Swift Fin. Corp. v. Bath Planet of Miss., LLC

SWIFT FINANCIAL CORPORATION d/b/a SWIFT CAPITAL PLAINTIFF v. BATH PLANET OF MISSISSIPPI, LLC, et al. DEFENDANTS

CIVIL ACTION NO. 3:15cv846-DPJ-FKB

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF MISSISSIPPI NORTHERN DIVISION

June 6, 2016

ORDER

This case is before the Court on motions to dismiss filed by Defendants Christina Kelty [11, 23] and KTM, Inc.; Kelty Plumbing, LLC; and Kelty Tile & Marble, LLC ("the Kelty Defendants") [21]. For the reasons that follow, Christina Kelty's first motion is denied as moot, her second motion is granted in part and denied in part, and the Kelty Defendants' motion is granted.

I. Facts and Procedural History

This lawsuit arises out of a January 13, 2015 Future Receivables Sale Agreement ("the Agreement") between Plaintiff Swift Financial Corporation d/b/a Swift Capital ("Swift") and Defendant Bath Planet of Mississippi, LLC ("Bath Planet"). Am. Compl. [16] Ex. 1. Under the Agreement, Swift purchased $64,450.00 of Bath Planet's future receivables for a one-time payment to Bath Planet of $50,000.00. Bath Planet, in turn, was to make daily remittance payments to Swift of $537.08. Mark Kelty, as President of Bath Planet, signed the Agreement both on behalf of Bath Planet and as Guarantor of Bath Planet's performance thereunder.

By mid-February 2015, Bath Planet began bouncing payments to Swift: two in February and eight payments in March. Bath Planet ultimately ceased making any payments to Swift after April 8, 2015. According to Swift, as of July 29, 2015, Bath Planet owed it $60,339.88 under the Agreement. Am. Compl. [16] Ex. 6.

On June 26, 2015, Mark Kelty filed a Voluntary Bankruptcy Petition under Chapter 7 in the United States Bankruptcy Court for the Southern District of Mississippi. Am. Compl. [16] Ex. 4. On November 3, 2015, Swift filed with the bankruptcy court a Complaint Objecting to the Discharge of a Certain Debt [21-10]. Thereafter, on November 20, 2015, Swift filed this lawsuit against Bath Planet; Christina Kelty, Mark Kelty's spouse; and the Kelty Defendants, three companies owned and operated by Mark Kelty's brother, John Kelty, and sister-in-law, Nikki Kelty.¹

Through its Complaint, Swift asserts the following claims: breach of contract, bad-faith breach of contract, fraud, conversion, tortious interference with contract, and fraudulent transfer. Swift alleges that the Kelty Defendants are all alter egos of Bath Planet and may therefore be held liable for Bath Planet's misconduct. Similarly, Swift claims that Christina Kelty may be held liable for Bath Planet's misconduct under a corporate-veil-piercing theory; it also asserts several claims against Christina Kelty in her individual capacity. See generally Am. Compl. [16]. Christina Kelty and the Kelty Defendants filed the instant motions to dismiss under Federal Rule of Civil Procedure 12(b)(6). The Court has personal and subject-matter jurisdiction and is prepared to rule.²

II. Standard

In considering a motion under Rule 12(b)(6), the "court accepts 'all well-pleaded facts as true, viewing them in the light most favorable to the plaintiff.'" Martin K. Eby Constr. Co. v. Dall. Area Rapid Transit, 369 F.3d 464, 467 (5th Cir. 2004) (quoting Jones v. Greninger, 188 F.3d 322, 324 (5th Cir. 1999) (per curiam)). But "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." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). To overcome a Rule 12(b)(6) motion, a plaintiff must plead "enough facts to state a claim to relief that is plausible on its face." Twombly, 550 U.S. at 570. "Factual allegations must be enough to raise a right to relief above the speculative level, on the assumption that all the allegations in the complaint are true (even if doubtful in fact)." Id. at 555 (citations and footnote omitted).

"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 (citing Twombly, 550 U.S. at 556). It follows that "where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged—but it has not 'show[n]'—'that the pleader is entitled to relief.'" Id. at 679 (quoting Fed. R. Civ. P. 8(a)(2)). "This standard 'simply calls for enough fact to raise a reasonable expectation that discovery will reveal evidence of' the necessary claims or elements." In re S. Scrap Material Co., LLC, 541 F.3d 584, 587 (5th Cir. 2008) (quoting Twombly, 550 U.S. at 556).

"[W]hen considering a Rule 12(b)(6) motion, a court may consider documents outside the complaint when they are: (1) attached to the motion; (2) referenced in the complaint; and (3) central to the plaintiff's claims." Maloney Gaming Mgmt., L.L.C. v. St. Tammany Parish, 456 F. App'x 336, 340 (5th Cir. 2011). In the present case, Swift has attached a wide variety of materials to the Amended Complaint including testimony taken from Mark Kelty. As a result, the record before the Court is more expansive than with the typical Rule 12(b)(6) motion.

III. Analysis

A. The Kelty Defendants' Motion [21]

Swift has not addressed Defendants' motion as it relates to breach of contract, bad faith, or conversion. As to fraud, Swift at times offers vague arguments that the Kelty Defendants engaged in fraud along with Bath Planet, but Swift's Amended Complaint contains no allegations that the Kelty Defendants made any actionable misrepresentations. Instead, Swift alleges that the Kelty Defendants "are the alter egos of Defendant Bath Planet." Am. Compl. [16] ¶ 23; see also id. at ¶¶ 37-48. This alter-ego argument—which Swift asserts as a separate "claim"—is the clear thrust of its briefing. See, e.g., Pl.'s Mem. [27] at 10 ("With respect to the KTM Defendants, this matter involves allegations of alter ego liability . . . .").

The parties dispute whether an alter-ego argument is a separate claim and whether it can be asserted against entities—like the Kelty Defendants—that are not LLC members of the alleged tortfeasor. The Mississippi Supreme Court answered both questions in EDW Investments, LLC v. Barnett, holding that "'alter ego' is not a substantive claim but merely a procedural argument that, if successful, allows a plaintiff to pierce the corporate veil and recover from a corporation's shareholders. Alter-ego liability can be extended only to a corporation'sshareholders . . . ." 149 So. 3d 489, 492 (Miss. 2014) (emphasis added); see also Rest. of Hattiesburg, LLC v. Hotel & Rest. Supply, Inc., 84 So. 3d 32, 39 (Miss. Ct. App. 2012) (applying same veil-piercing rules to LLCs).

In Barnett, EDW Investments was a creditor to a defunct debtor, Techtronics, Inc. Id. at 491. EDW Investments filed suit, claiming that Techtronics fraudulently conveyed its assets to its owner's wife and three LLCs described as "shell entities." Id. But the Mississippi Supreme Court affirmed Rule 12(b)(6) dismissal of the alter-ego-based claims because EDW Investments failed to prove that the defendants were Techtronics's shareholders. Id. at 492-93. The same facts exist in this case. Swift cannot maintain alter-ego claims against the Kelty Defendants.

Swift's efforts to distinguish Barnett are not persuasive. First, even if the Barnett court read too much into Gray v. Edgewater Landing, Inc., 541 So. 2d 1044 (Miss. 1989) (establishing a three-prong veil-piercing test), that does not alter the ultimate holding. Second, Swift attempts to limit Barnett by observing that the claims against Techtronics were time-barred, leading the court to hold that EDW Investments "'simply [could not] pursue a judgment against these Defendants via an alter-ego theory.'" See Pl.'s Mem. [27] at 12-13 (quoting Barnett, 149 So. 3d at 492-93). But Swift ignores the sentence immediately before the quoted holding, where the Mississippi Supreme Court explained that dismissal was appropriate because it was "undisputed that none of the Defendants was a shareholder of Techtronics." Id. at 492-93. And that holding was consistent with Restaurant of Hattiesburg, where the Mississippi Court of Appeals concluded, "Thus, we hold to pierce the veil of an LLC the complaining party must prove LLC membership as well as" the three-prong Gray test. 84 So. 3d at 39 (emphasis added).

Finally, Swift's authority for its argument is not compelling. For the most part, the authority it cites either applies the law of other states or interprets Mississippi law before Barnett was decided. See, e.g., Jacobs v. Conseco, Inc., No. 2:09cv132-B-S, 2011 WL 902486, at *1 (N.D. Miss. Mar. 15, 2011) (pre-Barnett case addressing personal jurisdiction). The only case Swift offers that post-dates Barnett is Powertrain, Inc. v. Ma, 88 F. Supp. 3d 679 (N.D. Miss. 2015). As Swift observes, that case dealt with veil piercing between an individual and a company. Nevertheless, the court held, "Importantly, '[a]lter-ego liability can be extended only to a corporation's shareholders . . . .'" Id. at 695 (favorably quoting Barnett, 149 So. 3d at 492). Powertrain does not help Swift's cause.³

The Court is therefore left with the general rule that "[a]lter-ego liability can be extended only to a corporation's shareholders . . . ." Barnett, 149 So. 3d at 492 (emphasis added). Because the Kelty Defendants are not alleged to be shareholders or members of Bath Planet, the alter-ego theory does not apply to make them liable for Bath Planet's alleged wrongdoing. The Kelty Defendants' motion to dismiss is therefore granted.

B. Christina Kelty's Motions [11, 23]

Swift asserts three claims against Christina Kelty individually: conversion, tortious interference with a contract, and fraudulent transfer. Additionally, Swift seeks to hold ...