Trustee Kenneth A. Welt Brings “Actual and Constructive Fraud Counts” Along with “Alter Ego” and “Successor Liability” Claims Against Industrial Real Estate
May 14, 2021, Southern District of Florida – Plaintiff Kenneth A. Welt in his capacity as the duly appointed Chapter 7 trustee of the bankruptcy estate of 98 SE 7 LLC commences a lawsuit against Defendant Industrial Real Estate, Wyoming limited liability company (“Industrial” or “Defendant”) to avoid and recover certain transfers as allegedly “fraudulent conveyances” according to 11 U.S.C. §§ 544, 548, 549, and 550; and Fla. Stat. §§ 726.105(1)(a), 726.105(1)(b), 726.106(1), and 726.108(1)(a).
Allegedly, the Debtor was a “single asset entity” – the Deerfield Property, whose primary purpose was ownership and rental of the Deerfield Property. Subsequently, Industrial was formed, with its primary purpose allegedly being the “owner of the Deerfield Property and its rental to various insider entities”, all the while leaving the Debtor with “no assets and accruing liabilities”. Debtor and Industrial allegedly “did not observe corporate formalities and did not have clear separate corporate existences in fact”. The complaint alleges that the assets and liabilities of the Debtor and Industrial were “commingled” and that there was a “de facto merger” between Debtor and Industrial. According to the Debtor, Industrial was deemed to be a “mere continuation of Debtor and allegedly liable for the debts of Debtor”.
In its complaint, the Trustee alleges that the Debtor transferred “substantially all of its assets” in the form of the alleged “fraudulent transfers” to Industrial, leading up to the point when the Debtor “ceased operations”. Collectively, the property transfers, the lease transfers, and the rent transfers constituted alleged “fraudulent conveyances”.
The Trustee sues Industrial seeking a declaratory judgment under the Declaratory Judgment Act, 28 U.S.C. § 2201, Bankruptcy Rule 7001(9), 11 U.S.C. §§ 105(a), 541, 542, and Florida Statutes § 86.061, seeking that Industrial is a “mere instrumentality” and “alter ego” of the Debtor. The Trustee also requests the Court to enter a judgment in his favor against Industrial declaring the transfers made by the Debtor to be “actually and constructively fraudulent” according to 11 U.S.C. §§§ 548(a)(1)(A), 548(a)(1)(B), 544 and/or Fla. Stat. § 726.105(1)(a).
The case is In re 98 SE 7 LLC in the United States Bankruptcy Court for Southern District of Florida under case number 20-20234-PDR