In re Austin Company, Case No. 05-93363 (Bankr. N.D. Ohio 10/28/2008)
| Decision Date | 28 October 2008 |
| Docket Number | Case No. 05-93363 (Jointly Administered),Adversary Proceeding No. 08-1130 |
| Parties | In re: THE AUSTIN COMPANY, et al., Chapter 11, Debtors. MARK A. ROBERTS as Liquidating Trustee of TAC LIQUIDATING TRUST, successor to THE AUSTIN COMPANY, et al., Plaintiffs, v. AAC DESIGNERS BUILDERS, INC.,dba AUSTIN AECOM, et al., Defendants. |
| Court | U.S. Bankruptcy Court — Northern District of Ohio |
The Austin Company filed a voluntary petition for relief under chapter 11 of the bankruptcy code1 on October 14, 2005. The plaintiff in this adversary proceeding is Mark A. Roberts, Liquidating Trustee of TAC Liquidating Trust, Successor to The Austin Company. He seeks judgment against AAC Designers Builders, Inc. (AAC) for avoidance and recovery of alleged fraudulent and preferential transfers, turnover of property of the estate, breach of contract unjust enrichment, and disallowance and equitable subordination of AAC's claims.2 AAC moves to dismiss counts I through V of the complaint for failure to state a claim upon which relief can be granted under federal rule of civil procedure 12(b)(6). (Docket 24, 25). The plaintiff opposes the motion. (Docket 34).
For the reasons stated below, the court finds that (1) the allegations of counts I through V of the complaint are sufficient to state a claim upon which relief can be granted, with the exception of paragraph 56 in count II; and (2) the allegations in count II are not sufficient to state a claim for successor liability. The motion is, therefore, granted in part and denied in part.
Jurisdiction exists under 28 U.S.C. § 1334 and General Order No. 84 entered by the United States District Court for the Northern District of Ohio. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (B), (E), (F), (H) and (O).
In 2004, the debtor encountered financial difficulty, and sought to sell portions of its business. In October 2004, the debtor entered into a letter-of-intent with AECOM Technology Corporation (AECOM Parent),3 for a stock acquisition of the debtor's business. The letter contained a provision that the debtor not market its assets or negotiate with any third-parties for ninety days, giving AECOM Parent exclusive bid rights during this period.4 Ultimately, the debtor and AECOM Parent entered into an agreement (Asset Purchase Agreement) by which AAC—formed specifically for the contemplated transaction—acquired only certain of the debtor's assets (Purchased Assets). The Purchased Assets included the rights to certain projects estimated to produce approximately $80 million in revenue.5 The plaintiff asserts that AECOM Parent reduced its bid during the exclusivity period and offered to purchase specific assets only, instead of the debtor's entire business,6 thus "cherry-picking" the debtor's best assets at a reduced price.
The Asset Purchase Agreement called for a sale of the Purchased Assets to AECOM Parent for $6,500,000.00.7 The Asset Purchase Agreement required AAC to assume certain liabilities; AAC was to receive $4,409,893.00 of the purchase price back after closing; AAC was to make payments representing the Post-Closing Adjustments to the debtor, and the debtor was to make certain Post-Closing Transfers.8 The Asset Purchase Agreement also required that the debtor obtain fairness and solvency opinions.9 The plaintiff asserts that these opinions were influenced by AECOM Parent's general counsel to give the appearance that the debtor was solvent and would be able to continue its business after the contemplated sale transaction,10 when this was not true.
The sale closed on or about January 21, 2005.11 However, AAC allegedly failed to make the Post-Closing Adjustments, while the debtor made Post-Closing Transfers in the minimum amount of $8,947,422.71.12 The plaintiff alleges that all of these events resulted in the debtor's valuable business assets being transferred to AAC, while the debtor was left only with unprofitable assets and substantial liabilities.13
Plaintiff's complaint sets forth allegations against AAC in eleven separate counts; however, AAC seeks dismissal of only counts I through V. Counts I and II allege that AAC was the recipient of fraudulent transfers from the debtor under 11 U.S.C. § 548, and under 11 U.S.C. § 544 and "potentially applicable state law,"14 respectively. Count II has an alternative request for relief, seeking a declaration that AAC is the corporate successor to the debtor under "potentially applicable state law."15 Count III alleges that the plaintiff is entitled to recover the value of the transfers alleged in counts I and II for the benefit of the bankruptcy estate under 11 U.S.C. § 550. Count IV seeks to avoid preferential transfers from the debtor to AAC under 11 U.S.C. § 547, and count V alleges that the value of the preferential transfers are recoverable by the plaintiff under 11 U.S.C. § 550.
AAC moves to dismiss the first five counts of the complaint based upon the plaintiff's alleged failure to state a claim upon which relief can be granted. Specifically, AAC asserts that the plaintiff failed to plead facts alleging that the debtor had any interest in the alleged preferential or fraudulent transfers. Further, AAC states plaintiff did not allege the preferential transfers were made on account of an antecedent debt. Finally, AAC seeks dismissal of count II because paragraph 56 of the complaint seeks a declaration of successor liability, which plaintiff has allegedly failed to properly plead.
Plaintiff's position is that the complaint meets the applicable pleading requirements, and the issues raised by AAC constitute requests for overly technical pleading. The plaintiff contends that it specifically alleged that the alleged preferential and fraudulent transfers constituted an interest of the debtor in property, and that the preferential transfers were made on account of an antecedent debt. Further, in his memorandum in opposition to the motion to dismiss, the plaintiff identifies Ohio law as controlling on the issue of successor liability, states that he relies on the Ohio fraud exception to the general rule that a successor is not liable for the debts of a transferring company, and states further that the elements of a claim for successor liability based upon fraud and the elements of a fraudulent transfer claim are essentially the same. He concludes that by pleading a cause of action for fraudulent transfer, he has also pleaded a cause of action for successor liability. Accordingly, the plaintiff contends the identified counts of the complaint are sufficient to apprise AAC of the claims against it, and that dismissal of the complaint is inappropriate.
Federal rule of civil procedure 12(b)(6) permits a defendant to move to dismiss a complaint for "failure to state a claim upon which relief can be granted." FED. R. CIV. P. 12(b)(6) (). "The purpose of a motion under Rule 12(b)(6) is to test the sufficiency of the complaint." Ashiegbu v. Purviance, 76 F.Supp.2d 824, 827 (S.D. Ohio 1998), aff'd 194 F.3d 1311 (6th Cir. 1999); cert. denied, 529 U.S. 1001, 120 S.Ct. 1287, 146 L.Ed.2d 215 (2000). A complaint need only contain a "short and plain statement of the claim showing the pleader is entitled to relief" to be sufficient. FED. R. CIV. P. 8(a)(2). In considering a rule 12(b)(6) motion, the court must "construe the complaint in the light most favorable to the plaintiff and accept all well-pleaded factual allegations in the complaint as true." Ashiegbu, 76 F.Supp.2d at 827-28 (citing Scheuer v. Rhodes, 416 U.S. 232, 2136, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974)). "The court need not accept legal conclusions or unwarranted factual inferences as true. Morgan v. Church's Fried Chicken, 829 F.2d 10, 12 (6th Cir. 1987) or Power & Tel. Supply Co., Inc. v. SunTrust Banks, Inc., 447 F.3d 923, 930 (6th Cir. 2006).
A plaintiff must set forth the "'grounds' of his `entitle[ment] to relief,'" which requires more than "labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Bell Atlantic Corp. v. Twombly, 127 S.Ct. 1955, 1965 (2007) (citations omitted). Instead, a complaint must contain enough factual allegations "to state a claim for relief that is plausible on its face." Id. at 1974. But, the complaint may contain inferential allegations to support a legal theory. Eidson v. State of Tennessee Dep't of Children's Servs., 510 F.3d 631, 634 (6th Cir. 2007) (citing Mezibov v. Allen, 411 F.3d 712, 716 (6th Cir. 2005)). The purpose of requiring a plaintiff to provide the facts upon which a legal theory rests is to provide the defendant with "fair notice of what the . . . claim is[.]" Bell Atlantic, 127 S.Ct. at 1964. Therefore, if the complaint provides enough facts that make it possible—even if unlikely—for the plaintiff to recover, then the complaint is sufficient under rule 12(b)(6).
Bankruptcy code §§ 544, 547(b) and 548 permit trustees to avoid preferential and fraudulent transfers of the debtor's interest in property. Thus, a necessary element of both a preferential transfer claim and a fraudulent transfer claim is that the debtor had an interest in the property. AAC contends that the complaint does not sufficiently allege that the debtor had an interest in either the alleged preferential transfers (Preferential Transfers) or the alleged fraudulent transfers (Post-Closing Transfers, and transfers of Purchased Assets).
For the plaintiff to recover the Purchased Assets and the Post-Closing Transfers from AAC, the transfers must have constituted an interest of the debtor in property. 11 U.S.C. § 548(a)(1)...
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