RANDOLPH HAINES, Bankruptcy Judge
In this Court's Opinion denying the Kohlberg Defendants' motion to dismiss, the Court did not make clear whether that ruling also applied to individual defendants who joined in that motion. To the extent that an individual defendant did nothing more than join in the Kohlberg motion, that Opinion applies to the individual defendant. Due to the uncertainty created by the Court's lack of specificity, however, such individual defendants' answers shall be due within 10 days after notice of this decision, pursuant to Bankruptcy Rule 7012(a), or within such time as stipulated by the Plaintiff.
This includes defendants James D. Pack and Michael S. Geele. Defendant Kromer has answered and moved for summary judgment, which is set for hearing on August 11, 2005.
Motion to Dismiss Pursuant to Rule 9(b)
Certain individual defendants have in addition moved to dismiss pursuant to F.R.Civ.P. Rule 9(b), for failure to plead fraud with particularity.
Beaith, Gaubert, Gentles, Sielaff, Vannatta, Vigil, Gioia and Williams.
First, it is doubtful that Rule 9(b) applies to fraudulent transfer claims. Many aspects of scienter are necessary elements of classic fraud, and yet there is no scienter element to a constructive fraudulent transfer. The Arizona law cited by these Defendants are constructive fraudulent transfer cases, and they merely hold that the elements of constructive fraudulent transfer must be pled, without applying Rule 9(b)'s particularity standard.
Ferguson v. Roberts, 64 Ariz. 357, 360, 170 P.2d 855, 857 (1946); Union Bank v. Pfeffer, 18 Ariz. App. 368, 389-90, 502 P.2d 535, 538-39 (1972). Accord, Smith v. Arthur Anderson, 175 F.Supp.2d 1180, 1201 (D.Ariz. 2001).
An actual fraudulent transfer claim hinges entirely on the transferor's intent. This intent may not be fraudulent, however, as it may instead be an intent to hinder or delay creditors. It may not contain any of the elements of classic fraud, because frequently there is no representation, whether true or false, and no knowledge, belief or reliance by the injured creditor, whether reasonable or not. Consequently, the caselaw purporting to apply Rule 9(b) to actual fraudulent transfer claims merely requires only that "the requisite mental state [be pled] with particularity." But, as noted, for an actual fraudulent transfer that "requisite mental state" is merely that the transfer was made with actual intent to hinder, delay or defraud creditors. And Rule 9(b) itself provides that "Malice, intent, knowledge, and other condition of mind of a person may be averred generally."
National Council on Compensation Insurance Inc. v. Caro Graifman, 259 F.Supp.2d 172, 179, citing Atlanta Shipping Corp. v. Chemical Bank, 818 F.2d 240, 251 (2d Cir. 1987).
Finally, "the reasons for the particularity rule are not present when the fraud alleged is that of someone who is not a party to the action, and it has been held that in such a case the circumstances of the fraud or mistake need not be pleaded by the plaintiff with any special degree of particularity." Here the fundamental transfers were committed by the Debtors, who are not parties.
5A Wright Miller, Federal Practice and Procedure Civil 3d § 1297, at 181-82 (2004). Accord, Smith v. Arthur Anderson, supra.
Here, even if Rule 9(b) applies, the factual circumstances constituting the badges of fraud from which the requisite mental state may be inferred are pled with sufficient particularity.
The motion to dismiss does not really argue that the circumstances constituting the fraud lack sufficient particularity, but rather the essence of the individual Defendants' argument is that the complaint fails to allege what particular role each individual Defendant is alleged to have played in those circumstances. Rather than a Rule 9(b) motion, however, such an argument is more properly asserted as a Rule 12(e) motion for more definite statement. The standard there, however, is that the pleading is "so vague or ambiguous that a party cannot reasonably be required to frame a responsive pleading." Even without specifying the alleged role of each individual Defendant, however, the Trustee's Second Amended Complaint cannot be said to suffer from that defect. The acts constituting the alleged actual fraudulent transfers are identified with sufficient particularity that the individual Defendants can identify for themselves what role they may have played in those acts. Because they presumably know what they did while working for the corporate defendants, they can reasonably to expected to respond that they had no role nor responsibility with respect to those particular transfers, if that is their defense.
The details of each individual's conduct can be fleshed out through discovery or motions for summary judgment. Consequently the individual defendants' motion to dismiss pursuant to Rule 9(b) is denied.
Motion to Dismiss for Failure to State Claim for Breach of Fiduciary Duty
The individual defendants argue that the complaint fails to state a claim for breach of fiduciary duty because Southwest Supermarkets is an LLC without officers or directors. They suggest that titles such as "President" were illusory and implied no fiduciary duties.
The complaint, however, adequately asserts claims for breach of fiduciary duties. It alleges that the individual defendants were "mangers, officers and/or directors" of Southwest Holdings and Southwest Supermarkets (Second Amended Complaint ¶¶ 15 18), that these directors, officers and managers owed a fiduciary duty to Southwest Supermarkets and to its creditors (Complaint ¶ 77), and that they breached these fiduciary duties by failing to obtain repayment of the tax overpayment (Complaint ¶ 78), by allowing or causing the Pack buyout (Complaint ¶ 127), by wrongfully prolonging Southwests' existence for their own benefit and at the expense of its creditors (Complaint ¶¶ 134 138), and by misusing the company and its funds to the preference of themselves through management fees, salaries, benefits and the like (Complaint ¶ 146). The individual defendants may well defend that they owed no such fiduciary duties due to their positions and roles within the LLCs. That is a matter to be asserted defensively, however, not a failure to state a claim for breach of fiduciary duty.
The individual defendants' motion to dismiss for failure to state a claim for breach of fiduciary duty is therefore denied.
These individual defendants shall answer within 10 days of notice of the ruling, or within such additional time as Plaintiff may stipulate.