Nutrien AG Sols. v. Hall (In re Hall)
| Decision Date | 13 April 2023 |
| Docket Number | 3:22-bk-01326-BAJ,3:22-bk-01341-BAJ,Adv. 3:22-ap-00062-BAJ |
| Parties | In re: KAREN W. HALL, SPUDDOG FARM PROPERTIES, LLC, Debtors. v. KAREN W. HALL, SPUDDOG FARM PROPERTIES, LLC, BENNY F. HALL, SR., individually and trading as Benny F. Hall & Sons Produce, BENNY F. HALL & SONS, LLC, BENNY F. HALL & SONS TRUCKING CO., INCORPORATED, EASTERN SHORE GRAIN, INCORPORATED, HOLDEN'S CREEK FARM, LLC, and FARM PROPERTIES, LLC, Defendants. NUTRIEN AG SOLUTIONS, INC., formerly Known as Crop Production Services, Inc., Plaintiff, |
| Court | U.S. Bankruptcy Court — Middle District of Florida |
This Case is before the Court on the Motion to Dismiss (Doc. 6) filed by Karen W. Hall ("Mrs. Hall") and Spuddog Farm Properties, LLC ("Spuddog") (collectively the "Debtors"), the Motion to Dismiss (Doc. 7) (collectively the "Motions") filed by Benny F. Hall & Sons Trucking Co., Incorporated ("BFH Trucking"), Benny F. Hall & Sons, LLC ("BFH LLC"), Benny F. Hall, Sr., individually and trading as H&M Farms ("Mr. Hall"), Benny F Hall & Sons Produce ("BFH Produce"), Eastern Shore Grain, Incorporated ("ES Grain") Holden's Creek Farm, LLC ("HC Farm"), and Farm Properties, LLC ("FP LLC") (collectively the "Nondebtors"), the Responses (Docs. 11 12) filed by Nutrien Ag Solutions, Inc., formerly known as Crop Production Services, Inc. ("Nutrien Ag"), the Reply (Doc. 21) filed by the Nondebtors, the Supplemental Memorandum (Doc. 24) filed by Nutrien Ag, and the Reply (Doc. 25) filed by the Debtors. Nutrien Ag initiated this proceeding by filing an Adversary Complaint against the Defendants. (the "Complaint") (Doc. 1). Each of the Complaint's eleven counts seeks an exception to discharge pursuant to 11 U.S.C. § 523(a). Count I relates to all the Defendants. Counts II, X, and XI seek nondischargeability exceptions against the Debtors. The remaining counts, Counts III through IX, seek nondischargeability determinations solely against Mrs. Hall.
The parties dispute whether the exceptions to discharge under § 523(a) apply to non-individual debtors receiving a discharge under 11 U.S.C. § 1192. Although case law on Subchapter V is still evolving, all bankruptcy courts that have considered this issue have held that the exceptions to discharge under § 523(a) do not apply to corporate debtors receiving a discharge under § 1192. The Court agrees with these bankruptcy courts.
With respect to Count III, the parties dispute whether the trust fund doctrine is sufficient to meet the Fiduciary Capacity Exception. Nutrien Ag relies on Virginia law, which the Court finds is insufficient to meet the Fiduciary Capacity Exception under the facts of this case. The parties further dispute whether the remaining counts, Counts I, II and IV through XI, contain sufficient factual allegations to survive the Motions as to Mrs. Hall. The Court finds that they do.
Finally the Nondebtors argue that they are not subject to an action under § 523(a) because they have not filed bankruptcy. (Doc. 7, p. 14). The Court agrees with this proposition; however, Nutrien Ag is not seeking a § 523 determination against the Nondebtors. The Court will not dismiss the Nondebtors at this juncture because they are indispensable parties as to Count I.
On March 5, 2018, Nutrien Ag filed a lawsuit in Virginia state court (the "2018 Lawsuit") against Mr. Hall, BFH Produce, BFH LLC, and H&M Potato Farms, LLC ("H&M Farms"). (Doc. 1, p. 3). Nutrien Ag later amended its complaint to add counts against Mrs. Hall. In 2019, Nutrien Ag obtained a partial final judgment against the defendants named in the 2018 Lawsuit, except for Mrs. Hall. (Doc. 1, pp. 3-4). Based upon information obtained during post-judgment discovery, Nutrien Ag initiated another lawsuit in Virginia state court in 2020 (the "2020 Lawsuit"). At a hearing on April 27, 2022, the state court granted Nutrien Ag's motion to consolidate the 2018 Lawsuit and the 2020 Lawsuit. That consolidated action remains pending against Mrs. Hall, Mr. Hall, BFH LLC, BFH Trucking, ES Grain, Spuddog, HC Farm, and FP LLC.
In July of 2022, the Debtors each filed a voluntary petition under Subchapter V of the Bankruptcy Code. In their amended schedules, the Debtors each listed Nutrien Ag as an unsecured creditor with a contingent, disputed, unliquidated claim for $3,000,000. Nutrien Ag alleges that Mr. and Mrs. Hall own and control BFH LLC, HC Farm, Spuddog, FP LLC, ES Grain, and BFH Trucking, which are all Virginia companies. Nutrien Ag alleges that Mr. and Mrs. Hall have used these companies as conduits for numerous transfers of real and personal property since 2015, when BFH LLC first began experiencing financial difficulties. (Doc. 1, pp. 8-32). Nutrien Ag alleges that Mr. and Mrs. Hall orchestrated these transfers to avoid paying Nutrien Ag for debts owed by them individually or by companies they control. The Defendants dispute these allegations.
A motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure tests the sufficiency of a complaint and asks the Court to determine whether the complaint sets forth sufficient factual allegations to establish a claim for relief. The Court must determine whether the complaint satisfies Rule 8(a)(2), which requires "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2). To survive a Rule 12(b)(6) motion, the Complaint must contain enough factual matter (taken as true) to "raise [the] right to relief above the speculative level." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). "[N]aked assertions devoid of further factual enhancement" will not satisfy Rule 8(a)(2)'s requirement of a short plain statement of the claim showing the pleader is entitled to relief. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 557, 127 S.Ct. 1955) (internal quotations omitted). Thus, a plaintiff must plead "factual content that allows the court to draw the reasonable inference that defendant is liable for the misconduct alleged." Id. A mere possibility that a defendant acted in contravention of the law will not suffice. Id. at 679. Although the Court must accept all well-pled facts as true, it is not required to accept legal conclusions. Sinaltrainal v. Coca-Cola Co., 578 F.3d 1252, 1260 (11th Cir. 2009). A complaint must contain sufficient factual matter, accepted as true, to state a claim for relief that is plausible on its face. Iqbal, 556 U.S. at 678. The Court construes the factual allegations in the Complaint "in the light most favorable to the plaintiff." McCone v. Pitney Bowes, Inc., 582 Fed.Appx. 798, 799 (11th Cir. 2014).
All counts in the Complaint relate to a fraudulent scheme allegedly perpetrated by the Defendants. A heightened pleading standard applies to the factual allegations related to fraud. Federal Rule of Civil Procedure 9(b), made applicable to this proceeding by Federal Rule of Bankruptcy Procedure 7009, requires a plaintiff to plead fraud with particularity, but permits a plaintiff to allege state of mind generally. The Court must consider this heightened pleading standard "in light of the liberal pleading requirement of Rule 8." Glidepath Holding B.V. v. Spherion Corp., 590 F.Supp.2d 435, 451 (S.D.N.Y. 2007).
Congress created Subchapter V through the Small Business Reorganization Act of 2019 (the "SBRA"). Cantwell-Cleary Co. v. Cleary Packaging, LLC (In re Cleary Packaging, LLC), 36 F.4th 509, 514 (4th Cir. 2022). The SBRA added various provisions to the Bankruptcy Code, including § 1192, which controls the extent of a discharge entered after completion of payments under a Subchapter V plan confirmed nonconsensually. See 11 U.S.C. § 1192. The Court must determine whether the nineteen subsections under § 523(a) apply to a corporate debtor that receives a discharge pursuant to § 1192, which provides that "any debt-of the kind specified in section 523(a)" is excepted from discharge when a plan is confirmed via cramdown under § 1191(b).[1] In turn, § 523(a) provides that "[a] discharge under section 727, 1141, 1192, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt" outlined in any of its nineteen subsections. 11 U.S.C. § 523(a) (emphasis added). The two sections ostensibly conflict because § 523(a) refers specifically to individuals, while § 1192 on its face does not specifically distinguish between individuals and corporations. Cleary Packaging, LLC, 36 F.4th at 517 (). "Given the novelty of Subchapter V," case law on this issue is limited. See Avion Funding, LLC v. GFS Indus., LLC (In re GFS Indus., LLC), 647 B.R. 337, 341 (Bankr.W.D.Tex. 2022).
The Fourth Circuit Court of Appeals, the only court of appeals to address the issue, ruled that § 523(a) applies both to individuals and corporations receiving a discharge under § 1192. Cleary Packaging, LLC, 36 F.4th at 517-18. Although the Court finds that the Fourth Circuit's decision is well-written, the Court disagrees with the Fourth Circuit's reasoning and conclusion in Cleary Packaging, LLC. Instead, the Court agrees with the five bankruptcy courts that have addressed this issue. Those courts concluded that the exceptions to discharge under § 523(a) do not apply to corporate debtors receiving a discharge under § 1192. Avion Funding, 647 B.R. at 351-52; Jennings v. Lapeer Aviation, Inc. (In re LaPeer Aviation, Inc.), Adv. No 22-03002, 2022 Bankr. LEXIS 1032, ...
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