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Chorches v. The Catholic University of America

United States District Court, D. Connecticut

October 16, 2017

RONALD I. CHORCHES, TRUSTEE, Plaintiff,
v.
THE CATHOLIC UNIVERSITY OF AMERICA Defendant.

          RULING ON DEFENDANTS' MOTIONS TO DISMISS

          Michael P. Shea, U.S.D.J.

         Ronald I. Chorches, the Chapter 7 Trustee for the Bankruptcy Estate of James V. Franzese and Kristin E. Franzese, originally commenced this action as an adversary proceeding in the Bankruptcy Court, District of Connecticut. (ECF No. 7-1 at 24.) On July 19, 2016 Catholic University filed a motion to withdraw the reference to the Bankruptcy Court, which I granted on November 30, 2016. (ECF Nos. 1, 6.) The plaintiff alleges that the debtors fraudulently transferred funds to Catholic University as payments for their daughter's tuition within the relevant statutory periods prior to voluntarily filing for bankruptcy. He alleges that this violated both 11 U.S.C. § 548(a)(1)(B) (count 1 of the complaint) and Conn. Gen. Stat. §§ 52-552e(a)(2) and 52-552f(a) (count 2 of the complaint). Catholic University moved to dismiss the complaint under Fed.R.Civ.P. 12(b)(6). For the reasons below, I GRANT the motion to dismiss on both claims, with leave to replead.

         I. Background

         For all times relevant for this action, Julia Franzese, James and Kristin Franzese's daughter, was more than 18 years old. (ECF No. 7-1 at 24.) She was a student at Catholic University from August 2011 to August 2014. (Id. at 25.) The plaintiff alleges that for that entire period, James and Kristin had “unreasonably small capital to operate” and “were unable to pay their debts as they became due.” (Id.) The plaintiff alleges that James and Kristin paid Catholic University $64, 845.50 for Julia's tuition between September 2011 and June 2014. (Id. at 27-28.) They paid $30, 659.50 of this amount between September 2013 and June 2014. (Id. at 26.) Nevertheless, the plaintiff alleges that at the time of these payments, the debtors “were engaged in a business or transaction, or were about to engage in a business or transaction, for which any property remaining with [them would have been] an unreasonably small amount of capital” and that they “intended to incur, or believed that they would incur, debts that would be beyond their ability to pay as such debts matured.” (Id. at 27.)

         On August 24, 2015, James and Kristin Franzese filed a voluntary petition for relief under Chapter 7 of the United States Bankruptcy Code. (Id. at 24.) The plaintiff, as the trustee for the debtors' estate, has sued Catholic University for the amount the debtors paid in tuition during the two-year period prior to filing for bankruptcy under the United States Bankruptcy Code and the prior four-year period under the Connecticut Uniform Fraudulent Transfer Act. (ECF No 7-1 at 26-29.) He alleges that the debtors received “less than [the] reasonably equivalent value” in exchange for these payments and that the payments therefore were “constructively fraudulent transfers.” (Id.)

         II. Standard

         Under Fed.R.Civ.P. 12(b)(6), the Court must determine whether the Plaintiff has alleged “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Under Twombly, the Court accepts as true all of the complaint's factual allegations when evaluating a motion to dismiss. Id. at 572. The Court must “draw all reasonable inferences in favor of the non-moving party.” Vietnam Ass'n for Victims of Agent Orange v. Dow Chem. Co., 517 F.3d 104, 115 (2d Cir. 2008). “When a complaint is based solely on wholly conclusory allegations and provides no factual support for such claims, it is appropriate to grant defendant's motion to dismiss.” Scott v. Town of Monroe, 306 F.Supp.2d 191, 198 (D. Conn. 2004). For a complaint to survive a motion to dismiss, “[a]fter the court strips away conclusory allegations, there must remain sufficient well-pleaded factual allegations to nudge plaintiff's claims across the line from conceivable to plausible.” In re Fosamax Products Liab. Litig., 2010 WL 1654156, at *1 (S.D.N.Y. Apr. 9, 2010). In other words, “a plaintiff must plead factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Vega v. Hempstead Union Free Sch. Dist., 801 F.3d 72, 86 (2d Cir. 2015) (internal quotation marks and citation omitted). A claim of constructive fraudulent transfer (i.e., one not relying on fraudulent intent) must be pled in accordance with Rule 8(a), rather than the heightened Rule 9(b) standard for fraud claims. In re Bernard L. Madoff Inv. Sec. LLC, 454 B.R. 317, 332 (Bankr. S.D.N.Y. 2011).

         III. Analysis

         In Count One of the complaint, the plaintiff seeks to avoid the $30, 659.50 of payments made to Catholic University within two years of the debtors' petition under 11 U.S.C. § 548(a)(1)(B). To prevail on an 11 U.S.C. § 548(a)(1)(B) constructively fraudulent transfer claim, the plaintiff must prove that: “(1) the debtor was insolvent on the date that the transfer was incurred or became insolvent as a result of the transfer; (2) a transfer of that interest occurred within two years of the filing of the bankruptcy petition; (3) the debtor was insolvent at the time of the transfer or became insolvent as a result of the transfer; and (4) the debtor received less than reasonably equivalent value in exchange for the transfer.” Clinton Cty. Treasurer v. Wolinsky, 511 B.R. 34, 38 (N.D.N.Y. 2014) (emphasis added).

         In Count Two of the complaint, the plaintiff seeks to avoid the $64, 845.50 of payments made to Catholic University within four years of the debtors' petition under Conn. Gen. Stat. §§ 52-552e and 52-552f(a). These provisions implement the Uniform Fraudulent Transfers Act. § 52-552e(a)(2) states:

A transfer made or obligation incurred by a debtor is fraudulent as to a creditor, if the creditor's claim arose before the transfer was made or the obligation was incurred and if the debtor made the transfer or incurred the obligation . . . without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor (A) was engaged or was about to engage in a business or a transaction for which the remaining assess of the debtor were unreasonably small in relation to the business or transaction, or (B) intended to incur, or believed or reasonably should have believed that he would incur, debts beyond his ability to pay as they became due.

Id. And § 52-552f(a) states:

A transfer made or obligation incurred by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made or the obligation was incurred if the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation.

Id. Connecticut courts analyze these two provisions together, as a single claim. Gen. Landscaping,LLC v. JPA2, Inc., No. HHDCV126035889S, 2015 WL 1244572, at *8 (Conn. ...


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