MEMORANDUM AND ORDER OF COURT 1
AND NOW, this 4th day of August, 2003, upon consideration of the motion by the Defendants for (a) the entry of a judgment in their favor at this time on the Trustee’s four remaining counts for fraudulent conveyance (i.e., Counts 1, 2, 5 & 8), which motion is brought pursuant to Fed. R.Civ.P. 52(c) and Fed.R.Bankr.P. 7052 on the ground that the Court’s March 7, 2003 decision denying the Trustee’s request to combine Fox Drug and Fox Corp. via a piercing of the corporate veil precludes the Trustee, as a matter of law, from prevailing on the aforesaid fraudulent conveyance counts (hereafter “the Rule 52(c) Motion”), and (b) a determination
in limine
that, in the event that the Trustee prevails under any of Counts 1, 2, 5 or 8, the Trustee’s potential recovery thereunder shall be limited to the value of the PharMor securities that were dividended by Fox Drug to Avatex (hereafter “the Damages Limitation Motion”);
2
and upon consideration of the
(a) the Rule 52(c) Motion is GRANTED and, thus, judgment is entered in favor of the Defendants, but only with respect to the Trustee’s Count 2, that is the Trustee’s constructive fraudulent conveyance claim under 11 U.S.C. § 548(a)(1)(B), which ruling is dictated by the Trustee’s concession that, given the Court’s March 7, 2003 decision denying a piercing of the corporate veil, (i) Fox Drug received reasonably equivalent value in return for that which it transferred via the June 19, 1996 Transactions, and (ii) the Trustee’s Count 2 consequently is no longer viable (hereafter “the Trustee’s Concession”),
(b) the Rule 52(c) Motion is DENIED WITHOUT PREJUDICE with respect to the Trustee’s Counts 1, 5 & 8, although, as set forth below with detail, the Court substantially narrows the issues that remain for resolution with respect to such counts, and
(c) the Damages Limitation Motion is DENIED WITH PREJUDICE.
The rationale for the Court’s decision is set forth below save for the Court’s ruling with respect to the Trustee’s Count 2, for which nothing more need be said given the Trustee’s Concession.
I.
The Defendants maintain now, as they have throughout the course of the instant adversary proceeding, that they are entitled to a judgment in their favor with respect to the Trustee’s Counts 1, 5 & 8 because, argue the Defendants, they (a) gave $575 million in value to Fox Drug in good faith as part of the June 19, 1996 Transactions, (b) are thus entitled to a $575 million statutory lien upon that which they received from Fox Drug via the June 19, 1996 Transactions pursuant to 11 U.S.C. § 548(c) and N.Y. Debt. & Cred. Law (N.Y.DCL) § 278(2), and (c) thus possess a statutory lien equal in amount to the maximum amount that the Trustee seeks in the form of a recovery under his Counts 1, 5 & 8 pursuant to 11 U.S.C. § 550(a)(1), thereby precluding any such recovery by the Trustee under such counts. The Court has previously held that the Defendants gave value equal to $575 million as part of the June 19, 1996 Transactions.
See Foxmeyer Corp.,
As for the Trustee’s Count 8, that is the Trustee’s constructive fraudulent conveyance claim under NYDCL §§ 273-275, the Defendants, in reliance upon the decision in
In re Sharp International Corp. v. State Street Bank and Trust Co.,
Finally, the Defendants maintain that the application in the instant matter of caselaw including, in particular, the decision in
HBE Leasing Corp. v. Frank,
The Trustee opposes the Rule 52(c) Motion as it pertains to the actual fraudulent conveyance claims presented in his Counts 1 and 5, and argues in support of such opposition that (a) the gravamen of the Trustee’s actual fraudulent conveyance actions is not merely an intent by Fox Drug and Fox Corp. to divert $198 million of their assets via the aforesaid dividends but also an intent by Fox Drug, as a result of the June 19, 1996 Transactions, to (i) encumber $575 million of its previously unencumbered assets, thereby evidencing an intent to also hinder if not defraud Fox Drug’s unsecured creditor body that remained after Fox Drug utilized the Loan Proceeds of $575 million solely to effect the payoff of unsecured debt to, that is to essentially prefer, the Citicorp Lenders and the Noteholders, and (ii) essentially sacrifice, that is destroy, itself so as to aid Avatex in the satisfaction of Avatex’s indebtedness to others, thereby evidencing an intent to also hinder if not defraud Fox Drug’s remaining unsecured creditor body, and (b) the Defendants possessed knowledge of each of the intentions of Fox Drug as just described, thereby dictating a finding that the Defendants acted in bad faith instead of good faith. The Trustee also opposes the Rule 52(c) Motion as it pertains to the New York law constructive fraudulent conveyance claim in his Count 8, and argues in support of such opposition that, inter alia, the Defendants misinterpret the decision in Sharp International. Finally, the Trustee disputes the procedural propriety of the Rule 52(c) Motion. As for the Damages Limitation Motion, the Trustee argues that the same should be denied because Fox Drug suffered damages other than the loss of the $8 million in PharMor securities, namely the encumbrance of previously unencumbered assets not to mention the total destruction of itself.
II.
The Court shall first address the Trustee’s position that the Rule 52(c) Motion is procedurally improper. The Trustee contends, as an initial matter, that Fed. R.Civ.P. 52(c), under which rule the Rule 52(c) Motion is brought, only authorizes a judgment thereunder after both a trial has commenced and a party has been fully heard on an issue that may be dispositive of a claim. The Court fully agrees with the Trustee on the latter point since the plain language of such rule provides, in pertinent part, that:
If during a trial without a jury a party has been fully heard on an issue and the court finds against the party on that issue, the court may enter judgment as a matter of law against that party with respect to a claim, that cannot under the controlling law be maintained or defeated without a favorable finding on that issue.
Fed.R.Civ.P. 52(c), 28 U.S.C.A. (West 2003) (made applicable to adversary proceedings pursuant to Fed.R.Bankr.P. 7052). The Trustee contends that the Rule 52(c) Motion is procedurally inappropriate because a trial, argues the Trustee, has not yet even commenced with respect to, let alone has the Trustee had the opportunity to be fully heard on, the issues upon which the Defendants wish the Court to now rule via the Rule 52(c) Motion, namely the alleged fraudulent intent of Fox Drug and the Defendants’ good faith. The Trustee supports the preceding posi
For several reasons, the Court disagrees with much of the Trustee’s foregoing procedural analysis. First, the
Antipas
court only held that Fed.R.Civ.P. 52(c) does not authorize the entry of a judgment with respect to a claim that is not or was not before a court during — i.e., is not or was not the subject of — the trial in question.
See Id.
at n. 3. The
Antipas
court did not hold, as the Trustee contends, that a judgment under Fed.R.Civ.P. 52(c) is always unauthorized with respect to unheard issues that arise within the prosecution of a claim that is or was the subject of the trial in question. In fact, the Court holds, as a matter of law, that if a party is fully heard on a particular issue that arises within the prosecution of a claim and a court finds against such party on such issue, then such court is free to grant judgment under Fed.R.Civ.P. 52(c) against such party on other issues for which such party has not yet been heard but that will arise within the remaining prosecution of such claim provided that, absent a favorable finding by such court on the issue that has been heard, such party, as a matter of law, cannot prevail on such other issues. Second, applying the foregoing statement of the law regarding Fed. R.Civ.P. 52(c), the Court may, simply on the basis of its ruling that denies the Trustee’s request for veil piercing, enter judgment pursuant to Fed.R.Civ.P. 52(c) against the Trustee regarding the issues of the alleged fraudulent intent of Fox Drug and the Defendants’ good faith, provided that (a) the Court also concludes, as a matter of law, that the Trustee cannot prevail on such issues absent a favorable ruling on the veil piercing issue, and (b) the issues of veil piercing, the alleged fraudulent intent of Fox Drug, and the Defendants’ contention that they acted in good faith, each arise within the prosecution of claims that were the subject of the trial that was conducted on February 5, 2003. Third, the Court is uncertain whether, but suspects that perhaps, the Trustee takes the position that the prosecution of the veil piercing issue was somehow divorced from the prosecution of the Trustee’s claims within which such issue arose, namely those claims that comprise the Trustee’s Counts 1, 5 & 8, such that the Trustee can now successfully argue that Counts 1, 5 & 8 were not a subject of the trial that was conducted on February 5, 2003. However, to the extent that the Trustee takes such position, the same is rejected outright — indeed, in contrast to
Antipas,
where certain claims were not the subject of the trial in question therein, thereby precluding entry of a judgment via Fed.R.Civ.P. 52(c) with respect to such claims, the Trustee’s Counts 1, 5 & 8 were a subject of the February 5, 2003 trial notwithstanding that the only issue that was then prosecuted was that regarding
III.
Addressing next the merits of the Rule 52(c) Motion as the same pertains to the Trustee’s actual fraudulent conveyance claims set forth in his Counts 1 and 5, the Court holds first that, given the Court’s March 7, 2003 decision denying veil piercing, the Trustee can no longer prevail on either such count — that is, the Trustee can no longer prevail on the issue of Fox Drug’s alleged fraudulent intent, thereby precluding recovery under either such count — to the extent that he predicates the same upon (a) the fact that Fox Corp. intended to and did dividend away $190 million of its assets by virtue of the June 19, 1996 Transactions, (b) an allegation that Fox Drug, by intending to assist Fox Corp. in Fox Corp.’s effectuation of such $190 million dividend, thereby intended to hinder, delay, and/or defraud its unsecured creditors, or (c) any sort of allegation similar in nature to that just recounted in subpart (b), such as, for instance, an allegation that Fox Drug intended to hinder, delay, and/or defraud its unsecured creditors because it allegedly aided Fox Corp. in Fox Corp.’s alleged destruction of Fox Corp., which destruction allegedly occurred by virtue of Fox Corp.’s $190 million dividend. The preceding conclusion is dictated because, absent a combination of Fox Drug and Fox Corp. via veil piercing, Fox Drug’s creditor body had no claim to the assets of Fox Corp. As a consequence of the immediately preceding point, Fox Drug’s unsecured creditor body neither was nor could have been harmed (a) by Fox Corp.’s transfer of its assets for no return value, (b) by Fox Corp.’s alleged destruction of itself, and/or (c) consequently by Fox Drug’s alleged assistance to Fox Corp. in accomplishing such acts. Of course, if such creditor body was not harmed by such acts, then one necessarily could not intend to hinder, delay, or defraud such creditor body simply by intending to engage in such acts.
Second, the Court holds that, given the Court’s March 7, 2003 decision denying veil piercing as well as the Trustee’s Concession, the Trustee can no longer prevail on either of his Counts 1 and 5 simply by pointing, in support of such counts and as a basis for finding that Fox Drug possessed an intent to hinder, delay, and/or defraud its unsecured creditors when it entered into the June 19, 1996 Transactions, to the fact that Fox Drug intended to and did thereby transfer away $8 million of its assets. The Court holds as it does because the Court holds, in turn, that, if, as the Trustee now concedes, Fox Drug received reasonably equivalent value when it engaged in the June 19, 1996 Transactions, a part of which transactions included Fox Drug’s $8 million dividend, then Fox Drug necessarily could not, solely by virtue of intending to effect that discrete part of the June 19, 1996 Transactions that resulted in a transfer of such $8 million in assets, have thereby intended to hinder, delay, or defraud its unsecured creditor body. The preceding conclusion is dictated because (a) the Trustee, solely with respect to such $8 million asset transfer, argues nothing more than that Fox Drug’s net assets shrunk by $8 million, which shrinkage, given a concession that Fox
Third, the Court holds that, because, as just explained, Fox Drug can now no longer be found to have possessed an intent to hinder, delay, or defraud its unsecured creditor body simply due to (a) Fox Corp.’s dividend of Fox Corp.’s assets, or (b) Fox Drug’s intent to effect its own $8 million dividend or to aid Fox Corp. in Fox Corp.’s effectuation of Fox Corp.’s dividend, the Defendants, simply by possessing knowledge that Fox Corp. and/or Fox Drug intended to and did take such actions (hereafter “Knowledge of the Dividends”), can now no longer be found to have thereby possessed knowledge of a bad intent by Fox Drug. As a consequence of the preceding, and because the Defendants, as a matter of law, acted in good faith provided that they were “free from either fraudulent intent ... [themselves] or knowledge as to the fraudulent intent of ... [Fox Drug — i.e., their] transferor,”
see Foxmeyer Corp.,
In light of the foregoing analysis, the Court concludes that the Defendants would be entitled to a present grant of the Rule 52(c) Motion as the same pertains to the Trustee’s Counts 1 and 5 were it the case that the Trustee argues nothing with respect to such counts other than that Fox Drug and Fox Corp. intended to (a) divert $198 million of their assets via dividends, and (b) thereby hinder, delay, and/or defraud Fox Drag’s unsecured creditors. However, and notwithstanding the Court’s agreement with the Defendants that such $198 million diversion via dividends constitutes the centerpiece of the Trustee’s Counts 1 and 5, the Court cannot find that the Trustee, within such counts, confines his allegation of bad intent on the part of Fox Drug to the aforesaid $198 million diversion. Instead, the Court finds, as the Trustee now argues, that he has advanced, if not precisely pled, two other discrete theories upon which he predicates his allegation of bad intent on the part of Fox Drag, namely that Fox Drag intended, as a result of the June 19, 1996 Transactions, to (a) encumber $575 million of its previously unencumbered assets, thereby evidencing, alleges the Trustee, an intent to also hinder if not defraud Fox Drug’s unsecured creditor body that remained after Fox Drug utilized the Loan Proceeds of $575 million to effect the payoff of unsecured debt to, that is to essentially prefer, the Citicorp Lenders and the Noteholders,
see
1st Am. Compl., ¶¶ 1, 45, 53
&
58;
see also
Trustee’s Brief dat. May 23, 2003, pg. 4, and (b) essentially sacrifice, that is destroy, itself so as to aid Avatex in the satisfaction of Avatex’s indebtedness to others, thereby evidencing, alleges the Trustee, an intent to also hinder if not defraud Fox Drug’s remaining unsecured creditor body,
see
1st Am. Compl., ¶¶ 1, 22, 45-47, 49
&
61;
see also
Trustee’s Brief
The Court concludes that the Trustee, as a matter of law, cannot succeed in arguing that Fox Drug, simply because it intended to encumber $575 million of its previously unencumbered assets by virtue of the June 19, 1996 Transactions, thus also intended to hinder, delay, or defraud its unsecured creditor body within the meaning of 11 U.S.C. § 548(a)(1)(A) and NYDCL § 276. The Court rules as it does because (a) Fox Drug, in return for such encumbrance, received the Loan Proceeds of $575 million, which loan proceeds Fox Drug, in turn, utilized to effect the payoff of then-existing legitimate unsecured debt to the Citicorp Lenders and the Noteholders, and (b) Fox Drug, by intending to utilize the encumbrance of $575 million of its previously unencumbered assets to satisfy then-existing legitimate unsecured debt, did not, without more, thereby also intend to hinder, delay, or defraud its unsecured creditor body within the meaning of 11 U.S.C. § 548(a)(1)(A) and NYDCL § 276. The Court understands the Trustee to argue additionally, in support of his position, that (a) Fox Drug intended to utilize the encumbrance of $575 million of its previously unencumbered assets to ultimately prefer the Citicorp Lenders and the Noteholders to the detriment of Fox Drug’s remaining unsecured creditor body, and (b) Fox Drug, because it intended to effect such preference, thus possessed the requisite bad intent to hinder if not defraud such remaining unsecured creditor body. Unfortunately for the Trustee, however, such additional argument, without more, is insufficient to state a viable claim under 11 U.S.C. § 548(a)(1)(A) and NYDCL § 276 because, and as abundant caselaw makes clear, a debtor can favor, indeed prefer, any one or several of its unsecured creditors with a transfer of assets to the detriment of such debtor’s remaining unsecured creditor body, even in the face of such debtor’s insolvency, and such transfer, as a matter of law, cannot, without more, then be avoided as a fraudulent conveyance on the ground that such debt- or possessed actual intent to hinder, delay, or defraud its creditors.
See In re Hartley,
That the Trustee shall survive the Rule 52(c) Motion as the same pertains to the Trustee’s Counts 1 and 5 is also dictated because the Court concludes, in turn, that (a) sufficient proof by the Trustee that Fox Drug intended, as a result of the June 19, 1996 Transactions, to essentially sacrifice, that is destroy, itself will suffice to evidence the requisite bad intent by Fox Drug such that the Trustee could thereby make out his prima facie case under 11 U.S.C. § 548(a)(1)(A) and NYDCL § 276,
Having ruled that the Rule 52(c) Motion as the same pertains to the Trustee’s Counts 1 and 5 must be, and thus is, denied, the Court nevertheless feels obliged to note as well that:
(a) the Trustee predicates his theory that Fox Drug intended to destroy itself upon an allegation, in turn, that Fox Drug (i) knew, either actually or constructively, that it could not survive without short term trade credit, see 1st Am. Compl., ¶ 46; see also Trustee’s Brief dat. May 23, 2003, pg. 9, and (ii) intended to destroy its ability, going forward from June 19, 1996, to obtain sufficient short term credit from its trade creditors, see 1st Am. Compl., ¶¶ 49 & 61;
(b) the Trustee predicates his theory that Fox Drug intended to destroy its ability to obtain sufficient short term trade credit upon an allegation, in turn, that Fox Drug knew, either actually or constructively, that, by engaging in the June 19,1996 Transactions, it would thereby compel its trade creditors to fatally reduce or discontinue their extension of such short term credit, see 1st Am. Compl., ¶¶ 45-M7; see also Trustee’s Brief dat. May 23, 2003, pg. 9;
(c) the Trustee, if he cannot succeed in proving that Fox Drug knew, either actually or constructively, that it would necessarily dry up its short term trade credit sources by entering into the June 19, 1996 Transactions, will then be unable either to succeed in proving his theory that Fox Drug intended to destroy itself or, consequently, to thereby prevail on his Counts 1 and 5, 4
(d) the Trustee cannot succeed in proving that Fox Drug knew, either actually or constructively, that it wouldnecessarily dry up its short term trade credit sources by entering into the June 19, 1996 Transactions if, in fact, such short term trade credit was not substantially reduced as a result of the June 19, 1996 Transactions;
(e) some evidence was introduced at the February 5, 2003 trial regarding veil piercing that arguably tends to disprove the Trustee’s allegation that Fox Drug’s trade creditors fatally discontinued their extension of short term credit to Fox Drug as a .result of the June 19, 1996 Transactions, see In re Foxmeyer Corp.,290 B.R. 229 , 239-240 (Bankr.D.Del.2003) (discussion regarding evidence that trade credit continued to be extended to Fox Drug after the effectuation of the dividend by Fox Corp., which dividend was effected on, and as part of the transactions that occurred on, June 19,1996); and
(f) if such evidence cannot be refuted by the Trustee, then the Trustee will succeed neither in proving that Fox Drug’s short term trade credit sources dried up as a result of the June 19, 1996 Transactions, nor, consequently, that Fox Drug knew, either actually or constructively, that it would necessarily dry up its short term trade credit sources by entering into the June 19, 1996 Transactions.
Because the Court cannot presently say with certainty that the Trustee has been fully heard on the issue of whether Fox Drug’s short term trade credit sources dried up as a result of the June 19, 1996 Transactions, the Court shall not presently rule, via the Rule 52(c) Motion, that (a) Fox Drug’s short term trade credit sources did not, in fact, dry up as a result of the June 19, 1996 Transactions, (b) Fox Drug thus lacked knowledge, either actual or constructive, that it would necessarily dry up its short term trade credit sources by entering into the June 19, 1996 Transactions, (c) the Trustee cannot prove that Fox Drug intended to destroy itself, and (d) the Trustee, consequently, cannot thereby prevail on his Counts 1 and 5. However, the bringing of another Rule 52(c) motion by the Defendants would be proper in the event that, after such opportunity to be heard, the Trustee cannot sufficiently prove that Fox Drug’s short term trade credit sources dried up as a result of the June 19, 1996 Transactions.
IY.
AlS for the merits of the Rule 52(c) Motion as the same pertains to the Trustee’s Count 8, that is the Trustee’s constructive fraudulent conveyance claim under NYDCL §§ 273-275, the Court rejects the Defendants’ interpretation of the
Sharp International
decision to the effect that the statutory requirement of good faith under NYDCL § 272 is necessarily satisfied if a transferee whose transfer is sought to be avoided (hereafter “Transferee”) did not possess actual or constructive knowledge of a fraudulent scheme that had the effect of depriving a debtor of the benefit of the consideration given in exchange for a transfer that is sought to be avoided (hereafter “Transfer”). The Court instead understands the
Sharp International
court to have held, solely within the context of construing the decision in
HBE Leasing,
that the
HBE Leasing
court, in turn, held that lack of good faith within the meaning of NYDCL § 272 could only be demonstrated
therein
if the Transferee
therein
possessed actual or constructive knowledge of a fraudulent scheme that had the effect of depriving the debtor
therein
of the benefit of the consideration given by such Transferee in exchange for the Transfer
therein, see
The Court also notes that neither the decision in
Sharp International
nor that in
HBE Leasing
dealt with an allegation that a debtor intended to hinder, delay, or defraud its unsecured creditors, not by virtue of its failure to receive back any or at least reasonably equivalent consideration or by virtue of its alleged intent to improperly utilize any such consideration that might have been received, but rather by virtue of its alleged intent to cause the destruction to itself that is alleged to have been ultimately wreaked by the transfer that is sought to be avoided. Such a claim, as set forth above, is not only levied by the Trustee but is also one that survives the Rule 52(c) Motion as the same pertains to the Trustee’s Counts 1 and 5.
See supra
pp. 336 & 338-39. As well, the Trustee’s opposition to the Defendants’ “good faith” defense that they lacked knowledge of Fox
V.
With respect to the Damages Limitation Motion, the Court agrees summarily with the Defendants that case authority — including, in particular, the decision in
HBE Leasing Corp. v. Frank,
VI.
IN SUMMARY, (a) the Rule 52(c) Motion is GRANTED and, thus, judgment is entered in favor of the Defendants, but only with respect to the Trustee’s Count 2, (b) the Rule 52(c) Motion is DENIED WITHOUT PREJUDICE with respect to the Trustee’s Counts 1, 5 & 8, and (c) the Damages Limitation Motion is DENIED WITH PREJUDICE.
. The Court will utilize herein all of the abbreviations that it utilized in its November 19, 2002 Memorandum Opinion for the instant adversary proceeding,
see In re Foxmeyer Corp.,
Notes
. For shorthand, the Court has referred to the value of the PharMor securities that were dividended by Fox Drug to Avatex as equal to $8 million.
See Foxmeyer Corp.,
. The recipient of a preference-enabling transfer can successfully defend against a fraudulent conveyance claim that is lodged against itself, which claim is predicated upon a debtor's intent to file for bankruptcy and thereby make preferential such debtor’s subsequent transfer of the consideration received from such recipient, by establishing that, as of the date of such preference-enabling transfer, it was unaware of such intent on such debt- or's part as just described.
See Dean v. Davis,
. The Court notes that the Trustee alleges that Fox Drug knew before the June 19, 1996 Transactions, either actually or constructively, that (a) it then "needed to borrow to cover capital expenditures and interest payments,” and (b) after the June 19, 1996 Transactions, Fox Drug would be unable to borrow because such transactions would leave it with virtually no unencumbered assets.
See
1st Am. Compl., ¶ 7Id. However, the Court does not understand the Trustee, by making the preceding allegation, to argue, at least seriously, as a basis for his theory that Fox Drug intended to destroy itself, that Fox Drug intended to destroy its ability to borrow by entering into the June 19, 1996 Transactions. The Court draws the preceding conclusion because Fox Drug knew, prior to entering into the June 19, 1996 Transactions, that (a) unless it effected such transactions and thereby paid off the Citicorp Lenders and the Noteholders, it would not be able to borrow in any event or for any reason,
Foxmeyer Corp.,