Moore v. Berry (In re Moore)
| Decision Date | 21 March 2022 |
| Docket Number | 20-31195-KLP,Adv. Pro. 21-03041-KLP |
| Court | U.S. Bankruptcy Court — Eastern District of Virginia |
| Parties | In re: JESSE ALBERT MOORE, Debtor. v. KIMBERLY L. BERRY, Defendant. JESSIE ALBERT MOORE, DEBTOR, and CARL M. BATES, TRUSTEE, Plaintiffs, |
Debtor Jesse Albert Moore (the "Debtor") and the Chapter 13 Trustee (jointly, the "Plaintiffs") initiated this Adversary Proceeding by filing a complaint (the "Complaint") to avoid transfers of real property made from the Debtor to Defendant Kimberly L. Berry (the "Defendant") within the two years prior to the Debtor's filing of his bankruptcy petition. The Plaintiffs base the Complaint on §§ 544, 548, and 550 of the Bankruptcy Code, 11 U.S.C. §§ 544, 548 and 550, [1] and Va. Code Ann. §§ 55.1-401. The Defendant has filed a motion to dismiss the Complaint (the "Motion to Dismiss") for failure to state a claim upon which relief can be granted and for lack of standing, pursuant to Bankruptcy Rule 7012(b), Fed. R Bankr P. 7012(b). ECF 5, at ¶¶ 5 and 14. The Court has reviewed the Complaint and the Motion to Dismiss and has heard the parties' arguments. For the following reasons, the Court will deny the Motion to Dismiss.
The Court has jurisdiction pursuant to 28 U.S.C. §§ 157(a) and 1334(b) and the general order of reference of the U.S. District Court for the Eastern of Virginia dated August 15, 1984. Venue is appropriate in this Court pursuant to 28 U.S.C. § 1409.
Civil Procedure Rule 12(b)(1), Fed.R.Civ.P. 12(b)(1), made applicable by Bankruptcy Rule 7012(b), Fed.R.Bankr.P 7012(b), authorizes defendants to assert, on motion, a defense of "lack of subject matter jurisdiction." "[Since] standing pertains to a federal court's subject matter jurisdiction, a motion to dismiss for lack of standing is properly brought as a motion to dismiss for lack of subject matter jurisdiction under Civil Rule 12(b)(1)." Foster v. Sligar (In re Foster), No. EC-11-1706, 2012 WL 6554718, at *4 (9th Cir. B.A.P. Dec. 14, 2012).
"Standing is a 'threshold jurisdictional question which ensures that a suit is a case or controversy appropriate for the exercise of the courts' judicial powers under the Constitution of the United States.'" Sexton v. Dep't of Treasury, IRS (In re Sexton), 508 B.R. 646, 652 (Bankr. W.D. Va. 2014) (quoting Pye v. United States, 269 F.3d 459, 466 (4th Cir. 2001)). While Rule 12(b)(1) inquiries into standing generally require an analysis based on constitutional or prudential standing, challenges asserting a lack of standing under the Bankruptcy Code typically implicate statutory standing. Statutory standing is "a concept distinct from Article III and prudential standing." CGM, LLC v. Bell South Telecomm., Inc., 664 F.3d 46 (4th Cir. 2011). A statutory standing inquiry addresses whether the plaintiff "is a member of the class given authority by a statute to bring suit." In re Mutual Funds Inv. Litig., 529 F.3d 207, 216 (4th Cir. 2008). Courts address an allegation of lack of statutory standing using a Rule 12(b)(6) analysis because "a dismissal for lack of statutory standing is effectively the same as a dismissal for failure to state a claim." CGM, 664 F.3d at 52.
Failure to state a claim
Rule 12(b)(6) grants a defendant the right to seek a dismissal of a complaint for "failure to state a claim upon which relief can be granted." Fed.R.Civ.P. 12(b)(6). A 12(b)(6) motion "challenges the legal sufficiency of a complaint." Francis v. Giacomelli, 588 F.3d 186, 192 (4th Cir. 2009). The defendant bears the burden of proof to demonstrate that the plaintiff has not stated a claim. Emerald Capital Advisors Corp. v. Bayerische Moteren Werke Aktiengesellschaft (In re Fah Liquidating Corp.), 572 B.R. 117, 122 (D. Del. Bankr. 2017) (citing Kehr Packages, Inc. v. Fidelcor, Inc., 926 F.2d 1406, 1409 (3d Cir. 1991)).
When reviewing a motion to dismiss, the court should accept all well-pleaded allegations as true and should view the complaint in the light most favorable to the plaintiff. Mylan Laboratories, Inc. v. Matkari, 7 F.3d 1130, 1134 (4th Cir. 1993). "[O]nly the legal sufficiency of the complaint, and not the facts in support of it, are tested under a 12(b)(6) motion, [and a court] assume[s] the truth of all facts alleged in the complaint and the existence of any fact that can be proved, consistent with the complaint's allegations." Fessler v. Int'l Bus. Machs. Corp., 959 F.3d 146, 152 (4th Cir. 2020). "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, 570 (2007)). To satisfy the plausibility standard, a plaintiff need not plead factual allegations in great detail, but the allegations must be sufficient to allow the court, "drawing on judicial experience and common sense, to infer more than the mere possibility" of the facts of the allegation. Nanni v. Aberdeen Marketplace, Inc., 878 F.3d 447, 452 (4th Cir. 2017) (quoting Nemet Chevrolet, Ltd. v. Consumeraffairs.com, Inc., 591 F.3d 250, 256 (4th Cir. 2009)).
The Court needn't assume the veracity of any legal conclusions drawn from the facts alleged in the complaint. Birmingham v. PNC Bank, N.A. (In re Birmingham), 846 F.3d 88, 92 (4th Cir. 2017). "'[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." Matson v. Rescue Rangers, LLC (Rescue Rangers, LLC), 576 B.R. 521, 525 (E.D. Va. Bankr. 2017) (quoting Nemet, 591 F.3d at 256 (4th Cir. 2009)). With these guidelines in mind, the Court has considered the Motion to Dismiss.
Courts differ on whether a chapter 13 trustee or the debtor has the authority to bring avoidance actions under §§ 544, 548, and 550. A leading treatise on the subject states that "[t]here is general agreement that the Chapter 13 trustee has standing to avoid transfers and recover property under §§ 544 (strong-arm power), 547 (preferences) 548 (fraudulent conveyance) and 549 (postpetition transfers)." Keith M. Lundin, Lundin on Chapter 13 § 53.12, at ¶ 1, LundinOnChapter13.com. Corpus Juris Secundum contains the following commentary:
[T]he omission of 11 U.S.C.A. §704(a)(1) from the Chapter 13 trustee's duties, as enumerated in 11 U.S.C.A. §1302(b)(1), cannot be read so far as to preclude the use of the Chapter 5 avoidance powers by the trustee, and it is left to the Chapter 13 trustee's judgment to determine when it is feasible and efficient to exercise the avoidance powers. The exercise of avoidance powers is consistent with a Chapter 13 trustee's duty, pursuant to statute, to advise and assist the debtor in performance under a plan. Thus, a Chapter 13 trustee may avoid transfers of property or obligations of the debtor under 11 U.S.C.A. § 544, may avoid a preference under 11 U.S.C.A. §547(b), and may recover a fraudulent transfer under the provisions of 11 U.S.C.A. §548.
8A C.J.S, Bankruptcy, §262 (2022).
Courts holding that the Bankruptcy Code grants avoidance powers to a debtor as well as to a chapter 13 trustee have relied on policy concerns and legislative history. See Houston v. Eiler (In re Cohen), 305 B.R. 886, 899 (9th Cir. B.A.P. 2004) (); Smith v. U.S. Bank Nat'l Ass'n (In re Smith), No. 12-41260, AP No. 13-4009, 2014 WL 1404722, at *2 (Bankr. W.D. Ky. April 10, 2014) (). Thus, authority exists for finding that either the trustee or the debtor may bring avoidance actions in a chapter 13 case.
Here, the Chapter 13 Trustee and the Debtor are co-plaintiffs. Thus, the Defendant's argument that both Plaintiffs in this case lack standing to bring this avoidance action is tantamount to arguing that Chapter 5 avoidance actions are not available in chapter 13 cases. (Who other than the chapter 13 trustee or the debtor would be the plaintiff?) The Court rejects this contention. There is nothing in the Bankruptcy Code prohibiting avoidance actions in chapter 13 cases, nor should there be. Bankruptcy estates are comprised of various assets, [2] including causes of action, the intent being to maximize the bankruptcy estate for the benefit of creditors and to ensure equal treatment of creditors according to their priority in the scheme of distribution. Allowing some creditors to retain fraudulent transfers or preferential payments, often at the expense of similarly situated creditors, is contrary to that intent.
The practical concerns arising in chapter 13 cases where there have been avoidable pre-petition transfers are evident. Chapter 13 trustees, at least in some jurisdictions, are accustomed to administering funds, usually wages, and may not always be equipped with sufficient resources to litigate avoidance actions. Debtors typically propose the sources of funding in their chapter 13 plans, subject to trustee or creditor objections. In some cases, the debtor may fund the plan, at least in part, with lump sums obtained from the sale of an asset or through litigation.
An objection to a chapter 13 plan based solely on the chapter 13 trustee's assertion that it lacks the resources to pursue avoidance actions on behalf of an...
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