Mendelsohn v. Dalton Sch., Inc. (In re Molina)

657 B.R. 172

IN RE: Carlos Javier MOLINA, Debtor.

Allan B. Mendelsohn, as Trustee of

the Estate of Carlos Javier Molina, Plaintiff, v. The Dalton School, Inc., Defendant.

Case No.: 8-21-70830-las

Adv. Pro. No.: 8-22-08012-las

United States Bankruptcy Court, E.D. New York

Signed December 28, 2023

Peter J. Amend, Abbey Walsh, Schulte Roth & Zabel LLP, New York, NY, for Defendant.

Fred S. Kantrow, The Kantrow Law Group, PLLC, Smithtown, NY, for Plaintiff.

MEMORANDUM DECISION AND ORDER GRANTING DEFENDANT'S MOTION TO DISMISS

Louis A. Scarcella, United States Bankruptcy Judge

Plaintiff Allan B. Mendelsohn (the "Trustee"), as chapter 7 trustee of the estate of debtor Carlos Javier Molina (the "Debtor"), commenced this adversary proceeding against defendant The Dalton School, Inc. ("Defendant" or "The Dalton School") seeking to avoid and recover tuition payments allegedly made to Defendant by the Debtor for his three minor children for the 2020-2021 school year totaling $163,639.97. See generally Complaint ("Compl.") [Dkt. No. 1].¹

The Trustee brings claims under fraudulent transfer, preference, and unjust enrichment theories. Specifically, the Trustee seeks to avoid the tuition payments allegedly made by the Debtor to Defendant under 11 U.S.C. § 548(a)(1) and the New York Debtor and Creditor Law (the "NYDCL"), as incorporated by 11 U.S.C. § 544(b), as constructive and actual fraudulent transfers, and to recover the payments under 11 U.S.C. § 550 (First, Second, Third, Fourth, Fifth, Sixth, Eighth, and Ninth Causes of Action). In the alternative, the Trustee seeks to avoid and recover the tuition payments as preferences pursuant to 11 U.S.C. §§ 547(b) and 550² (Eleventh Cause of Action). The Trustee also seeks to recover attorneys' fees under the NYDCL (Seventh Cause of Action). In addition, the Trustee asserts an unjust enrichment claim against Defendant for its receipt of the tuition payments (Tenth Cause of Action).

Now before the Court is Defendant's motion to dismiss (the "Motion to Dismiss" or "Mot.") [Dkt. No. 13] the Complaint pursuant to Rule 12(b)(6)³ of the Federal Rules of Civil Procedure ("Fed. R. Civ. P.") for failure to state a claim upon which relief may be granted. In support of the Motion to Dismiss, Defendant submitted a memorandum of law and the Declaration of Michael Hwang, Assistant Head of School Operations and Chief Financial Officer at The Dalton School (the "Hwang Declaration" or "Hwang Decl."), accompanied by an exhibit setting forth the payments received by Defendant between July 15, 2020 and March 8, 2021 totaling $167,638.97, and itemizing the allocation of those payments for tuition in the amount of $162,540.00 and for other expenses aggregating $5,238.97. [Dkt. No. 13]. The Trustee filed an opposition to the Motion to Dismiss (the "Opposition" or "Opp.") [Dkt. 17], and Defendant filed a reply in support thereof (the "Reply") [Dkt. No. 21]. The matter has been fully briefed and the Court heard oral argument.

The Court has carefully considered the arguments and submissions of the parties and, for the following reasons, Defendant's Motion to Dismiss is granted and the Complaint is dismissed in its entirety.

JURISDICTION

The Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. § 1334(b) and the Standing Order of Reference of the United States District Court for the Eastern District of New York, dated August 28, 1986 (Weinstein, C.J.), as amended by Order dated December 5, 2012 (Amon, C.J.) entered in accordance with 28 U.S.C. § 157(a).

BACKGROUND

I. Factual Background⁴

The Complaint is comprised of very few facts. Many of the allegations constitute legal conclusions and, "[w]hile legal conclusions can provide the framework of a complaint, they must be supported by factual allegations." Ashcroft v. Iqbal, 556 U.S. 662, 679, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). Parsing the Complaint, the operative facts as alleged in the Complaint for purposes of resolving the Motion to Dismiss are set forth below.⁵

The Dalton School is a kindergarten through twelfth grade private school located at 109 E. 89th Street, New York, NY. Compl. ¶ 2; Hwang Decl. ¶ 3. The Debtor's three children were admitted to The Dalton School for the 2020-2021 school year and attended The Dalton School for the full school year in first, fifth, and sixth grades, respectively. Compl. ¶ 13; Hwang Decl. ¶ 4. According to the Complaint, the Trustee undertook an investigation into the financial affairs of the Debtor to determine if there were assets available to recover for the benefit of the estate. Compl. ¶ 9. Pursuant to Bankruptcy Rule 2004, the Trustee sought bank records for accounts allegedly maintained by the Debtor. Compl. ¶ 10. Among the documents produced, the Trustee reviewed an account maintained at JPMorgan Chase Bank, ending in the last four digits 5577 (the "Chase Bank Account"), and an account maintained at Bank of America, ending in the last four digits 4127 (the "BOA Account"). Compl. ¶¶ 11-12. Upon his review of the accounts⁶, the Trustee "discovered substantial transactions" made from the Chase Bank Account and the BOA Account to The Dalton School. Id. The Trustee alleges that, within four years of the date the Debtor commenced his chapter 7 case, the Debtor transferred a total of $163,639.97 to The Dalton School. Compl. ¶¶ 14-15.⁷

II. Procedural History

On May 3, 2021, the Debtor filed a voluntary petition pursuant to chapter 7 of the Bankruptcy Code. [Bankr. Dkt. No. 1]. On March 15, 2022, the Trustee filed the Complaint seeking to avoid and recover tuition payments allegedly made by the Debtor to The Dalton School for the education of his three minor children. In his Complaint, the Trustee brings claims under fraudulent transfer, preference, and unjust enrichment theories.

Defendant moved to dismiss the Complaint in its entirety for failure to state a claim for relief under Fed. R. Civ. P. 12(b)(6). Defendant contends that the Trustee fails to state a claim for constructive fraudulent transfer because, inter alia, (1) the Trustee does not plausibly allege facts showing that the Debtor did not receive reasonably equivalent value or fair consideration for the tuition payments; (2) the Debtor received fair consideration and reasonably equivalent value in exchange for the tuition payments as a matter of New York law; and (3) the Trustee does not plausibly allege facts showing that the Debtor was insolvent or rendered insolvent when any of the tuition payments were made, or that the tuition payments were made with the belief that the Debtor would incur debts beyond his ability to pay as they matured. Mot. at 6-11.

Defendant also contends that the Trustee does not sufficiently plead intent to defraud as to any of the tuition payments. Mot. at 11-12. Additionally, Defendant contends that the Trustee does not plausibly allege a claim for unjust enrichment because the Debtor received value in exchange for the tuition payments in the form of the education provided to his three minor children. Mot. at 13-14. Finally, Defendant maintains that the Trustee fails to cite the proper standard for avoiding preferences under § 547, yet nevertheless fails to plausibly allege a preference claim because the Trustee has not adequately alleged that Defendant is an insider of the Debtor. Mot. at 14-15.

In opposing the Motion to Dismiss, the Trustee centrally alleges that this Court should reconsider settled case law that a trustee may not claw back tuition payments made by a debtor for children that have not yet reached the age of maturity, which is 21 years old in New York. In reply, Defendant highlights that, under applicable New York law, parents are required to provide for their minor children and the parental obligation to do so includes providing an education. Defendant also reiterates that the Complaint is flawed, contending that it fails to allege sufficient non-conclusory facts to support entitlement to relief under any of the four theories asserted by the Trustee.

STANDARD OF REVIEW

I. Motion to Dismiss for Failure to State a Claim

A. General Pleading Standard

A complaint must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). Rule 8(a)(2) "does not require detailed factual allegations, but it demands more than an unadorned, the defendant-unlawfully-harmed-me accusation." Iqbal, 556 U.S. at 678, 129 S.Ct. 1937. A defendant may move to dismiss a complaint under Rule 12(b)(6) for "failure to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). To survive a motion to dismiss under Rule 12(b)(6), a complaint must "contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.' " Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. To meet this standard, a plaintiff must allege sufficient facts to show "more than a sheer possibility that a defendant has acted unlawfully." Id. The allegations "must be enough to raise a right to relief above the speculative level." Twombly, 550 U.S. at 555, 127 S.Ct. 1955.

In ruling on a Rule 12(b)(6) motion, "the duty of a court is merely to assess the legal feasibility of the complaint, not to assay the weight of the evidence which might be offered in support thereof." DiFolco v. MSNBC Cable LLC, 622 F.3d 104, 113 (2d Cir. 2010) (internal citation and quotation marks omitted). Where a plaintiff has not "nudged [its] claims across the line from conceivable to plausible, [the] complaint must be dismissed." Twombly, 550 U.S. at 570, 127 S.Ct. 1955. "Applying this plausibility standard is 'a context-specific task that requires the reviewing court to draw on its...