United States District Court, D. Connecticut
RONALD I. CHORCHES, TRUSTEE, Plaintiff,
THE CATHOLIC UNIVERSITY OF AMERICA, Defendant.
RULING ON MOTION TO DISMISS
Michael P. Shea, U.S.D.J.
University (“Catholic”) moves to dismiss claims
by a Chapter 7 bankruptcy trustee seeking to avoid transfers
made by the debtors for their adult daughter's college
tuition. The trustee, Ronald I. Chorches, alleges that the
transfers violated both 11 U.S.C. § 548(a)(1)(B) (Count
One of the Amended Complaint) and Conn. Gen. Stat.
§§ 52-552e(a)(2) and 52-552f(a) (Count Two of the
Amended Complaint), both of which allow creditors to recover
property that an insolvent debtor transfers without receiving
“reasonably equivalent value” in return. Catholic
argues among other things that the funds the debtors paid for
their adult daughter's college tuition should be
considered expenses of the family as a single economic unit
and were, therefore, exchanged for reasonably equivalent
value within the meaning of these statutes. For the reasons
below, I DENY the motion to dismiss.
relevant times, Julia Franzese, James and Kristin
Franzese's daughter, was more than 18 years old. (ECF
No. 24 at ¶ 5.) She was a student at Catholic
University from August 2011 to August 2014. (Id. at
¶ 6.) Chorches, the trustee for the Franzeses'
bankruptcy estate, alleges that, for this entire period,
James and Kristin were insolvent (Id. at ¶ 7.)
He includes specific information regarding the Franzeses'
debts, as detailed in their bankruptcy petition.
(Id. at ¶ 8.) He alleges that the Franzeses
were “unable to pay their debts as they became due, as
evidenced by their large tax debt and the foreclosure on
their home in 2011.” (Id. at ¶ 12.)
Franzeses paid Catholic University $64, 845.50 for
Julia's tuition between September 2011 and June 2014.
(Id. at 7, ¶ 19.) They paid $30, 659.50 of this
amount between September 2013 and June 2014. (Id. at
5, ¶ 19.) Chorches 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 6, ¶ 23, 9, ¶ 22.)
August 24, 2015, James and Kristin Franzese filed a voluntary
petition for relief under Chapter 7 of the Bankruptcy Code.
(Id. at ¶ 3.) Chorches brought this lawsuit
against Catholic University for the amount the debtors paid
in tuition during the two years before filing for bankruptcy
under 11 U.S.C. § 548(a)(1)(B), which creates a two-year
look-back period for fraudulent transfers, and during the
four years before filing for bankruptcy under Conn. Gen.
Stat. §§ 52-552e(a)(2) and 52-552f(a), which,
together with § 52-552j, creates a four-year look-back
period for such transfers. (ECF No. 24 at 10); 11 U.S.C.
§ 548(a)(1)(B); Conn. Gen. Stat. §§
52-552e(a)(2), 52-552f(a), 52-552j. He alleged that these
tuition payments were constructively fraudulent transfers and
that the Franzeses' estate can avoid them. (ECF No. 24 at
10.) Catholic moved to dismiss. (ECF No. 7.) I
granted that motion to dismiss, with leave to replead,
finding that Chorches had failed to allege specific facts
supporting the allegation that the Franzeses were insolvent
at the time they made the transfers to Catholic. (ECF No.
23.) Chorches then filed an amended complaint, correcting
that deficiency. (ECF No. 24.) Catholic has now moved to
dismiss the amended complaint. (ECF No. 25.)
Rule 12(b)(6) Standard
Fed.R.Civ.P. 12(b)(6), I must determine whether Chorches 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. Twombly, 550 U.S. 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) (internal quotations and citations omitted). 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., No. 09-cv-1412 (JFK), 2010 WL 1654156, at *1
(S.D.N.Y. Apr. 9, 2010) (internal quotations and citations
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).
Count One of the Amended Complaint, Chorches 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 allege adequately his claim of
constructive fraudulent transfer under 11 U.S.C. §
548(a)(1)(B), Chorches must plead facts showing that: (1) the
debtors had an interest in the property; (2) a transfer of
that interest occurred within two years of the filing of the
bankruptcy petition; (3) the debtors received less than
reasonably equivalent value in exchange for the
transfer; and (4) the debtors either were insolvent at the
time of the transfer or became insolvent as a result of the
transfer, were engaged in a business or transaction or were
about to engage in a business or transaction for which any
property remaining with them represented unreasonably small
capital, or intended to incur, or believed they would incur,
debts beyond their ability to pay.
Count Two of the Amended Complaint, Chorches 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). §
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) ...