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Black Elk Trustee’s Complaint Adequately Pleads Fraud Under Fed. R. Civ. P. 9(b)


February 1, 2021, Southern District of Texas – Debtor Black Elk was an oil and gas company headquartered in Houston, Texas. Trustee Richard Schmidt seeks to recover “fraudulent transfers” or preferences paid to various defendants who owned equity in the Debtor. The Trustee alleges that the Debtor and its largest interest holder devised a scheme to sell assets and divert the proceeds from secured lenders to equity holders. Thus, according to the Trustee, the defendant equity holders were liable as subsequent transferees who received proceeds from avoided transactions. Certain defendants moved to dismiss, arguing that the complaint established that they accepted the transfers in good faith, for value, and without knowledge of the scheme. The defendants also sought dismissal of the Trustee’s claims for punitive damages and attorneys’ fees.

The Court rejected the equity investors’ arguments and held that they were not entitled to dismissal of the Trustee’s action to recover “fraudulent transfers” or preferences paid to them in violation of 11 U.S.C.S. §§ 548(a)(1)(A), (B), 547, and Tex. Bus. & Comm. Code § 24.006(a) of the Texas Uniform Fraudulent Transfer Act. The Court ruled that the complaint alleged facts sufficient to establish that the investors received initial” fraudulent transfers.” The Court stated that the Trustee pleads facts that alleged actual “fraudulent transfers,” including the who, what, when, where, and why required under Fed. R. Civ. P. 9(b). The Court also found that the initial transfers from the Debtor to the investors occurred within one year of the involuntary bankruptcy petition with the intent to hinder, delay, or defraud creditors by enriching junior interest-holders. Thus, the transfers were not made for reasonably equivalent value and were constructively “fraudulent” under §548(a)(1)(B) and TUFTA.

Schmidt v. Fuchs (In re Black Elk Energy Offshore Operations, LLC), Nos. 15-34287, 19-3459, 2021 Bankr. LEXIS 227 (Bankr. S.D. Tex. Feb. 1, 2021)