Marshall v. Urban (June 25, 2013)
Issue: Plaintiff filed adversary proceeding requesting that certain debt be non-dischargeable as to Debtor Defendant under 11 U.S.C. §523(a)(2)(A). Debtor Defendant filed a Motion to Dismiss pursuant to Bankruptcy Rule 7012(b) on the basis that non-dischargeability complaint was untimely filed under Bankruptcy Rule 4007(c). Issues addressed by the Court included whether an Amended Complaint filed by Plaintiff to determine dischargeability filed against individual Debtor Defendant and filed after deadline to object to dischargeability had expired, “related back” in time to the Original Complaint to determine dischargeability that Plaintiff had timely filed against individual Debtor Defendant when the Original Complaint erroneously referenced the main case number of Chapter 7 corporate case filed by Debtor Defendant on behalf of his wholly owned corporation. Holdings: The Court denied the Debtor Defendant’s Motion to Dismiss. In summary, the Court held that Plaintiff’s Amended Complaint to determine dischargeability satisfied the “relation back” standard of Federal Rule of Civil Procedure 15(c)(1)(B), because (1) the Amended Complaint asserted the very same claim arising out of the very same conduct, transaction or occurrence set out by the Plaintiff in the Original Complaint; and (2) the only difference between the Plaintiff’s Original Complaint and Plaintiff’s Amended Complaint was the single digit number correction in the main bankruptcy case number. Alternatively, the Court held that Plaintiff’s Amended Complaint satisfied the relation back standard of Federal Rule of Civil Procedure 15(c)(1)(C), because (1) the allegations made by the Plaintiff in the Amended Complaint were identical to those in his Original Complaint and were solely against the same Debtor Defendant individually, there only being the correction of the typographical error in the main bankruptcy case number referenced in the Original Complaint; (2) Debtor Defendant received sufficient notice so as to not be prejudiced in maintaining a defense, as the allegations against Debtor Defendant in both the timely-filed Original Complaint and Amended Complaint were identical and both were against Debtor Defendant individually; (3) Debtor Defendant knew or should have known that the timely filed Original Complaint was brought against him individually, as he was clearly named individually as a Defendant in the Original Complaint and the only mistake was in one number digit of the main bankruptcy case number; and (4) Debtor Defendant was served with the Amended Complaint and Summons within the 120-day time period of Federal Rule of Civil Procedure 4(m).
Think3 Litigation Trust v. Zuccarello, et al. (January 5, 2015)
Issues: Plaintiff Litigation Trust brought adversary proceeding against multiple Defendants, who were former officers and directors of the Debtor. Defendants filed multiple Motions to Dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure (“Rules”), which is incorporated into Bankruptcy Rule 7012. In general, the Defendants asserted that Plaintiff failed to state a claim for: (1) breach of fiduciary duties under Delaware law; (2) gross negligence; (3) fraud on stockholders; (4) preferential transfers under 11 U.S.C. §547; (5) fraudulent transfers under 11 U.S.C. § 548; (6) breach of contract; (7) disallowance of claims under 11 U.S.C. §502(b)(2); (8) subordination of claims under 11 U.S.C. §510(b) and/or 11 U.S.C. §510(c). Alternatively, Defendants requested transfer of venue to the U.S. District Court for the District of Delaware (the state where Debtor was incorporated). Holdings: The Court denied most of the Motions to Dismiss under Rule 12(b)(6), providing every reasonable inference to Plaintiff as required under Rule 12(b)(6). First, the Court concluded that Plaintiff had sufficiently alleged a plausible claim that the Defendants (the Debtor’s former directors and officers) breached their fiduciary duties to the Debtor, including the duty of care, duty of loyalty, and duty of good faith. The Court refused to consider, in the context of Rule 12(b)(6), an affirmative defense and extrinsic evidence which purportedly contained an exculpatory provision in the Debtor’s charter under Delaware General Corporate Law §102(b)(7). The Court also found that the business judgment rule defense and the Bangor Punta doctrine did not provide a basis to dismiss Plaintiff’s claims for breach of fiduciary duty in the Rule 12(b)(6) context. Second, the Court dismissed the fraud on the stockholders claim for Plaintiff’s failure to sufficiently allege standing and damages. Third, the Court denied dismissal of Plaintiff’s preferential transfer claims, and adopted the “exact date” approach and rejected the “arranged transfer” theory for the date of a preferential transfer. Fourth, the Court found that Plaintiff sufficiently alleged a plausible claim for an actual fraudulent transfer claim (applying a Rule 9(b) standard) and constructive fraudulent transfer (applying a Rule 8(a) standard). Fifth, the Court held that Debtor’s confirmed plan contained a sufficient reservation to preserve and maintain Plaintiff’s claim for breach of contract. Sixth, to the extent that the Defendants could assert a claim back against the Debtor’s estate, the Court determined that Plaintiff sufficiently alleged a cause of action under 11 U.S.C. §502(d) to disallow their claims. Seventh, the Court dismissed any mandatory subordination claims of Plaintiff under 11 U.S.C. §510(b) as they were inapplicable to the facts of the case, but determined that the equitable subordination claims of Plaintiff under 11 U.S.C. §510(c) would survive dismissal. Eighth, the Court denied dismissal of Plaintiff’s declaratory judgment seeking disallowance and subordination of the claims of the Defendants, to the extent that the Defendants could file a claim back against the Debtor’s estate.
Finally, the Court denied the Defendants’ Motion to Transfer Venue of the adversary proceeding to the District of Delaware. The Court determined that the Defendants failed to demonstrate by a preponderance of the evidence that the transfer of venue furthered the “interest of justice” or “convenience of the parties” under 28 U.S.C. §1412. The only real connection to Delaware was that the Debtor was incorporated in Delaware so that Delaware law applied to certain issues in the adversary proceeding, which by itself was not sufficient to warrant transfer of venue.