incur debt and make debt service payments to CPC and First Citizens, while Cornerstone was insolvent. (Case No. 16-2007, ECF No. 7 ¶ 133; Case No. 16-2005, ECF No. 7 ¶ 137). Again, the Trustee has pled facts that, if proved true, would dem
Because the Trustee has adequately pled the circumstances constituting fraud and actual intent under NYDCL § 276, the Court need not consider the sufficiency of consideration given in connection with the CPC loans. See Saba Enters., Inc.,
3. Claims Alleging Constructive Fraud (Counts VI-VITI of CPC Complaint & Counts VII-X of First Citizens Complaint)
Counts VI through VIII of the complaint against CPC are causes of action alleging constructive fraud, seeking — as a remedy — to set aside each of the transfers to CPC in connection with CPC# 3 through CPC# 5 Loans. (Case No. 16-2007, ECF No. 7 ¶¶ 182-199). Counts VII through X of the complaint-against First Citizens are also causes of action for constructive fraud, seeking — as a remedy — to set aside the transfers made in connection with FC#3 through FC#5 Loans and those identified as the Forbearance Transfers. (Case No. 16-2005, ECF No. 7 ¶¶ 213-236). The claims are brought under 11 U.S.C. §§ 502(d), 544, 550, and 551 and NYDCL §§ 273, 274, and 275.
There is a split of authority within the Second Circuit concerning the pleading-standard to be applied to claims alleging constructive fraud under the NYDCL. Compare Geo-Grp. Commc’ns, Inc.,
Article 10 of the NYDCL provides a “set of legal rather than equitable doctrines, whose purpose is not to provide equal distribution of a debtor’s estate among creditors, but to aid specific creditors who have been defrauded by the transfer of a debtor’s property.” HBE Leasing Corp. v. Frank,
Every conveyance made without fair consideration when the person making it is a defendant in an action for money damages or a judgment in such an action has been docketed against him, is fraudulent as to the plaintiff in that action without regard to the actual intent of the defendant if, after final judgment for the plaintiff, the defendant fails to satisfy the judgment.
Lack of fair consideration is a necessary element under both sections. For there to be fair consideration, two elements must be present — the transfer must have been made for fair equivalent value and received in good faith. Dreier LLP,
CPC and First Citizens argue that the claims of constructive fraud under the NYDCL should be dismissed because the complaints fail to set forth specific facts regarding the elements of fair consideration — fair equivalent value and good faith. (Case No. 16-2007, ECF No. 14 ¶¶ 105-08; Case No. 16-2005, ECF No. 16 at 14-16). The Court disagrees with the banks. Evidence of such facts is not necessary at this early stage of litigation, especially in light of the liberal pleading standard under Rule 8(a) FRCP. The question of adequacy of consideration is factual, and a determination of that issue — before discovery — is
In the Court’s view, the Trustee has adequately alleged the banks’ lack of good faith, which satisfies the pleading standard for causes of action sounding in constructive fraud, for purposes of defeating the banks’ 'motions to dismiss. See Dreier LLP,
B. The Trustee Has Standing to Bring Counts I-V of the CPC Complaint and Counts I-X of the First Citizens Complaint.
CPC and First Citizens argue that the Trustee does not have standing to bring Counts I through V of the complaint against CPC and Counts I though X of the complaint against First Citizens, because of the common law doctrine of in pari delicto. (Case No. 16-2007, ECF No. 14 ¶¶ 66-74; Case No. 16-2005, ECF No. 16 at 16-20). Under New York law, the in pari delicto doctrine is an affirmative equitable defense — barring an action by a wrongdoer, or a plaintiff asserting a claim on behalf of a wrongdoer, against another wrongdoer. In re Bernard L. Madoff Inv. Secs. LLC,
The Wagoner rule has limits, however. “[N]either the Wagoner rule nor the in pari delicto doctrine apply to. a trustee’s
Here, the Trustee’s claims to avoid the transfers alleged to have been actually fraudulent, in Counts I through V of the CPC complaint and Counts I through X of the First Citizens complaint, are brought under NYDCL § 276. The Trustee has statutory standing to pursue those state-law claims against a creditor under 11 U.S.C. § 544(b). Accordingly, the in pari delicto doctrine and the related Wagoner rule do not bar the Trustee’s standing to bring avoidance claims, under § 544 of the Code.
C. A Ruling on the Statute of Limitations Defense Is Premature.
In a further attempt to knock the legs out from under Counts I and II of the complaints, CPC and First Citizens argue that those Counts — seeking to avoid the transfers made in connection with the CPC# 1 and CPC# 2 Loans and the FC# 1 and FC# 2 Loans — are time-barred. (Case No. 16-2007, ECF No. 14 ¶¶ 89-98; Case No. 16-2005 at 20-22).
The CPC loans transactions took place on August 22, 2006. (Case No. 16-2007, ECF No. 14 ¶ 94). CPC asserts that the statute of limitations for actual fraud under New York law expired six years later, on August 22, 2012. (Id. ¶¶ 93-94). Cornerstone’s bankruptcy petition, filed on July 15, 2013, was outside- of that statutory period. (Id.). Further, CPC argues that “any possible argument by the Trustee that the statute of limitations did not run as of the Petition Date because it was not two years from the time the fraud was discovered or could have been discovered, is unavailing.” (Id. ¶ 95). CPC reasons that if CPC knew or should have known of Cornerstone’s fraud, then “a hypothetical creditor must have or should have known as well.” (Id. ¶ 96).
The First Citizens loans at issue took place on April 21, 2006 and November 11, 2006. (Case No. 16-2005, ECF No. 16 at 20). First Citizens asserts that the six-year statute of limitations for actual fraud expired on April 21, 2012 and November 11, 2012, respectively — both dates being before the July 15, 2013 date of the bankruptcy petition. (Id. at 21). First Citizens makes no mention of the discovery rule.
Under New York law, the statute of limitations for fraud is the “greater of six years from the date the cause of action accrued or two years from the time the plaintiff or the person under whom the plaintiff claims discovered the fraud, or could with reasonable diligence have discovered it.” NY CPLR § 213(8) (emphasis added). In asserting the affirmative de
Here, the Court must take the Trustee’s allegations as true — and the Trustee has invoked the discovery rule by alleging that the fraudulent scheme was not reasonably discoverable by at least one unsecured creditor by the petition date. (Case No. 16-2007, ECF No. 7 ¶ 146; Case No. 16-2005 ¶ 170). Because it does not conclusively appear that a creditor knew or should have known of the alleged fraud before the date that Cornerstone filed its bankruptcy petition, the Court cannot dismiss Counts I and II of the complaints on statute of limitations grounds. There is no basis to impute CPC or First Citizens’ alleged knowledge of the fraud to other creditors, as the banks would have it. Although the six-year statute of limitations may have run on Counts I and II of both complaints, the discovery rule may save those claims— and that fact question must be left to the trier of fact. Accordingly, a determination of whether the statute of limitations precludes pursuit of Counts I and II by the Trustee is premature.
V.
CONCLUSION
Under the pleading standard established by the Supreme Court in Iqbal and Twombly, and the heightened pleading standard required for claims alleging fraud as required by Rule 9(b) FRCP, the Court finds that the Trustee has adequately pled the claims for actual and constructive fraud, to survive a motion to dismiss under Rule 12(b)(6). See Ashcroft v. Iqbal,
IT IS SO ORDERED.
Notes
. The issue of whether the Ponzi scheme presumption applies to these adversary proceedings has not yet been formally addressed by the parties at this point in the litigation.
. The Trustee’s complaint against CPC asserts 18 causes of action. And the Trustee's complaint against First Citizens asserts 23 causes of action. Wow! One would be hard-pressed
. The facts — taken from the Trustee’s complaint — are assumed to be true for purposes of determining the issues raised in the motions to dismiss. See Ashcroft v. Iqbal,
. Because the first 67 paragraphs of the Trustee’s complaint in each action are nearly identical, the Court will refer only to the complaint against CPC, to avoid needless duplication.
. The Trustee previously challenged the validity of these Consolidated Notes and Mortgages. This Court ruled that the Consolidated Notes and Mortgages are enforceable, secured, and CPC and First Citizens have standing to enforce their Consolidated Notes and Mortgages. See Arnold v. First Citizens Nat'l Bank,