Matter of Mediators, Inc.
| Citation | 190 BR 515 |
| Decision Date | 04 December 1995 |
| Docket Number | No. 91 B 12980 (PBA). Adv. No. 93 Civ. 2304 (CSH).,91 B 12980 (PBA). Adv. No. 93 Civ. 2304 (CSH). |
| Parties | In the Matter of The MEDIATORS, INC., Debtor. The MEDIATORS, INC., Plaintiff, v. Richard MANNEY, Gloria Manney, Patricia Manney, Citibank, N.A., Morris J. Cohen & Co., P.C., Astor, Weiss, Kaplan & Rosenblum (f/k/a Astor, Weiss & Newman), Arthur R. Kaplan, John and/or Jane Doe # 1 to # 10, Doe Corporation # 2 to # 10, Doe Partnership # 1 to # 10, and Doe Foundation # 1 to # 10, the names of the foregoing thirty-nine defendants being unknown, it being intended to designate parties who have received transfers, directly or indirectly, from plaintiff or Richard or Gloria Manney or who were directors of plaintiff, Defendants. |
| Court | U.S. District Court — Southern District of New York |
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Patterson, Belknap, Webb & Tyler, New York City (David W. Dykouse, Stephen P. Younger, Eric Wertheim, Christopher J. McDonald, of counsel), for plaintiffs.
McDermott, Will & Emery, New York City (Lawrence I. Fox, of counsel), for Gloria and Patricia Manney.
Schwarzfeld, Ganfer & Shore, New York City (Steven J. Shore, of counsel), Salomon Green & Ostrow, P.C., New York City (David Green, of counsel), for Richard Manney.
Skadden, Arps, Slate, Meagher & Flom, New York City (George A. Zimmerman, Mark Gross, of counsel), for Citibank.
Wilson, Elser, Moskowitz, Edelman & Dicker, New York City (Steven Verveniotis, of counsel), for Astor Weiss, Kaplan & Rosenblum and Arthur Kaplan.
D'Amato & Lynch, New York City (Wendella D. Downer, of counsel), for Morris J. Cohen & Co. P.C.
A committee of unsecured creditors (hereinafter "plaintiff") has brought the present action on behalf of the now-bankrupt Mediators, Inc. (the "Mediators" or the "debtor") to recover monies alleged to have been diverted fraudulently from the corporation. Plaintiff has asserted numerous federal and state causes of action, each of which implicates one or more of the named defendants in the alleged wrongdoing.
Presently before the Court are four separate motions to dismiss the complaint for failure to state a claim pursuant to Fed. R.Civ.P. 12(b)(6).1 Of these four motions, the three brought by Citibank, N.A. ("Citibank"), the accounting firm of Morris J. Cohen & Co. ("Cohen"), and the Philadelphia law firm of Astor, Weiss, Kaplan & Rosenblum and Arthur R. Kaplan jointly (the "Astor defendants") are interrelated. Citibank, has, in its own capacity, challenged plaintiff's standing to bring one of the claims against it. This challenge applies with equal force to certain other claims asserted against Citibank, as well as each of the claims asserted against Cohen and the Astor defendants. Therefore, I consider these motions to dismiss together. An opinion resolving Richard, Gloria and Patricia Manney's joint motion to dismiss will be filed separately.
On a motion to dismiss under Rule 12(b)(6), the trial court's function "is merely to assess the legal feasibility of the complaint, not to assay the weight of the evidence which might be offered in support thereof." Geisler v. Petrocelli, 616 F.2d 636, 639 (2d Cir.1980); see Ricciuti v. N.Y.C. Transit Authority, 941 F.2d 119, 124 (2d Cir.1991). "The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims." Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974). The district court should grant a Rule 12(b)(6) motion "only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 2232, 81 L.Ed.2d 59 (1984) (citing Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957)).
Except in certain circumstances, consideration of a motion to dismiss the complaint must focus on the allegations contained on the face of the complaint. See Cortec Industries, Inc. v. Sum Holding, L.P., 949 F.2d 42, 47 (2d Cir.1991), cert. denied, 503 U.S. 960, 112 S.Ct. 1561, 118 L.Ed.2d 208 (1992); Kramer v. Time Warner, Inc., 937 F.2d 767, 773 (2d Cir.1991). On a motion to dismiss, a district court must accept plaintiff's well-pleaded factual allegations as true, Papasan v. Allain, 478 U.S. 265, 283, 106 S.Ct. 2932, 2943, 92 L.Ed.2d 209 (1986), and the allegations must be "construed favorably to the plaintiff." LaBounty v. Adler, 933 F.2d 121, 123 (2d Cir.1991). "A Rule 12(b)(6) motion to dismiss need not be granted nor denied in toto but may be granted as to part of a complaint and denied as to the remainder." Decker v. Massey-Ferguson, Ltd., 681 F.2d 111, 115 (2d Cir.1982).
The complaint at bar, which has once been amended, contains a wide array of factual allegations, many of which have no bearing on the present motions. What follows is a summary of the relevant facts, gleaned from the complaint and construed in the light most favorable to the plaintiff.
The Mediators, a privately held New York corporation, is a media-buying and barter company engaged primarily in acquiring radio and television advertising time for its clients in return for their goods and services. Clients of the Mediators tender merchandise or services and receive "media credits" in return. The Mediators then sells the merchandise or services, and uses part of the proceeds to purchase advertising time. The clients can exchange their media credits for time slots of equivalent value. This method of doing business creates a situation in which the corporation's primary asset is cash proceeds, and its primary liability is an outstanding bulk of media credits.
Richard Manney ("Manney"), the Mediators' sole shareholder, chief executive officer and chairman, has at all relevant times controlled the corporation's operations. His wife, Gloria Manney, treasurer, secretary and a director of the corporation, has provided limited assistance in this regard. Patricia Manney, their daughter, was a salaried employee of the Mediators between 1986 and 1988, but had at most a negligible role in its operations during that time frame.
The Manneys are avid art collectors, and have, over a number of years, involved the Mediators in their passion. At the behest of Manney, the debtor began purchasing works of art in the late 1970's and continued to do so as the company prospered in the 80's. At times, however, the corporation's cash reserves were not sufficiently large to finance these purchases, and Manney was forced to borrow millions of dollars on behalf of the corporation. As the art collection grew, so did the Mediators' indebtedness. Although the corporate entity bore the financial brunt of these purchases, the Manneys, as individuals, were the primary beneficiaries. The artwork collection, which consisted of expensive paintings, antique furniture, fine jewelry, and rare collectibles, was used to furnish their home and outfit the Manneys for special occasions.
In 1987, the Mediators encountered severe economic adversity. Two years before, the Mediators had negotiated a barter transaction with Wang Laboratories, Inc. ("Wang"), in which the Mediators would purchase Wang products in exchange for cash and media credits. The Mediators' corporate counsel — the law firm of Astor, Weiss, Kaplan & Rosenblum, and Arthur Kaplan specifically —represented it in these negotiations, and drafted the barter agreement. Soon after this agreement was consummated, a dispute arose between Wang and the Mediators about the proper method for calculating cash payments due to Wang under the contract. Wang ultimately sued the Mediators for, inter alia, breach of contract, and the jury returned a $17 million jury verdict in Wang's favor.
The Wang verdict placed a severe financial strain on the Mediators, forcing Manney to contemplate filing a Chapter 11 petition. Realizing that any such reorganization would jeopardize the artwork collection, Manney employed the Astor defendants and the Mediators' accountants, the Cohen firm, to formulate a plan for placing the corporate artwork beyond the grasp of creditors. The recommendation they proffered was simple and straightforward: Manney would buy the artwork back from the corporation at a discount price, thereby converting it into a personal asset shielded from creditors by the corporate veil.
On June 29, 1988, formal ownership of the artwork changed hands in a three-way transaction involving Manney, the Mediators and Citibank. Citibank loaned $12,000,000 to Manney, which he then used to purchase the artwork for a purported price of $12,646,690. Although this was the original cost of the artwork to the Mediators, the collection had since appreciated in value, and by the time of the transaction, was worth well in excess of the sale price. The loan extended by Citibank was guaranteed by the Mediators in the amount of $12,125,000. In addition, the Mediators tendered a one-year time deposit of $4,125,000, the principal and proceeds of which secured a portion of the loan. The loan was also secured by the artwork itself. After the transaction was complete, the Astor defendants rendered an opinion letter which stated that the documents executed in connection with the transfer were "legal, valid and binding" upon the Mediators and Richard Manney.
Plaintiff describes these transactions as "nothing more than a shameful case of musical chairs." Not only was the Mediators paid too low a price for the artwork, but it also remained liable for the sale price. Manney, on the other hand, accomplished what he set out to do — insulate his treasured art collection from an approaching onslaught of unsecured creditors. Meanwhile, Manney's accessories — Citibank, the Astor defendants, and Cohen — received significant fees for helping to orchestrate the transaction. Although the complaint does not state that the Astor defendants or Cohen knew of the...
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