THOMAS P. GRIESA, District Judge.
On June 5, 2012, plaintiff, Lyman Commerce Solutions, Inc. ("LCS"), commenced this action to recover payments allegedly made by MUDD USA LLC ("MUDD") to defendants Richard Gilbert, R.D. Simpson, Inc., the Richard Gilbert Family Trust, and Irwin Levy as Trustee of the Richard Gilbert Family Trust ("the Gilbert defendants") and the Lung defendants, Conrad Lung, former president of MUDD, and Lung Consultants, LLC - an entity which Lung allegedly controlled.
Plaintiff alleges that these payments, which were made during a pending court proceedings by MUDD to its officers and owners located in New York, were fraudulent conveyances under New York Debtor and Creditor Law ("DCL").
Count One alleges that the Gilbert defendants are liable for constructive fraudulent conveyance, under DCL § 273-a. Count Two alleges that the Lung defendants violated DCL § 276. Count Three alleges that the Lung defendants are liable for plaintiff's attorneys fees pursuant to § 276-a. Count Four alleges an "alter ego" theory of liability against the Lung defendants with respect to alleged fraudulent conveyance transfers made to Lung Consultants. Count Five alleges that Gilbert should be held individually liable for the obligations of each of the remaining Gilbert defendants based upon an "alter ego" theory as well.
On September 7, 2012, the Gilbert defendants moved to dismiss the complaint, arguing that Iowa (where LCS resides) or Delaware (where MUDD was formed) law governs the dispute; that a default judgment entered in Iowa is now a nullity because, upon MUDD's corporate dissolution in Delaware, the Iowa court was deprived of jurisdiction over defendants; and finally, that plaintiff has failed to plead lack of fair consideration as required under DCL § 273-a and thus cannot state a claim for relief under that section.
That same day, the Lung defendants moved to dismiss the complaint on all of the same grounds asserted by the Gilbert defendants, but also on the additional ground that plaintiff has failed to join MUDD, which it claims is a necessary party in this action under Fed.R.Civ.P. 19(a).
The motions to dismiss are denied in their entirety.
The following facts are drawn from the complaint and are assumed true for the purpose of resolving these motions.
Plaintiff, LCS, provides online commerce technology, marketing and design services. MUDD USA, LLC - a now defunct company, incorporated in Delaware - was once in the field of manufacturing, among other things, women's jeans. MUDD filed for dissolution in August of 2008.
Two defendants in this action were once managers and officers of MUDD. One, Richard Gilbert, was the CEO of MUDD and was also a manager on MUDD's board of managers. The other, Conrad Lung, was the President of MUDD and a manager on its board of managers as well. The Gilbert Family Trust, also a named defendant, was managed by defendant Trustee Irwin Levy.
The Underlying Litigation
At a time, LCS provided online commerce services to MUDD pursuant to an agreement between the parties. In early 2006, MUDD defaulted on its payment obligations under the agreement. On February 19, 2007, LCS, in response, filed a law suit against MUDD in the Iowa State District Court seeking money damages for breach of contract. The law suit resulted in a judgment entered against MUDD in the amount of $2, 176, 049.01 on March 17, 2009. LCS then brought an action against MUDD in New York, which resulted in full recognition of the Iowa judgment by a New York State court on February 24, 2010.
The Fraudulent Transfers
The alleged fraudulent transfers, which took place over an 18 month period that included the Iowa litigation, were carried out by various methods in order to avoid paying the underlying judgment. Between February 2007 and August 2008, the complaint alleges that nearly $4 million of MUDD's funds were funneled from MUDD directly to accounts controlled by Gilbert and Lung or to entities that they owned and controlled. For example, it is alleged that between February 19, 2007 and June 30, 2007, MUDD made salary payments to Gilbert totaling $336, 377.25 and to Lung totaling $261, 390.00. In addition, MUDD also made two $30, 000 payments to R.D. Simpson - a company owned by Gilbert - on April 2, 2007 and again on June 7, 2007. These transfers were alleged to have been made when MUDD was engaged in no real business operations.
Shortly after these transactions took place, Gilbert and Lung also executed a resolution of MUDD's board of managers, which authorized MUDD to buy the Gilbert's interest in the company. Gilbert executed the so-called buy-out agreement on behalf of himself and R.D. Simpson, and Lung executed it in New York on behalf of MUDD. Thereafter, MUDD made nearly $2 million in transfers to the Gilbert Family Trust and $1, 700.00 to Gilbert. Each of these transfers was made from MUDD's New York brokerage accounts to Gilbert defendants' New York accounts. MUDD also allegedly wired $1.2 million from its New York brokerage account directly to Lung's New York checking account. And finally, it is alleged that from 2007-2008 Lung signed and deposited various checks transferring $265, 716.87 from MUDD's New York bank account to New York accounts held by a company that he owned called Lung Consultants. In sum, the complaint alleges that all of these transactions were made with an aim at depleting the funds available to satisfy plaintiff's valid judgment in violation of New York Debtor Creditor Law.
THE MOTION TO ...