Palmer v. Menser (In re Menser)

CHAPTER 7

MEMORANDUM OPINION AND ORDER

Jeffery W. Cavender, U.S. Bankruptcy Court Judge

When Charles Menser, Jr. filed a chapter 7 bankruptcy, he claimed to own about $15, 000 of assets. The Trustee of Menser's bankruptcy estate claims he really owns substantially more.

2

The problem is the assets are held in the names of family members and dozens of entities Menser does not own. This case is about whether and how the Trustee can recover those assets.

The Trustee's basic premise is that over many years Menser constructed a byzantine network of corporations, LLCs, trusts, and family businesses through which he constantly filtered substantial assets to hide them from his personal creditors while also maintaining control of the assets. From this basic premise, the Trustee asserts two general theories to recover assets from this alleged network. First, the Trustee claims legal ownership of assets held by Menser's family members and affiliated entities should be ignored to recognize Menser, and his bankruptcy estate, as the true or de facto owner of the assets. Second, the Trustee seeks to avoid specific transfers as fraudulent.

Seven of thirty defendants in this case moved to dismiss the Trustee's Complaint. They first argue the Complaint is a shotgun pleading. They also argue claims that Menser is the de facto owner of their assets are really reverse veil-piercing or similar claims not recognized under Georgia law. Several defendants also challenge some of the Trustee's specific claims for fraudulent transfers. The Court disagrees with defendants that the Complaint, as a whole, is a shotgun pleading, but agrees that some specific counts should be dismissed as shotgun pleadings. The Court agrees with defendants that several of the Trustee's claims are reverse veil-piercing claims, or something similar, not recognized under Georgia law and should be dismissed. Finally, the Court disagrees that any specific fraudulent transfer claims should be dismissed.

I. PROCEDURAL BACKGROUND

Charles Menser, Jr. ("Menser" or "Debtor"), filed a chapter 7 bankruptcy case on September 19, 2018. One of Debtor's primary creditors filed a separate adversary proceeding seeking denial of Debtor's discharge. Debtor ultimately waived his chapter 7 discharge, which the

3

Court approved by order entered in the main bankruptcy case. See Doc. No. 260, Case No. 18-65681. Thus, Debtor will not receive a discharge in his bankruptcy case.

The chapter 7 trustee (the "Trustee") started this Adversary Proceeding by filing an initial complaint (Doc. No. 1) on December 18, 2020.^[1] The initial complaint named 30 defendants and asserted 29 counts. Several defendants filed answers and/or motions to dismiss, and the Trustee filed an amended complaint (Doc. No. 22). Several defendants again filed motions to dismiss the amended complaint, and the Trustee filed a motion for leave to file a second amended complaint. The Court held a hearing on the pending motions, at which the Court made several findings and observations about the various counts, certain deficiencies in places, and whether additional allegations or amendments were necessary for certain counts. The Court then entered an order granting the Trustee's motion to file a second amended complaint and denied the pending motions to dismiss as moot, but without prejudice to the defendants' right to file motions to dismiss a second amended complaint. The Trustee filed his Second Amended Complaint (Doc. No. 61) on June 1, 2021 (the "Complaint"). The Complaint names the same 30 defendants, but it adds two counts for a total of 31 separate counts.

Three groups of defendants filed separate motions to dismiss certain counts in the Complaint:

• The "Connell Defendants" - Defendants George Connell, Archer Augusta, LLC, and Pointer Investments Incorporated filed their Motion to Dismiss Second Amended Complaint (Doc. No. 70) (the "Connell Motion to Dismiss") seeking dismissal of counts I, II, III, V, VI XI, XXIV, XXV, XXVIII, XXX, and XXXI against them.^[2]

4

• Debtor filed his Motion to Dismiss Second Amended Complaint (Doc. No. 75) (the "Debtor Motion to Dismiss") seeking dismissal of counts I, II, III, and XXVIII against him

• The "Phyllis Menser Defendants" - Phyllis Menser, 1266 Moores Mill Road, LLC, and P.J. Menser Family Partnership, L.L.L.P. filed their Motion to Dismiss Second Amended Complaint (Doc. No. 73) (the "Phyllis Menser Motion to Dismiss," together with the Connell Motion to Dismiss and Debtor Motion to Dismiss, the "Motions to Dismiss") seeking dismissal of counts I, II, III, XVII XIX, XXX, and XXXI against them.

The Trustee opposes all three Motions to Dismiss.

II. JURISDICTION

The Court has jurisdiction over this Adversary Proceeding pursuant to 28 U.S.C. § 1334. This matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(E) and (H).

III. STANDARD OF REVIEW

Dismissal under Federal Rule 12(b)(6) is appropriate if the Complaint fails "to state a claim upon which relief can be granted." Fed.R.Civ.P. 12(b)(6). This Rule normally is construed with Federal Rule 8(a), which provides the "normal" pleading standard that a pleading contain a "short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2). This standard "does not require 'detailed factual allegations,' but it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007)). The complaint must contain "sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.' A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 570). "[D]etermining whether a complaint states a plausible claim is context specific, requiring the reviewing court to draw on its experience and common sense." Iqbal, 556 U.S. at 679.

5

The court restricts its inquiry to the legal feasibility of the allegations in the complaint and whether they set forth facts as opposed to labels or mere conclusory statements when considering a motion to dismiss. See Howell v. U.S. Foods (In re Bilbo), 2014 WL 689097, at *3 (Bankr. N.D.Ga. Feb. 5, 2014) (citing Iqbal, 556 U.S. at 678). After determining which allegations in a complaint are well-pled facts and which are legal conclusions, a court must accept all well-pled facts as true and must construe those facts and the complaint in the light most favorable to the plaintiff. Mink v. Smith & Nephew, Inc., 860 F.3d 1319, 1324 (11th Cir. 2017); Fourth Estate Pub. Benefit Corp. v. Wall-Street.com, LLC, 856 F.3d 1338, 1339 (11th Cir. 2017).

IV. FACTUAL ALLEGATIONS

The facts alleged in the Complaint are accepted as true for purposes of the Motions to Dismiss. The Complaint is substantial, spanning 141 pages (not including exhibits), 398 numbered paragraphs, 31 counts, and 30 defendants. It can be divided generally into three sections. The first section spans paragraphs 1-63 and includes basic allegations about the defendants' addresses, Debtor's insolvency, and a general overview of Menser's alleged network and the scheme he employed to shield assets from creditors. The second section spans paragraphs 64-246 and provides more detailed allegations for each defendant and the specific assets and transfers the Trustee is seeking to avoid and recover. The final section covers paragraphs 247-398 and contains the 31 separate counts. The Court need not summarize all of the allegations for purposes of the pending Motions to Dismiss except to say the Trustee alleges that over many years Menser created dozens of shell entities and straw persons and orchestrated numerous asset transfers among family members and affiliated entities to shield assets from his creditors while maintaining control of the assets. The Trustee seeks to unwind the network in its entirety by having nearly all assets of the entities and individuals within the network declared assets of the estate. The Trustee also seeks to

6

avoid numerous specific transfers as fraudulent. Discussion of specific allegations relevant to each count follows in the applicable analysis below.

V. CONCLUSIONS OF LAW

The three primary questions before the Court are (1) whether the Complaint, on the whole, is a shotgun pleading, (2) whether the Complaint states viable claims to declare assets legally owned by non-debtors to be estate assets; and (3) whether certain counts adequately plead fraudulent transfer claims. The Court first addresses the shotgun pleading arguments applicable to the entire Complaint. Then the Court addresses each specific count for which dismissal is sought in the order as pled in the Complaint.

A. Shotgun Pleadings

The Connell and Phyllis Menser Defendants argue the Complaint should be dismissed in its entirety because it is a shotgun pleading. The Eleventh Circuit has outlined four general types of shotgun pleadings:

Though the groupings cannot be too finely drawn, we have identified four rough types or categories of shotgun pleadings. The most common type-by a long shot- is a complaint containing multiple counts where each count adopts the allegations of all preceding counts, causing each successive count to carry all that came before and the last count to be a combination of the entire complaint. The next most common type, at least as far as our published