FRAUDULENT CONVEYANCES Nassau Academy of Law CLE Live ...

394 B.R. 721 Page 11394 B.R. 721, 50 Bankr.Ct.Dec. 192(Cite as: 394 B.R. 721)tions would not provide any meaningful relief.[5] The validity of the loan obligations is neverthelesscrucial to Count IV. Asserted solely as a constructivefraudulent transfer claim, Count IV seeks to avoid andrecover the value of the liens conveyed to the Pre-PetitionBanks and SPM to secure the repayment of the obligations.A valid antecedent debt provides adequate considerationto support the grant of a security interest.Ultramar Energy Ltd. v. Chase Manhattan Bank, N.A.,191 A.D.2d 86, 599 N.Y.S.2d 816, 819(N.Y.App.Div.1993)("Even though insolvent, a debtormay properly assign assets to a creditor as security for anantecedent debt although the effect of the transfer will beto prefer that creditor."); see Geron v. Palladin OverseasFund, Ltd. (In re AppliedTheory Corp.), 330 B.R. 362,363 (S.D.N.Y.2005)("In its appeal, the appellant urges usto reject the per se rule consistently applied in this District,which provides that a debtors grant of a securityinterest in its assets to a lender who has previously giventhe debtor a cash loan may not be considered a fraudulentconveyance."). The plaintiff must, therefore, invalidatethe obligations to avoid and recover the value of the cor-responding liens.With this in mind, we turn to the elements of the debtors'collapsing claim.1. The First ProngThe parties debate the degree of specificity that theseallegations must meet. In particular, they argue over theTo satisfy the first prong of the collapsing doctrine, theplaintiff must plead and ultimately prove that (1) the Pre-Petition Banks and SPM transferred consideration to thedebtors; (2) the debtors reconveyed the consideration tothe Fortgang Affiliates; and (3) the reconveyance of theloan proceeds and gold was made with actual or constructivefraudulent intent within the meaning of the fraudulenttransfer laws. The Amended Complaint alleges that thedebtors received at least $129.4 million in loan proceedsfrom the Pre-Petition Banks and another $32 millionworth of gold from SPM, and incurred correspondingobligations. In addition, the Amended Complaint allegesthat the debtors retransferred the $129.4 million, as part oftheir net transfer of over $175 million, to the FortgangAffiliates. Finally the Amended Complaint alleges thatMFS reconveyed $22 million worth of the SPM gold,which was already in the possession of the Fortgang Af-filiates at the time of the sale.need to particularize each transfer. The sufficiency of thetransfer allegations in the Amended Complaint dependson whether the plaintiff is relying on theories of actual* 733 or constructive fraud, and is discussed immediatelybelow.a. Actual Fraud[6] The plaintiff contends that the Affiliate Transferswere made with actual fraudulent intent under both NewYork and bankruptcy law, and hence, may be set asidewithout regard to the adequacy of any consideration receivedby the debtors. A claim to avoid an intentionalfraudulent conveyance or transfer must satisfy the pleadingrequirements of Rule 9(b) of the Federal Rules ofCivil Procedure. [FN8] Sharp Int'l Corp. v. State StreetBank & Trust Co. (In re Sharp Int'l Corp.), 403 F.3d 43,56 (2d Cir.2005); Atlanta Shipping Corp., Inc. v. Chem.Bank, 818 F.2d 240, 251 (2d Cir.1987); Nisselson v. DrewIndus., Inc. (In re White Metal Rolling & StampingCorp.), 222 B.R. 417, 428 (Bankr.S.D.N.Y.1998). Rule9(b) requires the plaintiff to plead claims of actual or intentionalfraud with particularity.FN8. Rule 9(b) states:(b) FRAUD OR MISTAKE; CONDITIONS OFMIND. In alleging fraud or mistake, a party muststate with particularity the circumstances constitutingfraud or mistake. Malice, intent, knowledge,and other conditions of a person's mindmay be alleged generally.[7][8] The party asserting an intentional fraudulent transferclaim must "specify the property that was allegedlyconveyed, the timing and frequency of those allegedlyfraudulent conveyances, [and] the consideration paid."United Feature Syndicate, Inc. v. Miller Features Syndicate,Inc., 216 F.Supp.2d 198, 221 (S.D.N.Y.2002); accordAlnwick v. European Micro Holdings, Inc., 281F.Supp.2d 629, 646 (E.D.N.Y.2003) (dismissing intentionalfraudulent transfer claim that failed to identify theassets that were transferred and identified the date of thetransfer as "on or about 2001"); Wujin Nanxiashu SecantFactory v. Ti-Well Int'l Corp., No. 01 Civ. 8871(JCF),2002 WL 1144903, at *4 (S.D.N.Y. May 29,2002)(dismissing intentional fraudulent transfer claim thatfailed to identify the property that was transferred, whenthe transfers occurred and to whom the transfers weremade); see also Fed.R.Civ.P. App. of Forms, Form 21 at 4. Consequently, allegations that a debtor made an aggregateamount or series of cash or other transfers over aperiod of time, without further particularization, are insuf-© 2009 Thomson Reuters. No Claim to Orig. US Gov. Works.