Anna Phillips, in her capacity as the Liquidating Trustee of the ONH Liquidating Trust v. SS Associates LLC

Summary

The memorandum opinion addresses a motion to dismiss an adversary proceeding seeking recovery of an allegedly fraudulent transfer from SS Associates LLC as a subsequent transferee under 11 U.S.C. § 550(a)(2). The court holds that the trustee may establish and avoid the initial transfer from the debtors to Schwartz within an action against the subsequent transferee without naming Schwartz as a party. The court denies dismissal with prejudice but dismisses the existing complaint with leave to amend because its counts confusingly characterize the transfer to SS Associates as an initial transfer.

Holdings

1. A trustee must actually avoid the initial transfer before recovering from a subsequent transferee under 11 U.S.C. § 550(a)(2), but the initial transferee need not be named as a party to the lawsuit.
2. The complaint adequately alleged an actual fraudulent conveyance from the debtors to Schwartz under 11 U.S.C. § 548(a)(1)(A) and therefore stated a basis for avoiding that initial transfer.
3. The complaint adequately alleged that SS Associates received funds from Schwartz that had previously been fraudulently transferred from the debtors, and those allegations were sufficient to plead prima facie potential liability as a subsequent transferee under § 550(a)(2).
4. The existing complaint was deficient because Counts I through IV were most naturally read as seeking avoidance of transfers from the debtors directly to SS Associates, although the trustee's theory was that the debtors' transfer to Schwartz should be avoided and recovery should then be sought from SS Associates as a subsequent transferee.

Questions Presented

1. Whether a trustee may recover from a subsequent transferee under 11 U.S.C. § 550(a)(2) without naming the initial transferee as a defendant.
2. Whether the complaint adequately alleged an avoidable actual fraudulent transfer from the debtors to Schwartz.
3. Whether the complaint adequately alleged that SS Associates was a subsequent transferee with potential liability under 11 U.S.C. § 550(a)(2).
4. Whether the complaint's avoidance counts were deficient because they sought to avoid transfers from the debtors directly to SS Associates rather than the initial transfer from the debtors to Schwartz.

Disposition

dismissed