U.S.A v. Bacara Partners LLC
| Decision Date | 10 January 2011 |
| Docket Number | C. A. No. 10-354-LPS-MPT |
| Parties | UNITED STATES OF AMERICA, Plaintiff, v. BACARA PARTNERS, LLC; LARRY MANTH; MICHAEL ROSENBLUM; VICTORIA TAN; SPINNERET FINANCIAL SOLUTIONS, LLC; ALFRED HAHNFELDT; and JOSEPH GAGLIARDI, Defendants |
| Court | U.S. District Court — District of Delaware |
Defendant Bacara Partners, LLC ("Bacara"), is a Nevada limited liability company with its principal place of business in Carson City, Nevada. Defendants Larry Manth ("Manth"), Michael Rosenblum ("Rosenblum"), Victoria Tan ("Tan"), and Spinneret Financial Solutions, LLC ("Spinneret") (collectively "defendants") hold equity interest in Bacara. Defendant Alfred Hahnfeldt ("Hahnfeldt") is the sole owner of Spinneret. Medical Wind Down Holdings I, Inc. ("MWDH I") is the bankrupt-dissolved entity to whom the IRS allegedly issued an erroneous refund of taxes.
On February 11, 2003, MWDH I and its subsidiaries filed voluntary Chapter 11 bankruptcy petitions in the United States Bankruptcy Court for the District of Delaware. On March 13, 2003, the debtors filed assets schedules, listing the current value of liquidated debts, including tax refunds, owed to each debtor at zero. On November 10, 2003, through a court approved sale, substantially all assets of the bankrupt estates were sold, and MWDH I ceased conducting business.
On September 8, 2005, nearly two years after the debtors sold substantially all their assets, MWDH I petitioned the bankruptcy court seeking approval to sell Bacara its "right, title and interest" in certain assets in exchange for $77,500; the bankruptcy court approved the sale the following day, September, 9, 2005. This sale included "2 Although the bankruptcy court order approving the sale excluded certain state and local tax claims, no mention was made of the federal tax refund at issue. On March 22, 2006, MWDH I ceased to exist by way of a merger with Medical Wind Down Holdings, Inc. III ("MWDH III").
On August 18, 2006, Hahnfeldt filed Form 1120X for "Amended U.S. Corporation Income Tax Return, " which stipulated that MWDH I should receive a refund for a Net Operating Loss ("NOL") in the amount $72,441, 457.00 incurred during the tax year 2002. Hahnfeldt represented himself on Form 1120x to be the Chief Financial Officer ("CFO") of MWDH I. The refund related to overpayment of federal income taxes by MWDH I during the tax year 1993, a potentially valid federal tax refund under 26 U.S.C. § 7405. The form did not advise that MWDH I had liquidated its assets in bankruptcy, ceased business operations and had been acquired by MWDH III. The form also did not advise of the zero or near zero valuation of assets, including potential federalrefunds, by the debtors in their bankruptcy schedules and motion for approval of sale.
The IRS issued the refund on October 3, 2006, which was sent to Joseph Gagliardi ("Gagliardi") who is the CFO of record for MWDH I. The address was a post office box registered to MWDH I and in control of Gagliardi, making it appear that MWDH I filed the claim for refund and received the refund check. Gagliardi then had the tax refund forwarded to Bacara.
On April 28, 2010, the United States filed the present action against Bacara and the other defendants to recover an erroneous refund of federal taxes and interest paid to MWDH I. Counts I-III of the complaint allege that: (1) the 1120X form is invalid pursuant to 26 U.S.C. § 7405; (2) the assignment of "claims" contravened the Anti-Assignment Act pursuant to 31 U.S.C. § 3727, and; (3) the refund included unsubstantiated "specified liability losses" pursuant to 26 U.S.C. § 172(b)(1). On July 16, 2010, Bacara filed the present motion to dismiss counts I-III pursuant to Rule 12(b)(6)3 for failure to state a claim upon which relief can be granted. This is the only motion under consideration in this Report and Recommendation.4
An analysis for a Rule 12(b)(6) motion to dismiss must include a review of Rule 8(a)(2), which requires that a pleading contain a "short and plain statement of the claim showing that the pleader is entitled to relief." That standard "does not require 'detailedfactual allegations, ' but... demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation."5 Thus, to survive a motion to dismiss under Rule 12(b)(6), a complaint "must contain sufficient factual matter, accepted as true, to 'state a claim for relief that is plausible on its face.'"6 The purpose of a Rule 12(b)(6) motion to dismiss is to test the sufficiency of a complaint, not to resolve disputed facts or decide the merits of the case.7 Evaluating a motion under Rule 12(b)(6) requires the court to accept as true all material allegations of the complaint.8 "The issue is not whether a plaintiff will ultimately prevail, but whether the claimant is entitled to offer evidence to support the claims."9 A motion to dismiss may be granted only if, after, "accepting all well-pleaded allegations in the complaint as true, and viewing them in the light most favorable to the plaintiff, plaintiff is not entitled to relief."10
To survive a motion under Rule 12(b)(6), however, the factual allegations must be sufficient to "raise a right to relief above the speculative level, on the assumption that all the allegations in the complaint are true (even if doubtful in fact)."11 A plaintiff is obliged "to provide the 'grounds' of his 'entitle[ment] to relief'" beyond "labels andconclusions."12 Heightened fact pleading is not required; rather, a plaintiff must allege "enough facts to state a claim to relief that is plausible on its face."13 The plausibility standard does not rise to a "probability requirement, " but requires "more than a sheer possibility that a defendant has acted unlawfully."14 Rejected are unsupported allegations, "bald assertions, " or "legal conclusions."15 Further, "the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions."16 Moreover, "only a complaint that states a plausible claim for relief survives a motion to dismiss, " which is a "context-specific task that requires the reviewing court to draw on its judicial experience and common sense."17 Thus, well-pled facts which only infer the "mere possibility of misconduct, " do not show that "' the pleader is entitled to relief, '" under Rule 8(a)(2).18 "When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement of relief."19
Under Rule 9(b), when a plaintiff alleges fraud and misrepresentation by a defendant, the complaint must "state with particularity the circumstances constitutingfraud or mistake."20 Therefore, the United States is required "to plead with particularity the 'circumstances' of alleged fraud."21 The particularity requirement, however, does not mandate that a party plead the date, time, or place of the alleged fraud, if that party uses "an alternative means of injecting precision and some measure of substantiation into [its] allegations of fraud."22 Thus, "courts still must apply Rule 9(b) with some flexibility so that a party is not required to plead issues which may have been concealed by an adverse party."23
Bacara argues that its motion to dismiss for failure to state a claim should be granted because procedural protections bar counts I-III, specifically that: (1) the Anti-Assignment Act, 31 U.S.C. § 3727, does not apply to assignment of claims against the government which occur by operation of law; (2) the two-year statute of limitations under 26 U.S.C. § 6532(b) bars recovery of an erroneous tax refund; and (3) the preclusive effect of res judicata and collateral estoppel bar an attack on the order of the bankruptcy court.
Bacara argues that the transfer of the tax refund claim is not subject to the Anti-Assignment Act and the challenge of the tax refund is a collateral attack on the bankruptcy court order precluded by res judicata and collateral estoppel. Specifically, Bacara notes that the "U.S. chose not to oppose the motion, seek reconsideration of the Order, move to stay it, or appeal it." Bacara also maintains that the United States is time-barred from pursuing a collateral attack on the bankruptcy order. Bacara further contends that even if the Anti-Assignment Act is applicable, the Act is preempted by 11 U.S.C. § 1123(a)(5)(D).24
The United States alleges that the operation of law exemption of the Anti-Assignment Act is inapplicable to the facts and circumstances of this case; the two-year statutory bar is inapplicable because misrepresentation functions to extend the limitations period to five-years; and, res judicata and collateral estoppel are inapplicable because this litigation involves legal issues not previously adjudicated, and Bacara, as the moving party, has not proven that either preclusive bar applies.
The United States alleges that the assignment or receipt of the corporate tax refund filed by Bacara violates the Anti-Assignment Act, pursuant to 31 U.S.C. § 3727, and that such assignment is "voidable by the United States at will."25 Moreover, it counters that the claim for the return of an erroneous refund is not time-barred and mere negligence is sufficient evidence of misrepresentation to avoid dismissal at the pleading stage. The United States also notes that although the elements of res judicata and collateral estoppel do not apply here, Bacara failed to prove that either bar applies.
A motion to dismiss pursuant to Rule 12(b)(6) is not granted where the non-moving party asserts well-pleaded facts to support a plausible claim for relief. Furthermore, such a motion does not evaluate the merits of the...
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