531 B.R. 889
Bankr. M.D. Ga.2015Background
- Alpha Protective Services (Debtor) entered a settlement where J. Harrison sold 49% of Alpha to Brinson; Alpha executed promissory notes for payments to J. Harrison and HMCG (owned/controlled by G. Harrison). Alpha guaranteed the J. Harrison Note; Brinson guaranteed the HMCG Note.
- Substantial installment payments were made by Alpha under those notes from 2007 through the petition date; sizeable payments occurred within 1 year and within 90 days before the Chapter 11 petition (filed April 12, 2012).
- Trustee (Chapter 7) sued to avoid and recover preferential and fraudulent transfers against J. Harrison, HMCG, and G. Harrison (nine counts) under 11 U.S.C. §§ 547, 548, 544 and 11 U.S.C. § 550 and under federal FDCPA provisions (28 U.S.C. § 3304) and Georgia UFTA.
- Defendants moved for judgment on the pleadings under Fed. R. Civ. P. 12(c); court applied Twombly/Iqbal plausibility standard and limited review to complaint and incorporated documents.
- Court denied dismissal in large part: allowed ordinary and insider preference claims under § 547 against J. Harrison and HMCG; allowed § 544/FDCPA fraudulent-transfer claims; allowed recovery claims under § 550 against G. Harrison. Court dismissed § 548 claim and state-law UFTA claims for being time-barred based on date debtor incurred obligation.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Ordinary preference §547(b) (payments within 90 days) | Payments to J. Harrison and HMCG within 90 days are avoidable; debtor was insolvent (presumed under §547(f)) and creditors improved position | Payments trace to execution/closing of settlement (2007); transfers occurred then, outside 90-day reachback | Denied dismissal — Trustee plausibly alleged payments occurred within 90 days and insolvency is presumed for §547(f) period |
| Insider preference §547(b)(4)(B) (90 days–1 year) | Defendants were insiders (shareholder, director relationships, control, access to financials); payments in 90–365 day window; debtor insolvent | Insider status and insolvency insufficiently pled; timing uncertain | Denied dismissal — Trustee plausibly pleaded insider status, timing (aggregate amounts), and insolvency (context supports inference) |
| Fraudulent transfer §548 (2-year reachback) vs note-execution date | Trustee: payments on note within 2 years avoidable as transfers | Defendants: transfer date is note execution/settlement (June 2007), so outside 2-year window | Granted dismissal — transfer date for §548 is date debtor incurred obligation (execution), so claims time-barred |
| State-law UFTA claims (O.C.G.A. §§18-2-74/75; 4-year reachback) | Payments lacked reasonably equivalent value, rendered debtor insolvent or about to engage in undercapitalized business | Transfers occurred at settlement execution (2007), outside 4-year period | Granted dismissal — UFTA reachback measured from obligation date, outside four-year period |
| §544(b) + FDCPA (28 U.S.C. §3304) — can trustee rely on FDCPA as "applicable law" with 6-year reachback? | Trustee: may step into IRS (federal creditor) shoes and use FDCPA six-year reachback; IRS was creditor pre-transfer | Defendants: FDCPA is not "applicable law" under §544(b); FDCPA intended not to alter Bankruptcy Code | Denied dismissal — Court holds §544(b) permits trustee to use FDCPA as applicable law; Trustee plausibly alleged IRS creditor and elements of §3304 claims |
| §3304(a)(2) insider preference (FDCPA) — reachback & IRS 10-year argument | Trustee: IRS creditor; §6502 gives 10-year collection window, so insider-preference reachback extends | Defendants: §6502 is collection limitation, not §3306 reachback extender | Granted in part for extension argument — Court rejects extending §3306 insider-lookback to 10 years via §6502; otherwise denied dismissal on §3304 insider claims where facts plausibly allege reasonable cause to believe insolvency |
| Recovery under §550 against G. Harrison (initial/immediate transferee) | HMCG is alter ego; some payments went directly to G. Harrison; recoverable as initial or immediate transferee | Defendants contest alter-ego and direct receipt allegations | Denied dismissal — Trustee plausibly alleged alter-ego control and direct receipt; §550 recovery claims may proceed |
Key Cases Cited
- Bank of Camilla v. St. Paul Mercury Ins. Co., 939 F. Supp. 2d 1299 (M.D. Ga. 2013) (Rule 12(c) standard and limited pleadings review)
- Palmer & Cay, Inc. v. Marsh McLennan Cos., Inc., 404 F.3d 1297 (11th Cir. 2005) (judgment on pleadings appropriate when no material facts in dispute)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (U.S. 2007) (documents incorporated by reference and judicial notice exceptions at pleading stage)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (plausibility pleading standard)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (application of Twombly plausibility standard)
- In re Globe Mfg. Corp., 567 F.3d 1291 (11th Cir. 2009) (elements of §547 preference claim)
- Kipperman v. Onex Corp., 411 B.R. 805 (N.D. Ga. 2009) (analysis of transfer date for fraudulent-transfer claims; discussed but distinguished)
- MC Asset Recovery, LLC v. Commerzbank A.G. (In re Mirant Corp.), 675 F.3d 530 (5th Cir. 2012) (held FDCPA not "applicable law" under §544; discussed split of authority)
- In re Kaiser, 525 B.R. 697 (Bankr. N.D. Ill. 2014) (adopted view that trustee may use FDCPA under §544(b))
- Dearth v. Collins, 441 F.3d 931 (11th Cir. 2006) (Georgia alter-ego / veil-piercing standards)