[*1]Decided on February 17, 2010

ABN Amro Bank N.V.;BARCLAYS BANK PLC; BNP PARIBAS; CALYON; CANADIAN IMPERIAL BANK OFCOMMERCE; CITIBANK, N.A.; HSBC BANK USA, N.A.; JP MORGAN CHASE BANK,N.A.; KBC INVESTMENTS CAYMAN ISLANDS V LTD.; MERRILL LYNCHINTERNATIONAL; BANK OF AMERICA, N.A.; MORGAN STANLEY CAPITALSERVICES INC., NATIXIS; NATIXIS FINANCIAL PRODUCTS INC.; COOPERATIVECENTRALE RAIFFEISEN-BOERENLEENBANK B.A., NEW YORK BRANCH; ROYALBANK OF CANADA; THE ROYAL BANK OF SCOTLAND PLC; SMBC CAPITALMARKETS LIMITED; SOCIETE GENERALE; UBS AG, LONDON BRANCH; andWACHOVIA BANK, N.A., Plaintiffs, against MBIA Inc., MBIA INSURANCE CORPORATIONS and MBIAINSURANCE CORP. OF ILLINOIS, Defendants.

601475-2009



Sullivan & Cromwell, New York City (Michael T. Tomaino and William H.Wagener of counsel), for ABN Amro Bank N.V. et al., Plaintiffs.

Kasowitz, Benson, Torres & Friedman, LLP, New York City (Daniel R. Benson,Marc E. Kasowitz, and Kenneth R. David of counsel), for MBIA Inc. et al., Defendants.

James A. Yates, J.

Twenty-three of the world's largest financial corporations and investmentbanks, in two lawsuits, are challenging the [*2]February 2009restructuring of MBIA Insurance Corporation and MBIA Insurance Corporation of Illinois.Plaintiffs, in their disputed capacity of policyholders and creditors, claim that the restructuringwas a massive fraudulent conveyance designed to loot MBIA Insurance Corporation's assets andto evade its finance guarantee coverage obligations to them. Plaintiffs' claims have not yet fullymatured.

Regulatory approval from the New York State Department of Insurance (DOI) was requiredfor the restructuring. Defendants are MBIA Inc., MBIA Insurance, and MBIA Illinois(collectively, the MBIA Group). Before the Court is defendants' motion to dismiss the complaint,pursuant to CPLR 3211 (a) (1), (2) and (7), for lack of subject matter jurisdiction and for failureto state a cause of action.

Historically, MBIA Insurance primarily wrote financial guarantee insurance for governmentand municipal bonds. During the boom of structured finance products, MBIA Insurance beganinsuring a large amount of structured-finance policies. When the credit market began to sour in2008, MBIA Inc. and MBIA Insurance began to experience financial difficulties.

As part of its 2009 restructuring or "Transformation," MBIA Insurance's profitable publicfinance insurance business, along with $5.4 billion in assets, were transferred to MBIA Illinois(now known as the National Public Finance Guarantee Corporation), a subsidiary of MBIAInsurance. This $5 billion was no longer available to MBIA Insurance to pay its obligations onits insurance policies, leaving MBIA Insurance with only $8.8 billion in claims-payingresources. MBIA Illinois, which had been a direct subsidiary of MBIA, became its sistercorporation; MBIA retained assets worth nearly $10.1 billion to satisfy claims arising out ofstructured finance policies with a face amount of $233.5 billion; and MBIA Illinois receivedassets worth nearly $5.7 billion to satisfy claims arising out of public finance policies with a faceamount of $531 billion. As of March 31, 2009, MBIA Insurance had only $3.7 billion in cash andinvestments, $6.1 billion in total assets and $8 billion in claims-paying resources. The $5 billiontransfer was completed through three transactions: (a) MBIA Insurance paid a $1.147 billiondividend to MBIA Inc.; (b) MBIA transferred $938 million in MBIA Illinois stock to MBIAInc.; and (c) MBIA Insurance paid MBIA Illinois $2.89 billion for a re-insurance agreementwhich allowed municipal bond policyholders to make claims directly against MBIA Illinois.Despite this agreement, if MBIA Illinois defaulted, MBIA Insurance would remain obligated tocover the policies.

Plaintiffs contend that the Transformation served to split [*3]MBIA Insurance into two entities: (1) a well-capitalized publicfinance insurance company (MBIA Illinois) operating to benefit MBIA Inc.; and (2) an insolventMBIA Insurance with huge insurance exposures to the holders of the structured finance andforeign public finance securities it guarantees. Under the new structure, MBIA Inc. can retain allof its assets even if MBIA Insurance cannot pay out its structured-finance policyholders' claimsin full. In effect, plaintiffs assert that the Transformation left MBIA Insurance undercapitalizedand insolvent. Additionally, plaintiffs allege that the managing directors, as large stockholders ofMBIA Inc., personally profited from the fraudulent conveyance because of the increase in stockprice due to re-allocation of assets between MBIA Insurance and MBIA Illinois. The complaintasserts six causes of action, including three claims of fraudulent conveyance under New YorkDebtor and Creditor Law sections 273, 274 and 276, breach of the implied covenant of goodfaith and fair dealing, abuse of the corporate form and unjust enrichment.

Relying on Shah v Metropolitan Life Insurance Co., 2003 WL 728869 (Sup Ct, NYCounty 2003), aff as mod Fiala vMetropolitan Life Insurance Co., 6 AD3d 320, 322 (1st Dept 2004) (upholdingdismissal of claims against insurer for breach of contract, breach of fiduciary duty and fraud ascollateral attacks on the Superintendent's approval of the insurer's demutualization plan),defendants argue that no matter what statute or common law principles plaintiffs purport to bringtheir claims under, plaintiffs are challenging the Transformation approved by DOI. Because theTransformation at issue was approved by DOI, defendants contend that plaintiffs' action is animpermissible attempt to bypass the channels of review for challenging the agency'sdetermination. Plaintiffs have no choice but to bring this matter under an Article 78 petition.Accordingly, defendants argue that the Court is barred from exercising its jurisdiction in thisaction and the complaint must be dismissed.

For the reasons stated below, the motion to dismiss the complaint is denied.

I.Background ^[FN1][*4]

A.The Parties

MBIA Inc. is a Connecticut corporation, with its principal place of business in Armonk,New York. The publicly traded parent company provides financial guarantee insurance. MBIAInsurance is a New York-domiciled insurance corporation with its principal place of business inArmonk, New York. Prior to February 2009, MBIA Insurance was the world's largest monolineinsurer, offering financial guarantee insurance policies covering mortgage-backed securities,public debt, collaterized debt obligations, credit default swaps and other asset-backedobligations.^[FN2] Prior tothe restructuring, MBIA Illinois was a wholly owned and controlled subsidiary of MBIAInsurance.

Plaintiffs hold $233 billion in face amount of financial guarantee insurance policies issuedby MBIA Insurance. Under those financial guarantee policies, MBIA Insurance promised tomake payments if the obligors on the insured products defaulted on their payment obligations.

B.Pre-Transformation

In 2007, MBIA, along with other companies in the finance guarantee industry, suffered hugelosses when it was hit by claims on insurance policies issued on repackaged debt such asmortgaged-backed securities and collateralized debt obligations. Most companies weredowngraded by Standard & Poor's Rating Services (S & P) and Moody's Investor Services(Moody's) and suspended writing new finance business by mid-2008. (Complaint ¶¶48, 51.) Nevertheless, as of January 1, 2008, MBIA Insurance enjoyed "AAA" credit ratingsfrom both Moody's and S & P.

On February 25, 2008, MBIA published a set of ten "Principles and Decisions GuidingMBIA Inc.'s Transformation" that announced the company would establish "separate legaloperating entities for MBIA's public, structured and asset management businesses" within fiveyears. MBIA promised to restructure its business "after careful consideration of the impact to allconstituents, including policyholders, financial institutions, shareholders and others." At thesame time, MBIA announced that MBIA was suspending the writing of new [*5]structured-finance policies for approximately six months.

Plaintiffs argue that by mid-2008, MBIA Inc. had recognized that MBIA Insurance wasfinancially distressed when MBIA Inc. publicly committed to investing $900 million in its owninsurance subsidiaries, including MBIA Insurance, to fortify their credit ratings and balancesheets on May 12, 2008. On June 11, 2008, however, MBIA Inc. CEO Jay Brown stated in aletter to owners that the company would not be making capital contributions to MBIA Insurancegiven the downward change in ratings status the week before, "especially since that additionalcapital would not preserve its [AAA] ratings" (id. ¶ 50). The financial marketscontinued to deteriorate during the remainder of 2008, partly because of concerns related tofinancial institutions' and insurers' exposure to structured-finance obligations. Moody's andStandard & Poor's (S & P) downgraded MBIA Insurance's credit rating in a series of reports,opining that MBIA Insurance "would face diminished public finance and structured finance newbusiness flow and declining financial flexibility," that continuing deterioration in thestructured-finance markets would place pressure on MBIA Insurance's capital adequacy, and thatthere was an "expectation of greater losses on [MBIA Insurance's] mortgage related exposure"(see affidavit of DiBlasi, exhibit 20, [S & P Report dated June 5, 2008]; exhibit 21[Moody's Report dated November 7, 2008]). Between August and December of 2008, MBIA Inc.repurchased approximately $221 million worth of its own stock and repurchased $127 million inpar value of its own debt (Complaint ¶ 52). MBIA Inc.'s stock price fluctuated as the creditcrisis accelerated. The stock price more than doubled during August 2008 before falling by closeto 75% between September 2, 2008 and December 31, 2008. (See affidavit of DiBlasi,exhibit 25 [Bloomberg Quotes of MBIA Inc. Stock Price Data].)

C.The Superintendent's Approval of the Transformation

1.The Powers of the Department and Superintendent

Under Section 201 of the Insurance Law, the Insurance Department is charged withsupervising and regulating all insurance business in New York State. The Superintendent ofInsurance possesses "the rights, powers, and duties, in connection with the business of insurancein this state, expressed or reasonably implied by [Insurance Law] or any other applicable law ofthis state." Consequently, the Insurance Superintendent is vested by statute with the generalsupervision, control, and regulation of insurers and has the power to make all reasonable rulesand regulations necessary to enforce the laws of [*6]the staterelating to these matters. This includes the making of reasonable decisions and interpretations inorder to carry out the statutory provisions. The Insurance Superintendent may also examine theassets of an insurer and approve new corporate forms.

Defendants assert that the objective of the Transformation served the public interest ofunfreezing credit markets and the private goal of maintaining MBIA Insurance as awell-capitalized, solvent insurer. As Superintendent of Insurance Eric DiNallo stated:

"This is a private sector solution to a public sector concern . . . It preserves MBIA's promisesto policy holders, while reducing costs and increasing opportunities for taxpayers. It will aid thefederal stimulus efforts by providing access to the credit markets to fund shovel-readyinfrastructure development, and it will help taxpayers by lowering the cost of that borrowing."

(See affidavit of Kasowitz, exhibit C, at 2.)

2.The Approval Process and Letter

MBIA was required to submit a detailed plan of reorganization which would notadversely affect the interests of policyholders (see Ins. Law § 1505). On December5, 2008, MBIA Inc. submitted an application to the Insurance Department seeking to carry out aTransformation of MBIA Group. The application also included a solvency opinion by BridgeAssociates, LLC, a restructuring firm with experience in the financial guarantee industry.Additionally, a fairness opinion from Raymond James & Associates, Inc., an investment bankand management company were made part of the application.

Over the following two months, the Insurance Department continued to conduct a review ofthe proposed Transformation, and an investigation of the MBIA Group companies, including anexamination of each of their books and records, financial condition both before and after theTransformation, and their reserve methodologies. Materials supporting or amending theapplication were submitted on December 23, 2008 and February 3, 4, 5, 11, 13 and 16, 2009 tothe Department. The Insurance Department made its determination without holding a hearing orseeking input from affected policyholders since no provision of the Insurance Law mandatedthese actions.

On February 17, 2009, the Insurance Department issued a letter to MBIA, granting each ofthe approvals requested by MBIA [*7]in its application. Theletter stated that the Department's approval was based on its examination of the MBIA Group'sfinancial condition prior to the Transformation and after the Transformation was completed. TheTransformation was completed through a series of dividends, capital contributions, andreinsurance arrangements.

Specifically, the February 17th DOI Letter approved a series of transactions among MBIAcompanies, including: (1) MBIA Insurance paid a $1.147 billion dividend in cash and securitiesto MBIA Inc. (approved under Insurance Law § 4105 [a] which provides that "no domesticstock property/casualty insurance company shall declare or distribute any dividend toshareholders except out of earned surplus"); (2) MBIA Insurance redeemed 32,064 shares of itscapital stock from MBIA Inc. in exchange for $938 million of cash and securities, as well as100% of the common stock of MBIA Illinois (which had a $185 million capital base) (approvedunder Insurance Law § 1411 [d] which provides that "[n]o domestic stock insurer shallpurchase its own capital shares except . . . pursuant to a plan of stock redemption . . . approvedby the superintendent as reasonable and equitable.") and then transferred those assets to MBIAInc.; and (3) MBIA Insurance and MBIA Illinois executed a reinsurance agreement wherebyMBIA Insurance agreed to pay MBIA Illinois $2.89 billion (net) in cash, as well as 78% (net) ofall premiums received from municipal-bond policy holders, in exchange for MBIA Illinois'agreement to reinsure those policies on a "cut-through" basis. As a result, MBIA Insurance'smunicipal-bond policy holders may seek payment of their claims directly from MBIA Insurance(the insurer) and MBIA Illinois (the reinsurer). These terms were approved pursuant to InsuranceLaw sections 1308, 1505 (a) and (d), and 6906. MBIA Inc. did not contribute any of its own cashto either MBIA Insurance or MBIA Illinois.

The approval letter found that the Transformation was fair to policyholders, and that MBIAwould "retain sufficient surplus to support its obligations and writings" and "continue to pay allvalid claims in a timely fashion." DOI Superintendent Eric Dinallo stated that both MBIA andNational would have sufficient statutory capital to meet policy holders' claims as they becomedue. His findings of fact were based on "the representations made in the Application and itssupporting submissions, and in reliance on the truth of those representations and submissions, (2)the [Insurance Department's] examination of the MBIA Entities' financial condition prior to the[restructuring] and (3) the [Insurance Department's] analysis of the MBIA Entities' financialcondition after the effectuation of the [restructuring]" (see affidavit of DiBlasi, exhibit 1[Feb. 17th [*8]Insurance Department letter], at §§III.A, III.B, III.C.1, III.C.2, III.C.3, III.D., III.E., III.F). Superintendent DiNallo found that thetransfers were "reasonable and equitable." Finally, the Superintendent of Insurance determinedthere were no statutory grounds to disapprove the Transformation.

In their complaint, plaintiffs allege that the Insurance Department analyzed the informationin MBIA's application by applying statutory accounting principles (principles accepted by theDepartment based on those adopted by the National Association of Insurance Commissioners),rather than "Generally Accepted Accounting Principles" (GAAP) (see Ins. Law§§ 307, 308; 11 NY Comp Codes R and Regs § 83.1 et seq.).

D.The Transformation

On February 18, 2009, MBIA Inc. publicly announced it had set up a new U.S. publicfinance insurance company within the MBIA Inc. group by restructuring its principal insurancesubsidiary, MBIA Insurance Corporation. To effectuate the Transformation, MBIA Illinoisreinsured $537 billion in outstanding public finance polices on the books of MBIA as ofSeptember 30, 2008, and assumed MBIA's obligations to reinsure policies originally issued byMBIA Illinois and reinsured by MBIA.

Under the terms of the transaction, National Public Finance Guarantee Corporation(previously named MBIA Insurance Corp. of Illinois) provided cut-through reinsurance on all ofMBIA Corp's existing portfolio of U.S. municipal credits through a 100% quota-shareagreement, including the municipal exposure that MBIA Corp assumed from FGIC. To supportits ability to pay claims, National has received a $2.1 billion capital infusion sourced through adividend from MBIA Corp, in addition to $2.9 billion in net unearned premiums (net of cedingcommissions) and loss and loss adjustment expense reserves associated with the municipalportfolio. Post-transaction, National had approximately $545 billion in municipal net paroutstanding and $5.4 billion in hard capital, while MBIA Corp had $225 billion in net parexposure and approximately $7.8 billion in hard capital. After the Transformation, MBIA wouldbe responsible for the structured-finance book of business; National would only cover domesticpublic finance markets. The transactions were given retroactive effect to January 1, 2009.

On February 18, 2009, MBIA Inc. Chairman and CEO Brown stated in a letter to ownersthat the Transformation provided MBIA Inc. "with much needed clean capacity for newmunicipal bond [*9]business" and provided "clarity as to theclaims-paying resources supporting MBIA-wrapped municipal bonds." That same day, Mr.Brown in a television interview, stated that "[t]here is no cross liability going from the newcompany to the old company, it was set up and designed that way to back up the muni bonds thatwere already in the marketplace." He went on to emphasize that "[i]t's very important for thatmarketplace, they now have $5.8 billion, totally isolated, separate, it's not going to pay structuredclaims, it's just going to be used for the muni market."

E.The Effect of the Transformation

The Transformation was met with mixed reactions. Because the new unitcould win new business for MBIA Inc., shareholders supported the move and sent the company'sshares up as much as 41% in early trading. Prior to the transformation, MBIA Insurance's creditrating was AAA, or the highest possible rating. However, the credit rating of the insurer wasslashed to non-investment grade or near junk levels. Moody's Investors' Services downgradedMBIA Insurance to B3, six steps below investment grade and thee steps above junk. Moody'sdefines B3-rated insurers as "offer[ing] poor financial security. Assurance of punctual paymentof policyholders obligations over any long period of time is small" (see affidavit ofDiBlasi, exhibit 37 [Excerpt from Moody's Ratings Definitions], at 9). In its press release,Moody's cited two primary factors for its downgrade of MBIA:

"First is the guarantor's substantial reduction in claims-paying resources relative to thehigher - risk exposures in its insured portfolio, given the removal of capital, and the transfer ofunearned premium reserves associated the ceding of its municipal portfolio to MBIA Illinois.Second is the continued deterioration of the firm's insured portfolio of largely structured credits,with stress reaching sectors beyond residential mortgage-related securities."

(See affidavit of DiBlasi, exhibit 36 [Moody's Feb. 18, 2009 Report], at 1.)

Additionally, Moody's stated that the company's outlook "reflects the potential for furtherdeterioration in the insured portfolio" and "incorporates positive developments that could occurover the near to medium term, including greater visibility about mortgage performance"(id.).On June 5, 2009, in its ratings release, S & P lowered the credit, financial strengthand financial enhancement ratings on MBIA Illinois to "A" from [*10]"AA-."

As of March 31, 2009, MBIA Insurance had approximately $3.8 billion in cash andinvestments (down from $4.3 billion as of December 31, 2008), $6.1 billion in total assets (downfrom $6.7 billion as of December 31, 2008), and $8 billion in claims-paying resources (downfrom $8.8 billion of as December 31, 2008) to back guarantees on about $240 billion instructured finance securities and non-U.S. bonds. The claims-paying resources of MBIA Corppost-restructuring are below Moody's expected loss estimates for the entity.

The price of credit-default swaps (i.e. derivative contracts that pay a lump sum if MBIAInsurance defaults on its obligations to creditors) almost doubled shortly after the restructuringwas announced. Additionally, the price of MBIA Insurance's outstanding "surplus note" debtsecurities fell dramatically. By contrast, the price of MBIA Inc.'s common stock increased onFebruary 18, 2009.

Documentary evidence, in the form of MBIA Inc.'s most recent Form 10-K filing with theSecurities and Exchange Commission admits that its preparation of financial models forprojections of gains or losses is "an inherently uncertain process involving numerous estimatesand subjective judgments by management" and that "[s]mall changes in the assumptionsunderlying these estimates could significantly impact loss expectations."

To date, MBIA Corp's mortgage-related losses have exceeded the earnings generated overthe last few years, highlighting the severity of the stress faced by the firm. Moody's reports thatadditional losses are likely, given higher loss estimates for sub-prime mortgages and thesubstantial uncertainty that remains with respect to the ultimate performance of MBIA'sstructured finance portfolio.

F.The Pending Lawsuits

1.Plenary Action

Plaintiffs did not seek a stay of the Superintendent's decision pending review of theSuperintendent's determination. Instead, on May 13, 2009, plaintiffs sued MBIA, contending thetransfer of assets was a series of fraudulent conveyances. The complaint alleges that defendantswere unjustly enriched and induced a breach of their respective insurance contracts.

Specifically, plaintiffs allege in the first, second and [*11]third causes of action that transactions approved by DOI wereactual or constructive fraudulent conveyances that violated New York Debtor and Creditor Lawsections 273, 274, and 276. Plaintiffs claim that MBIA fraudulently transferred approximately$5.4 billion in cash and securities out of MBIA Insurance, leaving MBIA unable to pay claims orunderwrite new ones. In their fourth cause of action against MBIA Insurance, plaintiffs allege acommon law claim, breach of the "implied covenant of good faith and fair dealing" andfrustration of the purpose of plaintiffs' contracts with MBIA Insurance and MBIA Inc. Plaintiffs'fifth cause of action is against MBIA Inc. and MBIA Insurance, alleging an abuse of thecorporate form. In support of their argument to pierce the corporate veil, plaintiffs assert MBIAInc. completely dominated MBIA Insurance and this domination adversely affected Plaintiffs.They seek a declaratory judgment holding the two defendants jointly and severally liable toPlaintiffs under their insurance policies. The sixth cause of action against MBIA Inc. and MBIAIllinois alleges that, as a result of the fraudulent restructuring that took place, these twocompanies and their management were unjustly enriched and are holding assets that should bereturned to MBIA Insurance.

On May 13, 2009, plaintiffs served defendants with their First Notice to Produce Documentsalong with the complaint. The request sought all documents that defendants "submitted to orreceived from the [Insurance Department] concerning the Transformation ncluding but notlimited to all Communications between the MBIA Group and the [Insurance Department]concerning the Transformation" (internal quotation marks omitted). However, the MBIA Groupfiled a motion to stay discovery pending a decision on this motion.

2.Article 78 Petition

On June 15, 2009, plaintiffs commenced an Article 78 proceeding against the New YorkState Insurance Department, Mr. Dinallo, the outgoing Superintendent of the InsuranceDepartment, and the three MBIA entities that are defendants in this action under Index Number601846-2009. The filing preserves any potential challenges to MBIA's fraudulent restructuringbefore the expiration of any statutes of limitations. On June 19, 2009, MBIA filed a motion todismiss this action, arguing that plaintiffs' claims against MBIA constitute a collateral attack onthe Insurance Department's determination that may only be brought in an Article 78 proceeding.

II.Arguments[*12]

Defendants seek to dismiss plaintiffs' complaint in itsentirety. Initially, defendants argue that the complaint is directed at matters which are part andparcel of the restructuring plan approved by the Department of Insurance. They assert that thenature of plaintiffs' claims and the arguments made to this Court demonstrate that the reliefsought can only be obtained through a challenge to the Insurance Department's authorization ofthe restructuring. Anything else would be directed at secondary matters and would, for allpractical purposes, be a collateral attack on that decision. Given that the Superintendent ofInsurance approved the transfer of assets, defendants argue that the approval of the revisedcompany structure can only be side aside in an Article 78 proceeding. (See InsuranceLaw 326 ["[A]ny order, regulation or decision of the superintendent is declared to be subject tojudicial review" in an Article 78 proceeding.].)

In response, plaintiffs contend that the argument is entirely misplaced since they are notchallenging the Superintendent's approval of the restructuring plan. Instead, plaintiffs contendthat they are aggrieved creditors asserting their rights. Consequently, they are not precluded fromlitigating their claims in this forum.

Defendants also move to dismiss the complaint for failure to state a cause of action. Theycontend that the fraudulent conveyance claims should be dismissed because they rely upon"speculative and conclusory allegations." (See CPLR § 3016 [a].) Defendants alsocontend that the breach of contract claim must be dismissed because MBIA Insurance failed tohonor its policy obligations.

As to the cause of action for a declaratory judgment, defendants contend that an action maynot be maintained if the issue presented involves a hypothetical future event with remoteprejudice to plaintiffs. Next, defendants argue that the action for unjust enrichment should bedismissed because plaintiffs lack standing to assert the claim. Finally, defendants argue that NewYork courts have held that a party to a contract may not maintain an unjust enrichment claimagainst a third-party to that contract where the claim is based on the same subject matter as thecontract. Hence, defendants contend that plaintiffs cannot assert a claim against MBIA Inc.based on the same set of facts that purportedly instituted a breach of their contracts with MBIAInsurance.

III.Analysis

[*13]A.Standard of Review

On a motion to dismiss, pursuant to CPLR 3211 (a) (7), "the pleadings are necessarilyafforded a liberal construction" (Goshen v Mutual Life Ins. Co. of New York, 98 NY2d314, 316 [2002]). Accordingly, the Court must "accept the facts alleged in the complaint as true,accord plaintiffs the benefit of every possible inference and determine only whether the facts asalleged fit within any cognizable legal theory" (Leon v Martinez, 84 NY2d 83, 87-88[1994]). The movant carries the initial burden of showing there is an absence of evidence tosupport the non-moving party's claims.

B.Subject Matter Jurisdiction

After a review of the complaint, the Court finds it has the authority to determine the claimsbrought under Debtor and Creditor Law and the common law to challenge the series of assettransfers that allegedly defrauded plaintiffs.

Typically, New York courts do not construe a private right of action under the InsuranceLaw, in the absence of express language authorizing such enforcement (Rocanova vEquitable Life Assur. Soc. of U.S., 83 NY2d 603 [1994]). However, simply because the statelegislature may not have affirmatively created a private right of action within the Insurance Law,does not, in and of itself, strip this Court of jurisdiction to hear claims which may lieindependent of the Insurance Law.

The provisions of the Debtor and Creditor Law and common law, which the defendants arecharged with violating, deal with the fairness of transactions, preferential transfers andfraudulent conveyances in any commercial arena. A private right of action is not inconsistentwith the mechanisms chosen by the Legislature to regulate the industry under the state'sInsurance Laws.

The mere fact that there was earlier approval of the MBIA restructuring by the InsuranceDepartment does not immunize defendants from subsequent statutory and common law claims.The MBIA Group characterizes the action as simply an attempt to invalidate the regulatoryapproval of the Transformation. However, plaintiffs are not asking the Court to examine whetherthe Superintendent of Insurance correctly interpreted and applied the state Insurance Laws. Noris it necessary to resolve any issues that fall under the regulatory scheme of the Department ofInsurance. Instead, the focus here is on the intent and conduct of defendants in stripping awayassets and shielding them from [*14]the legitimate claims of acorporate creditor.

Defendants cite Fiala v Metropolitan Life Insurance Co., 6 AD3d 320 (1st Dept2004), for support. There, plaintiffs were a class of policy holders of Metropolitan LifeInsurance. Plaintiffs filed suit, complaining that they were misled and short-changed in atransaction where the insurance company demutualized and converted into a domestic stockcompany. The class sought to certify its claims, violations of New York Insurance Law andcommon law fraud which had survived a prior motion to dismiss. (See Shah v Metro. LifeIns. Co., 2003 WL 728869 [Sup Ct, NY County 2003], aff as mod Fiala v Metro. LifeIns. Co., 6 AD3d 320 [1st Dept 2004].) However, Shah and Fiala are notfactually or legally analogous to the extent that both cases involved consideration of insurancelaws, whereas the cause of action here is partially based on other statutory claims involvingDebtor and Creditor law and the common law. Significantly, the First Department reversed thetrial court's dismissal of certain plenary claims and allowed plaintiffs to re-plead their fraudclaims that certain policy holders received preferential treatment (Fiala, 6 AD3d at 321).

As well, the Insurance Department's private review in this case is very different than theapproval of the demutualization plan in Fiala and Shah. In those cases, theSuperintendent of Insurance was required, by statute, to make a determination after notice, ahearing and a policy holder vote, that the transactions were in the best interests of the insurer andthe policy holders (Shah, 2003 WL 728869, *14). Here, the February 17th approval letterreleased by the Insurance Department was issued without any notice or public hearing.

Nonetheless, even where a claim challenges a plan approved by the Superintendent, thepreclusive effect of Superintendent's decision is limited by the scope of the agency's review. Asthe First Department stated in Fiala:

"[D]efendants have not established the preclusive effect of the Superintendent'sdetermination with respect to plaintiff's claim [that Armstrong Tire and Rubber receivedpreferential treatment] since there is no indication that the Superintendent was aware of thealleged excessive allocation at the time he passed upon the plan. If there is evidence that theSuperintendent was aware of this, defendants may move defendants may move for summaryjudgment."

(Fiala, 6 AD3d at 321.)[*15]

Similarly, in Richards v Kaskel, 32 NY2d 524,535 (1973), the Court of Appeals held that tenants could assert claims in a plenary law suitalleging that their landlord engaged in fraudulent conduct related to a cooperative conversionplan. They were not required to commence an Article 78 petition to challenge the New YorkState Attorney s approval of the plan. The Court found that the statute granting the AttorneyGeneral "exclusive primary jurisdiction" to review the plan did not deprive the court of "itstraditional equitable jurisdiction to consider claims of illegality . . . apart from non-compliancewith that provision" (id.). Other courts in other states have taken the sameposition (see La Farge Corp. v PA. Ins. Dept, 735 A2d 74, 77 [PA 1999] ["[N]o judicialremedies were foreclosed by the state's Insurance Department's approval of an insurancecompany's plan of restructure and division."]; Drain v Covenant Life Ins Co., 712 A2d273 [PA 1998] [permitting policy holders to bring tort claims arising from merger approved byInsurance Department]; Rowen v LeMars Mut. Ins. Co of Iowa, 230 NW2d 905,911-912 [Iowa 1975] [Insurance Department's regulatory power to approve transactions does notdeny "aggrieved persons their common law and other statutory remedies."]). This matter is nodifferent than Kaskel in all material respects.

Here, the parties disagree about the scope of the Superintendent's approval. According toplaintiffs, the Superintendent of Insurance acted only to approve certain aspects of theTransformation under specific statutory provisions of the Insurance Law. He was called upon toresolve issues, which under a regulatory scheme, have been placed within the specialcompetence of the state Insurance Department. The Superintendent was not called upon toexamine whether defendants intended to defraud policyholders or all the other legal or financialconsequences of the Transformation upon policy holders. That the Insurance Department foundthe substance of the transformation in compliance with Insurance Law - which is all the approvalestablishes - does not deprive this Court of its jurisdiction to consider questions of law related tothe restructuring plan.

Article 78, provides in part, that the "only questions to be raised in [such] a proceeding [are]whether a determination [of an agency] was made in violation of lawful procedure" or was"arbitrary or capricious or an abuse of discretion" (CPLR 7803). In effect, defendants are askingthe Court to rule that plaintiffs are collaterally estopped from bringing their fraudulentconveyance and other claims of wrongful conduct. Based only on the February 17th approvalletter, the scope of the Superintendent's approval is not clear enough for the Court to hold thatplaintiffs' claims fail as a matter of law. It may [*16]well be,following limited discovery that DOI's review can be shown to be co-extensive with andpreemptive of plaintiffs' claims. However, at this stage of the proceedings, that determinationcannot be made without further discovery and affirmation. The statutory scheme does not, on itsface, abolish independent claims of wrongdoing by insurers. The scope of DOI's review and theinterpretative import of its approval are not matters which can be resolved as a matter of lawwithout further factual support. As the District Court recently held in a substantially similar caseattacking the Transformation, "the preclusive effect of the Superintendent's decision isnecessarily limited by the scope of the Superintendent's review . . . In other words, plaintiffscannot be precluded from litigating an issue upon which the Superintendent did not pass."(Aurelius Capital Master, Ltd. v MBIA Inc., No. 09 Civ 02242, at 5 [SD NY Feb. 11,2010, Sullivan, J.]). Accordingly, defendants may raise the very arguments which have beenasserted thus far through a summary judgment motion. Defendants' motion to dismiss thecomplaint as a prohibited collateral attack is denied.

C.The Sufficiency of the Six Causes of Action

Examining each of the causes asserted within the complaint, the Court finds that dismissal ofplaintiffs' claims is unwarranted. At the outset, it is important to highlight once again that themotion pending before the Court, is a pre-discovery motion to dismiss, not a post-discoverymotion for summary judgment. A complaint has only to provide a short and plain statement ofthe claim showing that the pleader is entitled to relief sufficient to provide defendants withnotice of the claim and its basis. (See Siegel, NY Prac § 208, at 301 [4th ed][pleading need only " give notice' of the event out of which the grievance arise."]; see alsoHolme v Global Minerals & Metals Corp., 22 Misc 3d 1123[A], *1123[A], 2009 NY SlipOp 50252[U], *4 [Sup Ct, NY County 2009].) Allegations consisting of bare legal conclusions,however, are not entitled to consideration (Franklin v Winard, 199 AD2d 220 [1st Dept1993]). The complaint's allegations must reasonably suggest that plaintiffs have a right to relief.

At this early stage of the litigation, plaintiffs need only assert facts that may entitle it torelief. The allegations set forth in the complaint for the first cause of action are sufficient towithstand a motion to dismiss. The first cause of action against all defendants is grounded inDebtor and Creditor Law section 273 which provides as follows: "Every conveyance made andevery obligation incurred by a person who is or will be thereby insolvent is fraudulent as tocreditors without regard to [*17]his actual intent if theconveyance is made or the obligation incurred without fair consideration." Defendants argue thatthe first and second causes of action do not comply with the particularity requirement of CPLR3016 (b). However, the complaint specifies multiple transfers made by MBIA Insurance torelated parties and the rapid depletion of assets. Specifically, the complaint avers that MBIAInsurance (a) transferred $1.147 billion in cash and securities to MBIA Inc.; (b) transferred $938million in cash and securities to MBIA Inc.; (c) transferred MBIA Illinois common stock andtherefore ownership of MBIA Illinois' $185 million existing capital base to MBIA Inc.; (d)transferred approximately $2.89 billion in cash to MBIA Illinois; and (e) agreed to pay its futuremunicipal bond insurance policy premiums (net of a ceding commission) to MBIA Illinois.Furthermore, plaintiffs allege that MBIA Insurance received no value or inadequate value inexchange for these payments. Plaintiffs have stated the circumstances constituting the allegedfraud so as to give defendants sufficient notice of the time, place and content of the allegedfraud. Accepting the factual allegations set forth in the complaint as true, and drawing allreasonable inferences in favor of plaintiffs, it does not appear beyond doubt that plaintiffs canprove no set of facts in support of this cause of action. Accordingly, the motion to dismiss CountI is denied.

In the second cause of action under Debtor and Creditor Law section 274, plaintiffs arerequired to show that MBIA Insurance made a transfer, without "fair consideration," when thecompany has "unreasonably small capital." Unreasonable small capital is "a financial conditionshort of equitable insolvency" where "the transferor is technically solvent but doomed to fail"(In re Manshul Constr., 2000 WL 1228866, *54, 2000 US Dist LEXIS 12576, *154 [SDNY 2000] [internal citations omitted]). "Section 274 expressly state[s] that these remedies are forthe benefit of creditors or persons who become creditors" (see Laco X-Ray Systems, Inc. vFingerhut, 88 AD2d 425 [2d Dept 1982] [stating section 274 applies to all existing creditorsand persons who become creditors while business is in operation]). CPLR 3211 (d) allows forlatitude in pleading requirements for facts unavailable to the non-moving party. Plaintiffs objectto the transfer of assets, in specified amounts, that left MBIA Insurance with unreasonable smallcapital. Plaintiffs cited commentary from market analysts, the defendants' own financialstatements and public statements to demonstrate MBIA's substantial drop in worth. Theimplication is that MBIA was rendered insolvent by the conveyance. Plaintiffs have also allegedthat the sale price of shares was significantly less that the fair market value. Because plaintiffsare present creditors [*18]and because Debtor and Creditor Lawsection 274 does not require the existence of a present creditor in any case, the motion to dismissthe second cause of action on this ground is denied. Thus, plaintiffs have alleged all the specificelements of Debtor and Credit Law section 274 and therefore, defendants cannot prevail on amotion to dismiss the second cause of action.

The third cause of action is based on Debtor and Creditor Law section 276. This sectionprovides that "[e]very conveyance made and every obligation incurred with actual intent, asdistinguished from intent presumed in law, to hinder, delay or defraud either present or futurecreditors, is fraudulent as both present and future creditors." Defendants contend that this claimshould be dismissed for failure to plead fraud with particularity (see Menaker vAltstaedter, 134 AD2d 412, 413 [2d Dept 1987]). The complaint here meets that pleadingstandard. The complaint alleges that the purpose behind the conveyance was to strip the assets ofMBIA Insurance and to render it judgment proof. This is a sufficient allegation of the actualintent to hinder, delay or defraud future creditors. Because intent is rarely susceptible to directproof, courts often rely on five "badges of fraud" to infer intent. (See Depter v OverviewEquities, Inc., 4 AD3d 495, 498 [2d Dept 2004].) Those badges are specifically alleged inthe complaint (e.g. MBIA Insurance transferred away $5 billion for almost no consideration,MBIA's admission that the restructuring dividend was "extraordinary," etc.). As well, significantissues of fact exist regarding whether MBIA Insurance was made insolvent or failed to receivefair consideration for its assets. Such issues cannot be resolved on a motion directed at thepleadings (see e.g. Segal v Cooper,49 AD3d 467 [1st Dept 2009]). The complaint is therefore sufficient for the third cause ofaction and the motion to dismiss it is denied.

In the fourth cause of action, plaintiffs state a claim for breach of the implied covenant ofgood faith and fair dealing. MBIA argues that this claim should be dismissed because (1) it hasnot yet breached its obligations to honor its payment guarantees to plaintiffs; and (2) the policiesat issue do not expressly guarantee an enhancement of the value or the credit ratings of thesecurities held by plaintiffs (see MBIA Br. at 18-19). However, courts "have repeatedlyaffirmed that a party may be in breach of an implied duty of good faith and fair dealing, even if itis not in breach of its express contractual obligations" (Gross v Empire Healthchoice Assur.,Inc., 16 Misc 3d 1112[A], *1112[A], 2007 NY Slip Op 51390[U], *4 [Sup Ct, NY County2007]). Here too, the allegations that defendants breached their duty to act in good faith to itspolicy holders as set forth in the allegations of the complaint are sufficient to withstand a motionto dismiss.

In the fifth cause of action, plaintiffs state a claim for abuse of corporate form. Plaintiffsseek to hold the defendants liable on an "alter ego" theory. Generally, New York courts do not[*19]favor disregarding the corporate form (see Sheridan Broad Corp. v Small, 19AD3d 331, 332 [1st Dept 2005]). A decision to pierce the corporate veil will require ashowing that MBIA exercised complete domination over MBIA Illinois and MBIA Insurancewith respect to the transfer of assets attacked, and that such domination was used to commit afraud or wrong against plaintiffs which resulted in injury to them (Matter of Morris v NYState Dept. of Taxation & Fin., 82 NY2d 135, 141 [1993]). Those allegations have beenmade. Plaintiffs allege that MBIA Inc. is the sole shareholder of MBIA Insurance and that thecompanies have the same senior management, including its CEO, CFO and General Counsel(see Serio v Arda Ins. Co., 304 AD2d 362, 362-363 [1st Dept 2003] [corporate veil orreinsurer pierced after its shareholder diverted assets to another entity owned by shareholder,thus "depriv[ing the reinsurer] of the funds needed to meet its reinsurance obligations."]).Defendants, however, claim that plaintiffs may not seek declaratory relief until MBIA Insurancefails to make payments to plaintiffs. This argument is unavailing since plaintiffs may maintain adeclaratory judgment action where, as here, the "controversy involve[s] a present, rather thanhypothetical . . . or remote prejudice to plaintiffs" (Am. Ins. Assn. v Chu, 64 NY2d 379,386 [1985]; see also Lewis v City of Gloversville, 264 AD2d 804 [3d Dept 1998][firefighter sought declaratory judgment that he was entitled to disability benefits when he wasnot presently disabled]).

In the sixth cause of action, plaintiffs assert a claim for unjust enrichment. The term "unjustenrichment" does not signify a single, well-defined cause of action. It is a general principle thatunderlies various legal doctrines and remedies. Under New York law, plaintiffs, to prevail onthis claim, must establish that a measurable benefit has been conferred on defendants undercircumstances that the defendants' retention of the benefit without payment would be unjust. Thecritical inquiry in an action for unjust enrichment is whether it is against equity and goodconscience to permit the defendant to retain what is sought to be recovered. (Paramount FilmDist. Corp. v State of New York,30 NY2d 415, 421 [1973].) The complaint alleges that theTransformation provided an immediate boost to MBIA Inc.'s stock price. On the day that therestructuring was announced, Jay Brown, MBIA Inc. Chairman and CEO received an additional$5 million worth of MBIA Inc. restricted stock-leaving MBIA Insurance with a "junk" creditrating and the inability to play the forthcoming claims of policy holders and that it would beunjust for defendants to retain MBIA Insurance's fraudulently transferred assets. DefendantsMBIA Inc. and MBIA Illinois counter-argue that plaintiffs seek the return of the wrongfullytransferred assets to MBIA Insurance, rather than directly to themselves. Defendants also arguethat the unjust enrichment claim should be dismissed because plaintiffs has contracts with MBIAInsurance. However, the rule invoked by defendants applies only where a contractual provisionaddress the "events arising out of the particular subject matter'" of the unjust enrichment claim(see Clark-Fitzpatrick, Inc. v Long Island R.R. Co., 70 NY2d 382, 388 [1987]). Here, theinsurance contracts in question do not expressly address or govern the fraudulent transfer ofassets. Because the Court's task is solely to determine whether the facts as alleged fit within thiscognizable legal theory, the Court finds that plaintiffs have stated a claim for unjust enrichment.

For all of the above reasons, defendants' motion to dismiss the complaint is denied and theClerk of the Court is directed to enter judgment accordingly. This constitutes the Decision [*20]and Order of the Court.

Dated: February 17, 2010

ENTER:

James A. Yates,J.S.C.

Footnote 1:At this stage of the proceedings,the Court has before it a motion to dismiss the complaint, not a Motion for Summary Judgment.The background described herein is discussed merely to describe the setting for the complaintand is not intended to portray either consideration of, or determination by, the Court of any ofthe factual assertions made by any of the parties.

Footnote 2:A monoline insurer providesonly financial guarantee insurance, and not property, casualty, life, health or disability insurance.