UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK
September 30, 2012
IN RE M. FABRIKANT & SONS, INC., ET AL. , DEBTORS.
B UCHWALD C APITAL A DVISORS LLC, AS T RUSTEE OF THE MFS GUC T RUST, APPELLANT,
JP M ORGAN C HASE B ANK, N.A., ET AL. , APPELLEES.
The opinion of the court was delivered by: Richard J. Sullivan, District Judge:
MEMORANDUM AND ORDER
Buchwald Capital Advisors, LLC, which (collectively, "Appellees" or the "Banks") to serves as Trustee of the MFS GUC Trust dismiss Appellant's Third Amended ("Appellant" or the "GUC Trust"), appeals Complaint in its adversary proceeding. For from the January 25, 2011 Order of the the reasons set forth below, the Court Honorable Stuart M. Bernstein, Bankruptcy affirms the Bankruptcy Court's Order in its Judge, granting in part and denying in part entirety. the motion of the defendant banks*fn1
(collectively, "Debtors") each filed a April 19, 2011 and filed its brief on May 31, voluntary petition for relief under Chapter 2011. The appeal was fully submitted as of 11 of the Bankruptcy Code on November August 3, 2011. 17, 2006. Both debtors are jewelry companies owned or controlled by members II. LEGAL STANDARDS of the Fortgang family. In re M. Fabrikant & Sons, Inc. ("Fabrikant III"), 447 B.R. District courts are vested with appellate 170, 176-77 (Bankr. S.D.N.Y. 2011). In jurisdiction over bankruptcy court rulings 2007, the unsecured creditors' committee, pursuant to 28 U.S.C. § 158(a)(1). succeeded by Appellant pursuant to the Plan Specifically, "Congress intended to allow of Liquidation, filed suit against the Banks, for immediate appeal in bankruptcy cases of secured creditors of the Debtors, alleging orders that finally dispose of discrete fraudulent conveyance. Specifically, disputes within the larger case." In re Appellant alleges that the Banks participated Fugazy Exp., Inc., 982 F.2d 769, 775 (2d in a scheme whereby they made secured Cir. 1992) (internal quotation marks loans to Debtors, knowing that the proceeds omitted). Where, as here, a bankruptcy of the loans would subsequently be court has dismissed a complaint for failure fraudulently transferred to several to state a claim, pursuant to Federal Rule of companies (collectively, the "Affiliates") Civil Procedure 12(b)(6), the district court that were owned or controlled by members reviews the bankruptcy court's conclusions of the Fortgang family but which, for the of law de novo. In re Bennett Funding Grp., most part, did not own and were not owned 146 F.3d 136, 138 (2d Cir. 1998). by the Debtors. Additionally, Appellant seeks recovery of funds that it alleges MFS Federal Rule of Civil Procedure 8(a) fraudulently transferred to various Affiliates provides that a complaint must contain "a and were subsequently reconveyed to certain short and plain statement of the claim Banks. Finally, Appellant seeks recovery of showing that the pleader is entitled to alleged preferential payments made to the relief." In order to survive a motion to Banks within ninety days of the petition dismiss, a complaint must "provide the date. (See generally Third Amended grounds upon which his claim rests." ATSI Complaint ("TAC")). Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007). Plaintiffs must On October 10, 2008, the Bankruptcy also allege "enough facts to state a claim to Court granted in part and denied in part the relief that is plausible on its face." Bell Atl. Banks' motion to dismiss the Amended Corp. v. Twombly, 550 U.S. 544, 570 Complaint. In re M. Fabrikant & Sons, Inc. (2007). "A claim has facial plausibility ("Fabrikant I"), 394 B.R. 721 (Bankr. when the plaintiff pleads factual content that S.D.N.Y. 2008). Thereafter, Appellant filed allows the court to draw the reasonable a Second Amended Complaint, which the inference that the defendant is liable for the Bankruptcy Court again dismissed in part. misconduct alleged." Ashcroft v. Iqbal, 556 In re M. Fabrikant & Sons, Inc. ("Fabrikant U.S. 662, 678 (2009). Conversely, a II"), No. 06-12737 (SMB), 2009 WL pleading that only offers "labels and 3806683 (Bankr. S.D.N.Y. Nov. 10, 2009). conclusions" or "a formulaic recitation of Appellants then filed their TAC. Once the elements of a cause of action will not again, the Bankruptcy Court dismissed the do." Twombly, 550 U.S. at 570. If the TAC in part. Fabrikant III, 447 B.R. 170. plaintiff "ha[s] not nudged [his] claims Appellant appealed from Fabrikant III on across the line from conceivable to
plausible, [his] complaint must be A. Counts I-IV: "Collapsing" dismissed." Id. In reviewing a motion to Fraudulent Conveyance Claims dismiss, pursuant to Rule 12(b)(6), the Court must accept as true all factual allegations in Counts I-IV of the TAC allege that, the Complaint and draw all reasonable beginning in 2003, the Banks knowingly inferences in favor of the plaintiff. ATSI made numerous secured loans to Debtors, Commc'ns, 493 F.3d at 98. and Debtors subsequently reconveyed the proceeds of those loans to the Affiliates for However, all averments of fraud must be less than reasonably equivalent value. "state[d] with particularity." Fed. R. Civ. P. According to Appellant, Debtors' dealings 9(b). Thus, to comply with the heightened with the Banks and the Affiliates should be pleading standard of Rule 9(b), a plaintiff collapsed and viewed as a single transaction. must: "(1) detail the statements (or And, because Debtors did not retain the loan omissions) that the plaintiff contends are proceeds, Appellants contend that the fraudulent, (2) identify the speaker, (3) state conveyance of liens from Debtors to the where and when the statements (or Banks was a fraudulent transfer, in violation omissions) were made, and (4) explain why of 11 U.S.C. §§ 544, 548, and New York the statements (or omissions) are law.*fn2
fraudulent." Eternity Global Master Fund Ltd. v. Morgan Guar. Trust Co., 375 F.3d 1. Applicable Law 168, 187 (2d Cir. 2004) (citing Harsco Corp. v. Segui, 91 F.3d 337, 348 (2d Cir. Pursuant to 11 U.S.C. § 548, a transfer 1996)). Additionally, although Rule 9(b) made or obligation incurred within two relaxes the specificity requirement for years of the petition date may be avoided as scienter, that "must not be mistaken for intentionally or actually fraudulent if it was license to base claims of fraud on made "with actual intent to hinder, delay, or speculation and conclusory allegations." In defraud any entity to which the debtor was re Carter-Wallace, Inc., Sec. Litig., 220 F.3d or became, on or after the date that such 36, 39 (2d Cir. 2000) (internal quotations transfer was made or such obligation was and citations omitted). A complaint still incurred, indebted." 11 U.S.C. must "allege facts that give rise to a strong § 548(a)(1)(A). Alternatively, a transfer is inference of fraudulent intent." Id. constructively fraudulent if the debtor
"received less than a reasonably equivalent
III. DISCUSSION value in exchange for such transfer or
The GUC Trust appeals the Bankruptcy Court's dismissal of: (1) Counts I-IV (the
obligation; and was insolvent on the date debtor then gratuitously reconveyed what it that such transfer was made or such received to a third party, taking nothing in obligation was incurred, or became insolvent return; and (2) the party to the transaction as a result of such transfer or obligation." with the debtor that is sought to be avoided, Id. § 548(a)(1)(B).*fn3 "must have [had] actual or constructive knowledge of the entire scheme that renders Similarly, under New York Debtor and [its] exchange with the debtor fraudulent." Creditor Law section 276, a conveyance HBE Leasing Corp. v. Frank, 48 F.3d 623, made or obligation incurred "with actual 635 (2d Cir. 1995). The Court proceeds to intent, as distinguished from intent consider whether the Bankruptcy Court presumed in law, to hinder, delay, or defraud correctly concluded that Appellant failed to either present or future creditors" is plead either required element. fraudulent; under section 273, a conveyance or obligation is "fraudulent as to creditors 2. Whether the Trustee Adequately without regard to his actual intent if the Pleaded That the Loans Were Reconveyed conveyance is made or the obligation is incurred without a fair consideration."*fn4 On appeal, Appellant argues that the
TAC contains sufficient factual allegations In this case, because the amount of the to collapse the transactions and that the loans that Debtors received is roughly Bankruptcy Court improperly drew equivalent to the value of the liens that they inferences in favor of the Banks, rather than gave the Banks in return, there is no GUC Trust, when it held otherwise. allegation that these transactions were, (Appellant's Br. 20-21 & n.14.) standing alone, fraudulent conveyances. Specifically, the Trustee takes issue with the (Appellant Br. 15.) However, Appellant Bankruptcy Court's focus on the TAC's argues that when the transactions between failure to allege specific pairings of the Banks and Debtors and the transactions transactions between the Banks and Debtors between Debtors and the Affiliates are on the one hand, and Debtors and the collapsed, the liens given to the Banks are Affiliates on the other. (Id. at 19.) fraudulent conveyances. (Id.) In order to collapse two transactions and treat them as a In order to bring a collapsing fraudulent single transaction under fraudulent conveyance claim, a plaintiff must identify a conveyance law, a plaintiff must establish set of transfers that can be said to constitute that: (1) a party gave the debtor fair value in a unified scheme to defraud creditors of the exchange for the debtor's property, but the debtor. HBE Leasing, 48 F.3d at 635; see
Orr v. Kinderhill Corp., 991 F.2d 31, 35-36
recover the "unpaid balance of all loans" 59.) Clearly, more is required to state a that had been extended by the Banks rather collapsing fraudulent conveyance claim. As than an amount based on an aggregation of the Bankruptcy Court recognized, the the specific transfers it alleged were Trustee's "net transfer theory only makes fraudulent. Fabrikant III, 447 B.R. at 184. sense when all of the transfers are According to the Bankruptcy Court, "[i]t presumptively fraudulent, as in the case of a was implausible to contend that every Ponzi scheme." Fabrikant II, 2009 WL transfer from the debtors to the . . . Affiliates 3806683, at *13 n.19 (citation omitted). was fraudulent" because, among other However, the Trustee "does not state or reasons, it appeared from the pleadings that imply that Fabrikant was run as a Ponzi Debtors actually owed the Affiliates money scheme." Id. and, therefore, engaged in various clearly legitimate transactions. Id. Thus, in In essence, Appellant alleges that the Fabrikant II, the Bankruptcy Court granted TAC states a claim because the Debtors the Trustee leave to amend and directed the reconveyed some portion of the loan Trustee to identify specific transfers that proceeds that they received from the Banks might be properly "collapsed" upon to the Affiliates without receiving anything repleading. Id. at 185. in return. (Appellant Br. 19; e.g., TAC ¶¶ 6,
75.) While Appellant need not show a Nevertheless, Appellant failed to comply perfectly matched flow of consideration with this directive and, in Fabrikant III, from the Banks to the Affiliates via Debtors Judge Bernstein again found that the TAC -- i.e, a five-million-dollar loan from the failed to "allege that a particular Lending Banks to Debtors and a five-million-dollar Bank made a specific advance that was transfer from Debtors to the Affiliates, subsequently reconveyed fraudulently with without receiving value in return -- that Lending Bank's knowledge or consent." Appellant nonetheless must identify specific Id. at 191. The Bankruptcy Court concluded transactions in which some portion of loan that, by not pleading pairs of loans made by proceeds that Debtors received were the Banks to Debtors with conveyances from gratuitously reconveyed to Affiliates as part Debtors to the Affiliates, the TAC did not of a single transaction. See HBE Leasing, allege any transfers that were part of a single 48 F.3d at 635. For largely the reasons scheme.*fn5 Id. at 191. The Court agrees. explained in Fabricant III, Appellants have failed to do so. See Fabricant III, 447 B.R. Rather than identify pairs of transactions at 189-93. that actually amounted to integrated, fraudulent transfers -- as case law requires Nevertheless, Appellant asserts that the and the Bankruptcy Court clearly directed -- claims should proceed because resolving the Appellant merely asserts that the particular loans made by the Banks that transactions between the Banks and the were improperly reconveyed to the Debtors, in the aggregate, resulted in a net Affiliates can be done on the merits loss to Debtors. (See, e.g., TAC ¶¶ 44, 58- following discovery. (Appellant Br. 27.)
However, while Appellant is correct that
of a single transaction. Because the TAC dismissed the "Collapsing" Fraudulent does not match any loans, from the Banks to Transfer Claims.
Debtors, to transfers, from Debtors to the Affiliates, the TAC offers only conclusions 3. Whether the Banks had Knowledge without factual support that these transactions should be collapsed. The "Collapsing" Fraudulent
Conveyance Claims additionally fail Moreover, the implausibility of because the TAC does not provide factual Appellant's assertion that these transactions support for the contention that the Banks should be collapsed is all the more apparent were actually or constructively aware that in view of the fact that the TAC states, and Debtors would reconvey the loan proceeds Appellant concedes in its brief, that "some to the Affiliates for less than reasonably portion of [the Banks'] loans were used for equivalent value. See HBE Leasing, 48 F.3d the legitimate purchase and sale of jewelry at 635. or other corporate activities." (Appellant Br. at 19; see TAC ¶¶ 45.) For those transfers First, the TAC offers no facts to support from Debtors to the Affiliates that were the claim that the Banks had actual supported by consideration, there is no basis knowledge beyond the wholly conclusory for finding that the liens given by Debtors to assertion that the Banks were "intimately the Banks should be avoided as fraudulent involved in the formulation or conveyances. See 11 U.S.C. § 548(a); In re implementation of the plan by which the NextWave Personal Commc'ns, Inc., 200 proceeds of the loan were channeled to the
F.3d 43, 56 (2d Cir. 1999) ("Under the third-party," In re Sunbeam Corp., 284 B.R. avoidance provisions of the [Bankruptcy] 355, 370 (Bankr. S.D.N.Y. 2002); (TAC Code, a transfer or obligation is or is ¶ 79), or that the Banks otherwise had actual deemed to be a fraudulent conveyance -- and knowledge of the alleged fraudulent scheme. therefore avoidable -- if the debtor received Such a "formulaic recitation" of the less than a reasonably equivalent value in elements of the cause of a fraudulent exchange for such transfer or obligation." conveyance claim will not suffice to meet (citation and internal quotation marks the federal pleading standard. See Twombly, omitted)); In re Old CarCo LLC, No. 550 U.S. at 570. (DLC), 2011 WL 5865193, at *7 (S.D.N.Y. Nov. 22, 2011). By acknowledging that at Similarly, the TAC also fails to allege least some of the transfers from Debtors to that the Banks had constructive knowledge the Affiliates were in fact for reasonably of the alleged scheme. In determining equivalent value, the TAC essentially whether constructive notice has been undercuts the notion that the transactions at established, courts have looked to "red issue constituted a unified scheme to defraud flags" that should have put the grantee on Debtors' creditors. notice of potential fraud. In re Bayou Grp., LLC, 439 B.R. 284, 314 (S.D.N.Y. 2010). Accordingly, because the TAC does not However, signals of general "infirmities" in allege that any particular loans from the a company, which could merely reflect "a Banks were gratuitously reconveyed to the poor business model, incompetent Affiliates, the Court finds that the facts management, . . . insufficient capital, and a alleged in the TAC do not plausibly suggest host of other deficiencies" other than fraud, that these transactions should be collapsed, are inadequate to trigger inquiry notice. Id. and the Bankruptcy Court properly The TAC alleges that, as a general matter, the Banks were aware of the Debtors' B.R. at 183; (see TAC ¶¶ 96-97). Thus, it is finances, the volume of their transactions far from obvious that the flow of cash from with the Affiliates, and that the Affiliates Debtors to the Affiliates should have alerted were, by and large, unrelated to Debtors. the Banks to the likelihood that Debtors (TAC ¶¶ 79, 80-83, 85-87, 89, 118-119.) were not benefiting from the loans or even The TAC also alleges that transfers to the that their relationship with the Affiliates was Affiliates were poorly documented and a net negative. inconsistent with "standard business practices," with ledger entries often not Moreover, Appellant's contention -- that showing maturity dates or collateral the Banks were aware of, but indifferent to, provided to secure advances. (Id. ¶¶ 45-46, the fact that all of the Fortgang companies 54-55, 60.) Additionally, the TAC alleges were simultaneously insolvent and simply that the Banks treated accounts receivable shuffling money around to meet short-term from the Affiliates differently from Debtors' obligations -- requires an inference that is other assets. (See id. ¶¶ 96, 98-101 (noting highly implausible, bordering on the absurd. that various bank documents excluded In essence, Appellant alleges that the Banks accounts receivable from the Affiliates when took the massive risk of continuing their determining the Debtors' "borrowing base" lending relationships with the Fortgang and represented that a large portion of those companies (id. ¶¶ 109-114) on the accounts were overdue).) In particular, the speculative hope that "there may be TAC alleges that Bank of America noted in sufficient liquidity in the 'Fabrikant Empire' 2005 that MFS had high leverage and . . . as a whole to enable the Banks to obtain marginal profitability relative to sales and repayment" through personal guarantees and that its accounts receivable collateral was "other pressure" (id. ¶¶ 78, 108, 122-123). "poor." (Id. ¶¶ 94, 102.) In 2004, ABN Such an assertion would be nonsensical if "identified a negative borrowing base the Banks were in fact aware that Debtors between $3 and $16.6 million." (Id. ¶ 94.) and the Affiliates had to use the same dollars to repay separate obligations. Put simply, However, although these allegations drawing all inferences in favor of Appellant, could conceivably raise some doubts as to it is difficult to see what benefit the Banks Debtors' financial stability, they hardly rise could hope to obtain by lending ever-larger to the level of suggesting fraud. Indeed, the amounts of money to failing companies. facts alleged in the TAC actually undermine The TAC's wholly conclusory allegations the suggestion that the Banks knew or that the Banks were "[c]louded in judgment should have known that their loans would be due to lavish commissions" (id. ¶ 78) is funneled to the Affiliates while providing no equally implausible, since the loss of benefit to Debtors. For example, the principal would have far outweighed the attachments to the TAC show large commissions earned on the loans, cf., e.g., payments coming to Debtors from the Pungitore v. Barbera, No. 11 Civ. 6249 Affiliates, some of which appear to far (VB), 2012 WL 2866293, at *4 (S.D.N.Y. exceed the amount being transferred from Mar. 29, 2012) (declining to draw Debtors to the Affiliates. (TAC Ex. C.) implausible inference proffered by plaintiff Moreover, as the Bankruptcy Court noted, a and instead dismissing claims based on far 2002 report produced by JPMC, and more plausible inference drawn from the referenced in the TAC, revealed that MFS facts alleged in the complaint). owed the Affiliates far more than the Affiliates owed MFS. Fabrikant III, 447
Considering the TAC in its entirety, the alleges that the loans "funded fraudulent Court has little difficulty concluding that transfers to the . . . Affiliates of which the Appellants have failed to allege constructive Banks were themselves creditors" -- even knowledge on the part of the Banks. though only four of the banks had lending Instead, the far more plausible inference is relationships with the Affiliates -- and that that the Banks were confident that Debtors "the Banks" relied on liquidity in the could continue operating based on the "Fabrikant Empire" as a whole for overall strength of the Fortgang companies. repayment. (Id. ¶¶ 120, 122-123, 126.) Consistent with this inference, Bank Appellant's tenuous theory as to the Banks' Leumi's note in 2002 that a weak Affiliate motive as a group is even more implausible might nonetheless be creditworthy because with regard to the Banks that have no it was "'under the umbrella' of the M. alleged relationship with the Affiliates and, Fabrikant Group" (TAC ¶ 106), suggests not thus, apparently were participating in a a nefarious ploy, but confidence -- however scheme to defraud themselves based on misguided -- that the companies continued to Appellant's assertions. Appellant has utterly be creditworthy. Likewise, that SPM failed to plead a plausible cause of action believed MFS to be creditworthy based on against each Bank, relying instead on MFS's "demonstrated liquidity" (id. ¶ 111) sweeping and conclusory allegations that the -- an apparent reference to its year-end lenders "operated as a single syndicate of "cleanup" payments on its open lines of lenders." (Id. ¶ 91.) credit -- makes no sense if SPM understood that MFS repaid its loans by means of an Accordingly, the Court finds that the elaborate shell game. In short, the TAC fails TAC fails to plausibly allege that the Banks to allege plausibly that the Banks were even were aware, actually or constructively, that aware of the alleged scheme as a general Debtors would reconvey the loan proceeds matter, much less that they were aware to the Affiliates for less than reasonably either that any particular advance would be equivalent value. Therefore, the Court fraudulently conveyed or that the scheme affirms the Bankruptcy Court's dismissal was so pervasive that fraudulent with prejudice of Counts I through IV reconveyance was likely. because the TAC does not plausibly allege either required element of a collapsible Moreover, the TAC alleges that as of fraudulent conveyance. 2006 -- the year when Debtors filed their bankruptcy petitions -- the Banks believed B. Counts VIII-X: Subsequent that they had extended too many loans to Fraudulent Transfer Claims Debtors and that intercompany lending was problematic. (Id. ¶¶ 94, 104.) That these Counts VIII, IX, and X allege that MFS communications were in connection with transferred funds to the Affiliates for less "the debtors' attempts to maintain [their] than reasonably equivalent value and that credit facility" (id.) suggests that the Banks the Affiliates reconveyed those funds to realized at that time, and not before, that the ABN, IDB, HSBC, and Sovereign. Debtors might be insolvent. As noted above, pursuant to Rule 9(b) of
Additionally, even if the allegations the Federal Rules of Civil Procedure, a party were sufficient with respect to some of the alleging fraud must "state with particularity Banks, Appellant repeatedly conflates all of the circumstances constituting fraud." the Banks in the TAC, such as where it "Since '[i]t is a serious matter to charge a
person with fraud,' a plaintiff is not with the Bankruptcy Court that Appellant's permitted to do so 'unless he is in a position failure to identify in the TAC the dates and and is willing to put himself on record as to amounts of particular transfers alleged to be what the alleged fraud consists of fraudulent is fatal to any claim for specifically.'" United Feature Syndicate, intentional fraudulent conveyance. Inc. v. Miller Features Syndicate, Inc., 216 Accordingly, the Court affirms the
F. Supp. 2d 198, 221 (S.D.N.Y. 2002) Bankruptcy Court's dismissal of Counts (quoting Segal v. Gordon, 467 F.2d 602, 607 VIII, IX, and X with prejudice. (2d Cir. 1972)). Accordingly, in order to adequately allege intentional fraudulent C. Count XI: Preference Claims conveyance consistent with Rule 9(b), a complaint must specify "the property that Count XI seeks recovery of numerous was allegedly conveyed, the timing and transfers made by Debtors to the Banks frequency of those allegedly fraudulent within ninety days of the filing of its conveyances, [and] the consideration paid." bankruptcy petition. The Bankruptcy Court, Id.; see also Fed. Nat'l Mortg. Ass'n v. relying primarily on its opinion in Fabrikant Olympia Mortg. Corp., No. 04 Civ. 4971 II, determined, first, that Appellant lacked (NG) (MDG), 2006 WL 2802092, at *9 standing to raise the Preference Claims, and, (E.D.N.Y. Sept. 28, 2006) (dismissing further, that, even if Appellant had standing, claims of intentional fraudulent conveyance the Preference Claims were untimely. where complaint did "not identify how many transfers plaintiff is challenging or the The Court agrees that the Preference specific dates and amounts of those Claims were untimely. Pursuant to the transfers" and instead "aggregate[d] the Bankruptcy Court's Final Order Authorizing transfers into lump sums over three to five Debtors' Use of Cash Collateral and year time periods"). Granting Adequate Protection Claim and
Lien (the "Final Cash Collateral Order" or Appellant asserts that Debtors' payments "FCCO"), the deadline for filing avoidance to several different entities over the course claims was October 1, 2007. of nearly a year, or two years with respect to Notwithstanding that firm deadline, Affiliate VSI, LLC, constitute "granular Appellant failed to assert the Preference detail" sufficient to satisfy Rule 9(b)'s Claims until it filed its Second Amended pleading standard. (Appellant Br. 31.) Complaint on December 1, 2008 -- more However, the sole case that they cite for the than a year after the deadline. Fabrikant III, proposition that individual payments need 447 B.R. at 181. not be identified, S.E.C. v. Feminella, 947 F.
Supp. 722, 732-33 (S.D.N.Y. 1996), arose in Appellant argues that the FCCO merely the securities context and appears prevented the GUC Trust from initiating inconsistent with more recent precedent new adversary proceedings after the applicable to fraudulent conveyance claims, deadline. (Appellant's Br. 34-35.) see, e.g., United Feature Syndicate, 216 F. Appellant further argues that "[t]he Supp. 2d at 221 (dismissing fraudulent preferential payments made by the Debtors conveyance claim under Rule 9(b) that did were among these precise transfers that the "not specify the property that was allegedly Trustee originally sought recovery of on conveyed, the timing and frequency of those fraudulent conveyance grounds" in the first allegedly fraudulent conveyances, or the complaint and, therefore, the claims relate consideration paid"). Thus, the Court agrees back to the filing date of the original
Complaint pursuant to Federal Rule of Civil the date of the timely complaint if "the Procedure 15. (Id. at 35.) amendment asserts a claim or defense that arose out of the conduct, transaction, or The FCCO provides in relevant part that occurrence set out -- or attempted to be set the Creditors' Committee (Appellant's out -- in the original pleading." Fed. R. Civ. predecessor in interest) had until October 1, P. 15(c)(1)(B). In order for an amendment 2007 "to commence an adversary to relate back to an earlier pleading, that proceeding against any of the Lender Parties earlier pleading must have "put the for the purpose" of, inter alia, filing defendants . . . on notice of what must be avoidance claims.*fn6 (No. 07-2780 (SMB), defended against in the amended pleadings." Doc. No. 16-2, ¶ 22.) The FCCO further Barr v. Charterhouse Grp. Int'l, Inc., 238 provides that "[t]he Committee shall be B.R. 558, 573--74 (S.D.N.Y. 1999) (citations barred forever from commencing a omitted); see also Adelphia Recovery Trust Challenge if the Committee has failed to do v. Bank of Am., N.A., 624 F. Supp. 2d 292, so within such stated time period." (Id.) 333-34 (S.D.N.Y. 2009). Additional legal Although it is true that Appellant filed an theories may be added later, but the earlier adversary proceeding against Appellees pleading "must inform the defendants of the within the stated time period, the Court does facts that support those new claims." Barr, not read the FCCO to mean that Appellant's 238 B.R. at 574. Although a plaintiff need filing of any complaint against Appellees not set forth "an intricately detailed before the deadline opened the door to later description of the asserted basis for relief, amendments to bring in wholly separate . . . the pleadings [must] 'give the defendant claims. Instead, the most logical reading of fair notice of what the plaintiff's claim is the FCCO is that no new avoidance claims and the grounds upon which it rests.'" can be raised after October 1, 2007. Baldwin Cnty. Welcome Ctr. v. Brown, 466 Holding otherwise would be inconsistent U.S. 147, 149 n.3 (1984) (quoting Conley v. with the rule that, in avoidance litigation, Gibson, 355 U.S. 41, 47 (1957)). Thus, an each transfer is treated as a separate amendment will relate back if the transaction for purposes of applying the transactions arose from the same course of "relation back" doctrine. See In re business and involve the same evidence, 360networks (USA) Inc., 367 B.R. 428, 434 even if new legal theories are asserted. (Bankr. S.D.N.Y. 2007) ("[A] preference White v. White Rose Food, 128 F.3d 110, action based on one transfer does not put 116 (2d Cir. 1997); see also In re Global defendant on notice of claims with respect to Crossing, Ltd., 385 B.R. 52, 65 n.16 (Bankr. any other unidentified transfers."). S.D.N.Y. 2008) (finding that fraudulent conveyance claim related back to preference Of course, a time-barred claim may be claim where both involved "claims under raised in an amendment and related back to section 550 to recover the $20 million paid
just before the Debtors' bankruptcy filing, at
allegation does not relate back. In re hooks on which to hang later amended Metzeler, 66 B.R. 977, 983 (S.D.N.Y. 1986). pleadings. See, e.g., Fair Hous. in
Huntington Comm. v. Town of Huntingtown, Moreover, the law is clear that each No. 02-CV-2787 (DRH), 2010 WL preferential and fraudulent transaction is 2730757, at *7 (E.D.N.Y. July 8, 2010) treated separately and distinctly. Id. at 984; (finding that the original Complaint's see also 360networks, 367 B.R. at 424. general reference to the town's "ongoing Proof offered for one transaction does not exclusionary housing practices" was govern as to another and, as such, relation insufficient to place defendants on notice for back cannot be ordered between different all future alleged discriminatory acts with transactions merely for being similar or regard tohousing within the town). arising from the same conduct. Metzeler, 66 B.R. at 984. The "mere allegation" that all Although "Rule 15(c) [is] to be liberally of the transactions are fraudulent does not construed, particularly where an amendment make them part of the same conduct. Id. at does not allege a new cause of action but 983. merely . . . make[s] defective allegations more definite and precise," Siegel v. In the instant case, the original Converters Transp., Inc., 714 F.2d 213, 216 Complaint alleges only that "[f]rom October (2d Cir. 1983) (quotation marks and citation 2004 until it sold its claim, the defendants omitted), the TAC does not provide more received liens and security interests and specificity to cure a defective allegation; proceeds thereof from Fabrikant to secure rather, it alleges a new cause of action and the fraudulent obligations previously reaches for a general hook to hang it on. alleged." (Compl. ¶ 71 (emphasis added).) Accordingly, the Preference Claims do not Plaintiff does not identify any other relate back to the original Complaint -- the reference within the original Complaint to only timely pleading -- and thus were transfers from Debtors to the Banks that properly dismissed by the Bankruptcy Court. could encompass the Preference Claims. (Appellant's Br. 35.)*fn7 Because the Court affirms dismissal of
Count XI on timeliness grounds, the Court The general allegation that transfers need not consider the Bankruptcy's from October 2004 until Appellees sold their determination that Appellant lacked standing claims were fraudulent fails to identify any to raise the Preference Claims. particular objectionable transactions.
Overly general original pleadings do not A. Count XII: Disallowance Claim provide defendants with adequate notice as to what facts they are to defend against, and, Count XII of the TAC seeks therefore, such general allegations cannot be disallowance of Appellees' claims based on the allegations of fraudulent conveyances
and preferences. Accordingly, Count XII