549 B.R. 631
Bankr. D. Md.2016Background
- Debtor Vincent L. Abell operated a large real‑estate business and allegedly ran a mortgage‑rescue scam that resulted in many judgments and numerous creditor suits; a Chapter 11 trustee (Roger Schlossberg) was appointed.
- Trustee’s 118‑page amended complaint alleges Abell, his estranged wife Marta Bertola, and many affiliates used sham transfers, phony loans/deeds, hundreds of LLCs, and nominee owners to hide assets and divert rental/sale proceeds from creditors and the estate.
- Key alleged devices: transfers to Phoenix Real Estate entities (successor to Modern Management), American Trust/Asset Lending, phony deeds of trust and sham loans to family/friends, and post‑petition transfers and continued diversion of rents to non‑estate entities.
- Trustee seeks declaratory relief (that entities/assets are estate property), constructive trust, turnover (§ 542), avoidance of pre‑ and post‑petition transfers (§§ 544, 548, 549), disallowance/equitable subordination of claims (§§ 502, 510), denial of debtor discharge (§ 727), and damages for stay violations (§ 362).
- Defendants moved to dismiss multiple counts; court applied Rule 12(b)(6) and Rule 9(b) standards (with relaxed particularity for a trustee) and denied most dismissal motions but granted dismissal of civil conspiracy/aiding‑and‑abetting counts (Counts 32 & 33) and narrowed Count 35 as to defendants lacking alleged post‑petition transfers; Count 36 (§502(d)) stayed pending resolution of avoidance claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Declaratory judgment that entities/assets are estate property | Trustee: alleged sham transfers and secret beneficial ownership by Abell justify declaration that Phoenix entities, American Trust, and other assets are estate property | Defendants: declaratory relief is redundant or time‑barred and may improperly substitute for other remedies | Denied motions; declaratory counts (1,4,7,39, and related) survive — court can determine ownership issues in equity |
| Constructive trust remedy | Trustee: equitable remedy appropriate because defendants hold title but would be unjustly enriched | Defendants: constructive trust is not an independent cause of action; must be tied to underlying tort | Denied motions; constructive trust counts (2,5,8,20) may proceed as equitable claims |
| Turnover under §542 | Trustee: assets/topical entities are estate property and turnover is proper (counts ancillary to declaratory relief); MM‑EBT already held non‑exempt | Defendants: §542 does not apply to disputed property; ownership disputes preclude turnover | Denied motions as to turnover counts tied to declaratory relief and MM‑EBT (counts 3,6,9,41,42); turnover claims may ripen after ownership determined |
| Avoidance under §548 (2‑yr lookback) — equitable tolling | Trustee: two‑year lookback can be tolled/collapsing doctrine or §548(d) protects secret transfers | Defendants: §548 lookback is substantive and not subject to equitable tolling | Court: equitable tolling rejected; §548(d) and collapsing/transaction‑as‑a‑whole doctrines may bring older steps within reach; claims surviving where pleaded plausibly (Count 26,28,30) |
| Collapsing transactions doctrine | Trustee: transfers Modern Management → Phoenix1 → Phoenix2 are one integrated scheme | Defendants: earlier transfers fall outside §548 window if not collapsed | Denied motion on pleadings: allegations sufficient to plead collapsing transaction (Sher test) so some pre‑lookback transfers may be avoidable |
| §544/state fraudulent conveyance claims and statutes of limitations | Trustee: standing via actual unsecured creditors (e.g., Wilson); discovery rule and injunctions tolled statutes | Defendants: statute bars older transfers; Trustee lacks standing | Denied: Trustee has standing under §544(b); discovery rule and plausible injunction tolling allegations overcome statute‑bar at pleading stage (counts 27,29,31,38) |
| Civil conspiracy / aiding & abetting (Counts 32 & 33) | Trustee: conspiracy/aiders allegedly agreed to or substantially assisted frauds and transfers | Defendants: conspiracy requires underlying actionable tort and trustee cannot sue for conspiracy naming debtor as co‑conspirator; remedies exceed bankruptcy avoidance framework | Granted: Counts 32 and 33 dismissed — trustee cannot recover state‑law conspiracy damages that circumvent Bankruptcy Code avoidance/recovery scheme |
| Post‑petition transfers (§549) | Trustee: all post‑petition transfers not authorized by court/code are avoidable | Defendants: many transfers alleged pre‑petition; complaint fails to identify post‑petition transfers by defendant | Count 35: survives as to defendants with alleged post‑petition transfers; dismissed without prejudice as to others |
| Disallowance (§502) and equitable subordination (§510) | Trustee: proofs of claim filed by insiders and transferees based on sham loans/deeds should be disallowed or subordinated | Defendants: claims prima facie valid; §502(d) requires prior avoidance; insider status contested | Denied dismissal: objections to claims under §502(b)(1) and §510(c) survive; §502(d) relief stayed pending resolution of avoidance claims |
| Denial of discharge (§727) | Trustee: debtor concealed assets, falsified schedules, withheld records, made false oaths — grounds for denial | Debtor: produced voluminous documents; allegations insufficient | Denied dismissal: Trustee pleaded §727(a)(2)–(5) claims plausibly; count survives |
| Automatic stay violation (§362) | Trustee: defendants refused turnover of MM‑EBT assets judicially found non‑exempt, violating stay | Defendants: assets not sufficiently determined estate property; trustee lacks individual recovery standing | Denied dismissal: Trustee pleaded willful stay violation; trustee may recover damages and count survives |
Key Cases Cited
- Stern v. Marshall, 564 U.S. 462 (U.S. 2011) (bankruptcy court constitutional adjudication limits)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (pleading plausibility standard)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (pleading must nudge claims across line from conceivable to plausible)
- Volvo Const. Equip. N. Am., Inc. v. CLM Equip. Co., Inc., 386 F.3d 581 (4th Cir. 2004) (elements for declaratory judgment claim)
- Tidewater Fin. Co. v. Williams, 498 F.3d 249 (4th Cir. 2007) (equitable tolling doctrine analysis; distinguishes statutes of limitations from substantive elements)
- Young v. United States, 535 U.S. 43 (U.S. 2002) (limitations period characterization in bankruptcy priority context)
- HBE Leasing Corp. v. Frank, 48 F.3d 623 (2d Cir. 1995) (collapsing multiple transactions into single transaction for fraudulent transfer analysis)