Relevant Document:Decision
In an
motion to dismiss opinion issued yesterday, Monday, April 3, New Jersey Superior Court Judge Margaret Goodzeit allows the Valeant securities fraud plaintiffs’
request to
enjoin Bausch Health from distributing to shareholders $4.5 billion in Bausch + Lomb shares held by an
unrestricted subsidiary to proceed to discovery. A final judgment enjoining the anticipated distribution “could be appropriate because it would preserve the status quo between the parties” until a New Jersey federal court adjudicates the securities fraud actions, Judge Goodzeit concludes.
The judge also allows certain of the plaintiffs’ claims for avoidance of transfers of Bausch Health vision care assets to Bausch + Lomb as part of the spinoff to proceed. Specifically, Judge Goodzeit concludes that the plaintiffs laid out sufficient “badges of fraud” to state a claim for avoidance of those transfers as made with the actual intent to hinder, delay or defraud the plaintiffs’ efforts to collect any judgment in the securities fraud action. However, the judge dismisses without prejudice the plaintiffs’ claims to avoid the vision care asset transfers as made in exchange for less than reasonably equivalent value while Bausch Health was insolvent.
In December 2022, the judge denied the plaintiffs’ request for a preliminary injunction barring the Bausch + Lomb share distribution as premature, subject to the plaintiffs renewing their motion if Bausch Health were to take concrete steps toward effectuating the distribution. Bausch Health and Bausch + Lomb argued in a subsequent
motion to dismiss that the New Jersey fraudulent transfer statute cannot be used to enjoin future transactions.
Judge Goodzeit specifically rejects this argument in her opinion. New Jersey’s fraudulent transfer statute “allows a creditor to obtain, subject to applicable principles of equity and in accordance with the applicable rules of civil procedure, an injunction against further disposition by the debtor, transferee, or both, of the asset transferred” to preserve the status quo while the creditor seeks a judgment against the transferor in another suit, the judge concludes.
Judge Goodzeit also rejects the defendants’ argument that the plaintiffs cannot secure injunctive relief preventing the distribution because they did not assert a claim for injunctive relief in their complaint. “[T]here is no binding New Jersey authority that supports this contention,” the judge points out, and “injunctive relief against further disposition of property by the debtor is specifically authorized” by the fraudulent transfer statute.
However, the judge holds that, although the plaintiffs may seek a status quo injunction, the plaintiffs failed to sufficiently allege claims for avoidance of the anticipated share distribution as a constructive fraudulent transfer under New Jersey law at this time. Specifically, Judge Goodzeit finds that the plaintiffs cannot obtain a declaration that the distribution would be fraudulent now because Bausch Health has not yet incurred any binding obligation to make the distribution.
The documents in the record, the judge explains, establish that Bausch “has no obligation to pursue or consummate any further dispositions of its B+L interest, and it may decide to retain its ownership interest indefinitely.” Until Bausch Health becomes obligated to make the distribution, the judge concludes, the distribution cannot be evaluated as a fraudulent transfer for avoidance purposes.
Turning to the vision care asset transfers, Judge Goodzeit holds that the plaintiffs sufficiently alleged three “badges of fraud” to state a claim for avoidance based on actual intent to hinder, delay or defraud. Specifically, the judge recounts, the plaintiffs alleged that the transferee, Bausch + Lomb, is an “insider” of Bausch Health because Bausch Health owned 100% of Bausch + Lomb shares at the time of the transfer. For the same reason, Judge Goodzeit continues, the plaintiffs adequately alleged a second badge of fraud: that Bausch Health retained control of the vision care assets after the transfer.
Finally, the judge finds that plaintiffs stated a third badge of fraud: that the vision care assets transfers were made after the plaintiffs asserted $3 billion in securities fraud claims against Valeant/Bausch + Lomb. “The aforementioned alleged badges of fraud are sufficient to meet plaintiffs’ pleading requirements in support of their claim that defendants acted with the requisite intent to hinder, delay, or defraud any creditor of the debtor when transferring assets to B+L,” Judge Goodzeit concludes.
Judge Goodzeit notes that the plaintiffs put forward other potential badges of fraud, including that Bausch Health was insolvent at the time of the vision care asset transfers, but discounts these assertions. The plaintiffs effectively alleged that Bausch Health will be insolvent after the share distribution, according to the judge, and this is insufficient to show Bausch Health was insolvent when the vision care asset transfers were made. Further, the judge finds Bausch Health did not conceal the vision care asset transfers or the Bausch + Lomb spinoff.
Although the plaintiffs’ actual fraud claims related to the vision care asset transfers survive, Judge Goodzeit dismisses their constructive fraud claims. “Plaintiffs allege, without providing any explanation, that the transfer of the vision care assets to B+L was made without receiving reasonably equivalent value in return,” the judge explains, but “a plaintiff must allege facts to support its claim rather than merely recite a cause of action.”