FRAUDULENT CONVEYANCES Nassau Academy of Law CLE Live ...

394 B.R. 721 Page 10394 B.R. 721, 50 Bankr.Ct.Dec. 192(Cite as: 394 B.R. 721)feat a motion to dismiss (internal quotation marks omitted)).Instead, the plaintiff must "amplify a claim withsome factual allegations in those contexts where suchamplification is needed to render the claim plausible."Iqbal, 490 F.3d at 157-58 (emphasis in original). "[O]ncea claim has been stated adequately, it may be supportedby showing any set of facts consistent with the allegationsin the complaint." Bell Atl. Corp., 127 S.Ct. at 1969; accordRoth v. Jennings, 489 F.3d 499, 510 (2d Cir.2007)."[C]ourts must consider the complaint in its entirety, aswell as other sources courts ordinarily examine when rulingon *731Rule 12(b)(6) motions to dismiss, in particular,documents incorporated into the complaint by reference,and matters of which a court may take judicial notice."Tellabs, 127 S.Ct. at 2509. Courts may also consider"any written instrument attached to the complaint,statements or documents incorporated into the complaintby reference, legally required public disclosure documentsfiled with the SEC, and documents possessed by orknown to the plaintiff and upon which it relied in bringingthe suit." ATSI Commcns, 493 F.3d at 98; accord Roth,489 F.3d at 509; Chambers v. Time Warner, Inc., 282F.3d 147, 152-53 (2d Cir.2002); Rothman v. Gregor, 220F.3d 81, 88-89 (2d Cir.2000). "Where a plaintiff's conclusoryallegations are clearly contradicted by documentaryevidence incorporated into the pleadings by reference,however, the court is not required to accept them." Labajov. Best Buy Stores, L.P., 478 F.Supp.2d 523, 528(S.D.N.Y.2007); accord Kuhne v. Midland Credit Mgmt.,Inc., No. 06 Civ. 5888(DC), 2007 WL 2274873, at *1(S.D.N.Y. Aug. 9, 2007); Matusovsky v. Merrill Lynch,186 F.Supp.2d 397, 400 (S.D.N.Y.2002).A. Counts I through IV[1] As noted, Counts I through IV hinge on the applicabilityof the doctrine of collapsing. Under appropriatecircumstances, multiple transactions will be collapsed andtreated as steps in a single transaction for analysis underthe fraudulent conveyance laws. HBE Leasing Corp. v.Frank, 48 F.3d 623, 635 (2d Cir.1995); Orr v. KinderhillCorp., 991 F.2d 31, 35 (2d Cir.1993)("[A]n allegedlyfraudulent conveyance must be evaluated in context;[w]here a transfer is only a step in a general plan, the planmust be viewed as a whole with all its composite implications.")(internalquotation marks and citations omitted).Although collapsing is usually applied to leveraged buyouts,the doctrine applies more generally to the following"paradigmatic scheme":one transferee gives fair value to the debtor in exchangefor the debtors property, and the debtor then gratuitouslytransfers the proceeds of the first exchange to asecond transferee. The first transferee thereby receivesthe debtors property, and the second transferee receivesthe consideration, while the debtor retains nothing.HBE Leasing, 48 F.3d at 635.[2] A party seeking to collapse a series of transactionsmust satisfy two elements, or prongs. First, "the considerationreceived from the first transferee must be reconveyedby the debtor for less than fair consideration orwith an actual intent to defraud creditors." Id. If the debtorretains the consideration, or transfers it for valuable consideration,its estate is not unfairly diminished and theinitial transfer is not fraudulent. Id.[3][4] Second, the initial transferee must have actual orconstructive knowledge of the entire scheme that rendersthe exchange with the debtor fraudulent. Id.; accord In reBest Prods. Co., Inc., 168 B.R. 35, 56- 57(Bankr.S.D.N.Y.1994)(courts frequently examine the defendant'sknowledge "of the structure of the entire transactionand ... whether its components were part of a singlescheme")(internal quotation marks and citation omitted);Official Comm. of Unsecured Creditors of Sunbeam Corp.v. Morgan Stanley Co. (In re Sunbeam Corp.), 284 B.R.355, 370 (Bankr.S.D.N.Y.2002)("Courts have collapsed aseries of transactions into one transaction when it appearsthat despite the formal structure erected and the labelsattached, the segments, in reality, comprise a single integratedscheme when evaluated focusing on the knowledgeand intent of the parties *732 involved in the transaction.").Actual knowledge exists where the "initial transferorwas intimately involved in the formulation or implementationof the plan by which the proceeds of theloan were channeled to the third-party." Sunbeam, 284B.R. at 370. Constructive knowledge, on the other hand,will be found where the initial transferee became aware ofcircumstances that should have led it to inquire furtherinto the circumstances of the transaction, but failed tomake the inquiry. HBE Leasing, 48 F.3d at 636.Counts I through III seek to invalidate the loan and purchaseobligations under the fraudulent transfer provisionsof New York and federal bankruptcy law. The Pre-Petition Banks and SPM have, however, assigned theirclaims and related security interests, and no longer assertthem against the debtors or their estates. Furthermore, thedebtors settled with the assignees under the confirmedchapter 11 plan, and are not challenging the debts or liensin their hands. Thus, the mere avoidance of the obliga-© 2009 Thomson Reuters. No Claim to Orig. US Gov. Works.