FRAUDULENT CONVEYANCES Nassau Academy of Law CLE Live ...

302 B.R. 760 Page 8302 B.R. 760(Cite as: 302 B.R. 760)16.On May 30, 2001, Sharp commenced this adversaryproceeding against State Street, alleging: 1) that StateStreet aided and abetted the Spitzes in breaching theirfiduciary duties to the company; 2) that the $12 milliondollar payment State Street received from Sharpin April 1999 constitutes a constructive and/or intentional*769 fraudulent conveyance under the D.C.L.;and 3) that in the event the $12 million dollar paymentis ordered to be returned, State Street's claimsshould be equitably subordinated to the claims ofSharp's unsecured creditors. State Street moved todismiss the complaint, relying principally on the followingarguments: 1) that the complaint did not adequatelyplead an aiding and abetting claim underRules 12(b)(6) and 9(b); 2) that the complaint did notstate a claim for intentional or constructive fraudulentconveyance under the D.C.L.; and 3) that becauseSharp's sole officers--the Spitzes--were the primarywrongdoers in the fraudulent scheme State Street wasaccused of aiding and abetting, the doctrine of in paridelicto barred the company from obtaining relieffrom third-parties for participating in the scheme.In a Memorandum Decision dated July 30, 2002, theBankruptcy Court granted State Street's motion anddismissed the common law aiding and abetting claimas well as the fraudulent conveyance claims for failureto state a claim. See Sharp Int'l Corp. v. StateStreet Bank & Trust Co. (In re Sharp Int'l Corp. &Sharp Sales Corp.), 281 B.R. 506(Bankr.E.D.N.Y.2002) ( "Bankr.Dec."). These findingsmade it unnecessary for the Bankruptcy Court toreach State Street's in pari delicto defense, or to considerSharp's equitable subordination claim. See id. at524.Standard of Review[1] This court has appellate jurisdiction over Sharp'sappeal pursuant to 28 U.S.C. § 158(a). The BankruptcyCourt's dismissal of Sharp's complaint forfailure to state a claim is reviewed de novo. See In reMaxwell Communication plc, 186 B.R. 807(S.D.N.Y.1995); see also Americare Health Group,Inc. v. Melillo, 223 B.R. 70, 75 n. 2 (E.D.N.Y.1998)("In reviewing a decision of the bankruptcy court, adistrict court applies a de novo standing of review toconclusions of law ....") (citing In re IonosphereClubs, Inc., 922 F.2d 984, 988 (2d Cir.1990)).Because the motion granted by the Bankruptcy Courtwas a motion to dismiss pursuant to Rule 12(b)(6),the veracity of all well-pleaded allegations in Sharp'sadversary complaint must be assumed, and all reasonableinferences must be drawn in the light mostfavorable to Sharp. See Mills v. Polar MolecularCorp., 12 F.3d 1170, 1174 (2d Cir.1993). In reviewinga Rule 12(b)(6) motion, the court's function is to"assess the legal feasibility of the complaint, not toassay the weight of evidence which might be offeredin support thereof." See Geisler v. Petrocelli, 616F.2d 636, 639 (2d Cir.1980). The inquiry focuses noton "whether a plaintiff will ultimately prevail but onwhether the claimant is entitled to offer evidence tosupport the claims." Scheuer v. Rhodes, 416 U.S.232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974). Accordingly,a motion to dismiss a complaint can onlybe granted if "it appears beyond doubt that the plaintiffcan prove no set of facts in support of [its] claimwhich would entitle [it] to relief." Conley v. Gibson,355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80(1957).Discussion(1)Aiding and Abetting a Breach of Fiduciary Duty[2][3] The bankruptcy court dismissed Sharp's claimagainst State Street for aiding and abetting theSpitzes' breaches of their fiduciary duties for failureto state a claim under Rule 12(b)(6), finding thatSharp had not adequately pled State Street's knowledgeof or participation in the Spitzes' wrongdoing.The cause of action for aiding and abetting a breachof fiduciary duty under New York common law isbased on the well-established principle that "[a]nyonewho knowingly participates *770 with a fiduciary ina breach of trust is liable for the full amount of thedamage caused thereby to the cestuis que trust."Wechsler v. Bowman, 285 N.Y. 284, 291, 34 N.E.2d322, 326 (1941) (emphasis added). To state a claimfor aiding and abetting a breach of fiduciary duty aplaintiff must plead: 1) a breach of fiduciary obligationsto another; 2) that the defendant knowingly inducedor participated in the breach; and 3) that theplaintiff suffered damages as a result of the breach.See Kaufman v. Cohen, 760 N.Y.S.2d 157, 169, 307A.D.2d 113, 125 (1st Dep't 2003) (citing S & K SalesCo. v. Nike, Inc., 816 F.2d 843, 847-48 (2d Cir.1987)and Whitney v. Citibank, N.A., 782 F.2d 1106, 1115(2d Cir.1986)).© 2009 Thomson Reuters. No Claim to Orig. US Gov. Works.