TrustCo Bank ( 2015 )

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
TRUSTCO BANK, a federal savings bank, )
and ORE PROPERTY TWO, INC., a )
Corporation, )
Plaintiffs, )
)
v. ) C.A. No. 8374-VCP
)
SUSAN M. MATHEWS, RBC TRUST )
COMPANY (DELAWARE) LIMITED, a )
Delaware Corporation, solely in its capacity as )
trustee, THE SUSAN M. MATHEWS )
DELAWARE TRUST I, a Delaware Trust, )
THE SUSAN M. MATHEWS DELAWARE )
TRUST II, a Delaware trust, THE SUSAN M. )
MATHEWS DELAWARE TRUST III, a )
Delaware trust, COLIN R. MATHEWS, )
BRENDAN R. MATHEWS, DEVIN R. )
MATHEWS, KIERNAN R. MATHEWS, and )
DOES I through X, )
)
Defendants. )
MEMORANDUM OPINION
Submitted: September 19, 2014
Decided: January 22, 2015
William J. Burnett, Esq., FLASTER/GREENBERG, P.C., Wilmington, Delaware; Harry
J. Giacometti, Esq., Alexis Arena, Esq., FLASTER/GREENBERG, P.C., Philadelphia,
Pennsylvania; Attorneys for Plaintiffs.
Robert A. Penza, Esq., Christopher M. Coggins, Esq., POLSINELLI PC, Wilmington,
Delaware; Attorneys for Defendants Susan M. Mathews, Colin R. Mathews, Brendan R.
Mathews, Devin R. Mathews, and Kiernan R. Mathews.
William M. Kelleher, Esq., GORDON, FOURNARIS & MAMMARELLA, P.A.,
Wilmington, Delaware; Attorneys for the Trust Defendants.
PARSONS, Vice Chancellor.
This action involves allegedly fraudulent transfers. The parties dispute which
state‟s law and, more importantly, which state‟s statute of limitations applies. The
plaintiffs assert that New York‟s six-year or two-years-from-discovery statute of
limitations governs the plaintiffs‟ claims. The defendants argue that either Delaware or
Florida law controls and that most of the plaintiffs‟ claims are barred by the identical
four-year or one-year-from-notice statutes of limitations adopted by both of those states.
Before the Court is the defendants‟ motion for partial summary judgment on the statute of
limitations issue. For the reasons that follow, I conclude that New York‟s statute of
limitations does not apply to this case and grant the defendants‟ motion for partial
summary judgment. Even if New York law did apply, however, the defendants still
would be entitled to summary judgment. The plaintiffs‟ primary fraudulent transfer
claims, therefore, are time barred.
I. BACKGROUND1
A. The Parties
Plaintiff TrustCo Bank (“TrustCo”) is a federal savings bank with a principal place
of business in Glenville, New York. TrustCo provided a construction loan to StoreSmart
of North Ft. Pierce, LLC (“StoreSmart”), a Florida limited liability company.
1
The uncontested facts recited herein are drawn from the pleadings. All other facts
are derived from the documentary record submitted by the parties. I confine the
facts only to what is necessary to understand and resolve this motion for partial
summary judgment.
1
Plaintiff ORE Property Two, Inc. (“ORE,” and together with TrustCo, “Plaintiffs”)
is a Florida corporation2 and the assignee of TrustCo‟s rights, title, and interest in the
StoreSmart loan and related agreements.
Defendant Susan M. Mathews (“Ms. Mathews”) has homes in both Cambridge,
Massachusetts and Fort Pierce, Florida, with Florida as her primary residence. Before
2009, Ms. Mathews was a resident of New York.3 Ms. Mathews was a manager and
member of StoreSmart and personally guaranteed the loan from TrustCo to StoreSmart.
Defendants Colin R. Mathews, Brendan R. Mathews, Devin R. Mathews, and
Kiernan R. Mathews (collectively the “Mathews Children,” and together with Ms.
Mathews, the “Mathews Defendants”) are the purported beneficiaries of several trusts
established by Ms. Mathews.
Defendants The Susan M. Mathews Delaware Trust I (“Trust I”), The Susan M.
Mathews Delaware Trust II (“Trust II”), and The Susan M. Mathews Delaware Trust III
(“Trust III,” and collectively, the “Three Trusts”) are Delaware trusts established on
December 21, 2006. Ms. Mathews is the grantor of each of the Three Trusts. Defendant
RBC Trust Company (Delaware) Limited (“RBC,” and together with the Three Trusts,
the “Trust Defendants”) is a Delaware corporation with its principal place of business in
2
The First Amended Verified Complaint (the “Complaint”) states only that ORE‟s
principal place of business is in Florida. Records on the Florida Department of
State website confirm that ORE is a Florida corporation. I take judicial notice of
this fact pursuant to D.R.E. 201(b)(2).
3
Mathews Defs.‟ Opp. Br. to Pls.‟ Renewed Mot. for a Prelim. Inj. (“Mathews
Defs.‟ PI Opp.”), Ex. E (“Mathews Dep.”) 8-9.
2
Wilmington, Delaware. RBC is the trustee of each of the Three Trusts and is named as a
defendant solely in that capacity.
Doe Defendants I through X (the “Doe Defendants”) are unidentified persons who
allegedly received transfers of property from Ms. Mathews or an entity in which she held
an interest. The Doe Defendants, the Mathews Defendants, and the Trust Defendants
collectively comprise the “Defendants” in this action.
B. Pertinent Facts
TrustCo lent $9,300,000 to StoreSmart in July 2006 for the purpose of
constructing a self-storage facility in St. Lucie, Florida (the “StoreSmart Loan”). The
StoreSmart Loan was secured by StoreSmart‟s real estate and other assets. Ms. Mathews
also executed a personal guaranty of the StoreSmart Loan. That loan was modified twice,
first in June 2008 and again in March 2009. StoreSmart defaulted in April 2011. On
April 25, 2011, TrustCo filed a foreclosure action against StoreSmart and Ms. Mathews
in Florida state court. That case resulted in a judgment on July 12, 2011, in favor of
TrustCo of roughly $8.2 million plus post-judgment interest (the “Foreclosure
Judgment”). TrustCo assigned its rights, title, and interest in the StoreSmart Loan,
including the related security agreements, and the Foreclosure Judgment to ORE in
August 2012. Plaintiffs, StoreSmart, and Ms. Mathews agreed to entry of a deficiency
judgment of about $2.3 million and submitted a stipulation to that effect to the Florida
court in February 2013, which the court approved (the “Deficiency Judgment”).
Plaintiffs allege that various transfers to the Three Trusts constituted fraudulent
transfers. The parties dispute whether the initial transfers that funded the Three Trusts
3
were fraudulent at all. Plaintiffs, as evidenced by this lawsuit, assert that the transfers
were effected to place Ms. Mathews‟s assets out of their reach. Defendants contend that
Ms. Mathews created the Three Trusts as part of her estate planning, which was
underway before she guaranteed the StoreSmart Loan. For purposes of the pending
motion for summary judgment, however, I need not resolve this dispute. This
Memorandum Opinion focuses on Defendants‟ statute of limitations defense and, in that
regard, I assume, without deciding, that the challenged transfers were fraudulent.
Plaintiffs‟ Complaint challenges several transfers. The most important of these
seem to be the transfers of ITRAX stock. Ms. Mathews co-founded a company called
Corporate Health Dimensions (“CHD”). CHD grew substantially and by 2000 had about
700 employees.4 Ms. Mathews retired from CHD in 1999, but remained on the board of
directors. She retained her CHD stock, which apparently was a significant, if not the
primary, source of her wealth. CHD was purchased by a company called ITRAX in
2004. Walgreens later purchased ITRAX in 2008.5 In two sets of transfers that took
place on January 9 and 22, 2007, Ms. Mathews transferred her ITRAX stock to Trust II
and Trust III (generally, the “ITRAX Transfers”).6
Ms. Mathews also held an interest in Terra Optima Ventures, LLC (“TOV”).
TOV was an investment vehicle for a business owned by Colin R. Mathews. Ms.
4
Id. at 31-33.
5
Id. at 38.
6
Mathews Defs.‟ PI Opp., Exs. 8-9.
4
Mathews sold her interest in TOV to one of the Three Trusts in or about March 2010 for
$63,000 (generally, the “TOV Transfer”).7 Because the TOV interest had been valued at
one-half million dollars only about a year earlier, Plaintiffs contend that the TOV sale
was a fraudulent transfer.8 Defendants contend that they have produced all relevant
information and that the ITRAX Transfers and the TOV Transfer constitute the entire
universe of relevant transfers.
The parties devoted the lion‟s share of their briefing to the ITRAX Transfers.
They vigorously dispute when Plaintiffs had notice of those transfers. Accordingly, I
focus on that issue as well. Plaintiffs maintain that they did not have legally sufficient
notice of the ITRAX transfers—such that the statute of limitations would begin to run—
until July 19, 2011.9 Defendants contend that Plaintiffs had notice at numerous times
before that date. In particular, Defendants contend that the July 19, 2011 date is a
litigation-contrived fabrication because Plaintiffs responded to Defendants‟
7
Mathews Dep. 140-43.
8
Plaintiffs assert that additional discovery likely will reveal other fraudulent
transfers. At this point, however, the specifically identified transfers are the
ITRAX Transfers and the TOV Transfer. Defendants do not contend that
Plaintiffs‟ challenge to the TOV Transfer is untimely.
9
Pls.‟ Supplemental Br. in Supp. of Mot. for Prelim. Inj. (“Pls.‟ Suppl. PI Br.”) 20
(“Until approximately July 19, 2011, TrustCo did not have sufficient documented
facts from which it could have reasonably concluded that that [sic] the Transfers
of ITRAX stock to the Delaware Trusts were actually or constructively
fraudulent.”).
5
interrogatories by listing June 2010 as the earliest date that they learned that Ms.
Mathews “had transferred funds to „Delaware Trusts.‟”10
Defendants also note several significantly earlier dates when Plaintiffs allegedly
received information about the ITRAX Transfers that should have put them on notice. In
connection with the discussions leading up to the first modification of the StoreSmart
Loan, Ms. Mathews submitted a net worth statement to TrustCo on March 25, 2008, that
reported her net worth at $11,773,446. On April 11, 2008, Ms. Mathews supplied a
revised net worth statement to TrustCo indicating her net worth to be $5,578,857. That
revised statement included the annotation: “I am the discretionary beneficiary of each of
the 3 Delaware trusts that have been established as part of estate planning.”11 As part of
the loan modification process, Ms. Mathews wrote in a May 6, 2008 email to Paul
Steenburgh, a TrustCo Assistant Vice President and one of TrustCo‟s Rule 30(b)(6)
deponents, that TrustCo had requested that she either “guarantee the loan with all 3
Delaware Trusts or put up another $1MM in collateral.”12 At his deposition, Steenburgh
recalled receiving this email and stated that Ms. Mathews‟s description of Trustco‟s
position was correct.13 The final terms of the first modification did include an additional
$1,000,000 in collateral, as well as several other conditions, such as opening a $250,000
10
Trust Defs.‟ Resp. to Pls.‟ Mot. for Prelim. Inj. (“Trust Defs.‟ PI Resp.”), Ex. C
(“Pls.‟ Interrog. Resps.”) No. 25.
11
Mathews Defs.‟ PI Opp., Ex. 10 (net worth statements).
12
Id., Ex. 13.
13
Id., Ex. B (“Steenburgh Dep.”) 28-32.
6
escrow account with TrustCo.14 The first modification to the StoreSmart loan closed on
June 27, 2008. The accompanying closing binder included a copy of Trust II‟s Trust
Agreement.15
Finally, a series of conversations between Ms. Mathews and Michelle Simmonds,
a TrustCo Vice President, occurred in May, June, and July 2010. Simmonds testified at
her deposition that those conversations concerned transfers to Delaware trusts now
known to be the ITRAX Transfers, which Simmonds understood rendered Ms. Mathews
insolvent.16 This testimony comports with Plaintiffs‟ interrogatory response that they
were aware of the transfers to the Three Trusts in June 2010. In sum, Defendants contend
that Plaintiffs had: (1) inquiry notice in March and April of 2008; (2) inquiry notice on
May 6, 2008; (3) inquiry notice on June 27, 2008; and (4) both inquiry notice and actual
notice of the alleged fraudulent ITRAX Transfers in May 2010.
C. Procedural History
Plaintiffs filed their initial complaint on March 1, 2013, along with a motion to
expedite and a motion for a preliminary injunction. That complaint specifically alleged
violations of Delaware‟s fraudulent transfer statute.17 On May 28, 2013, Plaintiffs
14
Id., Ex. 17.
15
Id., Ex. 16, Item 15.
16
Mathews Defs.‟ PI Opp., Ex. C (“Simmonds Dep.”) 15-16.
17
6 Del. C. §§ 1304-05.
7
amended their complaint to remove all references to substantive Delaware law. That
pleading is the operative Complaint. Defendants answered on June 7, 2013.
In an effort to halt all distributions from the Three Trusts, Plaintiffs renewed their
motion for a preliminary injunction (“PI”) on July 2, 2013. Briefing on that motion
proceeded in a staccato fashion, with the parties making relatively short initial
submissions followed by supplemental briefing.18 I heard argument on the PI motion on
September 27, 2013 (the “Argument”). The parties later stipulated to a limited PI, which
required that any TOV shares in the possession of the Three Trusts not be disposed of,
and I issued an oral ruling on December 31, 2013, denying the other aspects of Plaintiffs‟
PI motion (the “December Ruling”).
During briefing on the PI, it became clear that the statute of limitations issue likely
would be outcome determinative as to significant portions of Plaintiffs‟ claims in this
case. Not surprisingly, therefore, the parties devoted a large portion of the PI briefing to
that issue.19 The parties frame the dispute as whether Plaintiffs‟ claims are subject to the
statute of limitations under Delaware law or New York law. After the Argument and at
the Court‟s suggestion, Defendants requested that the Court treat their submissions on the
18
The briefing consisted of: (1) Plaintiffs‟ Opening Br. in Supp. of Their Renewed
Mot. for a PI (“Pls.‟ Opening PI Br.”); (2) Trust Defs.‟ PI Resp.; (3) Pls.‟ Suppl.
PI Br.; (4) Trust Defs.‟ Resp. to Pls.‟ Supplemental Br. in Supp. of Their Mot. for
Prelim. Inj. (“Trust Defs.‟ Suppl. PI Resp.”); (5) Mathews Defs.‟ PI Opp.; and (6)
Pls.‟ Reply in Supp. of Their Renewed Mot. for a Prelim. Inj. (“Pls.‟ PI Reply”).
19
Indeed, anticipating this problem, Plaintiffs included on the second page of their
opening brief in support of a PI a half-page footnote explaining why their claims
were not time barred.
8
PI as the equivalent of a motion for partial summary judgment on the statute of
limitations issue. Plaintiffs changed counsel immediately before the December Ruling
and, in early 2014, the parties agreed to proceed on Defendants‟ motion as to the statute
of limitations question. Following further limited discovery, the parties filed another
round of supplemental briefing on that motion.20
On July 28, 2014, Plaintiffs moved to file still further supplemental briefing or, in
the alternative, a supplemental pleading under Court of Chancery Rule 15(d). Defendants
opposed this belated request, and I denied it on September 19.
II. STANDARDS OF REVIEW
A. Summary Judgment
“Summary judgment is granted if the pleadings, depositions, answers to
interrogatories and admissions on file, together with the affidavits, show that there is no
genuine issue as to any material fact and that the moving party is entitled to a judgment
as a matter of law.”21 When considering a motion for summary judgment, the evidence
and the inferences drawn from the evidence are to be viewed in the light most favorable
to the nonmoving party.22 Summary judgment will be denied when the legal question
20
The now-summary judgment briefing consisted of: (7) Pls.‟ Opp. to Defs.‟ Mot.
for Summ. J. (“Pls.‟ SJ Br.”); (8) Trust Defs.‟ Supplemental Memo. in Supp. of
Summ. J. (“Trust Defs.‟ SJ Br.”); and (9) Mathews Defs.‟ Answering
Supplemental Memo. in Supp. of Summ. J. (“Mathews Defs.‟ SJ Br.”).
21
Twin Bridges Ltd. P’ship v. Draper, 2007 WL 2744609, at *8 (Del. Ch. Sept. 14,
2007) (citing Ct. Ch. R. 56(c)).
22
Judah v. Del. Trust Co., 378 A.2d 624, 632 (Del. 1977).
9
presented needs to be assessed in the “more highly textured factual setting of a trial.”23
The Court also “maintains the discretion to deny summary judgment if it decides that a
more thorough development of the record would clarify the law or its application.”24
B. Laches versus Statute of Limitations
The parties focused their briefing on the proper statute of limitations, which is not
necessarily conclusive. The Court of Chancery is a court of equity and follows the
doctrine of laches. Laches is the equitable analog of the statute of limitations defense.
Laches will prevent someone who slumbers on her rights and delays unreasonably in
filing suit from being permitted to prosecute her claims. “To prevail on a laches defense,
a defendant must prove that: (1) the plaintiff had knowledge of his claim; (2) he delayed
unreasonably in bringing that claim; and (3) the defendant suffered resulting prejudice.”25
Generally, this Court will look to the analogous statute of limitations to determine
whether a plaintiff‟s delay was unreasonable. As the Delaware Supreme Court has
stated, “Absent a tolling of the limitations period, a party‟s failure to file within the
analogous period of limitations will be given great weight in deciding whether the claims
23
Schick Inc. v. Amalgamated Clothing & Textile Workers Union, 533 A.2d 1235,
1239 n.3 (Del. Ch. 1987) (citing Kennedy v. Silas Mason Co., 334 U.S. 249, 257
(1948)).
24
Tunnell v. Stokley, 2006 WL 452780, at *2 (Del. Ch. Feb. 15, 2006) (quoting
Cooke v. Oolie, 2000 WL 710199, at *11 (Del. Ch. May 24, 2000)).
25
Petroplast Petrofisa Plasticos S.A. v. Ameron Int’l Corp., 2009 WL 3465984, at
*14 (Del. Ch. Oct. 28, 2009).
10
are barred by laches.”26 Indeed, a “filing after the expiration of the analogous limitations
period is presumptively an unreasonable delay for purposes of laches.” 27 In this case,
Plaintiffs presented no persuasive justification as to why the relevant statute of limitations
period should not guide the laches analysis. As such, and because I am unable to
articulate any independent reason for concluding otherwise,28 I find that the applicable
statute of limitations here should be determinative as to whether Plaintiffs delayed
unreasonably in filing suit more than six years after the allegedly fraudulent transfers
took place.
Even if another state‟s substantive law may govern the parties‟ rights in a given
case, the “general rule is that the forum state‟s statute of limitations applies.” 29 This is
consistent with the general principle that the procedural law of the forum state (here,
Delaware) usually applies. One exception to this rule arises when “the procedural law of
the foreign state is „so inseparably interwoven with substantive rights as to render a
modification of the foregoing rule necessary, lest a party be thereby deprived of his legal
26
Whittington v. Dragon Gp., L.L.C., 991 A.2d 1, 9 (Del. 2009).
27
Levey v. Brownstone Asset Mgmt., LP, 76 A.3d 764, 769 (Del. 2013).
28
See IAC/InterActiveCorp v. O’Brien, 26 A.3d 174, 178 (Del. 2011) (listing factors
indicative of “unusual conditions or extraordinary circumstances” when laches
should not follow the statute of limitations, none of which are present here).
29
Furnari v. Wallpang, Inc., 2014 WL 1678419, at *4 (Del. Super. Apr. 16, 2014);
see also MPEG LA, L.L.C. v. Dell Global B.V., 2013 WL 812489, at *3 (Del. Ch.
Mar. 6, 2013).
11
rights.‟”30 Thus, for example, in a case involving a dispute over a Missouri insurance
policy, the Delaware Superior Court concluded that Missouri‟s law regarding the
allocation of the burden of proof—a procedural issue—in insurance coverage and
exclusion disputes was so intertwined with the parties‟ substantive rights as to trigger the
exception.31 This exception is inapplicable in this case, however. The statute of
limitations for fraudulent transfers in New York is merely New York‟s general statute of
limitations for fraud. Nor is there any evidence that New York‟s statute of limitations for
fraud claims has any special connection to that state‟s fraudulent transfer law, or that the
two are so “inseparably interwoven” as to warrant an exception to the general rule of
applying the forum state‟s procedural law.32 Nevertheless, in this case, the general rule
of following the forum state‟s relevant statute of limitations arguably may be modified by
either Delaware‟s borrowing statute or Delaware‟s Qualified Dispositions in Trust Act,
both of which are discussed infra.
III. ANALYSIS
Defendants seek partial summary judgment that Plaintiffs‟ claims for fraudulent
transfer as to the ITRAX Transfers are barred by the relevant statute of limitations and
30
MPEG LA, 2013 WL 812489, at *3 (quoting Monsanto Co. v. Aetna Cas. & Sur.
Co., 1994 WL 317557, at *4 (Del. Super. Apr. 15, 1994)).
31
Monsanto Co., 1994 WL 317557, at *4 (“This Court has determined Missouri‟s
allocation of the burden of proof regarding coverage provisions and exclusions are
designed primarily to affect the outcome of trial and are intertwined with the
parties‟ substantive rights.”).
32
Id. (quoting Connell v. Del. Aircraft Indus., 55 A.2d 637, 640 (Del. Super. 1947)).
12
laches. Those transfers occurred in January 2007. An additional disputed transfer, the
TOV Transfer, occurred in March 2010.33 As such, regardless of which statute of
limitations applies, the TOV Transfer does not appear to be barred by laches and I do not
understand it to be subject to Defendants‟ motion for partial summary judgment.
Plaintiffs initially filed suit in March 2013. Plaintiffs also admit that they discovered the
potentially fraudulent ITRAX Transfers by July 19, 2011.34 Accordingly, this
Memorandum Opinion first uses the July 19, 2011 date as the undisputed, key date by
which Plaintiffs had discovered the fraudulent transfers under the various statutes of
limitations.
Plaintiffs argue that New York‟s statute of limitations applies to their fraudulent
transfer claims. Under New York law, an action to avoid a fraudulent transfer must be
brought within “the greater of six years from the date the cause of action accrued or two
years from the time the plaintiff or the person under whom the plaintiff claims discovered
the fraud, or could with reasonable diligence have discovered it.”35 Defendants contend
that Delaware‟s statute of limitations governs. Under Delaware law, an action to avoid a
fraudulent transfer must be brought “within 4 years after the transfer was made or the
33
It is not clear to what extent Plaintiffs also challenge additional transactions, other
than the TOV Transfer, as being fraudulent. Any additional transfers that
Plaintiffs may challenge presumably occurred more recently and, therefore, would
not be subject to a laches defense.
34
Pls.‟ Supp. PI Br. 8.
35
N.Y. C.P.L.R. § 213(8).
13
obligation was incurred or, if later, within 1 year after the transfer or obligation was or
could reasonably have been discovered by the claimant.”36
Plaintiffs filed their initial complaint more than six years after the January 2007
ITRAX Transfers occurred. Even under New York law, therefore, Plaintiffs must rely on
having filed within two years of discovery of the allegedly fraudulent transfer. Assuming
the undisputed July 19, 2011 discovery date—which, considering Plaintiffs‟ earlier
interrogatory responses stating a June 2010 date, is generous37—Plaintiffs‟ filing of their
claims to avoid the ITRAX Transfers in March 2013 would be sufficiently timely to
survive summary judgment if New York law governed.38 If Delaware‟s (or Florida‟s)
statute of limitations applies, Plaintiffs‟ fraudulent transfer claims as to the ITRAX
Transfers are substantially outside the relevant limitations period, which would have run
by July 19, 2012, at the latest.39
36
6 Del. C. § 1309.
37
See infra Section III.D.
38
Defendants, however, still would be able to prove that those claims are time barred
if they could show that Plaintiffs could with reasonable diligence have discovered
the fraud before March 2011. For the reasons discussed in Section III.D, infra, I
find that the unrebutted evidence adduced by Defendants in connection with their
pending motion provides a separate and independent reason for granting that
motion. That is, the record shows that Plaintiffs were on at least inquiry notice of
their claim that the ITRAX Transfers were fraudulent in or before July 2010.
39
F.S.A. § 726.110; 6 Del. C. § 1309.
14
A. The Delaware Borrowing Statute
The Delaware Legislature has altered the usual rule of applying the forum state‟s
statute of limitations through 10 Del. C. § 8121 (the “Borrowing Statute”). That statute
provides that:
Where a cause of action arises outside of this State, an action
cannot be brought in a court of this State to enforce such
cause of action after the expiration of whichever is shorter,
the time limited by the law of this State, or the time limited
by the law of the state or country where the cause of action
arose, for bringing an action upon such cause of action.
Where the cause of action originally accrued in favor of a
person who at the time of such accrual was a resident of this
State, the time limited by the law of this State shall apply.40
Plaintiffs argue that their causes of action arose in New York. Because Plaintiffs sued in
Delaware, which has a shorter statute of limitations than New York, the clear and
unambiguous language of the Borrowing Statute would seem to require application of
Delaware‟s statute of limitations. The analysis, however, is not so simple.
The Delaware Supreme Court has held that there are certain situations in which
the Borrowing Statute does not apply, notwithstanding the fact that the statute‟s literal
language would seem to make it applicable. In Saudi Basic Industries Corp. v. Mobil
Yanbu Petrochemical Co.,41 Saudi Basic, a Saudi Arabian participant in a joint venture,
sued its venture partners in the Superior Court seeking a declaratory judgment that certain
royalty payments were not overage charges under any contract between it and the other
40
10 Del. C. § 8121.
41
866 A.2d 1 (Del. 2005).
15
joint venturers. The joint venturers counterclaimed, sought damages, overcame a statute
of limitations defense, and initially prevailed following a jury trial. On appeal, Saudi
Basic argued that the Delaware Borrowing Statute required application of Delaware‟s
relevant three-year statute of limitations; under Saudi law, by contrast, the joint
venturers‟ claims were “eternal” and thus subject to no limitations period whatsoever.
The Supreme Court stated that applying the statute so literally to require use of
Delaware‟s three-year time limit would “subvert the statute‟s fundamental purpose by
enabling [Saudi Basic] to prevail on a limitations defense that would never have been
available to it had the overage charge claims been brought in the jurisdiction where the
cause of action arose, i.e., Saudi Arabia.”42 The Supreme Court, therefore, declined to
apply the Borrowing Statute in the circumstances before it. Plaintiffs urge a similar result
here.
The Saudi Basic decision appears to have engendered some uncertainty as to when
the Borrowing Statute applies, with some cases taking the view that the statute simply
does not apply if there is no evidence of forum shopping.43 Generally speaking, courts
interpret statutes to give effect to the intent of the Legislature, but are not free to
42
Id. at 18-19 (footnote omitted).
43
See Furnari, 2014 WL 1678419, at *5 (“The Court is not satisfied that the
Borrowing Statute applies here . . . . Importantly, Florida has longer limitations
periods than Delaware, making the facts of this case the opposite of what the
Borrowing Statute seeks to prevent; Plaintiff . . . only seeks jurisdiction over the
parties.”).
16
disregard the unambiguous language of a statute.44 The Delaware courts, however, have
recognized that exceptions can be crafted even to clear and unambiguous statutes when
absurdity otherwise would result.45 The Supreme Court did not mention the absurdity
principle in Saudi Basic. The language of that decision, however, suggests that the Court
concluded that literal application of the Borrowing Statute to the facts before it would
render an absurd and unjust result.46 Indeed, a literal application of the Borrowing
Statute in Saudi Basic would have led to the absurd outcome that a litigant, by forum
shopping and filing in Delaware, could brandish as a sword to defeat claims that would
not be time barred where the claims arose a statute designed as a shield to prevent parties
from having to defend against claims that otherwise would be time barred.
Against this backdrop, the Saudi Basic case has been read as delivering a fairly
narrow holding that the Borrowing Statute does not apply when a litigant engages in the
very practice the statute sought to prevent—i.e., forum shopping—and would benefit
44
See Eliason v. Englehart, 733 A.2d 944, 946 (Del. 1999) (“The goal of statutory
construction is to determine and give effect to legislative intent. If a statute is
unambiguous, there is no need for judicial interpretation, and the plain meaning of
the statutory language controls.”) (footnote omitted).
45
Reddy v. PMA Ins. Co., 20 A.3d 1281, 1287-89 (Del. 2011) (describing the history
of the “absurd result” principle and its acceptance and application in Delaware).
46
The Court employed language indicating that application of the Borrowing Statute
would “undercut the overriding purpose of borrowing statutes,” Saudi Basic, 866
A.2d at 17, and “subvert the statute‟s fundamental purpose,” id. at 18. Those
phrases comport with the trial court‟s language, which was quoted in the Supreme
Court‟s opinion, that applying the Borrowing Statute as Saudi Basic argued would
“„basically turn the borrowing statute on its head for the purpose for which it was
enacted.‟” Id. at 15.
17
unjustly from the Borrowing Statute‟s application.47 This reading recognizes that courts
have a duty to apply statutes faithfully and that the literal language of a statute will be set
aside only in extraordinary circumstances.48 Presumptively, therefore, the Borrowing
Statute does apply when a plaintiff‟s cause of action arose out of state, irrespective of
whether the plaintiff is forum shopping.49 Thus, only on a set of facts similar to Saudi
47
Huffington v. T.C. Gp., LLC, 2012 WL 1415930, at *9 (Del. Super. Apr. 18, 2012)
(“Saudi Basic did not create a broad rule banning the use of the borrowing statute
in all situations except for the „typical‟ scenario. Rather, it demonstrates the
Delaware Supreme Court‟s unwillingness to allow the borrowing statute to be
abused by a party shopping for a forum to avoid an adversary‟s counterclaims.”)
(footnote omitted).
48
In this regard, I note that the Supreme Court in Saudi Basic provided as an
independent justification for its holding that, even if the Borrowing Statute did
apply to the facts before it, Delaware‟s statute of limitations would have been
tolled and the joint venturers‟ counterclaims still would not have been time barred.
Saudi Basic, 866 A.2d at 18-19.
49
The United States District Court for the District of Delaware recently reached a
similar conclusion in a case with facts analogous to this dispute:
Unlike in Saudi Basic, application of the borrowing statute here does
not unfairly prejudice a party other than the party that chose to file
suit in Delaware. While the situation here may not present the
circumstances with which Delaware was most concerned when it
adopted its borrowing statute—as the Court is not confronted with a
party that has brought its case to Delaware for the purpose of
benefiting from Delaware‟s longer statute of limitations—it remains
the fact that the literal language of Delaware‟s borrowing statute
makes it applicable to the circumstances presented here.
TL of Fla. v. Terex Corp., 2014 WL 3362367, at *4 (D. Del. July 3, 2014). See
also Cent. Mortg. Co. v. Morgan Stanley Capital Hldgs. LLC, 2012 WL 3201139,
at *16 (Del. Ch. Aug. 7, 2012) (applying Borrowing Statute and using Delaware‟s
statute of limitations over New York‟s longer statute of limitations in a case with
no forum shopping without citation to Saudi Basic); In re Winstar Commc’ns, 435
B.R. 33, 44-46 (Bankr. D. Del. 2010) (same).
18
Basic, where an absurd outcome or a result that subverts the Borrowing Statute‟s
fundamental purpose otherwise would occur, will a party be able to avoid the Borrowing
Statute‟s unambiguous language.50 In my opinion, any greater alteration to the statute,
such as limiting its application solely to situations where there is evidence of forum
shopping, is the province of the Legislature.51
50
Such a situation occurred in In re Washington Mutual, Inc., 2010 WL 3238903(Bankr. D. Del. Aug. 13, 2010). There, the Bankruptcy Judge concluded that the
Borrowing Statute did not apply in a bankruptcy proceeding because applying the
statute would allow a debtor to forum-shop to seek the shortest possible statute of
limitations for claims against it, just as Saudi Basic filed in Delaware in an
apparent effort to defeat its joint venturers‟ counterclaims. “To allow [a debtor] to
use the benefit of Delaware‟s shorter limitations period would subvert the anti-
forum-shopping purpose of the borrowing statute.” Id. at *5. In both Washington
Mutual and Saudi Basic, the party that would be the “natural defendant” in a
lawsuit, i.e., the delinquent debtor and the party allegedly in breach of a contract,
respectively, sought to avail themselves of the Borrowing Statute in order to avoid
having to answer for otherwise valid claims against them. See Nat’l Union Fire
Ins. Co. of Pittsburgh v. Turner Constr. Co., 2014 WL 703808, at *3 (Del. Super.
Feb. 17, 2014) (discussing the natural alignment of parties in litigation and stating
that “Delaware courts take a „rather dim view of declaratory judgment claims of
non-breach made for purposes of forum shopping‟”) (quoting E-Birchtree, LLC v.
Enter. Prods. Operating L.P., 2007 WL 914644, at *3 (Del. Super. Jan. 18,
2007)).
51
Citing a line of cases from the Superior Court and the United States Bankruptcy
Court for District of Delaware (the “Delaware Bankruptcy Court”) that have
interpreted Saudi Basic, some of which are in conflict, the Court of Chancery
recently concluded that “the Borrowing Statute only applies when a party seeks to
take advantage of a longer Delaware statute of limitations to bring a claim that
would be time-barred under the law of the jurisdiction governing the claim.” Bear
Stearns Mortg. Funding Trust 2006-SL1 v. EMC Mortg. LLC, 2015 WL 139731,
at *8 (Del. Ch. Jan. 12, 2015). The Court in Bear Stearns noted that, “Although
the court believes that the holding in Central Mortgage better reflects the plain
language of the Borrowing Statute, this court is bound to follow the Delaware
Supreme Court‟s opinion in Saudi Basic.” Id. at *9.
19
Finally, having concluded that the Borrowing Statute presumptively applies here,
despite the absence of evidence of forum shopping, I note that Plaintiffs rely heavily on
Juran v. Bron52 as supporting a contrary conclusion. There, the Court determined that the
existence of innumerable contacts to California showed that the dispute truly was a
“California case” and presented “one of those „unusual‟ or „special‟ circumstances where
the Court, as a Court of Equity, should not look to the applicable statute of limitations at
law for guidance.”53 Similarly, Plaintiffs here argue that this case involves an exclusively
New York dispute and that it would be inequitable, therefore, rigidly to apply the statute
of limitations including the Borrowing Statute. As the next Section demonstrates,
however, the contacts to New York are significantly less important than Plaintiffs assert
and certainly not as compelling as the situation in Juran.
As the foregoing discussion indicates, however, the Saudi Basic decision involved
an unusual set of facts and there are compelling rationales, such as affording
appropriate deference to the language employed by the Legislature, for not
expanding that decision beyond its arguably limited holding. Moreover, there is
no uniform line of decisions that has revealed a consistent interpretation of the
Supreme Court‟s holding. In fact, the relevant case law on the issue is in conflict,
with three groups of decisions: (1) those cases interpreting Saudi Basic broadly,
such as Furnari (Del. Super.) and Bear Stearns (Del. Ch.); (2) those cases
interpreting Saudi Basic narrowly, such as TL of Florida (D. Del.) and Huffington
(Del. Super.); and (3) those cases that have applied the Borrowing Statute without
citing Saudi Basic, such as Central Mortgage (Del. Ch.) and In re Winstar (Bankr.
D. Del.).
52
2000 WL 1521478 (Del. Ch. Oct. 6, 2000).
53
Id. at *11.
20
B. The Most Significant Relationship Test
For Delaware‟s Borrowing Statute to have any applicability, the causes of action
must have arisen outside of Delaware.54 To determine where the causes of action arose in
this case, I look to Delaware‟s conflict of law rules. “Delaware conflict of law rules
direct that the Court determine where a plaintiff‟s claims arose by application of the
„most significant relationship‟ test, as set forth in the Restatement (Second) Conflict of
Laws (“Restatement”).”55 The parties dispute which state has the most significant
relationship to Plaintiffs‟ claims. Defendants argue that Delaware or, alternatively,
Florida has the greatest connection. Plaintiffs maintain that New York has the most
significant relationship. But Defendants counter that, even if the cause of action arose in
New York, the Delaware Borrowing Statute still renders Plaintiffs‟ claims untimely. As
noted previously, however, Plaintiffs contend that the connection to New York is so
strong here that application of the Borrowing Statute would be inequitable, for the
reasons stated in Juran.
The Restatement factors differ slightly depending on whether the alleged wrong
sounds in tort or contract. For torts, the relevant factors are: “(a) the place where the
injury occurred, (b) the place where the conduct causing the injury occurred, (c) the
domicil, residence, nationality, place of incorporation and place of business of the parties,
54
10 Del. C. § 8121 (“Where a cause of action arises outside of this State . . . .”).
55
TL of Fla., 2014 WL 3362367, at *5 (citing Travelers Indem. Co. v. Lake, 594
A.2d 38, 47 (Del. 1991)).
21
and (d) the place where the relationship, if any, between the parties is centered.”56 For
contract claims, the relevant factors are: “(a) the place of contracting, (b) the place of
negotiation of the contract, (c) the place of performance, (d) the location of the subject
matter of the contract, and (e) the domicil, residence, nationality, place of incorporation
and place of business of the parties.”57 In both the tort and the contract contexts, the
Restatement directs that these factors “are to be evaluated according to their relative
importance with respect to the particular issue.”58
Fraudulent transfers bear some resemblance to both tort and contract claims and
do not fit neatly into either category. Fraud claims, for example, sound in tort.59 A
fraudulent transfer, however, does not necessarily require misrepresentation or scienter.
Indeed, such a transfer can occur even without proof of fraudulent intent if, for example,
the debtor did not receive reasonably equivalent value in the exchange and the transfer
results in the debtor having unreasonably small assets in relation to its business.60
Transactions of this kind can reduce the likelihood that the debtor will be able to satisfy
its contractual obligations, such as, for example, paying off a loan obtained from a
56
Restatement (Second) Conflict of Laws § 145 (1971).
57
Id. § 188.
58
Id. §§ 145, 188.
59
See In re Wayport, Inc. Litig., 76 A.3d 296, 325-27 (Del. Ch. 2013) (discussing
elements of a fraud claim as a tort with numerous citations to the Restatement of
Torts).
60
6 Del. C. § 1304.
22
creditor. From this perspective, a fraudulent transfer may appear more like a contract
claim and some courts have so concluded.61 Based on this uncertainty as to how best to
classify a fraudulent transfer claim, I address both the Restatement‟s tort and contract
factors in turn.
I note at the outset that, fundamentally, this case is an action to recover on a
deficiency judgment resulting from an unfulfilled personal guaranty by Ms. Mathews to
pay the StoreSmart Loan. Plaintiffs‟ efforts to avoid the ITRAX Transfers to one or more
of the Three Trusts are merely a means to that end. With that in mind, I start with the
place of injury. A corporation sustains its injuries where it is incorporated and where it
has its principal place of business, with the latter location generally being considered
more important.62 Plaintiff TrustCo is a New York bank with operations in New York,
Florida, Massachusetts, and Vermont. According to the Complaint, Plaintiff ORE‟s
principal place of business is Florida. Plaintiffs assert that the place of injury is New
York, because the breach of the personal guaranty injured TrustCo in New York, where it
is headquartered. The amount owed on the personal guaranty, however, is the amount of
the Deficiency Judgment, a Florida judgment. TrustCo assigned its rights in the
Deficiency Judgment to ORE, a Florida corporation with its principal place of business in
61
See In re Astropower Liquid. Trust, 2006 WL 2850110, at *5 (Bankr. D. Del. Oct.
2, 2006) (citing federal cases).
62
See UbiquiTel Inc. v. Sprint Corp., 2005 WL 3533697, at *4 (Del. Ch. Dec. 19,
2005); Eureka Res., LLC v. Range Resources-Appalachia, LLC, 62 A.3d 1233,
1238 (Del. Super. 2012).
23
Florida. It is unclear from the Complaint whether TrustCo also assigned Ms. Mathews‟s
personal guaranty to ORE. In any event, because the Complaint seeks the exact amount
of the Deficiency Judgment (plus interest and costs of collection), ORE appears to be the
plaintiff with the most significant interest here. ORE suffered its injury in Florida, the
site of its principal place of business. Although the Complaint alleges that ORE “is a
corporation related to TrustCo,” the two plaintiffs are separate legal entities with
principal places of business in different states. On those facts, I consider the place of the
injury factor to be neutral as between New York and Florida.
The conduct causing the injury occurred mostly in Florida and Delaware.
Plaintiffs emphasize that the StoreSmart Loan was entered into in New York, that
payment was due to TrustCo in New York, and that the Three Trusts were created and
funded by Ms. Mathews while she lived in New York.63 I find, however, that these facts
are outweighed by the additional facts that: (1) the StoreSmart Loan was for construction
of a business in Florida, which did occur; (2) the event giving rise to this entire dispute
was the failure of the StoreSmart business; (3) TrustCo foreclosed on that property in a
Florida court; (4) TrustCo assigned its interest in the StoreSmart Loan, including the
subsequent Deficiency Judgment from a Florida court, to a Florida corporation; (5) the
ITRAX Transfers were made to Delaware trusts governed by Delaware law; and (6) the
trustee of the Three Trusts is a Delaware entity. In terms of the relative importance of
these considerations, the failure of the Florida business endeavor and the transfers to the
63
Pls.‟ PI Reply 6-7.
24
Delaware trusts were the pivotal events leading to the dispute in this case. Thus, the
conduct causing the injury factor favors Florida somewhat and Delaware somewhat, but
only minimally implicates New York.
The parties to this dispute reside in or are incorporated in numerous states.
Plaintiffs are a New York bank and a Florida corporation. Defendants include three
Delaware trusts and a Delaware corporation, as well as several individuals. Of the
individual defendants, Ms. Mathews was a New York resident when the first actions
giving rise to this dispute occurred, but now resides in Florida. Her children, the
beneficiaries of the Three Trusts, reside mostly in Massachusetts, with one child in
Illinois. Plaintiffs assert that the “two main actors,” TrustCo and Ms. Mathews, resided
in New York; thus, they contend that this factor favors New York.64 The primary
purpose of Plaintiffs‟ claims, however, is to claw back the proceeds of the ITRAX stock
from the Three Trusts or their beneficiaries. But, neither the trusts nor their beneficiaries
are located in New York. This factor does not obviously favor any state but, based on the
location of and law governing the Three Trusts, may weigh slightly in favor of Delaware.
The parties‟ relationship probably is centered in Florida, but it also may be in
Delaware. Although New York loan documents may have caused the money to move
from TrustCo to StoreSmart, this case fundamentally is about the StoreSmart Loan, Ms.
Mathews‟s guaranty of it, and ORE‟s attempt to enforce the Deficiency Judgment by
reaching funds held by the Three Trusts and their beneficiaries. StoreSmart was a Florida
64
Id. at 8.
25
entity operating its business in Florida, the Deficiency Judgment is a Florida Judgment,
and ORE is a Florida corporation. Hence, a case can be made for Florida. Focusing on
the state of the parties at the time this action was filed, the relationship also may be
centered in Delaware, where the Three Trusts are located. It is money held by those
trusts that Plaintiffs seek to recover. Overall, I conclude that the tort factors from the
Restatement moderately favor Florida. Delaware has the next strongest connection to
this case, with New York having the weakest relationship to it.
Many of the contract factors have been discussed already. In terms of the place of
contracting, negotiation, and performance, those factors favor New York, but only
slightly. Moreover, because TrustCo assigned its interests to a Florida corporation and
this action centers on enforcement of a Deficiency Judgment from Florida, the
importance of those factors and New York‟s connection to the StoreSmart Loan is
lessened here. The subject matter of the contract shifts the focus back to Florida and, as
with the tort analysis, the residence and place of business of the parties is neutral. The
contract factors therefore are either in equipoise between New York and Florida or only
weakly favor New York.
For the foregoing reasons, I find that Florida has the most significant relationship
to this case. Delaware is close behind. Because both states have identical statutes of
limitations, the choice of Florida over Delaware has minimal importance, if any, to the
outcome of Defendants‟ motion for partial summary judgment. Notably, even if I did
conclude that New York has the most significant relationship, the preceding analysis
shows that that relationship certainly does not dominate the focus of this action. That is,
26
the totality of the relevant factors does not reveal a strong New York-centric relationship
between the parties and the dispute before this Court. Accordingly, even if I found that
New York law should apply, there is nothing in this set of facts that would lead me to
conclude that application of the Delaware Borrowing Statute would be inequitable. “The
matter before this Court does not exhibit any of the „special circumstances‟ present in
Juran, because the underlying facts are not tied solely to New York.”65
In sum, Florida likely has the most significant relationship to this case and its four-
year statute of limitations should apply. Alternatively, Delaware has the next most
significant relationship and has essentially an identical statute of limitations. Under
either of those scenarios, the Borrowing Statute is not applicable.66 As a third alternative,
even if New York did have the most significant relationship, its contacts are not sufficient
to make this case a “special circumstance” where application of the Borrowing Statute to
preclude use of New York‟s longer statute of limitations would be inequitable. As such,
if New York did have the most significant relationship, then the Borrowing Statute would
be triggered and Delaware‟s statute of limitations nevertheless would apply. Regardless
of which of these three states has the most significant relationship with this case,
therefore, I conclude that Plaintiffs still would be subject to a statute of limitations
65
In re Winstar Commc’ns, 435 B.R. at 45.
66
See In re W.R. Grace & Co., 418 B.R. 511, 518 (D. Del. 2009) (noting that where
both of the possible states have the same statute of limitations, the Borrowing
Statute does not resolve the question of the applicable limitations period and the
most significant relationship test is applied).
27
equivalent to Delaware‟s of four years from the time the transfer was made or one year
from when discovery of the transfer occurred or reasonably should have occurred,
whichever is longer. Because Plaintiffs did not file this action relating to the ITRAX
Transfers until after the expiration of that time period, I hold that their claims regarding
the ITRAX Transfers are barred by laches.
C. The Qualified Dispositions in Trust Act
Defendants argue that Delaware‟s statute of limitations applies for the independent
reason that the Qualified Dispositions in Trust Act (the “QDTA”) controls this dispute.67
The QDTA limits a creditor‟s available remedies when attempting to avoid a “qualified
disposition.” A “qualified disposition” is a “disposition by or from a transferor . . . to 1
or more trustees, at least 1 of which is a qualified trustee, with or without consideration,
by means of a trust instrument.”68 Defendants contend that this case involves such
qualified dispositions. In that regard, they aver that: Ms. Mathews was a “transferor” in
that she owned property and disposed of that property;69 RBC satisfies the definition of a
qualified trustee;70 and the Three Trusts each are governed by a “trust instrument.”71 The
QDTA requires that any claim by a creditor—a term defined to include Plaintiffs—to
67
12 Del. C. §§ 3570-3576.
68
Id. § 3570(7).
69
Id. § 3570(10).
70
Id. § 3570(8).
71
Id. § 3570(11).
28
avoid a qualified disposition must be brought pursuant to 6 Del. C. §§ 1304 or 1305,
Delaware‟s fraudulent transfer statutes.72 The QDTA also specifically provides that a
creditor‟s claim will be extinguished unless, as relevant here, it is brought within the time
constraints of 6 Del. C. § 1309, Delaware‟s statute of limitations for fraudulent
transfers.73 Finally, the QDTA states that: “The Court of Chancery shall have exclusive
jurisdiction over any action brought with respect to a qualified disposition.”74
Defendants argue that the QDTA is a statutory command requiring both that
Plaintiffs file their suit here in Delaware, specifically in the Court of Chancery, and that
this Court apply Delaware‟s statute of limitations in Section 1309 without regard to any
most significant relationship analysis. Plaintiffs contend, primarily, that the QDTA is
substantive law and that, under the most significant relationship test, this Court must
apply New York law. In the previous Section, I rejected the proposition that New York
has the most significant relationship with this case. Therefore, I do not consider
Plaintiffs‟ primary contention persuasive. Plaintiffs further argue that the restrictions of
the QDTA are inapplicable to this case because Ms. Mathews maintains impermissible
control over the property transferred to the Three Trusts.75
72
In their initial complaint, Plaintiffs explicitly asserted claims under Sections 1304
and 1305.
73
12 Del. C. § 3572(b)(2).
74
Id. § 3572(a).
75
See id. § 3571 (providing that, subject to certain exceptions in 12 Del. C.
§§ 3570(8) and 3570(11)(b), “a transferor shall have no rights or authority with
29
In Section III.C supra, I concluded that Plaintiffs‟ claims relating to the ITRAX
Transfers are barred because of either the most significant relationship choice of law
analysis, which points to the use of Florida or, perhaps, Delaware law, or Delaware‟s
Borrowing Statute, which requires the application of Delaware‟s statute of limitations
even if New York had been found to have the most significant relationship to this case.
As a result, I find it unnecessary to resolve the question of whether in this case the QDTA
requires application of Delaware‟s fraudulent transfer statute of limitations without
regard to the normal choice of law analysis or the Borrowing Statute.
I do note the following, however. First, little case law interpreting the QDTA
exists and some of the issues implicated here appear to be ones of first impression.
Second, after conclusion of the briefing on the motion for partial summary judgment
currently before me, the Court of Chancery rejected the argument that the QDTA requires
suits to avoid a qualified disposition to be brought exclusively in Delaware.76 Third,
whether Ms. Mathews maintains impermissible control over the assets transferred to the
respect to the property that is the subject of a qualified disposition or the income
therefrom, and any agreement or understanding purporting to grant or permit the
retention of any greater rights or authority shall be void”).
76
In re Daniel Kloiber Dynasty Trust, 2014 WL 3924309, at *10-13 (Del. Ch. Aug.
6, 2014) (concluding that 12 Del. C. § 3572(a) confers exclusive jurisdiction on
the Court of Chancery as against other Delaware courts, not to the exclusion of
other states‟ courts, and stating that, “Delaware has not sought through the
Qualified Dispositions Act to arrogate exclusive jurisdiction for itself, nor could
it”).
30
Three Trusts such that the QDTA‟s restrictions would not apply presents a material
question of disputed fact not appropriate for summary resolution on the current record.
For all of these reasons, and because the previous Section of this Memorandum
Opinion provides a sufficient basis for resolving the pending motion, I decline to reach
the question of whether the QDTA requires application of 6 Del. C. § 1309. Moreover,
based on the existence of disputed facts as to Ms. Mathews‟s control of the Three Trusts,
that question cannot be decided on summary judgment.
D. Analysis Under New York’s Statute of Limitations
Summary judgment also is appropriate for the independent reason that Plaintiffs‟
claims are untimely even if New York‟s statute of limitations applies. Under New York
law, an action to avoid a fraudulent transfer must be brought within “the greater of six
years from the date the cause of action accrued or two years from the time the plaintiff or
the person under whom the plaintiff claims discovered the fraud, or could with reasonable
diligence have discovered it.”77 “The inquiry as to whether a plaintiff could, with
reasonable diligence, have discovered the fraud turns on whether the plaintiff was
„possessed of knowledge of facts from which [the fraud] could be reasonably inferred.‟”78
77
N.Y. C.P.L.R. § 213(8). This discussion assumes that Plaintiffs are alleging actual
fraud. Constructive fraud claims have a six-year statute of limitations. N.Y.
C.P.L.R. § 213(1); Wall Street Assocs. v. Brodsky, 684 N.Y.S.2d 244, 258 (A.D.
1999). The concept of inquiry notice only applies to actual fraudulent
conveyances. Jaliman v. D.H. Blair & Co., 964 N.Y.S.2d 112, 114 (A.D. 2013).
78
Sargiss v. Magarelli, 909 N.E.2d 573, 576 (N.Y. 2009) (quoting Erbe v. Lincoln
Rochester Trust Co., 144 N.E.2d 78, 80 (N.Y. 1957)).
31
Furthermore, New York law imposes a duty of inquiry. “„[W]here the circumstances are
such as to suggest to a person of ordinary intelligence the probability that he has been
defrauded, a duty of inquiry arises, and if he omits that inquiry when it would have
developed the truth . . . knowledge of the fraud will be imputed to him.‟”79
The preceding portions of this Memorandum Opinion assumed a July 19, 2011
discovery date, because the present motion seeks summary judgment and Plaintiffs
concede that they had at least inquiry notice of the alleged fraud by that date. On a
motion for summary judgment, the evidence is viewed in the light most favorable to the
nonmoving party, in this case, Plaintiffs. “However, once the moving party has satisfied
its initial burden of „demonstrating the absence of a material factual dispute,‟ the burden
shifts to the nonmovant to present some specific, admissible evidence that there is a
genuine issue of fact for a trial.”80 Defendants presented evidence of four dates earlier
than July 19, 2011, on which Plaintiffs arguably had notice. The Simmonds deposition
testimony as to discussions about the ITRAX Transfers in May, June, and July of 2010
provides particularly strong evidence that Plaintiffs were on at least inquiry notice by
mid-2010. In fact, that testimony is consistent with Plaintiffs‟ own interrogatory
responses, which referred to a June 2010 discovery date.
79
Gutkin v. Siegal, 926 N.Y.S.2d 485, 486 (A.D. 2011) (quoting Armstrong v.
McAlpin, 699 F.2d 79, 88 (2d Cir. 1983)) (internal quotations omitted).
80
In re Transkaryotic Therapies, Inc., 954 A.2d 346, 356 (Del. Ch. 2008) (quoting
Levy v. HLI Operating Co., 924 A.2d 210, 219 (Del. Ch. 2007)) (footnote
omitted).
32
Plaintiffs have offered no explanation as to why they should not be bound by their
own admission and the consistent testimony of their Rule 30(b)(6) witnesses. Mere ipse
dixit in their briefing that they did not have adequate notice until July 19, 2011, is
insufficient to create a genuine dispute of material fact.81 In their supplemental brief in
support of a preliminary injunction, for instance, Plaintiffs make the conclusory assertion
that none of the information provided around the time of the first modification to the
StoreSmart loan in 2008 sufficed to put them on notice.82 Even if true—a questionable
assumption83—Plaintiffs made no mention of Simmonds‟s deposition testimony, or the
testimony of Robert Leonard, a Senior Vice President of TrustCo, both of which occurred
nearly a month before the filing of that brief, nor did Plaintiffs make any attempt to
explain their own interrogatory responses.
In their reply brief in support of a preliminary injunction, Plaintiffs argued that
Defendants misstated the record regarding Simmonds‟s testimony and that her deposition
81
Cf. Shimko v. Honeywell Int’l Inc., 2014 WL 4942189, at *5-6 (Del. Super. Sept.
30, 2014) (discussing the “sham affidavit” doctrine, which precludes the
submission of affidavits contradicting prior sworn deposition testimony, without
explanation, in an effort to defeat summary judgment by creating a dispute of fact
where none exists).
82
Pls.‟ Suppl. PI Br. 20-22.
83
Although Plaintiffs dismiss the statement relating to Ms. Mathews being a
beneficiary of Delaware trusts as only a “vague footnote,” the relevant documents
instead reveal a series of one-page net worth statements. A comparison of the
March 25, 2008 statement and the April 11, 2008 document shows a net worth
reduction of six million dollars with a conspicuous statement referring to
Delaware trusts appearing immediately beneath the total net worth amount on the
April 11 document.
33
does not support the conclusion that TrustCo had notice of the ITRAX Transfers. Having
reviewed that testimony, and drawing all reasonable inferences in Plaintiffs‟ favor, I find
that, while Simmonds may not have known exactly what specific assets were transferred,
she knew that some transfers had taken place. Although unaware of the exact time of the
transfers, Simmonds understood the time frame to have coincided with one of the two
loan modifications, which occurred in 2008 and 2009, respectively.84 She further
testified as to having three discussions with Ms. Mathews, a meeting in May 2010 and
phone conversations in June and July 2010.85 Simmonds specifically was asked whether
“from Ms. Mathews‟ statements to you that you understood that at the time Ms. Mathews
. . . made the transfers, whenever she made them, that those transfers rendered her
insolvent? Do you contend that‟s what Ms. Mathews told you?”86 Simmonds replied
affirmatively.87
Simmonds‟s testimony shows that, by July 2010, a TrustCo official was aware that
Ms. Mathews had transferred assets to Delaware trusts and believed that those transfers
had rendered Ms. Mathews insolvent. Simmonds‟s testimony supports the inference—
particularly in light of the other evidence TrustCo received at the time of the first
modification of the StoreSmart Loan, which is discussed in Section I.B supra—that
84
Simmonds Dep. 9.
85
Id. at 15.
86
Id. at 15-16.
87
Id. at 16.
34
TrustCo was on at least inquiry notice by July 2010 and with reasonable diligence should
have discovered the allegedly fraudulent transfers Ms. Mathews made.
This conclusion is bolstered by the deposition testimony of Leonard, another Rule
30(b)(6) deponent for TrustCo. According to Leonard, at a May 2010 meeting, Ms.
Mathews informed him that she “took moneys and put them in a trust to hide them from
creditors.”88 Leonard understood that Ms. Mathews‟s stated intent was to protect those
assets from her boyfriend‟s creditors, but he also testified that “I felt at the time that she
was protecting them from us, TrustCo Bank.”89 Indeed, in a letter to Ms. Mathews dated
June 21, 2010, Leonard wrote “You have indicated the majority of these [equity] funds
were transferred to Delaware Trusts” and requested that she provide to TrustCo all
documents relating to the trust accounts.90
Thus, between May and July 2010, two TrustCo officers discussed with Ms.
Mathews the fact that she had made significant transfers of her assets to Delaware trusts.
Plaintiffs also indicated in a sworn interrogatory response that they had notice of transfers
to Delaware trusts as early as June 2010. In response to Defendants‟ request for partial
summary judgment, Plaintiffs have failed to present any evidence that would contradict
the sworn deposition testimony of their own deponents, nor any persuasive rationale for
disregarding their interrogatory responses. Accordingly, I conclude that Plaintiffs were
88
Mathews Defs.‟ PI Opp., Ex. D (“Leonard Dep.”) 17.
89
Id. at 19.
90
Mathews Defs.‟ SJ Br., Ex. 21.
35
on inquiry notice by July 2010 at the latest and that the statute of limitations began
running at that time. Because Plaintiffs filed suit in March 2013, their claims relating to
the ITRAX Transfers are untimely even under New York‟s statute of limitations. Thus,
for this second, independent reason, partial summary judgment in favor of Defendants is
appropriate as to those transfers.
IV. CONCLUSION
For the reason stated in this Memorandum Opinion, I grant Defendants‟ motion
for partial summary judgment that Plaintiffs‟ claims based on the ITRAX Transfers were
brought after the expiration of the applicable statute of limitations and are barred by
laches. Accordingly, those claims are dismissed with prejudice. This ruling is without
prejudice to any claims Plaintiffs may have based on other transfers.
IT IS SO ORDERED.
36