## Facts

- A corporation paid dividends to stockholders and transferees, including a bank and brokerage-related defendants.
- A receiver for the corporation sued in equity to recover the dividends, alleging the payments were unlawful because they occurred when the corporation was financially impaired or insolvent and harmed creditors.
- The complaint alleged the corporation was “unable to pay its debts” when dividends were declared and paid, but did not clearly specify whether this meant impairment of capital or balance-sheet insolvency (assets insufficient to pay debts).
- The trial court dismissed the complaint as legally insufficient.
- The receiver appealed, arguing the complaint stated a basis to recover dividends as transfers fraudulent as to creditors.

## Issues

1. Whether a complaint alleging dividends were paid when the corporation was “unable to pay its debts” sufficiently pleads insolvency to support recovery of dividends as fraudulent transfers, or is merely too ambiguous.
2. Whether a receiver seeking to recover dividends on a fraudulent conveyance theory must allege that creditors existing when dividends were paid remained creditors when the receiver was appointed.

## Decision

- The Second Circuit affirmed dismissal of the complaint.
- The court read the allegation “unable to pay its debts” as capable of pleading insolvency (assets insufficient to pay debts), making the pleading at most indefinite as to insolvency.
- The court stated that ambiguity of this type should ordinarily be addressed by a motion for a more definite statement, not dismissal for failure to state a claim.
- Dismissal was nonetheless proper because the complaint failed to allege that creditors who existed at the time of the dividend payments were still creditors represented by the receiver when he sued.

## Legal Principles

- A receiver who attacks dividends as fraudulent transfers must connect the challenged payments to creditors whose claims existed when the payments were made and remained unpaid when the receiver acted.
- Insolvency for fraudulent transfer purposes (assets insufficient to pay debts) is distinct from mere “impairment of capital” (assets less than debts plus stated capital), and the theories can carry different consequences.
- Where a pleading is reasonably read to state a claim but is indefinite or ambiguous, the procedural remedy is ordinarily a requirement of a more definite statement rather than dismissal.
- Recovery from stockholders for dividends paid while insolvent may proceed on fraudulent conveyance principles even absent reliance on a specific statutory stockholder-liability scheme.

## Conclusion

The court upheld dismissal because the receiver did not plead that the dividend payments injured creditors he represented—specifically, that creditors existing when the dividends were paid remained creditors when the receiver was appointed—while indicating that ambiguity in the insolvency allegation, by itself, would more appropriately be cured by a more definite statement.


Wood v. Nat’l City Bank, 24 F.2d 661 (2d Cir. 1928)