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Richard P. Jahn, Jr., As Chapter 7 Trustee For U.S. Insurance Group, LLC v. Federal Deposit Insurance Corporation

December 15, 2011


The opinion of the court was delivered by: Beryl A. Howell United States District Judge


This action pits the bankruptcy trustee for a defunct company, U.S. Insurance Group, LLC ("USIG"), against the Federal Deposit Insurance Corporation ("FDIC"), acting as receiver for a defunct bank, the Park Avenue Bank ("the Bank"). USIG, through its trustee, seeks to recover $6.5 million from the Bank based on theories of fraudulent transfer, civil conspiracy to deceive and defraud, and conversion. The FDIC has moved to dismiss the Complaint, arguing that it has a superior right to the funds at issue and that the plaintiff failed to exhaust administrative remedies for the conspiracy and conversion claims. For the reasons explained below, the FDIC's motion to dismiss is granted.


On August 13, 2010, the plaintiff, Richard P. Jahn, Chapter 7 Trustee for USIG filed the Complaint in this action against the FDIC in its capacity as a receiver for The Park Avenue Bank. Compl. This action arises out of an alleged fraudulent scheme involving the Bank and its President. The details of this scheme appear undisputed and are important for understanding the legal arguments at issue between the parties here.

During the time period relevant to this case, Charles J. Antonucci was President, CEO, and Director of the Park Avenue Bank. Id. ¶ 5. Antonucci also owned a controlling interest in an entity called Bedford Consulting Group, LLC ("Bedford") and had close ties with a company called Oxygen Unlimited, LLC ("Oxygen"). Id. ¶¶ 5-6.

In the fall of 2008, USIG was experiencing serious financial difficulties and contacted Oxygen for "managerial and financial assistance." Id. ¶ 6. The plaintiff alleges that Oxygen proposed a scheme by which Oxygen would invest or loan $4.2 million to USIG and USIG would borrow an additional $800,000, totaling $5 million in new funding for USIG. Id. ¶ 7.Next, USIG would invest the $5 million in Bedford in exchange for a 40 percent interest in Bedford. Id. USIG would then obtain a $5 million loan from Park Avenue Bank, collateralized by the 40 percent interest in Bedford. Id.

The plaintiff contends that on the basis of Oxygen's advice that it entered into a banking relationship with the Bank, which loaned $2.3 million to USIG to cover the $800,000 for the Bedford purchase and an additional $1.5 million for a one-year line of credit. Id. ¶ 8. Thus, overall, USIG would receive $6.5 million under the Oxygen proposal -- $4.2 million in funding or loans via Oxygen and $2.3 million in loans directly from the Bank. Oxygen's $4.2 million investment in USIG also consisted of funds obtained from the Bank in the form of loans to Oxygen.*fn1 The plaintiff alleges, however, that the real purpose of Oxygen's proposal was to "funnel loan proceeds to Antonnuci for the benefit of the Bank." Id. ¶ 7. As a result of Oxygen's representations to USIG, the plaintiff authorized Oxygen to "make deposits to, and withdrawals from USIG's account at the Bank" for the purpose of ensuring the future funding from the Bank for the purpose of purchasing interest in Bedford. Id. ¶ 9.

During the period of October 6 through November 10, 2008, the plaintiff alleges that USIG transferred the $6.5 million to Bedford. Id. ¶ 13. However, the plaintiff contends that USIG has never received any interest in Bedford, nor any value in exchange for the funds. Id.

Once the $6.5 million had been transferred from USIG to Bedford, Antonucci directed Bedford to transfer the $6.5 million to his personal bank account. Id. ¶ 15. Antonucci, in turn, then transferred the $6.5 million to the Bank as a purported investment in the Bank's capital. Id. In exchange for his purported capital investment, Antonucci acquired a majority stake in the Bank's holding company, Park Avenue Bancorp, Inc. Id. Thus, in what the parties have referred to as the "round trip transaction," Antonucci managed to purchase control of the Bank for himself using the Bank's own money, after funneling it through Oxygen, USIG, and Bedford.*fn2

The plaintiff asserts that it did not have knowledge of Antonucci's manipulation of the funds, and that it did not authorize the misuse of its funds. Id. ¶ 16. Further, the plaintiff contends that the Bank retained the benefits of the transfers and ratified Antonucci's actions. Id.

¶ 17. Additionally, the plaintiff asserts that the Bank continued to charge USIG interest on the loan until the plaintiff filed for bankruptcy. Id.

On April 22, 2009, USIG filed a voluntary Chapter 11 bankruptcy petition in the Eastern District of Tennessee. Id. ¶¶ 2-3. The bankruptcy court converted the case to one under Chapter 7. Id. On March 12, 2010, the New York State Banking Department closed Park Avenue Bank and the FDIC was appointed as the Bank's receiver. Mem. in Supp. of the FDIC-Receiver's Mot. to Dismiss ("Def.'s Mem.") at 2.

On November 3, 2009, the plaintiff filed an adversary proceeding in the Eastern District of Tennessee bankruptcy court against Bedford to avoid the transfers made by Bedford and to recover the funds.Compl. ¶ 2; In re U.S. Ins. Group, LLC, 441 B.R. 294, 295 (Bankr. E.D. Tenn. 2010). The plaintiff filed an amended adversary complaint on May 28, 2010, adding Antonucci and the Bank, through its receiver the FDIC, as defendants. In re U.S. Ins. Group, LLC, 441 B.R. at 295. On September 9, 2010, the bankruptcy court dismissed the FDIC from the adversary proceeding due to lack of subject matter jurisdiction, concluding that as a post-receivership suit, the plaintiff's action was barred by 12 U.S.C. § 1821(d)(13)(D). Id. at 298. The bankruptcy court stated that the plaintiff, pursuant to statute, could pursue "its action against the FDIC as receiver for [the Bank] in the district court of the District of Columbia." Id. Accordingly, the plaintiff is pursuing its suit against the FDIC in this Court.*fn3

The Complaint sets forth three counts against the FDIC as receiver for the Bank: (1) fraudulent transfer pursuant to 11 U.S.C. § 548(a)(1)(B), (2) civil conspiracy to deceive and defraud, and (3) conversion. Prior to filing this Complaint, the plaintiff filed a proof of claim against the Bank with the FDIC. Compl. ¶ 1. The FDIC denied the claim by letter dated June 17, 2010. Id.

In response to the plaintiff's Complaint, the FDIC has moved to dismiss this action under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). First, the FDIC argues that Count I for fraudulent transfer should be dismissed for failure to state a claim for relief under Rule 12(b)(6) because a federal statute grants the FDIC a superior right to the funds in question. Def.'s Mem. at 8-9. Second, the FDIC argues that Counts II and III for civil conspiracy to defraud and conversion must also be dismissed for lack of subject matter jurisdiction under Rule 12(b)(1). Id. at 5-8. Specifically, the FDIC argues that the civil conspiracy and conversion allegations set forth in the Complaint exceed the scope of the proof of claim filed by the ...

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