Level 8 Apparel Trustee’s Complaint Against “Insider” Defendants Dismissed for Lack of Specificity in Allegations
January 27, 2021, Southern District of New York – Angela Tese-Milner, the Chapter 7 Trustee for the bankruptcy estate of Level 8 Apparel, LLC brings an action against insider defendants to avoid transfers under 11 U.S.C.S. §§ 548(a)(1)(A) and 544(a) and (b) of the Bankruptcy Code and N.Y. Debt. & Cred. Law § 276. The Trustee’s complaint names 12 defendants, consisting of nine individuals and three entities. The defendants filed a motion to dismiss the Trustee’s complaint under Rule 12(b)(6) and section 105(a) of the Bankruptcy Code.
The Court dismissed the Trustee’s complaint as the Trustee failed to adequately allege the specific property transferred to the defendants or obligations incurred by a sales representative agreement. The Court also found that the Trustee did not allege with particularity facts showing that the defendants contracted with an actual intent to defraud. Further, the Trustee failed to state a claim against the defendants for aiding and abetting fraud, as she failed to plead an underlying fraud on behalf of the alleged primary wrongdoers.
Accordingly, the court granted the defendants’ motion to dismiss the Trustee’s complaint, but with leave to replead.
By way of background, Defendant Sam Kim and others had formed the Debtor to engage in the business of designing, sourcing, importing, and selling men’s and women’s apparel and outerwear under licensed trademarks and private labels for large retailers. Allegedly, the “insider” defendants hatched a scheme in May 2015, when they began to loot the Debtor by causing it to make cash payments to them, for no consideration and then continued it for years in numerous ways.
Tese-Milner v. Bon Seung Kim (In re Level 8 Apparel, LLC), Nos. 16-13164 (JLG), 19-1335 (JLG), 2021 Bankr. LEXIS 183 (Bankr. S.D.N.Y. Jan. 26, 2021)