Cruickshank v. Dixon (In re Blast Fitness Grp.)
| Decision Date | 05 February 2020 |
| Docket Number | Adversary Proceeding No. 18-01011,Case No. 16-10236-MSH |
| Parties | In re: BLAST FITNESS GROUP, LLC, Debtor GARY W. CRUICKSHANK, CHAPTER 7 TRUSTEE OF THE ESTATE OF BLAST FITNESS GROUP, LLC, Plaintiff, v. HAROLD R. DIXON et al., Defendants. |
| Court | U.S. Bankruptcy Court — District of Massachusetts |
In a thirty-count complaint,1 Gary W. Cruickshank, the plaintiff and chapter 7 trustee of the bankruptcy estate of Blast Fitness Group, LLC ("BFG"), seeks damages and injunctive relief against forty named and dozens of unnamed defendants, including CapeCapital Jewel, LLC,2 ("Cape Jewel") an Illinois limited liability company managed by defendant, Harold R. Dixon, who also controlled BFG. BFG filed a voluntary petition under Chapter 7 of the United StatesBankruptcy Code3 on January 26, 2016, at which time its debts exceeded $16 million. This adversary proceeding was commenced two years after the petition date on January 26, 2018.
Cape Jewel has moved under Fed. R. Civ. P. 12(b)(6), per Fed. R. Bankr. P. 7012(b), to dismiss4 count I (constructive fraudulent transfer under Bankruptcy Code § 548(a)(1)(B)), count II (actual fraudulent transfer under Bankruptcy Code § 548(a)(1)(A)), count III (constructive fraudulent transfer under the Massachusetts Fraudulent Transfer Act ("MUFTA") § 5(a)(2)), count IV (constructive fraudulent transfer under MUFTA § 6(a)), count V (actual fraudulent transfer under MUFTA § 5(a)(1)), count VII ("turnover" under Bankruptcy Code § 550),5 count VIII (unjust enrichment), count X (statutory reach and apply/Bankruptcy Code §§ 544 and 550 and Mass. Gen. Laws ch. 214, § 3(8)), count XI (establishment of a resulting/constructive trust), count XVI (conspiracy), count XVII (aiding and abetting), count XVIII (conversion and civil theft), count XIX (fraud), XX (intentional interference with contractual advantage), count XXI (tortious interference with contractual advantage), count XXIII (substantive consolidation), count XXV (alter ego/piercing the corporate veil), count XXVI (breach of fiduciary duty; theft of corporate opportunity), XXIX (attorneys' fees), and count XXX (costs).
At the outset, I note that the trustee does not contest dismissal of counts I, II, VIII, XVI, XVII, XVIII, XIX, XX, XXI, XXIII, XXV, XXVI, or XXIX. I will, therefore, grant Cape Jewel's motion to dismiss those counts.
The trustee filed the original complaint on January 26, 2018, and thereafter filed the first amended complaint on April 4, 2018 (ECF #130). A number of defendants, including Mr. Dixon, CapeCapital LLC, a Massachusetts limited liability company managed by Mr. Dixon and which was the sole manager of BFG, the law firm of Goodwin Procter LLP ("Goodwin") and two of its attorneys (collectively, the "Goodwin Defendants"), CapeCapital Maryland Heights, LLC, CapeCapital West Hartford, LLC, CapeCapital Irving, LLC (collectively, the "Cape Real Estate Entities"), Newfit, LLC, another Dixon-controlled entity, and other defendants6 filed motions to dismiss the first amended complaint. The Goodwin Defendants' motions to dismiss were allowed in part and denied in part by my memorandum and order dated January 8, 2019. See Cruickshank v. Dixon (In re Blast Fitness Grp., LLC), Adv. Pro. No. 18-1011, 2019 WL 137109 (Bankr. D. Mass. Jan. 8, 2019) (Blast I). The motions to dismiss of Mr. Dixon, CapeCapital, and the Cape Real Estate Entities were allowed in part and denied in part pursuant to separate memoranda and orders dated April 30,2019 (Blast II, Blast III, and Blast IV, respectively), and the motion to dismiss of Newfit was allowed in part and denied in part pursuant to my memorandum and order dated May 24, 2019 (Blast VIII).7
Following the issuance of the above orders, the court conducted a status conference on August 21,2019, and permitted the trustee to file a second amended complaint which he did on September 30, 2019 at ECF #339 (hereinafter the "complaint"), and which is the subject of Cape Jewel's motion to dismiss. A complete procedural history and recitation of the trustee's factual allegations and my legal findings on certain of the trustee's claims are set forth in Blast I, II, III, IV and VIII, which are incorporated herein by reference. Nevertheless, I reiterate below some of those factual allegations and supplement them with additional factual allegations in the second amended complaint necessary to determine Cape Jewel's motion to dismiss.
In ruling on the motion to dismiss, I must accept all well-pleaded factual allegations in the complaint as true, drawing all reasonable inferences in the trustee's favor. Langadinos v. American Airlines, Inc., 199 F.3d 68, 69 (1st Cir. 2000). A claim cannot be dismissed if the trustee has demonstrated a "plausible entitlement to relief." Sanchez v. Pereira-Castillo, 590 F.3d31, 41 (1st Cir. 2009) (citing Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). A plaintiff's obligation requires more than "labels and conclusions" and "a formulaic recitation of the elements of a cause of action will not do[.]" Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). "The general allegations found inadequate in Iqbal were themselves 'factual' assertions but highly general and made without offering any detail." Pruell v. Caritas Christi, 678 F.3d 10, 13 (1st Cir. 2012).
Inquiry into plausibility is a two-step process. "First, the court must sift through the averments in the complaint, separating conclusory legal allegations (which may be disregarded) from allegations of fact (which must be credited)." Rodriguez-Reyes v. Molina-Rodriguez, 711F.3d 49, 53 (1st Cir. 2013) (citing Morales-Cruz v. Univ. of P.R., 676 F.3d 220, 224 (1st Cir. 2012)). "Second, the court must consider whether the winnowed residue of factual allegations gives rise to a plausible claim to relief." Id. "Plausible, of course, means something more than merely possible, and gauging a pleaded situation's plausibility is a 'context-specific' job that compels us 'to draw on' our 'judicial experience and common sense.'" Schatz v. Republican State Leadership Comm., 669 F.3d 50, 55 (1st Cir. 2012) (quoting Iqbal, 556 U.S. at 679). '"Moreover, each defendant's role in the [adverse action] must be sufficiently alleged to make him or her a plausible defendant. After all, we must determine whether, as to each defendant, a plaintiff's pleadings are sufficient to state a claim on which relief can be granted.'" Rodriguez-Ramos v. Hernandez-Gregorat, 685 F.3d 34, 40-41 (1st Cir. 2012) (quoting Ocasio-Hernandez v. Fortuno-Burset, 640 F.3d 1, 16 (1st Cir. 2011) (emphasis in original); see also Penalbert-Rosa v. Fortuno-Burset, 631 F.3d 592, 594 (1st Cir. 2011) ().
On February 14, 2011, CapeCapital, acting through Mr. Dixon, formed BFG, a Massachusetts limited liability company.9 ¶ 66. CapeCapital was the sole manager of BFG, and Mr. Dixon, in turn, was the sole manager and a member of CapeCapital. ¶ 3. At its peak, BFG owned and operated over sixty fitness clubs bearing its name throughout the United States. (Intro., p. 2). At all relevant times, BFG acted at the direction of CapeCapital and Mr. Dixon. ¶ 98. BFG owned, entirely or partially, seventeen subsidiaries through which it operated itsbusiness.10 ¶ 45. Fitness clubs at different locations were often operated through separate BFG subsidiaries, and those subsidiaries were often the actual tenants under the applicable leases for the premises. ¶¶ 260, 265. Among the fitness clubs operated by various subsidiaries, one was located in Chicago, Illinois and was referred to in the complaint as "Chicago (Jewell), IL." or simply as "Jewel." ¶¶ 293f, 312.
In 2011 and 2012, BFG, Mr. Dixon and Steven Borghi, Mr. Dixon's business partner and a member of BFG, were mired in a dispute with Elizabeth Beninati, the widow of Mr. Borghi's previous business partner in the discount fitness club business. ¶¶ 63, 65, 68-71. Ms. Beninati commenced a Massachusetts state court lawsuit against Mr. Dixon, Mr. Borghi and BFG on May 24, 2012, seeking millions of dollars in damages. ¶¶ 71, 385. In July 2014, the state court entered judgment against Messrs. Dixon and Borghi. ¶¶ 78, 324.
On December 21,2011, Mr. Dixon formed Cape Jewel, an Illinois limited liability company for which he served as a manager. ¶¶ 17, 345. On December 27, 2011, Cape Jewel purchased, for an unknown amount, commercial real estate located at 6057 S. Western Avenue, Chicago, Illinois, which served as its principal office. ¶¶ 17, 346.
Cape Jewel leased the Chicago space to Blast Fitness Acquisition, LLC, a Delaware limited liability company and wholly owned subsidiary of BFG, or another entity owned by BFG (the "BFG affiliate") for the purposes of housing a fitness club. ¶¶ 24, 45, 54, 347. BFG paid Cape Jewel inflated rent for the space in the amount of $45,000 per month, and it also paidinflated and inappropriate expenses to Cape Jewel, including all real estate taxes on the building while the BFG affiliate was not the only tenant in the building. ¶¶ 348, 349. This payment of inflated rent and inappropriate real estate taxes and other expenses amounted to a fraudulent transfer of BFG's funds to Cape Jewel, made with actual intent to defraud BFG's creditors. ¶ 349.
On August 15, 2012, BFG wired $410,000 to Core Industries, which was listed as "Jewel Lombard Niles down payments." ¶ 350. On April 18, 2012, BFG wired $175,000 to Zcorp Services with a reference to "jewel." ¶ 351. On the trustee's information and belief, these payments amounted to fraudulent transfers that benefited Cape Jewel. ¶¶ 350-51. In...
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