Gordon v. Harrison (In re Alpha Protective Servs., Inc.)

• Decision Date: 26 May 2015
• Docket Number: Case Number: 12–70482jtl,Adversary Proceeding Number: 14–7019
• Citation: 531 B.R. 889
• Parties: In re: Alpha Protective Services, Inc., Debtor, Neil C. Gordon, as Trustee in Bankruptcy For Alpha Protective Services, Inc., Plaintiff, v. James Lee Harrison ; Harrison Management and Consulting, LLC, and Gary Harrison, as an alter-ego of Harrison Management Group, LLC, or as Immediate Transferee under Harrison Management Group, LLC, Defendants.
• Court: U.S. Bankruptcy Court — Middle District of Georgia

531 B.R. 889

In re: Alpha Protective Services, Inc., DebtorNeil C. Gordon, as Trustee in Bankruptcy For Alpha Protective Services, Inc., Plaintiff

v.James Lee Harrison ; Harrison Management and Consulting, LLC, and Gary Harrison, as an alter-ego of Harrison Management Group, LLC, or as Immediate Transferee under Harrison Management Group, LLC, Defendants.

Case Number: 12–70482jtl

Adversary Proceeding Number: 14–7019

United States Bankruptcy Court, M.D. Georgia, Valdosta Division.

Signed May 26, 2015

Wesley J. Boyer, Katz, Flatau, Popson and Boyer, LLP, Macon, GA, Fife M. Whiteside, Fife M. Whiteside, PC, Columbus, GA, for Debtor and Plaintiff.

Mark A. Gilbert, Coleman Talley LLP, David E. Mullis, David E. Mullis, P.C., Valdosta, GA, for Defendants.

MEMORANDUM OPINION

John T. Laney, III, United States Bankruptcy Judge

This matter comes before the Court on a Motion for Judgment on the Pleadings (the “Motion”) filed by James Lee Harrison (“J. Harrison”), Gary Harrison (“G. Harrison”), and Harrison Management and Consulting Group (“HMCG”), (collectively, the “Defendants”). The Court heard oral arguments on December 23, 2014, in Columbus, Georgia. At the conclusion of the hearing, on request of the parties, the Court extended the briefing period to allow time for the parties to brief additional issues raised during oral argument. The supplemental briefing period expired on February 2, 2015. The Court has carefully considered the pleadings and briefs, the parties' oral arguments, and the applicable statutory and case law. For the reasons set forth below the Court will grant in part and deny in part the Defendants' Motion for Judgment on the Pleadings.

Background

I. Factual History

This adversary proceeding arises out of the underlying bankruptcy case of Alpha Protective Services, Inc., (“Alpha” or “Debtor”). Alpha was previously in the business of providing comprehensive security and protective services to the United States Government and private institutions. Alpha was originally formed by Jeffrey B. Brinson (“Brinson”) and J. Harrison. Brinson was a 51% shareholder and served as the company's Chief Executive Officer. J. Harrision held the remaining 49% of the Alpha shares. On January 15, 2005, Alpha entered into a Management Services Agreement (“MSA”) with HMCG. Under the terms of the MSA, HMCG was to provide certain management and consulting services to Alpha. HMCG is owned by G. Harrison, who is the son of J. Harrison. In addition, G. Harrison was member of the Alpha Board of Directors at the time the MSA was signed.

At some point Brinson, J. Harrison, G. Harrison, and HMCG had a falling out, and Alpha attempted to terminate the MSA. This conflict resulted in lengthy litigation, whereby HMCG and J. Harrison sought, among other things, to have a receiver appointed to liquidate Alpha. Brinson and Alpha filed counterclaims, and ultimately the parties entered a settlement agreement, whereby Brinson agreed to buy out J. Harrison's 49% percent stake in Alpha. Brinson did not comply with the terms of the settlement and HMCG and J. Harrison brought an action to enforce the settlement. This litigation resulted in another settlement, which was memorialized in a settlement agreement (the “Settlement Agreement”) between the parties which was to supersede the prior settlement agreement and dispose of all claims between the parties.

Under the terms of the Settlement Agreement, several events were to take place. First, J. Harrison was to transfer all of his stock in Alpha to Brinson for a purchase price of $1,543,500, of which $1,000,000 was to be paid at closing. The remaining $543,500 was to be paid pursuant to a promissory note and security agreement over eighty-four (84) months, at a rate of nine (9) percent per annum (the “J. Harrison Note”), beginning in August 2007. Under the J. Harrison Note, J. Harrison was to retain a security interest in the transferred shares. The J. Harrison Note was signed by Brinson, but guaranteed by Alpha. Between August 1, 2007, and the date of case filing, Alpha paid $1,480,942.55 to J. Harrison pursuant to the terms of the J. Harrison Note.¹

Second, Alpha agreed to pay HMCG $1,606,500 in settlement of all claims of HMCG against Alpha, pursuant to a promissory note in that amount, to be paid over eighty-four (84) months at nine (9) percent per annum (the “HMCG Note”). This comes out to a payment of $25,847.10 per month beginning in August 2007. Under the terms of the HMCG Note, HMCG was to retain a security interest in the assets of Alpha. The HMCG Note was executed by Alpha, but was guaranteed by Brinson. Pursuant to the terms of the HMCG Note payments totaling $1,421,590.50 were made between August 1, 2007, and the date the case was filed. Of that total, $284,813.10 was paid within one year of case filing.

II. Procedural History

On April 12, 2012, (the “Petition Date”), Alpha sought protection under Chapter 11 of the Bankruptcy Code. Thereafter, Alpha operated as a debtor in possession for approximately eight months, at which point the United States Trustee appointed a Chapter 11 Trustee to oversee the case. On December 20, 2012, this Court granted the Chapter 11 Trustee's motion to convert the case to a Chapter 7 liquidation case. The Trustee commenced this adversary proceeding on April 1, 2014, with the filing of the complaint against the Defendants. In his complaint the Trustee seeks to avoid and recover certain allegedly preferential and fraudulent transfers made by the Debtor to the Defendants. On September 30, 2014, the Defendants responded by filing the instant Motion seeking judgment on the pleadings and to have the Trustee's complaint dismissed pursuant to Federal Rule of Civil Procedure 12(c).

Rule 12(c) Standard

Under Fed. R. Civ. P. 12(c), which is made applicable to Adversary Proceedings in Bankruptcy by Federal Rule of Bankruptcy Procedure 7012(c), a party may make a motion for judgment on the pleadings after the pleadings are closed, but not so late as to delay trial. “Judgment on the pleadings is appropriate where there are no material facts in dispute and the moving party is entitled to judgment as a matter of law.” Bank of Camilla v. St. Paul Mercury Ins. Co., 939 F.Supp.2d 1299, 1303 (M.D.Ga.2013) (quoting Palmer & Cay, Inc. v. Marsh McLennan Cos., Inc, 404 F.3d 1297, 1303 (11th Cir.2005) ). Therefore, a court's analysis on a motion for judgment on the pleadings is almost identical to that used to decide a Fed. R. Civ. P. 12(b)(6) motion to dismiss. Id. Accordingly, a court's consideration on a motion to dismiss is generally “limited to the four corners of the complaint.” Id. at 1303. However, a court is permitted to consider other sources when ruling on a motion to dismiss, such as “documents incorporated into the complaint by reference, and matters of which a court may take judicial notice.” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007). As a result, judgment on the pleadings is proper when the complaint fails to state a claim upon which relief may be granted. Id.

“At the pleading stage, a complaint must contain a ‘short and plain statement of the claim showing that the pleader is entitled to relief.’ ” Resnick v. AvMed, Inc., 693 F.3d 1317, 1324 (11th Cir.2012) (quoting Fed. R. Civ. P. 8(a)(2) ). Under Rules 12(b)(6) and 12(c) a party may move to dismiss a complaint for failure to state a claim upon which relief may be granted. When evaluating a Rule 12(b)(b) motion to dismiss, a court “must constru[e] the complaint in the light most favorable to the plaintiff and accept[ ] as true all facts which the plaintiff alleges.” American Family Life Assur. Co. of Columbus v. Intervoice, Inc., 659 F.Supp.2d 1271, 1278 (M.D.Ga.2009) (quoting Day v. Taylor, 400 F.3d 1272, 1275 (11th Cir.2005) ). Although the plaintiff is not required to provide “detailed factual allegations,” he must provide “more than an unadorned, the-defendant-unlawfully-harmed-me accusation.”

Chaparro v. Carnival Corp., 693 F.3d 1333, 1337 (11th Cir.2012) (citing Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) ). Accordingly, a complaint must provide more than mere “labels and conclusions” or “a formulaic recitation of the elements of a cause of action.” Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). Rather, a complaint must “contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ ” Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 (quoting Twombly, 550 U.S. at 570, 127 S.Ct. 1955 ).

The “plausibility standard” outlined in Twombly and Iqbal “does not impose a probability requirement at the pleading stage,” but instead requires “sufficient factual allegations “to raise a right to relief above the speculative level.” Twombly, 550 U.S. at 570, 127 S.Ct. 1955. Such a complaint must contain enough facts “to raise a reasonable expectation that discovery will reveal evidence of the plaintiff's claim or claims.” Intervoice, 659 F.Supp.2d at 1278 (internal quotations omitted). However, a plaintiff is not required to plead specific facts, and the complaint need only provide “the defendant fair notice of what the ... claim is and the grounds upon which it rests.” Twombly, 550 U.S. at 555, 127 S.Ct. 1955. Moreover, “[d]etermining whether a complaint states a plausible claim for relief will ... be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” Iqbal, 556 U.S. at 679, 129 S.Ct. 1937. As the Court noted in Twombly, “a wellplead complaint may proceed even if it strikes a savvy judge that actual proof of those facts is improbable, and that recovery is very remote and unlikely.” 550 U.S. at 556, 127 S.Ct. 1955. With that standard in mind, the Court now turns to the merits of Defendants' Motion.

Discussion

The Complaint contains nine counts seeking avoidance and recovery against Defendants under various fraudulent transfer and...