Zucker v. Oconee Reg'l Healthcare Found., Inc. (In re Oconee Reg'l Health Sys., Inc.)

621 B.R. 64

IN RE: OCONEE REGIONAL HEALTH SYSTEMS, INC., et al., Debtors.

Clifford Zucker, as Liquidating Trustee of the Oconee Liquidation Trust, Plaintiff,

v.Oconee Regional Healthcare Foundation, Inc., Defendant.

Case No. 17-51005-AEC

Adv. Proc. No. 19-05010

United States Bankruptcy Court, M.D. Georgia, Macon Division.

Signed March 31, 2020

Entered April 1, 2020

John D. Elrod, Greenberg Traurig, LLP, Atlanta, GA, for Plaintiff.

Thomas P. Clinkscales, Dennis James Connolly, Alston & Bird LLP, Atlanta, GA, for Defendant.

ORDER DENYING DEFENDANT'S MOTION TO DISMISS ADVERSARY PROCEEDING

Austin E. Carter, United States Bankruptcy Judge

Before the Court is Defendant's Oconee Regional Healthcare Foundation, Inc.'s Motion to Dismiss Adversary Proceeding (Doc. 9). In its motion, the Defendant requests that the Adversary Proceeding filed by Plaintiff, Clifford Zucker, as Liquidating Trustee of the Oconee Liquidation Trust (the "Trustee") be dismissed with prejudice on the grounds that the Complaint (Doc. 2)¹ fails to state a claim upon which relief can be granted and that the Trustee not be granted leave to amend. The Trustee filed a response in opposition (Doc. 15) and the Defendant filed a reply in support of its motion (Doc. 16).

For the reasons stated below, the Defendant's Motion is denied.

I. Standards of Review: Rule 12(b)(6) Motion to Dismiss and Preferential Transfers under § 547(b)

In an adversary proceeding to avoid preferential transfers, a trustee must satisfy each element of 11 U.S.C. § 547(b) :²

the trustee must show that the [transfer] was (1) to the creditor,³ (2) on the account of a previous debt, (3) made while the debtor was insolvent, (4) made [within] 90 days before the bankruptcy petition was filed,⁴ and (5) [was] effective in enabling the creditor to receive more than it would have received had the debtor's estate been liquidated under Chapter 7.

Gordon v. Harrison (In re Alpha Protective Servs., Inc.) , 531 B.R. 889, 897 (Bankr. M.D. Ga. 2015) (Laney, J.) (quoting Carrier Corp. v. Buckley (In re Globe Mfg. Corp.) , 567 F.3d 1291 (11th Cir. 2009) (internal quotation marks omitted)).

A motion to dismiss under Federal Rule of Civil Procedure ("Rule") 12(b)(6) for failure to state a claim upon which relief can be granted is available in adversary proceedings. See Fed. R. Bankr. P. 7012(b). To state a claim, a plaintiff must plead "a short and plain statement of the claim showing that the pleader is entitled to relief[.]" Fed. R. Bankr. P. 7008(a). "To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim [for] relief that is plausible on its face.’ " Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). A claim for relief is facially plausible when "the plaintiff pleads factual content that allows the court to draw the reasonable inferences that the defendant is liable for the misconduct alleged." Id. (citing Twombly , 550 U.S. at 556, 127 S.Ct. 1955 ). "However, a plaintiff is not required to plead specific facts, and the complaint need only provide ‘the defendant fair notice of what the ... claim is and the grounds upon which it rests.’ " In re Alpha Protective Servs. , 531 B.R. at 897 (quoting Twombly , 550 U.S. at 555, 127 S.Ct. 1955 ).

When a court reviews a motion to dismiss under Rule 12(b)(6), "the factual allegations in the complaint must be accepted as true, and all reasonable inferences are construed in the light most favorable to the plaintiff." Gordon v. Sturm (In re M2DIRECT, Inc. ), 282 B.R. 60, 62 (Bankr. N.D. Ga. 2002). But a court will not extend this assumption of truth to "threadbare recitals of cause of action's elements, supported by mere conclusory statements." Iqbal , 556 U.S. at 678, 129 S.Ct. 1937 (citing Twombly , 550 U.S. at 555, 127 S.Ct. 1955 ). Although "legal conclusions can provide the complaint's framework, they must be supported by factual allegations." Id. at 679, 129 S.Ct. 1937.

Determining plausibility of a claim for relief is a "context-specific task" in which the court should "draw on its judicial experience and common sense." Id. (citing Iqbal v. Hasty , 490 F.3d 143, 157-58 (2d Cir. 2007) ). This "does not impose a probability requirement at the pleading stage; it simply calls for enough facts to raise a reasonable expectation that discovery will reveal evidence" that supports the claim. Twombly , 550 U.S. at 563, 127 S.Ct. 1955 (citing Sanjuan v. Am. Bd. Of Psychiatry and Neurology , 40 F.3d 247, 251 (7th Cir. 1994). Therefore, "once a claim has been stated adequately, it may be supported by showing any set of facts consistent with the allegations in the complaint." Id.

The Defendant argues that, in response to Twombly and Iqbal , "courts universally recognize that a Section 547 claim may survive a motion to dismiss only if the trustee has alleged facts that, if true, would render plausible the assertion that each of these required elements are met." (Doc. 9 at 6). In support of this argument, the Defendant cites, among other cases, Angell v. BER Care, Inc. (In re Caremerica, Inc.) , 409 B.R. 737 (Bankr. E.D.N.C. 2009).

In Caremerica , the court analyzed Twombly and Iqbal to determine "what pleading requirements the trustee must satisfy when asserting a claim for the avoidance of transfers ... under § 547." Id. at 748. During this analysis, the court discussed Valley Media, Inc. v. Borders, Inc. (In re Valley Media, Inc.) , 288 B.R. 189 (Bankr. D. Del. 2003), which, prior to the Supreme Court's decision in Twombly , identified specific factual information necessary in a preferential transfer complaint to survive a motion to dismiss.⁵ In re Caremerica , 409 B.R. at 748. The court acknowledged that the standard set in Valley Media "has been distinguished or ignored by the majority of bankruptcy courts both nationwide as well as in Delaware."⁶ Id. at 753 n.2. Nevertheless, the court concluded that "the decisions by the Supreme Court in Twombly and Iqbal breathe new life into the pleading requirements implemented in Valley Media for § 547 preference claims." Id.

This heightened pleading standard for preference claims, as adopted by Caremerica⁷ and its progeny, is inconsistent with the liberal fair notice pleading standard of Federal Rule of Bankruptcy Procedure ("Bankruptcy Rule") 7008(a)(2), as well as the Supreme Court's assertion that "a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations." Twombly , 550 U.S. at 555, 127 S.Ct. 1955. Bankruptcy Rule 7008 does not require a heightened pleading standard for preferential transfer claims. Cf. Fed. R. Bankr. P. 7009(b) (requiring allegations of fraud to be stated with particularity). Rather, complaints to avoid preferential transfers must contain only "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Bankr. P. 7008(a)(2) ; see Gold v. Winget (In re NM Holdings Co., LLC) , 407 B.R. 232, 256–57 (Bankr. E.D. Mich. 2009) ; Butler v. Anderson (In re C.R. Stone Concrete Contractors, Inc.) , 434 B.R. 208, 221 (Bankr. D. Mass. 2010) (quoting Official Comm. of Unsecured Creditors v. Brandywine Apartments (In re The IT Grp., Inc.) , 313 B.R. 370, 373 (Bankr. D. Del. 2004) ("The fact that Bankruptcy Rule 7008, which contains special pleading requirements in certain adversary cases before bankruptcy judges, fails to provide any such additional requirements for preference actions indicates it was intended that the adequacy of pleadings in such action be judged under the notice pleading standard of Civil Rule 8(a)(2).")).

The Defendant cites no case in this Circuit, nor is the Court aware of any, where Caremerica has been adopted in wholesale fashion as the Defendant urges. To the contrary, Judge Drake has observed that " In re Caremerica and its progeny ... has not been followed in this Circuit." Howell v. Fulford (In re S. Home and Ranch Supply, Inc.) , Case No. 11-12755, Adv. No. 13-1043, 2013 WL 7393247, at *5 (Bankr. N.D. Ga. Dec. 20, 2013).

The bankruptcy court for the Southern District of Florida addressed the heightened pleading standard of Caremerica in TOUSA Homes, Inc. v. Palm Beach Newspapers, Inc. (In re TOUSA, Inc.) , 442 B.R. 852 (Bankr. S.D. Fla. 2010). The TOUSA court found "[t]he pleading requirements of Caremerica require more than the standard promulgated in Twombly and Iqbal and the liberal pleading policy underlying the civil rules." 442 B.R. at 855–56. In declining to follow Caremerica , Judge Olson notes that "so long as the complaint makes clear who transferred what to whom and when, a preference defendant will have enough information to mount whatever defense may be available." In re TOUSA, Inc. , 442 B.R. at 856.

For these reasons, this Court declines to adopt the heightened pleading standard for preferential transfers as articulated in Caremerica and related cases. Based on the standard of review outlined above, the Court now turns to the Defendant's argument that the Trustee's complaint fails to state a claim upon which relief can be granted. In its Motion to Dismiss, the Defendant argues that the Trustee has failed to provide sufficient factual detail to support each necessary element of its preferential transfer claim. (Doc. 9 at 7). The Defendant identifies certain elements and issues in the complaint for specific scrutiny. Id. Each of the Defendant's arguments to dismiss is discussed in turn.

II. Trustee Has Sufficiently Alleged that Defendant is a Creditor

To avoid a transfer as a preference, a trustee must establish that the transfer was "to or for the benefit of a creditor." 11 U.S.C. § 547 (b)(1). A guarantor who holds a contingent claim may receive a benefit in the form of an indirect preferential transfer. An indirect transfer occurs when a debtor makes payments directly to the obligee of a guaranteed obligation. Such a...