Riverdale Plating And Heat Treating, LLC v. Andre Corporation et al

Filing 74

MEMORANDUM Opinion and Order Written by the Honorable Gary Feinerman on 7/22/2016.Mailed notice.(jlj, )

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
RIVERDALE PLATING & HEAT TREATING, LLC,
Plaintiff,
vs.
ANDRE CORPORATION,
Defendant.

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15 C 3255
Judge Gary Feinerman

MEMORANDUM OPINION AND ORDER
Riverdale Plating & Heat Treating, LLC, brought this suit against Andre Corporation
(“AC”) and David Andre (“Andre”), claiming breach of contract, account stated, and unjust
enrichment in connection with AC’s alleged failure to pay for roughly $154,000 worth of
Riverdale’s services. Doc. 2-1. After the court dismissed Andre under Federal Rule of Civil
Procedure 12(b)(2) for lack of personal jurisdiction, Docs. 34-35 (reported at 2015 WL 5921896
(N.D. Ill. Oct. 9, 2015)), Riverdale filed an amended complaint, which added claims against AC
under the Indiana Uniform Fraudulent Transfer Act (“IUFTA”), Ind. Code § 32-18-2-1 et seq.,
and another Indiana statute prohibiting certain corporate distributions, Doc. 51.
AC now moves to dismiss Riverdale’s amended complaint under Rule 12(b)(6) for failure
to state a claim. Doc. 54. The motion is granted in part and denied in part.
Background
In resolving AC’s Rule 12(b)(6) motion, the court assumes the truth of the operative
complaint’s well-pleaded factual allegations, though not its legal conclusions. See Smoke Shop,
LLC v. United States, 761 F.3d 779, 785 (7th Cir. 2014). The court must also consider
“documents attached to the complaint, documents that are critical to the complaint and referred

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to in it, and information that is subject to proper judicial notice,” along with additional facts set
forth in Riverdale’s brief opposing dismissal, so long as those facts “are consistent with the
pleadings.” Phillips v. Prudential Ins. Co. of Am., 714 F.3d 1017, 1020 (7th Cir. 2013) (internal
quotation marks omitted); see also Defender Sec. Co. v. First Mercury Ins. Co., 803 F.3d 327,
335 (7th Cir. 2015). The facts are set forth as favorably to Riverdale, the non-movant, as those
materials allow. See Meade v. Moraine Valley Cmty. Coll., 770 F.3d 680, 682 (7th Cir. 2014).
The court does not vouch for the accuracy of those facts. See Jay E. Hayden Found. v. First
Neighbor Bank, N.A., 610 F.3d 382, 384 (7th Cir. 2010).
AC manufactured metal washers. Doc. 51 at ¶ 7; Doc. 54 at 1. Riverdale treats and
plates metal products. Doc. 51 at ¶ 6. For two years, AC retained Riverdale to treat its washers
at Riverdale’s Illinois facility. Id. at ¶ 9. Between October 21, 2014 and December 30, 2014,
AC placed orders with Riverdale totaling $154,409.02. Id. at ¶ 12. Riverdale treated the
washers in question; however, instead of taking the washers back and paying Riverdale for its
services, AC sold all of its assets to a third company, Armor Andre, Inc., and distributed the
proceeds of the sale to several of its creditors—including $10,000 to Andre, who, in addition to
being AC’s creditor, was also its president and sole shareholder—but not to Riverdale. Id. at
¶¶ 14, 17-18, 22. On January 5, 2015, AC sent Riverdale a letter notifying it of the sale and
stating that “any open unfilled and/or standing blanket purchase orders as of close of business on
December 30, 2014 with respect to [AC] are hereby cancelled.” Id. at ¶ 19; Doc. 51-2 at 2. The
letter also stated that if Riverdale shipped “any goods[] not associated with a valid Armor
purchase order” to AC’s facilities, acceptance of the goods would “be at the discretion of Armor
and if so accepted, will become the financial responsibility of Armor.” Ibid.

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Riverdale demanded that AC pay $154,409.02 for the ostensibly cancelled orders, AC
refused, and Riverdale filed this suit in Illinois state court. Doc. 2-1; Doc. 51 at ¶¶ 21-22. As
noted, the initial complaint included claims for breach of contract, account stated, and unjust
enrichment. Doc. 2-1 at ¶¶ 20-35. Riverdale attached to the complaint a list of 47 invoices,
representing the orders that AC allegedly breached. Id. at 13-14. After the court dismissed
Andre for lack of personal jurisdiction, AC filed an amended complaint, which dropped all
claims against Andre but added two new claims against AC—(1) for fraudulently transferring its
assets to Armor Andre in violation of the IUFTA, Ind. Code § 32-18-2-15; and (2) for making an
unlawful corporate distribution by paying $10,000 to Andre when the company was insolvent, in
violation of Ind. Code § 23-1-28-3. Doc. 51 at ¶¶ 39-61.
Attached as an exhibit to AC’s Rule 12(b)(6) motion is a document captioned “Receipt
and Release and Agreement,” which appears to be a written agreement between Riverdale and
Armor Metal Group, Inc. (“AMG”), which may have been Armor Andre’s parent company.
Doc. 54-1 at 22; see Doc. 54 at 1 (AC, asserting that Armor Andre is a subsidiary of AMG); Doc
57 at 2 n.1 (Riverdale, disputing that Armor Andre is a subsidiary of AMG; as will become
apparent, AMG’s relationship with Armor Andre does not affect the court’s ruling on this
motion). The document, which for convenience the court will call “the Agreement,” even
though its authenticity is questioned, notes that AC “ordered from [Riverdale] certain goods as
listed on Exhibit A attached hereto (the ‘Goods’) but subsequently cancelled such order” and that
AMG “now desires to purchase the Goods from [Riverdale].” Doc. 54-1 at 22. Exhibit A in turn
lists 50 numbered invoices between Riverdale and AC, 37 of which, totaling $132,244.90,
overlap with the list of invoices that Riverdale attached to its amended complaint. Doc. 51-1 at
2-3; Doc. 54-1 at 23-24.

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The Agreement then provides:
[Riverdale], for itself, its individual shareholders, members, officers, directors,
managers, successors, and assigns, hereby fully and forever releases, acquits
and discharges [AMG], its subsidiaries, and entities with common ownership,
and their individual shareholders, members, officers, directors, managers,
employees, agents, attorneys, successors, and assigns (collectively the
“Releasees”) from any and all causes of action, claims and demands of
whatsoever nature and kind on account of any and all known and unknown
losses and damages sustained by [Riverdale] arising out of or related to the
Goods (the “Claims”). It is understood and agreed that the acceptance of the
aforementioned sum and purchase of the Goods is in full accord and
satisfaction of any dispute related to the Claims between [Riverdale] and
[AMG] and that the payment of said sum is not an admission of Release[e]s’
liability, which liability is expressly denied.
***
This Agreement is intended to cover and does cover not only all now known
losses and damages, but any future losses and damages not now known nor
anticipated but which may later develop or be discovered related to the Goods,
including all the effects and consequences thereof.
Doc. 54-1 at 22. The Agreement also provides that, “in consideration of this release,” AMG:
will pay invoices with net 10 day terms through April 30, 2015. Invoices will
be paid with net 30 terms May 1, 2015 through July 31, 2015 and beginning
August 1, 2015 will pay net 45 day terms.
Ibid.
Discussion
I.

The Agreement
AC first contends that the court should dismiss all of Riverdale’s claims to the extent they

are based on the invoices listed in the attachment to the Agreement. Doc. 54 at 5-8; Doc. 59 at
3-5. In Illinois, the “unconditional release of one co-obligor releases all unless a contrary intent
appears from the face of the instrument.” Porter v. Ford Motor Co., 449 N.E.2d 827, 830 (Ill.
1983). AC argues that AMG is its co-obligor on the listed invoices, and that therefore the
Agreement’s release provision exonerates it as well as AMG.

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The parties first dispute whether the court may even consider the Agreement in deciding
this motion. Ordinarily, if a Rule 12(b)(6) motion relies on “matters outside the pleadings,” the
court must either ignore the outside materials or convert the motion into one for summary
judgment under Rule 56. Fed. R. Civ. P. 12(d); see Tierney v. Vahle, 304 F.3d 734, 739 (7th Cir.
2002) (observing that if a “defendant … submit[s] a document in support of his Rule 12(b)(6)
motion that required discovery to authenticate or disambiguate,” then “the judge would be
required to convert the defendant’s motion to a Rule 56 motion if he were minded to consider the
document”). One exception is that the court may consider outside facts if they are “subject to
proper judicial notice.” Geinosky v. City of Chicago, 675 F.3d 743, 745 n.1 (7th Cir. 2012). AC
suggests that the court take judicial notice of the Agreement’s authenticity, Doc. 59 at 2-3, but
Riverdale insists that it would be inappropriate to do so, Doc. 57 at 4-6.
The court need not resolve this dispute, because even assuming that the Agreement is
authentic, AC’s arguments for dismissal that are based on the Agreement fail. For one, AC and
AMG were never co-obligors on any liability to which the Agreement’s release provision
extends. Two parties are “co-obligors” under Illinois law if they are either “joint tortfeasors” or
“liable for a single indivisible injury.” Cherney v. Soldinger, 702 N.E.2d 231, 236 (Ill. App.
1998) (quoting McCormick v. McCormick, 536 N.E.2d 419, 432 (Ill. App. 1988)).
AC first argues that AMG became its co-obligor when AC wrote Riverdale to notify it of
the asset sale to Armor Andre, because the letter said that if Riverdale shipped the stranded
washers to AC’s former plant, payment for the shipment would “become the financial
responsibility of Armor.” Doc. 54 at 6. The letter did say that, Doc. 51-2 at 2, but saying
something, particularly when that something benefits the speaker at someone else’s expense,
does not make it so. AC, Armor Andre, and AMG are different companies, and—except under

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special circumstances, which AC does not argue apply here—one company’s promises cannot
bind another. Cf. Bloom v. Nathan Vehon Co., 173 N.E. 270, 272-73 (Ill. 1930) (“[O]fficers of a
corporation other than the board of directors cannot bind the corporation by a promise to pay
another officer a salary or other compensation unless they are expressly authorized to make such
a promise ….”); Gleason v. Henry, 71 Ill. 109, 110-11 (1873) (holding that, when one person
signs a promissory note under another person’s name, the person named is not liable on the note,
even if he ratifies that the note is his, unless the “ratification [is] made with full knowledge on
the part of the principal of the facts affecting his rights”). AC’s letter, then, could not have made
AMG AC’s co-obligor.
AC next argues that AMG is AC’s co-obligor because AMG promised to pay Riverdale
on the listed invoices when AMG signed the Agreement. Doc. 54 at 6. That argument mistakes
the scope of AMG’s release. Under Illinois law, an agreement releasing one obligor from
liability for an injury is presumed to release co-obligors from liability for the same injury. So, if
A and B jointly burn down C’s house, and B independently breaches a contract with C, then a
release of B’s liability for the fire presumptively extends to A’s liability for the fire, but a release
of B’s liability for the breach of contract does not—after all, why would that release absolve A
for the fire if it does not go so far for B? See Cherney, 702 N.E.2d at 235 (“The common law
rule was intended to prevent multiple recoveries for a single claim.”) (emphasis added); Kerr v.
Schrempp, 60 N.E.2d 636, 639 (Ill. App. 1945) (holding that a release of one obligor on one
promissory note did not relieve co-obligors of their obligation to pay on a different promissory
note).
We face the second type of situation here. The Agreement may have made AMG and AC
jointly obligated to pay the listed invoices, but it never released AMG from that obligation. In

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other words, when AMG signed the Agreement, it became responsible for paying the amounts in
the listed invoices, and it was released from all other liabilities to Riverdale related to those
invoices; it was not released, however, from its just-assumed responsibility to pay the amounts in
the listed invoices. If, after signing the Agreement, AMG had refused to pay for the washers
listed in the attachment and Riverdale had sued AMG for breach of contract, AMG could not
have defended itself on the ground that Riverdale had released it from liability. So, because
Riverdale never even released AMG from its obligation to pay for the washers, it certainly never
released AC from its obligation to do the same.
AC’s release argument fails for the further reason that, even if AMG were a co-obligor of
AC on the listed invoices, and even if the release extended to that obligation, the language of the
release defeats the presumption that it applies to unnamed co-obligors such as AC. Illinois
courts used to apply the absolute common law rule that “the full release of one of several joint
tortfeasors released all, even if the release contained an express reservation of rights against the
others.” Porter, 449 N.E.2d at 829; see Rice v. Webster, 18 Ill. 331, 332 (1857) (“Here is a
manifest attempt to discharge absolutely one of the parties, and to retain the legal obligation
against the other. This the law will allow no ingenuity of language to effect.”). That rule was
“widely criticized,” however, and Illinois courts eventually abandoned it in favor of the more
qualified rule expressed in Porter: “[A]n unconditional release of one co-obligor releases all
unless a contrary intent appears from the face of the instrument.” 449 N.E.2d at 829-30
(emphasis added). The contrary intent need not be spelled out explicitly; strong textual evidence
in the release agreement can imply that the release applies only to the obligor signing the release
and not to his co-obligors. See Private Bank & Trust Co. v. EMS Investors, LLC, 33 N.E.3d 892,
896-98 (Ill. App. 2015) (holding that, “even absent” a release agreement’s express reservation of

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rights against third parties, “the remainder of the settlement agreement [between the plaintiff and
a non-party], the circumstances surrounding its execution, and the stated intent and
understanding of [the plaintiff and a defendant] as to the effect of the release establish that [the
plaintiff] did not intend to release [that defendant and the other defendants] from liability under
the note”).
In this case, the Agreement’s release provision contains strong textual evidence that the
parties did not intend for it to apply to AC. The provision lists explicitly the categories of people
and entities other than AMG to whom it applies:
[Riverdale] hereby fully and forever releases, acquits and discharges [AMG],
its subsidiaries, and entities with common ownership, and their individual
shareholders, members, officers, directors, managers, employees, agents,
attorneys, successors, and assigns (collectively the “Releasees”).
Doc. 54-1 at 22. AC does not fall within any of those categories; it sold its assets to Armor
Andre, which the court will assume is a subsidiary of AMG, but it did not itself become a
subsidiary of AMG in the process. Illinois courts recognize the so-called “expressio unius”
maxim, which provides that when a legal text explicitly lists the things to which it applies, it
implies that the text does not apply to things not on the list. See Schultz v. Performance
Lighting, Inc., 999 N.E.2d 331, 335 (Ill. 2013) (“Under the maxim of expressio unius est exclusio
alterius, the enumeration of an exception in a statute is considered to be an exclusion of all other
exceptions.”); Hines v. Dep’t of Public Aid, 850 N.E.2d 148, 153 (Ill. 2006); People ex rel.
Sherman v. Cryns, 786 N.E.2d 139, 154-55 (Ill. 2003); Bridgestone/Firestone, Inc. v. Aldridge,
688 N.E.2d 90, 95 (Ill. 1997); West Bend Mut. Ins. Co. v. DJW-Ridgeway Bldg. Consultants,
Inc., 40 N.E.3d 194, 205-06 (Ill. App. 2015) (applying the maxim in contract interpretation). So,
by listing the people and entities other than AMG to whom the release applies without naming

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AC or any category to which AC belongs, the Agreement strongly implies that the release does
not apply to AC.
Perhaps recognizing the weaknesses in its argument that it was released from liability as
AMG’s co-obligor, AC argues in its reply brief that the Agreement is a “substituted contract,” in
which AMG and Riverdale agreed to allow AMG to replace AC as Riverdale’s debtor. Doc. 59
at 5-6. AC forfeited that argument by not raising it until its reply brief. See Narducci v. Moore,
572 F.3d 313, 324 (7th Cir. 2009) (“[T]he district court is entitled to find that an argument raised
for the first time in a reply brief is forfeited.”); Cromeens, Holloman, Sibert, Inc. v. AB Volvo,
349 F.3d 376, 389 (7th Cir. 2003) (“Because Volvo raised the applicability of the Maine statute
in its reply brief, the district court was entitled to find that Volvo waived the issue.”). And the
argument fails on the merits anyway.
A substituted contract requires the creditor to “agree[] to release the original debtor and
accept[] the new debtor.” McLean Cnty. Bank v. Brokaw, 519 N.E.2d 453, 458 (Ill. 1988). “The
creditor’s assent to the substitution … may be inferred from his conduct and other circumstances
attending the transaction.” Ibid. As explained, though, the Agreement between Riverdale and
AMG clearly specified who benefitted from the release, and AC did not make the list. Thus, the
court may not infer that Riverdale agreed to substitute AMG’s obligation for AC’s, especially
considering that the court must draw all reasonable inferences in Riverdale’s favor on a Rule
12(b)(6) motion. See Roberts v. City of Chicago, 817 F.3d 561, 564 (7th Cir. 2016) (“In
construing the complaint, we accept all well-pleaded facts as true and draw reasonable inferences
in the plaintiffs’ favor.”).
Accordingly, the Agreement between Riverdale and AMG does not release AC from
liability to Riverdale. That does not mean, as AC warns, that Riverdale will receive a “double

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recovery.” Doc. 54 at 7. If Riverdale prevails on its contract claim, it will be able to recover
only “the amount of money necessary to place [it] in a position as if the contract had been
performed.” In re Ill. Bell Tel. Link-Up II, 994 N.E.2d 553, 558 (Ill. App. 2013). This means
that Riverdale’s recovery will be reduced by any amount that AMG paid for the washers listed in
the complaint. See Servbest Foods, Inc. v. Emessee Indus., Inc., 403 N.E.2d 1, 7 (Ill. App. 1980)
(“The resale remedy afforded by [Uniform Commercial Code] Section 2-706, under which
Servbest sought and was awarded damages, grants a seller the right to resell and hold the buyer
for the difference between the contract price and the resale price, together with any incidental
damages but less any saved costs.”). But the question before the court is not how much AC
owes, but whether the amended complaint states a claim for breach of contract. See United
States v. Luce, 2012 WL 2359357, at *5 (N.D. Ill. June 20, 2012) (observing, in ruling on a Rule
12(b)(6) motion, that “it would be inappropriate to dismiss the FCA claims now solely because
Luce may later prove facts showing that the Government cannot recover damages with respect to
some fraction of the loans identified in the complaint”) (footnote omitted). It does.
II.

AC’s Payments to Riverdale
AC next argues that it has already paid Riverdale $22,164.12, fully satisfying its

obligations under the first six invoices (numbered 41266, 41358, 41389, 41417, 41483, and
41519) listed in Riverdale’s amended complaint, and that accordingly Riverdale’s claims based
on those invoices should be dismissed. Doc. 51-1 at 2; Doc. 54 at 4, 8; Doc. 59 at 1-2.
Riverdale does not respond to the argument, Doc. 57, thereby forfeiting any right to contest that
AC made the alleged payments or that the payments are fatal to its claims based on the six listed
invoices. See G & S Holdings LLC v. Cont’l Cas. Co., 697 F.3d 534, 538 (7th Cir. 2012) (“We
have repeatedly held that a party waives an argument by failing to make it before the district

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court. That is true whether it is an affirmative argument in support of a motion to dismiss or an
argument establishing that dismissal is inappropriate.”) (citations omitted); Alioto v. Town of
Lisbon, 651 F.3d 715, 721 (7th Cir. 2011) (“Our system of justice is adversarial, and our judges
are busy people. If they are given plausible reasons for dismissing a complaint, they are not
going to do the plaintiff's research and try to discover whether there might be something to say
against the defendants’ reasoning.”) (internal quotation marks omitted). Accordingly,
Riverdale’s claims are dismissed with prejudice to the extent they are based on invoices 41266,
41358, 41389, 41417, 41483, and 41519.
III.

Fraudulent Transfer Claim
As noted, the amended complaint alleges that AC fraudulently transferred its assets to

Armor Andre in violation of the IUFTA, Ind. Code § 32-18-2-1 et seq. Doc. 51 at ¶¶ 39-53. AC
moves to dismiss that claim on the ground that the IUFTA does not allow creditors to recover
money damages from their debtors. Doc. 54 at 10-11. Neither party has cited any Indiana cases
discussing whether creditors may sue their own debtors for damages under the IUFTA, and the
court could find no such decisions in its own research. That said, the IUFTA’s text, cases from
States with similar fraudulent transfer statutes, and common sense all indicate that they may not.
The IUFTA defines a transfer of property by a debtor as “fraudulent” if:
(1) the debtor made the transfer … without receiving a reasonably equivalent
value in exchange for the transfer …; and
(2) the debtor:
(A) was insolvent at that time; or
(B) became insolvent as a result of the transfer of the obligation.
Ind. Code § 32-18-2-15. Fraudulent transfers hurt the transferor’s creditors by depleting the
transferor’s capital (or, if the transferor is an individual, his net worth) and thereby reducing the

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amount that the creditors can recover in a liquidation. See Glenda K. Harnad and Sonja Larsen,
37 Am. Jur. 2d Fraudulent Conveyances § 1 (2016) (“State fraudulent transfer law generally
attempts to protect creditors from transactions which are designed to, or have the effect of,
unfairly draining the pool of assets available to satisfy creditor claims or which dilute legitimate
creditor claims at the expense of false or lesser claims.”) (footnote omitted). So, the IUFTA
gives creditors various remedies to protect themselves from fraudulent transfers. They may sue
to “avoid the transfer,” forcing the property’s return from the transferee to the transferor. Ind.
Code §§ 32-18-2-17(a)(1). They may attach the transferred assets. Ind. Code §§ 32-18-217(a)(2). And they may “recover judgment for the value of the asset transferred … or the
amount necessary to satisfy the creditor’s claim, whichever is less.” Ind. Code §§ 32-18-2-18(b).
Importantly, if a creditor chooses this last option, the IUFTA provides that “[t]he
judgment may be entered against: (1) the first transferee of the asset or the person for whose
benefit the transfer was made; or (2) any subsequent transferee other than a good faith transferee
who took for value or from any subsequent transferee.” Ibid. Indiana’s courts, like Illinois’s,
apply the expressio unius principle: “the enumeration of certain things in a statute necessarily
implies the exclusion of all others.” Brandmaier v. Metro. Dev. Comm’n of Marion Cnty., 714
N.E.2d 179, 180 (Ind. App. 1999); see also T.W. Thom Constr., Inc. v. City of Jeffersonville, 721
N.E.2d 319, 325 (Ind. App. 1999); Mem’l Hosp. v. Szuba, 705 N.E.2d 519, 523 (Ind. App. 1999);
JKB, Sr. v. Armour Pharm. Co., 660 N.E.2d 602, 605 (Ind. App. 1996) (“When certain items or
words are specified or enumerated in a statute, then, by implication, other items or words not so
specified or enumerated are excluded.”). The IUFTA lists the people against whom a money
judgment may be entered—the “first transferee,” the “person for whose benefit the transfer was
made,” and “any subsequent transferee” except for certain good faith transferees—and the

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transferor is not one of them. So, the statute “necessarily implies” that a judgment may not be
entered against the transferor. Brandmaier, 714 N.E.2d at 181.
As noted, as far as the court can tell, no Indiana court has addressed this issue. The
IUFTA, however, is Indiana’s implementation of the Uniform Fraudulent Transfer Act
(“UFTA”), a model statute promulgated by the nonprofit Uniform Law Commission, and
numerous opinions from courts in other States hold that creditors may not sue transferors under
other implementations of UFTA. See, e.g., Lacey Marketplace Assocs. II, LLC v. United
Farmers of Alberta Co-op. Ltd., 107 F. Supp. 3d 1155, 1160 n.8 (W.D. Wash. 2015) (describing
as “unremarkable” the proposition “that a money judgment may not be entered against the
transferring debtor as a ‘person for whose benefit the transfer was made’”); Renda v. Nevarez,
223 Cal. App. 4th 1231, 1235-36 (2014) (holding that a creditor could not recover damages from
the transferor, even under the “for whose benefit” clause); Edgewater Growth Capital Partners,
L.P. v. H.I.G. Capital, Inc., 2010 WL 720150, at *2 (Del. Ch. Mar. 3, 2010) (“By its own terms,
the Delaware Fraudulent Transfer Act only provides for a cause of action by a creditor against
debtor-transferors or transferees, including actions seeking an injunction against the debtortransferor or transferee to prevent ‘further disposition’ of assets, or for damages against ‘[t]he
[first] transferee of the asset or the person for whose benefit the transfer was made’ or ‘[a]ny
subsequent transferee other than a good-faith transferee or obligee ….’”) (footnotes omitted); In
re Pritzker, 2004 WL 414313, at *15 (Ill. Cir. Ct. Mar. 5, 2004) (“It appears to this Court that the
Ten Defendants individual foundations are the proper entities from which to seek a return of the
money, not the Foundation that transferred the money.”). So, too, under 11 U.S.C. § 550(a), the
provision of the Bankruptcy Code from which the relevant provision of the UFTA derives.
UFTA § 8 com. 2; see In re Coggin, 30 F.3d 1443, 1454 (11th Cir. 1994) (holding that 11 U.S.C.

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§ 550(a) provides “no cause of action … for the value of an avoidable transfer against the
transferring debtor …”), abrogated on other grounds by Kontrick v. Ryan, 540 U.S. 443 (2004).
It also makes sense that the IUFTA would not allow money damages against the
transferor. After a debtor makes a fraudulent transfer, it is by definition unable to pay its debts
or at risk of being unable to pay its debts. Allowing money judgments against the transferee
helps the transferor’s creditors because the judgment will increase the amount of money
available to satisfy the transferor’s debts; now the creditor who holds the judgment can recover
from both the transferor’s assets and the transferee’s assets. But money judgments against the
transferor for fraudulent transfer do nothing to increase the pool of assets available to the
transferor’s creditors. The creditors as a group will recover the same amount as before (minus
the costs of litigating the fraudulent transfer action), and while the creditor holding a fraudulent
transfer judgment against the transferor might receive more than he would have otherwise, the
extra will come out of the pockets of his fellow creditors.
Imagine, for example, that company C has $100 in assets but $150 in liabilities;
specifically, creditors X, Y, and Z each hold a $50 judgment against C. If C is liquidated today,
each creditor will receive $33.33, a recovery of about 67 cents on the dollar. Now imagine that
C made a $50 fraudulent transfer, and X sues C for fraudulent transfer. After X wins the suit and
receives a $50 judgment, C still has $100 in assets (assuming away litigation costs) but now has
$200 in liabilities; X holds a $50 judgment on its initial claim against C and a $50 judgment for
the fraudulent transfer, and Y and Z each hold $50 judgments on their claims against C. Now if
C is liquidated and the proceeds are distributed proportionally, X will receive $50, but Y and Z
will each receive only $25. X’s fraudulent transfer judgment makes no difference to C, the party

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who is responsible for the fraudulent transfer, because C ends up liquidated either way, but it
harms Y and Z, the other victims of the fraudulent transfer.
Riverdale cites Hoesman v. Sheffler, 886 N.E.2d 622 (Ind. App. 2008), for the
proposition that “the party who is liable on a claim for payment … is a proper party to a claim of
fraudulent transfer.” Doc. 57 at 13. But Hoesman holds only that, when a creditor sues a
transferee to avoid a fraudulent transfer, the transferor is not a necessary party. See 886 N.E.2d
at 627 (“However, nothing under Indiana Code chapter 32-18-2 indicates that a debtor is a
mandatory party, and Indiana Code section 32-18-2-17 implicitly indicates that a debtor is not a
necessary party.”). And while the holding that it is not necessary to name the transferor as a
defendant in a suit against a transferee to avoid a fraudulent transfer may imply that it is possible
to name the transferor in that suit, recognizing AC as a possible defendant does not show that a
money judgment against AC for a fraudulent transfer—as opposed to on the original debt—is a
possible remedy. A judgment against the transferee avoiding a fraudulent transfer differs
significantly from a money judgment against the transferor for a fraudulent transfer. The former,
which allows creditors to levy on additional assets while holding the debtor’s liabilities constant,
is authorized, Ind. Code § 32-18-2-17(a)(1), while the latter, which increases the debtor’s
liabilities while holding its collectible assets constant, is not, Ind. Code § 32-18-2-18(b).
Because a creditor may not sue its own debtor for damages under the IUFTA, Riverdale’s
fraudulent transfer claim against AC is dismissed with prejudice.
IV.

Unlawful Corporate Distribution Claim
The amended complaint also alleges that AC violated Ind. Code § 23-1-28-3, which

prohibits certain corporate distributions to shareholders. Doc. 51 at ¶¶ 54-61. The statute
provides:

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A distribution may not be made if, after giving it effect:
(1) the corporation would not be able to pay its debts as they become due in
the usual course of business; or
(2) the corporation’s total assets would be less than the sum of its total
liabilities plus (unless the articles of incorporation permit otherwise) the
amount that would be needed, if the corporation were to be dissolved at the
time of the distribution, to satisfy the preferential rights upon dissolution of
shareholders whose preferential rights are superior to those receiving the
distribution.
Ind. Code § 23-1-28-3. AC sold its assets to Armor and had Armor pay Andre, a shareholder,
$10,000 out of the proceeds. Doc. 51 at ¶ 56. AC also made direct distributions to Andre or
another shareholder in late 2014 or early 2015. Id. at ¶ 57. Because AC was unable to pay its
debts after Andre received those payments, Riverdale contends, the payments were unlawful.
AC argues that the claim should be dismissed because Riverdale is the wrong plaintiff;
only the corporation itself can sue over an unlawful corporate distribution. Doc. 54 at 13-14.
AC cites no Indiana cases addressing the question, and the court could not find any. Still, AC
appears to be correct. Section 23-1-35-4(a) of the Indiana Code provides that “a director who
votes for or assents to a distribution made in violation of this article or the articles of
incorporation is personally liable to the corporation ….” Ind. Code § 23-1-35-4(a) (emphasis
added). Again, the fact that the statute mentions that the corporation may recover for an
improper distribution, but not that the corporation’s creditors may recover for an improper
distribution, strongly implies that creditors may not recover. See Brandmaier, 714 N.E.2d at181
(applying the expressio unius maxim to interpret a zoning ordinance). Courts interpreting similar
provisions in other States have held that they do not give creditors a cause of action. See
Weinstein v. Colborne Foodbotics, LLC, 302 P.3d 263, 268 (Colo. 2013) (holding that creditors
of an LLC could not recover for an unlawful distribution, although the LLC itself could recover);

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Schaefer v. DeChant, 464 N.E.2d 583, 585 (Ohio App. 1983); Wakeman v. Paulson, 506 P.2d
683, 685 (Or. 1973).
Riverdale acknowledges that only the corporation may sue the directors who authorized
an unlawful distribution, but it argues that the corporation’s creditors may sue the corporation
itself. Doc. 57 at 14. But there is no statutory basis for that position, and for good reason—it
makes about as much sense as allowing creditors to sue the transferor to recover for a fraudulent
transfer. Unlawful corporate distributions are unlawful because they leave the corporation
undercapitalized; that means that suits by creditors over such distributions will only shuffle
money among the creditors without increasing the size of their total recovery.
The case cited by Riverdale to support its position, In re Lake Country Investments, 255
B.R. 588 (Bankr. D. Idaho 2000), does not hold that creditors may seek to recover from
corporations for unlawful corporate distributions. There, a corporation’s creditor (actually, the
creditor’s trustee in bankruptcy, but that detail is immaterial) sued the corporation’s shareholder
to undo a distribution from the corporation to the shareholder. The court observed that an Idaho
rule required creditors in such suits to exhaust their remedies against the corporation before
going after shareholders. Id. at 600-01. But that does not mean that creditors can seek money
judgments from debtor corporations to recover for unlawful distributions. Instead, it means that
creditors must first seek to recover from their debtors for the original debt before going after
shareholders for the extra. As the court explained: “There is no reason to impose liability on a
shareholder for a distribution previously received from a corporation, which allegedly made or
would make the corporation unable to pay its debts, if the corporation can in fact satisfy its
obligations.” Id. at 601. To understand Lake Country as holding that creditors may sue
corporations for unlawful distributions would be, again, to conflate the enforcement of a debtor’s

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existing liabilities (collection actions against the debtor, suits to avoid fraudulent transfers or
unlawful corporate distributions) with steps to impose new liabilities on the debtor (suits against
the debtor for fraudulent transfer or unlawful corporate distribution).
Because Riverdale has no viable unlawful corporate distribution claim, the claim is
dismissed with prejudice.
V.

Unjust Enrichment Claim
Lastly, AC moves to dismiss Riverdale’s unjust enrichment claim on the ground that it is

inconsistent with Riverdale’s contract claim. Doc. 54 at 8-9. Riverdale agrees that the unjust
enrichment claim should be dismissed in light of AC’s acknowledgment that valid contracts
existed between the two parties. Doc. 57 at 3 n.2. Accordingly, the unjust enrichment claim is
dismissed without prejudice. If AC later decides to dispute the existence of valid contracts
between it and Riverdale, Riverdale may revive the unjust enrichment claim.
Conclusion
For the foregoing reasons, AC’s motion to dismiss is granted in part and denied in part.
Riverdale’s contract and account stated claims are dismissed with prejudice to the extent they are
based on invoices 41266, 41358, 41389, 41417, 41483, and 41519, and its fraudulent transfer
and unlawful corporate distribution claims are dismissed with prejudice as well. The unjust
enrichment claim is dismissed without prejudice. AC shall answer the surviving portions of the
amended complaint by August 11, 2016.

July 22, 2016
United States District Judge

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