Bash v. Textron Fin. Corp. (In re Fair Fin. Co.)
| Decision Date | 29 March 2017 |
| Docket Number | Adversary Proceeding No. 12-5101,Case No. 10-50494,District Court Case No. 5:12-cv-987 |
| Parties | In re: FAIR FINANCE COMPANY, Debtor. BRIAN BASH, TRUSTEE, Plaintiff, v. TEXTRON FINANCIAL CORP., Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of Ohio |
This proceeding is currently before the undersigned bankruptcy judge for recommendations regarding the motion of defendant Textron Financial Corporation ("Textron") to dismiss the chapter 7 trustee's second amended complaint. Case No. 5:12-CV-987, ECF No. 274. For the reasons that follow, the undersigned judge submits these Proposed Conclusions of Law recommending that the district court: (1) deny Textron's motion to dismiss the trustee's second amended complaint, with the exception of reaffirming the district court's earlier decision that the trustee is not entitled to punitive damages for avoidance claims under 11 U.S.C. §§ 550 and 544, and (2) order Textron to file its answer to the second amended complaint within 14 days pursuant to Bankruptcy Rule 7012(a).
1. The district court has jurisdiction over this action pursuant to 28 U.S.C. § 1334. The undersigned bankruptcy judge has authority to issue proposed conclusions of law pursuant to 28 U.S.C. § 157(c); Rule 9033 of the Federal Rules of Bankruptcy Procedure; Local General Order No. 2012-7, dated April 4, 2012; and the Orders of the district court dated May 20, 2014, and October 4, 2016, re-referring this matter for pretrial supervision and recommendations on all dispositive motions (Case No. 5:12-CV-987, ECF Nos. 232 and 267). See also Executive Benefits Ins. Agency v. Arkison, ___U.S.___, 134 S. Ct. 2165 (2014) ().
2. On February 7, 2012, the chapter 7 trustee ("trustee") filed this adversary complaint against three defendants. Following the district court's withdrawal of its reference pursuant to 28 U.S.C. § 157(d), the first defendant, Textron, was dismissed on November 9, 2012, pursuant to a memorandum of opinion and order entered by U.S. District Judge Patricia A. Gaughan. Bash v. Textron Financial Corp., 483 B.R. 630 (N.D. Ohio 2012).
3. On January 15, 2015, the district court largely denied cross-motions for summary judgment filed by the trustee and the second defendant, Fortress Credit Corporation ("Fortress"). Bash v. Textron Financial Corp., 524 B.R. 745 (N.D. Ohio 2015).
4. On June 8, 2015, the bankruptcy court approved a settlement between the trustee and Fortress that had been negotiated with the assistance of the district court. Case No. 1:10-BK-50494, ECF No. 1713.
5. On July 23, 2015, the district court entered an order dismissing the trustee's claims against Fortress with prejudice. Case No. 5:12-CV-987, ECF No. 258.
6. On July 24, 2015, the district court dismissed the trustee's claims against the third defendant, Fair Facility I, LLC ("Fair Finance SPE"), which never entered an appearance, filed an answer, or otherwise defended itself against theclaims raised in this proceeding. The dismissal of Fair Finance SPE completed the dismissal of all claims and all parties, thereby making the 2012 dismissal of Textron a final appealable order.
7. On August 3, 2015, the trustee appealed the 2012 order dismissing the claims against Textron to the Sixth Circuit.
8. On August 23, 2016, the Sixth Circuit issued an opinion affirming in part and reversing in part the district court's 2012 order dismissing the trustee's claims against Textron. Bash v. Textron Financial Corp. (In re Fair Finance Co.) (Fair Finance), 834 F.3d 651 (6th Cir. 2016).
9. On September 23, 2016, the Sixth Circuit denied Textron's petition for rehearing and motion to certify questions of state law to the Ohio Supreme Court.
10. On October 3, 2016, the Sixth Circuit issued its mandate and remanded this proceeding to the district court. The mandate was entered on the district court docket on October 4, 2016. Case No. 5:12-CV-987, ECF No. 266.
11. On October 4, 2016, the district court referred this matter to the undersigned bankruptcy judge "for pretrial supervision" and to issue "a Report and Recommendation on all dispositive motions filed in this case." Case No. 5:12-CV-987, ECF No. 267.
12. On October 14, 2016, Textron moved for an order to stay the time forit to file its answer to the first amended complaint, which the court granted on October 17, 2016. Adv. Pro. 12-5101, ECF No. 102.
13. On November 4, 2016, the district court granted the trustee's unopposed motion for leave to file a second amended complaint against Textron. Case No. 5:12-CV-987, ECF No. 270.
14. On December 19, 2016, Textron filed a motion to dismiss the second amended complaint. Case No. 5:12-CV-987, ECF No. 274.
15. On February 8, 2017, the trustee filed his response in opposition to Textron's motion to dismiss. Case No. 5:12-CV-987, ECF No. 278.
16. On March 1, 2017, Textron filed its reply. Case No. 5:12-CV-987, ECF No. 281.
17. The second amended complaint consists of four claims for relief. These claims for relief are largely identical to counts 1, 16, 19, and 21 of the first amended complaint that were the subject of the district court's 2012 order dismissing all claims against Textron as well as the Sixth Circuit's 2016 decision affirming in part and reversing in part the decision of the district court.
18. The second amended complaint excludes the claims previously brought against the dismissed defendants - Fortress and Fair Finance SPE - and includes a few additional allegations within the same four claims for relief.Case No. 5:12-CV-987, ECF No. 270 (redline attachment).
19. Count one, which is largely identical to count one of the first amended complaint, seeks avoidance and recovery of actual fraudulent transfers from Textron under 11 U.S.C. § 544(a) and (b)(1), Ohio Rev. Code § 1336.04(A)(1), 11 U.S.C. § 550(a), and 11 U.S.C. § 551. Unlike count one of the first amended complaint, count one of the second amended complaint does not include a claim for treble damages under Ohio Rev. Code § 2307.61. Count two, which is largely identical to count sixteen of the first amended complaint, seeks damages against Textron for civil conspiracy. Count three, which is largely identical to count nineteen of the first amended complaint, seeks equitable subordination of Textron's liens, claims, and encumbrances under 11 U.S.C. § 510(c). Count four, which is largely identical to count twenty-one of the first amended complaint, seeks disallowance of any filed or scheduled claims of Textron under 11 U.S.C. § 502(d) .
20. Although billed as a motion to dismiss, Textron's motion only seeks dismissal under Rule 12(b)(6) of count two - the civil conspiracy claim. Textron also seeks two other legal determinations: (1) that the calculation of the trustee's alleged damages in count one is improper; and (2) that the trustee is not entitled to punitive damages for his avoidance claims under 11 U.S.C. §§ 550 and 544.Case No. 5:12-CV-987, ECF No. 274.
21. This proceeding remains subject to the Federal Rules of Bankruptcy Procedure, regardless of whether the proceeding is being heard by a district judge or a bankruptcy judge. See Fed. R. Bankr. P. 1001; Fed. R. Civ. P. 81(a)(2); Rosenberg v. DVI Receivables XIV, LLC, 818 F.3d 1283, 1287 (11th Cir. 2016) (); Diamond Mortg. Corp. of Ill. v. Sugar, 913 F.2d 1233, 1240-41 (7th Cir. 1990) (); In re Celotex Corp., 124 F.3d 619, 629-30 (4th Cir. 1997) (same); Phar-Mor, Inc. v. Coopers & Lybrand, 22 F.3d 1228, 1236-37 (3d Cir. 1994) (same); Redhawk Global, LLC v. World Projects Int'l, 495 B.R. 368, 374 (S.D. Ohio 2013) (same); and VFB LLC v. Campbell Soup Co., 336 B.R. 81, 83 (D. Del. 2005) (). See also 1987 Advisory Committee Note to Fed. R. Bankr. P. 9001(4) ().
22. As the Sixth Circuit stated in Fair Finance:
"A claim survives [a Rule 12(b)(6) motion to dismiss for failure to state a claim] if its '[f]actual allegations [are] enough to raise a right to relief above the speculative level on the assumption that all of the complaint's allegations are true.' " Jones v. City of Cincinnati, 521 F.3d 555, 559 (6th Cir. 2008) (alteration in original) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S. Ct. 1955 (2007)).
834 F.3d at 665. To survive a motion to dismiss a plaintiff must plead "factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.' " Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Id. Additionally, "only a complaint that states a plausible claim for relief survives a motion to dismiss." Id. at 679.
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