Kahle v. Cargill, Inc.

Background

Philip von Kahle sued in his capacity as the assignee for the benefit of the creditors of Coex Coffee International, Inc. (“Coex Miami”). The complaint sought to avoid three limited guarantees between Coex Miami and Cargill, and to avoid and recover more than $91.5 million in transfers from Coex Miami to Cargill. The claims were based on state-law theories of actual fraud and constructive fraud under New York law or, alternatively, Florida law.

According to the complaint, Coex Miami obtained nearly $90 million through fictitious loan requests and transferred the funds to Cargill to pay trading losses attributed to Corporación Coex, Inc. (“Coex Panama”). Coex Miami also entered three guarantees requiring it to pay specified amounts of Coex Panama’s future losses, allegedly without receiving equivalent value. The complaint alleged that Coex Miami had been insolvent since at least 2014.

Coex Miami later assigned its assets to von Kahle under Florida’s assignment-for-the-benefit-of-creditors statute. Von Kahle first sued Cargill in Florida state court. That case was dismissed based on a forum-selection provision requiring the claims to be heard in New York federal court. Cargill then moved to dismiss the federal complaint.

Cargill’s Arguments

Cargill primarily argued that federal bankruptcy law, specifically 11 U.S.C. § 546(g), preempted the state-law claims. Preemption means that federal law displaces state law when the two conflict or when state law interferes with Congress’s objectives. Cargill argued that Coex Miami’s Florida assignment proceeding was the functional equivalent of a federal bankruptcy proceeding.

Cargill also argued that Florida’s statute of repose barred claims based on transfers or obligations entered before July 1, 2017. A statute of repose is a deadline that can extinguish a claim after a specified period, generally regardless of when the injury is discovered. Cargill maintained that the deadline barred both constructive-fraud claims and actual-fraud claims based on those older transactions.

Preemption Ruling

The court denied Cargill’s motion to dismiss on preemption grounds. It concluded that the text of § 546(g) applies to a federal bankruptcy trustee and that von Kahle was instead an assignee created under state law. The court also relied on Second Circuit decisions indicating that bankruptcy-law preemption is triggered by the filing of a federal bankruptcy case, not by a state insolvency proceeding.

The court rejected Cargill’s argument that the Florida assignment proceeding was functionally equivalent to bankruptcy. It described the assignment process as a state-law alternative to bankruptcy and found that Cargill had not shown that Congress intended federal bankruptcy preemption to extend to such proceedings. The court likewise rejected field preemption, finding no congressional decision to reserve the entire field of avoiding transfers connected with swap agreements to federal law.

Florida Statute of Repose

The court applied Florida law, relying on its earlier choice-of-law ruling. Florida law provides a four-year deadline for fraudulent-transfer or fraudulent-obligation claims. For actual fraud, it also provides a one-year period after the transfer or obligation was, or reasonably could have been, discovered by the claimant.

Von Kahle conceded that constructive-fraud claims concerning transfers or obligations before July 1, 2017, were untimely. The court therefore granted Cargill’s motion as to those claims. The court denied the motion as to the actual-fraud claims, ruling that they were brought within one year after von Kahle discovered, or reasonably could have discovered, the transfers or obligations.

The court rejected Cargill’s argument that knowledge held by Coex Miami or some creditors should be attributed to von Kahle. It also concluded that, under Florida law, Coex Miami’s alleged participation in the wrongdoing could not limit the assignee’s claims in this action.

Disposition

The court granted Cargill’s motion to dismiss in part and denied it in part. It granted the motion as to von Kahle’s constructive-fraud claims concerning transfers or obligations before July 1, 2017, and denied the motion as to the remainder of the claims. The court also directed the clerk to terminate the stay and the motion at ECF No. 49.