In re Felt Mfg. Co., Inc.

Decision Date27 July 2007
Docket NumberBankruptcy No. 05-13724-JMD.,Adversary No. 06-1171-JMD.
Citation371 B.R. 589,2007 BNH 027
PartiesIn re FELT MANUFACTURING CO., INC., f/k/a Foss Manufacturing Co., Inc., Debtor. Official Committee of Unsecured Creditors, on behalf of the bankruptcy estate of Felt Manufacturing Co., Inc., f/k/a Foss Manufacturing Co., Inc., Plaintiff, v. Stephen Foss, Patricia Foss, Jenifer Foss Smyth, Kevin Sexton, Douglas Kinney, Marcella Darling, John Smyth, Dennis Foss, David Rowell, Foss Family LLC I, Foss Family LLC II, Foss Realty, Inc., Business Helicopters, Inc., f/k/a New Hampshire Helicopters, Inc., Foss Family 2004 Irrevocable Trust, and Custom Travel of New Hampshire, Inc., Defendants.
CourtU.S. Bankruptcy Court — District of New Hampshire

Robert J. Feinstein, Esq., Beth E. Levine, Esq., Gillian N. Brown, Esq., Pachulski Stang Ziehl Young Jones & Weintraub LLP, New York, NY, Joseph A. Foster, Esq., Cheryl C. Deshaies, Esq., McLane, Graf, Raulerson & Middleton, P.A., Manchester, NH, for Plaintiff.

Bruce A. Harwood, Esq., Sheehan, Phinney, Bass + Green, Manchester, NH, Sean T. Carnathan, Esq., O'Connor, Carnathan and Mack LLC, Burlington, MA, for Defendants Stephen Foss, Foss Family LLC I, Foss Family LLC II, Foss Realty, Inc., and Business Helicopters, Inc.

Paul D. Moore, Esq., Jennifer L. Hertz, Esq., Michael R. Gottfried, Esq., Duane Morris LLP, Boston, MA, for Defendants Patricia Foss, Jenifer Foss Smyth, John Smyth, and Foss Family 2004 Irrevocable Trust.

William S. Gannon, Esq., William S. Gannon PLLC, Manchester, NH, for Douglas Kinney.

Daniel W. Sklar, Esq., Nixon Peabody LLP, Manchester, NH, for Dennis Foss.

Meghan M. Hart, Esq., Kevin J. Lesinski, Esq., William J. Hanlon, Esq., Seyfarth Shaw, Boston, MA, Michael S. Askenaizer, Esq., Law Offices of Michael S. Askenaizer, PLLC, Nashua, NH, for Defendant David Rowell.

Edmond J. Ford, Esq., Ford, Weaver & McDonald, P.A., Portsmouth, NH, for Kevin Sexton.

Karyn P. Forbes, Esq., Shaheen & Gordon, P.A., Concord, NH, for Marcella Darling.

MEMORANDUM OPINION

J. MICHAEL DEASY, Bankruptcy Judge.

I. INTRODUCTION

The Official Committee of Unsecured Creditors (the "Committee" or the "Plaintiff') appointed in the chapter 11 case of Felt Manufacturing Co., Inc., f/k/a Foss Manufacturing Co., Inc. ("FMC" or the "Debtor"), acting on behalf of the chapter 11 estate of the above-captioned debtor, filed a fifty-one count complaint against fifteen defendants. The defendants are former officers and directors of FMC, a shareholder and brother of an officer and director, a spouse of a director, and various trusts and other legal entities owned or controlled by one or more of the individual defendants. The complaint asserts ten types of claims: (1) breach of fiduciary duty, (2) aiding and abetting breach of fiduciary duty, (3) waste of corporate assets, (4) unjust enrichment, (5) declaration of illegal dividends, (6) deepening insolvency, (7) equitable subordination, (8) recharacterization, (9) avoidance of fraudulent transfers, and (10) avoidance of preferential transfers. Fourteen of the fifteen defendants filed motions seeking to dismiss for failure to state a claim upon which relief can be granted. For the reasons stated in this opinion, the motions to dismiss shall be granted in part and denied in part as set forth below.

This Court has jurisdiction of the subject matter and the parties pursuant to 28 U.S.C. §§ 1334 and 157(a) and the "Standing Order of Referral of Title 11 Proceedings to the United States Bankruptcy Court for the District of New Hampshire," dated January 18, 1994 (DiClerico, C.J.). This is a core proceeding in accordance with 28 U.S.C. § 157(b).

II. MOTION TO DISMISS STANDARD

In order to grant a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), which is made applicable to adversary proceedings by Federal Rule of Bankruptcy Procedure 7012(b),1 the Court must accept the allegations of the complaint as true and make all reasonable inferences in favor of the plaintiff, and if, under any theory, the allegations are sufficient to state a cause of action in accordance with the law, the Court must deny the motion to dismiss. Warth v. Seldin, 422 U.S. 490, 501, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975) (cited in Boles v. Filipowski (In re Enivid, Inc.), 345 B.R. 426, 441-42 (Bankr.D.Mass. 2006)); Alternative Energy, Inc. v. St. Paul Fire and Marine Ins. Co., 267 F.3d 30, 33 (1st Cir.2001); Blackstone Realty LLC v. Fed. Deposit Ins. Corp., 244 F.3d 193, 197 (1st Cir.2001); Vartanian v. Monsanto Co., 14 F.3d 697, 700 (1st Cir.1994); Bezanson v. Gaudette (In re R & R Assocs. of Hampton), 248 B.R. 1, 4 (Bankr. D.N.H.2000). Dismissal is appropriate only if the facts alleged by the plaintiff, taken as true, do not justify recovery. Redondo Constr. Corp. v. Summertime Dev. Corp. (In re Redondo Constr. Corp.), Bk. No. 02-02887(GAC), Adv. No. 04-00017, 2006 WL 3898311, at *2 (Bankr.D.P.R. May 22, 2006) (citing Aulson v. Blanchard, 83 F.3d 1, 3 (1st Cir.1996)). In order to survive a motion to dismiss, a plaintiff must set forth "factual allegations, either direct or inferential, regarding each material element necessary to sustain recovery." Id. (citing Gooley v. Mobil Oil Corp., 851 F.2d 513 (1st Cir.1988)).

[I]n determining a Rule 12(b)(6) motion, the Court need not credit unsupported conclusions. Dartmouth Review v. Dartmouth College, 889 F.2d 13, 16 (1st Cir.1989), overruled on other grounds, Educadores Puertorriquenos en Accion v. Hernandez, 367 F.3d 61 (1st Cir. 2004). The Federal Rules of Civil Procedure "do not require a claimant to set out in detail the facts upon which he bases his claim." Conley v. Gibson, 355 U.S. 41, 47, 78 S.Ct. 99, 103, 2 L.Ed.2d 80 (1957). "To the contrary, all the Rules require is `a short and plain statement of the claim' that will give the defendant fair notice of what the plaintiffs claim is and the grounds upon which it rests." Id. (quoting Fed. R.Civ.P. 8(a)(2)). See also Stanziale v. Nachtomi (In re Tower Air, Inc.), 416 F.3d 229, 237 (3d Cir.2005) (under Federal Rule 8, the plaintiff need only plead the "basic facts" necessary to provide the defendant with fair notice of the plaintiffs claims and the general factual background upon which it rests and should not be deprived of the opportunity to pursue cairns on a Rule 12(b)(6) motion for lack of detailed facts.).

Nevertheless, it also is well established that the pleading requirements are "not entirely ... toothless," Dartmouth Review, 889 F.2d at 16. The First Circuit has required a minimal level of factual particularity rather than mere allegations of conclusions. See Fleming v. Lind-Waldock & Co., 922 F.2d 20, 24 (1st Cir.1990) ("[T]he necessary factual averments are required with respect to each material element of the underlying legal theory.") (citing Gooley v. Mobil Oil Corp., 851 F.2d 513, 515 (1st Cir. 1988)).

Enivid, 345 B.R. 2t 441-42.

In Conley, the Supreme Court held that "a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley, 355 U.S. at 45-46, 78 S.Ct. 99 (emphasis added). "However, the Supreme Court has recently abrogated Conley's rule [in Bell Atl. Corp. v. Twombly, ___ U.S. ___, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)]. In referring to Conley's `no set of facts' language, the Court determined that it `has earned retirement' and that `[t]he phrase is best forgotten as an incomplete, negative gloss on an accepted pleading standard.'" Mitan v. Feeney, No. CV 07-3086SVWJWJX, 497 F.Supp.2d 1113, 1124, 2007 WL 2068106, at *9 (C.D.Cal. July 18, 2007) (citing Bell Atl., 127 S.Ct. at 1969). The Supreme Court stated the accepted pleading standard as "once a claim has been stated adequately, it may be supported by showing any set of facts consistent with the allegations in the complaint." Bell Atl., 127 S.Ct. at 1969. In discussing the "no set of facts" language in Conley, the Supreme Court indicated that "[o]n such a focused and literal reading of Conley's `no set of facts,' a wholly conclusory statement of claim would survive a motion to dismiss whenever the pleadings left open the possibility that a plaintiff might later establish some `set of [undisclosed] facts' to support recovery." Id. at 1968 (emphasis added). The Supreme Court observed that "a good many judges and commentators have balked at taking the literal terms of the Conley passage as a pleading standard." Id. at 1969. In support of that observation, the Court cited the decision in O'Brien v. DiGrazia, 544 F.2d 543, 546 n. 3 (1st Cir.1976).

Under Bell Atlantic, a complaint will survive a motion to dismiss under Rule 12(b)(6) only if the allegations in the complaint cross the line between "possibility and plausibility of `entitle[ment] to relief.'" Bell Atl., 127 S.Ct. at 1966 (citing DM Research, Inc. v. College of Am. Pathologists, 170 F.3d 53, 56 (1 st Cir.1999)). However, a plaintiff need not plead sufficient facts to establish a prima facie case. Swierkiewicz v. Sorema N.A. 534 U.S. 506, 515, 122 S.Ct. 992, 152 L.Ed.2d 1 (2002) (cited with approval in Bell Atl., 127 S.Ct. at 1969). Rather, the complaint must only provide the defendants with fair notice of the plaintiff's claims and sufficient facts to provide notice of the grounds upon which such claims rest. Bell Atl., 127 S.Ct. at 1959; Adelphia Communications Corp. v. Bank of Am., N.A. (In re Adelphia Communications Corp.), 365 B.R. 24, 33 (Bankr.S.D.N.Y.2007).

The decision in Bell Atlantic has created some uncertainty over the...

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