Matson v. Rescue Rangers, LLC (In re Rescue Rangers, LLC)

• Decision Date: 29 September 2017
• Docket Number: Case No. 16–32930–KLP,Adv. Pro. No. 17–03652–KLP
• Court: U.S. Bankruptcy Court — Eastern District of Virginia
• Parties: IN RE: RESCUE RANGERS, LLC, Debtor. Bruce H. Matson, Plaintiff, v. Rescue Rangers, LLC, Delaware, Office Dispatch, LLC, Jeffery D. Katz, Christopher L. Young, JDKatz, P.C., Defendants.

576 B.R. 521

IN RE: RESCUE RANGERS, LLC, Debtor.

Bruce H. Matson, Plaintiff,

v.Rescue Rangers, LLC, Delaware, Office Dispatch, LLC, Jeffery D. Katz, Christopher L. Young, JDKatz, P.C., Defendants.

Case No. 16–32930–KLP

Adv. Pro. No. 17–03652–KLP

United States Bankruptcy Court, E.D. Virginia, Richmond Division.

Signed: September 29, 2017

Christian K. Vogel, Vogel & Cromwell, LLC, Richmond, VA, for Plaintiff.

John T. Donelan, Law Office of John T. Donelan, Alexandria, VA, Jeffrey H. Geiger, John C. Smith, Sands Anderson PC, Richmond, VA, for Defendants.

George Dante Suero, Annandale, VA, pro se.

MEMORANDUM OPINION

Keith L. Phillips, United States Bankruptcy Judge

This matter is before the Court on the motion of Jeffrey D. Katz ("Katz"), Christopher L. Young ("Young") and JDKatz, P.C. ("JDKatz")¹ (collectively, the "Defendants"), to dismiss Counts IX and X of the complaint filed by chapter 7 trustee Bruce H. Matson (the "Trustee"). The Trustee seeks to recover assets allegedly fraudulently transferred and to hold the Defendants liable for aiding and abetting the fraudulent transfers and for conspiring to fraudulently transfer the assets. For the reasons set forth below, the motion will be granted.

BACKGROUND

On June 10, 2016, Rescue Rangers, LLC, (the "Debtor") filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code.² Plaintiff Bruce Matson was appointed as trustee in the Debtor's case.

On May 19, 2017, the Trustee filed a complaint (the "Complaint") against the Defendants, Rescue Rangers, LLC, Delaware ("Rescue Rangers Delaware"), and Office Dispatch, LLC ("Office Dispatch"), seeking to avoid and recover transfers pursuant to §§ 544, 548, and 550 of the Bankruptcy Code, seeking turnover of property of the estate, seeking a declaration that Rescue Rangers Delaware and Office Dispatch are the successors to and alter egos of the Debtor, and seeking to hold the Defendants liable for aiding and abetting and conspiring to fraudulently transfer the Debtor's assets. In Count IX of the Complaint, the Trustee alleges that the Defendants aided and abetted the fraudulent transfers by counseling and assisting the Debtor in fraudulently transferring the assets and operations of the Debtor to Rescue Rangers Delaware. In Count X of the Complaint, the Trustee alleges that the Defendants conspired with the Debtor's principal and Rescue Rangers Delaware to commit a fraud by agreeing to a scheme to transfer the Debtor's assets to Rescue Rangers Delaware for no consideration. The Trustee requests that the Court enter judgment against the Defendants for no less than $1,536,321.54, plus attorney's fees, costs and punitive damages.³

On June 15, 2017, the Defendants filed a motion to dismiss Counts IX and X of the Complaint (the "Motion to Dismiss") for failure to state a claim upon which relief can be granted, pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, Fed. R. Civ. P. 12(b)(6), made applicable by Bankruptcy Rule 7012, Fed. R. Bankr. P. 7012. The Defendants assert that as a matter of law they cannot be liable for aiding, abetting, or conspiring to make the fraudulent transfers because they were neither transferors nor transferees in the subject transfers. A hearing on the Motion to Dismiss was held on July 26, 2017, after which the Court took the matter under advisement.

On August 1, 2017, after the Court had taken the Motion to Dismiss under advisement, the Trustee amended the Complaint by adding two additional counts pursuant to §§ 548 and 550, seeking to avoid and recover payments made to JDKatz in the two years preceding the debtor's bankruptcy filing.⁴ Counts IX and X of the Complaint were not affected by the amendment. On August 9, in response to the Amended Complaint, the Defendants filed an amended motion to dismiss (the "Amended Motion"), to which the Trustee has responded. The Court finds that no further hearing is necessary, and the Court's ruling will address the Amended Motion, as the filing of the Amended Complaint has superseded the original Motion to Dismiss.

JURISDICTION

Counts IX and X of the Amended Complaint seek an award of damages against the Defendants. The recovery of damages would affect the amount of property available for distribution to creditors, making these claims "related to" the Debtor's bankruptcy estate. Therefore, pursuant to 28 U.S.C. §§ 157 and 1334(b) and the general order of reference for the U.S. District Court for the Eastern District of Virginia dated August 15, 1984, this Court has subject matter jurisdiction.⁵

STANDARD OF REVIEW AND FACTS

Under Rule 12(b)(6), all well-pleaded factual allegations in a complaint are taken as true, and all reasonable inferences are drawn in favor of the complaining party.

Bell Atlantic Corp. v. Twombly , 550 U.S. 544, 556, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ; Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009).

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." A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.

Iqbal , 556 U.S. at 678, 129 S.Ct. 1937 (quoting Twombly , 550 U.S. at 570, 127 S.Ct. 1955 ) (citation omitted). "[L]egal conclusions, elements of a cause of action, and bare assertions devoid of further factual enhancement" are insufficient and will not withstand a motion to dismiss. Nemet Chevrolet, Ltd. v. Consumeraffairs.com, Inc. , 591 F.3d 250, 255 (4th Cir. 2009). The following are the facts as pled in the Amended Complaint.

In 2008, the Debtor started a business providing roadside assistance to customers of various insurance companies and auto clubs. The Debtor's dispatchers would receive calls from customers needing services such as jump-starting car batteries, unlocking vehicles, delivering fuel and changing flat tires and would send employees of the Debtor to perform these services. The insurance companies and motor clubs would pay the Debtor a flat rate, and the Debtor would pay a portion of this amount to its roadside assistance employee who performed the service. The Debtor's gross receipts grew steadily and peaked at $4,300,000 in 2014.

In 2012, the Debtor's dispatch employees were transferred to Office Dispatch, a Virginia limited liability company with its principal place of business in Fredericksburg, Virginia. The Debtor and Office Dispatch were treated as the same entity, with the Debtor paying substantially all of Office Dispatch's expenses. In addition to paying the expenses of Office Dispatch, the Debtor paid a significant portion of the personal expenses of its sole owner, George Dante Suero ("Suero").

On November 2, 2015, a collective action suit was filed against the Debtor and Suero in the U.S. District Court for the Eastern District of Virginia seeking damages for unpaid overtime wages owed to the Debtor's employees performing roadside assistance. On November 17, 2015, the Debtor wrote a check in the amount of $12,000 to JDKatz for "Attorney Retainer."

In 2016, the Debtor transferred its operations to Rescue Rangers Delaware, a Delaware limited liability company with its principal place of business in Fredericksburg, Virginia.⁶ As part of the transfer, Rescue Rangers Delaware signed new contracts with the insurance companies and auto clubs that previously were parties to assistance contracts with the Debtor. The Debtor directed the insurance companies and auto clubs to make future requests for roadside assistance to Rescue Rangers Delaware and to deposit future payments for services into new bank accounts in the name of Rescue Rangers Delaware.

On June 10, 2016, the same date the Debtor filed its bankruptcy case, Suero filed an individual Chapter 7 bankruptcy petition in the Alexandria Division of this Court. Suero acted as the Debtor's designee and testified on its behalf at the Debtor's § 341 meeting of creditors.

On July 12, 2016, the Debtor filed its schedules and statement of financial affairs, listing total assets of $1,341.11 and total liabilities of $2,879,200.84. In Schedule E/F, the Debtor listed the Internal Revenue Service, Amex, and "Dwayne Vaughan, et al" as the only creditors. The Debtor did not list its contracts with the insurance companies and auto clubs on Schedule G, which requires a debtor to disclose executory contracts and unexpired leases. In an amended Schedule F, the Debtor stated that it owes Rescue Rangers Delaware $731,024.32 for "loans from Delaware, Rescue Rangers, LLC entity."

In its statement of financial affairs, the Debtor disclosed that it had $4.2 million in revenue in 2014 and $3.2 million in 2015. The Debtor stated that it did not give any insider value in any form during the one year period prior to the petition date but disclosed that it paid $43,776.25 for attorney's fees to "Jeffrey David Katz, JDKATZ, P.C." between June 2015 and June 2016.

During the Debtor's July 20, 2016, meeting of creditors, Suero testified that the Debtor stopped operating on June 10, 2016, the petition date. At the Debtor's continued meeting of creditors on January 23, 2017, Suero testified that:

1. Rescue Rangers Delaware's operations are the same as the Debtors.

2. The Debtor became insolvent in 2015.

3. Katz, Young and JDKatz advised Suero to transfer the Debtor's assets and operations to Rescue Rangers Delaware to separate the Debtor's assets from its liabilities.⁷

4. Suero is the sole member of the Debtor and Rescue Rangers Delaware.

5. The Debtor and Rescue Rangers Delaware have the same name for tax purposes.

6. The Debtor stopped operating on January 1, 2016.

7. Rescue Rangers Delaware's 2016 revenue was $2.4 million.

8. Rescue Rangers Delaware now pays Office Dispatch's payroll, including Suero's $80,000 a year salary.

9. The $731,024.32 loan identified in the Debtor's amended Schedule F as being owed by the

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