TRUSTCO BANK, a federal savings bank, and ORE PROPERTY TWO, INC., a Corporation, Plaintiffs,
SUSAN M. MATHEWS, RBC TRUST COMPANY (DELAWARE) LIMITED, a Delaware Corporation, solely in its capacity as trustee, THE SUSAN M. MATHEWS DELAWARE TRUST I, a Delaware Trust, THE SUSAN M. MATHEWS DELAWARE TRUST II, a Delaware trust, THE SUSAN M. MATHEWS DELAWARE TRUST III, a Delaware trust, COLIN R. MATHEWS, BRENDAN R. MATHEWS, DEVIN R. MATHEWS, KIERNAN R. MATHEWS, and DOES I through X, Defendants.
Submitted: September 19, 2014.
William J. Burnett, Esq., FLASTER/GREENBERG, P.C., Wilmington, Delaware; Harry J. Giacometti, Esq., Alexis Arena, Esq., FLASTER/GREENBERG, P.C., Philadelphia, Pennsylvania; Attorneys for Plaintiffs.
Robert A. Penza, Esq., Christopher M. Coggins, Esq., POLSINELLI PC, Wilmington, Delaware; Attorneys for Defendants Susan M. Mathews, Colin R. Mathews, Brendan R. Mathews, Devin R. Mathews, and Kiernan R. Mathews.
William M. Kelleher, Esq., GORDON, FOURNARIS & MAMMARELLA, P.A., Wilmington, Delaware; Attorneys for the Trust Defendants.
PARSONS, Vice Chancellor.
This action involves allegedly fraudulent transfers. The parties dispute which state's law and, more importantly, which state's statute of limitations applies. The plaintiffs assert that New York's six-year or two-years-from-discovery statute of limitations governs the plaintiffs' claims. The defendants argue that either Delaware or Florida law controls and that most of the plaintiffs' claims are barred by the identical four-year or one-year-from-notice statutes of limitations adopted by both of those states. Before the Court is the defendants' motion for partial summary judgment on the statute of limitations issue. For the reasons that follow, I conclude that New York's statute of limitations does not apply to this case and grant the defendants' motion for partial summary judgment. Even if New York law did apply, however, the defendants still would be entitled to summary judgment. The plaintiffs' primary fraudulent transfer claims, therefore, are time barred.
A. The Parties
Plaintiff TrustCo Bank ("TrustCo") is a federal savings bank with a principal place of business in Glenville, New York. TrustCo provided a construction loan to StoreSmart of North Ft. Pierce, LLC ("StoreSmart"), a Florida limited liability company.
Plaintiff ORE Property Two, Inc. ("ORE, " and together with TrustCo, "Plaintiffs") is a Florida corporation and the assignee of TrustCo's rights, title, and interest in the StoreSmart loan and related agreements.
Defendant Susan M. Mathews ("Ms. Mathews") has homes in both Cambridge, Massachusetts and Fort Pierce, Florida, with Florida as her primary residence. Before 2009, Ms. Mathews was a resident of New York. Ms. Mathews was a manager and member of StoreSmart and personally guaranteed the loan from TrustCo to StoreSmart.
Defendants Colin R. Mathews, Brendan R. Mathews, Devin R. Mathews, and Kiernan R. Mathews (collectively the "Mathews Children, " and together with Ms. Mathews, the "Mathews Defendants") are the purported beneficiaries of several trusts established by Ms. Mathews.
Defendants The Susan M. Mathews Delaware Trust I ("Trust I"), The Susan M. Mathews Delaware Trust II ("Trust II"), and The Susan M. Mathews Delaware Trust III ("Trust III, " and collectively, the "Three Trusts") are Delaware trusts established on December 21, 2006. Ms. Mathews is the grantor of each of the Three Trusts. Defendant RBC Trust Company (Delaware) Limited ("RBC, " and together with the Three Trusts, the "Trust Defendants") is a Delaware corporation with its principal place of business in Wilmington, Delaware. RBC is the trustee of each of the Three Trusts and is named as a defendant solely in that capacity.
Doe Defendants I through X (the "Doe Defendants") are unidentified persons who allegedly received transfers of property from Ms. Mathews or an entity in which she held an interest. The Doe Defendants, the Mathews Defendants, and the Trust Defendants collectively comprise the "Defendants" in this action.
B. Pertinent Facts
TrustCo lent $9, 300, 000 to StoreSmart in July 2006 for the purpose of constructing a self-storage facility in St. Lucie, Florida (the "StoreSmart Loan"). The StoreSmart Loan was secured by StoreSmart's real estate and other assets. Ms. Mathews also executed a personal guaranty of the StoreSmart Loan. That loan was modified twice, first in June 2008 and again in March 2009. StoreSmart defaulted in April 2011. On April 25, 2011, TrustCo filed a foreclosure action against StoreSmart and Ms. Mathews in Florida state court. That case resulted in a judgment on July 12, 2011, in favor of TrustCo of roughly $8.2 million plus post-judgment interest (the "Foreclosure Judgment"). TrustCo assigned its rights, title, and interest in the StoreSmart Loan, including the related security agreements, and the Foreclosure Judgment to ORE in August 2012. Plaintiffs, StoreSmart, and Ms. Mathews agreed to entry of a deficiency judgment of about $2.3 million and submitted a stipulation to that effect to the Florida court in February 2013, which the court approved (the "Deficiency Judgment").
Plaintiffs allege that various transfers to the Three Trusts constituted fraudulent transfers. The parties dispute whether the initial transfers that funded the Three Trusts were fraudulent at all. Plaintiffs, as evidenced by this lawsuit, assert that the transfers were effected to place Ms. Mathews's assets out of their reach. Defendants contend that Ms. Mathews created the Three Trusts as part of her estate planning, which was underway before she guaranteed the StoreSmart Loan. For purposes of the pending motion for summary judgment, however, I need not resolve this dispute. This Memorandum Opinion focuses on Defendants' statute of limitations defense and, in that regard, I assume, without deciding, that the challenged transfers were fraudulent.
Plaintiffs' Complaint challenges several transfers. The most important of these seem to be the transfers of ITRAX stock. Ms. Mathews co-founded a company called Corporate Health Dimensions ("CHD"). CHD grew substantially and by 2000 had about 700 employees. Ms. Mathews retired from CHD in 1999, but remained on the board of directors. She retained her CHD stock, which apparently was a significant, if not the primary, source of her wealth. CHD was purchased by a company called ITRAX in 2004. Walgreens later purchased ITRAX in 2008. In two sets of transfers that took place on January 9 and 22, 2007, Ms. Mathews transferred her ITRAX stock to Trust II and Trust III (generally, the "ITRAX Transfers").
Ms. Mathews also held an interest in Terra Optima Ventures, LLC ("TOV"). TOV was an investment vehicle for a business owned by Colin R. Mathews. Ms. Mathews sold her interest in TOV to one of the Three Trusts in or about March 2010 for $63, 000 (generally, the "TOV Transfer"). Because the TOV interest had been valued at one-half million dollars only about a year earlier, Plaintiffs contend that the TOV sale was a fraudulent transfer. Defendants contend that they have produced all relevant information and that the ITRAX Transfers and the TOV Transfer constitute the entire universe of relevant transfers.
The parties devoted the lion's share of their briefing to the ITRAX Transfers. They vigorously dispute when Plaintiffs had notice of those transfers. Accordingly, I focus on that issue as well. Plaintiffs maintain that they did not have legally sufficient notice of the ITRAX transfers-such that the statute of limitations would begin to run- until July 19, 2011. Defendants contend that Plaintiffs had notice at numerous times before that date. In particular, Defendants contend that the July 19, 2011 date is a litigation-contrived fabrication because Plaintiffs responded to Defendants' interrogatories by listing June 2010 as the earliest date that they learned that Ms. Mathews "had transferred funds to 'Delaware Trusts.'"
Defendants also note several significantly earlier dates when Plaintiffs allegedly received information about the ITRAX Transfers that should have put them on notice. In connection with the discussions leading up to the first modification of the StoreSmart Loan, Ms. Mathews submitted a net worth statement to TrustCo on March 25, 2008, that reported her net worth at $11, 773, 446. On April 11, 2008, Ms. Mathews supplied a revised net worth statement to TrustCo indicating her net worth to be $5, 578, 857. That revised statement included the annotation: "I am the discretionary beneficiary of each of the 3 Delaware trusts that have been established as part of estate planning." As part of the loan modification process, Ms. Mathews wrote in a May 6, 2008 email to Paul Steenburgh, a TrustCo Assistant Vice President and one of TrustCo's Rule 30(b)(6) deponents, that TrustCo had requested that she either "guarantee the loan with all 3 Delaware Trusts or put up another $1MM in collateral." At his deposition, Steenburgh recalled receiving this email and stated that Ms. Mathews's description of Trustco's position was correct. The final terms of the first modification did include an additional $1, 000, 000 in collateral, as well as several other conditions, such as opening a $250, 000 escrow account with TrustCo. The first modification to the StoreSmart loan closed on June 27, 2008. The accompanying closing binder included a copy of Trust II's Trust Agreement.
Finally, a series of conversations between Ms. Mathews and Michelle Simmonds, a TrustCo Vice President, occurred in May, June, and July 2010. Simmonds testified at her deposition that those conversations concerned transfers to Delaware trusts now known to be the ITRAX Transfers, which Simmonds understood rendered Ms. Mathews insolvent. This testimony comports with Plaintiffs' interrogatory response that they were aware of the transfers to the Three Trusts in June 2010. In sum, Defendants contend that Plaintiffs had: (1) inquiry notice in March and April of 2008; (2) inquiry notice ...