The opinion of the court was delivered by: B. Lynn Winmill Chief Judge United States District Court
MEMORANDUM DECISION AND ORDER
The Court has before it Defendants' Motion, under Rule 9(b) of the Federal Rules of Civil Procedure, to Dismiss Count III of Plaintiff's amended Complaint alleging that Defendants engaged in a fraudulent conveyance of real property (Compl. at 6, Dkt. 4). The Court also has before it Plaintiff's Motion to file a Response to Defendants' Reply (Dkt. 37). The Court has read and fully considered the briefing and related materials submitted by the parties, and has concluded that oral argument will not significantly aid in its decision. For the reasons explained below, the Court will deny both motions.
The instant motion arises from Plaintiff Bank of America's (BoA) claim that Defendant A&M ("Borrower") fraudulently transferred certain real property it owned (the "Whitewater Property") to Defendants Virginia Faith Albert, Leonard De Los Prados, Carol De Los Prados, and Defendant Compania Inversora Corporativa (collectively, "transferees"). The facts recited in the Complaint and disclosed in the briefing are relatively few and are mostly undisputed.
On August 10, 2005, Borrower and BoA entered into an agreement whereby BoA lent Borrower approximately $1.2M toward the construction of a vacation home in Valley County, Idaho. The residence was, in fact, constructed, but Borrower defaulted on the agreement sometime before February 16, 2011, resulting in the sale of the Valley County Property on that date, and the application of the sale proceeds to the loan balance. Since the proceeds were insufficient to pay off the loan, BoA sought the amount of the deficiency in a state court action. That case was then removed to this Court on diversity grounds.
The alleged fraudulent transfer occurred on August 9, 2010, when Borrower transferred the Whitewater property to the transferees by warranty deed. BoA alleges that Borrower received no consideration for the transfer, and that the transfer was designed to frustrate its attempts to collect amounts owed by Borrower. Defendants' seek dismissal of the fraudulent conveyance count on the ground that the claim fails to meet the heightened pleading standards for fraud imposed by Rule 9(b) of the Federal Rules of Civil Procedure.
I.BoA's fraudulent conveyance claim was stated in the alternative.
Before turning to the legal standard governing the motion to dismiss, the Court will address Defendants' contention that, contrary to BoA's contention in its response brief, BoA failed to divide its fraudulent conveyance claim into alternatives based upon "actual" and "constructive" fraud.
In their opening brief, Defendants treated BoA's fraudulent conveyance claim as one for common-law fraud. BoA's asserts that this was an error. Instead, BoA argues that their fraudulent conveyance count actually contains two distinct claims -- one for avoidance of an "actually" fraudulent conveyance under I.C. §§ 55-906 and 55-913(1)(a) (so named because these statutes require proof of "actual intent" to frustrate collection), and one for avoidance of a "constructively" fraudulent conveyance under I.C. § 55-913(1)(b) (which does not require such proof). Because the fraudulent conveyance count does not use the term "constructive" or cite directly to I.C. § 55-913(1)(b), Defendants argue that BoA is attempting a backdoor amendment to the Complaint in order to cure the defects complained of in their motion.
Although BoA did not clearly separate its fraudulent conveyance count into distinct alternatives arising under the relevant statutes, the Amended Complaint puts Defendants on notice as to the existence of both a § 55-913(1)(a) claim and a § 55-913(1)(b) claim. Specifically, paragraph 29, contained in the fraudulent conveyance count, unmistakably tracks the language of § 55-913(1)(b)(1)-(2). Thus, the Amended Complaint sets forth claims for fraudulent conveyance based upon "actual intent" under I.C. §§ 55-906 and 55-913(1)(a) and, in the alternative, upon constructive intent under I.C. § 55-913(1)(b).
Before outlining the proper legal standard for the fraud claims at issue, the Court will briefly address two arguments raised by BoA bearing upon the appropriate legal standard: (1) whether FRCP 9(b) applies to claims to avoid a fraudulent transfer brought under the "constructive" prong of I.C. § 55-913(1)(b); and (2) whether a pleading which satisfies Form 21 of the Appendix of Forms ...