08/19/2011 – Defendant’s Reply in Support of Motion to Dismiss filed in the Spansion, Inc. Adversary Proceedings by Barclays Capital Inc. before Chief, U.S. Bankruptcy Judge Kevin J. Carey in the District of Delaware filed by Richards, Layton & Finger, P.A. (Wilmington, DE) attorneys Robert J. Stearn, Jr. and Amanda R. Steele.

Defendant had nothing to rebut in this reply brief. The sole objective of the reply was to assure that the focus remained on the gross deficiencies of the fraudulent transfer claim in the existing complaint.  Registered users click here to see a copy of this brief.

[W]hat matters for purposes of this Motion is not whether Plaintiff’s proposed amended complaint should be allowed — that is the subject of a separate motion (see D.I. 18) which will be submitted to the Court for decision at a later date, after briefing thereon is completed — but whether the current Complaint states a claim. See, e.g., Valley Media, Inc. v. Borders, Inc. (In re Valley Media, Inc.), 288 B.R. 189, 192 (Baffler. D. Del. 2003) (granting motion to dismiss: “Although Plaintiff has provided the additional information in a motion to amend, it cannot be used in considering Defendant’s motion to dismiss, and will be separately addressed.”); see also Zimmerman v. Pepsico, Inc., 836 F.2d 173, 181 (3d Cir. 1988) (“[I]t is axiomatic that the complaint may not be amended by the briefs in opposition to a motion to dismiss.”) (citation omitted). By failing to defend its existing fraudulent transfer claim, Plaintiff has conceded the insufficiency of that claim.

4.         It is not surprising that Plaintiff improperly asks the Court to focus on its yet to be allowed, proposed amended complaint rather than defend its current pleading. Indeed, the entirely of Plaintiff’s existing fraudulent transfer claim is as follows:

Subject to proof, Plaintiff pleads in the alternative that to the extent one or more of the Transfers were not on account of an antecedent debt or a prepayment for goods and/or services subsequently received, one or more of the Debtors did not receive reasonably equivalent value in exchange for such transfer(s) (the “Potentially Fraudulent Transfers”); and

A. One or more of the Debtors were insolvent on the date that the Transfer(s) … were made or became insolvent as a result of the Transfer(s); or

B.  One or more of the Debtors were engaged in business or a transaction, or were about to engage in business or a transaction, for which any property remaining with the Debtors who made or for whose benefit the Transfer(s) were made was an unreasonably small capital; or

C.  One or more of the Debtors intended to incur, or believed that one or more of the Debtors would incur, debts that would be beyond one or more of the Debtors’ ability to pay as such debts matured.

In accordance with the foregoing, the Potentially Fraudulent Transfers are avoidable pursuant to 11 U.S.C. § 548(a)(1)(B).

Complaint ¶ 19-20.

5.         It is hard to imagine a more boilerplate fraudulent transfer claim, completely devoid of factual allegations to support it. This Court routinely dismisses such claims, and should do so here. See, e.g., Burtch v. Huston (In re USDigital, Inc.), 443 B.R. 22, 39-40 (Bankr. D. Del. 2011) (“The Trustee has failed to set out sufficient factual matter to show that the claim is facially plausible. Conclusory or bare bones allegations no longer suffice to survive a motion to dismiss. Here, the Trustee fails to provide any factual allegations supporting the assertion that USDigital did not receive reasonably equivalent value…. In addition, the Trustee has failed to provide any support to the factual allegations that USDigital was insolvent or was rendered insolvent at the time….”) (footnote omitted); Wahoski v. Classic Packaging Co. (In re Pillowtex Corp.), 427 B.R. 301, 311 (Bankr. D. Del. 2010) (“Here, Count Two the Complaint merely recites the statutory language of § 548 of the Bankruptcy Code and completely lacks any factual allegations to support a fraudulent transfer claim. Count Two fails to meet the pleading requirements set forth in Twombly and Fowler, … and should be dismissed pursuant to Rule 12(b)(6).”); Claybrook v. PricewaterhouseCoopers U.S. LLC (In re American Remanufacturers,  Inc.), 2007 WL 2376723, at *4 (Bankr. D. Del. Aug. 16, 2007) (dismissing fraudulent transfer claims: “For allegations concerning fraudulent transfers … the plaintiff needs to state more than just conclusory statements which merely echo the statutory language”).

6.         The merits of Plaintiff’s motion to amend will be litigated in due course, and Plaintiff will be required to demonstrate (among other things) that its proposed amended complaint relates back under Rule 15(c) and would not be futile. Defendant intends to file a response vigorously opposing the motion to amend, and presumably Plaintiff will file a reply in support of the motion to amend. See D.I. 21, 22 (stipulations extending Defendant’s response date until September 23, 2011 and Plaintiff’s reply date until October 28, 2011). In the meantime, briefing on the Motion to Dismiss is complete, and under the circumstances the Court should dismiss Count II of the existing Complaint without prejudice, thereby permitting Plaintiff to prosecute (and Defendant to oppose) the motion to amend. See, e.g., Pillowtex, 427 B.R. at  311-312 (dismissing fraudulent transfer claim but providing Trustee with opportunity to replead); American Remanufacturers, 2007 WL 2376723, at *5 (same).