Hoskins v. Greer et al

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UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA
In re
SAND HILL CAPITAL PARTNERS III, LLC,
a California limited liability
company,
Debtor.
JANINA M. ELDER, Trustee in
Bankruptcy, Sand Hill Capital
Partners III, LLC,
Plaintiff,
vs.
WILLIAM GREER, aka Bill Greer; and
POWER PLAY GREER - LIVE OAK, LLC,
Defendants.
JANINA M. ELDER, Trustee in
Bankruptcy, Sand Hill Capital
Partners III, LLC,
Plaintiff,
vs.
POWER PLAY REAL ESTATE FUND, L.P.;
POWER PLAY ESTATE MANAGEMENT, LLC;
STEWART CAPITAL GROUP, LLC; SAND
HILL VENTURE DEBT III, LLC; SAND
HILL VENTURE DEBT, LLC; and CORE
HOMES, LLC,
Defendants.
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Case No. 08-30989 TEC
Chapter 7
Adv. Proc. No. 10-3089
Adv. Proc. No 10-3091 TC
MEMORANDUM DECISION RE
DEFENDANTS’ RULE 12(b)(6)
MOTIONS TO DISMISS
Signed and Filed: October 22, 2010
________________________________________
THOMAS E. CARLSON
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
October 22, 2010
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 10-03089 Doc# 30 Filed: 10/22/10 Entered: 10/22/10 12:59:41 Page 1 of 6

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On October 8, 2010, the court held a hearing on Defendants’
Rule 12(b)(6) Motions to Dismiss. 	G. Larry Engel appeared for
Defendants. 	W. George Wailes appeared for Plaintiff. 	Upon due
consideration, and for the reasons stated below, the court
determines that the Motions should be granted in part and denied in
part.
I. 	California UFTA Claims (intentional fraudulent transfers
§ 544; § 3439.04(a)(1); constructively fraudulent transfers,
§ 544; § 3439.04(a)(2); § 3439.05).
The complaints allege the transfer dates, the amounts
transferred, the method of transfer (e.g, wire), the name of the
transferee, that Debtor was insolvent at the time of the transfers,
and that Debtor received no value in exchange for the transfers.
The complaints further allege that Debtor operated a Ponzi scheme
from 2003 until the June 5, 2008 petition date; that the Ponzi
scheme attracted large sums of money that was not used to invest in
other entities on behalf of Debtor; and that the investors’ money
was used for Del Biaggio’s personal benefit, to pay prior
investors, and in furtherance of the Ponzi scheme.
Ponzi scheme allegations establish under the California
Uniform Fraudulent Transfer Act: (1) an actual intent to defraud
(3439.04(a)(1)), and (2) that the Ponzi scheme operator was engaged
or about to engage in a transaction for which the remaining assets
of Debtor were unreasonably small in relation to the transaction.
(3439.04(a)(2)). 	See Donnell v. Kowell, 533 F.3d 762, 770-71 (9th
Cir. 2009). 	The complaints state a claim under § 3439.05 upon
which relief can be granted, because they allege Debtor was
insolvent when transfers were made, and that no value received in
exchange for transfers.
Case: 10-03089 Doc# 30 Filed: 10/22/10 Entered: 10/22/10 12:59:41 Page 2 of 6

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II. 	Intentional and Constructively Fraudulent Transfers,
§§ 548(a)(1)(A), (B)
Pursuant to section 548(a)(1)(A), the complaints state an a
claim for intentional fraudulent transfer upon which relief can be
granted. 	See In re Cohen, 199 B.R. 709 (9th Cir. BAP 1996) (proof
of Ponzi scheme is sufficient to establish Ponzi scheme operator’s
actual intent to hinder, delay, or defraud creditors for purposes
of actually fraudulent transfers under section 548(a)(1)).
Assuming, arguendo, that In re Image Masters, Inc., 421 B.R. 164
(Bankr. E.D. Pa. 2009) is binding precedent, it does not support
dismissal of the federal intentional fraudulent transfer claims,
because the complaint at issue in Image Masters established on its
face that Defendants received reasonably equivalent value in
exchange for the transfers and that Defendants acted in good faith.
The complaints state a claim for relief for constructively
fraudulent transfer for the reasons set forth in Donnell v. Kowell.
With respect to the November 12, 2005 transfer, the
Greer/Power Play complaint fails to state a claim for intentional
or constructively fraudulent transfer under section 548, because
the transfer occurred more than two years before the June 5, 2008
petition date. 	The section 548 claims to recover this transfer are
dismissed without leave to amend, because the claim is time barred
under section 548(a)(1).
III. Insider Preference Claims
The Greer/Power Play complaint contains only bald allegations
that Defendants were “insiders”. 	These allegations are
insufficient to state a claim upon which relief can be granted,
because they are too conclusory. 	Ashcroft v. Iqbal, 129 S.Ct. 1937
(2009); Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007).
Case: 10-03089 Doc# 30 Filed: 10/22/10 Entered: 10/22/10 12:59:41 Page 3 of 6

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The complaint would need to allege that Defendants had a formal
legal relationship with Debtor (such as an affiliate) or a
sufficiently close relationship with Debtor that its conduct should
be subject to closer scrutiny than someone dealing with Debtor at
arms length. 	In re Lull, 2008 WL 3895561 (Bankr. D. Hawai’i)
(King, J).
The Power Play/Stewart Capital Group complaint alleges
insider preference claims only against two of the defendants: PPREM
and PPREF. 	That complaint states an adequate insider preference
claim as to these two defendants, because it alleges that Del
Biaggio at all relevant times was the managing member of Debtor and
controlled Debtor, and that Debtor was the managing member of
PPREM, which in turn was the managing member of PPREF. 	These
allegations state a claim that PPREM and PPREF were statutory
insiders of Debtor or had a sufficiently close relationship with
Debtor that their conduct should be subject to closer scrutiny than
someone dealing with Debtor at arms length. 	11 U.S.C. § 101
(31)(B)(iii), (vi).
IV. 	Claims for Breach of Contract; Breach of the Implied of Good
Faith and Fair Dealing; and for Turnover.
The complaints contain wholly conclusory allegations regarding
Defendants’ alleged breach of contract, breach of the covenant of
good faith and fair dealing, and turnover. 	Conclusory allegations
that merely recite the elements of a claim are insufficient to
state a claim upon which relief may be granted. 	Twombly, 127 S.Ct.
at 1965.
V. 	Account Stated
The complaints allege in conclusory fashion that, during the
four years prepetition, an account was stated in writing between
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1 The Power Play/Stewart Capital complaint alleges that
Plaintiff was the managing member of PPREM, which was the
managing member of PPREF. 	The parties did not argue, and the
court does not at this time decide, the effect this legal
relationship may have on an action against these defendants
for an accounting. 	See Witkin, 5 Cal. Proc., Pleading
§ 821(c)(3), p. 238 (5th Ed) (“Because a partner has access
to the partnership books, he or she cannot require an
accounting from copartners except under unusual
circumstances.”)
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Debtor and Defendants and that no amount has been repaid despite
demand for payment. 	The complaints fail to state a claim for
account stated upon which relief can be granted, because they do
not allege an agreement, based on prior transactions between
Plaintiff and Defendant, that the items of an account were true and
that “the balance struck [was] due and owing.” 	Maggio, Inc. v.
Neal, 196 Cal. App. 3d 745, 752-53 (Ct. App. 1987). ‘To be an
account stated, it must appear that at the time of the statement an
indebtedness from one party to the other existed, that a balance
was then struck and agreed to be the correct sum owing from the
debtor to the creditor, and that the debtor expressly or impliedly
promised to pay the creditor the amount thus determined to be
owing.” 	Id. (citation omitted).
VI. 	Accounting
The complaints fail to state a claim for accounting, because
they do not allege the existence of a fiduciary relationship
between Debtor and Defendants, 1 or that the transactions were so
complicated as to required an accounting to determine the financial
status of the parties with respect to each other. 5 Witkin Cal.
Proc. Pleading § 819, p. 236; Civic Western Corp. v. Zila
Industries, Inc., 66 Cal. App. 3d 1 (1977); St. James Church v.
Sup. Ct., 135 Cal. App. 2d 352, 359 (1955) (accounting normally
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2
Defendants define the Non Core causes of action as the
claims for accounting, breach of contract, breach of the
implied covenant of good faith and fair dealing, account
stated, and turnover.
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appropriate when plaintiff seeks to recover an amount that is
unliquidated and unascertained, and that cannot be determined
without an accounting).
VII. Defenses to “Non Core” Causes of Action (Unclean Hands; In
Pari Delicto; Laches)
If the complaints are amended to allege legally sufficient
Non-Core Claims (as defined in the Motions to Dismiss) 2, such claims
are not barred by the defenses of unclean hands or laches, because
prejudice or injury to Defendants is a fact issue that cannot be
decided in the 12(b)(6) context. 	Nor would the defense of in pari
delicto necessarily bar the trustee’s Non Core Claims. 	It is
conceivable that the amended complaints would allege facts that
establish the “adverse interest exception” to in pari delicto, i.e.
that Del Biaggio was acting for his own interest and not that of
the LLC, in which case Del Biaggio’s fraud would not be imputed to
Debtor (or the trustee, standing in the shoes of Debtor). 	In re
Crown Vantage, Inc., 2003 WL 25257821 (N.D. Cal).
VIII. Leave to Amend
Leave to amend is granted regarding all dismissed claims,
except the section 548 claims seeking to avoid the November 12,
2005 transfer. 	In light of the parties’ settlement efforts, the
time for Plaintiff to file and serve the amended complaints and for
Defendants to file and serve responses to the amended complaints is
extended until entry of a separate order by this court.
**END OF MEMORANDUM**
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