Groff et al v. JP Morgan Chase Bank, N.A.

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
NEW BERN DIVISION
IN RE:
DONALD LEE GROFF,
JUDY MCLEAN GROFF,
DEBTORS
CHAPTER 11
CASE NUMBER: 11-00329-8-RDD
DONALD LEE GROFF,
JUDY MCLEAN GROFF,
Plaintiffs
v.
JPMORGAN CHASE BANK, N.A.,
Defendant.
ADVERSARY PROCEEDING
NUMBER: 11-00284-8-RDD
ORDER GRANTING MOTION TO DISMISS ADVERSARY PROCEEDING,
GRANTING ORAL MOTION FOR LEAVE TO AMEND COMPLAINT, AND SETTING
DEADLINES FOR FILING AMENDED COMPLAINT AND RESPONSES THERETO
Pending before the Court is the Motion to Dismiss Adversary Proceeding (the “Motion”)
filed by JPMorgan Chase Bank, N.A. (“JPMorgan”) on November 7, 2011 (the “Motion”) and the
Response to Defendant’s Motion to Dismiss filed by Donald Lee Groff and Judy McLean Groff (the
“Plaintiffs”) on November 28, 2011 (the “Response”). On December 5, 2011, the Court conducted
a hearing on the Motion and the Response in Wilson, North Carolina.
SO ORDERED.
SIGNED this 09 day of December, 2011.
________________________________________
Randy D. Doub
United States Bankruptcy Judge
____________________________________________________________
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On January 14, 2011, the Plaintiffs filed a petition for relief under Chapter 11 of the
Bankruptcy Code. The Plaintiffs commenced this adversary proceeding on August 3, 2011 with the
filing of their complaint against JPMorgan. The complaint seeks to recover an alleged preferential
transfer from JPMorgan pursuant to 11 U.S.C. § 547(b). Specifically, the Plaintiffs allege that a
transfer from the Plaintiffs to JPMorgan in the amount of $150,150.00 was made on October 18,
2010, within ninety (90) days preceding the petition date.
On November 7, 2011, JPMorgan filed the present Motion requesting the Court dismiss the
Plaintiffs’ complaint for failure to state a claim upon which relief may be granted pursuant to
Federal Rule of Civil Procedure 12(b)(6), made applicable to this adversary proceeding by Rule
7012(b) of the Federal Rules of Bankruptcy Procedure.
In response, the Plaintiffs contend that the complaint contains sufficient factual allegations
to state a claim.1 Additionally, the Plaintiffs ask the Court to take judicial notice of a Certificate of
1The Plaintiffs’ complaint reads, in pertinent part:
FACTUAL ALLEGATION
6. 	Plaintiffs made a payment of $150,150.00 to Defendant on October 18, 2010.
FIRST CAUSE OF ACTION
(Preferential Transfer)
7. 	The Plaintiffs reallege and incorporate by reference paragraphs 1 through 6 as if
fully set forth herein.
8. 	The payment was made to, or for the benefit of, the Defendant on or within ninety
(90) days of the Petition Date.
9. 	Said payment constitutes a transfer of an interest in property of the Plaintiffs.
10. 	The Defendant was a creditor of the Plaintiffs at the time the transfer was made.
11. 	The transfer was for or on account of an antecedent debt owed by the Plaintiffs to
the Defendant.
12. 	The Plaintiffs were insolvent at the time of the transfer.
13. 	The transfer, if not avoided, would enable the Defendant to receive more than it
would receive if this case were one under Chapter 7 of the United States
Bankruptcy Code.
14. 	Pursuant to 11 U.S.C. § 547(b), the transfer is avoidable.
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Satisfaction filed by JPMorgan in the Onslow County office of the Register of Deeds on November
4, 2010.
A pleading that states a claim for relief must contain “a short and plain statement of the claim
showing that the pleader is entitled to relief . . . .” Fed. R. Civ. P. 8(a)(2). The complaint must
include “enough facts to state a claim to relief that is plausible on its face.” Angell v. Ber Care, Inc.
(In re Caremerica, Inc.) 409 B.R. 737, 745 (Bankr. E.D.N.C. 2009) (quoting Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570, 127 S. Ct. 1955, 1974, 167 L. Ed. 2d 929 (2007)). The heightened
pleading standard as adopted in Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) and Ashcroft v.
Iqbal, 556 U.S. 662 (2009) applies to pleadings of preference actions. Ber Care, Inc., 409 B.R. at
750. There are “two working principles” upon which the heightened pleading standard rests:
First, the tenet that a court must accept as true all of the allegations contained in a
complaint is inapplicable to legal conclusions. Threadbare recitals of the elements
of a cause of action, supported by mere conclusory statements, do not suffice . . . .
Second, only a complaint that states a plausible claim for relief survives a motion to
dismiss.
Id. at 747 (quoting Iqbal, at 1949). 	A complaint to recover preferences pursuant to 11
U.S.C. § 547 must include: “(a) an identification of the nature and amount of each antecedent debt
and 	(b) 	an 	identification 	of 	each 	alleged 	preference 	transfer 	by 	(i) 	date, 	(ii) 	name 	of
debtor/transferor, (iii) name of transferee and (iv) the amount of the transfer.” Id. at 748 (quoting
In re Valley Media, Inc., 288 B.R. 189, 192 (Bankr. D. Del. 2003)).
In large part, the Plaintiffs’ complaint consists of conclusory statements which lack factual
support. The complaint recites the necessary elements of a cause of action under 11 U.S.C. § 547(b),
but does not provide enough factual allegations to establish a plausible claim. The two-page
complaint alleges a single factual allegation namely being that the “Plaintiffs made a payment of
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$150,150.00 to Defendant on October 18, 2010.” Compl. ¶ 6. Except for this one factual allegation,
Plaintiffs’ complaint is merely a recitation of 11 U.S.C. § 547(b). See supra note 1. The Plaintiffs
did not attach any supporting documentation to the complaint nor did they reference any supporting
documentation or public records within the complaint.
The complaint fails to plead sufficient facts to support the various elements of its preference
cause of action.2 The Plaintiffs must assert supporting facts that the transfer was made “to or for the
benefit of a creditor.” 11 U.S.C. § 547(b)(1). Here, the complaint asserts “Plaintiffs made a payment
of $150,150.00 to Defendant on October 18, 2010.” Compl. ¶ 6. Additionally, the complaint alleges
that the “payment was made to, or for the benefit of, the Defendant on or within ninety (90) days of
the Petition Date.” Compl. ¶ 8. The complaint also alleges that “[t]he Defendant was a creditor of
the Plaintiffs at the time the transfer was made.” Compl. ¶ 10. The Plaintiffs’ Chapter 11 Plan did
not provide treatment as to a claim of JPMorgan. JPMorgan was not served with the Disclosure
Statement or the Chapter 11 Plan. The complaint is devoid of any factual allegations that JPMorgan
2Section 547(b) provides:
(b) Except as provided in subsections (c) and (i) of this section, the trustee may avoid any
transfer of an interest of the debtor in property -
(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owed by the debtor before such
transfer was made;
(3) made while the debtor was insolvent;
(4) made -
(A) on or within 90 days before the date of the filing of the petition; or
(B) between ninety days and one year before the date of the filing of the
petition, if such creditor at the time of such transfer was an insider; and
(5) that enables such creditor to receive more than such creditor would receive if-
(A) the case were a case under chapter 7 of this title;
(B) the transfer had not been made; and
(C) such creditor received payment of such debt to the extent provided by
the provisions of this title.
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was a creditor of the Plaintiffs and that the payment made by the Plaintiffs was to satisfy a debt it
owed.
Additionally, the Plaintiffs must assert facts regarding both the nature and amount of an
antecedent debt, which, if true, would render the assertion that a transfer was made for or on account
of an antecedent debt plausible. Ber Care Inc., 409 B.R. at 751. “Mere conclusory statements that
the transfers were made on account of an antecedent debt owed by the transferor are insufficient.”
Beaman v. Barth, et al. (In re Amerlink, Ltd.) AP No. 10-00164-8-JRL at 7 (Bankr. E.D.N.C. Mar.
11, 2011). As to this element, the complaint alleges the conclusory statement that the “transfer was
for or on account of an antecedent debt owed by the Plaintiffs to the Defendant.” Compl. ¶ 11. Other
than this statement, the complaint fails to allege any facts supporting the existence of an antecedent
debt.
In the Response, the Plaintiffs ask the Court to take judicial notice of the Certificate of
Satisfaction filed by JPMorgan in the Onslow County office of the Register of Deeds on November
4, 2010. The Plaintiffs contend that the Certificate of Satisfaction establishes multiple elements of
its preference cause of action. The Plaintiffs argue, that the Certificate of Satisfaction is a public
record and the Court may take judicial notice of matters of public record. While it is questionable
whether the Certificate of Satisfaction establishes any of the elements alleged in the Plaintiffs’
complaint, the Court will not consider the Certificate of Satisfaction in making its determination on
the Motion. See 2 Moore’s Federal Practice, § 12.34[2] (Matthew Bender 3d ed.) (stating that the
“court may not . . . take into account additional facts asserted in a memorandum opposing the motion
to dismiss, because such memoranda do not constitute pleadings under Rule 7(a)”). 	Courts “may
consider the following [when determining whether a complaint should be dismissed]: [d]ocuments
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attached to complaint[;] [u]ndisputed documents alleged or referenced in complaint[; and] [p]ublic
records.” Id. (emphasis added). However, it is not mandatory that the court consider public records
in deciding a motion to dismiss and the court may use its discretion in taking judicial notice of
public records. Dippin’ Dots, Inc. v. Frosty Bites Distribution, Inc. 369 F.3d 1197, 1204-05 (11 th Cir.
2004). After Iqbal and Twombly, this Court is reluctant to consider such matters of public record not
alleged in the pleadings.
Here, the Certificate of Satisfaction was not referenced in the complaint and the complaint
did not request that the Court take judicial notice of the Certificate of Satisfaction. It was not until
the Plaintiffs filed their Response to the Defendant’s Motion, that the Plaintiffs asked the Court to
take judicial notice of the document. The complaint on its face does not allege sufficient facts of
the nature and amount of the antecedent debt. Therefore, the Court will not consider the Certificate
of Satisfaction. Plaintiff should have plead facts regarding the indebtedness being secured by a deed
of trust on certain property and identified the obligation in more specific terms. The Plaintiffs’
conclusory statement that the “transfer was for or on account of an antecedent debt owed by the
Plaintiffs to the Defendant” does not sufficiently allege the nature and amount of the antecedent
debt. Compl. ¶ 11.
To avoid a preferential transfer, the debtor must be insolvent on the date of the transfer. 11
U.S.C. § 547(b)(3). Section 101(32)(A) provides that a debtor is insolvent when “the sum of such
entity’s debts is greater than all of such entity’s property, at a fair valuation . . . .” 11 U.S.C. §
101(32)(A). “Because a debtor must be insolvent on the date of the transfer in order for the
[Plaintiff] to be successful in a claim based on § 547(b), it follows that the [Plaintiff] must allege
facts sufficient to show that such insolvency is plausible.” Ber Care, Inc., 409 B.R. at 752. In its
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Motion, JPMorgan requests that the Court take judicial notice of the Plaintiffs’ Summary of
Schedules, which is a matter of public record and filed on the docket in the Plaintiffs’ bankruptcy
case. 	The court may take judicial notice of documents attached to the motion to dismiss and
documents of public record. See Philips v. Pitt Cnty. Mem. Hosp., 572 F.3d 176, 180 (4th Cir. 2009);
Norfolk S. Ry. Co. v. Shulimson Bros. Co., Inc., 1 F. Supp. 2d 553, 555 n.1 (W.D.N.C. 1998). The
Summary of Schedules filed in the Plaintiffs’ bankruptcy case indicate that as of the petition date,
the Plaintiffs’ assets exceeded their liabilities by over $460,000.00. In their Response, the Plaintiffs
contend that retirement account funds totaling $738,117.52 as listed on Schedule B should be
deducted from the total assets when determining the Plaintiffs’ solvency. As such, the Plaintiff
asserts that once exempt retirement account funds are removed from the total assets, the Plaintiffs’
assets are $270,339.83 less than their liabilities. These are facts Plaintiffs should have plead in
regard to the essential element of insolvency. Here, the complaint provides “[t]he Plaintiffs were
insolvent at the time of the transfer.” Compl. ¶ 12. Based on the Schedules, this conclusory
statement, “fail[s] to satisfy the requirements under Iqbal.” Beaman v. Barth, et al. (In re Amerlink,
Ltd.) AP No. 10-00164-8-JRL at 8 (Bankr. E.D.N.C. Mar. 11, 2011). The complaint does not set
forth any factual allegations as to this element.
Additionally, the Plaintiffs must assert that the transfers were made on or within ninety (90)
days before the petition date. The debtor is presumed to be insolvent during the ninety (90) days
prior to the petition date. 11 U.S.C. § 547(f). The complaint fails to allege sufficient factual
allegations to support the claim that the transfers were made on or within ninety (90) days before
the petition date. 	The single factual allegation states that the “Plaintiffs made a payment of
$150,150.00 to Defendant on October 18, 2010.” Compl. ¶ 6. The word “payment” and the word
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“transfer” are not necessarily synonymous. October 18, 2010, is eighty-eight (88) days prior to the
petition date. 	The complaint does not allege any facts demonstrating how the “transfer” was
accomplished such as the method of payment, whether by check, cashier’s check, money order, trust
account check or any other form of payment or credit. Further, the complaint does not specify
whether October 18, 2010 is the date JPMorgan received the payment, the date the Plaintiffs put a
check in the mail, or whether this is the date the payment, if made by check, was honored. Here, the
date the transfer occurred is necessary because the date the “Plaintiffs made a payment” was October
18, 2010, eighty-eight (88) days before the petition date. A three day difference in the “payment”
verses the facts constituting the “transfer” could be fatal to Plaintiffs’ complaint. 	“The date on
which the alleged transfer occurred is critical to ascertaining whether the transfer is subject to
avoidability under § 547.” Ber Care, Inc., 409 B.R. at 752. Therefore, the Plaintiffs have failed the
heightened pleading requirements as to the element that the transfers were made on or within ninety
(90) days before the petition date.
To avoid a transfer pursuant to 11 U.S.C. § 547(b) the Plaintiff must establish that the alleged
preferential transfer enabled the creditor to receive more than it would have received under chapter
7. 11 U.S.C. § 547(b)(5). The complaint provides, “[t]he transfer, if not avoided, would enable the
Defendant to receive more than it would receive if this case were one under Chapter 7 of the United
States Bankruptcy Code.” Compl. ¶ 13. 	Here, the Plaintiffs allege no facts in support of this
statement. 	There are no facts related to the value of JPMorgan’s collateral and liens thereon
contained in the complaint or in the Plaintiffs’ Schedules. There are no alleged facts relating to a
Chapter 7 Trustee’s potential distribution to creditors. Therefore, the Plaintiffs have failed to allege
a plausible claim for relief as to this element.
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These “threadbare” recitals fall short of the heightened pleading requirements as enumerated
by the United States Supreme Court in Iqbal and Twombly and as enunciated by this Court in Ber
Care, Inc. Because the Court finds the complaint fails to allege sufficient factual allegations as to
the elements of a preference claim under 11 U.S.C. § 547(b), the Motion to Dismiss the Adversary
Proceeding is GRANTED, without prejudice for the Plaintiffs to move for leave to amend their
complaint. The Court grants the Plaintiffs’ oral motion for leave to amend. The Court grants the
Plaintiffs twenty-one (21) days from the date of the entry of this order in which to file an amended
complaint. Once the Plaintiffs have filed an amended complaint, the Defendant shall have twenty-
one (21) days to file an answer or other responsive pleading.
SO ORDERED.
END OF DOCUMENT
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