FRAUDULENT CONVEYANCES Nassau Academy of Law CLE Live ...

394 B.R. 721 Page 5394 B.R. 721, 50 Bankr.Ct.Dec. 192(Cite as: 394 B.R. 721)Herrick, Feinstein LLP, Andrew C. Gold, Esq., FrederickE. Schmidt, Esq., of counsel, New York, NY, Attorneysfor Bank Leumi USA.Heller Ehrman LLP, Timothy Mehok, Esq., ErinMcMurray-Killelea, Esq., Andrew Levine, Esq., of counsel,New York, NY, Attorneys for Israel Discount Bank ofNew York.Cullen And Dykman LLP, Matthew G. Roseman, Esq.,Matthew D. Brown, Esq., of counsel, Garden City, NY,Attorneys for Antwerpse Diamantbank, N.V.Milbank, Tweed, Hadley & McCloy LLP, Douglaw W.Henkin, Esq., Wilbur F. Foster, Jr., Esq., Robert R. Miller,Esq., Alan J. Stone, Esq., of counsel, New York, NY,Attorneys for Sovereign Precious Metals, LLC and Sov-ereign Bank.MEMORANDUM DECISION AND ORDERGRANTING IN PART AND DENYING IN PARTMOTIONS TODISMISS COMPLAINTS TUART M. BERNSTEIN, Chief Judge:This lawsuit arose out of the bankruptcy of M. Fabrikant& Sons, Inc. ("MFS") and Fabrikant-Leer International,Ltd. ("FLI," and collectively with MFS, the debtors or"Fabrikant"). In the main, the *726 Amended Complaint,dated March 27, 2008 (ECF Doc. # 54), seeks to avoid thepre-petition obligations owed by the debtors to the defendantbanks (other than Sovereign Bank), and to avoid andrecover the value of the liens granted to secure those obligations.The Official Committee of Unsecured Creditorsof MFS and FLI (the plaintiff or the "Committee") alsoseeks to recover the value of gold that MFS purchasedfrom Sovereign Precious Metals, LLC ("SPM") and transferredto another company operated by its principals.Lastly, the Amended Complaint asserts claims againstfour of the defendant banks as subsequent transferees offraudulent transfers.Each defendant moved to dismiss the Complaint. [FN1]For the reasons that follow, Counts I through IV are dismissed.In addition, those portions of Counts V throughVII that allege actual fraudulent transfers are dismissed.Finally, the plaintiff is granted leave to replead.FN1. The Committee filed its initial Complainton October 1, 2007. (ECF Doc. # 1.) After thedefendants moved to dismiss, the Committeefiled its Amended Complaint to add defendantSovereign Bank. The Amended Complaint otherwisemirrored the Complaint. The Court hastreated the motions as if they were directed at theAmended Complaint.BACKGROUNDThe background information is derived from the allegationsof the Amended Complaint. MFS is a New Yorkcorporation, ( 5), [FN2] that had engaged in the diamondand jewelry business since 1895, and for many years, wasone of the largest and most prominent diamond and jewelrywholesalers in the world. ( 17.) In 2005, MFS establishedFLI, also a New York corporation, ( 6), to act as adistributor and wholesaler of "low end" finished jewelry.MFS owns 82% of the FLI stock. ( 18.)FN2. The parenthetical notation "( --)" refers tothe paragraphs in the Amended Complaint.Charles Fortgang and his son, Matthew Fortgang, ownapproximately 32% of the stock of MFS. ( 18.) The remainderof stock is owned, through a trust, by MarjorieFortgang and Susan Fortgang and by employees or formeremployees of MFS. ( 18.) At all relevant times, Charles,as chairman, and Matthew, as President, controlled MFSand FLI. ( 18.)In addition, Charles and Matthew Fortgang, and trusts ofwhich Charles, Matthew, and Susan Fortgang were beneficiaries,owned a group of 47 companies (the "FortgangAffiliates") engaged in the diamond and jewelry business.( 20; see Amended Complaint at Ex. A.) With few exceptions,neither of the debtors had an ownership interest inany of the Fortgang Affiliates. ( 20.)MFS became insolvent no later than January 2003, (21), and FLI became insolvent no later than January 13,2006. ( 22.) They filed their voluntary chapter 11 petitionsin this Court on November 17, 2006 (the "PetitionDate").A. The "Scheme" Transactions (Counts I through IV)1. The Debtors and the Pre-Petition BanksThe thrust of Counts I through IV involves a scheme engineeredby Charles and Matthew Fortgang through© 2009 Thomson Reuters. No Claim to Orig. US Gov. Works.