In Re: Brandon Overseas Inc. Debtor.
| Decision Date | 16 July 2010 |
| Docket Number | No.:09-01971-RBR,No. 08-11035-BKC-RBR,08-11035-BKC-RBR,:09-01971-RBR |
| Parties | In re:BRANDON OVERSEAS, INC. Debtor. and MARIKA TOLZ, Trustee, Plaintiff, v. UNITED STATES OF AMERICA, DEPARTMENT OF THE TREASURY, INTERNAL REVENUE SERVICE, and DOUGLAS SHULMAN,Defendants. |
| Court | U.S. Bankruptcy Court — Southern District of Florida |
THIS MATTER came before the Court for hearing on March 12, 2010 (the "Hearing") on the United States' Motion to Dismiss Amended Complaint and Incorporated Memorandum of Law (the "Motion to Dismiss") [D.E. 38]. The Court, having heard the arguments of counsel andconsidered the Amended Complaint [D.E. 33], the Motion to Dismiss, and the Trustee's Response [D.E. 48], denies the Motion to Dismiss for the reasons set forth herein.
BACKGROUND AND PROCEDURAL HISTORY This adversary proceeding relates to the bankruptcy case entitled In re Brandon Overseas, Inc., Case No.: 08-11035-RBR-BKC (the "Main Case"), commenced by the filing of an involuntary chapter 7 petition against Brandon Overseas, Inc. (the "Debtor") on January 30, 2008 [D.E. 1 in the Main Case]. The Court entered an order for relief under chapter 7 of title 11 of the United States Code (the "Bankruptcy Code" or "Code") on February 6, 2008 [D.E. 11 in the Main Case]. Marika Tolz was appointed the Chapter 7 Trustee.
The Trustee filed the original complaint in this adversary proceeding on September 1, 2009 [D.E. 1]. The Court dismissed the original complaint with leave for the Trustee to amend on January 8, 2010 [D.E. 26]. The Trustee filed the Amended Complaint on January 28, 2010, and the United States filed the Motion to Dismiss on February 11, 2010.
The Amended Complaint contains five counts that seek the avoidance and recovery of 26 allegedly fraudulent transfers the Debtor made to the Internal Revenue Service (the "IRS") in the amount of $1,027, 461.45 (the "Transfers"). Count I seeks to avoid the Transfers under 11 U.S.C. § 548(a)(1)(A). Count II seeks to avoid the Transfers under 11 U.S.C. § 548(a)(1)(B). Counts III and IV seek to avoid certain of the Transfers under 11 U.S.C. § 544 and Fla. Stat. § 726.105, et seq.1 Finally, Count V seeks to recover the Transfers under 11 U.S.C. § 550.
The Trustee alleges that the Transfers were paid to the IRS to satisfy either Nicole or James Brandon's individual tax liabilities for certain tax years and were not paid for any debt owed by the Debtor. Throughout the Amended Complaint, the Trustee alleges that the Transfers were part of Nicole Brandon's larger pattern of looting the Debtor by running expenses through the Debtor to support her and James Brandon's extravagant lifestyle. The Trustee furtheralleges that Nicole Brandon was not entitled to have her and James Brandon's personal expenses paid for by the Debtor and that the Transfers were not authorized by an employment agreement or as bonus compensation. In addition, the Trustee alleges that the Debtor did not itemize or seek deductions on its corporate taxes for the Transfers. Finally, the Trustee alleges that the Debtor received no reasonably equivalent value for making the Transfers, but instead the Transfers benefitted only Nicole and James Brandon.
The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334 and 157(b)(1). This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2). Venue is proper in this District pursuant to 28 U.S.C. §§ 1408 and 1409.
A complaint should be dismissed for failure to state a claim under Fed. R. Civ. P. (the "FRCP") Rule 12(b)(6) if no set of facts can be proven that would support a claim for relief.2 Frazier v. Alexandre, 434 F. Supp. 2d 1350, 1357 (S.D. Fla. 2006) (citing Hishon v. King & Spalding, 467 U.S. 69, 73 (1984)). In considering a motion to dismiss, a court should accept all well-pleaded allegations as true and view the motion in the light most favorable to the nonmoving party. Frazier, 434 F. Supp. 2d at 1357.
In Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) and Ashcroft v. iqbal, 129 S.Ct. 1937, 1949-50 (2009), the Supreme Court heightened the burden that a plaintiff must meet to withstand a motion to dismiss. After Twombly and Iqbal, mere "notice pleading" is no longer sufficient for a complaint to withstand a motion to dismiss. As the Supreme Court stated in Twombly.
While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. Factual allegations must be enough to raise a right to relief above the speculative level.
Twombly, 550 U.S. at 555. In considering the present Motion to Dismiss, this Court must therefore determine whether the plaintiff's claim is plausible such that "the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." See Iqbal, 129 S.Ct. at 1949. This standard does not require a showing of probable guilt, "but it asks for more than a sheer possibility that a defendant has acted unlawfully." See id.
The United States advances three arguments in the Motion to Dismiss: (1) the Court lacks jurisdiction over the subject of Counts III and IV of the Amended Complaint; (2) the Complaint should be dismissed for failure to plead fraud with particularity as required by Rule 9 of the FRCP and the heightened pleading requirements under FRCP Rule 8(a)(2) as announced by the Supreme Court in Twombly and Iqbal: and (3) the Amended Complaint fails to join Nicole and James Brandon, who the United States asserts are necessary parties to this action under Rule 19 of the FRCP. The Court will address these arguments in turn.
Counts III and IV of the Amended Complaint seek to avoid certain of the Transfers pursuant to 11 U.S.C. § 544 and Fla. Stat. § 726.105, et seq. Section 544(b) of the Bankruptcy Code provides in part that "the trustee may avoid any transfer of an interest of the debtor in property or any obligation incurred by the debtor that is voidable under applicable law by a creditor holding an unsecured claim." Fla. Stat. § 726.105, et seq., a part of the Florida Uniform Fraudulent Transfer Act (the "FUFTA"), deems certain transfers by debtors to be fraudulent under Florida law. As such, Counts III and IV of the Amended Complaint invoke § 544(b) to avoid certain of the Transfers under the FUFTA.
The Motion to Dismiss argues that the Court lacks jurisdiction over the subject of Counts III and IV because: (1) the voluntary payment rule (the "VPR") bars the Trustee's claims, (2) noactual creditor could bring a FUFTA claim against the United States, and (3) the Court lacks jurisdiction to award the requested relief.
Under Florida law, the VPR generally prohibits actions for refunds of taxes voluntarily paid, absent a specific statutory remedy. See, e.g., State ex ret. Victor Chem. Works v. Gay, 74 So. 2d 560 (Fla. 1954); Johnson v. Atkins, 32 So. 879 (Fla. 1902); City of Miami v. Florida Retail Fed'n, Inc., 423 So. 2d 991 (Fla. App. 1982). The United States argues that (1) the Court should find that the Transfers were made voluntarily, and (2) as such, under the VPR, there can be no action for recovery of the Transfers absent a provision in the law authorizing a refund (Mot. 6-7). The United States further contends that the FUFTA is not such a statute.
In support thereof, the United States cites to In re Abatement Envtl. Res., Inc., 301 B.R. 830, 833 n.3 (D. Md. 2003), for the proposition that "a payment by a corporation, at the insistence of one of its principals, of the principal's tax liability, is encompassed by the term 'voluntary payment.'" This Court declines to adopt the cited reasoning of the Abatement court. Treating corporate payments of a principal's tax liability, at the insistence of that principal, as voluntary payments for purposes of the VPR could produce illogical results. For example, a company could "choose" to make fraudulent transfers to benefit its principals prior to a bankruptcy filing, to the detriment of itself and its creditors, knowing that the VPR would hinder any attempt to recover those transfers in bankruptcy.
Accordingly, the Court finds that the Transfers were not made voluntarily for the purpose of considering the Motion to Dismiss. The Court reaches this result by viewing the totality of the allegations in the Amended Complaint in the light most favorable to the Trustee, including the allegations that the Transfers: (1) were not authorized by the Debtor; (2) were not made pursuant to an employment agreement; (3) were not deducted on the Debtor's tax returns; and (4) were made with the intent to defraud creditors.
Because the Transfers were not made voluntarily for purposes of the Motion to Dismiss, the VPR does not bar Counts III and IV of the Amended Complaint. The issue of whether the FUFTA in fact authorizes refunds of voluntary tax payments despite the VPR is beyond the scope of this order, and the Court will not address it at this time.
The doctrine of sovereign immunity prevents suits against the United States except when Congress has "unequivocally expressed" its consent to be sued. United States v. Nordic Village, Inc., 503 U.S. 30, 33-34 (1992). Pursuant to § 106 of the Bankruptcy Code, the United States has waived sovereign immunity with respect to claims brought under certain Code sections, including § 544. However, § 544(b)(1) provides that a "trustee may avoid any transfer of an interest of the debtor in...
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