Lee v. So

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
KI-POONG LEE,
Plaintiff,
v. C.A. No.: N14C-08-173 PRW
ELIZABETH SO and
ELIZABETH MARIE KIM,
Defendants.
Submitted: September 19, 2016
Decided: November 17, 2016
QRD_HS
Upon Defendants Elizabeth So and Elizabeth Marie Kz'm ’s
Motionfor Judgment on the Pleadings,
GRANTED.
This 17th day of November, 2016, having considered Defendants Elizabeth
So (“So”) and Elizabeth Marie Kim’s (“Kim”) (collectively “Defendants”) Motion
for Judgment on the Pleadings (D.I. 78); the Plaintist response thereto (D.I. 88);
the parties’ arguments at the hearing of this motion; and the record in this matter, it
appears to the Court that:
(l) On October 23, 2009, Plaintiff Ki-Poong Lee (“Lee”) and So executed
a Promissory Note (“Note”) for $300,000.l Lee alleged that So failed to make any
payments on the Note, despite obligations to do so. Lee further alleged, “upon
information and belief,” that in 2013: (a) So transferred commercial subleases for
property located at 1209B Maryland Avenue, Wilmington, to her daughter and
co-defendant, Elizabeth Kim;2 (b) So made the transfer “With the intent to hinder,
delay and defraud” Lee from recovering the debt due under the Note; 3 and (c) So
Was insolvent at the time of the lease transfer.4
(2) On September 3, 2015, Lee filed this action alleging multiple
violations of Delaware’s Uniform Fraudulent Transfers Act (“DUFTA”), including
allegations of actual fraud under 6 Del. C. § l304(a)(l), constructive fraud under
6 Del. C. § 1304(a)(2), and fraud as to present creditors under 6 Del. C. § 1305. 5
' Resp. in Opp’n to Mot. for J. on the Pleadings (“Opp’n Mot.”), Lee v. S0, et al., C.A. No.
N14C-08-l73 PRW (Del. Super. Ct. May 23, 2016) (D.I. 88), Ex. A.1l 4 (Complaint).
2 1a at 11 7.
3 1a at 11 9.
4 Id. 311 14.
5 Id. (citing provisions of DEL. CODE ANN. tit. 6, §§ 1301-1311). Lee’s “Fraud Action”
Complaint, which is the subject of this Motion, Was originally filed in Lee v. S0, et al., C.A. No.
N15C-09-O37 PRW. On November 18, 2015, the Court consolidated that case With the then-
pending action (“Debt Collection” action) between the parties pursuant to Superior Court Civil
Rule 42(a) under the caption C.A. No. Nl4C-08-l73 PRW. See Order Consolidating Cases and
Amending Case Caption, C.A. No. Nl4C-08-l73 PRW (Del. Super. Ct. Nov. 18, 2015) (D.I. 46).
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(3) I-Iis Complaint seeks DUFTA remedies including: (a) an avoidance of
the sublease transfers; (b) an injunction prohibiting further transfers of property;
(c) attachment judgment to the subleases;6 as well as (d) an immediate accounting
of all of Defendants’ assets.
(4) On May 3, 2016, Defendants filed the instant Motion for Judgment on
the Pleadings under Superior Court Civil Rule lZ(c).7 Defendants argue, first, that
Lee has failed to meet the particular pleading requirements of fraud. Lee, they say,
has not alleged particular facts regarding fraudulent transfers, but instead made
only conclusory allegations “based upon information and belief.” These
allegations, they say, are not sufficient under Rule 9(b). Second, Defendants assert
that this Court lacks jurisdiction to issue an injunction.
(5) On May 9, 2016, with the parties’ consent, the Court entered a second
Amended Trial Scheduling Order.8 That Order noted that the time for motions to
amend the Complaint had already passed and that an Amended Answer had been
filed some months before.
6 See DEL. CODE ANN. tit. 6, § l307(a)(l) (2014) (avoidance); id. at § 1307(a)(3)
(prohibiting further transfers); id. at § l307(a)(2) (attachment).
7 Mot. for J. on the Pleadings, Lee v. So, et al., C.A. No. Nl4C-08-173 PRW (Del. Super.
Ct. Sept. 3, 2015) (D.I. 78).
8 Am. Scheduling Order, Lee v. So, et al., C.A. No. Nl4C-08-l73 PRW (Del. Super. Ct.
May 9, 2016) (D.I. 86).
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(6) Yet, two weeks later, Lee filed a Motion for Leave to File an
Amended Complaint.9 Lee’s Motion for Leave to Amend was denied because it
was brought well outside the deadlines set by the Trial Scheduling Order.m
(7) In his Response to Defendants’ Motion for Judgment on the
Pleadings, filed the same day as his Motion to File an Amended Complaint, Lee
asserts that he has met the pleading requirements for fraud.ll Lee cites certain case
law for the proposition that the Delaware Superior Court has subject matter
jurisdiction to order equitable relief for claims brought under the DUFTA. He
points out that the Delaware Supreme Court, pursuant to the Del. Const. art. IV,
§ 13(2), can appoint a Superior Court judge to sit on the Court of Chancery for the
purposes of hearing and determining all issues in a case.12 Lastly, he suggests that
the Court just strike his request for injunction.
(8) The standard for granting a motion for judgment on the pleadings
under Superior Court Civil Rule l2(c) requires a finding that “there are no material
9 Mot. for Leave to File Am. Compl., Lee v. So, et al., C.A. No. Nl4C-08-l73 PRW (Del.
Super. Ct. May 23, 2016) (D.I. 87).
10 Order, Lee v. So, et al., C.A. No. Nl4C-08-l73 PRW (Del. Super. Ct. May 23, 2016)
(D.I. 95).
" opp’n Mot. at 1111 9-10.
12 ld. at il 7 (citing Cala'era Props. - Lewes/Rehoboth VII, LLC v. Ria'l'ngs Dev., LLC, 2009
WL 223l7l6, at *l (Del. Super. Ct. May 29, 2009), ajj”’d sub nom. Rl'a'l``ngs Dev., LLC v. Caldera
Props. - Lewes/Rehoboth VII, LLC, 998 A.2d 851 (Del. 2010)).
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issues of fact and the movant is entitled to judgment as a matter of law.”13 The
Court must accept all well-pleaded allegations of fact in the Complaint as true and
all reasonable inferences must be construed in favor of the non-moving party.14
The Court must, therefore, afford Lee’s opposition to the Rule l2(c) motion the
same benefits as one opposing a motion under Superior Court Civil Rule
12(b)(6).'5
(9) Where matters outside the pleadings are presented to and considered
by the Court, the Court may convert the motion for judgment on the pleadings to
one for summary judgment under Rule 56.16 Lee included deposition transcript
excerpts as exhibits to his Reponse in Opposition. However, because consideration
13 See Desert Equities, lnc. v. Morgan Stanley Leveraged Equity Fund, II, L.P., 624 A.2d
1199, 1205 (Del. 1993); Alcoa World Alumina LLC v. Glencore Ltd., 2016 WL 521193, at *6
(Del. Super. Ct. Feb. 8, 2016).
'4 Gonzales v. Apartment leys. Corp., 2006 WL 2905724, at *l (Del. Super. Ct. Oct. 4,
2016).
‘5 Azcoa WorldAlumina LLC, 2016 WL 521193, at *6.
'6 Del. Super. Ct. Civ. R. l2(c) provides “[a]fter the pleadings are closed but within such
time as not to delay the trial, any party may move for judgment on the pleadings lf, on a motion
for judgment on the pleadings, matters outside the pleadings are presented to and not excluded
by the Court, the motion shall be treated as one for summary judgment and disposed of as
provided in Rule 56, and all parties shall be given reasonable opportunity to present all material
made pertinent to such a motion by Rule 56.” See also Blanco v. AMVAC Chem. Corp., 2012
WL 3194412, at *6 (Del. Super. Ct. Aug. 8, 2012).
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of these exhibits is not required, the Motion for Judgment on the Pleadings will not
be converted.'7
(10) Lee’s claims allege, “upon information and belief”, that So engaged in
fraud and violated the DUFTA by transferring certain commercial subleases to her
daughter. The “DUFTA provides remedies to creditors who are defrauded by
debtors who transfer assets or incur obligations ‘[w]ith actual intent to hinder,
delay or defraud any creditor of the debtor’ (z``.e., an actual fraudulent transfer), or,
in certain circumstances, ‘[w]ithout receiving reasonably equivalent value’ (i.e., a
constructively fraudulent transfer).”’ 18
(11) Provisions of the Federal Uniforrn Fraudulent Transfers Act (“Federal
UFTA”), Federal UFTA case law, and certain bankruptcy case law are of
assistance in interpreting the DUFTA.19 Because Delaware has adopted the
Federal UFTA, a statute that was itself modeled on Section 548 of the Bankruptcy
17 To convert an insufficient pleadings motion to one for summary judgment sua sponte, the
Court must give the parties “adequate notice and a reasonable opportunity to present pertinent
material,” meaning that “the Superior Court must give the parties at least ten days notice of its
intent” to do so. See Appriva S’hola'er Litig. C0., LLC v. EV3, Inc., 937 A.2d 1275, 1288 (Del.
2007) (finding that is was reversible error for the Court to fail to provide notice to parties before
converting 12(b)(6) motion to one for summary judgment). No notice is required here as no
conversion occurs here.
18 In re Mobilactive Mea'ia, LLC, 2013 WL 297950, at *30 (Del. Ch. Jan. 25, 2013)
(quoting August v. August, 2009 WL 458778, at *10 (Del. Ch. Feb. 20, 2009) and Wilm. Sav.
Fund Soc., FSB v. Kaczmarczyk, 2007 WL 704937, at *4 (Del. Ch. Mar. l, 2007)).
19 See Doa'ge v. Wilm. Trust Co., 1995 WL 106380, at *4-5 (Del. Ch. Feb. 3, 1995) (court
looked to, and relied upon, federal cases outside of Delaware to determine whether a fraudulent
conveyance claim was properly pled under the relevant Delaware statute).
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Code (11 U.S.C. § 548), Delaware courts generally recognize that our state and the
federal fraudulent transfer statutes’ principles are substantially the same.20 So the
Court looks to federal authority on the subject where necessary.
(12) As to Count I, Lee seeks to avoid or attach the transfers because he
alleges that they were made with actual intent to “hinder, delay or defraud” So’s
creditors, including Lee, in violation of the DUFTA, § 1304(a)(1).21
(13) Claims for actual fraudulent transfer brought under § l304(a)(l) must
meet the heightened pleading standard of Superior Court Civil Rule 9(b).22
20 see, e.g., 111 re PHP Heal¢hcare Corp., 128 Fed. Appx. 839, 847 (3d Cir. 2005) (“We
need not discuss the provisions of the Delaware Fraudulent Transfer Act . . . because they are
substantially the same as the relevant parts of the Bankruptcy Code.”); In re Trace Int’l Hldgs.,
Inc., 287 B.R. 98, 105 n. 5 (Bankr. S.D.N.Y. 2002) (“Delaware has adopted the Uniform
Fraudulent Transfer Act which is based on the Bankruptcy Code . . . Not surprisingly, Delaware
fraudulent transfer law is virtually a carbon copy of the fraudulent transfer law under the
Bankruptcy Code. Consequently, the result under Delaware law should be the same as the
outcome under the Bankruptcy Code.”).
2‘ DEL. CQDE. ANN. m. 6, §§ 1304-1309. see also la at § 1304(3)(1); Quadmm structured
Proa'ucts Co. v. Vertin, 102 A.3d 155, 198 (Del. Ch. 2014), reconsid. denied sub nom. id., 2014
WL 5465535 (Del. Ch. Oct. 28, 2014).
22 See In re Aphton Corp., 423 B.R. 76, 87 (Bankr. D. Del. 2010) (applying Rule 9(b) of the
Federal Rules of Civil Procedure to claims brought under the DUFTA); Winner Acceptance
Corp. v. Return on Capital Corp., 2008 WL 5352063, at *7 (Del. Ch. Dec. 23, 2008) (noting that
a fraudulent transfer claim must be pled with particularity); In re Nat’l Serv. lndus., lnc., 2015
WL 3827003, at *3 (Bankr. D. Del. June 19, 2015) (“Actual fraudulent transfer claims [made
under the DUFTA and the Bankruptcy Code] must meet the elevated pleading standards of Rule
9(b) of the Federal Rules of Civil Procedure.”). See also Chl'na Res. Products (U.S.A.) Ltd. v.
Faya'a Inl"l, Inc., 788 F. Supp. 815, 819 n. 6 (D. Del. 1992) (“A claim under [§ 1304] would
require special pleading under Rule 9(b) because the statute requires ‘actual intent.”’).
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Rule 9(b) provides:
In all averments of fraud, negligence or mistake, the
circumstances constituting fraud, negligence or mistake shall be stated
with particularity. Malice, intent, knowledge and other condition of
mind of a person may be averred generally.23
(14) “Rule 9(b) does not require an exhaustive cataloguing of facts but
only sufficient factual specificity to provide assurance that the plaintiff has
investigated . . . the alleged fraud and reasonably believes that a wrong has
occurred.”24 Thus, in order to state a fraudulent transfer claim, Lee may generally
plead facts showing intent to defraud, but must include “specijic supporting facts
describing the circumstances of the transfer.”25
(15) Lee has failed to identify the specific supporting facts surrounding the
alleged transfer(s) as required under Rule 9(b). Defendants correctly assert that
allegations based “upon information and belief’ are not enough to satisfy Rule
9(b)’s particularity requirement26 Critical to this motion is that Lee alleges the
23 Del. super. Ct. Civ. R. 9(b).
24 Bernstein v. IDT Corp., 582 F. Supp. 1079, 1085 (D. Del. 1984) (intemal quotation marks
omitted).
25 See Quadrant, 102 A.3d at 198 (holding that “[i]n order to state a fraudulent transfer
claim, [plaintiff] must generally plead facts showing intent to defraud with specific supporting
facts describing the circumstances of the transfer.”) (emphasis added) (citing Geyer v. lngersoll
Publications Co., 621 A.2d 784, 792 n. 5 (Del. Ch. 1992)).
26 Nutt v. A.C. & S., Inc., 466 A.2d 18, 23 (Del. Super. Ct. 1983) (“Allegations based on
information and belief will not satisfy [Rule 9(b)].”), ajjf’d sub norn. Mergentbaler v. Asbestos
Corp. ofAm., 480 A.2d 647 (Del. 1984).
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specific instance of the allegedly fraudulent transfer - the purported transfer of
subleases to So’s daughter - only “upon information and belief.”27 While “actual
intent” under § 1304(a)(1) can be inferred from general allegations, the intent
which is central to the alleged transfer itself must be pleaded with greater
particularity and with specific supporting facts in order to satisfy Rule 9(b).28 Lee
has failed to do so here. Accordingly, the Court finds he has failed to meet the
pleading requirements of Rule 9(b) for his claim of actual fraud under
§ 1304(a)(l). And so, Defendants’ Motion for Judgment on the Pleadings as to
Count 1 of the Complaint is GRANTED.
(16) The remaining claims, unlike claims for actual fraud, are governed by
Superior Court Civil Procedure Rule 8(a), rather than by the heightened Rule 9(b)
leading standard.29 To satisfy Rule 8(a)’s standard, Lee need only plead “a short
13
27 Compl. at 1111 6-7.
28 Cf. Sun Microsystems, Inc. v. Versata Enters., Inc., 630 F. Supp. 2d 395, 406 (D. Del.
2009) (allegations upon information and belief that patent infringement claims are made in bad
faith and that party engaged in fraud satisfied Rule 9(b) because the related allegations
supporting them were not made on information and belief but contained sufficient factual
support for the allegation of bad faith and fraud); Engle v. Matrix Golf & Hosp. Phila., LLC,
2009 WL 880680, at *5 (E.D. Pa. Mar. 31, 2009) (finding that fraudulent transfer claim Was
sufficiently pleaded where the paragraph identifying the precise conveyances at issue was not
based on information and belief, even though many of the allegations relating to the fraud were
based on information and belief).
29 See, e.g., China Res. Prods., 788 F. Supp. at 819 (“Despite the similarity in the terms
‘fraud’ and ‘fraudulent conveyance,’ the pleading requirements for fraud are not necessarily
applicable to pleadings alleging a [constructive] fraudulent conveyance.”); Charys Liquidating
Trust' v. McMahan Sec. Co. (In re Charys Hldg. Co.), 443 B.R. 628, 632 n. 2 (Bankr. D. Del.
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and plain statement of the claim showing” that he is entitled to relief.30 But,
[i]f a complaint were held sufficient simply because it restates
the legal elements of a particular cause of action, Rule 8(a) would be
rendered meaningless Plaintiffs need not offer prolix tales of abuse
belabored by needless details, but plaintiffs must allege facts
sufficient to show that the legal elements of a claim have been
satisfied.3]
(17) As to Count II, in order to state a fraudulent transfer claim under
§ 1304(a)(2) for constructive fraud, Lee must show: (a) “that the transfer in
question was made for less than fair consideration,” and (b) that “the transferor
was rendered insolvent as a result of that transfer.”32
(18) Even under Rule 8(a)’s lenient standard, Lee’s conclusory pleadings
are not sufficient. A court may dismiss a plaintiffs DUFTA claims that merely
recite the statutory elements without offering sufficient factual support.33 As stated
2010); Astropower Liquidating T rust v. Xantrex Tech., Inc., (In re AstroPower Liquidating
Trust), 335 B.R. 309, 333 (Bankr. D. Del. 2005).
30 In re Benzene Litig., 2007 WL 625054, at *5 (Del. Super. Ct. Feb. 26, 2007).
3‘ m re Coca_Cola Enters., lnc., 2007 WL 3122370, at *4 n. 28 (Del. Ch. oct 17, 2007),
aff’d sub nom. Int’l Bhd. Tearnsters v. Coca-Cola Co., 954 A.2d 910 (Del. 2008).
33 owens v. Givens, 1986 WL 2270, at *2 (Del. super. Ct. Feb. 4, 1986); Chma Res. Pmds.
(U.s.A.) L¢d. v. Fayda lm'l, lnc., 788 F. supp. 815, *18 (D. Del. 1992).
33 Hospimlis¢s ofDel., LLC v. Lurz, 2012 WL 3679219, at *13 (Del. Ch. Aug. 28, 2012)
(dismissing plaintiff" s § 1304(a)(2) claim for “simply reciting the statutory . . . elements of an
offense.”); Renco Grp., Inc. v. MacAndrews AMG Hldgs. LLC, 2015 WL 394011, at *10 (Del.
Ch. Jan. 29, 2015) (“It is not enough to make conclusory allegations mirroring the elements in
the fraudulent transfer statute.”); Spring Real Estate, LLC v. Echo/RT Hldgs., LLC, 2013 WL
6916277, at *7 (Del. Ch. Dec. 31, 2013) (“The Complaint does not state a claim for constructive
fraudulent transfer because these allegations are conclusory and mere recitations of the
fraudulent transfer statute.”) (citation omitted).
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in Renco Grp., Inc. v. MacAndrews AMG Holdings LLC:
Th[e] Court [of Chancery] has deemed conclusory a pleading
that “the defendant made the transfer without receiving a reasonably
equivalent value in exchange . . . and . . . it believed or reasonably
should have believed that . . . the transaction would prevent [it] . . .
from paying its debts as they became due.”34
(19) Like the plaintiffs in Renco, Lee’s complaint is a mere parroting of the
DUFTA, Lee alleges that “the transfers of the subleases were made without
receiving a reasonably equivalent value in exchange for the transfers,” “that the
transfers were made while Defendant So should have reasonably believed that she
would incur debts beyond her ability to pay,” and that “Defendant So was
insolvent at the time all of the transfers occurred.”35 Lee includes no facts in
support of these assertions36
(20) Applying Rule 8(a), these “bare bones” allegations are insufficient for
a claim under the DUFTA’s § 1304(a)(2). Accordingly, Defendant’s Motion for
Judgment on the Pleadings on Count ll is GRANTED.
(21) As to Count III, Lee does not state whether his § 1305 claim is
brought under § 1305(a) or (b). As Lee alleged not a single one of the required
34 Renco Grp., 2015 WL 394011, at *10 (alterations removed) (quoting Hospitalists, 2012
WL 3679219, at *13, *15).
35 Compl. at 1111 22-23.
36 See Renco Grp., 2015 WL 394011, at *11 (dismissing fraudulent transfer claims under
Rule 12(b)(6) because of “the lack of factual allegations supporting a reasonably conceivable
finding of unequal exchange and insolvency”).
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elements for a § 1305(b) claim,37 the Court must assume that Lee’s claim involves
subsection (a) only.
(22) Section 1305(a) provides that “a creditor whose claim arose before a
challenged transfer may have that transfer effectively set aside if the debtor: (l) is
insolvent or is made insolvent by the transfer; and (2) does not receive reasonably
equivalent value.” 38
(23) For the_ same reasons stated above regarding Count II, the Court will
grant judgment on the pleadings for Count III, as its allegations are conclusory and
a bare recitation of the fraudulent transfer statute. Lee alleges that So transferred
her interest for less than a reasonably equivalent value, but he offers no factual
support of that assertion including, for instance, what a reasonable equivalent value
would be. Too, Lee alleges that So is insolvent, but offers nothing for the Court to
look to in support.39
37 “[A] cause of action under Section 1305(b) will exist if (i) the transfer flowed from a
debtor to an insider, (ii) the debtor was insolvent at the time of the transfer, (iii) the insider had
reasonable cause to believe that the debtor was insolvent, and (iv) the plaintiff Was a creditor at
the time of the transfer.” Quadrant Structured Prods, Co. v. Vertin, 102 A.3d 155, 196 (Del. Ch.
2014). Lee has not made any allegation that Kim -the insider - had reasonable cause to believe
that So was insolvent at the time of transfer, such that this claim is insufficient
33 m re Mobilacnve Media, LLC, 2013 WL 297950, at *32 (Del. Ch. Jan. 25, 2013) (citing
Wilm. Sav. Fund Soc., FSB v. Kaczrnarczyk, 2007 WL 704937, at *5 (Del. Ch. Mar. 1, 2007)).
See also DEL. CoDE. ANN. tit. 6, §§ 1305(a).
39 See Trenwick Am. Litig. Trust v. Ernst & Young, L.L.P., 906 A.2d 168, 195 (Del. Ch.
2006) (“lf a plaintiff seeks to state a claim premised on the notion that a corporation was
insolvent . . . the plaintiff must plead facts supporting an inference that the corporation was in
fact insolvent at the relevant time.”) ayj”d sub nom. TrenwickAm. Litig. Trust v, Billett, 931 A.2d
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(24) Taking all factual allegations as true, as the Court must when
considering a Rule l2(c) motion, Lee has not pleaded the requirements of a
§l305(a) claim sufficiently. Therefore, Defendants’ Motion for Judgment on
Pleadings as to Count 111 is GRANTED.
(25) The Court dismisses all of the Fraud Action claims under Superior
Court Rule 12(c). In turn, the parties’ related arguments regarding damages and
subject matter jurisdiction are moot. The Court notes, for clarity, however, that
Defendants are correct that the Superior Court is a court of law, not equity, and, as
a general proposition, might not have the power to issue the injunction Plaintiff
sought.40
(26) Because, for the reasons set forth herein and on the record of the
hearing of this motion, the Court finds that no material issue of fact exists and that
Defendants So and Kim are entitled to judgment as a matter of law, Defendants’
Motion to for Judgment on the Pleadings as to the three counts of Lee’s Fraud
Action complaint filed on September 3, 2015 and alleging actual fraud,
constructive fraud, and fraud on creditors, is GRANTED.
438 (Del. 2007); In re Trinsum Grp., Inc., 460 B.R. 379, 394 (Bankr. S.D.N.Y. 2011)
(interpreting Delaware law and stating, to prove insolvency for constructive fraud, “[g]enerally,
there must be some sort of financial data or analysis provided so that the court can infer the
company’s liabilities exceeded its assets at the time the transfers in question took place.”).
40 See Simon v. Pyrites Co., 32 Del. 581, 128 A. 370, 371 (Del. Super. Ct. 1925) (“That the
granting of an injunction is a matter of equitable jurisdiction there can be no question.”); Clark v.
Teeven Hldg. Co., 625 A.2d 869, 875 (Del. Ch. 1992) (the Court of Chancery has exclusive
jurisdiction where injunctive relief is sought).
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IT IS SO ORDERED.
Waa)
PAUL R. WALLACE, JUDGE
Original to Prothonotary
cc: All counsel via File & Serve
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