Poor job performance or bad business decisions do not give rise to a constructive fraudulent transfer claim for the recovery of salary and bonuses paid to an executive, according to a district judge in New Orleans.
ATP Oil & Gas Corp. was among the drillers that ended up in bankruptcy as a result of the offshore drilling moratorium following the Deepwater Horizon disaster. The company’s chapter 7 trustee sued several executives, contending that $9 million in cash salaries and $3.5 million in stock bonuses they received in the last years of the company’s life were constructive fraudulent transfers under Section 548(a)(1)(B) and equivalent provisions in Texas law.
District Judge Sarah S. Vance dismissed the complaint in a Jan. 4 opinion, given the inadequacy of the trustee’s pleadings. “Allegedly poor job performance, without more, does not state a plausible claim for fraudulent transfer,” she said.
The complaint, Judge Vance said, had no allegations that “defendants’ compensation was out of line with peer firms, or that defendants did not honestly and diligently perform their jobs.” Instead, she said, the amended complaint “simply includes additional facts concerning defendants’ allegedly poor business decisions.”
Judge Vance also ruled that the trustee failed to allege the company’s insolvency sufficiently to survive a motion to dismiss. Apart from conclusory allegations about insolvency, the complaint had no “financial data” showing insolvency or lack of adequate capital.
Although the complaint contended that debts exceeded the assets “at fair valuation,” the conclusory allegation did not overcome the company’s own 10-K, which showed solvency at the same time, Judge Vance said.