Lindsey v. Collier
| Decision Date | 18 August 2021 |
| Docket Number | 2:20-cv-00062 |
| Parties | MARK LINDSEY, Plaintiff, v. LEWIS COLLIER, et al., Defendants. |
| Court | U.S. District Court — Middle District of Tennessee |
After losing millions of dollars in a Ponzi scheme, Plaintiff Mark Lindsey brought this fraudulent transfer action, based on diversity, against twenty-one Defendants who he alleges profited from the scheme at his expense. Before the Court are twelve motions to dismiss the Second Amended Complaint [1] (see Doc. Nos. 106, 108, 111, 115, 117, 119 121-26), all of which have been fully briefed and are ripe for review (see Doc. Nos. 109, 112, 116, 118, 120 127, 129, 137, 140-46). Lindsey also filed a Motion to Dismiss Counterclaim of Defendants Larry Frasier, Mark Frasier, and Steve Holland (Doc. No. 94), which has also been fully briefed (see Doc. Nos. 99, 102). For the following reasons, the Court will deny in part Defendants' motions and grant Lindsey's motion.
I.BACKGROUND AND FACTUAL ALLEGATIONS[2]
From 2012 through 2016, Jeffrey Gentry and Wendy Gentry operated a Ponzi scheme[3] in which they falsely represented to investors that they would use investor-funds to purchase farm-related equipment at discounted prices. (Compl. ¶¶ 27-41; Doc. No. 1-2 at 6, 9). The Gentrys further promised investors high returns and guaranteed that they could later resell that equipment at full price through their contracts with the State of Tennessee, other states, and entities. (Compl. ¶¶ 27-41; Doc. No. 1-2 at 6, 9). In August 2017, Jeffrey Gentry pled guilty to federal wire fraud and money laundering charges and admitted that he, “at all times, knew there were no State contracts and [that] no equipment had been, or would be, purchased with the investor-victim funds.”[4] (Compl. ¶ 34 (quoting Doc. No. 1-2 at 6)). “Instead, he used the money to subsidize his lifestyle, amassing assets worth a substantial amount of money, including numerous tracts of real estate and vehicles.” (Doc. No. 1-2 at 6).
Lindsey, a Nevada citizen, alleges that he invested $6 million in the Gentrys' scheme and lost more than $5 million in the process. (Compl. ¶¶ 29, 37-41). According to Lindsey, the Gentrys acted “with an actual intent to hinder, delay, or defraud” him by transferring “money from [his] investments” to twenty-one individuals and companies with direct or indirect ties to the Gentrys (hereinafter, “Defendants”). (Id. ¶¶ 54-92). And based on Lindsey's “information and belief, ” these Defendants were “net winners” and “profited from the scheme at [his] expense.” (Id. ¶¶ 53, 73). As a result, Lindsey filed this lawsuit against Defendants for violating the Tennessee Uniform Fraudulent Transfer Act (“TUFTA”), Tenn. Code Ann. § 66-3-301, et seq., seeking both damages for “the value of the assets transferred, or the amount necessary to satisfy Lindsey's claims, ” and an injunction preventing Defendants from further disposing of those assets. (See Compl. at 13 (“Prayer for Relief”)). He also asserts that the Court has jurisdiction based on diversity because, “on information and belief, ” each Defendant is a Tennessee citizen and “the amount in controversy is in excess of $75, 000.” (Id. ¶¶ 1-23).
Most of the Defendants have now filed motions to dismiss, [5] including Defendants Willard Greene and Burton Sullivan (Doc. No. 106); Adam Gooch, Christa Gooch, Jessica Jones, Kenneth Jones, Kenneth Jones Company, Inc., and Wes Southerland (Doc. No. 108); Loyd Finley (Doc. No. 111); Carolyn Gentry (Doc. No. 115); Larry Frasier, Mark Frasier, and Steve Holland (Doc. No. 117; Anthony Findley (Doc. No. 119); and Lewis Collier, Sunset Rock Farms, LLC, Curtis Copeland, Charlie Halliburton, Chase Halliburton, and Rorey Halliburton (Doc. Nos. 121-26)[6]. These motions seek to dismiss the Complaint for, among other things, lack of subject matter jurisdiction, failure to state a claim upon which relief can be granted, and failure to join necessary parties, and some Defendants have also moved for a more definite statement. Lindsey also filed a motion to dismiss Larry Frasier, Mark Frasier, and Steve Holland's counterclaim for fraudulent transfer. (Doc. No. 94). Because these requests involve different legal standards, the Court will address them as separate motions below.
II. DEFENDANTS' MOTIONS TO DISMISS UNDER RULE 12(b)(1) FOR LACK OF SUBJECT MATTER JURISDICTION
“When a motion [to dismiss] is based on more than one ground, the court should consider the Rule 12(b)(1) challenge first since, if it must dismiss the complaint for lack of subject matter jurisdiction, the other defenses and objections become moot and need not be determined.” Mich. State Emps. Ass'n v. Marlan, 608 F.Supp. 85, 87 (W.D. Mich. 1984); see also Moir v. Greater Cleveland Reg'l Transit Auth., 895 F.2d 266, 269 (6th Cir. 1990). And “where subject matter jurisdiction is challenged under Rule 12(b)(1), as it was here, the plaintiff has the burden of proving jurisdiction in order to survive the motion.” Wayside Church v. Van Buren Cnty., 847 F.3d 812, 817 (6th Cir. 2017) (quoting Rogers v. Stratton Indus., Inc., 798 F.2d 913, 915 (6th Cir. 1986)).
“A Rule 12(b)(1) motion for lack of subject matter jurisdiction can challenge the sufficiency of the pleading itself (facial attack) or the factual existence of subject matter jurisdiction (factual attack).” Cartwright v. Garner, 751 F.3d 752, 759 (6th Cir. 2014) (citing United States v. Ritchie, 15 F.3d 592, 598 (6th Cir. 1994)). Where, as here, defendants make a facial attack, the Court must take all of the allegations in the complaint as true and determine “whether the plaintiff has alleged a basis for subject matter jurisdiction.” Id. (emphasis added).
Many of the motions to dismiss have facially attacked the Complaint, arguing that Lindsey has neither plausibly alleged that he has standing to bring this lawsuit nor that the Court has diversity jurisdiction. (See Doc. Nos. 106, 111, 117, 119, 121-26). The Court will address each of these issues below.
A motion to dismiss for lack of standing is properly characterized as a motion to dismiss for lack of subject-matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1). Forest City Residential Mgmt., Inc. ex rel. Plymouth Square Ltd. Dividend Hous. Ass'n v. Beasley, 71 F.Supp.3d 715, 722-23 (E.D. Mich. 2014) (citing Stalley v. Methodist Healthcare, 517 F.3d 911, 916 (6th Cir. 2008)). To establish Article III standing at the pleading stage, a plaintiff must allege facts plausibly demonstrating that he “(1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision.” Spokeo, Inc. v. Robins, 136 S.Ct. 1540, 1547 (2016) (citing Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992)); see also Soehnlen v. Fleet Owners Ins. Fund, 844 F.3d 576, 581 (6th Cir. 2016). The plaintiff has the burden of satisfying all three prongs “separately for each form of relief sought.” Friends of the Earth, Inc. v. Laidlaw Envtl. Servs. (TOC), Inc., 528 U.S. 167, 185 (2000).
The first two prongs are clearly satisfied here because the Complaint alleges that Lindsey suffered a monetary injury caused by the Gentrys' fraudulent transfers to Defendants. However, the parties dispute whether Lindsey satisfied the third prong by plausibly alleging that his injuries are likely to be redressed by a favorable judicial decision. The moving Defendants argue that even if the Court voided the allegedly fraudulent transfers between the Gentrys and Defendants, it would not redress Lindsey's injuries because he could not receive any further relief directly from Defendants. The Court disagrees.
“[A] plaintiff satisfies the redressability requirement when he shows that a favorable decision will relieve a discrete injury to himself.” Larson v. Valente, 456 U.S. 228, 244 n.15 (1982). Because Lindsey brings his claims under TUFTA, the Court must look at what remedies are available under that statute to determine whether the relief Lindsey is seeking could provide redress for his alleged injuries. As an initial matter, the Complaint sufficiently alleges facts supporting its claims that Lindsey is a “creditor, ” the Gentrys are “debtors, ” and Defendants are “transferees, ” as those terms are defined under TUFTA, and the Court accepts those claims as true for purposes of ruling on the motions to dismiss. (Compl. ¶¶ 77-84).
TUFTA provides remedies to creditors when insolvent debtors fraudulently transfer assets to third parties. Automotive Experts, Inc. v. Kallberg, No. 3:19-cv-00982, 2021 WL 2260058, at *7 (M.D. Tenn. June 3, 2021). If the Court ultimately determines that the Gentrys' transfers are voidable under TUFTA, § 66-3-309(b) provides that the creditor (Lindsey) “may recover judgment for the value of the asset transferred . . . or the amount necessary to satisfy the creditor's claim, whichever is less.” Tenn. Code Ann. § 66-3-309(b). That section further provides that the Court may enter judgment against “[t]he first transferee of the asset or the person whose benefit the transfer was made” or against “[a]ny subsequent transferee other than a good-faith transferee or obligee who took for value or from any subsequent transferee or obligee.” See Bavelis v. Doukas, No. E2017-02050-COA-R3-CV, 2018 WL 4672646 at *3 (Tenn. Ct. App. Sept. 27, 2018) (quoting Tenn. Code Ann. § 66-3-309(b)(1)-(2)) (emphasis added); see also JRS Partners, GP v. Warren, No. 3:17-cv-01258, 2021 WL 1143829, at *5 n.11 (M.D. Tenn. Mar. 25, 2021). Moreover, Lindsey may also obtain “[a]n injunction against further disposition by the debtor or a transferee, or...
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