544 B.R. 833
Bankr. M.D.N.C.2015Background
- Debtor ES2 Sports and Leisure, LLC filed Chapter 7 on April 15, 2014; Plaintiff is the Chapter 7 trustee. Defendants are ES2, LLC (parent) and Matthew Birely (member/officer).
- Tenants (Isabella’s) paid a $25,000 security deposit by check made payable to ES2 (parent) though the Lease obligated the Debtor to receive the deposit if Tenants breached; ES2 retained the deposit after the breach.
- ES2 had thin/negative capital balances; Birely directed corporate funds for personal expenses and exercised dominant control over ES2. Defaults were entered against ES2 and Birely; defendants did not respond to the summary-judgment motion.
- Trustee alleged claims for (inter alia) unjust enrichment (Count I), breach of fiduciary duty/aiding & abetting (Count II), avoidance of preferential transfers (Count III), avoidance of post-petition transfers (Count IV), breach of fiduciary duty to creditors (Count V), and UDTPA treble damages (Count VII).
- Court found admitted facts sufficient to pierce the corporate veil (Birely = ES2 alter-ego) and granted summary judgment for unjust enrichment ($25,035) and avoidance of post-petition transfers ($8,617.84); summary judgment denied on Counts II, III, V, and VII.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Birely is ES2’s alter-ego (piercing veil) | Birely exercised complete domination, misused ES2 to benefit himself, causing injury to Debtor | (No responsive position — default) | Court: Alter-ego established; veil pierced. |
| Unjust enrichment for retention of $25,000 deposit (Count I) | Trustee: ES2/Birely retained a measurable, consciously accepted benefit payable to Debtor | (Default; no rebuttal) | Court: Summary judgment for Trustee; $25,035 joint & several liability. |
| Avoidance of preferential transfers under §547(b) (Count III) | Trustee: Transfers to ES2 were preferential payments on antecedent debt | Insufficient pleaded/rebuttable facts as to nature/amount of antecedent debt | Court: Denied summary judgment — trustee failed to show transfers were for antecedent debt. |
| Avoidance of post-petition transfers under §549 (Count IV) | Trustee: Post-petition transfers occurred and were unauthorized | (Default; no defense) | Court: Granted summary judgment; avoid and recover $8,617.84 joint & several. |
| Breach of fiduciary duty / aiding & abetting (Counts II & V) | Trustee: Officers/directors (including Birely) breached duties and made improper transfers/distributions | Allegations are generalized; no specific factual link between Birely and listed transfers/distributions | Court: Denied summary judgment on Counts II and V as facts insufficiently pleaded/connected. |
| UDTPA treble damages (Count VII) | Trustee: Defendants’ conduct was unfair/deceptive and should be trebled under N.C. Gen. Stat. § 75-1.1 | Conduct relates to internal corporate governance and did not affect commerce/marketplace | Court: Denied treble damages; UDTPA inapplicable because acts did not affect commerce. |
Key Cases Cited
- Celotex Corp. v. Catrett, 477 U.S. 317 (summary-judgment burden shifting principle)
- Anderson v. Liberty Lobby, 477 U.S. 242 (summary-judgment standard and drawing inferences for nonmoving party)
- Nishimatsu Constr. Co. v. Houston Nat. Bank, 515 F.2d 1200 (defaulted defendant not bound to admit legal conclusions)
- Glenn v. Wagner, 313 N.C. 450 (piercing corporate veil / instrumentality rule)
- Fischer Inv. Capital Inc. v. Catawba Dev. Corp., 200 N.C. App. 644 (factors for disregarding corporate form)