[1]     

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT August Term, 1996

, [5]     

Decided: January 30, 1997)

, [6]      IN RE: THE MEDIATORS, INC., DEBTOR. " />

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In Re Mediators Inc., 105 F.3D 822 (2d Cir. 01/30/1997)

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT August Term, 1996

No. 628

Docket No. 96-5063

105 F.3d 822, 1997.C02.0000047 <http://www.versuslaw.com>

Decided: January 30, 1997)

IN RE: THE MEDIATORS, INC., DEBTOR.

Before: NEWMAN, Chief Judge, OAKES, and WINTER, Circuit Judges.

[8]    

Argued: December 3, 1996

[9]    

THE MEDIATORS, INC.,

Plaintiff-Appellant, v.

RICHARD MANNEY, GLORIA MANNEY, PATRICIA MANNEY, JOHN and/or JANE DOE #1 TO #10, DOE CORPORATION #2 TO #10, DOE PARTNERSHIP #1 TO #10, DOE FOUNDATION #1 TO #10, the names of the foregoing thirty-nine defendants being unknown, it being intended to designate parties who have received transfers, directly or indirectly, from plaintiff or Richard or Gloria Manney or who were directors of plaintiff,

Defendants,

CITIBANK, N.A., ASTOR, WEISS, KAPLAN & ROSENBLUM, formerly known as Astor, Weiss & Newmann and ARTHUR H. KAPLAN,

Defendants-Appellees.

Appeal from an order by the United States District Court for the Southern District of New York (Charles S. Haight, Jr., Judge) dismissing the claims against Citibank, Astor, Weiss, Kaplan & Rosenblum, and Arthur H. Kaplan. The district court held that the committee of unsecured creditors, bringing this action in the shoes of the debtor, lacked standing to pursue its aiding and abetting breach of fiduciary duty claims pursuant to Rule 12(b)(6), Fed. R. Civ. P. We affirm.

WINTER, Circuit Judge:

This is an appeal from the dismissal of an adversary action arising in a bankruptcy proceeding. The committee of unsecured creditors ("Committee") of the debtor, The Mediators, Inc. ("Mediators"), suing on a claim said to belong to the debtor, appeals from Judge Haight's order dismissing its action against Citibank, N.A. ("Citibank"), Astor, Weiss, Kaplan & Rosenblum, and Arthur H. Kaplan (the "Astor defendants"), for lack of standing pursuant to Rule 12(b)(6), Fed. R. Civ. P. The Committee challenges the dismissal, arguing that appellants aided and abetted the Mediators' president and sole shareholder, Richard Manney, in his scheme to purchase the Mediators' art collection at an undervalued price in order to shield the collection from the corporation's creditors. The Committee claims that this scheme breached the Mediators' fiduciary duty to preserve its assets for creditors while insolvent. The district court held that the Committee, standing in the shoes of the debtor, could not recover from third parties for their participation in a scheme that the debtor had itself initiated and joined in. In re The Mediators, Inc., 190 B.R. 515, 527-28 (S.D.N.Y. 1995). We agree. We also reject the Committee's request that we overturn our holding in In re Century Brass Products, Inc., 22 F.3d 37 (2d Cir. 1994).

BACKGROUND

We recount the facts as alleged in the complaint and view them in the light most favorable to the Committee. A more extensive recital of the facts can be found in the district court's opinion. In re The Mediators, Inc., 190 B.R. at 518-21.

The Mediators is a New York corporation primarily engaged in the business of acquiring radio and television advertising time for its clients in exchange for the clients' products and services rather than for cash. At all pertinent times, Richard Manney was the corporation's sole shareholder, chief executive officer, and chairman. His wife, Gloria Manney, was treasurer, secretary, and director of the corporation but played only a limited role in managing the company.

The Manneys are avid art collectors. Beginning in the late 1970's they caused the Mediators to purchase millions of dollars worth of art, some of which was financed through borrowing by the corporation. In 1987, the Mediators encountered severe financial problems stemming in part from a $17 million judgment against it for breaching a contract with Wang Laboratories, Inc. Anticipating that the Mediators' precarious financial situation might result in bankruptcy, Manney hired the law firm, Astor, Weiss, Kaplan & Rosenblum, and the accounting firm, Morris J. Cohen & Co., to facilitate a transaction that would shield the art collection from liquidation in bankruptcy. (Morris J. Cohen & Co. was named a defendant in this action but settled before this appeal was heard. No further mention of its role is necessary.) The firms are alleged to have recommended that Manney buy the artwork from the Mediators at a discounted price, thereby turning the collection into Manney's personal asset protected by the corporate veil in the event of the Mediators' bankruptcy.

The transfer of the art commenced on June 29, 1988. Manney borrowed $12,000,000 from Citibank and purchased the art collection from the Mediators for $12,646,690. The Mediators guaranteed Citibank's loan to Manney for $12,125,000. In addition, the Mediators tendered a one-year deposit of $4,125,000 to Citibank, the principal and proceeds of which secured a portion of the loan. The artwork itself further secured the loan. The $12,646,690 price Manney paid was the art collection's book value, its original cost. However, it is alleged that the collection had greatly appreciated in value and was worth much more than its original purchase price. In the Committee's view, the transaction stripped the Mediators of its assets while rendering it liable to Citibank for the cost of the self-dealing purchase.

Three years after the art transfer, on June 2, 1991, an involuntary liquidation petition under Chapter 7 of the Bankruptcy Code was filed against the Mediators by American Broadcasting Companies, Inc., ABC Radio Network Inc., and ESPN, Inc. On September 13, 1991, the bankruptcy court converted the case to Chapter 11. On October 16, 1991, the United States Bankruptcy Trustee appointed the plaintiff as an unsecured creditors' committee pursuant to 11 U.S.C. Section(s) 1102. The bankruptcy court then authorized the Committee to bring this suit because Manney had failed to pursue the action on behalf of the corporation.

The original complaint was filed with the bankruptcy court on April 22, 1992. It alleged that the Manneys had enriched themselves at the corporation's expense by appropriating corporate assets for little or no consideration. The first amended complaint alleged, inter alia, that Citibank and the Astor defendants aided and abetted the Mediators in its breach of its fiduciary duty to its creditors; that Citibank and the Astor defendants were unjustly enriched; that Citibank participated in a fraudulent conveyance of the art collection; that the Astor defendants breached their contract in recommending that Manney engage in fraudulent transfers of the corporate artwork; and that the Mediators were entitled to avoid Citibank's security interests in the artwork.

The district court held that the Committee lacked standing as to the claims against the non-Manney defendants. It reasoned that the Committee, suing on behalf of the Mediators, could not bring claims against third parties for facilitating a fraudulent transfer of assets, where the Mediators also participated in the misconduct. In re The Mediators, 190 B.R. at 526-31. The court further held that the fraudulent conveyance claims were time-barred as to Citibank, pursuant to Section 546(a) of the Bankruptcy Code and our decision in In re Century Brass Products, Inc., 22 F.3d 37, 39 (2d Cir. 1994) (applying the two-year statute of limitations of Section(s) 546(a) to debtors-in-possession, as of date of bankruptcy petition). In re The Mediators, 190 B.R. at 523-26.

DISCUSSION

A. The Claim for Aiding and Abetting a Fiduciary's Breach of Duty

We emphasize at the outset that the issue before us is whether a creditors' committee standing in the shoes of the debtor may bring a claim against parties alleged to have aided and abetted the debtor's breach of fiduciary duties. This particular action is by no means the only remedy for such acts available under New York law. Indeed, that is the problem. Where third parties aid and abet a fiduciary's breach of duty to creditors -- as is claimed here -- the creditors may bring an action in their own right against such parties. See Shearson Lehman Hutton, Inc. v. Wagoner


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