Paradigm Biodevices, Inc. v. Viscogliosi Bros., LLC

• Decision Date: 03 February 2012
• Docket Number: No. 11 Civ. 3489 (RJH) (MHD).,11 Civ. 3489 (RJH) (MHD).
• Citation: 842 F.Supp.2d 661
• Court: U.S. District Court — Southern District of New York
• Parties: PARADIGM BIODEVICES, INC., Plaintiff, v. VISCOGLIOSI BROTHERS, LLC, Viscogliosi & Company, LLC, Paradigm Spine, LLC, Centinel Spine, Inc., John J. Viscogliosi, and Anthony G. Viscogliosi, Defendants.

842 F.Supp.2d 661

PARADIGM BIODEVICES, INC., Plaintiff,

v.VISCOGLIOSI BROTHERS, LLC, Viscogliosi & Company, LLC, Paradigm Spine, LLC, Centinel Spine, Inc., John J. Viscogliosi, and Anthony G. Viscogliosi, Defendants.

No. 11 Civ. 3489 (RJH) (MHD).

United States District Court,

S.D. New York.

Feb. 3, 2012.

Lawrence Glen Green, Michael K. Sugrue, Burns & Levinson LLP, Stephen Y. Chow, Perkins Smith & Cohen LLP, Boston, MA, for Plaintiff.

Ann Lauren Carpenter, Timothy D. Katsiff, Morgan, Lewis & Bockius LLP, Philadelphia, PA, Bernard J. Garbutt, III, Nicholas Schretzman, Tyler Brody, Morgan, Lewis and Bockius LLP, New York, NY, for Defendants.

MEMORANDUM OPINION AND ORDER

RICHARD J. HOLWELL, District Judge:

Plaintiff Paradigm BioDevices, Inc. (“Paradigm”) is a Massachusetts corporation that entered a distribution agreement with U.K. company Surgicraft, Ltd. (“Surgicraft”), which had since been acquired by defendant Centinel Spine, Inc. (“Centinel”). A dispute arose over whether Paradigm, the distributor, was entitled to a termination payment from Sugicraft, the manufacturer, in the event that a change of control of Surgicraft resulted in the termination of the distribution agreement, as was the case after Centinel took control of Surgicraft. Plaintiff brought an action for the termination payment and obtained a judgment against Surgicraft in a U.K. court, and that judgment was later domesticated in a Massachusetts state court litigation.

Defendants are New York and Delaware corporations with principal places of business in New York, as well as individuals who reside in New York and hold various leadership positions at the aforementioned defendant corporations. Defendants, generally, are alleged to directly or indirectly control Surgicraft. Plaintiff now brings this action, alleging tortious interference with contractual relations between itself and Surgicraft; fraudulent transfer of Surgicraft's assets to avoid payment to plaintiff; actionable conduct for piercing the corporate veil against individual defendants John and Anthony Viscogliosi; violation of Mass. Gen. Laws ch. 93A (“Chapter 93A”), the Massachusetts consumer protection statutes, by engaging in unfair, deceptive, and unlawful acts and methods of competition; and successor liability against Centinel. Plaintiff cross-moves for a prejudgment order of attachment against defendant Centinel, and defendants move to dismiss pursuant to Fed.R.Civ.P. 12(b)(6).

After hearing oral argument on November 9, 2011, the Court dismissed the claims of tortious interference, piercing the corporate veil, and successor liability as insufficiently pled and for the reasons stated on the record. (Transcript of Oral Argument, November 9, 2011, at 55–58.) The Court declined to dismiss the fraudulent transfer claim against Centinel but reserved decision on whether the fraudulent transfer claim is actionable against defendants other than Centinel. The Court also reserved decision on the sufficiency of the Chapter 93A claim under Massachusetts law. For the following reasons, the Court now concludes (1) that the fraudulent transfer claim survives only against Centinel and (2) the Chapter 93A claim survives against Centinel and John Viscogliosi. Plaintiff is given leave to move to amend any dismissed claims, provided it can adequately allege the factual predicate for such claim consistent with the Court's rulings. Plaintiff's motion for a prejudgment order of attachment against defendant Centinel is DENIED for the reasons stated at the November 9 hearing. (Transcript of Oral Argument, November 9, 2011, at 58–59.)

DISCUSSION

I. The Fraudulent Transfer Claim Is Dismissed Against All Defendants Other than Centinel

A. New York Law Applies Under New York's Choice–of–Law Rules

New York's choice-of-law rules govern the fraudulent conveyance claim in the present action because in determining which state's substantive laws apply to a fraudulent conveyance claim, “a federal court sitting in diversity must apply the conflict of laws rules of the state in which the federal court sits.” GFL Advantage Fund, Ltd. v. Colkitt, No. 03 Civ. 1256(JSM), 2003 WL 21459716, at *2 (S.D.N.Y. June 24, 2003) (citing Cantor Fitzgerald Inc. v. Lutnick, 313 F.3d 704, 710 (2d Cir.2002)). The first step of New York's choice-of-law rules is to determine whether there is an actual conflict between the laws of the jurisdictions involved. Drenis v. Haligiannis, 452 F.Supp.2d 418, 426 (S.D.N.Y.2006) (quoting In the Matter of Allstate Ins. Co., 81 N.Y.2d 219, 597 N.Y.S.2d 904, 613 N.E.2d 936 (1993)). If there is a conflict of law in tort actions, New York's choice-of-law rules use an “interest analysis” that applies the laws of the jurisdiction with the greatest interest in the application of its law “based on the occurrences within each jurisdiction, or contacts of the parties with each jurisdiction, that ‘relate to the purpose of the particular law in conflict.’ ” Pension Comm. of Univ. of Montreal Pension Plan v. Banc. of Am. Secs., LLC, 446 F.Supp.2d 163, 192 (S.D.N.Y.2006) (internal citations omitted); see AroChem Int'l, Inc. v. Buirkle, 968 F.2d 266, 269–70 (2d Cir.1992); Advanced Portfolio Tech., Inc. v. Advanced Portfolio Tech., Ltd., No. 94 Civ. 5620(JFK), 1999 WL 64283, at *5 (S.D.N.Y. Feb. 8, 1999). “When the law is one which regulates conduct, such as fraudulent conveyance statutes, the law of the jurisdiction where the tort occurred will generally apply because that jurisdiction has the greatest interest in regulating behavior within its borders”, Pension Comm. of Univ. of Montreal, 446 F.Supp.2d at 192 (internal quotations and citations omitted), “and parties engaging in those activities would have a reasonable expectation that their activities would be governed by the law of the state in which they are located and reside.” GFL Advantage Fund, 2003 WL 21459716, at *3.

New York law applies to the fraudulent transfer claim in the present action because there is no material conflict between the laws of New York and Massachusetts governing this claim. Both New York and Massachusetts have adopted the Uniform Fraudulent Conveyance Act. In re Morse Tool, Inc., 108 B.R. 384, 386 (Bankr.D.Mass.1989); seeMass. Gen. Laws ch. 109A, §§ 1–13 (1999); N.Y. Debt. & Cred. Law (“DCL”) §§ 270–281 (McKinney 1999). In all relevant respects, Massachusetts's fraudulent conveyance statute is identical to its New York counterpart, the New York Debtor & Creditor Law, and both the Second Circuit and New York courts have encouraged consultation of other jurisdictions' case law to promote a uniform interpretation of the UFCA. In re Sharp Int'l Corp., 302 B.R. 760 (Bankr.E.D.N.Y.2003) (citing Boston Trading Group, Inc. v. Burnazos, 835 F.2d 1504 (1st Cir.1987)), aff'd,403 F.3d 43 (2d Cir.2005).¹ In short, in the absence of evidenceshowing a conflict between the laws of New York and Massachusetts governing the fraudulent transfer claim in the present action, no choice of law analysis is necessary and this Court applies New York law. See Int'l Bus. Mach. Corp. v. Liberty Mut. Ins. Co., 363 F.3d 137, 143 (2d Cir.2004).

B. The New York Uniform Fraudulent Conveyance Act, DCL §§ 270–281

The New York law governing fraudulent conveyances is the New York Uniform Fraudulent Conveyance Act (“UFCA”), codified in DCL §§ 270–281 (McKinney 1999). Under the New York UFCA, a fraudulent conveyance can be constructive or actual. A transfer made without fair consideration can constitute a “constructive fraud” regardless of the transferor's actual intent, ² whereas an “actual fraud” is made “with actual intent, as distinguished from intent presumed in law, to hinder, delay, or defraud either present or future creditors”. HBE Leasing Corp. v. Frank, 48 F.3d 623 (2d Cir.1995); e.g.DCL § 273–a (one of several types of constructive fraud); seeDCL § 276 (actual fraud). DCL § 273–a defines one of several situations that give rise to constructive fraud:

Every conveyance made without fair consideration when the person making it is a defendant in an action for money damages or a judgment in such an action has been docketed against him, is fraudulent as to the plaintiff in that action without regard to the actual intent of the defendant if, after final judgment for the plaintiff, the defendant fails to satisfy the judgment.

What constitutes “fair consideration” is defined as follows in DCL § 272:

Fair consideration is given for property, or obligation,

a. When in exchange for such property, or obligation, as a fair equivalent therefor, and in good faith, property is conveyed or an antecedent debt is satisfied, or

b. When such property, or obligation is received in good faith to secure a present advance or antecedent debt in amount not disproportionately small as compared with the value of the property, or obligation obtained.

Fed.R.Civ.P. 9(b)'s pleading requirements for particularity apply to fraudulent conveyance claims under DCL § 273 and § 276. Cargo Partner AG v. Albatrans Inc., 207 F.Supp.2d 86, 115–16 (S.D.N.Y.2002), aff'd,352 F.3d 41 (2d Cir.2003). A DCL § 276 claim of actual fraudulent conveyance “must plead the requisite mental state [of actual intent] with particularity” to meet the heightened standard of [Fed.R.Civ.P. 9(b) ]. Atlanta Shipping Corp. v. Chemical Bank, 818 F.2d 240, 251 (1987); Waite v. Schoenbach, No. 10 Civ. 3439(RMB), 2010 WL 4456955, at *5 (S.D.N.Y. Oct. 29, 2010) (internal quotations and citation omitted). The burden of proving “actual intent” to defraud creditor(s) is on the party seeking to set aside the conveyance, and if actual intent is proven, the conveyance will be set aside regardless of the fairness of the consideration given. In re Sharp Int'l Corp., 403 F.3d 43, 56 (2d Cir.2005). Constructive fraudulent conveyance claims under DCL § 273, because they do not require the intent to defraud as an element, are not held to the heightened pleading requirements of Fed.R.Civ.P. 9(b) but still cannot survive a motion to...