Bankruptcy No. 07-11757 (KCF) Adv. Proc. No. 09-1233 (KCF)
The opinion of the court was delivered by: Cooper, District Judge
Defendants Barry Kantrowitz ("Kantrowitz"), Barry Associates, LLC ("Barry Associates"), and Barry Associates Title Agency, LLC ("Barry Title") (collectively, "Moving Defendants") move for leave to appeal from an interlocutory order of the United States Bankruptcy Court, District of New Jersey ("Bankruptcy Court"). For the reasons stated herein, the Court will deny the motion.
Charles A. Stanziale, Jr., Trustee ("Trustee") in the Chapter 11 bankruptcy of Solomon Dwek ("Dwek") brought an adversary proceeding seeking, inter alia, to avoid and recover certain allegedly fraudulent transfers made by Dwek to Kantrowitz involving (1) Kantrowitz's membership interests in certain New Jersey limited liability companies (the "LLCs"), (2) distributions made by the LLCs to Kantrowitz, and (3) the value of capital contributions allegedly made by Dwek to the LLCs on behalf of Kantrowitz. See Adv. Proc. No. 09-1233 (KCF) ("Adv. Proc."), dkt. entry no. 4, Am. Compl.; dkt. entry no. 31, Second Am. Compl. (Dkt. entry no. 1, Moving Defs. Br. at 1-2.) The Amended Complaint also asserted claims for breach of contract and breach of fiduciary duty, and sought an accounting and disallowance of any claims the Moving Defendants might have against the Dwek bankruptcy estate. (Moving Defs. Br. at 2.)
The Moving Defendants moved before the Bankruptcy Court for judgment on the pleadings pursuant to Federal Rule of Civil Procedure ("Rule") 12(c), as incorporated by Federal Rule of Bankruptcy Procedure 7012(b). Adv. Proc. dkt. entry no. 30, Mot. for J. on Pleadings. The Trustee cross-moved for leave to file a Second Amended Complaint. Adv. Proc. dkt. entry no. 31, Cross Mot. The Bankruptcy Court held a hearing on the motion and cross motion on July 12, 2010, and by letter opinion and Order dated August 4, 2010, denied the motion for judgment on the pleadings and granted the cross motion for leave to file a Second Amended Complaint. Adv. Proc. dkt. entry nos. 38 & 39, 8-4-10 Letter Op. & Order. In denying the motion for judgment on the pleadings, the Bankruptcy Court observed that the Answer filed by the Moving Defendants "flatly denies virtually every allegation in the complaint," indicating the existence of material factual disputes precluding judgment on the pleadings. 8-4-10 Letter Op. at 4. The Bankruptcy Court further noted that the affirmative defenses raised by the Moving Defendants in their Answer "establish material factual disputes" with regard to, e.g., whether the LLCs received reasonable value from Kantrowitz for his alleged membership interests therein or whether Dwek received reasonably equivalent value for contributions made to the LLCs on Kantrowitz's behalf, as addressed in the Amended Complaint. Id. The Bankruptcy Court then found that "[a]lthough Rule 12(c) makes no provision for the non-moving party to file a motion for leave to amend . . . allowing further amendment of the complaint is appropriate here," exercising its discretion in granting the cross motion for leave to amend. Id. at 4-5.
The Moving Defendants moved for reconsideration of the Bankruptcy Court's 8-4-10 Order and simultaneously filed a motion for leave to appeal that decision. Adv. Proc. dkt. entry no. 42, Mot. to Reconsider; dkt. entry no. 43, Not. of Appeal; dkt. entry no. 44, Mot. for Leave to Appeal. (See Moving Defs. Br. at 1 n.1.) The parties advised this Court of the pending motion for reconsideration, and the Court held the matter in abeyance until the Bankruptcy Court decided the motion for reconsideration. (Dkt. entry no. 2, 9-1-10 Letter from Counsel for Trustee.)
The Bankruptcy Court granted the motion for reconsideration in one limited respect, and dismissed Count VIII of the Amended Complaint, which asserted a breach of contract claim based on the alleged failure of Barry Associates and Barry Title to share profits and commissions with Dwek as required by an oral contract. Adv. Proc. dkt. entry no. 64, 10-28-10 Order at 2.*fn1
The Bankruptcy Court vacated the 8-4-10 Order insofar as it had permitted amendment of Count VIII of the Amended Complaint, and denied the motion for reconsideration in all other respects. Id. at 3.
The Moving Defendants now seek leave to appeal the 8-4-10 Order, arguing that the Court should allow an interlocutory appeal because the Bankruptcy Court erred in failing to dismiss and granting leave to amend (1) Counts I-IV of the Amended Complaint (the "fraudulent transfer claims"), to the extent those counts seek to avoid the issuance or transfer of the LLC interests to Kantrowitz, because the Trustee did not plead that Dwek transferred the LLC interests to Kantrowitz; (2) the claims in the Second Amended Complaint seeking avoidance of the transfer of the LLC interests based on a newly-alleged Ponzi scheme, where claims related to the alleged Ponzi scheme would not relate back to the Amended Complaint, "insofar as (a) the Amended Complaint . . . fails, under the . . . [pleading] standard [enunciated in Bell Atlantic Co. v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 129 S.Ct. 1937 (2009)], to state claims for relief based on actual fraudulent intent, and (b) the Amended Complaint makes no mention of any Ponzi scheme," and would therefore be barred by the applicable statute of limitations set forth at 11 U.S.C. § 546(a); (3) the fraudulent transfer claims, insofar as they seek to avoid and recover transfers Dwek allegedly made to the LLCs on Kantrowitz's behalf, because the Trustee "has not sought to avoid those transfers, and the statute of limitations has now run on the Trustee's ability to avoid such transfers to the LLCs"; (4) a breach of fiduciary duty claim, because (a) it is barred by the economic loss doctrine, and (b) the Trustee lacks standing to assert such a claim; (5) all non-avoidance claims, as barred by the doctrine of in pari delicto; and (6) all claims relating to distributions made by the LLCs more than three years prior to commencement of Dwek's bankruptcy case as barred by the three year statute of limitations set forth at N.J.S.A. § 2B-42(c). (Moving Defs. Br. at 4-5.)
The Trustee contends that the Moving Defendants have not satisfied the standard for an interlocutory appeal from an order of the Bankruptcy Court, arguing that the Moving Defendants' motion for leave to appeal "merely rehash[es] . . . the same arguments that the Bankruptcy Court ...