In re National Century Financial Enterprises, Inc.
| Citation | 604 F.Supp.2d 1128 |
| Decision Date | 18 March 2009 |
| Docket Number | Case No. 2:04-cv-1090.,Case No. 2:03-md-1565. |
| Parties | In re NATIONAL CENTURY FINANCIAL ENTERPRISES, INC., INVESTMENT LITIGATION. The Unencumbered Assets, Trust, et al., Plaintiffs, v. JP Morgan Chase Bank, et al., Defendants. |
| Court | United States District Courts. 6th Circuit. United States District Courts. 6th Circuit. Southern District of Ohio |
Joseph C. Wasch, Ft. Lauderdale, FL, for Biosource Corporation.
This matter is before the court on defendant Credit Suisse's motion to dismiss the claims filed against it in the Unencumbered Assets Trust (the "UAT") case. The UAT is a creation of the bankruptcy court's April 16, 2004 order confirming the liquidation plan of National Century Financial Enterprises, Inc. The liquidation plan transferred to the UAT all of the unencumbered assets of debtor National Century and its subsidiaries. Those assets included legal causes of action that belonged to the debtors prior to bankruptcy.
The UAT brings this action to pursue claims allegedly belonging to two subsidiaries of National Century, NPF VI and NPF XII, which were limited purpose corporations formed under Ohio law. NPF VI and NPF XII were securitization programs through which National Century purchased healthcare accounts receivable and issued investment-grade notes that were backed by the accounts receivable.
The complaint names numerous defendants who are alleged to have been involved in some way in National Century's operations and have caused harm to NPF VI or NPF XII. Since this suit was filed, the UAT has reached settlements with many of the named defendants. Still remaining as defendants are: Lance and Barbara Poulsen, Donald Ayers, and Rebecca Parrett (collectively the "Founders"); certain companies that the Founders allegedly owned and controlled; Credit Suisse First Boston LLC (now Credit Suisse Securities LLC); and Task Holdings Ltd. Each of these remaining defendants, except Task Holdings, have filed motions to dismiss the claims against them.
This order deals with only Credit Suisse's motion to dismiss. A separate order concerning the Founders' motions to dismiss will follow.
Credit Suisse is a Swiss bank, with a principal office in New York City, that does investment banking in the United States. The complaint alleges that Credit Suisse served as the primary financial advisor for National Century, NPF VI, and NPF XII from 1995 until November 2002, when National Century went bankrupt. NPF VI and NPF XII designated Credit Suisse "as their sole financial adviser and agent for the purpose of issuing notes." UAT Third Am. Compl., ¶ 869. As agent for NPF VI and NPF XII, Credit Suisse "had complete and comprehensive control of the structuring of the securitization programs at NPF VI and NPF XII." Id., ¶ 768. Credit Suisse "drafted and dictated the content of every document used by NPF VI and NPF XII to issue notes, it communicated on their behalf with credit rating agencies and investors, and it issued analyst reports whose purpose was to conceal the true facts concerning NPF VI and NPF XII." Id. According to the complaint, Credit Suisse served as the placement agent for the notes and had "near complete dominion and control over all aspects of NPF VI and NPF XII's securities issuances." Id., ¶ 783.
The UAT alleges that Credit Suisse's relationship as placement agent for NPF VI and NPF XII was lucrative. Credit Suisse allegedly received investment banking fees totaling $17 million over the course of its relationship with NPF VI and NPF XII. The complaint alleges that the NPF VI and NPF XII notes brought in 5% of all of the fees Credit Suisse earned in its United States asset-backed business from 1995 to 2002. In order to maintain this lucrative relationship with NPF VI and NPF XII, Credit Suisse allegedly bribed Ayers and attempted to bribe Poulsen to direct investment banking business to Credit Suisse. The bribes were allegedly in the form of guaranteed shares of "hot" initial public offerings, valued at over $100,000.
In allegations that are common to the National Century multidistrict litigation and thus will be not repeated in great detail here, the UAT alleges that the NPF VI and NPF XII note programs were operated as a fraud. The programs were initially structured to be legitimate and the Master Indenture Agreements governing the programs put many safeguards into to place. But the Founders, Credit Suisse, and other defendants allegedly caused NPF VI and NPF XII to violate the Master Indentures and misappropriated their assets. The major alleged aspects of noncompliance with the Indentures include: purchasing worthless or nonexistent accounts receivable, failing to maintain reserve accounts, engaging in related-party transactions, and exceeding concentration limits on the amounts purchased of the same type of receivable and on the amounts purchased from the same provider.
The complaint alleges that Credit Suisse owed fiduciary duties to NPF VI and NPF XII but failed to disclose the Indenture violations to them. The complaint further alleges that Credit Suisse loaned millions of dollars to NPF VI and NPF XII to keep the programs afloat and keep the fraudulent scheme concealed. It is alleged that Credit Suisse "knew, understood and agreed that these notes were being issued for a wholly improper purpose; namely, to generate additional funds to be siphoned off, embezzled, looted and diverted for its own wrongful enrichment and the wrongful enrichment of Poulsen, Ayers and Parrett." Compl., ¶ 871.
Count XXIV of the complaint asserts a cause of action against Credit Suisse under the Ohio Corrupt Activities Act, Ohio Rev. Code §§ 2923.32(A)(1), 2923.34(B). The UAT alleges that Credit Suisse and the Founders formed an organization, known as the "NPF Note Issuance Enterprise," that subverted the otherwise lawful operation of the NPF VI and NPF XII note programs, caused them to issue billions of dollars of worthless notes, misappropriated their assets, and forced them into insolvency and bankruptcy. Compl., ¶ 847. The complaint describes Credit Suisse's role in the enterprise as having "near-exclusive control over the content of the offering documents used to issue notes on behalf of NPF VI and NPF XII." Id., ¶ 848. Credit Suisse also allegedly acted "as the primary liaison for the purpose of deceiving the Rating Agencies concerning the health and solvency of NPF VI and NPF XII." Id.
Count XXV, though just one count, purports to assert multiple causes of action against Credit Suisse for breach of agency, breach of fiduciary duty, fraud, negligent misrepresentation, and deepening insolvency. The claims in Count XXV all rest on the alleged existence of a fiduciary duty owed by Credit Suisse to NPF VI and NPF XII. The UAT alleges that as "placement agent and financial adviser for, and fiduciary to, NPF VI and NPF XII, CSFB owed each of them duties of care, fidelity, candor and good faith." Compl., ¶ 869. Credit Suisse allegedly breached those duties because, despite knowing of the Founders' wrongdoing and looting of NPF VI and NPF XII, Credit Suisse failed to take any actions to protect NPF VI and NPF XII. According to the complaint, Credit Suisse should have disclosed the Founder's wrongdoing to NPF VI and NPF XII and should have refused to issue notes.
Counts XXVI and XXVII are for concert of action and civil conspiracy. The complaint alleges that Credit Suisse is liable for concert of action because it "knowingly participat[ed] in the breaches of fiduciary duties owed to NPF VI and NPF XII by Poulsen, Parrett, Ayers, the Servicer [National Premier Financial Services] and the Trustees [Bank One and JPMorgan]." Compl., ¶ 882. The complaint alleges that Credit Suisse is liable for conspiracy because it agreed with Poulsen, Parrett, Ayers, the servicer and the trustees to misappropriate the assets of NPF VI and NPF XII.
Count XXVIII asserts a claim for professional negligence. The complaint alleges that Credit Suisse owed a duty to act with reasonable care as a professional underwriter to NPF VI and NPF XII. The UAT alleges that Credit Suisse breached the duty by "causing NPF VI and NPF XII to issue worthless notes, on the basis of materially misleading offering documents, and by knowingly disseminating financial statements, representations and reports to the Rating Agencies that it knew were materially false and misleading. . . ." Compl., ¶ 899.
Finally, Counts XL to XVIII are avoidable transfer claims under the Bankruptcy Code. The complaint alleges that on June 3, 2002, NPF XII made a payment to Credit Suisse of $100 million that was purportedly made on a debt of $220 million owed by NPF XII to Credit Suisse. The UAT alleges that NPF XII was insolvent at the time of the payment and that Credit Suisse and the Founders did not act in good faith in directing the payment. The complaint alleges that the payment is avoidable by the trustee as a preferential transfer under Section 547 of the Bankruptcy Code and as a fraudulent transfer under Sections 544 and 548. The complaint further alleges that the payment may be recovered by the trustee under Section 550.
When considering a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), a court must construe the complaint in the light most favorable to the plaintiff and accept all well-pleaded material allegations in the complaint as true. Erickson v. Pardus, 551 U.S. 89, 127 S.Ct. 2197, 2200, 167 L.Ed.2d 1081 (2007) (citing Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974)); Sensations, Inc. v. City of Grand Rapids, 526...
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In re Co.
...stages of this litigation. Cf. See The Unencumbered Assets, Trust v. JP Morgan Chase Bank ( In re Nat'l Fin. Ents., Inc., Inv. Litig.), 604 F.Supp.2d 1128, 1142–43 (S.D.Ohio 2009) (In pari delicto defense asserted by insider investment banker cannot be resolved upon a motion to dismiss).d. ......
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Anderson v. Meyers (In re Infinity Bus. Grp., Inc.)
...(applying Maryland law) ; Wiand v. Waxenberg , 611 F. Supp. 2d 1299, 1311 (M.D. Fla. 2009) ; In re Nat'l Century Fin. Enter., Inc. Inv. Litig. , 604 F. Supp. 2d 1128, 1143 (S.D. Ohio 2009) ; Fine v. Sovereign Bank , 634 F. Supp. 2d 126, 139 (D. Mass. 2008) ; Ladd Furniture, Inc. v. Ernst & ......
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Anderson v. Cordell (In re Infinity Bus. Grp., Inc.)
...(applying Maryland law) ; Wiand v. Waxenberg , 611 F. Supp. 2d 1299, 1311 (M.D. Fla. 2009) ; In re Nat'l Century Fin. Enter., Inc. Inv. Litig. , 604 F. Supp. 2d 1128, 1143 (S.D. Ohio 2009) ; Fine v. Sovereign Bank , 634 F. Supp. 2d 126, 139 (D. Mass. 2008) ; Ladd Furniture, Inc. v. Ernst & ......
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CHAPTER 6 Summary of Positions on Deepening insolvency by State
...S.D. Ohio 2007).[314] The Unencumbered Assets, Trust v. JP Morgan Chase Bank (In re Nat'l Century Fin. Enter. Inc., Inv. Litig.), 604 F. Supp. 2d 1128, 1153 (S.D. Ohio 2009).[315] Vucelic v. Ideal Elec. Co. (In re I.E. Liquidation Inc.), 2009 WL 2707223 (Bankr. N.D. Ohio Aug. 25, 2009).[316......