In re Sverica Acquisition Corp., Inc.
| Decision Date | 23 March 1995 |
| Docket Number | Bankruptcy No. 92-24625 DWS. Adv. No. 94-2110. |
| Parties | In re SVERICA ACQUISITION CORPORATION, INC., a/k/a Sverica Acquisition Subsidiary, Inc., Debtor. Michael KALINER, Trustee, Plaintiff, v. LOAD RITE TRAILERS, INC., Donald D. Paul, J. Bruce Chambers, Robert R. Johnston, Johnston Acquisition Corporation, Inc. and Continental Bank, N.A., f/k/a Continental Illinois National Bank and Trust Company of Chicago, Defendants. |
| Court | United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Eastern District of Pennsylvania |
COPYRIGHT MATERIAL OMITTED
COPYRIGHT MATERIAL OMITTED
J. Gregg Miller, Philadelphia, PA, for Load Rite Trailers, Inc.
Anthony L. Lamm, Lafayette Hill, PA, Michael J. Sullivan, Michael I. Conlon, Detroit, MI, for Robert R. Johnston and Johnston Acquisition Corp., Inc.
Warren T. Pratt, Philadelphia, PA, for Bank of America Illinois.
Robert P. Simons, Chapter 7 Trustee, Pittsburgh, PA.
Michael Kaliner, Chapter 7 Trustee, Fairless Hills, PA.
Joseph Minni, U.S. Trustee, Philadelphia, PA.
Presently before the Court are two Motions to Dismiss the Second Amended Complaint in the above captioned adversary proceeding. The first Motion to Dismiss ("Motion I") was filed by Defendants Load Rite Trailers, Inc. ("PA Load Rite"), Donald A. Paul ("Paul"), and J. Bruce Chambers ("Chambers") (collectively the "Load Rite Defendants"). The second Motion to Dismiss ("Motion II") was filed by Defendant Bank of America, Illinois, formerly known as and named as a party herein as Continental Bank, N.A. ("Bank"). Both the Load Rite Defendants and the Bank move to dismiss pursuant to Rule 12(b) of the Federal Rules of Civil Procedure ("Fed.R.Civ.P.").1 Bank also moves to dismiss Counts I-V pursuant to Fed.R.Civ.P. 9(b).
On December 11, 1992, six unsecured creditors of Sverica Acquisition Corporation, Inc. a/k/a Sverica Acquisition Subsidiary, Inc. ("Debtor") filed an involuntary petition under Chapter 7 of the United States Bankruptcy Code (11 U.S.C. §§ 101-1330) ("Code") against the Debtor in the Bankruptcy Court for the Eastern District of Pennsylvania ("Court"). On February 11, 1993, the Court entered an Order for Relief against the Debtor.
This adversary proceeding was initially commenced by Michael Kaliner, Chapter 7 Trustee ("Trustee"), by the filing of a Complaint on February 10, 1994 ("Original Complaint") against the Load Rite and Johnston Defendants. In response, both the Load Rite and the Johnston Defendants filed Motions to Dismiss. On July 15, 1994, the Court issued a Memorandum Opinion ("Opinion")2 and an Order ("Order of 7/15/94") ruling on the Motions in which it, inter alia, granted in part and denied in part the relief requested by Defendants,3 and granted Trustee 30 days within which to amend the Original Complaint to join Bank and to plead the existence of an unsecured creditor of the Debtor who was injured by the alleged misconduct of Defendants.
On August 22, 1994, the Trustee filed the Second Amended Complaint ("Amended Complaint").4 The Amended Complaint contains eight separate counts, the first five of which allege the same causes of action as in the Original Complaint with the exception that Bank has been added as a defendant and the Trustee has alleged the existence of a number of unsecured creditors, including specifically the Westbar Corporation, who had a right to avoid the transfers. Id. ¶¶ 52, 59, 63, 72.2.5 New Count VI (Disposition of Assets in Commercially Unreasonable Manner) is directed solely at the Bank. The allegations of Counts I through VI arise out of certain transfers or sales of Debtor's assets which occurred on or about November 3, 1992 pursuant to which the Bank, allegedly a secured creditor, and Johnston, another secured creditor, foreclosed on the Debtor's assets and contemporaneously sold them to the Defendants who were or had been, officers, directors and/or shareholders of the Debtor.
Count VII (Fraudulent Transfers) and Count VIII (Preferential Transfers) are also new. The allegations in new Count VII are grounded in a different transaction than that forming the backdrop for the actions complained of in the Original Complaint. Additionally at issue by reason of the Amended Complaint is the acquisition by Debtor in or about September 1990 of Load Rite Trailers, Inc., Pennsbury Manufacturing, Inc. and Eagle Trailers, Inc. from Chambers and Paul and Johnston, respectively, financed by the Bank and pursuant to which both Bank and Johnston obtained security interests in the assets purchased by the Debtor (the "1990 Transaction"). Amended Complaint ¶ 19.
Applicable Law. In both Motions I and II the Defendants move for dismissal under Fed.R.Civ.P. 12(b)(6), applicable here pursuant to Rule 7012 of the Federal Rules of Bankruptcy Procedure ("Fed.R.Bankr.P.") for failing to state claims for which relief can be granted. The Third Circuit Court of Appeals has stated that in considering a Fed. R.Civ.P. 12(b)(6) motion to dismiss, a court must accept all allegations in the complaint, and all reasonable inferences that can be drawn therefrom, as true and view them in the light most favorable to the non-moving party. See Rocks v. City of Philadelphia, 868 F.2d 644, 645 (3rd Cir.1989) (citations omitted); Angelastro v. Prudential-Bache Securities, Inc., 764 F.2d 939, 944 (3rd Cir.), cert. denied, 474 U.S. 935, 106 S.Ct. 267, 88 L.Ed.2d 274 (1985). A complaint must not be dismissed for failing to state a claim unless it appears beyond reasonable doubt that plaintiffs can prove no set of facts in support of their claim that would entitle them to relief. See City of Philadelphia v. Lead Industries Ass'n, Inc., 994 F.2d 112 (3rd Cir.1993) (citing Conley v. Gibson, 355 U.S. 41, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957)). If a motion to dismiss under Fed.R.Civ.P. 12(b)(6) is granted, then ordinarily the plaintiff should be provided an opportunity to amend the complaint if it appears that the deficiencies can be corrected by amendment. See 2A J. Moore, Moore's Federal Practice ¶ 12.072.-5, p. 12-99 (2d ed. 1994); see also Fed.R.Civ.P. 15(a).
In Motion II Bank also moves under Fed. R.Civ.P. 9(b), applicable here pursuant to Fed.R.Bankr.P. 7009, for dismissal of Counts I, II, III and IV for failing to plead with particularity the acts of fraud upon which these Counts are based. Fed.R.Civ.P. 9(b) states:
In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent, knowledge or other condition of mind of a person may be averred generally.
The Third Circuit Court of Appeal's decision in Seville Indus. Machinery Corp. v. Southmost Machinery Corp., 742 F.2d 786 (3d Cir.1984), cert. denied, 469 U.S. 1211, 105 S.Ct. 1179, 84 L.Ed.2d 327 (1985) sets forth the standard by which the pleading of a fraud claim is to be evaluated under Fed. R.Civ.P. 9(b). There the Court of Appeals recognized that while the purpose of the Rule "is to place the defendant on notice of the precise misconduct with which they are charged, and to safeguard defendants against spurious charges of immoral and fraudulent behavior", id. at 791, it made clear, however, that the particularity requirement of Rule 9(b) is not to be read so narrowly as to defeat "`the general simplicity and flexibility contemplated by the modern rules.'" Id. (quoting Christidis v. First Pennsylvania Mortgage Trust, 717 F.2d 96, 100 (3rd Cir. 1983)). The court held that while allegations of date, place or time fulfill the notice requirement of Fed.R.Civ.P. 9(b), nothing in the Rule requires such specificity and plaintiffs are free to use alternative means of injecting precision and some measure of substantiation into their allegations of fraud. Id. In Craftmatic Securities Litigation v. Kraftsow, 890 F.2d 628, 645 (3rd Cir.1989), the Third Circuit Court of Appeals repeated this principle by stating that the factual detail that is required to be alleged in a fraud count under Fed.R.Civ.P. 9 is tempered by the overall theme of simplicity and conciseness permeating the modern federal pleading rules. See also United States Dept. of HUD ex rel. Givler v. Smith, 775 F.Supp. 172, 181 (E.D.Pa.1991) (); Wieboldt Stores, Inc. v. Schottenstein, 94 B.R. 488, 498 (N.D.Ill. 1988) ().
Flexibility in the application of the particularity requirement of Fed.R.Civ.P. 9 has been recognized as being particularly appropriate in the context of fraud claims brought by a statutory trustee in bankruptcy. Given the "inevitable lack of knowledge concerning acts of fraud previously committed against the debtor, a third party," courts have held the particularity requirement of Fed.R.Civ.P. 9(b) may be relaxed. Schwartz v. Kursman; Schwartz v. Jetronic Industries, Inc. (In re Harry Levin, Inc. t/a Levin's Furniture), 175 B.R. 560, 567-68 (Bankr.E.D.Pa.1994) (quoting L. King, 9 Collier on Bankruptcy ¶ 7009.05, at 7009-5 (15th ed. 1994)). See In re American Spring Bed Mfg. Co., 153 B.R. 365, 374 (Bankr.D.Mass.1993); Pate v. Hunt (In re Hunt), 136 B.R. 437, 452 (Bankr. N.D.Tex.1991).
Having stated the general principles of law applicable to our decision, we now turn to the Motions themselves.
The Defendants assert that Counts I, II and III should be dismissed under Fed.R.Civ.P. 12(b)(6) for failing to state a claim for which relief can be granted because Trustee failed to allege the existence of any injury to a creditor of the Debtor that could be redressed under either Code § 548 or the Uniform Fraudulent...
To continue reading
Request your trial