Goldstein v. BRT, Inc. (In re Universal Mktg., Inc.)

• Decision Date: 27 October 2011
• Docket Number: Adversary No. 11–0569.,Bankruptcy No. 09–15404 ELF.
• Citation: 460 B.R. 828
• Parties: In re UNIVERSAL MARKETING, INC., Debtor.Charles R. Goldstein, Chapter 7 Trustee for the Estate of Universal Marketing, Inc., et al., Plaintiff, v. BRT, Inc., Defendant.
• Court: U.S. Bankruptcy Court — Eastern District of Pennsylvania

460 B.R. 828

In re UNIVERSAL MARKETING, INC., Debtor.Charles R. Goldstein, Chapter 7 Trustee for the Estate of Universal Marketing, Inc., et al., Plaintiff,

v.BRT, Inc., Defendant.

Bankruptcy No. 09–15404 ELF.

Adversary No. 11–0569.

United States Bankruptcy Court, E.D. Pennsylvania.

Oct. 27, 2011.

Joshua Edward Zugerman, Ballard Spahr LLP, Philadelphia, PA, for Plaintiff.

Sean E. Summers, Barley Snyder LLC, York, PA, for Defendant.

MEMORANDUM

ERIC L. FRANK, Bankruptcy Judge.

I. INTRODUCTION

On July 21, 2011, Plaintiff Charles R. Goldstein (“the Trustee”), the chapter 7 trustee in the bankruptcy case of Universal Marketing, Inc. (“the Debtor”) ¹ filed a Complaint against Defendant BRT, Inc. (“BRT” or “Defendant”), seeking to avoid certain pre-petition transfers allegedly made by the Debtors to BRT.²

In the Complaint, the Trustee asserts that certain transfers of property:

• made within ninety (90) days prior to the date the Debtor filed the bankruptcy petition (“the Petition Date”) may be avoided as preferences under 11 U.S.C. § 547;

• made within two (2) years of the Petition Date may be avoided as fraudulent transfers under 11 U.S.C. § 548;

• made within four (4) years of the Petition Date may be avoided as fraudulent transfers under 11 U.S.C. § 544;

• made after the Petition Date were unauthorized and may be avoided under 11 U.S.C. § 549.³

The Complaint also includes counts under 11 U.S.C. § 502(d) and (j) (for disallowance of BRT's proof of claim) and § 550 (for recovery of the avoided transfers). Finally, without citation of any statutory authority, the Complaint also includes a count requesting an award of attorney's fees and costs.

Presently before the court is BRT's Motion to Dismiss the Complaint (“the Motion”), filed on September 27, 2011, pursuant to Fed.R.Civ.P. 12(b)(6). ⁴ BRT's core argument is that “[t]he Complaint contains little more than generic allegations and legal conclusions, which ... are insufficient to survive a motion to dismiss.” (BRT Mem. of Law at 1).

For the reasons explained below, the Motion will be granted in part and denied in part. I will dismiss the fraudulent transfer claims. I will deny the Motion in all other respects, including the request that the dismissal of the fraudulent transfer claims be with prejudice and I will grant the Trustee twenty-one (21) days to file an Amended Complaint. Finally, I will further consider, sua sponte, the legal sufficiency of the Trustee's claim for attorney's fees, but I will defer a decision until the Trustee has had an opportunity to brief the issue.⁵

II. THE TRUSTEE'S FACTUAL ALLEGATIONS

Before examining BRT's arguments in support of the Motion, it is helpful to examine the allegations in the Trustee's sixty-nine (69) paragraph Complaint.

After addressing this court's jurisdiction,⁶ the Complaint identifies the parties and describes the Defendant as a “trucker and transporter of petroleum and petroleum related products ... which provided goods and/or services to the Debtors.” (Complaint ¶ 7) (emphasis added).

The Complaint then sets forth the relevant procedural history in the bankruptcy case. It refers to the commencement of the bankruptcy case on July 23, 2009, when the Debtor filed a chapter 11 bankruptcy petition, the conversion of the case to chapter 7 by Order dated August 18, 2009 and the election of the Trustee as the permanent trustee on September 23, 2009. ( Id. ¶¶ 8–10). Another significant event occurred on August 4, 2010, when the court entered an order substantively consolidating the Debtor's estate with the estate of certain non-debtor entities. ( Id. ¶ 13).⁷

Next, the Complaint provides some background regarding the Debtor's pre-petition activities in a section of the Complaint labeled “Facts Common to All Counts.” The Trustee alleges that the Debtor and certain affiliates operated approximately thirty-six (36) gas stations and convenience stores in six (6) states in the Northeast and Mid–Atlantic region. ( Id. ¶ 15). The Debtor purchased fuel products from suppliers and sold the product to affiliated entities “within the overall Universal ‘network’ as well as to certain other third parties.” ( Id. ¶ 16). The Complaint alleges that the Debtors' books and records suggest that the Debtors sold fuel products to affiliates and third parties “at cost, and in some instances, below cost” and that the Debtors were insolvent on the Petition Date. ( Id. ¶¶ 19–20).

After setting out these factual allegations, the Complaint turns to the Trustee's claims.

Count I

Count I states the Trustee's claim under 11 U.S.C. § 547(b) ⁸ and adds some factual allegations.

The Complaint identifies certain transfers of property in the form of payment of bills or invoices (referred to by the Trustee as “the 90–Day Transfers”) that the Debtors made within ninety (90) days of the Petition Date. The Complaint states that the payments were on account of “bills or invoices issued by or on behalf of [BRT] for goods and/or services provided by [BRT] to the Debtor prior to the time” the transfer was made. ( Id. ¶¶ 22–23 & Ex. A). The Complaint alleges that the identified transfers were made while the Debtor was insolvent. ( Id. ¶ 26). The Complaint further alleges that the available assets will not be sufficient to pay unsecured creditors in full and that the 90–Day Transfers permitted BRT to receive more than it would receive in a chapter 7 case if the transfer had not been made and BRT received a distribution as provided in the Bankruptcy Code. ( Id. ¶¶ 27–28).

Count II

Count II states the Trustee's claim under 11 U.S.C. § 548(a).⁹

The Complaint identifies certain transfers of property made on or within two (2) years prior to the Petition Date (referred to by the Trustee as “the 2–Year Transfers”). ( Id. ¶ 31 & Ex. B). While the Complaint does not specifically repeat the prior allegations regarding the transfers representing payments on account of invoices for goods and/or services previously provided by BRT, it does “repeat and reassert” the prior allegations of the Complaint. ( Id. ¶ 30).

The Complaint also alleges, conclusorily, that the Debtors received less than equivalent value in exchange for the 2–Year Transfers. ( Id. ¶ 33). Significantly, the Complaint does not explain whether the Debtors received nothing in exchange for the 2–Year Transfers or that goods and/or services were provided, but were not of a reasonably equivalent value. The Complaint states only that:

the Debtors failed to maintain invoices, records, or other supporting documents relating to Defendant which would tend to support that all of the 2–Year Transfers were made in the ordinary operation of the Debtors' businesses and in payment for the fair value of goods and/or services provided by the Defendant to the Debtors.

( Id. ¶ 34).

Finally, the Complaint alleges that BRT is the initial or immediate or mediate transferee with respect to the 2–Year Transfers or the entity for whose benefit the transfers were made and that the Debtors were insolvent or were rendered insolvent when the 2–Year Transfers were made. ( Id. ¶¶ 35–36).

Count III

Count III states the Trustee's claim under 11 U.S.C. § 544,¹⁰ through which the Trustee asserts his entitlement to avoid transfers pursuant 12 Pa.C.S.A. §§ 5101, et seq.¹¹

Through Count III, the Trustee seeks to avoid transfers of property made on or within four (4) years prior to the Petition Date (referred to by the Trustee as “the 4–Year Transfers”). ( Id. ¶ 41 & Ex. C). The factual basis for the claim is identical to that in Count III: the Debtors' failure to maintain records verifying that the payments were made in the ordinary course for goods or services of equivalent value. ( Id. ¶ 46).¹²

Count IV

In Count IV states the Trustee seeks to avoid post-petition transfers pursuant to 11 U.S.C. § 549.¹³

The Complaint sets out no additional factual allegations in support of Count IV. The Complaint states only that “to the extent” that a transfer was made “to Defendant on account of obligations that arose before the Petition Date and that cleared after the Petition Date,” or “was not in the ordinary course of business between [BRT] and the Debtors” and not “authorized,” the transfers are “avoidable.” ( Id. ¶¶ 56–57).

Count V

In Count V, the Trustee alleges BRT is the entity for whom the Transfer were made or is the immediate or mediate transferee of the initial transferee. The Trustee claims that he is entitled to “recover the avoided Transfers or the amount of the avoided Transfers” from BRT under 11 U.S.C. § 550. (Complaint ¶ 62).

Counts VI and VII

Counts VI and VII of the Complaint include no additional factual allegations.

Count VI requests that any proofs of claim filed by BRT be disallowed pursuant to 11 U.S.C. § 502(d) and (j), until such time as BRT pays the Trustee the aggregate amount of the avoided transfers. Count VI requests an award of attorney's fees and costs incurred in bringing and pursuing this adversary proceeding.

III. LEGAL STANDARD

Fed.R.Civ.P. 8(a)(2) requires that a complaint contain a “short and plain statement of the claim showing the pleader is entitled to relief.” ¹⁴ Since the Supreme Court decided Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) and Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009), numerous courts have issued opinions discussing the standards articulated by the Court in assessing the sufficiency of complaints that are subject to motions to dismiss filed under Rule 12(b)(6). Last year, I described the legal standard as follows:

When considering a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6), which is incorporated by Fed. R. Bankr.P. 7012, the court must accept all factual allegations as true, construe the complaint in the light most favorable to the plaintiff, and determine whether, under any reasonable reading of the complaint, the plaintiff may be entitled to relief. Phillips v. County of Allegheny, 515 F.3d 224, 233 (3d...