449 B.R. 427
Bankr. M.D. Fla.2011Background
- Debtors are Gregory Whittle and Bethany Cone Whittle; plaintiffs are Paul White, Gatesheath Trustees Limited, and Garcroft Trustees Limited, suing in adversary against Whittle.
- Plaintiffs allege they own 50% of SGGUSA, LLC, with Whittle as managing member controlling all LLC assets and records.
- Plaintiffs allege Whittle diverted at least $650,000 of LLC funds for personal use and falsified accounting/operating reports.
- Plaintiffs seek a $650,000 judgment against Whittle and a nondischargeability determination under 11 U.S.C. §523(a)(2) and (a)(4).
- Whittle moves to dismiss for lack of standing, arguing that the alleged losses are LLC claims not personally payable to members.
- Court grants motion to dismiss without prejudice, allowing amended complaint by June 2, 2011.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Do LLC members have standing to pursue nondischargeability claims against the debtor? | SGGUSA damages are personal to members. | Damages belong to the LLC, not the members. | No standing; dismissal allowed without prejudice. |
| Are the alleged damages the property of the LLC rather than individual members, warranting derivative action or standing implications? | Members' damages flow from LLC injuries. | LLC is separate; wrongful distributions/defenses belong to LLC; derivative action required. | LLC property/rights control; members lack individual standing to sue for nondischargeability. |
| Can plaintiffs pursue nondischargeability against Whittle under 523(a)(2) and (a)(4) as creditors of the LLC? | Whittle provided false records; LLC was damaged; plaintiffs seek personal damages. | Plaintiffs are not creditors of Whittle for these debts; damages are LLC’s. | Not creditors; claims must be pursued by LLC; court dismisses without prejudice. |
Key Cases Cited
- Financial Security Assurance, Inc. v. Stephens, Inc., 450 F.3d 1257 (11th Cir. 2006) (standing inquiry and standard for dismissal under Rule 12(b)(6) clarified)
- Davila v. Delta Air Lines, Inc., 326 F.3d 1183 (11th Cir. 2003) (12(b)(6) standard; factual allegations treated liberally)
- Ashcroft v. Iqbal, 129 S. Ct. 1937 (U.S. 2009) (pleading standard; not all conclusory statements suffice)
- Maverick Media Grp., Inc. v. Hillsborough Cnty., 528 F.3d 817 (11th Cir. 2008) (standing and jurisdiction considerations)
- Mulhall v. UNITE HERE Local 355, 618 F.3d 1279 (11th Cir. 2010) (standing and injury-in-fact requirements)
- Warth v. Seldin, 422 U.S. 490 (1975) (foundational standing requirements; injury in fact)
- Coleman v. Miller, 270 B.R. 303 (D. Kan. 2001) (derivative actions; standing context in bankruptcy)