Herendeen v. Regions Bank (In re Able Body Temp. Servs., Inc.), Case Nos. 8:13-bk-06864-CED, et al.

In re: Able Body Temporary Services, Inc., et al., Debtors.

Christine L. Herendeen, As Chapter 7 Trustee, Plaintiff, v. Regions Bank, Defendant.

Case Nos. 8:13-bk-06864-CED, et al.

Adv. Pro. No. 8:15-ap-118-CED LEAD CASE

UNITED STATES BANKRUPTCY COURT MIDDLE DISTRICT OF FLORIDA TAMPA DIVISION

October 10, 2018

Chapter 7

ORDER GRANTING REGIONS BANKS' MOTIONS TO DISMISS CERTAIN COUNTS OF PLAINTIFF'S AMENDED COMPLAINTS

Defendant Regions Bank ("Regions") has filed motions to dismiss (the "Motions to Dismiss") Plaintiff's claims for the avoidance and recovery of alleged constructive fraudulent transfers in her amended complaints (the "Amended Complaints")¹ filed in four of the above-captioned adversary proceedings: Professional Staffing-A.B.T.S., Inc. ("Professional Staffing"), USL&H Staffing, LLC ("USL&H"), YJNK III, Inc. ("YJNK III"), and Able Body Gulf Coast, Inc. ("Able Body") (together "Debtors").²

Having carefully considered the Motions to Dismiss, Plaintiff's responses, Regions' replies, and the arguments of counsel at a hearing conducted on April 2, 2018, the Court will grant the Motions to Dismiss.

I. THE AMENDED COMPLAINTS

Plaintiff's Amended Complaints are virtually identical.³ Many of the facts are not in dispute; they are described in detail in this Court's prior ruling on Plaintiff's motion for partial summary judgment.⁴ Briefly, Debtors' principals, Frank and Anne Mongelluzzi, owned numerous businesses (the "Mongelluzzi Entities"). The Mongelluzzi Entities maintained deposit accounts at Regions (the "Regions Accounts"). Some of the Mongelluzzi Entities also had lending relationships with Regions. Plaintiff alleges that Debtors each maintained more than one deposit account at Regions from 2007 until the accounts were closed in 2010.⁵

Plaintiff alleges that starting in 2008, Debtors began having significant cash flow issues, and that to cover their shortfalls, the Mongelluzzi Entities and Debtors engaged in a check-kiting scheme within the Regions Accounts.⁶ In Paragraph 45 of the Amended Complaints, Plaintiff alleges that:

The Mongelluzzis continuously issued checks drawn on accounts which lackedsufficient funds to cover them (the "Check Kite Accounts") so that the Debtor would have access to interest free loans of the fictitious account balances during the float period and thereby hinder, delay, or defraud the Debtor's creditors in the period 2008 through 2010.⁷

And in Paragraph 121 of the Amended Complaints, Plaintiff alleges:

. . . In the period 2008 through 2010, Regions intended the negative cash balances in the Debtor's bank accounts to constitute loans for which [Regions] perceived a credit risk. As a result, Regions demanded that the Mongelluzzis transfer funds from the Debtor's bank accounts at Regions to repay overdrafts in other accounts at Regions. These transfers are the "Overdraft Loan Repayment Transfers" which are transfers from the Debtor's bank accounts to Regions to repay overdrafts which constituted mini-loans made by Regions within the four year period preceding the Petition Date. These Overdraft Loan Repayment Transfers constituted transfers of an interest of the Debtor in property within the meaning of Chapter 726 of the Florida Statutes and other applicable law over which Regions obtained sole dominion and control. . . . A true and correct copy of the Overdraft Loan Repayment Transfers is attached as Exhibit A and is incorporated herein by this reference.⁸

Although Plaintiff alleges that "Regions demanded that the Mongelluzzis transfer funds from the Debtor's bank accounts at Regions to repay overdrafts in other accounts at Regions,"⁹ this allegation appears to be contradicted by the information set forth on the Exhibits A to the Amended Complaints. For example, Exhibit A in the Professional Staffing adversary proceeding lists 73 separate "Overdraft/Overdraft Loans" for three different bank accounts, totaling $6,178,483.48 with a corresponding "Date of Repayment in Full."¹⁰ The three bank accounts referenced on Exhibit A appear to be those of Professional Staffing, not "other accounts." Similar information, varying only as to the account numbers and the dates and amounts of the overdrafts and repayments, is provided on the Exhibits A to the Amended Complaints in the USL&H, YJNK III, and Able Body adversary proceedings.

In Count 1 of the Amended Complaints, Plaintiff seeks to avoid the Overdraft Loan Repayment Transfers as actual fraudulent transfers under Florida Statute § 726.105(1)(a) and as constructive fraudulent transfers under § 726.105(1)(b).¹¹ In Count 2, Plaintiff seeks to avoid the Overdraft Loan Repayment Transfers as constructive fraudulent transfers under Florida Statute § 726.106(1). And in Count 3 in the Professional Staffing and the USL&H adversary proceedings and Count 5 in the YJNK III and Able Body adversary proceedings, Plaintiff seeks to recover the avoided the transfers under 11 U.S.C. § 550.

II. ANALYSIS

A. Motion to Dismiss Standard

Under Federal Rule of Civil Procedure 12(b)(6), incorporated by Federal Rule of Bankruptcy Procedure 7012, a defendant may move to dismiss a complaint for failure to state a claim upon which relief can be granted.¹² To satisfy the pleading requirements of Federal Rule of Civil Procedure 8, as incorporated by Federal Rule ofBankruptcy Procedure 7008, a complaint must contain a "short and plain statement of the claim showing that the pleader is entitled to relief."¹³ To survive a motion to dismiss, a complaint must include "enough facts to state a claim to relief that is plausible on its face."¹⁴ A claim is plausible on its face when the plaintiff includes "factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged."¹⁵ The moving party bears the burden of showing that no claim has been stated.¹⁶

During this threshold review, the court "must accept the allegations of the complaint as true and must construe the facts alleged in the light most favorable to the plaintiff."¹⁷ This requires the court to consider "not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims."¹⁸ That said, the plaintiff must do more than raise a sheer possibility of the defendant's liability.¹⁹

B. Constructive Fraudulent Transfer Claims under §§ 726.105(1)(b) and 726.106(1)

Chapter 726 of the Florida Statutes is the Florida Uniform Fraudulent Transfer Act ("FUFTA"). Under § 726.105(1)(b), a transfer is fraudulent as to present or future creditors if the debtor made the transfer without receiving a reasonably equivalent exchange of value and the debtor (1) 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 (2) intended to incur, or believed or reasonably should have believed that it would incur, debts beyond its ability to pay as they became due. Likewise, under § 726.106(1), a transfer is fraudulent as to a creditor whose claim arose before the transfer was made if the debtor made the transfer without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation.

Under § 726.104, value is given for a transfer or an obligation if, in exchange for the transfer or obligation, property is transferred or an antecedent debt is secured or satisfied.²⁰ Courts considering the issue of reasonably equivalent value under FUFTA frequently look to analysis under the Bankruptcy Code.²¹ Similar to FUFTA, 11 U.S.C. § 548(a)(1) provides for the avoidance of transfers for which less than reasonably equivalent value was received.

C. Regions' Motions to Dismiss

Regions moves to dismiss Plaintiff's constructive fraud claims in the Amended Complaints on three grounds.²² First, Regions contends that Plaintiff does not plausibly allege that Debtors did not receive reasonably equivalent value in exchange for the Overdraft Loan Repayment Transfers. Second, Regions argues the Overdraft Loan Repayment Transfers were in payment of overdrafts in Debtors' own accounts at Regions, such that they constituted the payment of antecedent debts. Third, Regions contends that dismissal is warranted because "fair consideration" and "good faith" are not incorporated into the Florida Uniform Fraudulent Transfer Act.

(1) Plaintiff has not adequately alleged that less than reasonably equivalent value was received in exchange for the Overdraft Loan Repayment Transfers.

Regions' first two grounds for dismissal of the Amended Complaints are intertwined. Essentially, Regions argues that Plaintiff has not and cannot state a claim for the avoidance of constructively fraudulent transfers as to the Overdraft Loan Repayment Transfers because the alleged transfers were in payment of overdrafts in Debtors' own accounts.

Plaintiff argues that in considering the sufficiency of the Amended Complaints, the Court should rely on Welch v. Synovus Bank²³ and Welch v. Highlands Union Bank.²⁴ In these cases, the courts considered the legal sufficiency of complaints filed by the trustee to avoid "overdraft loan repayment transfers" in Mr. Mongelluzzi's individual bankruptcy case. In Synovus, the district court denied the defendant bank's motion to dismiss, finding the allegations in the complaint sufficient to withstand a motion to dismiss. Likewise, in Highlands Union, the district court denied the defendant bank's motion for judgment on the pleadings (applying the same standard as Rule 12(b)(6)), finding that the plaintiff trustee had alleged that the transfers at issue were made for "less than reasonably equivalent value in exchange for such transfers."²⁵

Here, as in Synovus and Highlands Union, Plaintiff has alleged that the Overdraft Loan Repayment Transfers were for less than reasonably equivalent value.²⁶ However, Plaintif...