Cruickshank v. Dixon (In re Blast Fitness Grp.)
| Decision Date | 27 April 2020 |
| Docket Number | Case No. 16-10236-MSH,Adversary Proceeding No. 18-01011 |
| 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 Dixon Family Limited Partnership (the "Partnership"), a Delaware limited partnership whose general partner is defendant, Harold R. Dixon, who also controlled BFG. BFG filed a voluntary petition for relief under Chapter 7 of the United States Bankruptcy Code2 on January 26, 2016, at which time itsdebts exceeded $16 million. At the time of the bankruptcy filing, the Partnership owned 36% of BFG. This adversary proceeding was commenced two years after the petition date on January 26, 2018.
The Partnership has moved under Fed. R. Civ. P. 12(b)(6), per Fed. R. Bankr. P. 7012(b), to dismiss3 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, Mass. Gen. Laws ch. 109A ("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),4 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), count XXIII (substantive consolidation), count XXV (alter ego/piercing the corporate veil), XXIX (attorneys' fees), and count XXX (costs).
At the outset, I note that the trustee does not contest dismissal of counts I, II, VIII, XVIII, XXIII, XXIX, or XXX. I will, therefore, grant the Partnership'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 filed motions to dismiss the complaint, including Mr. Dixon, CapeCapital LLC ("CapeCapital"), 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"), and Newfit, LLC ("Newfit").
The Goodwin Defendants' motions to dismiss were allowed in part and denied in part by my memorandum and order dated January 8, 2019. 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).5 Also on that date, I allowed by separate memoranda and orders the motions to dismiss filed by Mr. Dixon's wife, Juliet Dixon, and Thomas F. Walsh and Michael J. Craffey, as trustees of certain Dixon-controlled trusts (the "Dixon trusts") (Blast V-VII, respectively). The motion to dismiss of Newfit was allowed in part and denied in part pursuant to my memorandum and order dated May 24, 2019. Cruickshank v. Dixon (In re Blast Fitness Grp., LLC), 603 B.R. 654 (Bankr. D. Mass. 2019) (Blast VIII).
Following the issuance of the above memoranda and 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"). By separate memorandum and order dated February 5, 2020, I allowed the motion to dismiss filed by defendant CapeCapital Jewel, LLC (Blast IX).
A complete recitation of the trustee's factual allegations and my legal findings on certain of the trustee's claims are set forth in Blast I-IV, VIII, and IX. I reiterate some here and supplement them based on additional factual allegations in the latest complaint as necessary to my determining the Partnership'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.3d 31, 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, 711 F.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) (alteration 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.7 ¶ 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,who held himself out as CEO of BFG. ¶¶ 2, 98. BFG owned, entirely or partially, seventeen subsidiaries through which it operated its business.8 ¶ 45. On an unspecified date, Mr. Dixon formed defendant Auburndale Fitness Group Investment LLC ("Auburndale Fitness"), a Massachusetts limited liability company of which he served as the sole manager.9 ¶¶ 10, 67.
Mr. Dixon formed the Partnership on March 2, 2000. ¶ 90. According to the complaint, "he owned 100% of the [Partnership]" and held himself out as its general partner. Id. On the trustee's information and belief, Mr. Dixon formed the Partnership shortly after receiving a "massive fortune" from his employment at EMC Corp. and then used the Partnership for "purposes of asset protection, wealth management, and tax minimization." ¶ 91. Mr. Dixon acted as the sole agent of the Partnership, and all actions taken by him were done in furtherance of the Partnership's goals of asset protection and tax minimization. ¶ 92. On the trustee's information and belief, no partnership agreement was ever executed for the Partnership, it had no bona fide limited partners, it did not follow corporate formalities, was never properly capitalized, did not maintain capital account balance sheets, and was an alter ego of Mr. Dixon. ¶¶ 93-96. All of Mr. Dixon's actions and inactions as alleged throughout the complaint "were done on behalf of [the] Partnership and for the benefit of [the] Partnership[,]" and "all benefits alleged throughout this [complaint] that were conferred on Dixon were equally and simultaneously conferred on [the Partnership]." ¶ 97.
Mr. Dixon fully controlled the Partnership, Auburndale Fitness and CapeCapital, and he was largely indifferent to the allocation of his ownership interests across the entities, apart from what was expedient and minimized his tax liability and the reach of creditors. ¶ 105. Distinctions between those entities were ignored, and Mr. Dixon treated the ownership interests as fungible. Id.
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....
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