Summary of a Recent
Judicial Development in
Bankruptcy

Court Denies Motion to Appoint Receiver, No Evidence of Fraudulent Conveyance

Walt McCarter
National AgLaw Center Research Associate

Summary of Decision

In Plunket v. Estate of Doyle, No. 99 Civ. 11006(KMW), 2009 WL 73146 (S.D.N.Y. Jan. 12, 2009), the United States District Court for the Southern District of New York held that creditors had failed to prove that a judgment debtor had made a fraudulent conveyance to a corporation owned by her daughter, and therefore denied their request to appoint a receiver to take possession of and sell the company's shares of stock to satisfy the judgment.

Background

Judgment creditors brought this action against the debtor pursuant to Federal Rule of Civil Procedure (FRCP) 69, seeking to enforce their judgment. Id. at *1. They disputed the debtor's claim that she had no income or assets, and alleged that she had fraudulently conveyed assets to Pannonia, a corporation owned by her daughter. Id. In support of their argument, they claimed that the debtor was Pannonia's sole officer, that she lived in home owned by the company, and that she operated and managed a luxury bed and breakfast also owned by the company. Id. The creditors sought a declaration that the debtor was the rightful or beneficial owner of Pannonia based on her dominance and control of the company and her fraudulent conveyance of assets to Pannonia. Id. They also sought appointment of a receiver to take possession of and sell shares of Pannonia's stock in order to pay the judgment debt. Id.

Arguments

The judgment creditors argued that the debtor was the true owner of Pannonia, and had fraudulently hidden her assets and income by leaving ownership of the company in her daughter's name while using its assets and finances, and they sought permission to pierce the corporate veil. Id.

The debtor argued that she was not the rightful or beneficial owner of Pannonia because ownership of the company had been passed down from her father to her daughter, and she only ran the bed and breakfast to in order to pay Pannonia's taxes, maintenance costs, and improvement costs. Id. She also claimed that it was her husband who leased a home owned by Pannonia, and that she had renounced owning material possessions "for religious and philosophic reasons." Id. at *1-2.

Analysis and Holdings

The court began by stating that it lacked jurisdiction to hear the beneficial owner claim because, although FRCP 69 "provides a mechanism for parties to seek the court's aid in executing its judgments," the rule does not give it jurisdiction "over a new lawsuit to impose liability for a judgment on a third party." Id. at *2. Turning to the fraudulent conveyance claim, the court noted that the creditors had not clearly alleged that the debtor had done anything that met the statutory definition of conveyance: "payment of money, assignment, release, transfer, lease, mortgage or pledge of tangible or intangible property, and also the creation of any lien or incumbrance." Id. at *5. Therefore, because the creditors "failed to establish that [the debtor] made a conveyance to Pannonia, fraudulent or otherwise," the court denied their motion. Id.

The case was decided on January 12, 2009.