Oliver, Trustee v. Cooper et al

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
GREENVILLE DIVISION
IN RE:
LUTHER WHITFIELD BATEMAN, JR.,
DEBTOR
CHAPTER 7
CASE NUMBER: 10-06206-8-RDD
GEORGE M. OLIVER, TRUSTEE,
Plaintiff
v.
CAROL BATEMAN COOPER, LOUIS
EUGENE BATEMAN, TIMOTHY ROSS
BATEMAN; and ROBERT CHARLES
BATEMAN
Defendants.
ADVERSARY PROCEEDING
NUMBER: 11-00397-8-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 Carol Bateman Cooper and Timothy Ross Bateman (collectively hereinafter referred to as
the “Movants”) on January 30, 2012, and the Response to Motion to Dismiss (the “Response”) filed
SO ORDERED.
SIGNED this 02 day of April, 2012.
________________________________________
Randy D. Doub
United States Bankruptcy Judge
____________________________________________________________
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by the Chapter 7 Trustee (the “Trustee”) on February 20, 2012. On March 14, 2012, the Court
conducted a hearing on the Motion and the Response in Wilson, North Carolina.
Luther Whitfield Bateman, Jr. (the “Debtor”) filed a voluntary petition for relief under
Chapter 7 of the Bankruptcy Code on August 4, 2010. As of the petition date the Debtor owned real
property described as 106 Sanderline Road, Shawboro, North Carolina (the “Property”). 	On
September 26, 2008, the Debtor transferred his interest in the Property to Carol Bateman Cooper,
Timothy Ross Bateman, Louis Eugene Bateman, and Robert Charles Bateman (collectively
hereinafter referred to as the “Defendants.”) by North Carolina General Warranty Deed. As of the
petition date, the Debtor valued his interest in the Property to be approximately $186,000.00.
Guardian Federal Credit Union held a mortgage on the Property in the amount of $15,395.99.
The Trustee commenced this adversary proceeding on December 30, 2011 with the filing of
the complaint against the Defendants. The Trustee seeks in his complaint to avoid and recover
fraudulent transfers relating to the transfer of the Debtor’s Property to the Defendants on September
26, 2008 pursuant to 11 U.S.C. §§ 548; N.C. Gen. Stat. § 39-23.4; and 11 U.S.C. §§ 501 and 551.
In the alternative, the Trustee seeks an order requiring the Movants to pay the Debtor’s bankruptcy
estate the value of the Debtor’s interest in the Property prior to the transfer. The Trustee alleges that
the Defendants paid little or no consideration to the Debtor for the transfer of his interest in the
Property. Further, the Trustee alleges, the Defendants are children of the Debtor.
On January 30, 2012, the Movants filed a Motion to Dismiss, requesting the Court dismiss
the Trustee’s 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.
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In response, the Trustee contends the complaint sets forth seven factual allegations which
establish sufficient facts to state a claim of relief that is plausible on its face.
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. July 23, 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. Id. 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).
11 U.S.C. § 548(a)(1) allows the trustee to avoid fraudulent transfers of an interest of the
debtor in property incurred within two years before the petition date. Section 548 provides in part:
(a)(1) 	[t]he trustee may avoid any transfer . . . of an interest of the debtor in
property, . . . that was made . . . on or within 2 years before the date of the filing of
the petition, if the debtor voluntarily or involuntarily- . . . .
(B)(i) received less than a reasonably equivalent value in exchange for such transfer
or obligation; and
(ii)(I) was insolvent on the date that such transfer was made . . . or became insolvent
as a result of such transfer . . . .”
The Movants contend that the Trustee fails to allege sufficient factual allegations to support
a claim under11 U.S.C. § 548 (a)(1)(B). Specifically, the Movants argue that as to the insolvency
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requirement, 	the Trustee merely makes the conclusory statement that “[u]pon information and
belief, the Debtor became insolvent as a result of the transfer of the Property of the Defendants.”
To avoid a transfer under § 548(a)(1)(B), the debtor must be insolvent on the date that such
transfer was made. Callaway v. Novelli (In re Bouchard) 2011 WL 110901 at *2 (Bankr. E.D.N.C.
Jan. 12, 2011) 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 . . . .” Id. (citing 11 U.S.C. §
101(32)(A)).
The Trustee’s complaint alleges, the Debtor “became insolvent as a result of the transfer of
the Property to the Defendants.” Although the complaint recites the elements of §548(a)(1)(B), it
fails to provide factual support of these allegations. The complaint fails to provide basis to find that
the Debtor became insolvent as a result of the transfer. The Trustee contends that it is a reasonable
inference that the Court may draw that due to the loss of such value or the loss of approximately
$170,000.00 in equity that existed in the Property, the Debtor was rendered insolvent as a result of
the transfer. The Trustee requests the Court take judicial notice of the Debtor’s Summary of
Schedules, which is a matter of public record and filed on the docket in the Debtor’s bankruptcy
case. Even if the Court were to take judicial notice of the Debtor’s schedules, there are no facts in
the complaint supporting the Debtor’s insolvency on or about the date of the transfer. The Debtor’s
assets and liabilities as indicated on the Schedules nearly two years subsequent to the date of the
transfer cannot show that it is plausible the Debtor was insolvent on the date of the transfer or
became insolvent as a result of the transfer. The Schedules filed in the Debtor’s bankruptcy case
indicate that as of the petition date, the Debtor’s assets totaled approximately $200,675.00 while the
Debtor’s liabilities totaled approximately $73,559.33. Schedule A lists a life estate in the Property
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with a value of approximately $186,000.00. 	As for liabilities, the Debtor’s schedules list
approximately $29,181.98 in secured claims and approximately $44,377.35 in unsecured claims. The
unsecured claims largely represent credit card debt. The complaint fails to provide factual
allegations that these unsecured liabilities existed on or about September 26, 2008, the date of the
transfer. The complaint does not provide sufficient facts showing the Debtor’s actual assets and
liabilities as they stood on the date the Property was transferred or shortly thereafter. These are the
facts the Trustee should have pled in regard to the essential element of insolvency. Here, the
statement that “the Debtor became insolvent as a result of the transfer of the Property to the
Defendants” is a “conclusory statement [that] ‘fail[s] to satisfy the requirements under Iqbal.” Groff
v. JPMorgan Chase Bank, N.A. ( In re Groff ) 2011 WL 6140744 at * 3 (Bankr. E.D.N.C. Dec. 9,
2011) (citing 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 Trustee’s second claim for relief under N.C. Gen. Stat. § 39-23.4(a) is similar to the first
claim for relief under 11 U.S.C. § 548. 	North Carolina has adopted the Uniform Fraudulent
Transfer Act, which also recognizes fraudulent conveyances. “Under the Uniform Fraudulent
Transfer Act, a transfer is fraudulent if made without receiving reasonably equivalent value; and,
the debtor was either engaged in a business transaction for which the remaining assets of the debtor
were unreasonably small in relation to the transaction, or the debtor knew debt incurred was beyond
the debtor’s ability to pay.” Beaman v. Barth, (In re Amerlink, LTD.) AP No. 10-00164-8-JRL at 6
(Bankr. E.D.N.C. March 18, 2011) (citing N.C. Gen. Stat. § 39-23.4).
North Carolina General Statute § 39-23.4 provides:
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(a) A transfer made or obligation incurred by a debtor is fraudulent as to a creditor,
whether the creditor’s claim arose before or after the transfer was made or the
obligation was incurred, if the debtor made the transfer or incurred the obligation:
(1) With intent to hinder, delay, or defraud any creditor of the debtor; or
(2) Without receiving a reasonably equivalent value in exchange for the transfer or
obligation, and the debtor:
a. Was engaged or was about to engage in a business or a transaction for which the
remaining assets of the debtor were unreasonably small in relation to the business or
transaction; or
b. Intended to incur, or believed that the debtor would incur, debts beyond the
debtor’s ability to pay as they became due.
N.C. Gen. Stat. § 39-23.4(a).
As to the second claim for relief, the complaint alleges:
19. The transfer of the Property was intended to hinder, delay, or defraud creditors.
20. Upon information and belief, the Debtor became insolvent as a result of the
transfer of the Property to the Defendants.
21. The transfer of the Property to the Defendants represents a transfer by the Debtor
to insiders.
22. The Debtor received less than the reasonable equivalent value in exchange for
the Property and as a result debts were incurred beyond the Debtor’s ability to pay
as they became due.
“To fully satisfy N.C. Gen. Stat. § 39-23.4, the plaintiff must . . . show that the transaction
left the debtor under capitalized.” Beaman v. Barth, (In re Amerlink, LTD.) AP No. 10-00164-8-JRL
at 10. 	As discussed above, the complaint fails to allege sufficient facts to draw a reasonable
inference that the Debtor was insolvent on the date of the transfer or became insolvent as a result
of the transfer. Further, the complaint fails to set forth sufficient facts supporting the allegation that
the transfer was intended to hinder, delay or defraud creditors. Accordingly, the allegations made
with respect to N.C. Gen. Stat. § 39-23.4 fail to satisfy the pleading requirements of Fed. R. Civ.
Pro. 8(a).
The Trustee’s third cause of action under 11 U.S.C. §§ 550 and 551 is contingent upon the
Trustee being successful on either the first or second cause of action. If a transfer is avoided under
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§ 548, the trustee may recover such property, from “(1) the initial transferee of such transfer or the
entity for whose benefit such transfer was made; or (2) any immediate or mediate transferee of such
initial transferee.” 11 U.S.C. § 550. Pursuant to 11 U.S.C. § 551, a transfer avoided under § 548,
is automatically “preserved for the benefit of the estate.” 11 U.S.C. § 551. Because the Court finds
that the Trustee has failed to satisfy the pleading requirements as to its first and second causes of
action, the Trustee’s third cause of action is also dismissed.
“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.” Groff, 2011 WL 6140744 at 4. 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. § 548; N.C.
Gen. Stat. § 39-23.4; and 11 U.S.C. §§ 550 and 551, the Motion to Dismiss the Adversary
Proceeding is 	GRANTED, without prejudice for the Trustee to move for leave to amend his
complaint. The Court grants the Trustee’s oral motion for leave to amend. The Court grants the
Trustee twenty-one (21) days from the date of the entry of this order in which to file an amended
complaint. Once the Trustee has filed an amended complaint, the Movants shall have twenty-one
(21) days to file an answer or other responsive pleading.
SO ORDERED.
END OF DOCUMENT
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