Opinion ID: 8704066
Heading Depth: 3
Heading Rank: 2

Heading: Whether the Amended Complaint States a Claim for Fraudulent Transfer

Text: Next, the FDIC argues that even if this Court does not dismiss the fraudulent transfer claims for lack of exhaustion, Counts IX and X must still be dismissed pursuant to Rule 12(b)(6). Count IX asserts that TBW, Colonial, and Platinum, acting in concert, made fraudulent transfers from Ocala accounts at BOA to accounts at Colonial and Platinum with the actual intent to “hinder, delay, and defraud” Ocala and its investors {i.e., DB and BNP). (Dkt. No. 20 at ¶¶ 220-222.). BOA asserts that the transfers were made in furtherance of the conspiracy described herein and that neither Ocala nor DB and BNP received reasonably equivalent value in exchange for the transfers. {Id. at ¶¶ 223, 225.) Count X asserts the same allegations, in addition to claiming that TBW, Colonial, and Platinum knew that Ocala was insolvent at the time the transfers were made, or became insolvent as a result of the transfers. (Id. at ¶¶ 233-234.). BOA brings both Counts IX and X pursuant to the District’s Uniform Fraudulent Transfer Act (“UFTA”) as codified in D.C.Code §§ 28-3101-3111 (2001), and seeks to recover the fraudulent transfers on behalf of DB and BNP. 15 , 16 (Dkt. No. 20 at ¶¶ 219 and 228.). The FDIC moves to dismiss the claims, arguing that the Amended Complaint does not allege many of the necessary elements for fraudulent transfer claims, thereby running afoul of the pleading requirements under Iqbal and Twombly. The FDIC maintains that BOA failed to plead facts sufficient to support its contention that the funds transferred from Ocala originated at and were the property of Ocala, nor did BOA identify the allegedly fraudulent transfers with sufficient specificity. This alone, the FDIC argues, warrants dismissal of the claims. However, the FDIC also contends that dismissal of each claim is warranted for the following reasons. It claims that Count IX (actual fraudulent transfer) must be dismissed because BOA failed to meet the heightened pleading requirements of Rule 9(b). In particular, the FDIC asserts that the Amended Complaint does not contain any allegation that BOA was Ocala’s creditor, that Ocala made a transfer with the intent to avoid payment of a debt owed to BOA, or that Colonial and Platinum received the transfers. As for the constructive fraudulent transfer claim (Count X), the FDIC urges this Court to dismiss the claim because the Amended Complaint does not allege that BOA was Ocala’s creditor, that Colonial and/or Platinum were the transferees, that Ocala did not receive “reasonably equivalent value,” or that the transfers left Ocala with insufficient capital or unable to paid its debts. The main thrust of BOA’s response to the FDIC’s arguments is that the FDIC has mischaracterized the fraudulent transfer claims, namely suggesting that the claims are only brought on BOA’s behalf. BOA points out that it is not relying solely on its position as a creditor of Ocala in its own capacity; rather, the claims were also brought on behalf of DB and BNP as the investors in Ocala. BOA maintains that once the claims are properly characterized, it becomes apparent that the FDIC’s motion to dismiss Counts IX and X must be denied. The Court agrees. In order to state a claim for actual fraudulent transfer under UFTA, a plaintiff must plead that: (1) the debtor (here, Ocala) made a transfer; (2) the plaintiff (i.e., BOA) was a creditor of the debtor (Ocala); and (3) the debtor (Ocala) made the transfer with actual intent to hinder, delay, or defraud any creditor of the debtor (Ocala). See Bertram v. WFI Stadium, Inc., 41 A.3d 1239, 1244 (D.C. 2012) (citing D.C.Code § 28-3104(a)(l)). In order to establish liability for a constructively fraudulent transfer, a plaintiff must plead and prove that: (1) the debtor (Ocala) made a transfer; (2) the plaintiff (BOA) was a creditor of the debtor (Ocala); (3) the debtor (Ocala) did not receive reasonably equivalent value in exchange for the transfer and was insolvent or became insolvent as a result of the transfer. D.C.Code § 28-3105(a). The Amended Complaint asserts the following factual allegations in support of Counts IX and X: (1) TBW was Ocala’s owner and controlled all major decisions and actions for Ocala (Dkt. No. 20 at ¶¶ 55-56); (2) all of Ocala’s activities were “directed by TBW” and “in concert with Colonial” (Id. at ¶ 62); (3) at all relevant times Platinum was controlled by and acted at the direction of TBW (Id. at ¶ 84); (4) TBW and Colonial “engaged in a scheme to defraud ... investors in Ocala [ ]” (Id. at ¶ 64); (5) TBW, in concert with Colonial, conspired to divert funds from Ocala (Id. at ¶ 63); (6) TBW and Colonial “misappropriate[d] over $1 billion in collateral from Ocala” which caused Ocala to “experience[ ] significant shortfalls in the amount of collateral it possessed to back its obligations to DP and BNP” (Id. at ¶¶ 64, 65(h)); (7) TBW and Colonial also engaged in sham mortgage loan sales in order to disguise TBW’s cash shortfalls from regulators, auditors, third-party lenders and Ocala’s creditors (Id. at ¶ 65(g); 85); (8) TBW and Colonial concealed their fraudulent activities from BOA by providing it with falsified collateral lists that misrepresented the status of the Participated Mortgage Loans in which Ocala should have had a security interest (Id. at ¶ 65(i)); and (9) the fraudulent activities described above could not have been accomplished without the active participation of each of TBW, Colonial, and Platinum. (Id. at ¶ 83.). The Amended Complaint further alleges that the following specific transfers occurred in furtherance of the fraudulent scheme: (1) between June 30, 2008 and August 3, 2009, approximately $675 million was transferred from Ocala accounts at BOA to a TBW account at Colonial known as the Custodial Funds Clearing Account (Id. at ¶ 66); (2) during this same time, approximately $451 million was transferred from Ocala accounts at BOA to a TBW maintained account at Colonial known as the Master Advance Account (Id. at ¶ 67); (3) also during this time period, “billions of dollars” were transferred from Ocala to a TBW account at Colonial referred to as the Investor Funding Account and some of the funds were not used to “purchase mortgages” and therefore “constituted a theft of Ocala assets” (Id. at ¶ 68); (4) on March 30, 2009, TBW, Colonial and Platinum caused $25 million to be wired from the Ocala Funding Collateral Account (# 722493.4) at BOA to an unnamed account (Account # 0030270065) at Platinum (Id. at ¶¶ 74-75); (5) on April 3, 2009, these same entities caused another $25 million to be transferred from the Ocala account at BOA to the same unnamed account at Platinum (Id. at ¶¶ 74, 76); Account # 0030270065 was an escrow account set up at Platinum by TBW and Colonial as part of their fraudulent scheme to obtain TARP funds (Id. at ¶ 77); (6) on October 3, 2008, another $12,239,697.21 was wired from the Ocala Funding Collateral Account at BOA to Platinum; the funds from this deposit were used to purchase mortgages for the benefit of TBW (Id. at ¶ 78). These allegations are more than sufficient to plausibly state a claim for both actual and constructive fraudulent transfer. Only two of the FDIC’s arguments for dismissal warrant discussion. First, the FDIC contends that Counts IX and X are deficient because BOA does not allege any facts that indicate that the purported transfers from Ocala were for the benefit of Colonial and Platinum. Instead, the FDIC argues, the Amended Complaint alleges that the funds were transferred to TBW accounts held at Colonial and Platinum. Because TBW and not Colonial or Platinum controlled the accounts, the FDIC argues, liability cannot be imposed on the banks. The FDIC fails to cite any authority in support of its position. However, the Court’s own research shows that a majority of courts interpreting state UTFA statutes have declined to impose liability for fraudulent transfers on third parties who did not receive the assets in question. Magten Asset Mgmt. Corp. v. Paul Hastings Janofsky & Walker LLP, No. 04-1256-JJF, 2007 WL 129003,  (D.Del. Jan. 12, 2007) (interpreting Montana’s UTFA statute); see also GATX Corp. v. Addington, 879 F.Supp.2d 633, 643-44 (E.D.Ky.2012) (noting that district courts interpreting state UFTA statutes in Delaware, Arizona, Indiana, Maine and Texas have concluded that liability cannot attach to non-transferees); Mack v. Newton, 737 F.2d 1343, 1358 (5th Cir.1984) (recognizing that holding nontransferee liable for fraudulent transfer is inconsistent with purpose of fraudulent transfer statutes which is to “preserve the assets of the bankrupt” and not “to render civilly liable all persons who may have contributed in some way to the dissipation of those assets”); Robinson v. Watts Detective Agency, Inc., 685 F.2d 729, 737 (1st Cir.1982) (finding no liability because neither defendant received any of the fraudulently transferred property); Jackson v. Star Sprinkler Corp. of Fla., 575 F.2d 1223, 1234 (8th Cir.1978) (holding that “recovery under the Bankruptcy Act does not extend to permit a judgment against ‘conspirators’ who did not receive the property transferred”). The FDIC does not cite and this Court is unable to locate a case in which a court interpreting the District’s UFTA statute has addressed this issue. However, BOA has provided no reason for this Court to deviate from the consistent conclusion of the other states that nontransferees may not be liable for aiding and abetting a fraudulent conveyance. 17 The Court has reviewed the Amended Complaint and agrees with the FDIC that BOA never alleged that either Colonial or Platinum received the transfers. (-See, e.g., Dkt. No. 20 ¶¶ 36-38, 66-68 (alleging that the funds were transferred to TBW owned accounts at Colonial); 74-77 (alleging funds were deposited at Platinum but failing to allege that the funds were in Platinum’s control); 78 (alleging funds were deposited at Platinum and used for TBW’s benefit).). However, at oral argument, BOA referred the Court to the Final Reconciliation Report filed by the Chief Restructuring Officer in the TBW bankruptcy. The Report indicates that Colonial and Platinum indeed had control of and benefited from the transfers. (See FRR at p. 82, Table 10.). The Report also indicates that some of the TBW accounts at Colonial were under the banks’ control. (Id. at p. 56 (stating that while the accounts were in TBW’s name, TBW did not have signature authority over them).). In light of this, the Court finds that BOA has alleged sufficient factual allegations to state a plausible claim that Colonial and/or Platinum benefited from the alleged fraudulent transfers. The parties may revisit this issue if discovery proves otherwise. Second, the FDIC argues that the fraudulent transfer claims are deficient because BOA does not allege that Ocala intended to defraud its creditors or even caused the transfers to happen; rather, BOA alleges that TBW directed the transfers. This argument is without merit. Courts have routinely held that, where the transferee controls the disposition of the debtor’s property, as TBW did here, the fraudulent intent of the transferee may be imputed to the debtor. See, e.g., In re Acequia, Inc., 34 F.3d 800, 806 (9th Cir. 1994); Schoenmann v. FDIC, No. 10-03989 CRB, 2011 WL 1522364,  (D.Cal. Apr. 21, 2011); In re Chase & Sanborn Corp., 51 B.R. 739, 740-41 (S.D.Fla.1985) (“The extensive and often circuitous movement of funds among the several entities controlled by [the debtor’s principal], to his personal benefit ... and to the injury of this debtor, ... [establish an] actual[ ] intent to hinder, delay and defraud this debtor’s creditors.”) Here, BOA alleges that TBW was the entity in control of Ocala and exclusively controlled its actions. Such allegations are sufficient to state a plausible claim that TBW’s fraudulent intent may be imputed to Ocala. Based on the foregoing, the Court concludes that BOA has alleged facts sufficient to state plausible claims for both actual and constructive fraudulent transfer. Accordingly, the FDIC’s motion to dismiss Counts IX and X is denied.