United States District Court, S.D. New York
THOMAS P. GRIESA, District Judge.
Plaintiff, Lyman Commerce Solutions, Inc. ("LCS"), brings 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 proceeding by MUDD to its officers and owners located in New York, were fraudulent conveyances under New York Debtor and Creditor Law ("DCL").
On September 7, 2012, the Gilbert defendants moved to dismiss the complaint, arguing that the law of Iowa (where LCS is located) or Delaware (where MUDD was formed) 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 could not state a claim for relief under that section.
On August 30, 2013, the court issued an opinion denying Gilbert defendant's motion to dismiss in its entirety. On September 13, 2013, the Gilbert defendants moved for the court's reconsideration, arguing that the court erred in its choice of law analysis. That is, defendants contend that the court incorrectly concluded that New York law applied to plaintiff's constructive fraudulent conveyance claims, and that the law of Iowa - where LCS is located - is the correct choice of law.
For the following reasons, the motion should be denied.
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
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 lawsuit against MUDD in the Iowa state district court seeking money damages for breach of contract. The lawsuit resulted in a judgment entered against MUDD in the amount of $2, 176, 049.01 on March 17, 2009. LCS then sued MUDD in New York state court, which resulted in a judgment entered 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. The complaint alleges that between February 2007 and August 2008 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 ...