Gordon v. Webster (In re Webster), Case No. 18-62322-JWC

• Court: United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Northern District of Georgia
• Writing for the Court: Jeffery W. Cavender, U.S. Bankruptcy Judge
• Citation: 629 B.R. 654
• Docket Number: Case No. 18-62322-JWC,Adversary Proceeding No. 20-06148-JWC
• Decision Date: 31 March 2021
• Parties: IN RE: John Bradley WEBSTER, Debtor. Neil C. Gordon, Chapter 7 Trustee for the Estate of John Bradley Webster, Plaintiff, v. John Bradley Webster, Debtor, Maureen Ann Webster, non-filing spouse, and Marque Homes, LLC, Defendants.

629 B.R. 654

IN RE: John Bradley WEBSTER, Debtor.

Neil C. Gordon, Chapter 7 Trustee for the Estate of John Bradley Webster, Plaintiff,
v.
John Bradley Webster, Debtor, Maureen Ann Webster, non-filing spouse, and Marque Homes, LLC, Defendants.

Case No. 18-62322-JWC
Adversary Proceeding No. 20-06148-JWC

United States Bankruptcy Court, N.D. Georgia, Atlanta Division.

Signed March 31, 2021

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Jeffrey Y. Lewis, William D. Matthews, Arnall Golden Gregory LLP, Atlanta, GA, for Plaintiff.

Benjamin S. Klehr, Gus H. Small, Small Herrin, LLP, Atlanta, GA, for Defendants Maureen Ann Webster.

Thomas T. McClendon, Jones & Walden, LLC, Atlanta, GA, for Defendants Marque Homes, L.L.C., John Bradley Webster.

MEMORANDUM OPINION AND ORDER

Jeffery W. Cavender, U.S. Bankruptcy Judge

This Adversary Proceeding (the "Adversary Proceeding") arises in the Chapter 7 bankruptcy case (the "Bankruptcy Case") of John Bradley Webster (the "Debtor") filed on July 26, 2018 (the "Petition Date"). Plaintiff Neil C. Gordon, the Chapter 7 Trustee appointed in the Bankruptcy Case (the "Trustee") filed the Complaint (the "Complaint") against Debtor, his wife Maureen Ann Webster ("Mrs. Webster"), and Marque Homes, LLC (the "LLC") (collectively, "Defendants") asserting an equitable interest in certain property held by Mrs. Webster and seeking recovery of alleged fraudulent transfers made by Debtor and the LLC to or for the benefit of Mrs. Webster. Before the Court is Defendants' Motion to Dismiss Adversary Proceeding (Doc. Nos. 5 and 6) (the "Motion").

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Defendants assert that the Complaint is time-barred pursuant to the two-year statute of limitations in 11 U.S.C. § 546¹ and fails to state a plausible claim for relief under various theories. Trustee filed a Response to the Motion (Doc. No. 11) (the "Response") to which Defendants filed a Joint Reply (Doc. No. 13) (the "Reply"). Having considered the Complaint, the Motion, Trustee's Response, Defendants' Reply, and the record in the Adversary Proceeding and the Bankruptcy Case, the Court will grant the Motion in part and deny the Motion in part for the reasons set forth below.

I. FACTUAL BACKGROUND²

A. The Marietta Property

Trustee's Complaint filed on July 27, 2020, alleges that on October 15, 1997, Debtor's business, John B. Webster Building Company, Inc. (the "Business"), purchased certain residential property located at 5413 Beau Reve Park, Marietta, GA 30068 (the "Marietta Property") as undeveloped land for $82,500.00 and constructed a residence on it. Compl. ¶ 23. One year later, the Business transferred its interest in the improved Marietta Property to Debtor. Compl. ¶ 24. On June 24, 2003, Debtor obtained a loan secured by the Marietta Property in the original principal amount of $450,000.00. Compl. ¶ 25. Subsequently, Debtor transferred his interest in the Marietta Property to Mrs. Webster via quit claim deed (the "Quit Claim Deed") dated August 30, 2007. Compl. ¶ 28. The Quit Claim Deed was recorded with the Cobb County Clerk of Superior Court on September 14, 2007. Compl. ¶ 29. Debtor received no consideration for the transfer of the Marietta Property (the "Transfer") outside of "love and affection." Compl. ¶¶ 30, 31. Debtor and Mrs. Webster continue to reside in the Marietta Property, which Trustee contends has approximately $500,000 of equity currently. Compl. ¶¶ 21, 27.

B. The Governors Towne Property

At the time of the Transfer, the Debtor was deep in debt and was being aggressively pursued by Branch Banking and Trust Company ("BB&T") in connection with an unrelated debt. Compl. ¶ 32. In April of 2005, the Business obtained a loan of $956,000.00 to purchase a separate property to construct a home (the "Governors Towne Property"). Compl. ¶ 33(a). Debtor executed a personal guaranty of that loan on April 29, 2005, Compl. ¶ 33(b), with the loan being later extended and modified in February and December of 2006. Compl. ¶ 33(c). BB&T, as successor to the original lender, foreclosed on the Governors Towne Property in 2008 and acquired title to the same with a credit bid of $1,250,000. Compl. ¶¶ 33(e), (f). BB&T filed a complaint to confirm the foreclosure sale to pursue a deficiency against both the Business and Debtor. Compl. ¶ 33(f). A final order confirming the sale was entered on March 16, 2012, which was affirmed by the Georgia Court of Appeals in January of 2013. Compl. ¶¶ 33(f), (g). Debtor's amended schedules filed in the Bankruptcy Case (Doc. No. 29) list a 2014 judgment obtained by BB&T against him in Cobb County for $491,566.00. Compl. ¶ 33(h). The lien recorded with respect to the judgment was issued by the United States District Court and recorded in Cobb County. Id. Also, in the Bankruptcy Case, the Internal Revenue Service (the "IRS") filed

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a proof of claim (Claim 2-1) in the total amount of $29,484.89, for tax years 2012 through 2017, comprised of a $15,515.83 priority unsecured claim and a $13,959.06 general unsecured claim. Compl. ¶ 34.

C. Transfers to or for the Benefit of Mrs. Webster

From 2007 to the commencement of Debtor's Bankruptcy Case, Debtor, either individually or through the LLC, paid the mortgage, utilities, and other bills for the maintenance of the Marietta Property and paid Mrs. Webster's credit card obligations. The mortgage for the Marietta Property remains solely in Debtor's name, and he has always maintained the mortgage payments as well as all utilities, property taxes, and the overall upkeep of the Marietta Property. Compl. ¶ 36. Mrs. Webster is a homemaker, receiving a small monthly social security income with no ability to pay the mortgage or maintain the Marietta Property. Id. Trustee also alleges on information and belief that Debtor or the LLC paid "approximately $2,700 per month for [Mrs.] Webster's separate credit card obligations (the ‘Credit Card Transfers’)" since 2007. Compl. ¶¶ 37, 38.³ Trustee alleges other transfers by Debtor or the LLC "to or for the benefit of Mrs. Webster since 2007, including his payment of utilities, property taxes ..., and the overall upkeep of the [Marietta] Property." Compl. ¶ 39. Trustee refers to these transfers, together with the Credit Card Transfers, collectively as the "Spousal Transfers." Id . Trustee alleges that at the time of the Petition Date, Debtor's debts exceeded the sum of his assets and that such status had not materially changed from the time of the Transfer of the Marietta Property to the Petition Date. Compl. ¶¶ 41, 42. Trustee alleges that the bills paid by the LLC or by Debtor for the ten years preceding the Petition Date are avoidable as fraudulent conveyances and that the LLC's assets should be used to satisfy Debtor's liabilities. Trustee asserts that Debtor and the LLC are alter egos, with Debtor exercising such complete control over the LLC as to cause it to make transfers to Mrs. Webster's creditors. Based on the foregoing Trustee requests the following relief in the Complaint: a declaratory judgment that the Estate owns a 50% interest in the Marietta Property (Count I); avoidance of the Spousal Transfers under 11 U.S.C. § 548(a)(1)(A) (Count II); avoidance of the Spousal Transfers under 11 U.S.C. § 548(a)(1)(B) (Count III); avoidance of the Spousal Transfers made since July 26, 2008 under O.C.G.A. § 18-2-74, 28 U.S.C. § 3306, 26 U.S.C. § 6502 or other applicable law and 11 U.S.C. § 544 (Count IV); avoidance of the Spousal Transfers made since July 26, 2008 under O.C.G.A. § 18-2-75, 28 U.S.C. § 3306, 26 U.S.C. § 6502 or other applicable law and 11 U.S.C. § 544 (Count V); recovery of the avoided Spousal Transfers from Mrs. Webster pursuant to 11 U.S.C. § 550 (Count VI); and a declaratory judgment that the LLC and Debtor are alter egos, making the LLC liable for Debtor's obligations (Count VII).

II. LEGAL ANALYSIS

A. Standard of Review

Federal Rule of Civil Procedure 12(b)(6)⁴ permits a defendant in an adversary proceeding to move for dismissal

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when a plaintiff fails to state a claim upon which relief can be granted. Pursuant to Rule 8(a)(2), "a pleading must contain a ‘short and plain statement of the claim showing that the pleader is entitled to relief.’ " Ashcroft v. Iqbal , 556 U.S. 662, 677-78, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). This standard "does not require ‘detailed factual allegations,’ but it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation." Id. at 678, 129 S.Ct. 1937 (citing Bell Atl. Corp. v. Twombly , 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). The complaint must contain "sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." 556 U.S. at 678, 129 S.Ct. 1937 (quoting Twombly , 550 U.S. at 570, 127 S.Ct. 1955 ). However, under Rule 9 when alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally. Fed. R. Civ. P. 9.

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