Butler v. Enhanced Equity Fund II, LP (In re Am. Ambulette & Ambulance Serv., Inc.)

• Decision Date: 28 September 2016
• Docket Number: CASE NO. 13-07673-8-SWH,ADVERSARY PROCEEDING NO. 15-00043-8-SWH-AP
• Court: U.S. Bankruptcy Court — Eastern District of North Carolina
• Parties: In re: American Ambulette & Ambulance Service, Inc., Coastline Care, Inc., Eastern Shore Acquisition Corp., Eastern Shore Ambulance, Inc., Marmac Transportation Services, Inc., and Transmed, LLC, Debtors Algernon L. Butler, as Trustee for Debtors, Plaintiff v. Enhanced Equity Fund II, LP, EEF Partners II, LLC, Ambulance Holdings, LLC, Malcolm Kostuchenko, Andrew Paul, Samarth Chandra, Bryan Gibson, Steve Blackburn, Robert Jewell, Priority Ambulance, LLC, and Shoals Ambulance, LLC, Defendants.

560 B.R. 256

In re: American Ambulette & Ambulance Service, Inc., Coastline Care, Inc., Eastern Shore Acquisition Corp., Eastern Shore Ambulance, Inc., Marmac Transportation Services, Inc., and Transmed, LLC, Debtors

Algernon L. Butler, as Trustee for Debtors, Plaintiff

v.Enhanced Equity Fund II, LP, EEF Partners II, LLC, Ambulance Holdings, LLC, Malcolm Kostuchenko, Andrew Paul, Samarth Chandra, Bryan Gibson, Steve Blackburn, Robert Jewell, Priority Ambulance, LLC, and Shoals Ambulance, LLC, Defendants.

CASE NO. 13-07673-8-SWH

ADVERSARY PROCEEDING NO. 15-00043-8-SWH-AP

United States Bankruptcy Court, E.D. North Carolina, WILMINGTON DIVISION .

Signed September 28, 2016

Algernon L. Butler, III, Butler & Butler, L.L.P., Wilmington, NC, pro se.

E. Bradley Evans, Ward and Smith, PA, Greenville, NC, Michael Justin Parrish, Ward and Smith, P.A., New Bern, NC, for Plaintiff.

James M. Hash, Everett, Gaskins, Hancock, LLP, Gilbert Laite, III, Raleigh, NC, Eric E. Walker, Perkins Coie LLP, Chicago, IL, for Defendants.

ORDER REGARDING MOTION TO DISMISS CLAIMS

Stephani W. Humrickhouse, United States Bankruptcy Judge

The matter before the court is the motion, filed jointly by the defendants, to dismiss certain claims for relief in this adversary proceeding. A hearing took place in Wilmington, North Carolina on March 8, 2016. Supplemental briefs were filed by the plaintiff on April 5, 2016, and by the defendants on April 26, 2016. For the reasons that follow, the motion will be granted in part and denied in part.

On December 11, 2013, petitions for relief under chapter 7 of the Bankruptcy Code were filed by American Ambulette & Ambulance Service, Inc., Coastline Care, Inc., Eastern Shore Acquisition Corp., Eastern Shore Ambulance, Inc., Marmac Transportation Services, Inc., and Transmed, LLC (collectively, the "Debtors"). Based on the Debtors' common ownership and affiliations, the cases were administratively consolidated on April 2, 2015, with American Ambulette & Ambulance Service, Inc. designated as the lead case. On November 13, 2015, the chapter 7 trustee, Algernon L. Butler, III, filed the complaint initiating this adversary proceeding against Enhanced Equity Fund II, LP, EEF Partners II, LLC, Ambulance Holdings, LLC, Malcolm Kostuchenko, Andrew Paul, Samarth Chandra, Bryan Gibson, Steve Blackburn, Robert Jewell, Priority Ambulance, LLC, and Shoals Ambulance, LLC (collectively, the "Defendants"). The complaint contains sixteen causes of action arising from the Defendants' development of new business ventures, which the trustee alleges caused the Debtors' financial demise and forced them into bankruptcy.

Pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, made applicable to this proceeding by Rule 7012(b) of the Federal Rules of Bankruptcy Procedure, the Defendants seek dismissal as to nine of the sixteen claims for relief, contending that the trustee fails to state claims for which relief can be granted. SeeFed. R. Civ. Pro. 12(b)(6) ; Fed. R. Bankr. Pro. 7012(b). To survive a Rule 12(b)(6) motion, the factual allegations of a complaint must "be enough to raise a right to relief above the speculative level." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. The plausibility standard is not akin to a 'probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (internal citations omitted); see alsoAngell v. BER CARE, Inc. (In re Careamerica, Inc.), 409 B.R. 737 (Bankr. E.D.N.C. July 23, 2009) (setting out a detailed analysis of Twombly and Iqbal). Thus, "only a complaint that states a plausible claim for relief survives a motion to dismiss," and "the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions." Ashcroft, 556 U.S. at 678–79, 129 S.Ct. 1937 ; see alsoE. Shore Mkts., Inc. v. J.D. Assocs. Ltd. P'ship, 213 F.3d 175 (4th Cir. 2000). Significantly, while the truth of the facts is assumed, the court is not bound by "legal conclusions drawn from the facts," and "need not accept as true unwarranted inferences, unreasonable conclusions, or arguments." E. Shore Mkts., 213 F.3d at 180.

For ease of reference, the trustee's claims for relief are set out in the chart below. The Defendants seek to dismiss the fourth, fifth, seventh, eighth, eleventh, twelfth, thirteenth, fourteenth, and sixteenth claims (denoted in bold font):

 Claim Basis for Relief Defendants Subject to Claim
                First Claim          Breach of Duty of Care to Debtors and their     Paul, Chandra, Gibson
                                     Creditors                                       Blackburn, Jewell
                Second Claim         Breach of Duty of Loyalty to Debtors and        Paul, Chandra, Gibson
                                     their Creditors                                 Blackburn, Jewell
                Third Claim          Misappropriation of Corporate                   Paul, Chandra, Gibson
                                     Opportunities                                   Blackburn, Jewell
                

                Fourth Claim Aiding and Abetting Breaches of EEF, EEF Partners, Paul
                Fiduciary Duties, Misappropriation of Kostuchenko
                Corporate Opportunities, Conversion
                and Fraudulent Transfers
                Fifth Claim Respondeat Superior EEF, EEF Partners
                                                                                     Paul, Chandra, Gibson,
                Sixth Claim          Conversion                                      Blackburn, Jewell, EEF, EEF
                                                                                     Partners, Kostuchenko,
                                                                                     Priority, Shoals
                Seventh Claim Alter Ego, Instrumentality, Veil Piercing Ambulance Holdings, EEF,
                EEF Partners
                Eighth Claim Fraudulent Transfer — Sections 544, 548, Priority, Shoals, EEF, EEF
                550, Uniform Fraudulent Transfer Act Partners, Paul, Chandra,
                Gibson
                                                                                     EEF, EEF Partners, Chandra,
                Ninth Claim          Unjust Enrichment                               Paul, Kostuchenko, Gibson,
                                                                                     Blackburn, Jewell, Priority,
                                                                                     Shoals
                Tenth Claim          Constructive Fraud                              Paul, Chandra, Gibson,
                                                                                     Blackburn, Jewell
                Eleventh Claim Punitive Damages Paul, Chandra, Gibson,
                Blackburn, Jewell, EEF,
                EEF Partners, Kostuchenko
                Twelfth Claim Breach of Contract or Agreement to EEF, EEF Partners
                Make Expansion Investment
                Thirteenth Claim Fraudulent Misrepresentation Regarding EEF, EEF Partners,
                Expansion Investment Kostuchenko, Chandra,
                Paul, Gibson, Blackburn,
                Jewell
                Fourteenth Claim Partnership and Individual Liability EEF Partners, Chandra,
                Paul, Kostuchenko
                Fifteenth Claim      Breach of Employment Agreement                  Gibson, Blackburn
                Sixteenth Claim Unfair and Deceptive Trade Practices EEF, EEF Partners, Paul,
                Chandra, Kostuchenko,
                Gibson, Blackburn, Jewell
                

A. The Fifth, Eleventh, and Fourteenth Claims for Relief

First, the court will address the Defendants' contention that the fifth, eleventh, and fourteenth claims for relief are unnecessary and should be dismissed, because they do not represent stand-alone causes of action. The claims in question are denoted as follows: respondeat superior, punitive damages, and partnership/individual liability, respectively. During the hearing, the trustee indicated that these claims are not asserted as independent causes of action, but rather were set out separately to ensure clarity as to the type of relief sought. The court agrees that neither the fifth, nor the eleventh, nor the fourteenth claims for relief constitute stand-alone causes of action, and finds that each of these "claims" shall be dismissed pursuant to Rule 12(b)(6) for failure to state a claim upon which relief can be granted. Nevertheless, the trustee may still seek relief under these theories, albeit in connection with the remaining causes of action, because the trustee's prayer for relief includes a request for punitive damages, as well as damages under the theories of respondeat superior and joint and several liability, and the prayer for relief will remain undisturbed. See First Amended Complaint, Doc. No. 8 at 77-78, ¶¶ 4, 10, and 13.

B. Fourth Claim for Relief

The trustee's fourth claim for relief is entitled "Aiding and Abetting Breaches of Fiduciary Duties, Misappropriation of Corporate Opportunities, Conversion, and Fraudulent Transfers," and is brought against EEF, EEF Partners, Malcolm Kostuchenko, and Andrew Paul.¹ The Defendants contend that this cause of action should be dismissed because it is not recognized under North Carolina law. The trustee, on the other hand, asserts that in order to determine whether an actionable claim has been stated, the court must look to the law of the Debtors' five states of incorporation (Ohio, Delaware, Virginia, South Carolina, and North Carolina), and that the claim is either recognized or constitutes an open question in the majority of those states.

In determining which state's (or states') law applies to this claim, the court must apply North Carolina's choice of law rules, as it is the forum state. SeeCompliance Marine, Inc. v. Campbell (In re Merritt Dredging Co., Inc.), 839 F.2d 203, 205–06 (4th Cir. 1988), cert. denied, 487 U.S. 1236, 108 S.Ct. 2904, 101 L.Ed.2d 936 (1988). The rules vary depending on the character of the claim at hand, i.e., whether the claim relates to torts, contracts, property, etc., or whether it is procedural as opposed to substantive in nature. SeeThe Caper Corp. v....