Defendant’s Motion to Dismiss filed in the Spansion, Inc. Adversary Proceedings by Barclays Capital Inc. before Chief, U.S. Bankruptcy Judge Kevin J. Carey in the District of Delaware filed by Richards, Layton & Finger, P.A. (Wilmington, DE) attorneys Robert J. Stearn, Jr. and Julie A. Finocchiaro.
Defendant Barclays Capital Inc. (“Defendant”), filed this motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6) seeking dismissal of only the counts of the complaint based on claims of constructive fraudulent transfer pursuant to 11 U.S.C. § 548(a)(1)(B), authorized post-petition transfer under 11 U.S.C. § 549, and disallowance of claims pursuant to 11 U.S.C. § 502(d) and (j). The preferential transfer count pursuant to to 11 U.S.C. § 547 is left alone. The complaint was filed by plaintiff Pirinate Consulting Group, LLC (“Plaintiff”), Claims Agent for the bankruptcy estates of Spansion, Inc., et al. (the “Debtors”). This brief was filed back in April, 2011, and on its face, this simple, seven page brief is unimpressive. Its tactical brilliance was only revealed by Plaintiff’s August 12, 2011 response. Registered users click here to see a copy of this brief.
Defendant’s brief only describes the challenged transfer as a “$1.5 million payment made by Debtor Spansion LLC to Defendant prior to the filing of the Debtors’ bankruptcy petitions.” It is Plaintiff, in a desperate response to the motion to dismiss its constructive fraudulent transfer count, who must admit that the payment was a “retainer” paid prior to any obligation of the Debtor to the Defendant. With no motion to dismiss the Section 547 preference count, the admitted lack of an antecedent debt becomes the elephant in the room, leaving Judge Carey to ask: “Why did the Plaintiff plead a preference count to begin with?”
But then there is also the Section 549 post petition transfer count, when there are no post petition transfers … and the 502(d) disallowance of claims count when the Defendant has made no claims against the estate. These counts the Defendant does challenge, and in the Plaintiff’s response, these counts are withdrawn in a footnote. Only Defendant’s motion to dismiss the Section 548 count is challenged by the Plaintiff. Accordingly, only Defendant’s argument as to that count is provided below.
A. Count II should be dismissed because the factual allegations of the Complaint fail to demonstrate entitlement to relief under 11 U.S.C. § 548(a)(1)(B).
8. Section 548(a)(1)(B) authorizes the avoidance of transfers of the debtor’s property made within the two years prior to the petition date if the debtor received less than reasonably equivalent value in exchange for such transfer and either (i) was insolvent or became insolvent as a result of such transfer, (ii) was engaged in or about to engage in business or a transaction which would leave the debtor with unreasonably small capital, and/or (iii) intended to incur, or believed that the debtor would incur, debts that would be beyond the debtor’s ability to pay as such debts matured. 11 U.S.C. § 548(a)(1)(B).
9. To survive a motion to dismiss such a claim, a plaintiff must plead factual allegations supporting these requirements, See, e.g., Crochet & Borel Serv., Inc. v. McMahan Sec. Co., L.P. (In re Charys Holding Co., Inc.), 443 B.R. 628, 636 (Bankr. D. Del. 2010) (“Plaintiffs’ constructive fraudulent transfer claims predicated on section 548 … must allege sufficient facts that plausibly show: (i) a transfer [was] within the applicable time period; (ii) [the debtor's] insolvency; and (iii) a lack of reasonably equivalent value”); DVI, Inc. v. Merrill Lynch & Co., Inc. (In re DVI, Inc.), 2008 WL 4239120, at *9 (Bankr. D. Del. Sept. 16, 2008) (stating that fraudulent transfer claims need to allege that “there was a transfer for less than reasonably equivalent value at a time when the [d]ebtors were insolvent”). Merely alleging that the debtor did not receive reasonably equivalent value or that the debtor was insolvent is not enough. See Burtch v. Huston (In re USDigital, Inc.), 443 B.R. 22, 39 (Bank”. D. Del. 2011) (dismissing fraudulent transfer count where trustee merely stated that transfer lacked reasonably equivalent value and debtor was insolvent, without asserting factual allegations to support those contentions).
10. Plaintiff does not allege any facts which demonstrate a) why the Payment was for less than reasonably equivalent value or b) how the Debtors were insolvent or became insolvent as a result of the Payment. Plaintiff simply parrots the statutory language of section 548, which is insufficient to survive a motion to dismiss. Id. Therefore, Count II should be dismissed for failure to state a claim.