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In re JCC Environmental, Inc.

United States District Court, E.D. Louisiana

April 20, 2017

IN RE JCC ENVIRONMENTAL, INC.

         SECTION: “H” (2)

          ORDER AND REASONS

          JANE TRICHE MILAZZO UNITED STATES DISTRICT JUDGE

         Before the Court is Defendant's Motion to Dismiss or, alternatively, Motion for More Definite Statement (Doc. 11). For the following reasons, the Motion is GRANTED IN PART.

         BACKGROUND

         This case is an adversary proceeding related to the bankruptcy case of JCC Environmental, Inc. (the “Debtor”). The Trustee, acting for the estate, commenced this adversary proceeding against defendant Hydrocarbon Engineering Processing, Inc. (“HEP”). The Trustee alleges that from October 2010 to March 2013 the Debtor transferred recycled and non-recycled oil to HEP, and in return HEP paid third parties, not the Debtor, for the oil it received. He brings four claims associated with these transactions: (1) an actual fraud claim pursuant to 11 U.S.C. § 548(1)(1)(A); (2) a constructive fraud claim pursuant to 11 U.S.C. § 548(a)(1)(B); (3) a claim to recover the value of transfers brought pursuant to 11 U.S.C. § 544(b); and (4) a claim to collect outstanding debts brought pursuant to 11 U.S.C. § 542(b). HEP has filed the instant Motion to Dismiss, challenging the sufficiency of the Complaint's allegations. The Trustee opposes this Motion.

         LEGAL STANDARD

         I. Motion to Dismiss

         To survive a Rule 12(b)(6) motion to dismiss, a plaintiff must plead enough facts “to state a claim to relief that is plausible on its face.”[1] A claim is “plausible on its face” when the pleaded facts allow the court to “draw the reasonable inference that the defendant is liable for the misconduct alleged.”[2]A court must accept the complaint's factual allegations as true and must “draw all reasonable inferences in the plaintiffs favor.”[3] The Court need not, however, accept as true legal conclusions couched as factual allegations.[4] To be legally sufficient, a complaint must establish more than a “sheer possibility” that the plaintiffs claims are true.[5] The complaint must contain enough factual allegations to raise a reasonable expectation that discovery will reveal evidence of each element of the plaintiffs claim.[6] If it is apparent from the face of the complaint that an insurmountable bar to relief exists, and the plaintiff is not entitled to relief, the court must dismiss the claim.[7]

         II. Motion for More Definite Statement

         A district court will grant a motion for a more definite statement under Rule 12(e) when the challenged pleading “is so vague or ambiguous that the [moving] party cannot reasonably prepare a response.”[8] The moving party “must point out the defects complained above and the details desired.”[9]

         “When evaluating a motion for a more definite statement, the Court must assess the complaint in light of the minimal pleading requirements of Rule 8.”[10] Rule 8(a)(2) requires that a pleading contain “a short and plain statement of the claim showing that the pleader is entitled to relief.”[11] “Specific facts are not necessary; the statement need only give the defendant fair notice of what the . . . claim is and the grounds upon which it rests.”[12]

         In light of the liberal pleading standard set forth in Rule 8(a), Rule 12(e) motions are disfavored.[13] Motions for a more definite statement are generally granted only when the complaint is “so excessively vague and ambiguous as to be unintelligible and as to prejudice the defendant seriously in attempting to answer it.”[14] This Court “has considerable discretion in deciding whether to grant a Rule 12(e) motion.”[15]

         LAW AND ANALYSIS

         In this Motion, HEP argues (1) that the Trustee has failed to plead with particularity a cause of action for actual fraud, (2) that the Trustee has failed to state a claim for constructive fraud, (3) that the Trustee has failed to state avoidance claims under 11 U.S.C. § 544(b) and state law, (4) that the Trustee has failed to state a plausible claim under state open account laws, (5) that the Court should dismiss the Complaint because the Trustee has not joined unidentified insiders mentioned in the Complaint, and (6) that the Court should order the Trustee to provide a more definite statement. The Court will address these arguments in turn.

         I. Count I: Actual Fraud

         HEP moves this Court to dismiss the Trustee's claim for failure to plead fraud with the requisite specificity. HEP argues that the Complaint lacks the required “who, what, when, where, and how” required by the Fifth Circuit and that there are no allegations that support the presence of any badges of fraud necessary to demonstrate intent.[16] The Court disagrees.

         Under 11 U.S.C. § 548(a)(1), to void a transfer and recover funds, the receiver must show that the transfer: (1) is a transfer of the debtor's interest in property; (2) occurred within two years of the filing; and, (3) was made with the actual intent to hinder, delay, or defraud.[17] Here, the Complaint alleges facts sufficient to support a claim under § 548(a)(1). The first two elements are satisfied by the allegations that the Debtor “transferred approximately 836, 170 gallons of recycled oil and, as of yet, an undetermined number of gallons of nonrecycled oil” and that the transfer occurred “during the period of October 11, 2010 through March 31, 2013, ” where the petition was filed October 11, 2013.[18]

         The third element (“actual intent to hinder, delay, or defraud”) requires more analysis. Because direct evidence of intent is usually unavailable, actual intent may be inferred from circumstantial evidence and inferences.[19] The Fifth Circuit has recognized six “badges of fraud” to help identify intent.[20] The badges of fraud include:

(1) the lack or inadequacy of consideration; (2) the family, friendship or close associate relationship between the parties; (3) the retention of possession, benefit or use of the property in question; (4) the financial condition of the party sought to be charged both before and after the transaction in question; (5) the existence or cumulative effect of a pattern or series of transactions or course of conduct after the incurring of debt, onset of financial difficulties, or pendency or threat of suits by creditors; and (6) the general chronology of the events and transactions under inquiry.[21]

         However, it is not necessary to fit this analysis within the categories of fraudulent badges.[22]

         The Trustee's allegations must comply with Rule 9(b) and plead specific facts showing the circumstances constituting fraud.[23] Rule 9(b) requires a party alleging fraud or mistake to “state with particularity the circumstances constituting fraud or mistake.”[24] “A dismissal for failure to plead fraud with particularity as required by Rule 9(b) is a dismissal on the pleadings for failure to state a claim under Rule 12(b)(6).”[25] Fifth Circuit precedent “interprets Rule 9(b) strictly, requiring the plaintiff to ‘specify the statements contended to be fraudulent, identify the speaker, state when and where the statements were made, and explain why the statements were fraudulent.' ”[26] However, “the time, place, contents, and identity standard is not a straitjacket for Rule 9(b). Rather, the rule is context specific and flexible.”[27] Additionally, fraud may be pleaded on information and belief when “the facts relating to the alleged fraud are peculiarly within the perpetrator's knowledge.”[28]

         Here, the Complaint alleges that “no value was received by the Debtor for much of the oil transferred to [HEP]”[29] and that “Debtor received little or no value in exchange for [the oil], ”[30] indicating inadequate consideration. The allegations that these transfers appear to have benefitted insiders of the Debtor[31] and that “from January 2012 through March, 2013, [HEP] issued checks payable directly to Justin Mayer, Melvin Oller, and C.J. Oller totaling approximately $541, 768.13” indicate a close associate relationship between the parties. The Complaint further alleges the transfers “caused or increased the insolvency of the Debtor” and that during the time of the transfers “and shortly thereafter, the Debtor incurred substantial debts to creditors, including without limitation American Advanced. These debts were incurred by the Debtor despite that they were beyond the Debtor's ability to pay such debts as they matured.”[32] These allegations speak to Debtor's financial condition before and after the transfer, and the existence or cumulative effect of the pattern or series of transactions or course of conduct after the incurring of debt, onset of financial difficulties, or pendency or threat of suits by creditors. Moreover, the Complaint sets forth a general chronology of events by stating when the oil was transferred (“during the period of October 11, 2010 through March 31, 2013”) when HEP issued checks for the oil directly to persons other than the Debtor (“January 2012 through March, 2013”).

         The Complaint alleges facts that support several badges of fraud and the facts are alleged with sufficient specificity. The Trustee has therefore met his burden under Rule 9(b).

         II. Count II: Constructive Fraud

         HEP argues that the Trustee has failed to adequately plead constructive fraud. Under 11 U.S.C. § 548(a)(1)(B), a plaintiff must plead that: “(1) the debtor transferred an interest in property, (2) the transfer of that interest occurred within two years prior to the filing of the bankruptcy petition, (3) the debtor was insolvent on the date of the transfer or became insolvent as a result thereof, and (4) the debtor received less than reasonably equivalent value in exchange for such transfer.”[33]

         HEP takes issue with the last two elements. As noted above, the Complaint alleges that the transfers “caused or increased the insolvency of the Debtor” and that during the time of the transfers “and shortly thereafter, the Debtor incurred substantial debts to creditors, including without limitation American Advanced. These debts were incurred by the Debtor despite that they were beyond the Debtor's ability to pay such debts as they matured.”[34]Additionally, the exhibit attached to the Complaint lists the amounts HEP allegedly owes to the Debtor for the oil transfers. Drawing all reasonable inferences in the Trustee's favor, these facts are sufficient to raise a reasonable expectation that discovery will reveal evidence of each element of the Trustee's claim. Accordingly, this claim is plead with facts sufficient to survive a Motion to Dismiss.

         III. Count III: Avoidance under 544(b)

         HEP argues that the Trustee has failed to adequately state a claim under Section 544(b) and any state law. Pursuant to 11 U.S.C. § 544(b), a trustee succeeds to the rights of the bankruptcy estate's creditors to avoid transactions under non-bankruptcy law.[35] “The trustee's successor rights arise under federal law, but the extent of those rights depends entirely on applicable state law.”[36] The Complaint alleges that the transfers are avoidable under both Louisiana and Mississippi state law. These claims are analyzed in turn.

         A. Revocatory Action Under Louisiana Law

         The Louisiana revocatory action found in Louisiana Civil Code article 2036 provides, “An obligee has a right to annul an act of the obligor, or the result of a failure to act of the obligor, made or effected after the right of the obligee arose, that causes or increases the obligor's insolvency.” HEP argues that the Trustee failed to submit a contemporaneous balance sheet to prove that the Debtor was insolvent. To maintain a revocatory action, a plaintiff must plead anteriority of the debt and insolvency of the debtor.[37] Here, the Trustee must plead facts that sufficiently allege that: (1) the Debtor owed the investor/creditors before they made the transfers to HEP and (2) the transfers caused or increased the insolvency.

         The Trustee has met this burden. The Complaint clearly alleges that at the time of the transfers to HEP, [38] the Debtor incurred substantial debts to creditors, including American Advanced, and that the Debtor received little or no value for the transfers which “caused or increased the insolvency of the Debtor”. Thus, the Trustee has plead the necessary elements to revoke the transactions under Article 2036 and 11 U.S.C. § 544(b).

         B. Fraudulent Transfer Claim under Mississippi Law

         Mississippi's Uniform Fraudulent Transfer Act (“UFTA”) provides that “[a] transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor's claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation with actual intent to hinder, delay or defraud any creditor of the debtor.”[39] The language of this statute closely tracks that of 11 U.S.C. ยง 548(a)(1). The Court has already determined that ...


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