United States District Court, S.D. New York
June 15, 2005.
ECLAIRE ADVISOR LTD. AS TRUSTEE TO DAEWOO INTERNATIONAL (AMERICA) CORP. CREDITOR TRUST, Plaintiff,
DAEWOO ENGINEERING & CONSTRUCTION CO., LTD., Defendant.
The opinion of the court was delivered by: JED RAKOFF, District Judge
Plaintiff Eclaire Advisor Ltd. ("Eclaire") is Trustee for the
Daweoo International (America) Corporation Creditor Trust (the
"Creditor Trust"), which was established on March 13, 2002, by
order of the Bankruptcy Court for the Southern District of New
York, for the purpose of collecting and distributing certain
assets of Daweoo International (America) Corporation ("DWA") to
its creditors. Eclaire brings this action against defendant
Daewoo Engineering & Construction Co., Ltd. ("DWEC") to recover
approximately half a billion dollars worth of unpaid loans
extended by DWA to Daewoo Corporation ("DWC"). Plaintiff alleges
six causes of action: successor liability (Counts 1 and 2),
unjust enrichment (Count 3), fraudulent conveyance pursuant to
Section 276 of the New York Debtor and Creditor Law (Count 4),
fraudulent conveyance pursuant to Section 274 of the New York
Debtor and Creditor Law (Count 5), and fraudulent conveyance
pursuant to Section 273 of the New York Debtor and Creditor Law
(Count 6). See Am. Compl. ¶¶ 70-112. Shortly after this lawsuit was commenced, defendant moved to
dismiss the Complaint based on (1) lack of personal jurisdiction,
(2) lack of subject matter jurisdiction, (3) forum non
conveniens, (4) international comity, (5) res judicata, (6)
failure to state a claim under Korean law, and (7) failure to
state a claim under New York law. On February 10, 2005, the Court
held argument on these motions, during which it became apparent
that further discovery and additional briefing would be required
with respect to the issue of personal jurisdiction. See
transcript, February 10, 2005. Following such discovery and
further briefing, the Court, on May 20, 2005, denied defendant's
motion in its entirety. See Order dated May 20, 2005. This
Memorandum will set forth the reasons for that ruling.
While the aspects of the motion directed at alleged failures to
state a claim must be decided on the pleadings, the Court may,
and has, considered facts outside the pleadings as to the other
aspects. The relevant facts are as follows:
DWA, a New York corporation with its principal place of
business in Ridgefield Park, New Jersey, was (prior to
bankruptcy) the American trading arm and a wholly-owned
subsidiary of DWC, one of the companies comprising the Daewoo
Group, which itself is one of Korea's largest industrial
conglomerates. See Corrected Amended Complaint ("Am. Compl.")
¶¶ 1-2, 43. Between 1998 and 1999, DWA made approximately
fifty-nine separate loans totaling $533,817,368.06 to DWC, which
at the time was facing severe financial difficulties in
connection with the Asian financial crisis. See id. ¶¶ 46-47
& Ex. A. Each loan was to be repaid within one year of its
disbursement. See id. ¶ 50 & Ex. A.
In August 1999, it became apparent that DWC would not be able
to make good on its loan commitments to DWA and other lenders.
DWC and its affiliates, therefore, sought relief from the lenders
through a "workout." See id. ¶ 51. DWC's subsequent failure
to repay any of these loans in turn caused DWA to be faced with
its own financial difficulties. See id. ¶ 55; Plaintiff's
Memorandum of Law in Opposition to Defendant's Motion to Dismiss
("Pl. Mem.") at 3. Soon thereafter, on March 17, 2000, DWA filed
for Chapter 11 bankruptcy. See In re Daewoo International
(America) Corp., No. 00-11050 (Bankr. S.D.N.Y.).
In July 2000, as part of a Workout Agreement entered into by
DWC and its affiliates on March 15, 2000, see Exhibit E at 58
(Workout Agreement) attached to Affidavit of Jin Yeong Chung,
December 22, 2004 ("Chung Aff."), the shareholders of DWC
ratified a proposal to spin-off DWC's assets (the "Spin-Off"),
pursuant to certain provisions of Korean Law (the "Commercial
Act"), see Pl. Mem. at 3; Debtor's Disclosure Statement
Pursuant to Section 1125 of the Bankruptcy Code for its Amended
Plan of Reorganization ("Disclosure Statement") at 16, attached
as Exhibit 11 to Declaration of James L. Bromley, December 23,
2004 ("Bromley Decl."). The Spin-Off resulted in DWC being split
into two separate, newly formed companies, namely, (1) Daewoo
International Corporation ("DWIC"), which took over certain
assets and related liabilities of DWC's trading operations, and (2) Daewoo Engineering & Construction Co., Ltd. ("DWEC"),
which took over certain assets and related liabilities of DWC's
construction and engineering operations and businesses. See
id.; Memorandum of Law in Support of Defendant's Motion to
Dismiss ("Def. Mem.") at 4; Am. Compl. ¶¶ 59-62. As a result, DWC
was no longer able to satisfy its financial obligations to DWA,
and, DWA, in turn, was unable to satisfy the claims of its
creditors. See Am. Compl. ¶¶ 53-62.
On July 24, 2000, in accordance with the Commercial Act, DWC
sent written notice of the approval of the Spin-Off, and gave its
creditors until August 24, 2000 to object to the Spin-Off. See
Notice to Creditors of Daewoo Corporation, July 24, 2000,
attached as Exhibit 2 to Bromley Decl.; Commercial Act Arts. 232
& 527-5, attached as Exhibit D to Chung Decl. On August 23, 2000,
DWA timely objected to the Spin-Off, pursuant to the Commercial
Act. See Letter of Scott E. Ratner, Esq., August 23, 2000,
attached as Exhibit 3 to Bromley Decl.; Disclosure Statement at
22. Nonetheless, the Spin-Off went forward on December 27, 2000,
leaving DWA's objection unresolved. See Disclosure Statement at
The Commercial Act provides that parties who timely file
objections to a Spin-Off but whose objections are not resolved
prior to the effective date of the Spin-Off may bring legal
action to nullify the Spin-Off within six months of such date,
here by June 27, 2001. See Commercial Act Arts. 529-2.
Accordingly, in early March 2001, two trade creditors of the
Creditors Committee from the DWA bankruptcy filed a lawsuit on
behalf of DWA seeking an equitable order nullifying the Spin-Off on the ground that it had been
completed in violation of Korean law (the "Objection
Litigation"). See Complaint in Objection Litigation, attached
as Exhibit 6 to Bromley Decl ("Complaint in Objection
Litigation") at 3-4. In addition, they applied to the U.S.
Bankruptcy Court for permission to commence adversary proceedings
in the United States against future Trust beneficiaries. See
Def. Mem. at 7.
On March 20, 2001, after the commencement of the Korean
litigation but before the Bankruptcy Court could rule on the
aforesaid application, all legal challenges were resolved by
stipulation (the "Spin-Off Settlement"). See Order Approving
Stipulation By and Among Debtor, Official Committee of Unsecured
Creditors, Daewoo International Corporation, Korean Asset
Management Corporation and Korea Exchange Bank Regarding Plan
Term Sheet, Plan Funding, and Exclusivity and Among Claims
Issues, March 20, 2001 (Spin-Off Settlement), attached as Exhibit
H to Affidavit of Robert A. Weiner, January 21, 2005 ("Weiner
Aff."). Among other things, the Spin-Off Settlement provided that
the parties would submit a Plan of Reorganization, pursuant to
which (a) DWA's claims to trade creditors would be substantially
paid and (b) a Creditor Trust would be created to pursue and
collect assets to satisfy the claims of DWA's other creditors.
The Spin-Off Settlement contained a release (the "Limited
Release") of many of the claims asserted against DWC, DWEC and
DWIC. In particular, the Limited Release not only provided that
Creditors Committee would withdraw its objection to the Spin-Off
and dismiss the entire Korean Litigation with prejudice, but also permitted
one, specific carve-out, viz., the ability to collect monetary
claims from DWC, DWEC, and DWIC:
[DWA, the Creditors Committee and each holder of an
Unsecured Trade Claim] will release and waive all
claims and causes of action relating to, or arising
from, the restructuring and Spin-Off . . . provided,
however, that such release and waiver will not extend
to or cover collection claims, whether asserted under
U.S. law or Korean law, that DWA has or may have
against [DWC], DWIC or DWEC for monetary obligations
that are due and owing. . . .
In addition, upon entry of an Order by the Court
approving the Stipulation incorporating this Term
Sheet and the funding of the Unsecured Trade
Creditors Escrow Account, the Creditors Committee
shall withdraw its objection to the listing of the
stock of [DWC], DWIC and DWEC and discontinue its
prosecution and dismiss with prejudice all litigation
filed in Korea by the Creditors Committee against
[DWC], DWIC, and DWEC. Not withstanding the
foregoing, DWA's objections to the Spin-Off shall not
Spin-Off Settlement at 17-18.*fn1
Thereafter, plaintiff then
withdrew its lawsuit in Korea with prejudice, stating in its
withdrawal papers, that DWA would not file "any lawsuit related to the
Nullification of Spin-Off again." Weiner Aff. at Ex. J.
In February 2002, the Bankruptcy Court confirmed DWA's Plan of
Reorganization. See Confirmation Order, attached as Exhibit L
to Weiner Aff. On March 22, 2002, as required by the Plan and the
Confirmation Order, DWA entered into a "Creditor Trust Agreement"
that, inter alia, created the Creditor Trust. See Lee Aff.
Ex. B, § 1.1. The net effect of the creation of the Trust was
that DWA transferred title and interest in its assets to the
Creditor Trust in order to liquidate the assets of DWA. See
Bromley Decl. Ex. 12 (DWA Plan), at 29 & Ex. 13 (Conf. Order) ¶
18. This suit by the trustee, Eclaire, to collect on the still
unpaid loans followed.
Against this background, the Court considers each of the seven
grounds of defendant's motion to dismiss:
1. Personal Jurisdiction. Defendant DWEC first argues that
the Court lacks personal jurisdiction over it. In response,
Eclaire argues that this Court has personal jurisdiction because
DWEC's New York-based subsidiary, Daewoo America Development,
Inc. ("DADI"), is doing business in New York and DWEC controls
and runs DADI as if it mere a mere department of DWEC and/or
because DADI is serving as DWEC's New York agent. See
Plaintiff's Supplemental Memorandum in Opposition to Defendant's
Motion to Dismiss for Lack of Personal Jurisdiction, April 8,
2005, at 1, 30.
As to the first alternative, under New York law, which governs
this issue, the determination whether a subsidiary is a "mere
department" of the parent requires examination of four factors.
See Volkswagenwerk Aktiengesellschaft v. Beech Aircraft Corp.,
751 F.2d 117, 120-122 (2d Cir. 1984):
The essential factor is common ownership. . . . The
second factor is financial dependency of the
subsidiary on the parent corporation. . . . The third
factor is the degree to which the parent corporation
interferes in the selection and assignment of the
subsidiary's executive personnel and fails to observe
corporate formalities. . . . The fourth factor is the
degree of control over the marketing and operational
policies of the subsidiary exercised by the parent.
The first factor is clearly met, as DADI is a 100%-owned
subsidiary of DWEC, with its principal place of business in New
York City. See deposition of Chang-Mo Lee, March 10, 2005
("C.M. Lee Dep."), at 26:4-27:7, 29:17-30:10, 82:14-16, attached
as Exhibit 3 to Affidavit of B. Ted Howes, April 8, 2005; see
also Beech Aircraft Corp., 751 F.2d at 120 (common ownership
shown where subsidiary is wholly-owned by parent).
The second factor is also met, as shown by the fact that DADI
must obtain DWEC's pre-approval for any expenditures, other than
"minor additional expenses" (such as transportation, supplies,
and the like), over its DWEC-approved annual budget. See,
e.g., email from Sung Kyu Hong to Young Son Park, July 22,
2004, attached as Exhibit 24 to Howes Aff; see also, e.g.,
Dubied Machinery Co. v. Vermont Knitting Co., 85 Civ. 8610,
1992 U.S. Dist. LEXIS 8442, at *11-*12 (S.D.N.Y. June 11, 1992)
(parent's review and control of subsidiary budget sufficient to
establish financial dependency). Furthermore, DADI's most recent
audited financial statement, for 2002, states that DADI "is dependent on its parent and affiliated
companies for funding to support operations and satisfy its
obligations." Consolidated Financial Statements for December 31,
2002 and 2001 for Daewoo America Development, Inc. and
Subsidiaries at DADI/DADNY 4727, attached as Exhibit 25 to Howes
As to the third factor, Eclaire has demonstrated that DWEC in
effect dictates the selection of DADI's executive personnel.
Indeed, since DADI became a subsidiary of DWEC, it appears that
every officer and director of DADI (and each of DADI's own
subsidiaries) has been an officer, current or former, of DWEC.
See "Common Officers of DWEC and DADI" Summary ("Common
Officers Summary"), attached as Exhibit 18 to Howes Aff.; C.M.
Lee Dep. at 88:14-90:22. Additionally, every President of DADI,
past or president, has served concurrently as the Executive
Managing Director of DWEC's Investment Division. See id.; Bak
Dep. at 82:18-25; Ugalde v. Dyncorp, Inc., 98 Civ. 5459,
2000 U.S. Dist. Lexis 1745, at *10 (S.D.N.Y. Feb. 21, 2000) (parent
exerting significant control over the selection of the
subsidiary's executive personnel sufficient to demonstrate a lack
of corporate formality); Public Adm'r of New York County v.
Royal Bank of Canada, 278 N.Y.S.2d 378, 381-82 (N.Y. 1967)
(staff of subsidiary assigned and moved among subsidiaries by
parent sufficient to demonstrate a lack of corporate formality).
Finally, the fourth factor is also met, as shown by the fact
that DADI has only three full-time employees, see Common
Officers Summary, and one of those employees, Mr. Sun-Gu Kim, who
serves as the President of DADI and each of DADI's subsidiaries,
neither lives nor works in the United States, see Deposition of S.G. Kim,
March 11, 2005 ("Kim Dep.") attached as Exhibit 4 to Howes Aff.
at 83:17-85:2. In addition, the functional role of Mr. Kim as
President of DADI, at present, is open to question. Compare,
e.g., Kim Dep. at 27-28, 30, 39-40 (President of DADI a
figurehead) with, e.g., C.M. Lee Dep. at 46, 76, 126
(President of DADI routinely consulted and issued approvals).
Further still, there is evidence that DADI routinely sought the
approval of DWEC regarding DADI's operational and financial
decisions. See Deposition of S.H. Bak, March 21, 2005 ("Bak
Dep."), at 130, attached as Exhibit 2 to Howes Aff.
Independently of all this, the Court also has personal
jurisdiction over DWEC because DADI acts as DWEC's New York
agent. DADI clearly does business in New York, as it provides
services beyond "mere solicitation." For example, it is the
corporate mechanism through which DWEC invests in New York real
estate opportunities such as the Claton Park project in White
Plains and the 415 Greenwich project in Tribeca. See deposition
of Joon-Ha Lee, March 16, 2005, at 152-68; C.M. Lee Dep. at
164:6-175:19.; Wiwa v. Royal Dutch Petroleum Co., 226 F.3d 88,
95 (2d Cir. 2000). In addition, DADI is primarily employed by
DWEC and is not engaged in similar services for other clients.
See Wiwa, 226 F.3d at 95.
2. Subject Matter Jurisdiction. Eclaire asserts that this
Court has subject matter jurisdiction based on diversity of
citizenship, since Eclaire is a New Jersey corporation and DWEC
is a Korean corporation. See Am. Compl. ¶ 1; Def. Mem. at 2;
Pl. Mem. at 3. In response, DWEC contends that the diversity is
illusory, because Eclaire is a "naked trustee with only limited authority
whose citizenship should not be considered for purposes of
diversity." Def. Rep. at 24 (internal quotations omitted).
However, in Navarro v. Lee, 446 U.S. 458 (1980), the Supreme
Court held that a "trustee is a real party to the controversy for
purposes of diversity jurisdiction when he possesses certain
customary powers to hold, manage, and dispose of assets for the
benefit of others." Id. at 464. Eclaire possesses the customary
powers of a true trustee. It was established for the purpose of
liquidating the assets of DWA for distribution to the creditors;
it has sole and exclusive title to all the assets of the Creditor
Trust (including the loans at issue here); and it has "exclusive
power" to prosecute lawsuits to collect such assets. See
Affidavit of Paul Lee, January 20, 1995, ¶¶ 9, 10, 23 & Ex. B
(Creditor Trust Agreement).
3. Forum Non Conveniens. In a case involving international
parties, plaintiff's choice of forum is generally given great
deference when plaintiff has brought suit in its home country.
See Iragorri v. United Techs. Corp., 274 F.3d 69, 71 (2d Cir.
2001) (citing Piper Aircraft Co. v. Reyno, 454 U.S. 235,
255-56, 256 n. 23 (1981); Koster v. (American) Lumbermens Mut.
Casualty Co., 330 U.S. 518, 524 (1947)). Assuming, however, that
Korea is an adequate alternative forum, this Court must also
assess the private and public interests set forth in Gulf Oil v.
Gilbert, 330 U.S. 501, 507-12 (1947).
The public Gilbert factors weigh in favor of retaining
jurisdiction. Among other things, the United States clearly has
an interest in this dispute as it involves a U.S. trustee acting on
behalf of a U.S. creditor trust created by a U.S. court seeking
to recover unpaid U.S. loans. Furthermore, every indication is
that the case will go forward with greater expedition in this
Court than in the courts of Korea. While the fact that the law of
Korea may be involved is a complicating factor, it does not
appear that such issues of Korean law as are likely to arise are
very difficult. Besides, the courts of this District are very
well experienced in the determination and application of foreign
laws, since so much of the commercial activity of this District
involves foreign commerce.
The private Gilbert factors also tilt in favor of plaintiff.
In this day and age of rapid transportation and instant
communications, the convenience of immediate physical proximity
to documents, testimony, and other proof has become of less
consequence to a forum non conveniens analysis, especially
when, as here, two large and sophisticated parties are involved.
See Cavalo Growers of Cal. v. Generali Belgium, 632 F.2d 963,
969 (2d. Cir. 1980) (Newman, J., concurring) ("It will often be
quicker and less expensive to transfer a witness or a document
than to transfer a lawsuit. Jet travel and satellite
communications have significantly altered the meanings of `non
conveniens'"), cert. denied, 449 U.S. 1084 (1981). The lack
of compulsory process to obtain the attendance of witnesses is
likewise of little consequence in this case, since plaintiff does
not anticipate any third-party discovery. See Pl. Mem. at 29.
In short, neither the public nor the private factors warrants
disturbing plaintiff's choice of forum. 4. International Comity. DWEC contends that adjudicating
this controversy in this Court will run afoul of international
comity, since DWA withdrew its Korean litigation, permitting a
large corporate restructuring to go forward in Korea. Def. Mem.
at 22. But the instant dispute does not implicate genuine issues
of international comity at all. The case does not threaten any
executive, legislative, or judicial act of Korea. See Def. Mem.
at 24 (essentially conceding as much). The Spin-Off was basically
a private, contractual arrangement in all material respects.
See Boder v. Banque Paribas, 114 F. Supp. 2d 117, 130
(E.D.N.Y. 2000). By contrast, the instant suit at least involves
a modicum of U.S. national interest, in that the plaintiff
represents a court-created trust.
5. Res Judicata. Defendant argues that the instant action
is barred under the doctrine of res judicata. This, defendant
says, follows from the facts that (a) plaintiff here is in
privity with DWA, (b) DWA made the claims here the premise of its
Objection Litigation in Korea, which it then dismissed with
prejudice, and (c) whatever carve-out remained to pursue these
claims was subsequently released or waived.
Even as to the claim of privity, the argument is flawed. The
actual plaintiffs in the Objection litigation were LDM Technology
Inc. ("LDM") and Delphi Automotive Systems Corp. ("Delphi") two
unsecured trade creditors of the Creditors Committee. See
Complaint in Objection Litigation at 3-4. Here, the plaintiff,
Eclaire, ultimately represents the interests of the non-trade creditors of
DWA. See supra. Hence, at a minimum, an unresolved question
of fact exists as to whether the parties at interest in the
Objection Litigation are "virtually identical" to, and therefore
in privity with, the parties at interest in this law suit. See
Chase Manhattan Bank, N.A. v. Celotex Corp., 56 F.3d 343,
345-46 (2d Cir. 1995); see also Cowan v. Ernest Codelia,
P.C., 149 F. Supp. 2d 67, 77 (S.D.N.Y. 2001) ("In determining
whether parties have an identity of interests New York courts
permit flexible consideration of whether all of the facts and
circumstances of the party's and nonparty's actual relationship,
their mutuality of interests and the manner in which the
nonparty's interests were represented in the previously decided
litigation establishes a functional representation such that the
nonparty may be thought to have had a vicarious day in court."
(quotation and citation omitted)).
But even assuming, arguendo, that privity exists, there was
no release or waiver. Under New York law a party claiming to be
released from liability bears a heavy burden of proving that the
alleged release contains an "explicit, unequivocal statement of a
present promise to release [a party] from liability." Golden
Pac. Bancorp v. FDIC, 273 F.3d 509, 515 (2d Cir. 2001). The
release provision must be shown to reveal an "unmistakable intent
of the parties." Id. Moreover, "[c]laim preclusion will not
apply . . . if the parties intended to settle only one part of a
single claim and intended to leave another part open for future
litigation." United States v. Valores Corporativos, S.A.,
159 B.R. 689, 690 (S.D.N.Y. 1993); see also Restatement (Second) of Judgments § 26 (cmt
Here, as previously noted, the release entered into in
connection with the settlement of the Objection Litigation
contained an express carve-out for "collection claims, whether
asserted under U.S. law or Korean law, that DWA has due or may
have against Daewoo Corporation, DWIC or DWEC for monetary
obligations that are due and owing." Spin-Off Settlement at 18.
This was reaffirmed at the bankruptcy confirmation hearing, where
counsel represented that "[o]ne aspect of this stipulation is
that those receivables are not being forgiven, they are not being
canceled, no releases are to be given on them; they will survive
and they will be actively prosecuted." See transcript, Bankr.
S.D.N.Y., March 20, 2001, at 22-23. That this was a reference to,
among other things, the loans here at issue is shown by the
subsequent Confirmation Order contained itself, which contained a
specific carve-out for these claims:
the Debtor, the Creditors' Committee and all holders
of Class 5 Claims receiving a Distribution under the
Plan on account of an Allowed Claim, shall release
and waive any and all claims and causes of action
. . ., whether known or unknown, alleged or
unalleged, against DWIC, Daewoo Corporation, Daewoo
Engineering and Construction Co. Ltd., KEB, KAMCO and
any holder of a Junior Secured Bank Claim or a
Remaining Bank Claim who voted to accept the Plan,
relating to, or arising from, the restructuring and
spin-off of Daewoo Corporation into DWIC, Daewoo
Engineering and Construction Ltd. and Daewoo
Corporation; provided, however,
that such release and waiver shall not extend to or
cover collection claims that the Creditor Trust may
possess based on monetary obligations due and owing
to the Debtor. Order Confirming Amended Plan of Reorganization of Daewoo
International (America) Corp. under Chapter 11 of the Bankruptcy
Code, February 13, 2002, at 23 (emphasis in original), attached
as Exhibit L to Weiner Aff.*fn2
6. Failure to State a Claim Under Korean Law. Defendant
argues that, based upon New York's choice of law rules, Korean
law applies to all of plaintiff's claims and that, under Korean
Law, plaintiff fails to state a claim. In actuality, however, New
York law applies to all these claims.
As to plaintiff's successor liability claims, there is no
difference between the laws of New York and Korea. Under New York
law, "successor liability will lie when: (1) there is an express
or implied agreement to assume the other company's debts and
obligations; (2) the transaction was fraudulent; (3) there was a
de facto merger or consolidation of the companies; or (4) the
purchasing company was a mere continuation of the selling
company." Kidz Cloz, Inc. v. Officially for Kids, Inc., 00 Civ.
6270, 2002 U.S. Dist. LEXIS 13058, *13-*14 (S.D.N.Y. July 16,
2002). Similarly, under Korean Law, successor liability lies when
the corporation that is the result of a spin-off is a mere
continuation of the predecessor corporation. See Declaration of
Won Hyun Choi, January 18, 2005, ¶¶ 8, 11, Ex. B at Art.
530-9(1). Since there is no conflict between New York and Korean
law on this claim, New York applies to the successor liability claim. See Booking v. Gen'l Star Mgt.
Co., 254 F.3d 414, 419 (2d Cir. 2001) (citing In re Allstate
Ins. Co., 81 N.Y.2d 219, 223 (N.Y. 1993)). Moreover, since,
according to defendant, plaintiff's unjust enrichment claim is,
in the context of this lawsuit, controlled by the law of
successor liability, see Def. Mem. at 32, there is, again, no
conflict as to that claim, and New York law therefore governs
that claim as well.
As to plaintiff's fraudulent conveyance claims, there may be a
difference in the laws of the two jurisdictions. But applying New
York's choice of law "interest analysis,"*fn3 New York
substantive law would clearly be chosen. For on thing, where the
parties are diverse, as here, the situs of the injury, here New
York, generally determines the governing substantive law. See
Gray v. Busch Entertainment Corp., 886 F.2d 14, 15 (2d Cir.
1989). Moreover, the New York Fraudulent Conveyance Act "was
enacted to enable creditors to know with certainty that they
could rely upon property of their debtors, even if situated in
another jurisdiction." Advanced Porfolio Techs., Inc.,
1999 U.S. Dist. LEXIS 1265, at *16 (citations omitted). Hence, "it is
established that New York has an "especially strong" interest in applying its law when one of its
domiciliaries alleges that it has been defrauded." Id.
7. Failure to State a Claim Under New York Law. Defendant's
final assertion is that, even if New York law applies,
plaintiff's three fraudulent conveyance claims fail to state a
cause of action under, respectively, §§ 273, 274, and 276 of New
York Debtor and Creditor Law (also known as the New York
Fraudulent Conveyance Statute).*fn4
Specifically, as to §§ 273 and 274, defendant alleges that,
because these sections forbid a species of fraud, they must be
pled with particularity, see Rule 9(b), Fed.R.Civ.P., a
requirement, defendant says, has not been met here. However, the
sections of New York law here at issue deal with constructive
fraud, whereby certain transactions are fraudulent as a matter of
law because of when or for what consideration they were made, and
not because they were undertaken with fraudulent intent. This is
not the kind of fraud to which Rule 9(b) applies. See Feist v.
Druckerman, 70 F.2d 333, 334 (2d Cir. 1934) (§ 273); In re
Corcoran, 246 B.R. 152, 158-59 (Bankr. E.D.N.Y. 2000) (§ 274);
see also Bulkmatic Transport Co. v. Pappas, 99 Civ. 12070,
2001 U.S. Dist. LEXIS 6894, at *38 (S.D.N.Y. May 11, 2001) ("In pleading constructive fraud [under N.Y. Debtor and
Creditor Law § 273], as opposed to actual fraud, a claimant must
comply only with the more liberal pleading requirements of Rule
8"). Here, plaintiff has met the bare-bones pleading requirements
of Rule 8, Fed.R.Civ.P., by alleging the basic elements of
As to § 276:
A party seeking to set aside a fraudulent conveyance
under § 276 must plead an actual intent to defraud
with particularity sufficient to meet the heightened
standard of Fed.R.Civ.P. 9(b). Nevertheless,
because direct proof of fraudulent intent is usually
difficult to obtain, such intent may be inferred from
circumstantial evidence, or "badges of fraud." This
evidence may consist of: (1) the inadequacy of
consideration received in the allegedly fraudulent
conveyance; (2) the close relationship between
parties to the transfer; (3) information that the
transferor was rendered insolvent by the conveyance;
(4) suspicious timing of transactions or existence of
a pattern after the debt had been incurred or a legal
action against the debtor had been threatened; or (5)
the use of fictitious parties.
Bulkmatic Transport Co., 2001 U.S. Dist. LEXIS 6894, at *35-*36
(citing Stratton Oakmont, 234 B.R. 293, 315-16 (Bankr. S.D.N.Y.
1999)); see also Am. Tissue v. Donaldson,
351 F. Supp. 2d 79, 106-07 (S.D.N.Y. 2004). Here, plaintiff's allegations meet
these requirements. See Am. Compl. ¶¶ 51, 59-66, 71-77,
For the aforementioned reasons, the Court, by Order dated May
20, 2005, denied defendant's motion to dismiss in its entirety.