Beskrone v. OpenGate Capital Grp. (In re Pennysaver USA Publ'g, LLC)

587 B.R. 445

IN RE: PENNYSAVER USA PUBLISHING, LLC, et al., Debtors.

Don A. Beskrone, Chapter 7 Trustee PennySaver USA Publishing, LLC, et al., Plaintiff,

v.OpenGate Capital Group, OpenGate Capital Management Group, LLC, Andrew Nikou, Jay Yook, Daniel Abrams, Alana S. Chaffin, Vijay K. Mony, and Virginia Anne Thornton, Defendants.

Case No.: 15–11198 (CSS) Jointly Administered

Adv. Proc. No.: 17–50530 (CSS)

United States Bankruptcy Court, D. Delaware.

Signed July 11, 2018

ASHBY & GEDDES, P.A., Stephen E. Jenkins, Ricardo Palacio, 500 Delaware Avenue, 8^th Floor, P.O. Box 1150, Wilmington, Delaware 19899, Counsel to the Chapter 7 Trustee

DLA PIPER LLP (US), Craig Martin, 1201 N. Market Street, Suite 2100, Wilmington, DE 19801 and ALSTON & BIRD LLP, Jeffrey A. Rosenfeld (pro hac vice ), 333 S. Hope Street, 16^th Floor, Los Angeles, California 90071, Co–Counsel for the Defendant

OPINION ¹

Sontchi, J.

INTRODUCTION

Before the Court is the defendants' (the "Defendants") motion to dismiss (the "Motion to Dismiss") Counts X–XII, XIV–XVIII in the above captioned adversary action for failure to state a claim upon which relief could be granted pursuant to Federal Rule of Civil Procedure 12(b)(6). For the reasons set forth below, the Court grants, in part, the Defendants Motion to Dismiss. Specifically the Court holds the following:

1. The Court grants the Motion to Dismiss the preferential transfer claims in Count XIV because the Trustee has failed to identify sufficiently the specific Debtor who is making the transfer in violation of the Twombly and Iqbal pleading standards as interpreted by the Court.

2. The Court grants the Motion to Dismiss the fiduciary breach claims in Count XV because the Trustee has failed to allege sufficiently Defendants owed fiduciary duties to the Debtors or breached said duties if they did owe them.

3. The Court dismisses with prejudice the breach of fiduciary duty claim in Count XVI because it is a futile claim.

4. The Court grants the Motion to Dismiss the accounting claims in Count XVII because before the Court grants a request for an accounting, the Trustee must establish that there was a breach of fiduciary duty, which he has not.

5. The Court grants the Motion to Dismiss the claim for a disallowance of claims in Count XVIII because the Trustee has failed to attain a judicial determination on the Complaint which is a prerequisite to a claim for disallowance.

Conversely, the Court denies, in part, the Defendants' Motion to Dismiss the constructive fraudulent transfer claims and actual fraudulent transfer claims in Counts X–XII because the Trustee has met the Twombly and Iqbal pleading standards.

JURISDICTION

The United States Bankruptcy Court for the District of Delaware (the "Court") has subject matter jurisdiction over this adversary proceeding pursuant to 28 U.S.C. § 1334(b). This adversary proceeding is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A), (B), (F), and (H).² The Court has the judicial authority to enter final judgements and orders in this adversary proceeding.

Venue is proper in the Bankruptcy Court pursuant to 28 U.S.C. § 1409(a) because this is a proceeding relating to and arising under Title 11 of the United States Code, 11 U.S.C. §§ 101 – 1532 and the above-captioned chapter 7 case. This action is brought as an adversary proceeding pursuant to Federal Rule of Bankruptcy Procedure, Rule 7001.

STATEMENT OF FACTS

1. Procedural Background

On May 9, 2015 (the "Petition Date"), Pennysaver USA Publishing, LLC filed a voluntary petition for relief under Chapter 7 of the U.S. Bankruptcy Code.³ The Court subsequently entered an order providing for the joint administration of the Debtors' cases consolidating PennySaver USA, LLC, PennySaver USA Publishing, LLC, PennySaver USA Printing, LLC, Orbiter Properties, LLC, and Monthly Mailer, LLC (collectively the "Debtors") for procedural purposes.⁴ The Office of the United States Trustee appointed Don A. Beskrone as the interim Chapter 7 Trustee of the Debtors' cases.⁵ Mr. Beskrone now serves as the trustee (the "Trustee") in these cases according to 11 U.S.C. § 702(d).

2. Factual Background

The Debtors are Delaware limited liability companies.⁶ The other three non-Debtor Delaware LLCs at issue are PennySaver Investors, LLC ("Investors"), OpenGate Capital Group, LLC ("Capital"), and OpenGate Capital Management, LLC, ("Management" together with Investors and Capital "OpenGate").⁷ Throughout the Complaint, the Trustee uses the term "OpenGate" to refer to a single entity and fails to distinguish between Capital, Management, and Investors.⁸

The Trustee alleges the following relationship between the LLCs at issue. Management and Capital directly managed Investors.⁹ Capital owned 98% of Investors' equity.¹⁰ Investors owned, directly or indirectly, the Debtors.¹¹ Specifically, Investors was the sole member and manager of Debtor PennySaver USA, LLC.¹² Management, Capital, and Investors are indistinct as a matter of day-to-day control.¹³ The OpenGate group acquired the Debtors on September 27, 2013.¹⁴

1. Defendants

The Trustee alleges the positions that the Defendants held as employees in one or more of the OpenGate entities, although he fails to specify which of the OpenGate entities: Capital, Management, or Investors, actually employed the Defendants.¹⁵ Additionally, the Trustee alleges that all instructions as to the operations of the Debtors came from persons publicly identified as having been employed by Capital. Yet, the Trustee fails to identify whether the Defendants are publicly identified as Capital employees. Lastly, the Trustee alleges that OpenGate together with "Nikou, Yook and OpenGate's other senior managers " orchestrated a coordinated effort to drain the Debtors of their cash.¹⁶

2. Fiduciary Duty

In the Complaint, the Trustee alleges that Defendants caused the Debtors to make a series of fraudulent transfers from the Debtors to OpenGate, OpenGate's affiliates and employees, or persons to whom OpenGate owed money.¹⁷ Additionally, the Trustee alleges that each of the Defendants exercised control over the Debtors' management from time to time. However, aside from Defendant Thornton, the Defendants are never identified by name in allegations governing the direction or authorization of allegedly fraudulent transfers except as recipients of salary payments. Even when the Defendants, including Thornton, are identified by name, there are no allegations that they personally authorized any of the allegedly fraudulent transfers, including their salaries.¹⁸ Instead, the term "OpenGate" is used to describe the entity that is causing the majority of the transfers.¹⁹ The only transfer the Trustee does not entirely contribute to the OpenGate entities is attributed to both non-Defendant Joy Yook and OpenGate.²⁰ The Trustee alleges that Defendant Thornton, specifically, was aware of all of the money transferred from the Debtors to OpenGate and kept a record it.²¹

The Complaint alleges that the Defendants owed fiduciary duties to the Debtors and breached those duties by facilitating all of the allegedly fraudulent transfers. The Complaint does not detail Defendants' positions within the Debtors' LLCs nor does it detail how Defendants facilitated the transfers. The Trustee fails to allege that Defendants are members or managers of the Debtors under any of the Debtors' LLC agreements. The Trustee has also failed to allege that the Defendants owe fiduciary duties to the Debtors as outlined in any of the Debtors LLC agreements. The Defendants and the Trustee have stated that there are LLC agreements, but neither side has produced them for the review of the Court.

The Trustee alleges that for each of the allegedly fraudulent transfers listed below, Debtors were insolvent or rendered insolvent by the transfer and received no value or consideration therefrom.²² The seven alleged fraudulent transfers are alleged below.

a. The Closing Expenses and the Distribution

The Trustee alleges that OpenGate forced the Debtors to pay approximately $868,000 in closing expenses and that this payment constitutes a fraudulent transfer.²³ The Trustee also alleges that the Debtors made these transfers for the sole benefit of OpenGate.²⁴ The Trustee alleges that OpenGate shortly after acquiring the Debtors caused the Debtors to pay out a distribution of $2,000,000 to Capital.²⁵

b. The Tax Payment

The Trustee alleges that approximately seven months after the acquisition OpenGate caused the Debtors to distribute $1,803,516.00 to itself for alleged tax obligations.²⁶ The Trustee further alleges that the tax payment was a distribution or transfer of an interest in the Debtors property, made to or for the benefit of OpenGate.²⁷

c. The Monthly Management Fee

Shortly acquiring the Debtors, OpenGate caused one or more of the Debtors to enter into a management agreement with OpenGate.²⁸ However, OpenGate did not provide the Debtors with any management services.²⁹ The Trustee includes an exhibit detailing the date the Debtors made each monthly payment for a total of $1,249,999.95 payments were made.³⁰

d. The Salary Payments

In addition to the breach of fiduciary duty claims, the fraudulent and preferential transfer claims rely on the facts set out in the Salary Payments section herein. The Trustee alleges that the Debtors designated the Defendants as "OpenGate Employee[s]"³¹ And that the Debtors paid the Defendants generous salaries commencing until the month before the bankruptcy filings.³² The Trustee also alleges that the Debtors were forced to pay bonuses to the Defendants when they had insufficient funds to give their own staff bonuses.³³ The Trustee alleges that not one of the Defendants performed any amount of material services nor provided any material value to the Debtors in exchange for the salaries they received.³⁴ The Trustee breaks these payments down in detail showing the dates and amounts the Debtors transferred funds to the Defendants.³⁵ These payments occurred within two years of...