Grand Rapids E Cigarette, LLC v. Mitten Pizza, LLC (In re Ahlan Indus., Inc.)

Decision Date25 May 2021
Docket NumberAdversary Proceeding No. 20-80138,Case No. BG 18-04656,Case No. BK 18-04655,Adversary Proceeding No. 20-80137,Case No. BG 18-04650,Adversary Proceeding No. 20-80136
PartiesIn re: AHLAN INDUSTRIES, INC., et al., Debtors. GRAND RAPIDS E CIGARETTE, LLC, Plaintiff, v. MITTEN PIZZA, LLC & AHLAN INDUSTRIES, INC., Defendants. In re: ANTHONY AHLAN WINTERS, Debtor. GRAND RAPIDS E CIGARETTE, LLC, Plaintiff, v. ANTHONY WINTERS & MITTEN PIZZA, LLC, Defendants. In re: JAMIE AHLAN ZICHTERMAN, Debtor. GRAND RAPIDS E CIGARETTE, LLC, Plaintiff, v. JAMIE ZICHTERMAN & MITTEN PIZZA, LLC, Defendants.
CourtU.S. Bankruptcy Court — Western District of Michigan

Chapter 7

Chapter 13

OPINION REGARDING DEFENDANTS' MOTIONS TO DISMISS AND FOR SANCTIONS

Appearances:

April A. Hulst, Grand Rapids, Michigan, attorney for Mitten Pizza, LLC, Anthony Winters, and Jamie Zichterman.

Joseph M. Infante and Michael E. Moore, Grand Rapids, Michigan, attorneys for Grand Rapids E Cigarette, LLC.

I. INTRODUCTION AND JURISDICTION.

In the motions to dismiss that are currently before the court, Defendants Anthony Winters, Jamie Zichterman, and Mitten Pizza, LLC (collectively, the "Movants"), seek dismissal of three separate adversary proceedings brought against them by Plaintiff Grand Rapids E Cigarette, LLC ("GRE").1 GRE is a creditor of Winters, Zichterman, andseveral of their related corporate entities including Ahlan Industries, Inc., under a prepetition state court judgment. GRE also previously purchased all the assets of Ahlan Industries under a sale order entered by this court in the Ahlan chapter 7 case. GRE's current adversary complaints allege that the Ahlan assets included an ownership interest in a pizzeria located in Middleville, Michigan (the "Pizzeria"), which is now known as Mitten Pizza, LLC. In its complaint against Mitten Pizza and Ahlan, GRE asks for a declaratory judgment that the Pizzeria was an asset of the Ahlan bankruptcy estate and was included in the prior sale order. Alternatively, all three complaints seek a determination that the Pizzeria assets were fraudulently conveyed or converted by Winters, Zichterman, and/or Mitten Pizza at or around the time the bankruptcy cases were filed. The Movants have sought dismissal of the fraudulent conveyance, conversion, and conspiracy counts in the GRE complaints for lack of standing and failure to state a claim upon which relief can be granted.

The court has jurisdiction over the Ahlan chapter 7 base cases and the chapter 13 cases of Winters and Zichterman. 28 U.S.C. § 1334. The cases, and all related proceedings and contested matters, have been referred to this bankruptcy court for determination. 28 U.S.C. § 157(a); LGenR 3.1(a) (W.D. Mich.). Although this court's subject matter jurisdiction over the causes of action alleged in the Mitten Pizza adversaries, particularly as it relates to GRE's standing to bring the claims, is the central issue raised in the current motions to dismiss, this court has jurisdiction to determine its own jurisdiction over the claims. See, e.g., United States v. Ruiz, 536 U.S. 622, 628, 122 S. Ct. 2450 (2002) ("a federal court always has jurisdiction to determine its own jurisdiction").

II. BACKGROUND AND PROCEDURAL HISTORY.2
A. General Background.

Ahlan Industries, Inc., Mitten Vapors, LLC, Peninsula Vapors, LLC, and GR E Liquid, LLC (collectively, the "Corporate Debtors"), are related entities that filed chapter 7 petitions in this court on November 5, 2018.3 The individuals who owned and managed the Corporate Debtors, Jamie Zichterman and Anthony Winters (the "Individuals"), also filed chapter 13 cases in this court on November 5, 2018. GRE is a creditor in the corporate chapter 7 cases and the individual chapter 13 cases, based on a prepetition judgment it obtained against the Corporate Debtors and the Individuals in the Kent County Circuit Court. GRE has filed proofs of claim relating to the judgment debt in each of the base cases. The most recent amendments to the claims indicate that GRE was owed more than $640,000 under the judgment as of the petition dates. (See, e.g., Case No. 18-04650, Amended Claim #2, filed on July 8, 2020.) GRE is currently pursuing separate adversary proceedings against the Individuals, alleging that the judgment debt should be excepted from discharge in their respective chapter 13 cases as a debt for fraud under 11 U.S.C. § 523(a)(2)(A).

Pursuant to an order entered in the Ahlan base case on May 13, 2019 (the "Sale Order"), GRE also purchased all of the assets of the Ahlan and Mitten Vapors bankruptcyestates for $25,000. (See Case No. 18-04650, Dkt. No. 71.) The Sale Order provided that the assets were being sold on an "as is, where is" basis. (Id. at ¶ 5.) It also specifically excluded certain property by providing:

Excluded from the sale is certain property described in the Asset Purchase Agreement, including, but not limited to cash, money currently held in the Trustee's fiduciary accounts, security deposits, Ahlan's interest in a certain vehicle lease, any claims the bankruptcy estates may have related to the fraudulent transfer of the assets of Mitten [Vapors] or Ahlan, and any causes of action against the bankruptcy estates other than claims arising out of the Asset Purchase Agreement.

(Id. at ¶ 9.)

Since entry of the Sale Order, Thomas A. Bruinsma, the chapter 7 trustee in the Ahlan Industries base case (the "Ahlan Trustee"), has pursued certain chapter 5 avoidance actions on behalf of the bankruptcy estate. In particular, on November 23, 2020, the Trustee filed a motion for approval of a modified settlement agreement with Mitten Pizza, LLC. (Case No. 18-04650, Dkt. No. 186.) The settlement resolved the Trustee's claims that Mitten Pizza had received certain postpetition cash transfers from the Ahlan estate that were avoidable under 11 U.S.C. § 549.4 The court entered an order approving the settlement on February 26, 2021. (Case No. 18-04650, Dkt. No. 195.)

B. The Current Adversary Complaints.

GRE initiated the three Mitten Pizza adversaries on November 2, 2020. The amended complaints in each adversary proceeding allege essentially the same facts.According to GRE, the Pizzeria began operations in July 2016 and Ahlan Industries provided the funds to start the business. (AP No. 20-80136, Dkt. No. 4, ¶ 13 & 16.) At that time, and at all relevant times until the filing of the bankruptcy petitions, Ahlan essentially owned and operated the Pizzeria: it paid all of the Pizzeria's expenses, including rent and food and beverage costs; employed the individuals who worked for the Pizzeria; maintained insurance on the Pizzeria; and deposited all sales proceeds from the Pizzeria into its own bank account. (Id. at ¶¶ 14-22.)

GRE further asserts that the Articles of Organization for Mitten Pizza, LLC were filed on April 21, 2017, which was nearly a year after the Pizzeria began operations. (Id. at ¶ 59.) Mitten Pizza, LLC did not have its own bank account until July of 2018, and even after that point, the account had little activity. (Id. at ¶¶ 60-62.) In summary, GRE alleges that it was not until after the bankruptcy petitions were filed that Mitten Pizza began operating the Pizzeria "independent and separately" from Ahlan. (Id. at ¶ 63.) According to GRE, Winters, Zichterman, Mitten Pizza and Ahlan effectuated this change without purchasing the Pizzeria assets or taking other formal action to transfer ownership of the business. (Id. at ¶ 64-67.)

Based on these factual allegations, the GRE adversary complaints assert several causes action, which fall into two broad categories. The first category is alleged only in the complaint against Mitten Pizza and Ahlan and presumes that the Pizzeria assets were property of the Ahlan bankruptcy estate and were included in the sale to GRE. The sole count in this category requests that this court enter a declaratory judgment stating that the Pizzeria assets were among the assets purchased by GRE under the Sale Order.(AP No. 20-80136, Dkt. No. 4, Count I.). The declaratory judgment count asks the court to direct Mitten Pizza and Ahlan to turn over the Pizzeria assets to GRE.

The second category of claims is based on the alternative premise that the Pizzeria assets were not purchased by GRE because the assets were transferred from Ahlan to Mitten Pizza "at or around the Petition Date." (See, e.g., Id. at ¶ 83). These claims are asserted in all three of the Mitten Pizza adversary proceedings and are collectively referred to herein as the "Pre-Sale Transfer Claims." To the extent such a transfer occurred, the amended complaints against Mitten, Ahlan, and the Individuals ask this court to avoid the transfer of the Pizzeria assets as a fraudulent conveyance under the Michigan Uniform Fraudulent Transfer Act (the "UFTA"), Mich. Comp. Laws § 566.34 et seq. (AP No. 20-80136, Dkt. No. 4, Counts II and III), order that the transfer of the assets constituted statutory conversion under the Michigan conversion statute, Mich. Comp. Laws § 600.2919a (Id., Counts V and VI),5 or find that the Defendants conspired to commit either action (Id., Counts IV and VII).6 These counts of the complaints seek return of the Pizzeria assets either to the bankruptcy estate or to GRE, as purchaser of the estate's assets. In the alternative, GRE requests entry of a money judgment in its favor for thevalue of the Pizzeria assets, which it estimates to be approximately $275,000, treble damages under the Michigan conversion statute, and various attorney's fees and costs.

On March 10, 2021, the Movants filed motions to dismiss in each of the three adversary proceedings. The motions, which were filed pursuant to Fed. R. Civ. P. 12(b)(1) and (6), primarily assert that GRE lacks standing to pursue the Pre-Sale Transfer Claims against Mitten Pizza, Winters, and Zichterman. The Movants argue that those claims are property of the Ahlan bankruptcy estate and may only be pursued by the Ahlan Trustee.

In addition, Winters and Zichterman each...

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