MEMORANDUM DECISION AND ORDER DENYING DEFENDANTS’ MOTIONS TO DISMISS TRUSTEE’S COMPLAINT
Like Icarus, were the Cohmad Defendants singed by flying too close to the sun? 1
Before this Court are the motions (the “Motions to Dismiss”) of (1) Cohmad Securities Corporation (“Cohmad”), Maurice “Sonny” J. Cohn (“Sonny Cohn”), Marcia B. Cohn (“Marcia Cohn”), Milton S. Cohn (“Milton Cohn”) and Marilyn Cohn; (2) Richard Spring, The Spring Family Trust and The Jeanne T. Spring Trust; (3) Jane M. Delaire a/k/a Jane Delaire Hackett; (4) Stanley Mervin Berman (“Berman”), Joyce Berman and the S & J Partnership; (5) Alvin “Sonny” Delaire, Jr. (“Delaire”) and Carole Delaire; (6) The Joint Tenancy of Phyllis Guenzburger and Fabian Guenz-burger (the “Guenzburger Tenancy”) and The Joint Tenancy of Robert Pinchou and Fabian Guenzburger (the “Pinchou Tenancy,” and together with the Guenzburger Tenancy, the “Tenancy Defendants”); (7) Cyril Jalón (“Jalón”) and the Estate of Elena Jalón; and (8) Edward H. Kohls-chreiber and Edward H. Kohlschreiber Sr. Rev. Mgt. Trust (collectively, the “Moving Defendants”)
2
seeking to dismiss the amended complaint (the “Complaint”) of Irving H. Picard, Esq. (the “Trustee” or “Plaintiff’), trustee for the substantively consolidated Securities Investor Protection Act
3
(“SIPA”) liquidation of Bernard L. Madoff Investment Securities LLC (“BLMIS”) and Bernard L. Madoff (“Ma-doff’), filed pursuant to SIPA sections
The instant adversary proceeding seeks over $245 million in connection with pre-petition transfers. At the center of the Complaint’s allegations is Cohmad Securities Corporation (“Cohmad”), the New York registered broker-dealer that Madoff founded with his friend and former neighbor Sonny Cohn for the purpose of recruiting investors to BLMIS. Cohmad, a compound of the names “Cohn” and “Madoff,” provided a central lifeline to BLMIS by referring investors to Madoff since its inception in the mid-1980s. At the time the Madoff Ponzi scheme collapsed, approximately twenty percent of all active BLMIS accounts were referred by Cohmad. In return, the vast majority of Cohmad’s total income was derived from BLMIS. The Trustee seeks to avoid and recover commissions and fees paid by BLMIS to Coh-mad and its representatives, as well as fictitious profits that the Moving Defendants withdrew from their BLMIS accounts.
For the reasons set forth below and at oral argument, the Motions to Dismiss are DENIED to the extent set forth herein.
BACKGROUND
A comprehensive discussion of the facts underlying this SIPA liquidation and Ma-doffs Ponzi scheme is set forth in this Court’s prior decisions.
See, e.g., Picard v. Merkin (In re BLMIS),
I. Procedural History
On December 11, 2008 (the “Filing
One year later, on December 10, 2009, the District Court denied a motion to withdraw the reference with respect to the instant proceeding and consolidate it with an enforcement action commenced by the Securities and Exchange Commission (the “SEC Action”) against, in relevant part, Cohmad, Sonny Cohn, and Marcia Cohn (the “SEC Defendants”).
See Picard v. Cohmad Sec. Corp.,
Nos. 09-CIV-07275,
et al.,
On February 2, 2010, the District Court dismissed most of the claims in the SEC Action for failure to state a claim.
See SEC v. Cohmad Sec. Corp.,
No. 09-CIV-5680,
Also before the District Court was an action commenced by several investors against Cohmad Representative Delaire, alleging that his fraudulent misstatements and omissions induced them to lose $9.6 million with BLMIS.
See Schulman v. Delaire,
No. 10-CIV-3639,
On August 16, 2010, the Massachusetts Securities Division issued an order against Cohmad for violations of the Massachusetts Uniform Securities Act (the “Act”).
See In re Cohmad Sec. Corp.,
E-2009-0015,
II. Withdrawals of Fictitious Profits
This Complaint is one of dozens filed by the Trustee seeking the avoidance and recovery of withdrawals of nonexistent profits supposedly earned in investment advisory accounts (“IA Accounts”) at BLMIS. Madoff would generate IA Account statements showing securities that either were held or had been traded, as well as the gains and losses in those accounts. None of the purported purchases of securities in the BLMIS customer accounts actually occurred, however, and the reported gains were entirely fictitious '(“Fictitious Profits”).
The Trustee alleges that all of the Moving Defendants held IA Accounts with BLMIS and seeks to avoid and recover their withdrawals of Fictitious Profits (the “Withdrawals” or “Withdrawals of Fictitious Profits”). These defendants include Cohmad, Sonny Cohn, and Cohmad’s Financial Industry Regulatory Authority (“FINRA”) registered representatives, as well as certain of their relatives. Specifically, these relatives are Sonny Cohn’s wife, who is also the former Vice President and Secretary of Cohmad; Delaire’s wife, sister, and father-in-law; Berman’s wife; Jalon’s wife’s estate, of which Jalón is executor; and trusts or joint partnerships established by, or for the benefit of, Coh-mad’s representatives or these family members. In addition, Withdrawals of Fictitious Profits are sought from the Tenancy Defendants who exchanged transfers to or from the IA Account maintained for the Estate of Elena Jalón. The Complaint states that in excess of $100 million in Fictitious Profits was collectively withdrawn by all named defendants from their respective IA Accounts. Compl. ¶ 138.
III. TRANSFERS OF COMMISSIONS
While a significant portion of the fraudulent transfers identified in the Complaint represent Withdrawals of Fictitious Profits, the majority pertain to payments of BLMIS property allegedly exchanged as fees or commissions for the referral of victims to the BLMIS Ponzi scheme (the “Commissions”). Sonny Cohn and Coh-mad were paid such Commissions directly by BLMIS (“Initial Transfers of Commissions”). Cohmad subsequently distributed the vast majority of the payments it received from BLMIS to Marcia Cohn, De-laire, Berman, Cyril Jalón, and Richard Spring, who are or were FINRA registered brokers employed by Cohmad (the “Cohmad Representatives”), as well as other Cohmad representatives not moving to dismiss the Complaint. In sum, only
Initial Transfers of Commissions paid to Cohmad were based on the net cash value of the accounts procured by the Cohmad Representatives. To track the true cash value of the accounts referred by the Coh-mad Representatives, Cohmad and BLMIS set up a cash database (the “Coh-mad Cash Database”). The Cohmad Cash Database generated payment schedules detailing, among other information, the annual Commissions due to each Cohmad Representative. If the account holder withdrew all of the funds in the account, the Cohmad Representative would no longer be entitled to receive Commissions. Indeed, Commissions would be debited where investors withdrew more than the principal they invested. Compl. ¶ 75. BLMIS paid one twelfth of the total annual Commissions to Cohmad on a monthly basis as an Initial Transfer of Commissions. Cohmad, in turn, paid these amounts to the respective Cohmad Representatives (the “Subsequent Transfers of Commissions”). Compl. ¶ 59. The Trustee alleges that this payment structure, based on a duel bookkeeping system typical of fraudulent enterprises, indicates Cohmad’s and the Cohmad Representatives’ actual knowledge of fraud. Compl. ¶ 75.
A. Initial Transfers of Commissions to Cohmad
Cohmad was formed for the purpose of recruiting investors for Madoff and, thereby, funneling funds into BLMIS. In exchange, BLMIS would transmit money to Cohmad based upon the actual funds that Cohmad channeled to BLMIS. From January 1996 through 2008, BLMIS paid Initial Transfers of Commissions to Cohmad in an amount of approximately $98,448,678.84. Compl. ¶ 60, Ex. 2.
Just as the name Cohmad could not exist without Cohn and Madoff, Cohmad could not have existed without BLMIS. From a revenue standpoint, BLMIS’s payments constituted anywhere from 75.46% to 91.19% of Cohmad’s total income per year from 2000-2008. Compl. ¶63. In terms of physical proximity, Cohmad was a subtenant of BLMIS, sharing office space on the 18th Floor at 885 Third Avenue. As shown by the floor plan provided in Figure 11 of the Complaint, Cohmad’s offices were interspersed among BLMIS’s offices, with no physical indication that Cohmad’s employees worked for a company other than BLMIS. Compl. ¶ 112. In addition, Cohmad’s operational infrastructure was essentially provided by BLMIS. Through BLMIS, Cohmad obtained electricity, market data, exchange fees, access to BLMIS’s computer network, and the use of BLMIS’s administrative staff. Compl. ¶ 110. More significant assistance came in the form of payments of FICA payroll taxes and the administration of employee benefits, including dental and life insurance plans, for all Cohmad employees. Compl. ¶ 108. One Defendant, Ber-man, was given a retirement bonus directly from BLMIS even though he was a Cohmad employee. Compl. ¶ 109.
The Trustee asserts that a symbiotic relationship was cultivated by Cohmad’s principals’ and employees’ deliberate obfuscation of any perception that BLMIS and Cohmad operated as separate and distinct entities. The Complaint indicates that individuals employed as registered representatives of Cohmad held themselves out as being employed by BLMIS. Compl. ¶¶ 89-124. Various BLMIS Operating Forms listed one of the Cohmad Representatives as the applicable BLMIS-registered representative for the account,
Cohmad’s owners and principals, namely Sonny Cohn and his daughter Marcia Cohn, had unfettered access to Madoff and BLMIS’s offices. Marcia Cohn, in particular, had a BLMIS master key, which she used regularly to gain access to the 17th floor, even though her office was located on the 18th floor with the rest of the Cohmad offices. The 17th floor was where the fraudulent activity was taking place, and was “cloaked in mystery.” Compl. ¶ 115. Indeed, it was kept off-limits to all but a select few BLMIS employees and family members. Moreover, the IA business on the 17th floor utilized antiquated computers, maintained handwritten logs of cash transactions before entering them manually, and equipped only six of the approximately twenty-one employees with BLMIS e-mail accounts. Compl. ¶¶ 114, 115. Marcia Cohn’s key was used to access the 17th floor multiple times, including on the day of Madoff s arrest. Compl. ¶ 113, Ex. 15.
B. Initial Transfers of Commissions to Sonny Cohn
In addition to co-founding Cohmad, Sonny Cohn is its Chairman and Chief Executive Officer. Compl. ¶ 12. The customer accounts he introduced to BLMIS were not reflected on the Cohmad Cash Database, nor was he subject to the same commission structure as the Cohmad Representatives. Rather, after 2002, BLMIS directly compensated Sonny Cohn for luring in new investors and channeling funds into BLMIS. In exchange for these services, BLMIS paid Sonny Cohn Initial Transfers of Commissions totaling approximately $14,601,213.15. Compl. ¶ 61, Ex. 3.
The Trustee further alleges that Sonny Cohn maintained control over the payment structure between BLMIS and Cohmad. To this end, he is alleged to have monitored the balances of customers’ accounts that were referred to BLMIS by a Coh-mad Representative, and to have directly received Payment Schedules from BLMIS listing the annual commissions due to each Cohmad Representative. Compl. ¶ 77, Ex. 4. These allegations, the Trustee asserts, reveal that Sonny Cohn was privy to actual negative account balances at times when the account statements reflected gains of Fictitious Profits to the account holder, and he therefore knew or should have known that Madoff was running a Ponzi scheme. The Trustee supports this conclusion by identifying BLMIS account statements provided to customers by Sonny Cohn, which show their account balances with Fictitious Profits in those accounts. Notably, these statements were printed on Cohmad letterhead. Compl. ¶ 103, Ex. 12.
C. Subsequent Transfers of Commissions to Cohmad Representatives
The Trustee alleges that the Initial Transfers of Commissions paid to Cohmad correlates with the sums of money that Cohmad subsequently paid to the Cohmad Representatives. Put another way, nearly all the money that Cohmad received from BLMIS was allocated by Cohmad among the Cohmad Representatives based upon the amount of cash their referrals invested with BLMIS. Compl. ¶ 59. The break
STANDARD OF REVIEW — MOTION TO DISMISS UNDER RULE 12(b)(6)
Rule 12(b)(6) allows a party to move to dismiss a cause of action for “failure to state a claim upon which relief can be granted.” Fed.R.CivP. 12(b)(6); Fed. R. BANKR.P. 7012(b). When considering a motion to dismiss under Rule 12(b)(6), a court must accept all factual allegations in the complaint as true and draw all reasonable inferences in the plaintiffs favor.
Ashcroft v. Iqbal,
To survive a motion to dismiss, a pleading must contain a “short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.CivP. 8(a)(2); Fed. R. BankR.P. 7008. However, a recitation of the elements of the cause of action, supported by mere conclusory statements, is insufficient.
Iqbal,
DISCUSSION
I. The Trustee Has Sufficiently Pled Actual Fraud Pursuant to the Code and the NYDCL
In Counts Two and Four of the Complaint, the Trustee has alleged claims against all of the Moving Defendants to avoid and recover actual fraudulent transfers pursuant to sections 548(a)(1)(A), 544, 550(a) and 551 of the Code and sections 276, 278 and/or 279 of the NYDCL. 8 This Court finds that the Trustee has adequately alleged (1) claims to avoid Withdrawals of Fictitious Profits from all Moving Defendants; 9 and (2) claims to avoid Initial Transfers of Commissions from Sonny Cohn and Cohmad.
A. The Trustee Has Identified the Transfers with Particularity Under Rule 9(b)
Under either the Code or the NYDCL, to state an actual fraudulent transfer claim with Rule 9(b) particularity, a party must ordinarily allege: (1) the property that was conveyed; (2) the timing and, if applicable, frequency of the transfer; and (3) the consideration paid for the transfer.
See United Feature Syndicate, Inc. v. Miller Features Syndicate, Inc.,
i. Withdrawals of Fictitious Profits
Here, the essential facts constituting each of the Moving Defendants’ Withdrawals of Fictitious Profits are readily identifiable in Exhibits 1 and 17 to the Complaint. Specifically, Exhibit 1 contains an index of the IA Accounts maintained by each of the Moving Defendants, identifying each account by name and account number. Compl. Ex. 1. Each Withdrawal of Fictitious Profits by a Defendant from his or her respective BLMIS IA Account is then identified in Exhibit 17, specifying the date, account number, transferee, transfer- or, method of transfer and amount transferred. Compl. Ex. 17. To illustrate, on April 10, 2008, the amount of $149,210.46 was withdrawn by Sonny Cohn by check from IA Account number 1C1296.
ii. Initial Transfers of Commissions
Likewise, the Initial Transfers of Commissions paid to Sonny Cohn and Cohmad are identified in Exhibits 2 and 3 to the Complaint, and total over $113 million. Exhibit 2 lists direct payments made by BLMIS to Cohmad for the period of 1996 through 2008, totaling $98,448,678.84. Compl. Ex. 2. Exhibit 3 reflects direct, monthly payments — each in an amount of at least $8,000 — from BLMIS to Sonny Cohn between the years 2001 and 2008, totaling approximately $14,601,213.15. Compl. Ex. 3.
Accordingly, the facts contained in the Trustee’s exhibits provide this Court with
B. The Trustee Has Adequately Alleged Intent Under Rule 9(b)
Given that the Trustee has identified with requisite particularity the transfers he seeks to avoid under section 548(a)(1)(A) and section 276 of the NYDCL, the next question is whether the Trustee has sufficiently pled the element of fraudulent intent pursuant to Rule 9(b). See Fed.R.CivP. 9(b); Fed. R. BaNKR.P. 7009 (“[MJalice, intent, knowledge, and other conditions of a person’s mind may be alleged generally.”). Pursuant to section 548(a)(1)(A) of the Code, a trustee must establish that the debtor “made such transfer ... with actual intent to hinder, delay, or defraud.” 11 U.S.C. 548(a)(1)(A). Likewise, under section 276 of the NYDCL, a trustee may avoid any “conveyance made ... with actual intent, as distinguished from intent presumed in law, to hinder, delay, or defraud either present or future creditors.” NYDCL § 276.
Here, the fraudulent intent on the part of the debtor/transferor, as required under both the Code and the NYDCL, is established as a matter of law by virtue of the “Ponzi scheme presumption” as to Withdrawals of Fictitious Profits and Initial Transfers of Commissions.
See Gowan v. The Patriot Grp., LLC (In re Dreier LLP),
The Moving Defendants posit that in addition to the debtor/transferor’s fraudulent intent, the transferee’s fraudulent intent must be established to state a claim under section 276 of the NYDCL. Although this Court previously refrained from determining this issue in the context of other actions arising out of the Madoff
For instance, section 276 provides that a trustee can avoid “[e]very 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. ...” NYDCL § 276. This is markedly different from NYDCL section 276-a, which allows recovery of attorneys’ fees “where such conveyance is found to have been made by the debtor
and received by the transferee
with actual intent.” NYDCL § 276-a (emphasis added). Section 276 “makes no reference to the actual fraudulent intent of the transferee and the difference between the provisions cannot be ignored.”
In re Dreier LLP,
Further support for this proposition is gleaned from section 278, which provides an affirmative defense to a bona fide purchaser for value without knowledge of the fraud to retain the transfer.
See
NYDCL § 278(2). As an affirmative defense, section 278 requires that the transferee’s intent be considered “at the summary judgment phase or at trial on a full evidentiary record.”
In re Dreier LLP,
Because the foregoing interpretation “aligns the fraudulent intent pleading requirement under Bankruptcy Code § 548(a)(1)(A) and NYDCL § 276,” the element of fraudulent intent under, both statutes is met by virtue of the Ponzi scheme presumption.
Id.
at *28. Therefore, the Moving Defendants’ arguments that they accepted transfers in good faith and in exchange for value will become relevant only as affirmative defenses to be asserted at trial under section 548(c) of the Code and section 278 of the NYDCL.
See Mendelsohn v. Jacobowitz (In re Jacobs),
II. The Trustee Has Sufficiently Pled CONSTRUCTIVE FRAUD PURSUANT To The Code And The NYDCL
The Trustee has sufficiently pled Counts Three, Five, Six and Seven of the Complaint pursuant to sections 548(a)(1)(B), 544, 550(a), and 551 of the Code and sections 273-275, 278, and/or 279 of the NYDCL to avoid and recover transfers on the basis that they were constructively fraudulent against (1) all of the Moving Defendants 11 with respect to Withdrawals of Fictitious Profits; and (2) Sonny Cohn and Cohmad with respect to Initial Transfers of Commissions.
Under both the Code and the NYDCL, courts consistently hold that “claims of constructive fraud do not need to meet the heightened pleading requirements of Fed.R.Civ.P. 9(b).”
Bank of Commc’ns v. Ocean Dev. Am., Inc.,
No. 07-CIV-4628,
Section 548(a)(1)(B) of the Code requires the Trustee to show,
inter alia,
that BLMIS did not receive “reasonably equivalent value” for the transfer. 11 U.S.C. § 548(a)(1)(B). Under sections 273-275 of NYDCL, the Trustee must show that BLMIS did not receive “fair consideration,” which can be established by showing either a lack of “fair equivalent” property — which is essentially reasonably equivalent value under the Code — or a lack of good faith on the part of the transferee. NYDCL § 272 (defining “fair consideration”);
In re Dreier LLP,
i. Withdrawals of Fictitious Profits
The Trustee has sufficiently alleged that no value was provided in exchange for the Moving Defendants’ Withdrawals of Fictitious Profits. Courts have consistently held that transfers received in a Ponzi scheme in excess of an investor’s principal are not transferred for reasonably equivalent value.
Sender v. Buchanan (In re Hedged-Inv.
Assoc.,
Inc.),
Here, the Trustee has sufficiently pled that the Withdrawals consisted solely of Fictitious Profits, and were therefore not received in exchange for reasonably equivalent value. Compl. ¶ 138 (“Upon information and belief, Cohmad, the Cohmad Representatives and other Defendants have received in excess of $100,000,000.00 in Fictitious Profits.”) (emphasis added). Moreover, the Complaint identifies each Withdrawal of Fictitious Profits so as to provide the Moving Defendants with fair notice of the transfers sought to be avoided. Compl. Ex. 17; see also supra Section I, A, i.
Accordingly, the Trustee has adequately stated a claim for constructive fraudulent transfers under the Code and the NYDCL against all Moving Defendants with regard to Withdrawals of Fictitious Profits.
ii. Initial Transfers of Commissions
In determining whether Cohmad and Sonny Cohn conferred sufficient value in exchange for the Initial Transfers of Commissions, the Court must ultimately examine the totality of the circumstances, including “the arms-length nature of the transaction; and ... the good faith of the transferee.”
Pereira v. Wells Fargo Bank, N.A (In re Gonzalez),
Cohmad and Sonny Cohn nevertheless argue, unpersuasively, that the Trustee’s constructive fraudulent transfer claims fail as a matter of law because their services constituted reasonably equivalent value and fair consideration given to BLMIS. In support of this contention, they rely principally upon the case of
In re Churchill Mortgage Inv. Corp.,
where the court found that the brokers provided value by performing their duties in exchange for the commissions received.
It is important here to note what the Trustee does not allege. There is no allegation in the complaints and no claim by the Trustee that the Brokers had any knowledge of the Ponzi scheme. There is no allegation in the complaints and no claim by the Trustee that any of the Brokers’ activities were fraudulent, or unlawful, or wrongful in any manner.
Here, unlike in
Churchill,
the Complaint alleges a lack of innocence on the parts of Sonny Cohn and Cohmad, through its officers and directors.
14
See In re Bayou Grp., LLC,
Sonny Cohn, in particular, provided account statements to certain customers with BLMIS account balance information, including fictitious profits, and purported to manage the BLMIS accounts. Compl. ¶ 103, Ex. 12. He described Madoffs activities to customers as though they were Cohmad’s, stating Cohmad manages customer accounts “using a simplistic, and most important, a very conservative strategy in a disciplined manner, always ‘insuring’ the accounts against major loss by using put options.” Compl. ¶ 99, Ex. 9. In one instance, Sonny Cohn is listed as the account representative on a BLMIS account that was not even referred by a Cohmad Representative. Compl. ¶ 97-98. While Sonny Cohn purports to have worked for Cohmad, he did not receive commissions through Cohmad after 2002, but instead was paid directly from BLMIS. 16
Taking these allegations as true for purposes of the Motions to Dismiss, the Court cannot conclude as a matter of law that Cohmad and Sonny Cohn provided reasonably equivalent value by “performing in good faith a facially lawful and customary service,”
Churchill II,
Consequently, the Trustee has adequately pled his constructive fraud claims against Cohmad and Sonny Cohn, and the Motions to Dismiss Counts Three, Five, Six and Seven of the Complaint are denied.
III. The Trustee Has Properly Alleged That The Relevant Date for Six Year Fraudulent Conveyances Under the NYDCL is the Filing Date of the SIPA Proceeding
With respect to the Trustee’s fraudulent conveyance actions under the NYDCL, the Court finds that the relevant look-back period extends to those transfers made as early as December 11, 2002, six years before the December 11, 2008 Filing Date of the SIPA liquidation proceeding. See Compl. ¶ 8.
The Moving Defendants argue that the statute of limitations for fraudulent conveyance actions under section 213(8) of the New York Civil Procedure Law and Rules (the “NYCPLR”), 17 incorporated by reference in section 544(b) of the Code, looks back six years from the filing of the Complaint, filed on June 22, 2009, rather than from the Filing Date, December 11, 2008. In effect, the Moving Defendants challenge the Trustee’s attempts to recover those Transfers made in the period between December 11, 2002 and June 22, 2003.
The issue raised by the Moving Defendants, centering on the interplay between the state statute of limitation periods incorporated by sections 544(b) and 546(a) of the Code, has been determined by this Court as a matter of law in previous decisions.
See, e.g., Chais,
Accordingly, the Trustee may avoid those transfers made as early as December 11, 2002, six years before the December 11, 2008 Filing Date. Counts Four, Five, Six and Seven of the Complaint seeking transfers going back six years from the Filing Date are therefore timely and have been properly pled. 18
IV. The Trustee Has Sufficiently Pled Claims for Transfers Prior to Six Years Before the Filing Date Based on the Discovery Rule
The Trustee has sufficiently pled Count Eight of the Complaint 19 pursuant to sections 213(8) and 203(g) of the NYCPLR, sections 276, 278 and/or 279 of the NYDCL, and sections 544, 550(a) and 551 of the Code, to recover actual fraudulent transfers from the Defendants made more than six years before the Filing Date pursuant to New York’s “discovery rule.” 20
The Trustee seeks to utilize New York’s discovery rule, in conjunction with his strong arm power under section 544 of the Code and applicable sections of the NYDCL, to avoid “undiscovered transfers” that occurred more than six years before the Filing Date. To do this, the Trustee must show that during the period various transfers were made, Madoff s fraud was either: (1) not discovered, and could not have been discovered with reasonable diligence, by at least one unsecured creditor; or (2) was only discovered, and could have only been discovered with reasonable diligence, by at least one unsecured creditor within two years of the Filing Date. NYCPLR §§ 213(8), 203(g);
see also Phillips v. Levie,
One of the Moving Defendants argues that the Trustee lacks standing to assert this cause of action under section 544 of the Code because he has failed to identify a specific unsecured creditor who could invoke the discovery rule.
See
Memorandum of Law in Support of Motion to Dis
The Complaint sufficiently alleges the existence of a category of creditors who could invoke the discovery rule. Indeed, it states that “[a]t all times relevant to the Transfers, the fraudulent scheme perpetrated by BLMIS was not reasonably discoverable by at least one unsecured creditor of BLMIS,” Compl. ¶ 185, and that “[a]t all times relevant to the Transfers, there have been one or more creditors who have held and still hold matured or unma-tured unsecured claims against BLMIS that were and are allowable.... ” Compl. ¶ 186. These allegations alone provide the Moving Defendants with sufficient notice of the existence of at least one category of creditors on whose claims the Trustee bases his standing: the clearly defrauded BLMIS customers. See Compl. ¶ 7 (“The Trustee seeks to set aside such transfers and preserve the property for the benefit of all of BLMIS’ defrauded customers.”).
Even putting that aside, Second Circuit precedent suggests that adjudicating this issue is most likely premature at the motion to dismiss stage.
See Schmidt v. McKay,
On the basis of the aforementioned allegations and applicable precedent, this Court finds that the Trustee has properly alleged claims to avoid actual fraudulent transfers to the extent such claims were commenced within two years of the reasonable discovery of the fraud in accordance with the New York discovery rule, and, in any event, this issue will be more fully determined after discovery upon summary judgment or a trial on the merits.
V. The Trustee has Adequately Pled Claims To Recover Subsequent Transfers From the Cohmad Representatives
The Trustee has sufficiently pled Count Nine of the Complaint to recover Subsequent Transfers of Commissions from the Cohmad Representatives pursuant to sections 550(a)(2) of the Code and 278 of the NYDCL.
See
11 U.S.C. § 550(a)(2) (“[T]o the extent that a transfer is avoided ... the trustee may recover ... the property transferred ... from ... any immediate or mediate transferee of such initial transferee.”); NYDCL § 278
The Cohmad Representatives, all apparently assuming that the Trustee seeks to avoid their Commissions as initial transferees of fraudulent transfers, argue that the Complaint does not contain factual allegations supporting their awareness of the fraud, and, pursuant to
Churchill,
their commissions are therefore not avoidable. However, because the Trustee seeks to recover Commissions from the Cohmad Representatives as subsequent transferees, not initial transferees, the Trustee need not prove a
prima facie
case of avoid-ability against them. Compl. ¶ 191. (“On information and belief ... the Commissions[ ] were subsequently transferred by Cohmad directly or indirectly to the Coh-mad Representatives ... in the form of payment of commissions or fees.”);
see also Stratton Oakmont, Inc.,
In order to adequately state his claims against the Cohmad Representatives to recover Subsequent Transfers of Commissions under the Code or the NYDCL, the Trustee need only meet a Rule 8(a) standard.
See Stratton Oakmont, Inc.,
The information contained in the Complaint and the exhibits attached thereto provide more than enough detail to provide the Cohmad Representatives with notice of when, in what amount, with what frequency and from whom they received Subsequent Transfers of Commissions, as well as why. As discussed previously, the Initial Transfers of Commissions from BLMIS to Cohmad are set forth with particularity in Exhibits 2 and 3 to the Complaint, specifying the dates upon which they took place. Compl. Exs. 2, 3. The Trustee further alleges that each one of these transfers was essentially a composite of the Subsequent Transfers of Commissions that BLMIS agreed to pay each Coh-mad Representative. As set forth in Exhibit 4, BLMIS states the separate amounts of Commissions due to each Coh-mad Representative based on the monies
The Cohmad Representatives’ arguments that they accepted their Commissions in good faith and in exchange for value may be raised as affirmative defenses at summary judgment or trial with respect to these Subsequent Transfers of Commissions under sections 550(b)(1) of the Code and 278(2) of the NYDCL.
See Goldman v. Capital City Mortgage Corp. (In Re Nieves),
No. 08-2160,
For these reasons, the Trustee has sufficiently pled Count Nine of the Complaint to recover Subsequent Transfers of Commissions pursuant to section 550(a)(2) of the Code and section 278 of the NYDCL.
VI. The Trustee Has Sufficiently Pled A Basis For Disallowing The Moving Defendants’ SIPA Claims
The Trustee has sufficiently pled Count Ten of the Complaint to disallow the Defendants’ SIPA claims as not supported by BLMIS books and records, as well as under section 502(d) of the Code. The Trustee adequately alleges that the BLMIS books and records indicate that the transfers to the Moving Defendants, detailed in Exhibit 17 to the Complaint, included Fictitious Profits above the amount of principal invested, precluding the Moving Defendants from receiving SIPC advances and distributions from the pool of assets collected by the Trustee. Compl. ¶¶ 138, 198;
see also In re BLMIS,
VII. The Tenancy Defendants’ Motion to Dismiss for Laok of Personal Jurisdiction Was Previously Denied by This Court and is ProceDURALLY AND SUBSTANTIVELY DEFICIENT
In them Motion to Dismiss, the Tenancy Defendants misguidedly seek to relitigate personal jurisdiction arguments that this Court previously considered, upon full briefing and oral argument, and denied by written decision dated October 26, 2009 (the “October 26, 2009 Decision”).
Picard v. Cohmad Sec. Corp., (In re BLMIS),
With no change in the factual circumstances upon which this Court based its October 26, 2009 Decision, and no proper motion for reargument having been presented, the Court finds no reason to depart from its prior finding of personal jurisdiction. Indeed, the rule authorizing motions for reargument “is strictly construed to avoid repetitive arguments on issues that the court has already fully considered.”
Family Golf Ctrs., Inc. v. Acushnet Co. (In re Randall’s Island Family Golf Ctrs., Inc.),
Under the circumstances, the Tenancy Defendants’ resurrection is a proeedurally improper attempt to relitigate the Complaint’s purported “continuing failure” to allege personal jurisdiction. See Dkt. No. 127. This Court finds no plausible explanation for the reargument other than to cause “unnecessary delay” in getting to the merits of the Trustee’s claims, causing a “needless increase in the cost of litigation.” Fed. R. BanKR.P. 9011(b)(1); see also 28 U.S.C. § 1927. Accordingly, while the Court, in its discretion, declines to impose sanctions at the present time, the Tenancy Defendants’ Motion to Dismiss for lack of personal jurisdiction is, once again, denied.
CONCLUSION
Accepting as true the facts pled in the Complaint and drawing all inferences that may be warranted by such facts, the Trustee has pled valid prima facie claims against the Moving Defendants, and the Motions to Dismiss under Rule 12(b)(6) are therefore DENIED to the extent set forth herein.
IT IS SO ORDERED.
Notes
. Icarus, a Greek mythological figure, attempted to escape imprisonment on the island of Crete by means of wings constructed from feathers and wax. Despite his father's warnings, Icarus giddily flew higher toward the bright [Madoff] sun until it ultimately melted his wings of “innocence,” sending him to his fate in the sea below. See http://www. pantheon.org/articles/i/icarus.html (last visited Aug. 1, 2011).
. The following defendants have not moved to the dismiss the Complaint: Jonathan Green-berg, Morton Kurzrok, Linda Schoenheimer McCurdy, Rosalie Buccellato, Janet Jaffin individually and in her capacity as Trustee of The Janet Jaffin Dispositive Trust, Milton Cooper in his capacity as Trustee of The Janet Jaffin Dispositive Trust, and Elizabeth Moody. Additionally, pursuant to a settlement agreement dated December 7, 2010, the Trustee agreed to withdraw all claims against Robert M. Jaffe and M/A/S Capital Corporation in exchange for $38 million. See Stipulation of Dismissal With Prejudice. Dkt. No. 183. Further, Gloria Kurzrok was dismissed without prejudice by so-ordered Stipulation dated April 12, 2010. Dkt. No. 155.
.15 U.S.C. § 78aaa et seq. Hereinafter, "SIPA" shall replace "15 U.S.C.” in references to sections of SIPA.
.A SIPA trustee’s authority to utilize the Code and the NYDCL derives from SIPA sections 78fff(b) and 78fff-2(c)(3). SIPA section 78fff(b) provides that “[t]o the extent consistent with the provisions of this chapter, a liquidation proceeding shall be conducted in accordance with, and as though it were being conducted under chapters 1, 3, and 5 and subchapters I and II of chapter 7 of Title 11.” SIPA § 78fff(b). Similarly, SIPA section 78ff£ — 2(c)(3) allows a SIPA trustee to utilize the avoidance powers enjoyed by a bankruptcy trustee: "Whenever customer property is not sufficient to pay in full the claims set forth in subparagraphs (A) through (D) of paragraph (1), the trustee may recover any property transferred by the debtor which, except for such transfer, would have been customer property if and to the extent that such transfer is voidable or void under the provisions of Title 11.” SIPA § 78fff~2(c)(3).
. N.Y. Debt. & Cred. Law § 270 et seq. (McKinney 2001).
. The Trustee has voluntarily dismissed without prejudice Count One of the Complaint, which sought turnover and accounting under section 542 of the Code. See Notice of Voluntary Dismissal, Dkt. No. 207. Additionally, although the Trustee apparently seeks to recover preferences from subsequent transferees in Count Nine of the Complaint, Compl. ¶ 142 ("Of the Two Year Transfers, multiple transfers in the collective amount of at least approximately $2,047,402.09 and potentially more were made during the 90 days prior to the Filing Date ... and are additionally recoverable under sectionf] 547....”), this is likely a scrivener's error, as the elements necessary to establish the avoidability of a preference under section 547 of the Code were removed from the Complaint upon amendment.
. See SIPA § 78III (7)(B) (defining the “Filing Date”).
. Cohmad, Sonny Cohn, Marcia Cohn, Milton Cohn and Marilyn Cohn have not moved to dismiss Count Two of the Complaint for actual fraud under the Code. See Memorandum of Law of Defendants Cohmad Securities Corporation, Maurice J. Cohn, Marcia B. Cohn, Milton S. Cohn and Marilyn Cohn at p. 11. Dkt. No. 46 ("Cohn Mot. to Dismiss").
. As Cohmad and Jalón withdrew all Fictitious Profits prior to six years before the Filing Date, see Compl. Ex 17, the Trustee seeks to avoid and recover their Withdrawals of Fictitious Profits only under the NYDCL through the application of New York’s discovery rule. See infra Section IV. Additionally, as the Guenzburger Tenancy's withdrawals occurred prior to the two year look-back period of the Code, the Trustee seeks to avoid and recover its Withdrawals of Fictitious Profits only under the NYDCL.
. The portion of Count Four requesting attorneys’ fees pursuant to section 276-a of the NYDCL need not be stricken at this time. While the transferee's intent is an element of a claim under section 276-a, unlike under section 276, attorneys’ fees will be recoverable provided that the Trustee establishes fraudulent intent on the part of the defendants at trial.
See In re Dreier LLP,
. As noted previously, the Trustee seeks to avoid and recover the Withdrawals of Fictitious Profits from Cohmad and Jalón only under the NYDCL through the application of New York’s discovery rule, and from the Gu-enzburger Tenancy only under the NYDCL. See supra n.9.
. The Court is not persuaded that the Trustee's claims to avoid Initial Transfers of Commissions against Cohmad and Sonny Cohn must be dismissed for failure to meet a heightened Rule 9(b) standard.
See
Cohn Mot. to Dismiss at pp. 18-19 ("Because the
. In
Churchill,
the trustee sought to avoid commissions paid to brokers by a debtor that ran a fraudulent scheme. The Trustee's sole argument was that the brokers’ services were
. The Trustee has alleged that Sonny is an owner of Cohmad and serves as the Chairman and Chief Executive Officer, and that Marcia Cohn is an owner of Cohmad and serves as President, Chief Operating Officer, and Chief Compliance Officer. Thus, Cohmad can be charged with any fraudulent knowledge attributable to Sonny and Marcia based on general principles of New York agency law.
See, e.g., Bondi
v.
Bank of Am. (In re Parmalat),
. Madoff, with the knowledge of Sonny and Marcia Cohn, allegedly utilized Cohmad to funnel money to Sonja Kohn, an individual that was not a Cohmad Representative or otherwise affiliated with Cohmad. See Compl. ¶¶ 76, 120-24, Ex. 4.
. The Complaint at issue here differs from the complaint dismissed in
SEC v. Cohmad
and is substantially buttressed by law and fact. First, the legal standard applicable to the bankruptcy claims asserted in the instant Complaint is not equivalent to that of the securities law claims dismissed by the District Court. As an element of its
prima facie
case for the Securities Claims, the SEC was required to plead scienter, or fraudulent intent, on the part of the SEC Defendants.
See SEC v. Cohmad Sec. Corp.,
. Section 213(8) of the NYCPLR states, in relevant part, that the statute of limitation for bringing causes of action sounding in fraud is six years. NYCPLR § 213(8).
. In addition, even if the Moving Defendants' position were correct, the Trustee may nonetheless avoid the Transfers that occurred in the disputed period between December 11, 2002 and June 22, 2003 due to New York's “discovery rule,” which is discussed in detail in Section IV.
. Cohmad, Sonny Cohn, Marcia Cohn, Milton Cohn and Marilyn Cohn have not moved to dismiss Count Eight of the Complaint for undiscovered fraudulent transfers. See Cohn Mot. to Dismiss at pp. 29-31.
. The “discovery rule” contained in the NYCPLR states that for causes of action predicated on fraud, "the time within which the action must be commenced shall be 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.” NYCPLR § 213(8); see also id. at § 203(g) ("[T]he action must be commenced within two years after such actual or imputed discovery or within the period otherwise provided, computed from the time the cause of action accrued, whichever is longer.”).
. In addition to Delaire, the Payment Schedule for 2008 specifies: (1) Cyril Jalón (“CJ") had $11,374,555.68 under management and was designated $25,777.05 after adjustments; (2) Marcia Cohn (“MBC") had $65,179,600.48 under management and was designated $180,449.73 after adjustments; and (3) Richard Spring ("RS") had $523,229,607.56 under management and was designated $1,145,763.60 after adjustments. Compl. ¶ 76, Fig. 1; Compl. Ex. 4. Although Berman does not appear on the 2008 Payment Schedules, he appears on various others, including the Payment Schedule for January 16, 2006 to January 15, 2007. This Payment Schedule shows that Berman ("SB”) had $548,289,502.82 under management and was designated $1,314,973.75 after adjustments. Compl. Ex. 4.
. Marilyn Cohn asserts that she has not filed a SIPA claim, and the Trustee does not dispute this assertion. Rather, the Trustee acknowledges that "Count Ten applies only to those claims that were filed.” Plaintiff's Memorandum of Law in Opposition to Defendants' Motions to Dismiss at p. 69. Dkt. No. 135.