FRAUDULENT CONVEYANCES Nassau Academy of Law CLE Live ...

394 B.R. 721 Page 19394 B.R. 721, 50 Bankr.Ct.Dec. 192(Cite as: 394 B.R. 721)transfers are sometimes avoided only in part, and only theavoidable part is recoverable. 195 B.R. at 463; accordInt'l Admin. Servs., Inc., 408 F.3d at 706. InternationalAdministrative Services also expressed the concern that aninitial transferee could escape liability by retransferringthe property. 408 F.3d at 704.Although § 550 plainly limits recovery to the extent thatthe transfer is actually avoided, it does not follow that the"avoidable" courts reached the wrong result. The casesthat read "to the extent avoided" literally assume that theinitial transferee must be a party to the avoidance action.See Shapiro v. Art Leather, Inc. (In re Connolly N. Am.,LLC), 340 B.R. 829, 839 (Bankr.E.D.Mich.2006). Thedecisions on both sides of the issue have focused on thelanguage of the Bankruptcy Code because the parties directedtheir attention to that provision. However, theBankruptcy Code, and specifically §§ 544(b) and 548,does not identify the proper, necessary or indispensableparties to a fraudulent transfer action, and does not statethat the initial transferee is necessary. Instead, we mustlook to the Federal Rules of Civil Procedure.3. Fed.R.Civ.P. 19[21][22] Federal Civil Rule 19, made applicable to thisadversary proceeding by Federal Bankruptcy Rule 7019,governs the required joinder of parties. [FN22] The *744Rule establishes a three-part test to determine whetherjoinder of a party is required: (1) is the absent party a"necessary" party, 4 JAMES WM. MOORE, MOORE'SFEDERAL PRACTICE § 19.02[3][a], at 19-17 (3d ed.2008)("MOORE"); (2) is the absent party's joinder "feasible,"id. § 19.02 [3][b], at 19-17 to -18, and (3) if joinderis not feasible, should the court, in "equity and good conscience,"dismiss the action because the nonparty is "indispensable"under Rule 19(b)? Id. § 19.02[3][c], at 19-19; see Provident Tradesmens Bank & Trust Co. v. Patterson,390 U.S. 102, 124, 88 S.Ct. 733, 19 L.Ed.2d 936(1968); Viacom Int'l, Inc. v. Kearney, 212 F.3d 721, 725(2d Cir.2000); Associated Dry Goods Corp. v. TowersFin. Corp., 920 F.2d 1121, 1123 (2d Cir.1990).(B) that person claims an interest relating to thesubject of the action and is so situated that disposingof the action in the person's absence may:(i) as a practical matter impair or impede the person'sability to protect the interest; or(ii) leave an existing party subject to a substantialrisk of incurring double, multiple, or otherinconsistentobligations because of the in-wiseterest.....(b) WHEN JOINDER IS NOT FEASIBLE. Ifa person who is required to be joined if feasiblecannot be joined, the court must determinewhether, in equity and good conscience, the actionshould proceed among the existing parties orshould be dismissed. The factors for the court toconsider include:(1) the extent to which a judgment rendered inthe person's absence might prejudice that personor the existing parties;(2) the extent to which any prejudice could belessened or avoided by: (A) protective provisionsin the judgment;(B) shaping the relief; or(C) other measures;(3) whether a judgment rendered in the person'sabsence would be adequate; and(4) whether the plaintiff would have an adequateremedy if the action were dismissed for nonjoin-der.FN22. Rule 19 provides:(a) PERSONS REQUIRED TO BE JOINEDIF FEASIBLE. (1) Required Party. A personwho is subject to service of process and whosejoinder will not deprive the court of subject matterjurisdiction must be joined as a party if:(A) in that person's absence, the court cannot accordcomplete relief among existing parties; or[23] The Fortgang Affiliates are not necessary partiesunder Rule 19(a)(1)(A). "A Rule 19(a)(1) inquiry is limitedto whether the district court can grant complete reliefto the persons already parties to the action. The effect adecision may have on the absent party is not material."Janney Montgomery Scott, Inc. v. Shepard Niles, Inc., 11F.3d 399, 405 (3d Cir.1993); accord Arkwright-BostonMfrs. Mut. Ins. Co. v. City of New York, 762 F.2d 205,209 (2d Cir.1985); Drankwater v. Miller, 830 F.Supp.188, 192 (S.D.N.Y.1993). Here, the plaintiff can obtaincomplete relief by recovering a money judgment againstthe Defendant Banks without regard to the Fortgang Affiliates.[24] In addition, Rule 19(a)(1)(B) does not require theFortgang Affiliates' joinder. Rule 19(a)(1)(B)(i) focuseson the prejudice to the absent party if the litigation proceedsin its absence. The absentee must "claim a legallyprotected interest relating to the subject matter of the action,"Northrop Corp. v. McDonnell Douglas Corp., 705© 2009 Thomson Reuters. No Claim to Orig. US Gov. Works.