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State Farm Mutual Automobile Insurance Co. v. Snyder

United States District Court, Third Circuit

November 6, 2013

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, et al.
v.
BERNARD SNYDER, et al.

MEMORANDUM

Juan R. Sánchez, J.

Plaintiffs State Farm Mutual Automobile Insurance Company and State Farm Fire and Casualty Company (collectively, State Farm) bring this action against Defendants Bernard Snyder (Snyder) and his daughter, Barrie Jean Snyder, alleging Snyder violated the Pennsylvania Uniform Fraudulent Transfer Act, 12 Pa. Cons. Stat. § 5101 et seq. (PAFTA), and the New Jersey Uniform Fraudulent Transfer Act, N.J. Stat. §§ 25:2-20 et seq. (NJFTA), by transferring two parcels of real property to his daughter in order to render the properties immune from execution. For the following reasons, Snyder’s Rule 12(b)(6) motion to dismiss the Complaint for failure to state a claim will be granted in part and denied in part.

FACTS

On May 18, 2006, State Farm brought a civil action against Snyder and other defendants, alleging violations of the Racketeering Influenced and Corrupt Organizations Act and the Pennsylvania Insurance Fraud Statute, and asserting various common law causes of action. On June 29, 2011, State Farm obtained a $1, 085, 300 judgment against Snyder, which was subsequently molded to $2, 505, 092.24 including attorneys’ fees and costs. Approximately two years before judgment was entered against him, on or about April 20, 2009, Snyder and his now-deceased wife, Jeanette Snyder, allegedly transferred two properties to their daughter, Barrie Jean Snyder, for no consideration. The first property was located in Philadelphia, Pennsylvania, and the second in Ventnor City, New Jersey.

State Farm alleges Snyder intentionally transferred those properties to “hinder, delay or defraud State Farm from collecting on its judgment and/or attaching, levying and/or executing upon the properties in the event that State Farm obtained a Judgment against [him]” in the underlying civil action. Compl. ¶ 12. Since the judgment was entered, State Farm has been unable to collect or execute on the properties, and Snyder is otherwise insolvent. State Farm also alleges because Snyder received no consideration for the transfer, at a time when the judgment against him was foreseeable, and the properties transferred represented all or substantially all of his assets, the transfer constituted two distinct fraudulent conveyances under both the PAFTA and the NJFTA. Count I of the Complaint therefore seeks to avoid the transfer of both the Pennsylvania property and the New Jersey property as a violation of the PAFTA, and Count II seeks to avoid the transfer of each property based on a violation of the NJFTA.

DISCUSSION

To survive a motion to dismiss pursuant to 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.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). In evaluating a Rule 12(b)(6) motion, a district court first should separate the legal and factual elements of the plaintiff's claims. Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009). The court “must accept all of the complaint’s well-pleaded facts as true, but may disregard any legal conclusions.” Id. at 210-11. The court must then “determine whether the facts alleged in the complaint are sufficient to show that the plaintiff has a ‘plausible claim for relief.’” Id. at 211 (quoting Iqbal, 556 U.S. at 679). Dismissal is appropriate, for example, if there is a dispositive issue of law. See Bishop v. GNC Franchising LLC, 248 F. App’x. 298, 299 (3d Cir. 2007) (citing Neitzke v.Williams, 490 U.S. 319, 326-27 (1989)).

Both Pennsylvania and New Jersey have adopted the Uniform Fraudulent Transfer Act (UFTA), and the statutory provisions at issue in this motion are identical. Under each state’s law:

A transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor’s claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation: (1) with actual intent to hinder, delay or defraud any creditor of the debtor; or (2) without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor . . . intended to incur, or believed or reasonably should have believed that the debtor would incur, debts beyond the debtor’s ability to pay as they became due.

12 Pa. Cons. Stat. § 5104(a); N.J. Stat § 25:2-25. To state a claim for a violation of either Act, State Farm must allege a debtor (i.e., Snyder) made a “transfer” within the meaning of the UFTA. A “transfer” is defined as a “disposing of or parting with an asset or an interest in an asset.” 12 Pa. Cons. Stat. § 5101; N.J. Stat. § 25:2-22. The definition of “asset, ” in turn, contains certain exclusions. That is, assets subject to both the PAFTA and the NJFTA do not include “an interest in property held in tenancy by the entireties to the extent it is not subject to process by a creditor holding a claim against only one tenant.” 12 Pa. Cons. Stat. § 5101; N.J. Stat. § 25:2-21.[1]

Commentary to the UFTA illustrates that whether property (or an interest in property) held in a tenancy by the entireties is “subject to process by a creditor holding a claim against only one tenant” will vary with the law of a particular state.[2] If, under Pennsylvania and New Jersey law, an interest in entireties property is “subject to process by a creditor holding a claim against only one tenant, ” then the conveyances in question involved “assets” within the meaning of the UFTA and State Farm has adequately stated a claim for a fraudulent transfer. If, however, an interest in entireties property is not “subject to process by a creditor holding a claim against only one tenant, ” State Farm has no cognizable statutory claims and the Complaint must be dismissed. Because State Farm invokes both Pennsylvania and New Jersey law as to the transfer of both properties, and because the application of each state’s law could lead to a different result, the Court must conduct a choice of law analysis to determine which state’s law applies to each of the two properties in question.

When conducting a choice of law analysis in a diversity action, this Court must look to the conflicts regime of the forum state, here Pennsylvania. Echols v. Pelullo, 377 F.3d 272, 275 (3d Cir. 2004). Where a particular choice of law inquiry is “issue-specific, different states’ laws may apply to different issues in a single case, a principle known as ‘depecage.’” Berg Chilling Sys., Inc. v. Hull Corp., 435 F.3d 455, 462 (3d Cir. 2006); see also Taylor v. Mooney Aircraft Corp., 265 F. App’x 87, 91 (3d Cir. 2008) (“Although Pennsylvania courts have not explicitly addressed it, this Court has assumed that Pennsylvania's choice of law analysis employs depecage.”).

The PAFTA does not address choice of law issues. This Court will apply Pennsylvania’s choice of law rules for tort claims because under Pennsylvania law, a fraudulent conveyance claim is generally perceived as a tort. See In re Sverica Acquisition Corp., Inc., 179 B.R. 457, 469 (Bankr. E.D. Pa. 1995) (“[T]he conclusion that a fraudulent conveyance is a tort has not been disputed in Pennsylvania jurisprudence.”). Pennsylvania follows a “flexible [choice of law] rule which permits analysis of the policies and interests underlying the particular issue before the court.” Griffith v. United Air Lines, Inc. 203 A.2d 796, 805 (Pa. 1964). Applying the analysis in Griffith, this Court first must identify whether there are relevant differences between the states’ laws affecting the disposition of the litigation. See Hammersmith v. TIG Ins. Co., 480 F.3d 220, 230 (3d Cir. 2007). If there are no relevant differences, there is no conflict, and the Court can refer to the state laws interchangeably. Id. If there are relevant differences, there is an actual conflict, and the Court must then analyze the nature of the conflict and determine whether the conflict is true, false, or an “unprovided for” situation. Id.

Turning first to Pennsylvania law as it relates to the definition of “asset” in the UFTA, the Pennsylvania Supreme Court has held “property owned by tenants by the entireties is not subject to the debts of either spouse, and they may alien it without infringing upon the rights of their individual creditors.” Stauffer v. Stauffer, 351 A.2d 236, 245 (Pa. 1976); see also Klebach v. Mellon Bank, N.A., 565 A.2d 448, 450 (Pa.Super. Ct. 1989) (“[I]f only one spouse is a debtor, entireties property is immune from process, petition, levy, execution or sale.”). Under these, and other Pennsylvania precedents, entireties property is ...


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