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LFMG-S&B, LLC v. Fortress Credit Corp.

United States District Court, S.D. New York

March 6, 2015

LFMG-S&B, LLC, Plaintiff,
v.
FORTRESS CREDIT CORP., et al., Defendants.

OPINION AND ORDER

LORNA G. SCHOFIELD, District Judge.

Plaintiff LFMG-S&B, LLC filed this action against Fortress Credit Corp. ("Fortress" or "Defendant") and various unnamed defendants for damages arising from allegedly fraudulent conveyances in violation of New York Debtor and Creditor Law § 275 and California Civil Code § 3439.04. Defendant moves to dismiss the Complaint under the doctrine of res judicata. Defendant also moves for sanctions against Plaintiff's counsel, pursuant to 28 U.S.C. § 1927. For the following reasons, Defendant's motion to dismiss is granted, and Defendant's motion for sanctions is denied.

BACKGROUND

The following facts are taken from the Complaint.

In February 2005, non-party S&B Surgical Center ("S&B") borrowed money from, and entered into a loan agreement with Defendant, a financial investment management company incorporated in Delaware with its principal place of business in New York. Under the loan agreement, S&B granted Defendant security interests in all of its assets and agreed to make monthly payments. Plaintiff is a limited liability company and claims to be the assignee and owner of all of the claims and rights of the S&B Surgery Center Creditor Trust, which was created after S&B filed for bankruptcy under chapter 11 of the Bankruptcy Code.

The Complaint alleges that, although "S&B never received any of the loan amount paid by Fortress under the Financing Agreement, payments were transferred on a daily basis from S&B accounts to Fortress in an amount totaling $21, 869, 817.64." The Complaint further alleges that "[b]ecause S&B accounts were being emptied to [re]pay the Fortress loan, S&B was unable to pay its other obligations" and "filed a petition for bankruptcy as a result of the debts, including the Financing Agreement."

I. BANKRUPTCY PROCEEDINGS

In its bankruptcy proceeding, S&B filed an amended plan of reorganization (the "Plan"). The Plan divided S&B's creditors into five classes. Claims of the largest class - "Class 4 Creditors" - would be satisfied by the proceeds of a "Class 4 Creditor Trust." The Plan provided that this trust would be funded, in part, by the transfer of "all right, title and interest in the Causes of Action and the Avoidance Actions." The Plan defined "Cause of Action" as:

any and all claims, demands, rights, actions, Rights of Action, causes of action and suits of [S&B] or the Estate, of any kind or character whatsoever, known or unknown, suspected or unsuspected, whether arising prior to, on or after the Petition Date, in contract or in tort, at law or inequity or under any other theory of law, that [S&B] or [S&B]'s Estate has or asserts or may have or assert against third parties, whether or not brought as of the Effective Date, and which haven't been settled or otherwise resolved by Final Order as of the Effective Date, including but not limited to (1) rights of setoff, counterclaim or recoupment, and claims on contracts or for breaches of duties imposed by law, (2) such claims and defenses as fraud, mistake, duress and usury, (3) claims or tax refunds, (4) claims to recover outstanding accounts receivable, and (5) any other claims which may be asserted against third parties.

The Plan defined "Avoidance Action" as:

An adversary proceeding, lawsuit or other proceeding with respect to Causes of Action arising under, relating to, or similar to sections 502(d), 506, 510, 542, 543, 544, 545, 547, 548, 549, 550, 551, 552 or 553 of the Bankruptcy Code, or any fraudulent conveyance, fraudulent transfer or preferential laws, or any Cause of Action arising under, or relating to, any similar state law or federal law that constitutes property of the Estate under section 54 of the Bankruptcy Code, whether or not an action is initiated on or before the Effective Date.

(Emphasis added.)

The bankruptcy court confirmed the Plan on December 1, 2009. In an order dated January 4, 2010, the bankruptcy court set June 1, 2010, as the deadline (the "Litigation Bar Date") for filing Avoidance Actions as defined in the ...


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