Capmark Financial Group Inc. et al v. Goldman Sachs Credit Partners L.P. et al

Filing 39

OPINION re: 31 MOTION to Dismiss the Amended Complaint filed by Goldman Sachs Mortgage Company, Goldman Sachs Credit Partners L.P., Goldman Sachs Lending Partners LLC, Goldman Sachs Canada Credit Partners Co. Based on the conclusions set forth above and the prior proceedings, the motion of the Goldman Lenders is granted and the AC is dismissed with prejudice. (Signed by Judge Robert W. Sweet on 4/8/2013) (cd)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-----X

CAPMARK FINANCIAL GROUP INC.; SUMMIT
CREST VENTURES, LLCi CAPMARK CAPITAL LLC
(F!K!A CAPMARK CAPITAL INC.); CAPMARK
FINANCE LLC (F!K!A CAPMARK FINANCE INC.) i
COMMERCIAL EQUITY INVESTMENTS LLC (F!K!A
COMMERCIAL EQUITY INVESTMENTS INC.);
MORTGAGE INVESTMENTS LLCi NET LEASE
ACQUISITION LLCi SJM CAP, LLCi CAPMARK
AFFORDABLE EQUITY HOLDINGS LLC (F!K!A
CAPMARK AFFORDABLE EQUITY HOLDINGS INC.);
CAPMARK REO HOLDING LLCi AND CAPMARK
INVESTMENTS LP,

11 Civ. 7511
OPINION

Plaintiffs,
-against
GOLDMAN SACHS CREDIT PARTNERS L.P.; GOLDMAN
SACHS CANADA CREDIT PARTNERS CO.; GOLDMAN
SACHS MORTGAGE COMPANY; AND GOLDMAN SACHS
LENDING PARTNERS LLC,
Defendants.

----- X
A P PEA RAN C E S:
aintiff
KASOWITZ, BENSON, TORRES & FRIEDMAN LLP
1633 Broadway
New York, NY 10019
By: Michael C. Harwood, Esq.
Adam L. Shiff, Esq.
At

for Defendants

DAVIS POLK & WARDWELL LLP
450 Lexington Avenue
New York, NY 10017
By:
amin S. Kaminetzky, Esq.
Andrew D. Schlichter, Esq.

Sweet, D.J.

Defendants Goldman Sachs Credit Partners L.P., Goldman
Sachs Canada Credit Partners CO'

I

Goldman Sachs Mortgage

Company I and Goldman Sachs Lending Partners LLC (the "Goldman
Lenders" or the "Defendants")

I

have moved pursuant to Rule

12 (b) (6) of the Federal Rule of Civil Procedure to dismiss the
Amended Complaint (the "AC") of
Group Inc.

aintiffs Capmark Financial

( "CFGI II), Summi t Crest Ventures, LLC, Capmark Capital

LLC (f/k/a Capmark Capital Inc.), Capmark Finance LLC (f/k/a
Capmark Finance Inc.), Commercial Equity Investments LLC (f/k/a
Commercial Equity Investments

I

Inc.), Mortgage Investments, LLC,

Net Lease Acquisition LLC, SJM Cap, LLC

I

Capmark

fordable

Equity Holdings LLC (f/k/a Capmark Affordable Equity Holdings
Inc.), Capmark REO Holding LLC, and Capmark Investments LP
(collectively, with CFGI, the "Plaintiffs

The issues present

here

lf

or "Capmark

lf

).

se out of the complex

transactions surrounding the $8.7 billion leveraged buyout of
CFGI

2006, a restructuring of its debt and its bankruptcy in

2009, in which the Goldman Lenders and other entities or
affiliates of the Goldman Sachs Group Inc.

Group")

I

(the "Goldman Sachs

the parent of the Goldman Lenders were involved.
1

The

AC asserts claims that the $145 million payment to the Goldman
that must be avoided because

Lenders was a preferential trans
the Goldman

, though its affiliates, were statutory and

non-statutory

iders.

iffs seek to overcome the

The PI

Goldman Lenders

corporate differentiations and
their preservation.

Able counsel has presented

ist upon
complicated

issues with skill and diligence.

These distinctions

form are relied upon by

participants in structuring complex financial transactions such
as those presented here and

iff's present position is a

reversal of their prior representations.
set

below, the motion of the Goldman

Upon the conclusions
is granted

and the AC is dismissed.

I. Prior Proceedings

The Plaintiffs' predecessors (the "Debtors") entered
into two unsecured credit facilities in March 2006, pursuant to
which they incurred $8.7 billion in unsecured debt from various
1

, including

Defendants.

In connection with this

loan, Goldman Sachs Group managed the PIA Funds, which along
with other lenders,

a limited liability company that
2

owned 74%

CFGI.

In May 2009, the Debtors partially repaid

this debt by entering into a $1.5 bill

secured credit

facility.

According to the Plaintiffs, as a lender with a member
on CFGI's Board of Directors, the Goldman Lenders stood on both
sides of this new loan.

iffs contend that, as a

The PI

of this transaction, the Defendants received $147 million
to reduce their unsecured loan
was

ter positioned to

held a new secured loan
payment in full when

iffs' predecessor entity declared bankruptcy in Oc
2009.

After several months of unsuccessful attempts to
negotiate a comprehens

out-of-court restructuring, on October

25, 2009, Capmark commenced voluntary Chapter 11 proceedings in

the United States Bankruptcy Court for the Dis
before the Honorable

ct of Delaware

stopher S. Sontchi.

According to Defendants, on August 10, 2010, the
Official Committee

Unsecured Creditors (the "Committee")

filed a motion seeking standing to pursue, among other things,
the same preference claims against the Goldman Lenders that are
3

ter briefing and discovery

now at issue in this litigation.

on the Committee's standing motion and a closely-related
settlement involving broader claims against all secured lenders
on October 14, 2010, Judge Sontchi commenced a five-day
evidentiary hearing to consider both the settlement and the
Committee's standing motion.

Capmark took the position that the

Committee's preference claims "cannot satisfy the test for
colorability" and "are insufficient to survive the pleadings
stage, much less present any likelihood of success on the

merits."

(Kaminetzky Decl., Ex. D. at ~~ 43, 80).

On November 1, 2010, Judge Sontchi issued a ninety
three document entitled "Findings of Fact and Conclusions" of
Law (the "Findings and Conclusions") in which he, among other
things, approved the settlement and denied as moot the
Committee's motion for standing to pursue the preference claims.

The Committee filed a motion for reconsideration as to
its standing to pursue the preference claims.

Judge Sontchi

held a hearing on the Committee's reconsideration motion on
April 11, 2011.

According to the Defendants t at that hearing t

Judge Sontchi explained that while he did not consciously intend
to characterize the Committeets preference claims as moot t
4

'''*i.'_______
w,......,.­

stood ready to expand upon
address those claims.

s Findings and Conclusions to

The Defendants contend that when it

became increasingly apparent that Judge Sontchi might issue a
definitive adverse ruling on the merits as to the preference
claims, the Committee sought to withdraw its standing motion
without prejudice with leave to refile.

When Judge Sontchi

refused, stating that any dismissal or withdrawal of the motion
would be with prejudice, the Committee withdrew with prejudice
s motion for standing to pursue the preference claims.
Plaintif

The

'disagree with the Defendants' characterization of

the April 2011 hearing, instead noting that the Bankruptcy Court
acknowledged that its opinion was not intended to address the
Committee's standing to bring the insider preference claims,
which were independent of the approved settlement.

According to the Defendants, Judge Sontchi, in

s

order approving the Committee's withdrawal of its standing
motion with prejudice, expressly reserved the Goldman Sachs
creditors' right to argue that the Plaintiffs, as the
reorganized entity emerging out
are the

the Chapter 11 proceedings,

ter ego of the Committee, and, as such, are likewise

precluded from asserting the preference claims.

The Defendants

also contend that the Bankruptcy Court reserved jurisdiction
5

over this issue.

The Plaintiffs dispute this characterization

the Bankruptcy Court's order.

According to the Plaintiffs,

on August 24, 2011, Judge Sontchi confirmed the debtors' plan or
reorganization, under which the Plaintiffs retained the right to
prosecute the insider preference claims that are the subject of
this action.

On September 30, 2011, Capmark emerged from
bankruptcy, the Committee was dissolved, and the Committee's
constituents acquired over 99% of the equity in the Plaintiffs,
who constitute the reorganized debtor that emerged from the
bankruptcy proceedings.

On October 24, 2011, the Plaintiffs commenced the
present action in the Southern District of New York seeking to
recover, as insider preferences, $147 million in trans

rs made

by the Plaintiffs' predecessors to the Defendants within a year
before the Debtors filed their petitions for reorganization in
bankruptcy.

According to the Defendants, the Plaintiffs in this

action are the Committee in a different guise, represented by
the same counsel, seeking the same relief that the Committee
earlier sought before Judge Sontchi.

6

On May 18 1 2012
that

1

Plaintiffs filed the AC I alleging

Goldman Lenders were Capmark insiders

transfers

l

and that

legedly made to the Goldman Lenders in connection

with the Secured credit Facility beyond the normal ninety-day
preference period can be avoided pursuant to 11 U.S.C.
547 (b) (4) (B) .

(AC "

82-102).

§

Plaintiffs also allege that the

Goldman Lenders were statutory insiders pursuant to 11 U.S.C.

§

101[ and non-statutory insiders under applicable case law.

The instant motion to dismiss the AC was heard and
marked fully submitted on November 141 2012.

II.

Background

The facts are taken from the AC and the declarations
submitted by the part

s and are not in dispute except as noted

below.

7

The Goldman Lenders are four lender subs
The Goldman Sachs Group.

The

aries of

aintiffs are CFGI and ten of its

debtor affiliates. 1

On March 23, 2006, several affiliates of The Goldman
Sachs Group entered into a package of intertwined agreements
constituting leveraged buyout
became CFGI.

"LBO Transaction") of what

(AC ~~ 2, 29-36).

PIA Funds along with

investors became members of GMACCH, which acquired approximately
75% controlling ownership stake in CGFI.

(Id. ~~ 2, 29).

PIA Funds are four legally and operationally distinct limited
partnerships primarily consisting of investor capital and
1 Investment Area. 2

managed by The Goldman Sachs Group's

PIA Funds held a 19.8% ownership interest in
GMACCH and
with its

legedly became a maj
llow LLC members.

Capmark's Board

ty owner of CFGI together

(Id. ~~ 2, 29).

One designee to

Directors was appointed by the PIA Funds.

All references to CFGI and its reorganized debtor affiliates as they existed
prior to the effective date of the Third Amended Joint Plan of Capmark
Financial Group, Inc. and certain of its affiliated proponent debtors under
chapter 11 of the Bankruptcy Code (the "Plan") shall be to CFGI and its
affiliates as they existed prior to consummation of the Plan.
1

2 The PIA Funds consist of CS Capital Partners V Fund, L.P., GS Capital
Partners V Offshore Fund, L.P., GS Capital Partners V GmbH & Co. KG, and GS
Capital Partners V Institutional, L.P.

8

The Goldman Lenders acquired positions in two loans to
Capmark to finance the LBO Transaction:

(i) a $5.5 billion

Unsecured Credit Facility dated March 23, 2006 (the "2006 Credit
Facility") with Defendant Goldman Sachs Credit Partners L.P. as
the Documentation Agenti and (ii) a $5.25 billion Unsecured
Bridge Loan dated March 23, 2006 (the "Bridge Loan"), with
Defendant Goldman Sachs Credit Partners L.P. acting as a
Documentation Agent, Joint Lead Arranger, and Joint Bookrunner.
Id. ~ 31).

According to the Plaintiffs, the debt and equity
aspects of the investment in Capmark were inextricably
intertwined, as neither the loans nor the acquisition would have
occurred without the other.

Id. ~ 33).

The acquisition by

GMACCH was conditioned on the execution of the Pre Petition
Credit Facilities by the Goldman Lenders pursuant to a
commitment letter issued by, among others, Defendant Goldman
Sachs Credit Partners L.P.

At the same March 23, 2006

closing, CFGI also entered into an agreement to retain Goldman
Sachs & Co. to provide management, monitoring, and advisory
services to Capmark for a

of approximately $4 million per

9

year, to increase by 5% annually, regardless of whether any
(Id. ~ 35).

services were provided.

From 2006 through 2009, three managing directors of
Goldman Sachs Group, including Stephen Trevor ("Trevor"), Stuart
Katz ("Katz") and Bradley Gross
~

the Capmark Board.
throughout the managing

("Gross") served in seriatim on

38).

According to the Plaintif

rectors' respective tenures, each

acted as an agent and representat

of Defendants, Goldman

Sachs Group. and the Goldman Lenders.
a member

(Id.).

Each also became

the Capmark Board's Risk, Controls and Finance

Committee ("Finance Committee") .

(Id. ~~ 2, 38).

In addition,

Gross allegedly remained in regular communication regarding CGFI
with Goldman Sachs' employees involved in both its lending and
Id. ~ 52).

investment business.

Plaintif

allege that over the span of two years, the

CFGI Board approved the private placement of certain notes and
engaged in an exchange
Lenders.

fer which benefited the Goldman

For example, CGFI refinanced some of the LBO

Transaction, which allowed the Goldman Lenders to receive early
repayment of some debt and to reduce some of the debt burden of
the company it now allegedly owned.
10

(Id. ~ 39).

Specifically,

in May 2007, CGFI issued $2.55 billion of senior unsecured notes
in a private placement.

Goldman, Sachs & Co., which was

(Id.).

over 98% owned by The Goldman Sachs Group served as the Global
Coordinator and Bookrunner of the Note offering, for which it
(Id.).

received substantial compensation.
I

In addition, nearly

the proceeds from the Note issuance were used to repay a

portion of the Bridge Loan that was owed to Defendants.

(Id.) .

Plaintiffs contend that The Goldman Sachs Group's
controlled

filiates possessed a controlling interest

Capmark, as the lead lenders, managers and advisors, and had a
Id. ~~ 29, 31, 34 36).

representative on Capmark's Board.

They

aver that the participants in the LBO Transaction intended,
understood, and represented to the investing public that all
parts of

LBO Transaction were and should be viewed as one

unified transaction.

Id. ~ 37).

By virtue of this LBO

Transaction, the Goldman Lenders and their affiliated parent and
Goldman Investors allegedly acted jointly to become lenders,
owners, and managers of CFGI.

In May 2008, CFGI

Id.

~

36).

so engaged in an exchange offer

pursuant to which it exchanged

$2.55 billion of privately

offered 2007 Notes for publicly tradable notes.
11

(Id. ~ 40) .

Goldman

I

Sachs & Co. was chosen as the underwriter of the 2008

exchange offer

for which it again received substantial

l

compensation.

Board noted that Goldman Sachs &

Id.

role as lead underwriter made it necessary for CFGI to

CO./S

file an SEC Form S-l shelf
Sachs

l

affiliation with

stration disclosing "Goldman
Company by virtue of its ownership
ation.

interest and Board
distinguish in the SEC fil
serving as an owner

I

~

(Id.

II

42).

CFGI did not

among the various Goldman entities

a Board member

I

a lender

l

and an

underwriter when it disclosed "Goldman Sachs l affiliation. 1I
Id.

In late 2008 1 because of

-market turmoil and a

related decline in the value of its mortgage-related holdings

I

CFGI found itself in a challenging financial situation and
expected to incur a substantial loss in
Id. ~~ 41 53).

AccordinglYI CFGI explored

at extending the maturity of their debt
converting debt to equity to stabilize the
(Id.).

long term.

The Debtors

l

most

lenge was the impending March 23 1 2009

fourth quarter.
ternatives aimed
potentially
ance sheet for
financial
e for the

principal balance of $833 million on the Bridge Loan owed to the
Goldman Lenders

I

among others.

(rd.) .

12

To deal with these financial difficulties, CFGI's
Board appointed a special committee (the "Special Committee") to
consider strategic restructuring alternatives.

Id. ~ 54).

According to Plaintiffs, Gross and other Goldman employees
participated in numerous Special Committee and Board meetings
and were involved with major decisions regarding how to deal
Id. ~~ 52, 54 63).

with the impending debt payment.

After

extensive negotiations, on May 29, 2009, CFGI other debtor
guarantors, with CFGI Board's approval,3 entered into the 2006
Credit Facility or Bridge Loan with the Goldman Lenders and
various other lenders.

Pursuant to that agreement, CFGI secured

a new $1.5 billion secured term loan facility (the "Secured
Credit Facility") to pay down the same amount of the 2006 Credit
Facility.

Id. ~~ 44, 47).

CFGI also granted security

interests in nearly all its u.S. and Canadian mortgage loan
assets and foreclosed real estate, other than its ownership of
and the assets of Capmark Bank.

Id.

~~

45 46).

According to Plaintiffs, the Secured Credit Facility
thus replaced unsecured debt with Secured Debt, which was better
3 Although Gross participated in the Board's discussions of this loan,
he
ultimately abstained from the vote on the resolution to protect Goldman's
conflicted positions.
rd. ~~ 4, 52, 60}.

13

pos

ioned to be paid in full when the Debtors entered
Id. ~ 48).

bankruptcy five months later.

The Secured Credit

Facility had repayment terms that were allegedly less favorable
to CFGI than the 2006 Credit Facility and Bridge Loan, including
a higher "Base Rate" interest rate, an additional "Applicable
Margin" of 1.5% per year above the "Base Rate," and an
additional "Applicable Margin" of 2.5% per year for "Eurodollar
Rate Advances," as well as imposing liens on most of its non­
CGFI Bank properties.

(Id.

~~

46, 51).

In addition, the Goldman Lenders, as Lenders on the
2006 Credit Facility and Bridge Loan, received $145,623,054 from
CFGI's Secured Credit Facility and cash payment, as further
detailed in the AC.

(Id.

~~

91-93).

Less than 90 days later,

the CFGI Board considered filing for bankruptcy within the 90
day preference period that would have required the Goldman
Lenders to return these payments regardless of whether they were
insiders, but the Board, including Gross, decided to wait until
after the preference period expired.

Id. ~~ 7, 67).

CFGI filed

its Chapter 11 petition less than two months after this
preference period expired.

Id. ~~ 7,68).

III. The Applicable Standard

14

In considering a motion to dismiss pursuant to Rule
12(b) (6), the Court construes the complaint I

rally, accepting

all factual allegations as true and drawing all reasonable
inferences in the plaintiff's favor.
---=-­., 12 F.3d 1170, 1174

Mills v. Polar Molecular

(2d Cir. 1993).

The issue "is not

whether a plaintiff will ultimately prevail but whether the

claimant is entitled to offer evidence to support the claims."

ViII
1995)

Inc. v. Town of Darien, 56 F.3d 375, 378 (2d Cir.

(quoting Scheuer v. Rhodes, 416 U.S. 232, 235-36, 94 S.

Ct. 1683, 40 L. Ed. 2d 90 (1974)).

To survive dismi

, \\a complaint must contain

sUfficient factual matter, accepted as true, to 'state a claim
to relief that is plaus

,"

e on its

Ashcroft v. I

556 U.S. 662, 129 S. Ct. 1937, 1949, 173 L. Ed. 2d 868
(quoting

--------------~------------~

, 550 U.S. 544, 570, 127 S.

Ct. 1955, 167 L. Ed. 2d 929 (2007)).
suffic

facts to "nudge [

conceivable to plausible."

(2009)

aintiffs must allege

ir claims across the line from
Twombly, 550 U.S. at 570.

"The

plausibility standard is not akin to a 'probability
requirement,

I

but it asks for more than a sheer poss

a defendant has acted unlawfully."
15

lity that

Cohen v. Stevanovich, 772 F.

Supp. 2d 416, 423

(S.D.N.Y. 2010).

Though the court must accept

the factual allegations of a complaint as true, it is "not bound
to accept as true a legal conclusion couched as a factual
allegation."

Iqbal, 556 U.S. at 678.

(quoting Twombly, 550 U.S.

at 555) .

IV.

Discussion

Plaintiffs contend that the AC has adequately alleged
that

(i) Defendants were statutory insiders of the Debtors at

the time of the Secured Credit Facility because they had
acquired their Capmark stock collectively with a group of
investors who together became members of GMACCH, a limited
liability company that owned approximately 74% of Capmark or
(ii) in the alternative, that Defendants were non-statutory
insiders in their own right.

On the other hand, Defendants contend that there is no
basis for Plaintiffs' statutory insider claims against the
Goldman Lenders as they are separate corporate entities from the
PIA Funds and The Goldman Sachs Group, and that no facts have
been alleged supporting veil piercing of these entities.
addition, Defendants argue that Plaintiffs have failed to
16

In

identify the basic

emebts of a non statutory insi

let alone allege facts that support one.
dismissal of Plaintif

'claims wi

They seek the

prejudice.

A) The Allegations Of The Statutory Insider Claims Are
Insufficient

the term "insider u of a

The Bankruptcy Code def

corporate debtor as including a "(i) director,u "(ii) officer,u
"(iii) person in control,u "(iv) general partner u

the debtor,

"(v) a relat

of U one of those, or an "affiliate, or an

insider of an

filiate as if such affiliate were the debtor. u

11 U.S.C.

§§

"entity that

101 (31) (B), 101 (31) (E).

An "affil

rectly or indirectly owns, cont

e U is an
s, or holds

with power to vote, 20 percent or more of the outstanding voting
securities of the debtor .
addition,

"

II

11 U.S.C

§

101 (31) (2) (A) .

language of section 547(b) (4) (B) states that an

insider relationship is to be determined on the exact
the challenged transfer."
n.113

In

of

5 Collier on Bankruptcy ~ 547.03[6]

(Alan N. Resnick & Henry J. Sommer

., 16 th ed. rev.).

"Where the allegedly inequitable conduct was committed
by an 'insider' of the debtor, that conduct will be 'rigorously
scrutini

, by the courts.U

Pan Am

. v. Del

--------~~~--------~~~~~~~

17

Inc., 175 B.R. 438, 499 (S.D.N.Y. 1994)

"Once

(citing cases).

the debtor produces material evidence of inequitable conduct by
an insider, the burden of proof shifts to the insider to
demonstrate the good faith and inherent 'fairness' of his
conduct toward the debtor and the other creditors."

Id.

Here, the AC does not allege that the Goldman Lenders,
as distinct from the PIA Funds,

11 within any of the

statutory insider categories set forth in 11 U.S.C.

§

101(31)

Plaintiffs have not alleged that any of the Goldman Lenders were
(a) directors, officers, or general partners of a Debtor in the
CFGI bankruptcy;

(b)

"person[s] in control" of a Debtor; or (c)

affiliates, or insiders of an
§§

101 (31) (B), 101 (31) (E).

filiate, of a Debtor.

11 U.S.C.

There are also no allegations that

any Goldman Lenders had an ownership interest, managerial
position, or any other role that allowed for control over a
Debtor.

Instead, Plaintiffs' allegations relate exclusively to

the Goldman Lenders through the PIA Funds' 19.8% interest in
GMACCH.

(AC "

85, 87).

The AC therefore does not allege that

the Goldman Lenders were, by themselves, statutory insiders.

In addition, the AC has not alleged that the PIA Funds
held any equity interest in the Debtors or had any power to
18

the Plaintiffs' predecessors directly to be statutory
iders.

The Plaintiffs have only alleged that

held a 19.8% stake in GMACCH, a Delaware limi

PIA Funds
liability

company that in turn held 74% of the Debtors' equity.
85, 87).

The allegation that the PIA Funds'

GMACCH allowed the PIA Funds to "extens

(AC "

ty stake in

[ly] control" GMACCH,

without more, is insufficient to demonstrate that PIA had actual
a "person[s] in control"

authority or control GMACCH required
claim under

§

101 (31) (B) (iii).

99-5068, 225 F.3d 645, at *5

See In re 455 CPW Assocs., No.

(2d Cir.

have required evidence of ext ens

14,2000)

("[C]ourts

control before finding

insider status under [identical "person in control" provision
of]

§

101 (31) (C) (v) .").

Nor would

allegation, even if

true, establish that the PIA Funds had the substantial control
rights required for a 11 U.S.C.
Wolverine

Proctor & Schwartz

Mass. 2011) i

§

101(31) (B) (i) claim. See In re

LLC, 447 B.R. 1, 31

------------------~------------~----

(Bankr. D.

, 461 B.R. 440,

477 (Bankr. S.D. Ohio 2011) .

Plaintiffs aver that Rules 13d-3 and 13d-5 under the
Securities Exchange Act or 1934 (the "Exchange Act") render the
PIA Funds as statutory
Specifically, PIa

iders.

(Memo in Opp. at 10).

iffs advance that if persons agree to act
19

together for the purposes of purchasing an issuer's
person "'shall be deemed' to be the benefic
equity securities of that issuer benefici
member of the group."
Cir.2007)

----------------- ,

(quoting 17 C.F.R.

§

, each

owner 'of all
ly owned by any'

489 F.3d 499, 508 (2d

240.13d 5(b) (1)).

By their

"purposes of

terms, Rules 13d-3 and 13d 5 apply
Sections 13(d) and 13(g) of the

Act," and are

intended to ensure that stockholders cannot avoid reporting
requirements in a corporate takeover.

17 C.F.R.

§

240.13d-3,

13d-5; see _C_S_X____~_.___.__
v C_h_l_·______ __I_n_v . __
'_s
__ F_u_n_d _~____~__~L L_P, 654
_
__
F.3d 276, 283 n.6, 283-85

(2d.

Congress' purpose in enact

r. 2011)

(explaining that

section 13(d) and Rule 13d-5 was

"to insure that public shareholders who are confronted by a cash
tender offer for their stock will not be required to respond
without adequate
intentions of the

ion regarding the qualifications and
ing party.") .

cases cited by Plaintiffs for the proposition that
"courts have

zed Rule 13d in the bankruptcy context"

(Memo. in Opp. at 10) do not suggest that Rules 13d 3 and 13d-5
under

Exchange Act should supplant the definition

"ins

set out in the Bankruptcy Code.

has

The Second

rcuit

similar attempts to supplant definitions set out in
20

the Bankruptcy Code with dissimilar definitions from the
Exchange Act.

See Enron Creditors Recovery Corp. v. Alfa,

B.A.B. de C.V., 651 F.3d 329, 339 n.4

(2d Cir. 2011)

(stating

that when a "case calls on us to interpret a provision of the
Bankruptcy Code.

It makes little sense to look to a definition

from a different statutory scheme, particularly when that
definition contradicts the Bankruptcy Code's.").

The AC therefore fails to adequately allege that the
Goldman Lenders or the PIA Funds were statutory insiders at the
time of the alleged preferential transfers.

PI

iffs Have Not All

Plaintiffs have not pled facts that would permit the
mUltiple corporate veils separating the Goldman Lenders, the PIA
Funds, and The Goldman Sachs Group to be disregarded.
Plaintiffs contend that they are not required to allege veil
piercing or alter ego theories to recover the preferential
transfers in the instant case.

They aver that Goldman Sachs

Group "had a three-year, multi-faceted relationship with
Capmark, through various subsidiaries" and made no distinction
between its roles as an investor in and lender to Capmark[.]"
21

(Memo in Opp. at 12-13).

Alternatively, Plaintiffs assert that

a federal common law of veil piercing applies here because the
case is "solely on federal questions under Bankruptcy Code
sections 547 and 550, and not diversity jurisdiction."

(Memo in

Opp. at 13).

"Well-established precedent holds that in order for
one company to be held responsible for the actions of a related
company, it is necessary that there be sufficient facts to
pierce the corporate veil."

Ins. Co. of N. Am. v. Cohn (In re

Cohn), 54 F. 3d 1108, 1117 (3d Cir. 1995) i see Clear Thinking
Group LLC v. Brightstar US, Inc.

(In re KCMVNO, Inc.), No. 08­

10600 (BLS) , Adv. Pro. No. 10-50730 (BLS) , 2010 WL 4064832, at
*3

(Bankr. D. Del. Oct. 15, 2010)

(to survive a motion to

dismiss a claim that an alleged insider's conduct can be imputed
to an affiliated creditor, a plaintiff must allege facts
sufficient to support veil piercing) i see also Official Comm. of
Unsecured Creditors of Champion Enters., Inc. v. Credit Suisse
(In re Champion Enters., Inc.), No. 09-14014
10-50514 (KG), 2010 WL 3522132, at *10
2010)

(KG), Adv. Pro. No.

(Bankr. D. Del. Sept. 1,

(dismissing insider claims based on insufficient veil­

piercing allegations) .

22

veil is a state law theory of

"Piercing the
liability that requires

s establishing that a controlling

entity ignored the

legal status of, and dominated the

affairs of, a controlled entity."
of law rules,

"the law of

Id.

Under New York's choice

state of incorporation determines

when the corporate form will be disregarded."

Fletcher v. Atex,

Inc., 68 F.3d 1451, 1456 (2d

r. 1995)

quotation marks omitted) .

, Delaware law governs the

analysis for Goldman Sachs

(citation and internal

Partners LLC (a Delaware LLC)

and Goldman Sachs Credit Partners, L.P.

(a Bermuda limited

partnership with a Delaware LLC as its
York law governs the analysis for the

partner); New
dman Sachs Mortgage

Company (a New York limited partnership with a New York
corporation as its general partner); and Nova Scotia law governs
analysis for Goldman Sachs Canada Credit Partners Co.
Nova Scotia unlimited company).

See e.

(a

NetJets Aviation

------~~--------------------~

Inc. v. LCH Commc'ns, LLC, 537 F.3d 168, 177 (2d Cir. 2008)
(Delaware law governs veil-piercing claims involving Delaware
LLCs) i In re Digital Music Antitrust Litig., 812 F. Supp. 2d
390, 418 (S.D.N.Y. 2011)

(New York law governs

1

against New York corporations) ;
Sudan v.
(S.D.N.Y. 2006)

ing
Church

Inc., 453 F. Supp. 2d 633, 684-87
(applying the laws of Mauritius and
23

Netherlands to corporations organized under those countries

l

laws) .

A claim premised on veil piercing can survive a motion
complaint all

to dismiss if

facts sufficient to show

that (1) the parent exercised "complete domination and control ll
over the subsidiary such that the subsidiary had no "legal or
independent significance of [its] own l ll and (2)

to perpetrate some form of injustice or fraud.

form was

Wallace v. Wood
Fletcher

the corporate

752 A.2d 1175 / 1183

I

(Del. Ch. 1999); see also

68 F.3d at 1457-58 (under Delaware law

l

requires a dual showing that

l

parent and subs

1 piercing

"operated

as a single economic enti tyll such that subsidiary was a "mere
instrument

itylll

and "that an overall element of

ustice or

unfairness is present ll ) ; MAG Portfolio Consult l GMBH v. Merlin
------------~----

York law

l

1268

F.3d

58 1

63

(2d Cir. 2001)

("[U]nder New

a court may pierce the corporate veil where 1) the

owner exercised complete domination over the corporation with
respect to the transaction at issue and 2) such domination was
used to commit a fraud or wrong that injured the party seeking
to
Bus

erce the veil.
Laws of

1I

(citations omitted)); Miller Thomson LLP I
§

2:6 (2011)

or lifting the corporate veil is to be
24

("[T]

remedy of piercing
only in the most

exceptional circumstances, such as cases involving fraud or
flagrant injustice, a corporation being used for a sham for the
individuals behind it, or based on principles of agency.") .

In addition, the standard for veil-piercing is very
demanding.

Thus,

"[d]isregard of the corporate form is

warranted only in extraordinary circumstances, and conclusory
allegations of dominance and control will not suffice to defeat
a motion to dismiss."

Societe d' Assurance de l'Est SPRL v.

Citigroup, Inc., No. 10 Civ. 4754
(S . D . N . Y. Sep. 13, 2011).

(JGK) , 2011 WL 4056306, at *5

"The unadorned invocation of dominion

and control is simply not enough" to state a claim premised on
veil piercing. In re Digital Music Antitrust Litig., 812 F.
Supp. 2d at 419 (dismissing veil-piercing claims under New York
and Delaware law)

i

see also Crosse v. BCBSD, Inc., 836 A.2d.

492, 497 (Del. 2003)

(affirming dismissal of veil-piercing claim

where a plaintiff failed to "plead facts supporting an inference
that the corporation, through its alter-ego, has created a sham
entity designed to defraud investors and creditors") .

Courts evaluating insider status under the Bankruptcy
Code have applied veil-piercing law.

See e.g., In re Enter.

Acquisition Partners, 319 B.R. 626, 634
25

(9 th Cir. BAP 2004)

(finding that "[s]tate law controls whether it is appropriate
for the bankruptcy court to pierce the corporate veil" in the
context of a statutory insider preference claim)

i

Stern v. Singh

Factors, LLC (In re Shore to Shore Realty, Inc.), No. 8-08­
72760-reg, Adv. Proc. No. 8-09 08296-reg, 2011 WL 350526 1 at *5
6)

(Bankr. E.D.N.Y. Feb. I, 2011)

(applying New York veil­

piercing law to a section 548 fraudulent transfer claim)

i

see

also In re Champion, 2010 WL 3522132, at *9-10 (applying state
veil-piercing law in an equitable subordination case).

This

practice is consistent with the well established principle that
any interest in the uniform application of federal statutes is
"insuffi

ent to justify displacing state law in favor of a

federal common law rule."

New York v. National Service Indus.

Inc., 460 F.3d 201, 208-09 (2d Cir. 2006)

(internal quotation

marks omitted) .

As a threshold matter,

aintiffs have contended that

a veil piercing requirement "would effectively destroy
preference liability whenever an investor uses a separate
lending entity to make and receive loan payments."
at 10).

(Memo in Opp.

However, as discussed above 1 facts must be alleged to

support a showing of domination, fraud or injustice.

Thus, a

basis for veil piercing exists when an investor exercises
26

sufficient dominion over a lender to use that entity for its own
fraudulent or unjust purposes.

Moreover, in Miller Avenue Professional and

Partners, Inc.), the Ninth C

Bankruptcy Appellate Panel

considered and

ected Plaintiff's position that a parent

company's insi

status claims can be imputed to its subsidiary

absent veil piercing.

319 B.R. 626, 629 (9th Cir. BAP 2004) .

In overturning the bankruptcy court's decision,
Appellate Panel

d that ""[t]he only way for [t

Bankruptcy
corporation]

to qualify as a

se insider is

disregarded and

the [corporation] to be treated as one and

the same as [the statutory insider]
is for veil

ing, the court

justification for expanding the def
beyond what is plainly contained in

the corporate form to be

/I

Id. at 633.

Absent a

ained, "there is no
tion of per se insider
statute."

Id. at 632­

33.

Plaintif

have also suggested that "Congress'

adoption of the Bankruptcy Act demonstrated an intent to impose
uniform federal laws on the subject of fraudulent trans
preferences in bankrupt

/I

(Memo in Opp. at 14).

and

However, in

27

_ _ _ _ _ _ _ _ _ _ _ _ _ _.....

_:_g!iJi~""""~------""