Cage v. Davis (In re Giant Gray, Inc.)
| Citation | 629 B.R. 814 |
| Decision Date | 22 October 2020 |
| Docket Number | ADVERSARY NO. 20-3127,CASE NO: 18-31910, ADVERSARY NO. 20-3129 |
| Parties | IN RE: GIANT GRAY, INC., Debtor Lowell T. Cage, Plaintiff v. Charles C Davis, et al, Defendants Pepperwood Fund I, LLC, et al, Defendants |
| Court | United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Southern District of Texas |
Timothy M. McCloskey, McCloskey Roberson, PLLC, Timothy L. Wentworth, Okin Adams, LLP, Thomas Andrew Woolley, III, Carrigan, McCloskey, & Roberson L.L.P., Houston, TX, for Plaintiff.
Miriam Goott, Walker & Patterson, PC, Houston, TX, for Defendants.
Lowell T. Cage, the Chapter 7 Trustee, filed two separate but similar complaints seeking to avoid $591,322.68 in transfers from Debtor to Charles C. Davis and to avoid and recover $6,672,950 from Charles C. Davis, Racheal Johnson, Nicholas Davis, and Pepperwood Fund I, LLC, Assed "Ozzie" Kalil, and Michael J. O'Donnell, collectively. The Defendants filed motions to dismiss the respective complaints. For the reasons set forth herein, the Court denies both motions to dismiss and denies Pepperwood Fund I, LLC, Assed "Ozzie" Kalil, and Michael J. O'Donnell's motion for a more definite statement. The Court grants Trustee's request for leave to amend his complaints.
On May 12, 2020, Lowell T. Cage, the Chapter 7 Trustee ("Trustee "), filed a complaint against Charles C. Davis, Racheal Johnson, and Nicholas Davis (the "Davis Defendants ").1 On June 14, 2020, the Davis Defendants filed a motion to dismiss Trustee's complaint pursuant to Federal Rule Of Civil Procedure 12(b)(6) ("Davis Defendants’ Motion to Dismiss ").2 On July 2, 2020, Trustee filed an objection to the motion to dismiss ("Objection ").3 Finally, on August 19, 2020, Trustee filed a supplemental brief in support of his Objection.4
On May 12, 2020, Trustee filed a separate complaint against Pepperwood Fund I, LLC, Assed "Ozzie" Kalil, and Michael J. O'Donnell (the "Pepperwood Defendants ," and together with the Davis Defendants, the "Defendants ").5 On July 8, 2020, the Pepperwood Defendants likewise filed a motion to dismiss the Trustee's complaint pursuant to Federal Rule of Civil Procedure 12(b)(6), and in the alternative, a motion for a more definite statement pursuant to Federal Rule of Civil Procedure 12(e) ("Pepperwood Defendants’ Motion to Dismiss ").6 On August 19, 2020, the Trustee filed an objection to the Pepperwood Defendants’ Motion to Dismiss ("Objection ").7 On September 21, 2020, the Court held a combined hearing on both motions to dismiss (the "Hearing "). At the conclusion of the Hearing, the Court took both matters under advisement and now issues the instant Memorandum Opinion.
This Court holds jurisdiction pursuant to 28 U.S.C. § 1334, which provides "the district courts shall have original and exclusive jurisdiction of all cases under title 11." Section 157 allows a district court to "refer" all bankruptcy and related cases to the bankruptcy court, wherein the latter court will appropriately preside over the matter.8 This court determines that pursuant to 28 U.S.C. § 157(b)(2)(H), this Adversary Proceeding contains core matters, as it primarily involves proceedings to recover fraudulent conveyances.9
Furthermore, this Court may only hear a case in which venue is proper.10 Pursuant to 28 U.S.C. § 1409(a), "a proceeding arising under title 11 or arising in or related to a case under title 11 may be commenced in the district court in which such case is pending." Debtor's main Chapter 7 case is presently pending in this Court and therefore, venue of this adversary proceeding is proper.
This Court must evaluate whether it has constitutional authority to enter an order in this case. In Stern , which involved a core proceeding brought by the debtor under 28 U.S.C. § 157(b)(2)(C), the Supreme Court held that a bankruptcy court "lacked the constitutional authority to enter a final judgment on a state law counterclaim that is not resolved in the process of ruling on a creditor's proof of claim."11 However, Stern is inapplicable to the instant case. Stern concerned final orders entered by the bankruptcy court and here, the Court need only enter an interlocutory order because motions to dismiss pursuant to Rule 12(b)(6), like those filed by the Defendants, are interlocutory. Entering an interlocutory order does not implicate "the constitutional limitations on the Court's authority to enter final judgments."12 Therefore, this Court need not determine whether it has constitutional authority to enter a final order because an interlocutory order is all that is required by the instant case.13
This Court must first decide whether Trustee's motion for leave to file amended complaints should be permitted. In his replies to the Defendants’ Motions, Trustee requested leave, if necessary, to specifically identify which unsecured creditors with allowable claims may be able to avoid a fraudulent transfer under applicable state law, pursuant to § 544(b)(1).14 Trustee reiterated this request at the Hearing. Additionally, Trustee requested leave in his reply to the Pepperwood Defendants’ Motion to Dismiss to "replead more specific allegations" regarding Defendants Kalil and O'Donnell's status as mediate transferees under § 550.15 As discussed infra , the Court finds that Trustee's current pleadings regarding the identification of unsecured creditors pursuant to § 544(b)(1) are insufficient and must be amended as to Count 1 for all Defendants and Count 3 for Defendant Charles Davis. Conversely, the Court finds below that Trustee pled sufficient facts as to his § 550 claim against Defendants Kalil and O'Donnell.
Trustee should be granted leave so that he can remedy the deficiencies alleged by the Defendants. Because there is no valid justification to deny Trustee leave to amend, Trustee's request is granted for the reasons hereunder. Trustee's request relies upon Federal Rule of Civil Procedure 15, made applicable here through Federal Rule of Bankruptcy Procedure 7015. Rule 15 governs motions to amend a complaint made before trial and provides that "[t]he court should freely give leave when justice so requires."16 The Fifth Circuit observed that " Rule 15(a) ‘evinces a bias in favor of granting leave to amend.’ "17
Under Rule 15(a)(1), Trustee had 21 days after the Defendants filed their Rule 12(b)(6) Motions to amend his complaints without consent from the Defendants or a grant of leave from this Court.18 Because that deadline passed, Trustee requests leave and "leave shall be freely given [if] justice so requires."19 Absent a formal motion for leave, a requesting party must set forth with particularity the grounds for the amendment and the relief sought."20 This requires a movant to give the court some notice of the nature of his proposed amendments.21 Although no strict guidelines exist as to what constitutes a sufficient request for leave to amend, it is clear that some specificity is required.22 Here, Trustee provided adequate notice of his proposed amendment regarding the unsecured creditors with allowable claims who could bring avoidance actions under the applicable state law. In his Objections, Trustee identifies 53 creditors with claims totaling $6,676,262.33 based upon unpaid promissory notes Debtor executed before issuance of the Series A Stock to Ray Davis and the transfers to Charles Davis.23
"If proper notice was given, the court may consider such factors as undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party, and futility of amendment when deciding whether to grant leave to amend."24 Trustee first requested leave, if necessary, in his reply to the Defendants’ Motions. Trustee filed his Objection eighteen days after the Davis Defendants filed their Motion to Dismiss and filed his Objection to the Pepperwood Defendants’ Motion forty-two days after they filed. Neither constitutes undue delay.25
Moreover, Trustee's amendments would cure the deficiencies complained of by the Defendants and would not include any new claims or parties, thereby dispelling any notion that this amendment is in bad faith or prejudicial to the Defendants. Additionally, Trustee has not previously sought amendments to cure deficiencies—this would constitute Trustee's first amended complaint. Lastly, the amended complaints would not be futile.
To determine whether the amendment would be futile, courts apply "the same standard of legal sufficiency as applies under Rule 12(b)(6)."26 In order to state a claim under Rule 12(b)(6), a plaintiff must meet Rule 8(a)(2)'s pleading requirements. Rule 8(a)(2) requires a plaintiff to plead "a short and plain statement of the claim showing that the pleader is entitled to relief." In Ashcroft v. Iqbal , the Supreme Court held that Rule 8(a)(2) requires that "well-pleaded facts ... permit the court to infer more than a mere possibility of misconduct."27 Trustee's proposed amendments indicate who holds an allowable claim and could have brought an action under the applicable state law and provides the bankruptcy claim numbers for those 53 unsecured creditors.28 Therefore, Trustee's request for leave to file an amended complaint is granted.29
Under Rule 12(b)(6), this Court may dismiss a complaint for "failure to state a claim upon which relief can be granted."30 However, motions to dismiss are disfavored and therefore, rarely granted.31 This Court reviews motions under Rule 12(b)(6) by "accepting all well-pleaded facts as true and viewing those facts in the light most favorable to the plaintiffs."32 Althoug...
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