The opinion of the court was delivered by: LASKER
Robert S. Le Beau, Harry Le Beau, Winifred Le Beau and Doris A. Le Beau (the "Le Beaus") move pursuant to Fed.R.Civ.Pr. 12(b)(6) and 9(b) to dismiss the complaint against them on the ground that it fails to state a claim upon which relief can be granted and fails to plead the purported fraud with requisite particularity. The Le Beaus oppose Michael Berman's cross-motion to amend his complaint on the ground that the proposed amended complaint fails to cure the defects in the original complaint. Since matters outside the pleadings have been presented by both Berman and the Le Beaus, the Le Beau motion is treated as one for summary judgment. Fed.R.Civ.Pr. 12(b).
On March 11, 1977, the Le Beaus sold the entire capital stock in their two companies, Le Beau Tours, Inc. and Le Beau Inter-America, Inc., to Universal Tours, Inc. ("Universal"). Pursuant to the written agreement between Universal and the Le Beaus, the total purchase price was $ 1,226,432. (Proposed Amended Complaint, para. 19). At the March 11, 1977 closing, Universal paid the Le Beaus $ 355,665.28, and delivered promissory notes and irrevocable letters of credit issued by Chemical Bank ("Chemical") in favor of the Le Beaus for the balance of $ 870,762.72. (Proposed Amended Complaint, paras. 25, 26). In the stock purchase agreement the Le Beaus represented and warranted that as of December 31, 1976 the total stockholders' equity of both corporations was not less than.$ 876,432, and that no material changes had occurred between December 31, 1976 and the closing date. (Proposed Amended Complaint, para. 16). After closing, Robert S. Le Beau was employed by Le Beau Tours, Inc. as president and a director, and Harry and Winifred were employed as regional sales managers. (Proposed Amended Complaint, paras. 28-34).
Before the closing date, on March 7, 1977, Chemical and Universal entered into a written agreement by which Chemical agreed to furnish letters of credit in favor of the Le Beaus on condition that Universal provide security at least equal to the value of the letters of credit. (Proposed Amended Complaint, paras. 22, 23). At the time the letters of credit were issued, no security had been provided. (Proposed Amended Complaint, para. 27).
Berman alleges that also prior to the closing date, the Le Beaus entered into an oral agreement with Universal and S.T. Hui and Frank H. Seyer (officers and directors of Universal) that the retained earnings of.$ 876,432 of Le Beau Tours and Le Beau Inter-America would be used to pay the balance Universal owed the Le Beaus after closing, and would be used as collateral security and payment for the issuance of the letters of credit by Chemical.
(Proposed Amended Complaint, para. 13). The purpose of this oral agreement, Berman claims, was to permit the Le Beaus to receive payment of the retained earnings of their two companies "by the subterfuge of a sale of capital stock." (Proposed Amended Complaint, para. 14).
The proposed amended complaint recites a series of transactions between Le Beau Tours and Chemical resulting in allegedly fraudulent conveyances from the assets of Le Beau Tours. Le Beau Tours is alleged to have withdrawn funds from its accounts at Chemical and invested them in certificates of deposit, which were then assigned to Chemical to back the letters of credit.
The proceeds of the certificates were paid by Chemical to the Le Beaus on their letters of credit. In addition, Le Beau Tours gave Chemical a security interest in substantial portions of its property.
Berman alleges that these conveyances by Le Beau Tours were made without consideration and that each conveyance was made with the active participation, knowledge and consent of the Le Beaus in accordance with their pre-existing oral agreement with Universal, Hui and Seyer. (Proposed Amended Complaint, paras. 29, 41, 44, 48, 49).
On April 5, 1978, an involuntary petition in bankruptcy was filed against Le Beau Tours. Berman, the trustee in bankruptcy, seeks in this action to recover $ 870,766.72 paid to the Le Beaus under the letters of credit on the grounds that (1) the payments made from the funds of Le Beau Tours to collateralize the letters of credit constituted fraudulent conveyances under § 67(d)(2) of the Bankruptcy Act
and §§ 273-76 of the New York Debtor and Creditor Law,
(2) the payments constituted payment of a dividend to the Le Beaus in violation of §§ 510(a)
of the New York Business Corporation Law, and (3) the payments resulted in a waste of corporate assets in violation of defendants' duties as officers and directors of Le Beau Tours under § 720 of the New York Business Corporation Law.
In addition, Berman seeks to recover a series of payments made by the defendants as officers and directors of Le Beau Tours between March 11, 1977 and June 5, 1978, on the ground that the payments were made in gross disregard of their duties to the corporation.
II. Fraudulent Conveyances
The Le Beaus argue that the complaint fails to state a claim against them under either the Bankruptcy Act or the New York Debtor and Creditor Law for the recovery of the allegedly fraudulent conveyances made to collateralize the letters of credit because the complaint does not allege that the Le Beaus did anything improper in connection with the letters of credit transaction.
The Le Beaus deny the existence of the oral agreement upon which Berman relies to implicate them in the allegedly fraudulent conveyances and, in any event, maintain that even if they had agreed with Universal, as Berman alleges, that the retained earnings of Le Beau Tours and Le Beau Inter-America would be used to collateralize the letters of credit, such an agreement would not render them liable for the later conveyances. The Le Beaus emphasize that Berman has alleged that the oral agreement referred to the retained earnings of both Le Beau Tours and Le Beau Inter-America. Since there is no allegation that the combined retained earnings of the two companies was less than.$ 876,432, the balance owed the Le Beaus, execution of the oral agreement need not have rendered either company insolvent. The Le Beaus argue that they cannot be held responsible for the fact that Universal, in breach of the alleged oral agreement, transferred the funds solely from Le Beau Tours rather than from both companies.
Finally, the Le Beaus contend that the fact that Robert S. Le Beau continued as an officer and director of Le Beau Tours and that other Le Beaus were employed by the company after the sale of the company to Universal is insufficient to establish their liability for the acts of the company. In support of this contention, the Le Beaus have presented the affidavit of Robert Le Beau that after the business had been sold, he was not permitted by Universal to participate in any of the financial dealings of the company.
Berman contends that the proposed amended complaint states a claim against the Le Beaus by setting forth the manner in which the retained earnings of Le Beau Tours were used to pay Universal's debt to the Le Beaus and to collateralize the letters of credit issued by Chemical to the Le Beaus pursuant to the oral agreement between Universal, Hui, Seyer and the Le Beaus. In addition, Berman contends that Robert S. Le Beau must be held responsible for the conduct of Le Beau Tours because he was president during the relevant period. He concludes that summary judgment is inappropriate because material questions exist as to the time of the conveyances, the insolvency of the bankrupt, the consideration for the conveyances, and the various parties' intent with respect to the conveyances.
Berman's arguments are without merit. As the Le Beaus state, the complaint itself alleges that the oral agreement pertained to the retained earnings of both Le Beau Tours and Le Beau Inter-America. Berman concedes that on March 11, 1977, the retained earnings of both companies amounted to.$ 876,432. (Affidavit of Michael Berman, p. 5). Thus, it is clear that compliance with the alleged oral agreement need not have rendered Le Beau Tours insolvent and that Berman's claim that the Le Beaus participated in a continuing fraud originating in the oral agreement and consummating in the transfer of funds to Chemical is ...