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MUHL v. TIBER HOLDING CORP.

August 24, 1998

EDWARD J. MUHL, SUPERINTENDENT OF INSURANCE OF THE STATE OF NEW YORK, AND HIS SUCCESSORS IN OFFICE AS SUPERINTENDENT OF INSURANCE OF THE STATE OF NEW YORK, AS LIQUIDATOR OF NASSAU INSURANCE COMPANY, IN THAT CAPACITY AND IN HIS CAPACITY AS RECEIVER OF CERTAIN RIGHTS AND ASSETS OF JUDGMENT DEBTOR ARDRA INSURANCE COMPANY
v.
TIBER HOLDING CORPORATION



The opinion of the court was delivered by: DUBOIS

ORDER AND MEMORANDUM

 ORDER

 AND NOW, to wit, this 24th day of August, 1998 upon consideration of defendant Tiber Holding Corporation's Motion for Summary Judgment (Document No. 66, filed February 5, 1998); Plaintiff's Memorandum in Opposition to the Motion of Defendant Tiber Holding Corporation for Summary Judgment (Document No. 69, filed March 5, 1998); Defendant Tiber Holding Corporation's Reply Brief In Further Support of Its Motion for Summary Judgment (Document No. 70, filed March 17, 1998); Plaintiff's Motion for Summary Judgment (Document No. 73, filed April 9, 1998); Plaintiff's Memorandum In Support of his Motion for Summary Judgment (Document No. 67, filed February 10, 1998); Memorandum of Law of Defendant Tiber Holding Corporation in Opposition to Plaintiff's Motion for Summary Judgment (Document No. 68, filed March 3, 1998); Plaintiff's Reply Memorandum in Support of his Motion for Summary Judgment (Document No. 71, filed March 20, 1998) and Stipulation of Facts Regarding Choice of Law on Breach of Contract Claim (Document No. 56, filed October 27, 1997), IT IS ORDERED THAT:

 Defendant, Tiber Holding Corporation's Motion for Summary Judgment is DENIED ;

 Plaintiff, Edward J. Muhl's Motion for Summary Judgment is DENIED.

 IT IS FURTHER ORDERED THAT:

 1. Pursuant to Federal Rule of Civil Procedure 15(a), plaintiff is granted fifteen days within which to file a second amended complaint for the limited purpose of adding to the Amended Complaint allegations, raised in plaintiff's Motion for Summary Judgment, regarding dividends paid by Ardra Insurance Co., Ltd. to defendant in 1985 and 1986. Defendant's answer to those allegations, supplementing its Answer to the Amended Complaint, shall be filed within ten days of service of the second amended complaint. One copy of the second amended complaint and the answer shall be served on the Court (Chambers, Room 12613) when the originals are filed.

 2. Within fifteen days, plaintiff and defendant shall supplement the factual record, by stipulation if they are in agreement, relating to choice of law issues including, but not limited to (a) the place or places where defendant and Corporate Holding Corporation signed the Agreement of Sale for Ardra's outstanding stock, (b) the place or places where Corporate Holding Corporation and defendant held board meetings at which the sale of Ardra's outstanding stock to Corporate Holding Corporation was discussed and approved, and (c) any other information relevant to the choice of law determination with respect to plaintiff's breach of contract claim. Two copies of all such documents shall be served on the Court when the originals are filed.

 3. The entry of the instant Order is WITHOUT PREJUDICE to plaintiff's right to present evidence and argument at trial regarding (a) alleged affirmative concealment of the claimed fraudulent conveyances, (b) whether defendant should be equitably estopped from relying on a statute of limitations defense with regard to the claim of fraudulent conveyances, and (c) whether the statute of limitations should be equitably tolled with respect to the fraudulent conveyances claim;

 4. The entry of the instant Order is WITHOUT PREJUDICE to plaintiff's right to present evidence and argument at trial regarding the commission by defendant of actual fraud, in addition to constructive fraud, in making the conveyances at issue;

 5. The entry of the instant Order is WITHOUT PREJUDICE to defendant's right to present evidence at trial that plaintiff knew, or reasonably should have known, of the allegedly fraudulent conveyances more than two years prior to filing suit and arguing that, as a result, plaintiff's claim of actual fraud is time barred and plaintiff is precluded from invoking the doctrines of equitable estoppel or equitable tolling with regard to the statute of limitations for the claim of constructive fraud.

 MEMORANDUM

 Plaintiff, the Superintendent of Insurance of the State of New York, initiated this litigation in his capacity as Liquidator of Nassau Insurance Company ("Nassau") in May, 1994 against defendant as the former owner of Ardra Insurance Co., Ltd ("Ardra"). Initially, plaintiff sought to satisfy a 1994 New York state court judgment of $ 16.3 million against Ardra by piercing its corporate veil and enforcing the judgment against defendant. The judgment arose from Ardra's reinsurance treaties with Nassau, a New York stock casualty insurer.

 In 1996, after plaintiff was appointed receiver of certain rights and assets of Ardra, he amended the complaint in this case, and added two additional claims. Plaintiff now seeks, in his capacity as Liquidator of Nassau, to pierce Ardra's corporate veil and to set aside allegedly fraudulent conveyances totaling $ 8,115,000.00 which Ardra made to defendant. In addition, in his capacity as receiver of certain rights and assets of Ardra, plaintiff claims damages as a third party beneficiary of a 1990 contract between defendant and Corporate Holding Corporation ("Corporate Holding") in which defendant sold all outstanding shares of Ardra to Corporate Holding.

 The related ownership of Ardra, Nassau, Tiber Holding Corporation ("Tiber" or "defendant"), and the other corporations involved in this case, as well as the factual and procedural history of the case, is set forth in the Court's Memorandum of September 18, 1997. See Curiale v. Tiber, 1997 U.S. Dist. LEXIS 14563, No. 95-5284, 1997 WL 597944 (Sept. 18, 1997).

 Plaintiff seeks to pierce Ardra's corporate veil and hold defendant liable for the New York state judgment against Ardra, because, according to plaintiff, defendant ignored Ardra's corporate form, completely dominated the company, and exploited Ardra's assets for other purposes, thus making Ardra unable to meet its obligations, including reinsurance treaties with Nassau.

 In his claim for fraudulent conveyances, plaintiff alleges that from 1979 to 1981, Ardra purchased 8,115 shares of stock in defendant at the price $ 1,000.00 per share, transferring, in total, $ 8,115,000.00 to defendant. Plaintiff alleges that the conveyances from Ardra to Tiber were fraudulent under New York Debtor and Creditor Law because the shares were not worth $ 8,115,000.00 and the transactions left Ardra insolvent or with unreasonably small capital with which to conduct its business. See N.Y. Debt. & Cred. Law §§ 273, 274.

 Plaintiff also alleges that defendant-breached the December 3, 1990 Agreement of Sale for Ardra's stock under which defendant sold all of Ardra's outstanding stock to Corporate Holding. In the Agreement of Sale, defendant agreed to maintain Ardra's surplus and capital accounts at a minimum balance of $ 125,000.00 for five years. Ardra's financial statements show such a balance, but plaintiff contends that because the financial statements did not take into account the $ 16.3 million judgment against Ardra in New York state court, defendant had breached the agreement, and, plaintiff, acting as receiver of Ardra's rights and assets, is entitled to damages as a third party beneficiary of that Agreement of Sale.

 In September, 1997, the Court ruled on the choice of law issues with respect to the claims of fraudulent conveyances and piercing the corporate veil. Using New York choice of law principles, as the case had been transferred from the Southern District of New York, the Court concluded that New York law would apply to those claims. At that time, the Court deferred ruling on the choice of law issue with respect to the breach of contract claim because the record was insufficient and inconsistent and directed the parties to supplement the record.

 Presently before the Court are the motions for summary judgment of plaintiff and defendant. Plaintiff has moved for summary judgment on the claims of fraudulent conveyances and piercing the corporate veil. Defendant has moved for summary judgment on the claims of fraudulent conveyances and breach of ...


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