United States District Court, E.D. Pennsylvania
AUSTIN MCHUGH UNITED STATES DISTRICT JUDGE
case arises from a commercial transaction in which Defendant
Seneca Coal Resources, LLC acquired mining assets belonging
to Plaintiff Cliffs Natural Resources Inc. On December 22,
2015, Plaintiff and Seneca Coal entered a Unit Purchase
Agreement ("UPA") through which Plaintiff sold
outstanding equity interests of its subsidiary, Cliffs North
American Coal LLC, to Seneca. The parties also executed an
Override Agreement that required Seneca to make ongoing
payments to Plaintiff for coal sales exceeding a designated
threshold. Plaintiff alleges that after executing the
agreements, Seneca breached its contractual obligations under
both the UPA and the Override Agreement. Plaintiff also
alleges in Count III that Seneca fraudulently conveyed assets
to Defendants Lara Natural Resources, LLC and Iron Management
II, LLC, and in Count IV that the individual owners of
Seneca, Lara Natural Resources, and Iron Management engaged
in a civil conspiracy to execute the conveyances. Defendant
Seneca Coal has filed counterclaims alleging that Plaintiff
also breached the UPA.
Lara Natural Resources, LLC, Thomas M. Clarke, and Ana M.
Clarke [hereinafter the "Clarke Defendants"] and
Defendants Kenneth R. McCoy, Jason R. McCoy, and Iron
Management II, LLC [hereinafter the "McCoy
Defendants"] have moved to dismiss Plaintiffs claims in
Counts III and IV. Plaintiff in turn has moved to dismiss the
counterclaims. I deny Plaintiffs Motion to Dismiss in its
entirety and deny the McCoy Defendants' Motion to Dismiss
as to Plaintiffs' fraudulent conveyance claims.
these motions are summarily denied in the accompanying order.
This memorandum addresses the two motions that are granted.
motion is governed by the well-established standards of Fed.
R. Civ, P, 12(b)(6), as amplified by Fowler v. UPMC
Shadyskk, 578 F.3d 203, 210 (3d Cir. 2009). For present
purposes, the question is whether the Complaint succeeds in
pleading "factual content that allows the court to draw
the reasonable inference that the defendant is liable for the
misconduct alleged." Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009). That question must be answered through
the prism of Fed.R.Civ.P. 9(b), which provides that a
complaint alleging fraud must state "with particularity
the circumstances constituting fraud . .. ." Applying
these standards, I find that Plaintiff has not alleged facts
with sufficient specificity to state a claim of fraudulent
conveyance against the Clarke Defendants. Nor has Plaintiff
stated a claim of civil conspiracy against any
Count III: Fraudulent Conveyance
Count III, Plaintiff alleges that Defendant Seneca Coal has
fraudulently conveyed assets to Lara Natural Resources and
Iron Management. Plaintiff further alleges that Seneca has
fraudulently transferred funds to affiliates rather than
satisfying its financial obligations to Plaintiff, and that
it executed fraudulent conveyances by selling coal to
affiliates or insiders at prices well below market rate. Only
the claim against Iron Management is sufficiently pled.
parties have expressed some disagreement about the
controlling law for Plaintiff's fraudulent conveyance
claims, but seemingly concede that the choice of law has
little bearing on the outcome of this case. Liability for
fraudulent conveyance is defined by state statute. Ohio,
Delaware, and North Carolina have adopted the Uniform
Fraudulent Transfer Act (UFTA), while Virginia has adopted
its own fraudulent transfer legislation, albeit with only
minor differences. Under Delaware choice of law rules,
Virginia appears to have the most significant contact with
the conduct giving rise to Plaintiffs claims in Count
Though it is incorporated in Delaware, Defendant Seneca Coal
Resources, LLC maintains its principal place of business in
Virginia. PL's Second Am. Compl. ("SAC") ¶
5, ECF No. 96. Any alleged fraudulent transfer, including the
sale of coal below market rates, was likely executed in
Virginia. I will therefore apply Virginia's fraudulent
transfer laws in evaluating claims in Count III.
Parenthetically, the same result would follow under the laws
of Ohio, Delaware, or North Carolina.
fraudulent conveyance statute follows the same criteria as
the Uniform Fraudulent Transfer Act. Under Virginia Code
§ 55-80, a conveyance of assets with "intent to
delay, hinder or defraud creditors, purchasers or other
persons [with a legal claim against the party]" will be
void with respect to that creditor. While section 55-80
requires a showing of intent, a plaintiff may make out a
prima facie case by alleging facts reflecting
"badges" of fraud. Fox RestAssocs., L, P, v.
Little, 282 Va. 277, 284, 717 S.E.2d 126, 131 (2011).
Badges of fraud include the following: "(1) retention of
an interest in the transferred property by the transferor;
(2) transfer between family members for allegedly antecedent
debt; (3) pursuit of the transferor or threat of litigation
by his creditors at the time of the transfer; (4) lack of or
gross inadequacy of consideration for the conveyance; (5)
retention or possession of the property by transferor; and
(6) fraudulent incurrence of indebtedness after the
conveyance." Id. at 285.
Code § 55-81 sets out a separate fraudulent transfer
provision that requires no showing of intent. Section 55-81
provides that a transfer or conveyance of assets "which
is not upon consideration deemed valuable in law" by
"an insolvent transferor, or by a transferor who is
thereby rendered insolvent, shall be void as to creditors
whose debts shall have been contracted at the time it was
made . . . ." Va. Code § 55-81.
evaluating Count III, it is instructive to compare Plaintiffs
factual allegations against Iron Management, affiliated with
the McCoy Defendants, with those against Lara Natural
Resources, affiliated with the Clarke Defendants. Plaintiff
alleges that Seneca "has an outstanding debt to Cliffs
for reimbursement and indemnification." SAC ¶ 82.
Plaintiff alleges that despite its obligations to Cliffs,
Seneca "transferred or diverted monies and/or funds to
Lara Natural Resources, Iron Management, and 'other
affiliate companies owned by the members'-----"
Id. ¶ 84. Plaintiff specifically alleges that
Seneca transferred $300, 000 to Iron Management "shortly
after Seneca failed to make the $437, 000 lease payment on
the BB&T lease and failed to replace Cliffs' bonds as
required under the UPA." Id. ¶ 87. By
comparison, Plaintiff has not specifically alleged any
similar transfer to Lara Natural Resources. Rather, Plaintiff
states only that Seneca transferred funds to Lara Natural
Resources, and alleges that Seneca transferred "at least
$2.4 million to insider affiliate companies" within
seven weeks of executing the UPA. Id. ¶ 49.
complaint therefore suffices to state a claim of fraudulent
transfer against Iron Management. Plaintiff alleged a
specific transfer that Seneca made to Iron Management, as
well as alleged facts that Virginia courts recognize as
badges of fraud. PL's Answering Br. 11-12, ECF No. 112
(citing SAC ¶¶ 44, 49, 88, 99-100).
contrast, I find that Plaintiff has not stated a claim for
fraudulent conveyance against Lara Natural Resources.
Plaintiff has alleged no facts lending plausibility to the
claim that Lara Natural Resources itself received any of the
$2.4 million that Seneca is alleged to have fraudulently
transferred. It is insufficient under Rule 9(b) for a
plaintiff to allege facts that merely replicate the language
of a cause of action. Here, because Cliffs offers no
specific facts relating to transfers that Lara Natural
Resources allegedly received, I must dismiss its claim
against Lara Natural Resources under Section 55-80. For the
same reason, I find that Plaintiff has also not stated a
claim under Section 55-81. Although Cliffs has alleged facts
indicating that Seneca had insufficient property to pay its
debts at the time it transferred $2.4 million in assets to
other parties, Hudson v. Hudson,24 ...