Stanziale v. Brown-Minneapolis Tank ULC, LLC (In re BMT-NW Acquisition, LLC)

Citation582 B.R. 846
Decision Date10 April 2018
Docket NumberCase No. 14–10302 (CSS),Adv. Proc. No.: 16–50027 (CSS)
Parties IN RE: BMT–NW ACQUISITION, LLC, Debtor. Charles A. Stanziale, Jr., solely in his capacity as the Chapter 7 Trustee of BMT–NW Acquisition, LLC., Plaintiff, v. Brown–Minneapolis Tank ULC, LLC, et al., Defendants.
CourtU.S. Bankruptcy Court — District of Delaware

MARGOS EDELSTEIN, James E. Huggett, 300 Delaware Avenue, Suite 800, Wilmington, DE 19801, Counsel to all Defendants (except Longroad Asset Management, LLC)

McCARTER & ENGLISH, LLP, Matthew J. Rifino, 405 N. King Street, 8th Floor, Wilmington, DE 19801 and Charles A. Stanziale, Matthew Wapner, Deirdre E. Burke, Four Gateway Center, 100 Mulberry Street, Newark, NJ 07102, Counsel to Charles A Stanziale, Jr., the Chapter 7 Trustee

OPINION 1

Sontchi, J.

INTRODUCTION 2

Before this Court is Defendants' Motion to Dismiss with prejudice the Trustee's Second Amended Complaint. The Second Amended Complaint seeks (i) avoidance of fraudulent transfers under Section 548 of the Bankruptcy Code as to BMT Acquisitions, Broad Street, Graver, BMT–WA, and ULC; (ii) avoidance of state law fraudulent transfer pursuant to 11 U.S.C. § 544 and 6 Del. § 1304 as to defendants BMT Acquisitions, Broad Street Tank, BMT–WA, ULC, and Graver; (iii) avoidance of preferential transfers pursuant to 11 U.S.C. §§ 547 and 550 as to BMT Acquisition, Broad Street, Graver, BMT–WA, and ULC; (iv) breach of fiduciary duties as to all Defendants; (v) declaratory relief as to Defendant Longroad to pierce the corporate veil; (vi) turnover of payments due and owed as property of the estate under Section 542 of the Bankruptcy Code as to all Defendants; (vii) and disallowance of claims pursuant to Section 502(d) of the Bankruptcy Code as to all Defendants.

For the reasons set forth below, the Court will grant the motion to dismiss with prejudice, in part, on Claim Eleven for avoidance of preferential transfer, Claims Thirteen through Fifteen for avoidance of preferential transfer, Claim Sixteen for breach of fiduciary duties as it relates to ULC, BMT Acquisition, BMT–WA, and Graver, Claim Seventeen, Claim Eighteen for turnover of payments, and Claim Nineteen for disallowance of claims, because the Trustee has not pleaded sufficient facts in support of his allegations. The Court will deny the motion to dismiss with prejudice, in part, on Claims One through Ten for avoidance of fraudulent transfers, Claim Twelve for avoidance of preferential transfers, and Claim Sixteen for breach of fiduciary duties as it relates to Broad Street because the trustee has plead sufficient facts to support plausible claims.

JURISDICTION

This Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. §§ 157 and 1334. Venue is proper in this District pursuant to 28 U.S.C. §§ 1408 and 1409. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(1) and (b)(2)(A), (B), and (F). The Court has the judicial authority to enter a final order.

STATEMENT OF FACTS
A. Procedural Background

BMT–NW Acquisition, LLC (the "Debtor") filed a voluntary petition for Chapter 7 relief on February 14, 2014 (the "Petition Date.") Charles A. Stanziale, Jr. (the "Trustee") was appointed as the Trustee for the Debtor on or about the Petition Date.

The Trustee filed a complaint initiating this adversary proceeding on February 12, 2016. The Trustee asserted causes of action for avoidance of fraudulent transfers, avoidance of preferential transfers, breach of fiduciary duty, declaratory relief to pierce the corporate veil, turnover of payments, and disallowance of claims against six defendants:

1. Brown–Minneapolis Tank ULC ("ULC");
2. Longroad Asset Management, LLC ("Longroad");
3. Broad Street Holdings Co., Inc. ("Broad Street");
4. BMT Acquisition, LLC ("BMT Acquisition");
5. BMT–WA Contracting, LLC ("BMT–WA"); and
6. Graver Tank Co. ("Graver")

The Trustee filed an amended complaint on February 16, 2016. Longroad subsequently moved to dismiss Claims Sixteen and Seventeen on June 2, 2016. The Court granted Longroad's motion to dismiss on March 6, 2017.3 First, the Court found the allegations insufficient to support a plausible claim that Longroad owed any fiduciary duty to the Debtor. Secondly, assuming that Longroad owed any fiduciary duty to the Debtor, the Court determined that the allegations still failed to support a plausible claim that Longroad breached any such duty. Lastly, the Court found the allegations to support a plausible claim against Longroad for the turnover of payments insufficient.

The Court provided that the Trustee could file an amended complaint within thirty days containing "much more specific allegations as to the existence and breach of any fiduciary duty by Longroad and in support of a claim for turnover."4 The Trustee then filed a second amended complaint ("Second Amended Complaint") on April 5, 2017.5 ULC, Broad Street, BMT Acquisition, BMT–WA, and Graver (collectively, the "Defendants") filed a motion to dismiss ("Motion to Dismiss") the Second Amended Complaint in its entirety with prejudice on May 26, 2017.6 Briefing concerning Defendants' Motion to Dismiss was completed on August 16, 2017. The issue is now ripe for review and fully briefed.

B. Debtor's Formation

Longroad, a Connecticut based private equity fund, formed the Debtor on June 11, 2011 in order to acquire the assets and business operations of Brown–Minneapolis Tank–Northwest, LLC ("BMTN").7 Longroad also formed Defendant Broad Street, a Delaware limited liability corporation and the Debtor's sole member.8 Longroad's managing directors, the Debtor's managers at the time of its formation, and Broad Street's initial board of directors consisted of the same four individuals: Richard Latto, Anne Whitman, Steve Zambito, and Leon Komkov.9 The Debtor subsequently entered into five contracts after its formation.

C. Loan Purchase and Sale Agreement

The Debtor entered into a loan purchase and sale agreement with JPMorgan Chase Bank, N.A. ("JPMorgan") on June 16, 2011.10 Pursuant to the agreement, the Debtor purchased two delinquent notes for money borrowed by BMTN from JPMorgan in an aggregate principal balance of $2,963,178.29 for a purchase price of $1,352,127.18.11

D. Secured Revolving Credit Agreement

The Debtor also entered into a secured revolving credit agreement ("Credit Agreement") with Broad Street in the principal amount of $3 million on June 16, 2011.12 The Debtor used a portion of these funds to purchase the delinquent notes.13

E. Amendment to the Revolving Credit Agreement

On June 17, 2011, the Debtor and BMTN amended the Credit Agreement ("Amended Credit Agreement.")14 Pursuant to the Amended Credit Agreement, the Debtor agreed to make additional loans to BMTN of up to $367,598, with amounts due on June 30, 2011.15

F. Foreclosure Agreement

The debtor acquired the assets of BMTN on July 29, 2011 under a foreclosure agreement.16 The agreement stated that BMTN acknowledged that its liabilities to the Debtor were secured by substantially all of BMTN's assets, that an aggregate principal amount of $3,307,433 was due and owing under the Amended Credit Agreement, and that all cure periods had passed.17 The foreclosure agreement also stated that BMTN received independent advice from its financial advisor and/or appraisers stating the aggregate outstanding principal amount of the liabilities significantly exceeded both the fair value of BMTN's business, as well as the aggregate liquidation value of BMTN's assets.18 Furthermore, the Debtor also acquired BMTN's specified trade payables aggregating to $705,815, in addition to other liabilities under the foreclosure agreement.19 Along with the Debtor's acquisition of BMTN's assets, Longroad simultaneously acquired the assets of Brown–Minneapolis Tank Co. and Graver.20

G. Loan and Security Agreement

The Debtor and the Defendants, except Broad Street, entered into a loan and security agreement with Private Bank on May 12, 2012,21 under which the Debtor and the Defendants, except for Broad Street, entered as borrowers with Private Bank as the sole lender.22 Private Bank agreed to make available to the Debtor and the co-borrower Defendants a revolving credit facility in an amount not to exceed $10 million and letters of credit in the aggregate amount not to exceed $5 million.23

H. The Debtor's Asset Transfers and Financial Performance

Between October 30, 2012 and February 13, 2014, the Debtor made asset transfers to each of the Defendants.24 Meanwhile, the Debtor suffered financially. It reported net losses of $302,666 in 2011, $66,381 in 2012, and $940,224 in 2013.25 Its sales revenue declined from roughly $13.1 million to $7.2 million between 2012 and 2013.26

a. Debtor and BMT Acquisition: Debtor made cash transfers to BMT Acquisition on October 30, 2012, November 19, 2012, December 28, 2012, February 21, 2013, August 30, 2013, and December 4, 2013, totaling $776,367.27
b. Debtor and Broad Street: Debtor made cash transfers to Broad Street on April 5, 2013, June 6, 2013, August 1, 2013, February 7, 2014, and February 13, 2014, totaling $601,000.28
c. Debtor and Graver: Debtor made cash transfers to Graver on July 11, 2012 and September 5, 2013, totaling $215,000.29
d. Debtor and BMT–WA: Debtor made cash transfers to BMT–WA on September 26, 2012 and October 30, 2012, totaling $126,000.30
e. Debtor and ULC: Debtor made cash transfers to ULC on September 26, 2012 and October 18, 2012, totaling $75,000.31 Additionally, the Debtor transferred $2,197,440 in trade accounts receivable to ULC in exchange for a receivable from ULC.32
LEGAL DISCUSSION
A. Motion to Dismiss Standard.

The Defendants seek dismissal of the action on the grounds that the Trustee has failed to state a claim for which relief can be granted.33 This motion, under Fed. R. Civ. P. 12(b)(6), tests the sufficiency of factual allegations pleaded in the Plaintiff's complaint.34 With the Supreme Court's decisions in Bell Atlantic Corp. v. Twombly and Ashcroft v. Iqbal ,35 "pleading standards...

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