On March 23, 2023, a year after dismissing all claims against a lender in an 18-count complaint alleging a multi-year “loan-to-own” scheme in a Texas real estate development, the U.S. District Court for the Southern District of New York once again dismissed claims for fraudulent transfer that the plaintiff-developers had attempted to replead. (See here for our April 2022 article on the earlier dismissal ruling.) The court found that it was “utterly implausible” that the plaintiff-developers would have entered a deed-in-lieu agreement in February 2019 to address $140 million of debt if the subject property was worth anywhere close to the $565 million value assigned to the property in a January 2019 appraisal. Therefore, the court dismissed the two remaining fraudulent transfer claims without leave to replead.

To state a claim for fraudulent transfer, a plaintiff must allege, among other things, that the debtor received less than reasonably equivalent value in exchange for the transfers. The court determined that the plaintiff’s allegations—that they received anything other than reasonably equivalent value for the deeds—were wholly conclusory and undermined by the fact that the plaintiffs did not exercise their right to refinance the outstanding debt or repurchase the properties pursuant to the deed-in-lieu agreement and a subsequent buy-back agreement, respectively. Furthermore, the court pointed to an estoppel certificate under which the plaintiffs swore that the consideration received for the deeds (i.e., cancellation of the $140 million debt) represented the fair market value of properties to find that the plaintiffs’ claimed $565 million value for the properties was facially implausible.

The court also found that the January 2019 appraisal—which the court did not consider in dismissing the fraudulent transfer claims for procedural reasons—was “infected by numerous unexplained and conclusory determinations” and controverted by the “years during which Plaintiffs were not able to find a single permanent source of financing or to sell the property[.]” Therefore, the court dismissed both fraudulent transfer claims with prejudice. The plaintiffs appealed the decisions to the Second Circuit on February 6. The appeal is pending.

The case is Wade Park Land Holdings, LLC v. Kalikow, No. 21-cv-1657 (S.D.N.Y. Feb. 25, 2021). The plaintiff-borrowers are represented by Caplan Cobb LLP, Stone & Baxter, LLP, and Slarskey LLC. The defendants are represented by Kramer Levin Naftalis & Frankel LLP and Cooley LLP. The order is available here.