John R. Stoebner, Trustee Appellant
Opportunity Finance, LLC, et al. Appellees JPMorgan Chase Bank Amicus on Behalf of Appellees
Submitted: June 14, 2018
from United States District Court for the District of
Minnesota - Minneapolis
LOKEN, GRUENDER, and ERICKSON, Circuit Judges.
many years prior to September 2008, Minnesota businessman
Thomas Petters, through his company Petters Company, Inc.
("PCI"), "purported to run a
'diverting' business that purchased electronics in
bulk and resold them at high profits to major
retailers." Ritchie Capital Mgmt., LLC v.
Stoebner, 779 F.3d 857, 859 (8th Cir. 2015). Investors,
deceived by fabricated purchase orders, provided PCI
financing to acquire merchandise for resale. Ritchie
Special Credit Invs., Ltd. v. U.S. Tr., 620 F.3d 847,
850 (8th Cir. 2010). In fact, PCI did not purchase
merchandise and sell it to retailers. Its "income"
came from investor loans that PCI used to repay earlier
investors. Thus, PCI was a multi-billion dollar "Ponzi
scheme." Petters also acquired legitimate
businesses. His investment company, Petters Group Worldwide,
LLC, purchased the stock of Polaroid Corporation in April
2005. Ritchie Capital Mgmt., LLC v. JPMorgan Chase &
Co., No. 14-CV-4786 (DWF/FLN), 2017 WL 6403096, at *2
(D. Minn. Dec. 14, 2017). Prior to the acquisition, a
separate Petters company, Petters Consumer Brands, LLC
("PettersCB"), paid Polaroid licensing fees for the
sale of "Polaroid" branded consumer electronics to
the collapse of Petters's ponzi scheme, Polaroid
Corporation and related entities (collectively,
"Debtors") filed for protection under Chapter 11 of
the Bankruptcy Code. The cases were converted to Chapter 7
liquidation proceedings in 2009; John Stoebner was appointed
bankruptcy Trustee. Representing Debtors' creditors, he
brought this adversarial suit against Opportunity Finance,
LLC and related defendants ("Opportunity Finance")
and DZ Bank AG Deutsche Zentral-Genossenschaftsbank ("DZ
Bank"), seeking to avoid as fraudulent transfers under
the Minnesota Uniform Fraudulent Transfer Act
("MUFTA") over $250 million in loan payments made
to defendants by PettersCB in 2003-2005, prior to
Petters's acquisition of Polaroid. See 11 U.S.C.
§ 544(b)(1); Minn. Stat. § 513.44
(2014).The Second Amended Complaint
("SAC") alleged that two Debtors, Polaroid Holding
Company ("PHC") and Polaroid Consumer Electronics,
LLC ("PCE"), "are the successors in interest
to [PettersCB]." The bankruptcy court granted
defendants' motions to dismiss, and the district
court affirmed. Debtors appeal. We affirm.
The Issues on Appeal.
Trustee filed the SAC on November 8, 2013. On December 20,
defendants moved to dismiss. See Fed.R.Civ.P.
12(b)(6), as incorporated by Fed.R.Bankr.P. 7012(b). After
lengthy argument on March 3, 2014, the bankruptcy court took
the motions under advisement. On February 18, 2015, the
Supreme Court of Minnesota issued its decision in Finn v.
Alliance Bank, holding that the so-called
"Ponzi-scheme presumption" previously adopted by
some courts cannot be used to establish three elements of a
claim under MUFTA -- fraudulent intent, the debtor's
insolvency at the time of the transfer, and the lack of
reasonably equivalent value. 860 N.W.2d 638, 645-53 (Minn.
2015). At a December 2015 omnibus hearing in the Chapter 7
proceedings, the Trustee for the first time sought leave to
file a third amended complaint to address seven different
issues. The bankruptcy court advised that a written decision
on the motions to dismiss was imminent and ruled it would not
entertain a motion to amend prior to issuing that decision.
January 2016, the bankruptcy court issued its lengthy
decision granting the motions to dismiss on two alternative
grounds. In re: Polaroid Corp., 543 B.R. 888 (Bankr.
D. Minn. 2016). First, the court held that the Trustee lacked
statutory standing to assert claims under MUFTA because he
failed to identify any creditor of PHC or PCE, the Debtors
alleged to be successors-in-interest to PettersCB, that would
have an allowable claim against the Debtors to which
it could look for satisfaction to a transfer made by
PettersCB before Petters acquired Polaroid. Id. at
903; see generally In re Marlar, 267 F.3d 749, 753
(8th Cir. 2001). Second, on the merits, applying the Supreme
Court of Minnesota's decision in Finn, the court
held that the SAC failed to state a claim for actual or
constructive fraudulent transfer under MUFTA. 543 B.R. at
911-14. The court further ruled that allowing the Trustee to
file a third amended complaint would be futile, as the
pleading of facts that might demonstrate standing or state a
claim would conflict with facts already pleaded. Id.
at 903, 914. On appeal, the district court upheld the
bankruptcy court's decision to dismiss on both grounds
and further ruled that the bankruptcy court did not abuse its
discretion in denying leave to amend because the Trustee
unreasonably delayed in requesting leave to amend, defendants
would be prejudiced, and any amendment would be futile.
Stoebner v. Opp. Fin., LLC, 562 B.R. 368 (D. Minn.
Trustee appeals all three rulings, asserting he has statutory
standing, the SAC stated claims for actual and constructive
fraudulent transfer under MUFTA, and the bankruptcy court
erred in not permitting him to amend the SAC. Defendants
contest all three assertions; JPMorgan Chase Bank, N.A.
("JPMorgan"), filed an amicus brief in
support of the defendants.
an unusual fraudulent transfer case because the Trustee seeks
to avoid transfers made by a party prior to the time it even
arguably became a Chapter 7 debtor. The standing issues are
fully briefed, complex, and difficult. Our conclusion
that the bankruptcy court and the district court correctly
dismissed the Trustee's claims on the merits makes it
unnecessary to decide the standing issues.
The SAC Failed To State a Claim Under MUFTA.
bankruptcy trustee may "avoid any transfer of an
interest of the debtor in property or any obligation incurred
by the debtor that is voidable under applicable law by a
creditor holding an unsecured claim." 11 U.S.C. §
544(b)(1). MUFTA "allows creditors to recover assets
that debtors have fraudulently transferred to third
parties." Finn, 860 N.W.2d at 644. MUFTA
includes both actual and constructive fraud provisions:
(a) 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
(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 ...