Dream Med. Grp., LLC v. Church Enters., Inc. (In re Church)

657 B.R. 431

IN RE, Brendan Hampton CHURCH, Debtor(s).

Dream Medical Group, LLC, Joseph Agresti, Plaintiff(s), v. Church Enterprises, Inc. et al.,

Defendant(s).

C/A No. 23-01436-HB

Adv. Pro. No. 23-80047-HB

United States Bankruptcy Court, D. South Carolina

Signed February 8, 2024

Joshua J. Hudson, Smith Hudson Law, LLC, Greenville, SC, for Plaintiff(s).

Christine E. Brimm, Barton Brimm, PA, Myrtle Beach, SC, for Defendants Bridging Interests, LLC, Invictus Maneo Real Estate, LLC, Michael A. Wade, Enterprises, LLC, Mowry Ave Hospitality, LLC, Paris Mountain Holdings, LLC, Richardson Poultry Group, LLC, Shtah, Inc., Simpson Enterprises, LLC, Wild Frontier, LLC, Abbott W. Dees, Austin Ohly, Bradley Burkholder, Brian A. Siktberg, Brian Wenger, Charles Kert Hartsel, Jr., Christopher Scott Spires, David Terhune, Jr., Gary M. Soriano, Jamie Fuller, John W. Leary, John Donald Pitner, Joshua Patrick Crowe, Kevin Skarin, Lance Eason, Marshall D. Davis, Michael Gonzalez, Monica E. Daniel, Randolph J. Saxon, Robert Shaffer, Ryan Powell, Ryan Smith, Stevan Stein, Stevan Nolan Patrick, Todd David Kanzinger, Vincent W. Teng, Vivien Teng, William M. Lane, KKY Enterprise, Inc., Gary F. Caldwell, James Walter Scott Fuller, Tommie J. Bryant.

Mary M. Caskey, Haynsworth Sinkler Boyd, PA, Columbia, SC, for Defendants Asher Collins, Inc., Becston, Inc., Bridging Interests, LLC, Bruce Investments, LLC, Gemini Ventures, LLC, Invictus Maneo Real Estate, LLC, KKY Enterprise, Inc., MCT Enterprises, LLC, Michael A. Wade, Enterprises, LLC, Mowry Ave Hospitality, LLC, Nothing Wasted Foods II, Inc., P&C Enterprises of Ohio, LLC, Paris Mountain Holdings, LLC, Richardson Poultry Group, LLC, Shtah, Inc., Simpson Enterprises, LLC, Swindler Revocable Family Trust, Wild Frontier, LLC, Abbott W. Dees, Adaobi Dhinelo Gwacham, Andrew L. Anderson, Austin Ohly, Benjamin Swanson, Bradley Burkholder, Brian A. Siktberg, Brian Wenger, Chad L. Eisenga, Chad Saxon, Charles Kert Hartsel, Jr., Christopher Scott Spires, Clayton May, David Terhune, Jr., Douglas K. Jordan, Evan Williamson, Evelyn L. Hines, Garry Brumels, Gary F. Caldwell, Gary M. Soriano, James Walter Scott Fuller, James R. Goff, Jason Deyo, Jeremy Slouder, Jim Saxon, Dycos Staffing, John W. Leary, John Donald Pitner, Joshua Patrick Crowe, Kevin Skarin, Lance Eason, Mark A. Cabrera, Marshall D. Davis, Michael Gonzalez, Michael Joseph Kelley, Michael Wagner, Monica E. Daniel, Randolph J. Saxon, Robert Shaffer, Robert S. Swindler, Ronald Szczepanski, Ryan Bilton, Ryan Powell, Ryan Smith, Stephen D. Lowery, Stevan Stein, Stevan Nolan Patrick, Todd David Kanzinger, Tony Stewart, Vincent W. Teng, Vivien Teng, William M. Lane.

Gregory J. English, Miranda Bliss Nelson, Wyche, P.A., Greenville, SC, for Defendants Becston, Inc., Gemini Ventures, LLC, Nothing Wasted Foods II, Inc., Adaobi Dhinelo Gwacham, Andrew L. Anderson, Benjamin Swanson, Chad Saxon, Clayton May, Evan Williamson, James R. Goff, Jim Saxon, Dycos Staffing, Mark A. Cabrera, Michael Joseph Kelley, Michael Wagner, Ryan Bilton, Tony Stewart.

Frank B.B. Knowlton, Scott Douglas MacLatchie, II, Nelson Mullins Riley Scarborough LLP, Columbia, SC, for Defendants Church Enterprises, Inc., Betsy Anderson, Edwin Church, Jr., Jean Church, Kirsten Church.

Michael H. Weaver, Rogers Townsend, LLC, Columbia, SC, for Defendants Bruce Investments, LLC, Swindler Revocable Family Trust, Chad L. Eisenga, Garry Brumels, Jason Deyo, Robert S. Swindler, Stephen D. Lowery.

ORDER DENYING MOTION TO DISMISS

Helen E. Burris, Chief United States Bankruptcy Judge

THIS MATTER came before the Court for a hearing on January 4, 2024, on the Motion to Dismiss ("Motion") filed by a large group of defendants, some of whom are represented by Christine E. Brimm and whose names are listed on Exhibit A thereto (the "Brimm Defendants").² Defendants Bruce Investments, LLC, Jason Deyo, Garry Brumels, Chad L. Eisenga, Stephen D. Lowery, Robert S. Swindler, and the Swindler Revocable Family Trust who are represented by Michael H. Weaver (the "Weaver Defendants") are also movants.³ Collectively, the Brimm Defendants and the Weaver Defendants are referred to herein as the "Moving Defendants." Plaintiffs Dream Medical Group, LLC ("DMG") and Joseph Agresti ("Agresti") (collectively, the "Plaintiffs") filed a response in opposition to the Motion.⁴ The Moving Defendants request dismissal of this adversary proceeding as to them with prejudice pursuant to Fed. R. Civ. P. 12(b)(6), which is made applicable to this adversary proceeding by Fed. R. Bankr. P. 7012(b). There are forty-seven (47) Moving Defendants, but approximately seventy-seven (77) Defendants are named in this action.

The background of this proceeding is found on the Court's dockets in the bankruptcy case and this adversary. On March 2, 2022, Plaintiffs filed an Amended Complaint naming numerous parties (the "Defendants"), including the Moving Defendants, in the Court of Common Pleas, Thirteenth Judicial Circuit, Greenville County, South Carolina (C.A. No.: 2022-CP-23-0576) (the "State Court Litigation").⁵ On May 23, 2022, a group of Defendants that included the Moving Defendants filed a Motion to Dismiss the Amended Complaint in the State Court Litigation.⁶

On May 18, 2023, Brendan Hampton Church ("Debtor") filed a petition for relief under Chapter 11 of the Bankruptcy Code to begin the above bankruptcy case. On August 1, 2023, Debtor's case was converted to Chapter 7, and John K. Fort was appointed Chapter 7 Trustee (the "Trustee").

On August 15, 2023, Plaintiffs filed a Notice of Removal to remove the State Court Litigation to this Court and initiate the above adversary proceeding. At the time of the removal of the State Court Litigation, the Motion to Dismiss was pending.⁷

The Amended Complaint is summarized below.⁸ The summary is presented merely as an aid in the Court's analysis of the Motion, and nothing therein shall be construed as a finding of fact or conclusion of law.

On or about April 16, 2020, Agresti prepaid Old South Trading Co., LLC ("OST") and its owner, Debtor, $11.5M for five million KN95 masks. Debtor and OST did not deliver those masks as promised. Consequently, on May 5, 2020, Plaintiffs, Debtor, and OST entered into a Resolution Agreement, under which Debtor and OST promised to refund $5.5M to Plaintiffs and to deliver certain quantities of masks. Debtor and OST breached the Resolution Agreement by, among other things, failing to refund the money to Plaintiffs. Debtor and OST have claimed that they lack the resources to pay the debt owed to Plaintiffs.

Although Plaintiffs did not immediately commence an arbitration proceeding against Debtor and OST based on Debtor's request to Agresti to delay the proceeding so Defendants would not lose their livelihoods, Plaintiffs eventually commenced an arbitration proceeding in late August 2020. In November 2020, while still having refused to pay the debt he owed to Plaintiffs, Debtor closed on the purchase of a lake house on Lake Keowee in Pickens County, South Carolina for over $2.7M, ostensibly with a portion of Plaintiffs' funds. On January 10, 2022, the panel presiding in the arbitration issued an award in favor of Plaintiffs (as well as two co-plaintiffs) and against Debtor and OST for $5,540,231.16, with any amounts not paid within 30 days of the award accruing interest at four percent.

In or before May 2020, or thereafter, each of the Defendants invested substantial sums in OST and Debtor. Debtor and OST promised and paid the Defendants returns on their capital investments of 10 percent per month for over a year, both before and for many months after May 2020. At some point in 2020, Debtor and OST reduced the rate of return they were paying Defendants to two percent per month. Though it was not known to Plaintiffs at the time, Debtor and OST were using the $11.5M in prepayments Plaintiffs had paid them in April 2020—including the $5.5M Debtor and OST promised to refund—to pay Defendants the returns.

Given the high rate of return Debtor and OST were paying Defendants, as well as Defendants' "family and friend" insider relationships with Debtor and OST, Defendants had at least constructive knowledge that Debtor and OST were attempting to defraud their creditors, including Plaintiffs. Additionally, given the family relationship between Debtor and many of the Defendants (Chuck Church, Kirsten Church, Jean Church, and Betsy Anderson), said Defendants had actual knowledge that Debtor and OST were using Plaintiffs' money to pay them in the manner of a Ponzi scheme. In short, Defendants were aware that Debtor and OST owed money to Plaintiffs and agreed with Debtor and OST's strategy of refusing to pay the debt owed to Plaintiffs and instead paying high rates of returns to Defendants. Thus, Defendants participated in Debtor's and OST's fraud.

In support of their actual and constructive fraudulent transfer claims under the Statute of Elizabeth, Plaintiffs allege Debtor and OST were indebted to Plaintiffs at the time they made transfers to Defendants. Second, Debtor and OST's transfers to Defendants were voluntary because they had the unilateral ability to reduce the returns they paid to Defendants. Third, Debtor and OST failed to retain sufficient property to pay the debt to Plaintiffs, deliberately divesting themselves of assets to avoid the obligations they owe to Plaintiffs through transfers to the Defendants. Finally, Plaintiffs allege Debtor and OST's transfers to Defendants were without consideration, or, alternatively, were with consideration and with actual intent to defraud Plaintiffs.

Plaintiffs assert they are entitled to the imposition of a constructive trust. They allege Defendants obtained money which does not equitably belong to them and which they cannot in good conscience retain or withhold from Plaintiffs who are beneficially entitled to it.

Asserting a claim for civil conspiracy, Plaintiffs allege Debtor, OST, and Defendants entered into an agreement—express...