Keener v. Super Wings Int'l, Ltd. (In re Keener)
| Decision Date | 16 April 2015 |
| Docket Number | Bankruptcy No. 14-01169,Adversary No. 14-09061 |
| Parties | IN RE: JODY L. KEENER, Debtor. JODY L. KEENER, Plaintiff, v. SUPER WINGS INTERNATIONAL, LIMITED Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of Iowa |
Defendant Super Wings International, Limited filed a Motion to Dismiss or in the Alternative Motion for Summary Judgment on this adversary proceeding. Debtor brought this adversary to compel Super Wings to turnover property that allegedly belongs to the bankruptcy estate. The Court held a hearing on the motions in Cedar Rapids, Iowa on November 19, 2014. Jeff Goetz appeared on Debtor's behalf, and Eric Lam appeared on Super Wings' behalf. The parties agreed to forego oral arguments and rely on previously submitted briefs. TheCourt took the matter under advisement. This is a core proceeding under 28 U.S.C. § 157(b)(2)(E).
Debtor argues that Super Wings has failed to turnover bankruptcy estate property in violation of 11 U.S.C. § 542. Super Wings moved to dismiss or for summary judgment supported by three theories. First, Super Wings argues that Debtor acquired rights in the disputed property through a transfer that violated the automatic stay and is thus void. Second, Super Wings argues that claim preclusion, issue preclusion, or res judicata prevents Debtor's assertion of his rights in the disputed property. Finally, Super Wings claims that Debtor orchestrated the transfer to inappropriately "manufacture" jurisdiction in violation of 28 U.S.C. § 1359.
Debtor argues that the disputed transfer is valid under 11 U.S.C. § 303 and does not violate the automatic stay as recognized in § 362(a)(3). Debtor also argues that prior proceedings have no preclusive effect because they addressed different facts and issues. Debtor also argues that the state court lawsuit and assignment made under its default judgment did not improperly manufacture jurisdiction under 28 U.S.C. § 1359.
The Court finds that while many of Super Wings' arguments have strong appeal, the underlying factual record is not clear on some key points. The Courtdenies the Motion to Dismiss and Motion for Summary Judgment, without prejudice, and sets this matter for an evidentiary hearing on the unclear factual issues.
These proceedings began on July 30, 2013, when three creditors filed an involuntary Chapter 7 petition against Debtor, Jody Keener. On July 28, 2014, while the involuntary petition was still pending, Debtor filed a voluntary Chapter 11 bankruptcy. The case continues in the voluntary proceeding while further decisions in the involuntary proceeding have been stayed.
Debtor has filed as an individual. He is the sole shareholder, director, and officer of J. Lloyd International, Corp. ("JLI"). JLI is an Iowa corporation that is in the toy manufacturing and distributing business. Debtor is or was also involved in several other toy companies, including K&K Toy and Novelty, and Alpha International, Inc.
Defendant, Super Wings, is a marketing company located in Hong Kong, China. Super Wings takes purchase orders from customers and then contacts a factory in China to arrange the production. Super Wings does not manufacture toys, but Super Wings' owner, Tim Yip, also owns factories that manufacture toys. Super Wings occasionally contracts with Tim Yip's other companies to manufacture toys.
JLI interacted with Super Wings to buy and sell toys. They shared a lucrative business relationship. Eventually one of Super Wings' associates, Dora Yip, became a 50% shareholder of JLI. Dora Yip, also known as Wai Har Yip, is Tim Yip's sister. The relationship between Dora Yip and JLI deteriorated, and the parties agreed to separate. As part of the separation, Super Wings agreed to return to JLI certain assets, including tooling, equipment, and toy molds that it held in storage (the "disputed property"). Debtor reacquired Yip's interest in JLI for a $2 million promissory note.1
Debtor estimates that the disputed property is worth approximately $15 million. Debtor planned to use the disputed property at JLI to generate revenue to fulfill his personal obligations under the $2 million promissory note. Debtor eventually defaulted on the promissory note. Super Wings sued in the United States District Court for the Northern District of Iowa. JLI filed a motion to intervene in the action and requested a judgment for it against Super Wings. Super Wings Int'l, Ltd. v. Keener, No. C09-0115, 2012 WL 252638 (N.D. Iowa 2012), aff'd 701 F.3d 870 (8th Cir. 2012).
The conflict in the District Court centered on the disputed property. The parties agreed that JLI's representative picked up some of the disputed property, but additional property remained in Super Wings' possession. In that case, Debtorargued that the promissory note he provided to Super Wings was invalid for lack of consideration. Debtor and JLI also argued that Super Wings inappropriately retained the disputed property. They argued that when Super Wings retained the property, that action violated a requirement under the separation agreement. Debtor thus argued that he was not obligated to pay on the promissory note.
The District Court concluded that Debtor's arguments lacked merit and entered a judgment for $2 million in Super Wings' favor. The court also concluded that JLI's intervention petition was without merit because "JLI failed to prove that Super Wings has refused to release the molds and tooling identified in the agreement." Id. at *13. The Court recognized that the disputed property still belonged to JLI, regardless of where it was located. The District Court stated: "The Court notes parenthetically, however, that JLI may still obtain the molds and tooling by providing Super Wings with appropriate notice regarding the specific molds and tooling to be released, together with the identification of the party authorized to receive the same." Id. The District Court seemed to conclude that JLI had the burden of picking up the property and for the cost of shipping. The Eighth Circuit Court of Appeals affirmed the District Court's ruling.
After the involuntary bankruptcy filing, Debtor sued JLI, the company he owns, in Linn County in the case of Jody Keener v. J. Lloyd International, Inc, No. LACV 71352. On February 14, 2014, a default judgment was entered in that case.Debtor appeared with his attorney at the default proceeding. No one appeared on JLI's behalf. The judgment that Debtor personally received against JLI totaled $5,814,840.00. The record does not indicate the factual basis for this suit, if any. On March 31, 2014, JLI assigned the disputed property to Debtor in return for a $1,000,000 release from the default judgment (the "Assignment").
Debtor then filed this adversary seeking to compel Super Wings, Defendent here, to turn over the disputed property to Debtor because he now had the rights to it under the Assignment. Debtor argues that the disputed property is part of the bankruptcy estate. Super Wings, the Defendant, resists this contention and filed the motion for summary judgment or motion to dismiss that is at issue here.
Super Wings' dispositive Motions rely on three theories. First, Super Wings argues that the Assignment violated the automatic stay and is therefore void ab initio. Second, Super Wings argues that this issue has already been litigated in the District Court, so res judicata, issue preclusion, or claim preclusion prevent Debtor from asserting any rights in the disputed property. Third, Super Wings argues that this Court lacks subject matter jurisdiction because Debtor inappropriately "manufactured" jurisdiction. The Court will address these arguments in the order they have been presented.
Super Wings argues that this adversary should be dismissed based on Federal Rule of Bankruptcy Procedure 7012(b)(6) and (b)(1). Bankruptcy Rule 7012 states: "Rule 12(b)-(i) F.R. Civ. P. applies in adversary proceedings." In addition, "[t]he Bankruptcy Rules follow the Federal Rules of Civil Procedure standards for dismissal and requirements for pleading." Sergeant v. OneWest Bank, FSB (In re Walter), 462 B.R. 698, 703 (Bankr. N.D. Iowa 2011). Dismissal under 7012(b)(6) requires Super Wings to assert that Debtor has "fail[ed] to state a claim upon which relief can be granted."
"In order to determine whether a complaint states a 'claim upon which relief can be granted,' courts look to what a party is required to plead." In re Walter, 462 B.R. at 703. Bankruptcy Rule 7008(a) sets out the pleading requirements and makes Federal Rule of Civil Procedure 8 applicable in adversary proceedings. Under Rule 8(a)(2), a pleading must contain a "short and plain statement of the claim showing that the pleader is entitled to relief." As the Supreme Court has stated: "To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007)). Therefore, in order to evaluate SuperWings' Motion to Dismiss, the Court must assess whether Debtor's factual assertions, when accepted as true, entitle Debtor to relief.
In the alternative, Super Wings argues that the Court should grant summary judgment. The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movement is entitled to judgment as a matter of law." Fed. R. Bankr. P. 7056 (). Substantive law determines which facts are material. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A material fact dispute is one that "might affect the outcome of the suit." Id. An issue is genuine when reasonable minds could...
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