Bauer v. Gen. Elec. Capital Corp. (In re Oncology Assocs. of Ocean Cnty. LLC), Case Nos. 12–11790

• Decision Date: 10 June 2014
• Docket Number: Adv. Pro. No. 14–01096,Adv. Pro. No. 14–01094,Case Nos. 12–11790,13–17107 (Substantively Consolidated),13–11745
• Parties: In re: Oncology Associates of Ocean County LLC, Modern Radiation and Oncology of Ocean County, LLC, and Dover Real Estate Holdings, LLC, Debtors. Morris S. Bauer, Chapter 11 Trustee, Plaintiff, v. General Electric Capital Corporation and General Electric Company d/b/a GE Healthcare Diagnostic Imaging, Defendants. Morris S. Bauer, Chapter 11 Trustee, Plaintiff, v. United States of America, Defendant.
• Court: U.S. Bankruptcy Court — District of New Jersey

510 B.R. 463

In re: Oncology Associates of Ocean County LLC, Modern Radiation and Oncology of Ocean County, LLC, and Dover Real Estate Holdings, LLC, Debtors.

Morris S. Bauer, Chapter 11 Trustee, Plaintiff,

v.General Electric Capital Corporation and General Electric Company d/b/a GE Healthcare Diagnostic Imaging, Defendants.

Morris S. Bauer, Chapter 11 Trustee, Plaintiff,

v.United States of America, Defendant.

Case Nos. 12–11790, 13–11745, 13–17107 (Substantively Consolidated)

Adv. Pro. No. 14–01096, Adv. Pro. No. 14–01094

United States Bankruptcy Court, D. New Jersey.

Signed June 10, 2014

Gary N. Marks, Esq., Norris, McLaughlin & Marcus, PA, 721 Route 202–206 North, Suite 200, Bridgewater, NJ 08807, Attorney for Morris S. Bauer, Chapter 11 Trustee.

Mark F. Magnozzi, Esq., Amish R. Doshi, Esq., Magnozzi & Kye, LLP, 23 Green Street, Suite 302, Huntington, NY 11743, Attorneys for General Electric Capital Corporation.

Ari D. Kunofsky, Esq., U.S. Department of Justice, P.O. Box 227, Washington, D.C. 20044, Attorney for the United States of America.

CHAPTER 11

MEMORANDUM DECISION

MICHAEL B. KAPLAN, U.S.B.J.

I. Introduction

These matters come before the Court upon the motions (“Motions”) filed by Defendants General Electric Capital Corporation (“GECC”) and the United States of America (“United States” and, collectively with GECC, the “Defendants”), which seek to dismiss certain counts contained in the respective adversary proceedings filed by the Chapter 11 Trustee, Morris S. Bauer. The Court has reviewed the pleadings submitted and entertained oral argument on May 5, 2014. Due to the comparable and partially overlapping nature of the claims addressed by the parties in their Motions, as well as the Court's substantive consolidation of the related bankruptcy cases (as discussed in more detail below), the Court has opted to issue this joint Memorandum Decision. For the reasons that follow, the Court: (i) grants the motion of GECC in part, and (ii) grants the motion of the United States.

II. Jurisdiction

The Court has jurisdiction over these contested matters under 28 U.S.C. §§ 1334(a) and 157(a) and the Standing Order of the United States District Court dated July 10, 1984, as amended October 17, 2013, referring all bankruptcy cases to the bankruptcy court. These matters are core proceedings within the meaning of 28 U.S.C. §§ 157(b)(2)(A), (B), (C), (E), (F), and (O). Venue is proper in this Court pursuant to 28 U.S.C. §§ 1408 and 1409.

III. General Background

On January 25, 2012 (“OAOC Petition Date”), Oncology Associates of Ocean County, LLC (“OAOC”) filed a voluntary Chapter 11 bankruptcy petition. After considerable litigation, including substantial motion practice, the Court determined that OAOC's bankruptcy case warranted the appointment of a Chapter 11 Trustee. Accordingly, an order appointing Morris S. Bauer as the Chapter 11 Trustee (“Trustee”) was entered on November 6, 2012.

Upon his appointment, the Trustee sought to administer OAOC's estate through, among other things, a sale of OAOC's assets. Concerned that certain of OAOC's assets had been diverted to OAOC's affiliate, Modern Radiation and Oncology of Ocean County, LLC (“Modern”), and that certain real property relating to OAOC was controlled by Dover Real Estate Holdings, LLC (“Dover”), the Trustee sought, through separate motions, to extend OAOC's bankruptcy proceedings to both Modern and Dover. On January 22, 2013 and April 26, 2013, respectively, the Court entered orders substantively consolidating Modern and Dover with OAOC's bankruptcy case.¹

IV. Relevant Background

On January 27, 2014, the Trustee filed an adversary complaint against GECC (“GECC Complaint”). See Adv. Pro. No. 14–1096. By the GECC Complaint, the Trustee has pleaded the following counts:

• Count I—avoidance and recovery of certain alleged post-petition payments made by Modern to GECC pursuant to 11 U.S.C. §§ 549 and 550;

• Count II—to hold GECC liable for interference with the prospective economic advantages of the Trustee;

• Count III—avoidance and recovery of certain preferential pre-petition transfers pursuant to 11 U.S.C. §§ 547 and 550 as against General Electric Company (“GE”); and

• Count IV—to disallow any claims GECC or GE may have against the estate pursuant to 11 U.S.C. § 502(d).

In lieu of filing an answer to the GECC Complaint, GECC filed its motion to dismiss, on March 21, 2014, which seeks to dismiss Counts I, II, and IV of the GECC Complaint.²

On the same day that the Trustee filed the GECC Complaint, the Trustee also filed an adversary complaint against the United States (“United States Complaint” and, collectively with the OAOC Complaint, the “Complaints”). See Adv. Pro. No. 14–1094. By the United States Complaint, the Trustee has pleaded the following counts:

• Count I—avoidance and recovery of fraudulent transfers pursuant to 11 U.S.C. §§ 544(b) and 550; N.J.S.A. §§ 25:2–25(b) and 25:2–27(a);

• Count II—avoidance and recovery of fraudulent transfers pursuant to 11 U.S.C. §§ 544(b) and 550; N.J.S.A. § 25:2–25(a);

• Count III—avoidance and recovery of fraudulent transfers pursuant to 11 U.S.C. §§ 548 and 550;

• Count IV—avoidance and recovery of preferential transfers pursuant to 11 U.S.C. §§ 547 and 550;

• Count V—avoidance and recovery of post-petition transfers pursuant to 11 U.S.C. §§ 549 and 550; and

• Count VI—disallowance of claims pursuant to 11 U.S.C. § 502(d).

In lieu of filing an answer to the United States Complaint, the United States filed its motion to dismiss on March 3, 2014. By its motion, the United States seeks to dismiss Counts I, II, and V of the Unites States Complaint.

V. Discussion

A. Standard of Review

Pursuant to Federal Rule of Civil Procedure 12(b)(6), made applicable to this proceeding by Bankruptcy Rule 7012(b), a party may move to dismiss a complaint for failure to state a claim upon which relief may be granted. Fed. R. Civ. Proc. 12(b)(6); Bankr.R. 7012(b). A motion made under Rule 12(b)(6) challenges the legal sufficiency of a claim in order to determine whether it should proceed. Morris v. Azzi, 866 F.Supp. 149, 152 (D.N.J.1994). “The purpose of the rule is to allow the court to eliminate actions that are fatally flawed in their legal premise and destined to fail, and thus spare the litigants the burdens of unnecessary pretrial and trial activity.” Advanced Cardiovascular Sys., Inc. v. SciMed Life Sys., 988 F.2d 1157, 1160 (Fed.Cir.1993), reh'g en banc denied, Hess v. Advanced Cardiovascular Systems, Inc., 520 U.S. 1277, 117 S.Ct. 2459, 138 L.Ed.2d 216 (1997).

In considering a Rule 12(b)(6) motion, the reviewing court must accept all of the factual allegations contained within the complaint as true. SeeU.S. v. Gaubert, 499 U.S. 315, 327, 111 S.Ct. 1267, 113 L.Ed.2d 335 (1991). In addition, all reasonable inferences should be drawn in favor of the plaintiff. SeeGary v. Air Group, Inc., 397 F.3d 183, 186 (3d Cir.2005). As the United States Supreme Court explained in Bell Atlantic Corp. v. Twombly³:

Rule of Civil Procedure 8(a)(2) requires only “a short and plain statement of the claim showing that the pleader is entitled to relief,” in order to “give the defendant fair notice of what the ... claim is and the grounds upon which it rests,” Conley v. Gibson, 355 U.S. 41, 47, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, ibid.; Sanjuan v. American Bd. of Psychiatry and Neurology, Inc., 40 F.3d 247, 251 (C.A.7 1994), a plaintiff's obligation to provide the “grounds” of his “entitlement to relief” requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do, seePapasan v. Allain, 478 U.S. 265, 286, 106 S.Ct. 2932, 92 L.Ed.2d 209 (1986) (on a motion to dismiss, courts “are not bound to accept as true a legal conclusion couched as a factual allegation”). Factual allegations must be enough to raise a right to relief above the speculative level, see5 C. Wright & A. Miller, Federal Practice and Procedure § 1216, pp. 235–236 (3d ed.2004) (hereinafter Wright & Miller) (“The pleading must contain something more ... than ... a statement of facts that merely creates a suspicion [of] a legally cognizable right of action”), on the assumption that all the allegations in the complaint are true (even if doubtful in fact), see, e.g., Swierkiewicz v. Sorema N.A., 534 U.S. 506, 508, n. 1, 122 S.Ct. 992, 152 L.Ed.2d 1 (2002); Neitzke v. Williams, 490 U.S. 319, 327, 109 S.Ct. 1827, 104 L.Ed.2d 338 (1989) (“Rule 12(b)(6) does not countenance ... dismissals based on a judge's disbelief of a complaint's factual allegations”); Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974) (a well-pleaded complaint may proceed even if it appears “that a recovery is very remote and unlikely”).

550 U.S. 544, 127 S.Ct. 1955, 1964–65, 167 L.Ed.2d 929 (2007). Ultimately, dismissal is appropriate only if there are not “enough facts to state a claim to relief that is plausible on its face.” Id. at 1974.

B. GECC and the United States: Post–Petition Transfers under 11 U.S.C. § 549

In both Complaints, the Trustee utilizes the OAOC Petition Date as the effective date in setting forth his claim for avoidance and recovery of certain post-petition transfers by Modern to GECC and the United States, primarily relying on the Court's substantive consolidation of Modern with OAOC. The Trustee bases his argument on equity grounds, asserting that there was no distinction between the operating activities of OAOC and Modern and thus the creditors of OAOC most likely believed that they were still dealing with such entity even after Modern's formation. As the Trustee notes, among the factors to be considered when determining whether to substantively consolidate cases are whether or not creditors dealt with the entities as a single economic unit and did not rely on their separate entities in extending credit and whether...