Richard W. Barry, for the Estates of Liberty State Benefits of Del., Inc. v. Santander Bank, N.A. (In re Liberty State Benefits of Del., Inc.)
| Decision Date | 26 October 2015 |
| Docket Number | Adv. Pro. No. 14–50020KG,Case No. 11–12404KG |
| Citation | 541 B.R. 219 |
| Parties | In re: Liberty State Benefits of Delaware, Inc., et al., Debtors. Richard W. Barry, As Chapter 11 Trustee For the estates of Liberty State Benefits of Delaware, Inc., et al., Plaintiff, v. Santander Bank, N.A. formerly Known as Sovereign Bank, N.A., Defendant. |
| Court | U.S. Bankruptcy Court — District of Delaware |
Peter James Duhig, Buchanan Ingersoll & Rooney PC, Garvan F. McDaniel, Hogan McDaniel, Wilmington, DE, for Debtors.
Kimberly A. Brown, Kerri K. Mumford, Landis Rath & Cobb LLP, Wilmington, DE, Carl W. Oberdier, Kellen G. Ressmeyer, Oberdier Ressmeyer LLP, New York, NY, for Plaintiff.
Richard A. Barkasy, Schnader Harrison Segal & Lewis LLP, Wilmington, DE, Fred W. Hoensch, Parker Ibrahim & Berg LLC, Philadelphia, PA, Mathew B. West, Schnader Harrison Segal & Lewis LLP, New York, NY, for Defendant.
KEVIN GROSS, U.S.B.J.
On January 10, 2014, Richard W. Barry, Chapter 11 Trustee (the “Trustee” or the “Plaintiff”) for the estate of Liberty State Benefits of Delaware, Inc. (“LSBDE”), Liberty State Benefits of Pennsylvania, Inc. (“LSBPA”), Liberty State Financial Holdings Corp. (“LSFH”), and Liberty State Credit, Inc. (“LSCI”) (collectively, the “Debtors”) commenced this adversary proceeding against Santander Bank, N.A. (“Santander” or the “Defendant”) alleging numerous violations of both New Jersey law and U.S. federal law. More specifically, the Trustee's complaint alleges that Santander aided and abetted various Debtor affiliates in effectuating a series of transactions designed to steal the Debtors' assets. In response to the Complaint (the “Complaint”), Santander filed this motion to dismiss (the “Motion”) under Rule 12(b)(6) of the Federal Rules of Civil Procedure. For the following reasons, the Court concludes that the Motion should be GRANTED with respect to all claims arising from the Debtors' notes offerings and all direct liability claims arising out of the Hope Now Scheme. The Court holds that the Motion should be DENIED with respect to all claims arising out of the Ministrelli Trust Theft and the Lacey Property Theft and DENIED with respect to all vicarious liability claims arising out of the Hope Now Scheme.
On July 29, 2011 (the “Petition Date”), the Debtors filed a voluntary chapter 11 petition in the United States Bankruptcy Court for the District of Delaware (Case No. 11–12404(KG)). On January 10, 2014, Richard A. Barry (the “Trustee”), acting as Chapter 11 Trustee for the Debtors, commenced this adversary proceeding (the “Adversary Proceeding”) against Santander. In the Complaint, the Trustee asserts eleven causes of action stemming from a series of transactions allegedly designed by the participants (the “Non–Party Conspirators” or the “Conspirators”) to convey various assets of the Debtors to various non-Debtor affiliates for minimal to no value. Compl. ¶¶ 170–261. According to the Complaint, Santander and its employees were instrumental in enabling the Non–Party Conspirators to complete the theft. Id.The four transactions that gave rise to the Complaint follow.
The Ministrelli Trust (the “Trust”) was the Debtors most valuable asset prior to the Petition Date. Compl. ¶ 6. The Trust held a life insurance policy of a wealthy individual with a face value of $11.5 million. Id. The Debtors acquired the beneficial interest in the Trust in December 2008. Compl. ¶ 57. Through a series of transactions involving the creation of numerous bank accounts designed solely to facilitate the transfer of the Trust proceeds, Santander allegedly aided and abetted the Non–Party Conspirators in “conspir [ing] to steal the Ministrelli Trust, sell[ing] the policy to a third party, and launder[ing] the sales proceeds through their personal Santander accounts to avoid detection before ultimately depositing the funds in an account owned by [certain Non–Party Conspirator affiliates].” Compl. ¶ 58.
Santander and the Non–Party Conspirators allegedly effectuated the theft through a serious of carefully planned stages. The first stage involved removing Michael Kwasnik (“MKwasnik”), the Debtors' counsel and founder, as trustee of the Ministrelli Trust. Compl. ¶ 59. The Plaintiff notes that this step was crucial because “[MKwasnik] was already in the crosshairs of a lawsuit commenced by the Debtors' lender holding a secured interest in the Ministrelli Trust.” Id.Shortly before the Non–Party Conspirators removed MKwasnik as trustee, Westdale Construction, Ltd. (“Westdale”), a lender with a security interest in the Trust, sent a letter to MKwasnik informing him of its rights in the collateral. Id.Because MKwasnik was aware of Westdale's rights in the Trust, the Complaint alleges that it was essential that the Conspirators remove him as trustee so that a successor trustee could claim ignorance of the lawsuit and Westdale's security interest. Id.
In October 2009, the Non–Party Conspirators appointed David Chalmers (“Chalmers”) as successor trustee.2Compl. ¶ 61. In order to formalize Chalmers' appointment, the Conspirators “prepared a document entitled ‘Appointment of Successor Trustee’ by which MKwasnik purportedly resigned as trustee of the Ministrelli Trust and appointed Chalmers in his stead as successor trustee.” Compl. ¶ 62. The document was signed by Chalmers and MKwasnik and was notarized by Robert F. Goodsen in November 2009. Id.
The Trustee further alleges that during this time, the Non–Party Conspirators created two additional copies of the Appointment of Successor Trustee document. Compl. ¶ 63. In order to “create the false appearance” that MKwasnik had received notice of the Westdale lawsuit afterhis resignation as trustee, these duplicates were backdated to June 2009.3Id.
In November 2009, Chalmers took the backdated documents to Santander's Westmont, New Jersey Branch (the “Westmont Branch”). Compl. ¶ 64. The Complaint alleges that one of Santander's employees, Kimberly Hicks–Finnerty4(“Hicks–Finnerty”), proceeded to fraudulently notarize the Appointment of Successor Trustee agreement. Id. In doing so, she “certif [ied] ‘under penalties of perjury’ that on June 20, 2009, each of MKwasnik and Chalmers had ‘personally appeared’ before her, provided satisfactory evidence of his identification, and acknowledge his signature.” Id. (emphasis added). MKwasnik later testified that he had never signed the backdated version of the Appointment of Successor Trustee Agreement, never met Hicks–Finnerty in person, and that “the signature [on the document] notarized by Hicks–Finnerty [was not] his.” Compl. ¶ 65. Around that same time, Chalmers brought a copy of the backdated document to Edward Green5(“Green”), another Westmont Branch employee, who notarized the document and swore under the penalty of perjury that MKwasnik had appeared before him that day. Compl. ¶ 66. However, expert handwriting analysis later confirmed that the signature on the document was not MKwasnik's. Compl. ¶ 67. Additionally, MKwasnik's cell phone log showed that he was not physically present in Westmont that day. Id.According to the Complaint, “had Santander and its notaries refused to notarize the fraudulent, backdated appointments, and had they insisted that MKwasnik appear personally and sign the Appointments as of the actual date of his signature, the Ministrelli Conspirators' plot would have been foiled.” Compl. ¶ 69. The Trustee asserts that had Santander refused to backdate the Appointment of Successor Trustee agreement, MKwasnik would have immediately exposed himself to criminal and civil sanctions for transferring legal title to the Trust while having knowledge of Westdale's security interest. Id.
After legal title to the Trust was passed to Chalmers, the Conspirators next “opened up several new accounts at Santander to enable them to receive and launder the proceeds from their fraudulent sale of the Ministrelli Trust.” Compl. ¶ 70. On September 24, 2008, Non–Party Conspirator Meghan Faiola (“MFaiola”), assisted by Green, opened a new account in the name of “Dillenschneider & Faiola LLC” (the “D & F Account”). Compl. ¶ 71. On November 2, 2009, Chalmers directed Green to open an account “in the name of LSBPA's Ministrelli Trust (the “Ministrelli Account”), purportedly for the benefit of LSBPA.”6Compl. ¶ 72. Chalmers was granted full signatory authority over this account. Id. According to the Complaint, Santander's internal policies required it to “review the terms of any trust for which it opened a trust account.” Id. Had Santander done its required due diligence, it would have discovered that Chalmers was not qualified to serve as trustee under the terms of the formal trust agreement.7Id. With respect to the D & F Account and the Ministrelli Account, Green “misrepresented on the signature card that the [accounts were] opened with a $50.00 deposit. Id.Santander's records verify that this representation was patently false. Id.
Sometime after this date, the Ministrelli Account was closed. Compl. ¶ 74. In January 2010, Hicks–Finnerty allegedly “re-opened” the Ministrelli Account and “misrepresented on the account's new signature card that the required account-opening deposit had been made.” Id. During this time, a third account was opened at the Westmont Branch. Compl. ¶ 76. According to the Trustee, Green opened an account for MFaiola in the name of MFaiola (the “MFaiola Account”) solely for the purpose of laundering the sale proceeds from the Ministrelli Account to the D & F Account. Id. Hicks–Finnerty and Green were “given bonus credit for opening the MFaiola Account” as Santander incentivized its employees to open new accounts for its then-existing customers. Compl. ¶ 77.
The actual theft of the Trust began in late 2009 when the Leo Group LLC (“Leo”), an Indiana limited liability company, offered to purchase the Trust's insurance policy for $1.75 million. Compl. ¶ 78. According to the Trustee, the Non–Party Conspirators accepted...
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