372 B.R. 796 | Bankr. D.S.C. | 2007
ORDER
This matter is before the Court upon the Motion of AGM, II, LLC and Lancelot Investor Fund, L.P. (“Defendants”) to dismiss the amended complaint filed by Michelle L. Vieira, as Chapter 7 Trustee (“Trustee”) for Worldwide Wholesale Lumber, Inc. (“Debtor”), pursuant to Fed. R.Civ.P. 12(b)(1) and (6). The Court makes the following Findings of Fact and Conclusions of Law pursuant to Federal Rule of Civil Procedure 52, made applicable to this proceeding pursuant to Federal Rule of Bankruptcy Procedure 7052.
FINDINGS OF FACT
1. Prior to the petition date, Debtor operated as a distributor of lumber. AGM was the lender for Debtor and lent money based upon Debtor’s inventory in exchange for a security interest in the same. AGM and Debtor entered into a Master Financing Agreement, dated June 22, 2005, to evidence this relationship.
2. Debtor’s bankruptcy case was commenced on April 12, 2006 when creditors of Debtor, other than AGM, filed an involun
3. Debtor consented to an order of relief under chapter 7 and an order of relief was entered on April 18, 2006.
4. Trustee was appointed as the chapter 7 trustee in Debtor’s case.
5. On April 24, 2006, AGM sought relief from the automatic stay on an expedited basis so that it could foreclose on its security interest in its collateral held by Debtor.
6. A hearing on the Motion for Relief from the Automatic Stay was held on April 28, 2006. The parties negotiated during a lengthy recess and agreed to consent to the order granting AGM relief from the automatic stay under specified conditions, which were read into the record by the Trustee. The parties agreed that the goods needed to be promptly sold because the value of the goods was rapidly decreasing as a result of deterioration and the accrual of liens. The Court entered an oral ruling granting AGM relief from the automatic stay under the terms specified by the parties.
7. On April 28, 2006, AGM conducted a public auction pursuant to Article 9-610 of the Uniform Commercial Code. AGM was the successful bidder at the sale with its credit bid of $1 million.
8. Following the sale of goods held by Debtor, AGM deposited with Trustee all proceeds of the sale, including proceeds from the goods sold following AGM’s purchase of the goods at the UCC sale. In all, AGM escrowed approximately $4,356,849.00 with Trustee.
9. On May 26, 2006, and subsequently on July 6, 2006, AGM filed its first and second amended proofs of claim, respectively, asserting $5,619,301.85 as the amount of its claim.
10. On June 13, 2006, AGM filed a motion to allow its proof of claim and compel payment thereof (“Allowance Motion”). AGM’s Allowance Motion sought to allow its proof of claim and compel Trustee to promptly and indefeasibly pay the claim.
11. Trustee filed a return to AGM’s Allowance Motion on June 26, 2006. Trustee opposed the Allowance Motion on grounds that AGM possessed all relevant corporate records to determine the amount of the claim. Trustee also stated in her return that it was too soon to allow payment of the claim as there may be outstanding issues of subordination and priority to be resolved. Trustee did not affirmatively request that the Court subordinate or determine the priority of AGM’s claim.
12. On June 30, 2006, Trustee wrote the Court regarding the discovery needed for the Allowance Motion. Trustee suggested the Court include Wells Fargo and the Chinese Mills in the discovery process so that “issues of claim allowance and subordination could be litigated in a single proceeding.” Trustee estimated it would take several months to complete discovery and have the matter prepared for trial.
13. On June 30, 2006, after receiving the letter from Trustee and consulting with the other parties to this matter, the Court entered a scheduling order on the Allowance Motion. The scheduling order required the parties to complete discovery
14. On July 21, 2006, Jiaxing Hengtong Wood Co., Ltd., Tianjin Jinnan Dist., Tongmei Timber Co., Wenan Xinda Wood Industry Co. Ltd., and Zaozhuang Hon-grun Wood Co., Ltd. (collectively the “Chinese Mills”) objected to the Allowance Motion on grounds that there was insufficient information to allow the claim and that parties may have claims against AGM. The Chinese Mills did not seek affirmative seek relief against AGM and later withdrew its objection.
15. Trustee filed a motion to extend time to complete discovery on September 19, 2006 on grounds that AGM provided Trustee with relevant documents shortly before the discovery deadline and Trustee was unable to review these documents because of the massive quantity of documents produced.
16. AGM opposed Trustee’s motion to extend time on grounds that it cooperated in discovery and that Trustee was seeking to alter the scope of the trial on the Allowance Motion by excluding issues regarding any subordination claim that Trustee may have against AGM. AGM’s response indicated that the Allowance Motion was “an invitation” to litigate all issues concerning AGM’s claim.
17. On September 27, 2006, the Court, over AGM’s objection, amended the scheduling order to provide Trustee with an additional month to complete discovery.
18. Prior to the trial on the Allowance Motion, Trustee filed a motion in limine to exclude evidence regarding whether AGM’s claim should be subordinated or reclassified. On January 5, 2007, the Court denied Trustee’s motion in limine without prejudice holding “issues of subordination, priority, lender liability or reclassification have not been pled and therefore are not expressly before this Court in this contested matter. To the extent that evidence bears upon these issues, the Court will not make a ruling as to whether the Trustee is entitled to such relief or whether such relief is barred based upon defenses alluded to by AGM.”
19. A trial on the Allowance Motion was held on January 8, 2007. Trustee and AGM each submitted evidence regarding the calculation of AGM’s claim. On February 12, 2007, the Court entered an order granting in part and denying in part the Allowance Motion. In the February 12, 2007 order (“Allowance Order”), the Court found:
a. AGM has an allowed claim in the amount of $3,866,460.85;6
*804 b. Prior to the petition, AGM obtained a perfected security interest in all of the tangible and intangible assets of Debtor, including inventory and the proceeds thereof;
c. Trustee should turnover all funds escrowed with her by AGM because such funds where either property of AGM, as proceeds from collateral AGM purchased at a UCC sale, or fully encumbered by AGM’s security interest.
20. Trustee timely filed a motion to alter or amend the Allowance Order pursuant to Fed.R.Civ.P. 59(e).
21. On March 12, 2007, AGM filed a motion to compel Trustee to comply with the Allowance Order by paying to AGM the funds held in escrow by Trustee.
22. Trustee opposed the motion to compel on grounds that her motion under Fed.R.Civ.P. 59(e) suspended the finality of the Allowance Order and the Court should otherwise stay the turnover of funds to AGM based upon AGM’s pre-petition conduct.
23. The Court granted AGM’s motion to compel on April 6, 2007 finding that Trustee’s motion to alter or amend did not stay the Allowance Order, that Trustee did not seek a stay of the Allowance Order under recognized procedure for staying an order, and that the Allowance Order should not otherwise be stayed based upon unproven allegations. Trustee withdrew her motion to alter or amend the Allowance Order following the entry of the order compelling Trustee to comply with the Allowance Order.
24. Trustee did not appeal the Allowance Order, which stands as a final order on the allowance of AGM’s claim.
25. On January 22, 2007, this adversary was referred to this Court from the United States District Court for the District of South Carolina. Trustee’s original complaint requested relief only against AGM under causes of action for breach of fiduciary duty as to Debtor and other creditors and sought equitable relief under theories of constructive trust and accounting.
26. AGM filed a motion to dismiss the original complaint pursuant to Fed. R.Civ.P. 12(b)(6) or, in the alternative, for a more definite statement.
27. The Court entered an order in this adversary on February 28, 2007 denying AGM’s motion to dismiss but requiring Trustee to amend her complaint to set forth in more detail facts supporting her complaint.
28. On February 12, 2007, after the entry of the Allowance Order, Trustee filed a second adversary (Adv.Pro. No. 07-80013) against AGM and Lancelot seeking to equitably subordinate or reclassify any claim held by these parties.
29. On March 14, 2007, Trustee filed an amended complaint now at issue. The amended complaint contains the causes of action in the original complaint as well as those actions contained in the second adversary proceeding and a cause of action under 11 U.S.C. § 547.
30. Defendants move to dismiss the amended complaint on grounds that every cause of action is barred by collateral es-toppel, res judicata, the law of the case
CONCLUSIONS OF LAW
I. Defendants’ Motion Under Rule 12(b)(6)
A. Standard For Granting the Motion Under Rule 12(b)(6)
The pleading standard under Fed. R. Civ. 8(a) is liberal and the Court should not dismiss a Complaint if it sets forth any legally cognizable claim for, relief. See Bowers v. Hardwick, 478 U.S. 186, 202, 106 S.Ct. 2841, 2849, 92 L.Ed.2d 140 (1986). In deciding a Rule 12(b)(6) motion to dismiss, the Court must take all well-pled material allegations of a complaint as admitted and view them in the light most favorable to Trustee. See De Sole v. U.S., 947 F.2d 1169, 1171 (4th Cir.1991) (citing Jenkins v. McKeithen, 395 U.S. 411, 421, 89 S.Ct. 1843, 1848, 23 L.Ed.2d 404 (1969)). A Rule 12(b)(6) motion should not be granted unless it “appears to a certainty that the plaintiff would be entitled to no relief under any state of facts which could be proved at trial in support of his claim.” Rogers v. Jefferson-Pilot Life Insurance Co., 883 F.2d 324, 325 (4th Cir.1989) (citing Johnson v. Mueller, 415 F.2d 354, 355 (4th Cir.1969)). The function of a motion to dismiss is to test “the sufficiency of a complaint; importantly it does not resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses.” See Republican Party of North Carolina v. Martin, 980 F.2d 943, 952 (4th Cir.1992); Richmond, Fredericksburg & Potomac R.R. Co. v. Forst, 4 F.3d 244, 250 (4th Cir.1993) (finding defendants face a “procedural stumbling block” when asserting affirmative defenses in a motion to dismiss since a motion to dismiss is designed to test the sufficiency of the complaint). When reviewing a motion to dismiss, it is inappropriate to consider facts outside of the amended complaint as the Court’s inquiry is limited to whether Trustee’s allegations constitute a short and plain statement of claim showing that he is entitled to relief. See Colleton Regional Hosp. v. MRS Medical Review Systems, Inc., 866 F.Supp. 891, 893 (D.S.C.1994). Defendants seek dismissal under Fed.R.Civ.P. 12(b)(6) under the both affirmative defenses and the alleged failure by Trustee to state a claim.
B. Application of Law to Defendants’ Rule 12(b)(6) Motion
1. Affirmative Defenses
Notwithstanding the general rule that affirmative defenses should not be considered on a motion to dismiss, the Fourth Circuit allows defenses to be considered if they clearly appear on the face of the complaint. See Forst 4 F.3d at 250. Further, defenses such as res judicata and collateral estoppel may be considered on a motion to dismiss. See Thompson v. County of Franklin, 15 F.3d 245, 253 (2d Cir.1994); Campbell v. Cathcart et al. (In re Derivium Capital, LLC), C/A No. 05-15042-W, Adv. Pro. No. 06-80163, slip op. (Bankr.D.S.C. Dec. 22, 2006). Defendants assert that the amended complaint is subject to dismissal based upon affirmative defenses more fully set forth herein.
a. Claim Preclusion
The doctrine of res judicata encompasses two concepts: claim preclusion and issue preclusion, also known as collateral estoppel. See In re Varat Enterprises Inc., 81 F.3d 1310, 1315 (4th Cir.1996). Defendants bear the burden of proving that Trustee is estopped from bringing this adversary based upon the Allowance Order. See Meekins v. United Transp. Union, 946 F.2d 1054, 1057 (4th Cir.1991).
Since Defendants seek to dismiss the amended complaint under both theories, the Court will first address whether the amended complaint is barred under the doctrine of claim preclusion. “Rules of claim preclusion provide that if the later litigation arises from the same cause of action as the first, then the judgment bars litigation not only of every matter actually adjudicated in the earlier case, but also of every claim that might have been presented.” See Varat, 81 F.3d at 1315. (citing Nevada v. United States, 463 U.S. 110, 129-30, 103 S.Ct. 2906, 2917-18, 77 L.Ed.2d 509 (1983)). The following three elements must be present to apply claim preclusion: “1) the prior judgment was final and on the merits, and rendered by a court of competent jurisdiction in accordance with the requirements of due process; 2) the parties are identical, or in privity, in the two actions; and, 3) the claims in the second matter are based upon the same cause of action involved in the earlier proceeding.” See id.
The first two elements of claim preclusion are met as to AGM. The Allowance Order is a final judgment on the merits of the Allowance Motion and AGM and Trustee are common to this adversary and the prior contested matter.
Defendants nevertheless contend that AGM’s Allowance Motion put at issue whether AGM’s claim should be “indefeasibly paid.” The Allowance Order granted in part and denied in part the Allowance Motion. The Court did not order that the claim was to be indefeasibly paid but merely compelled Trustee to make a distribution to AGM, pursuant to 11 U.S.C. §§ 725 and 726, as AGM appeared, based upon the limited scope of the Allowance Motion, to be entitled to all proceeds held by Trustee based upon its security interest and purchase of property at the UCC sale and Trustee had not formally asserted any other action that would preclude payment. See Maryland National Ind. Fin. Corp. v. Vacuum Cleaner Corp. of America (In re Vacuum Cleaner Corp. of America), 33 B.R. 701, 704 (Bankr.E.D.Pa.1983) (holding that a finding in a contested matter is made in light of the nature of the dispute and does not necessarily have preclusive effect in all subsequent matters). It is doubtful that the Court, in the prior contested matter, could compel Trustee to make an indefeasible distribution on a claim since 11 U.S.C. § 502(j) specifically permits the allowance of a claim to be reconsidered and recognizes that Trustee may recover any excess distribution to a creditor. See County Fuel, 832 F.2d at 292. Further, AGM could not put at issue in the Allowance Motion whether its claim should be indefeasibly paid since such a proceeding would appear to necessarily require an adversary, pursuant to Fed. R. Bankr.P. 7001(2), to determine issues regarding the priority of AGM’s claim. See Cen-Pen Corp. v. Hanson, 58 F.3d 89, 93 (4th Cir.1995) (holding contested matters generally cannot resolve issues that must be raised by an adversary); In re Banks, 299 F.3d 296, 302 (4th Cir.2002) (holding “[wjhere the Bankruptcy Code and Bankruptcy Rules specify the notice required prior to entry of an order, due process generally entitles a party to receive the notice specified before an order binding the party will be afforded preclusive effect”).
Similarly, Trustee’s actions now at issue also could not have been at issue in the prior contested matter since these actions are matters that should be raised by an adversary proceeding. See In re George, 318 B.R. 729, 737-738 (9th Cir.
Finally, Trustee was not compelled to raise these causes of action during the prior contested matter.
Therefore, the Court cannot find that the amended complaint should be dismissed on grounds of res judicata because the issues raised in the amended complaint were not at issue during the prior contested matter and Trustee was not required to raise these issues prior to this adversary.
b. Collateral Estoppel
The scope of collateral estop-pel is narrower than claim preclusion. See Varat, 81 F.3d at 1315. To bar the amended complaint on grounds of collateral estoppel Defendants must establish: “(1) the issue to be precluded is identical to the issue already litigated, (2) the issue was actually determined in the prior proceeding, (3) the determination of the issue was an essential part of the decision in the prior proceeding, (4) the prior judgment was final and valid, and (5) the party against whom estoppel is asserted had a full and fair opportunity to litigate the issue.” See In re Coleman, 426 F.3d 719, 729 (4th Cir.2005). As previously set forth, elements one, two, three, and five cannot be met because the issues raised in this adversary were not previously before the Court, the Court did not make a determination on the issues now raised, and Trustee did not have a complete opportunity to address these issues, which require an adversary proceeding. Therefore, Defendants’ motion to dismiss cannot be granted on grounds of collateral estoppel.
c. Law of the Case Doctrine
The law of the case doctrine guides in the Court’s determination of issues but it does not prohibit the Court from reconsidering an earlier ruling. See American Canoe Ass’n v. Murphy Farms, Inc., 326 F.3d 505, 514-15 (4th Cir.2003). “The ultimate responsibility of the federal courts, at all levels, is to reach a correct judgment under law.” Id. The law of the case doctrine does not bar the litigation of the issues raised in the amended complaint since these issues were not properly before the Court on the Allowance Motion and therefore were not determined by the
d. In Pari Delicto
Defendants assert that the defense of in pari delicto bars Trustee’s action for breach of fiduciary duty. In pari delicto is defined as “[t]he principle that a plaintiff who has participated in wrongdoing may not recover damages resulting from the wrongdoing.” Black’s Law DICTIONARY 794 (7th ed.1999). This doctrine precludes one joint tort-feasor from seeking indemnity from another. See Rock Hill Tel. Co. v. Globe Commc’ns, Inc., 363 S.C. 385, 389 n. 2, 611 S.E.2d 235, 237 n. 2 (2005). However, in South Carolina, the doctrine does not bar an action where an agent is acting adverse to the interest of the principal. See Derivium, slip op. at 6-8; Myatt v. RHBT Financial Corp., 370 S.C. 391, 635 S.E.2d 545, 548 (S.C.Ct.App.2006) (citing Scholes v. Lehmann, 56 F.3d 750 (7th Cir.1995)); Little v. S. Cotton Oil Co., 156 S.C. 480, 483-84, 153 S.E. 462, 463 (S.C.1930) (holding acts of an agent are not imputed to the principal where the agent is acting adverse to the principal). The doctrine also does not apply when a receiver is seeking recovery of diverted funds for a corporation from the beneficiaries of wrongdoing. See Myatt, 635 S.E.2d at 548.
Evident in the amended complaint is that Trustee alleges Defendants took control of Debtor’s operations and engaged in self-dealing. Trustee’s allegations, if true, preclude the application of the defense of in pari delicto as Defendants’ interests in operating appear, adverse to Debtor and its other creditors and Trustee appears to be seeking to recover diverted funds from the beneficiary of the wrongdoing. See Myatt, 635 S.E.2d at 548; Official Comm. of Unsecured Creditors v. American Tower Corp. (In re Verestar, Inc.), 343 B.R. 444, 479 (Bankr.S.D.N.Y.2006). Therefore, the Court denies the motion to dismiss because in pari delicto does not clearly appear on the face of the amended complaint and necessarily involve a factual determination of Debtor’s and Defendants’ conduct. See Derivium, slip op. at 6-8 (finding that the Court should not apply in pari delicto on a motion to dismiss where it was not clearly evident that the defense was applicable); In re Student Finance Corp., 335 B.R. 539, 547 (finding a complaint should not be dismissed under the doctrine of in pari delicto where it appears from the allegations that there are issues of fact that would bar the application of the doctrine).
2. Failure to State a Claim
a. Equitable Subordination
Defendants allege that Trustee has failed to sufficiently state a claim for equitable subordination because she has not sufficiently alleged that any pre-petition conduct by Defendants injured other creditors or conferred an unfair advantage on them. See EEE Commercial Corp. v. Holmes (In re ASI Reactivation, Inc.), 934 F.2d 1315, 1321 (4th Cir.1991) (setting forth the elements of equitable subordination). Specifically, they contend that no pre-petition conduct they engaged in, through the liquidation of goods, could confer an unfair advantage on them or injure creditors because, as the Allowance Order found, AGM had a security interest in all of Debtor’s goods. Defendants also contend that the Chinese Mills, the party potentially injured by the liquidation of stolen lumber, has been made whole by a
The Allowance Order was premised upon a finding that AGM was secured; however, as previously noted, Trustee through this adversary can challenge the priority of AGM’s claim. The outcome of this adversary could result in Defendants being paid at a substantially different level in priority. See 11 U.S.C. § 502(j) (noting that Trustee may recoup an overpayment to a creditor); In re Chira, 353 B.R. 693, 723 (Bankr.S.D.Fla.2006) (finding that equitable subordination may be used to subordinate creditors with an allowed secured claim). If Defendants are paid at a different level in priority, they may have received more than they were entitled to receive. Further, the Court cannot find, based upon the well pled allegations of the amended complaint, that Defendants did not engage in inequitable conduct or that the liquidation of allegedly stolen goods did not injure creditors of Debtor. The allegations of the amended complaint, if true, would appear to support a finding that Defendants engaged in inequitable conduct injuring other creditors. Further, consideration of any payment by a third party to the Chinese Mills is outside of the scope of the pleading and may be irrelevant under the collateral source rule. See Atkinson v. Orkin Exterminating Co., Inc., 361 S.C. 156, 604 S.E.2d 385 (S.C.2004) (discussing the collateral source rule). Therefore, Defendants’ motion to dismiss Trustee’s first cause of action for equitable subordination is denied.
b. Reclassification
Like subordination, reclassification alters the priority of a creditor’s claim. See Fairchild Dornier GmbH v. Official Committee of Unsecured Creditors (In re Dornier Aviation (North America) Inc.), 453 F.3d 225, 232 (4th Cir.2006). However, reclassification is substantially different from subordination in that subordination focuses on the creditor’s behavior; whereas, reclassification rests on the substance of the transaction giving rise to the claim. See id.; In re Cold Harbor Assocs., L.P., 204 B.R. 904, 915 (Bankr.E.D.Va.1997) (“Rather than recharacterizing the exchange from debt to equity, or subordinating the claim for some reason, the question before this Court is whether the transaction created a debt or equity relationship from the outset.”). To reclassify a claim, the Fourth Circuit suggests that the Court consider the following factors: “(1) the names given to the instruments, if any, evidencing the indebtedness; (2) the presence or absence of a fixed maturity date and schedule of payments; (3) the presence or absence of a fixed rate of interest and interest payments; (4) the source of repayments; (5) the adequacy or inadequacy of capitalization; (6) the identity of interest between the creditor and the stockholder; (7) the security, if any, for the advances; (8) the corporation’s ability to obtain financing from outside lending institutions; (9) the extent to which the advances were subordinated to the claims of outside creditors; (10) the extent to which the advances were used to acquire capital assets; and (11) the presence or absence of a sinking fund to provide repayments.” See Dornier, 453 F.3d at 233 (citing Bayer Corp. v. MascoTech, Inc. (In re AutoStyle Plastics, Inc.), 269 F.3d 726, 749-750 (6th Cir.2001)). These factors are aimed at determining the intent of the parties at the time they entered into the loan transaction, which is the overarching inquiry in determining whether the true character of an investment is either a loan or an equity contribution. See In re Sub-Micron Systems Corp., 432 F.3d 448, 455-456 (3d Cir.2006).
In the amended complaint, Trustee has failed to sufficiently allege facts supporting a cause of action for reclassification. The allegation in Trustee’s amended complaint
c. Preference
Trustee’s third cause of action seeks to recover payments made to Defendants one year prior to the petition pursuant to 11 U.S.C. § 547. Defendants allege that the complaint is defective because it fails to allege Defendants were insiders of Debtor at the time of the transfers and because Trustee cannot otherwise prove that Defendants received more than they would otherwise be entitled to receive based upon the Allowance Order finding AGM to be secured.
As previously set forth, the outcome of this adversary may alter Defendants’ priority in payment and therefore the Court cannot find that Trustee’s action fails as a matter of law under 11 U.S.C. § 547(b)(5) because if Defendants’ claim is subordinated or reclassified then they would appear to have received more than they would receive if such transfers had not been made. See Hager v. Gibson, 109 F.3d 201, 210 (4th Cir.1997) (noting a secured creditor received more than it would have otherwise received for purposes of 11 U.S.C. § 547(b)(5) when that creditor’s claim was subordinated). However, the amended complaint is vague as to when the preferential transfers took place. 11 U.S.C. § 547(b)(4)(B) allows Trustee to reach back more than ninety days prior to the petition if Defendants were insiders at the time of the preferential transfer. Since the well-pled allegations of the amended complaint do not indicate that Defendants were insiders of Debtor for more than ninety days prior to the petition date, it seems that Trustee may only avoid those transfers that took place within ninety day of the petition date pursuant to 11 U.S.C. § 547(b)(4)(A). To the extent that Trustee seeks to avoid transfers occurring more than ninety days prior to the petition date, she shall amend her amended complaint within seven (7) days from the entry of this Order to more specifically set forth when the alleged preferential transfers occurred and facts supporting the allegation that Defendants were insiders of Debtor at the time of such transfers.
d. Breach of Fiduciary Duty
Defendants allege that Trustee failed to sufficiently allege that they owed a fiduciary duty to Debtor and breached this duty. Generally, a lender does not owe fiduciary duties to a borrower. See Regions Bank v. Schmauch, 354 S.C. 648, 582 S.E.2d 432, 444 (S.C.Ct.App.2003). Trustee asserts that the fiduciary relationship existed based upon Defendants’ control over Debtor prior to the petition date. At common law, a fiduciary relationship may be established when a lender exercises improper control over a borrower. See In re K Town, Inc., 171 B.R. 313, 319 (Bankr.N.D.Ill.1994). Lender control may be established by a lender engaging in the day-to-day management and operations of
Trustee has sufficiently alleged that Defendants controlled the operation of Debtor through control over Debtor’s inventory, operations, mail, management, and cash flow and by excluding Debtor’s principal from Debtor’s business. .These allegations, if true, would appear to indicate that Defendants controlled the operations of Debtor and therefore were fiduciaries of Debtor.
However, Trustee has not sufficiently alleged that Defendants breached a fiduciary duty owed to Debtor or that Debtor was harmed by Defendants’ actions. The allegations incorporated into Trustee’s fifth cause of action indicate that Defendants liquidated property procured by Debtor but in which Debtor had no legal interest.
e. Constructive Trust and Accounting
Defendants allege that Trustee’s final actions for accounting and constructive trust fail because Trustee has failed to properly plead that a fiduciary relationship existed between Debtor and Defendants. However, as previously noted, Trustee has sufficiently pled that a fiduciary relationship existed between Debtor and Defendants. Defendants also allege that fraud is an essential element of an action for a constructive trust and that Trustee has failed to plead fraud with particularity. South Carolina courts generally hold that fraud or the breach of a fiduciary duty are elements of a constructive trust; however, these elements are not always necessary to the imposition of a constructive trust. See Derivium, slip op. at 16-17 (denying a motion to dismiss based upon a trustee’s failure to plead fraud with particularity in an action for a constructive trust). To state a cause of action for a constructive trust, Trustee need only state facts indicating that Defendants obtained property that they cannot in good conscious retain or withhold from another who is beneficially entitled to it. See SSI Med
Likewise, Trustee’s action for accounting does not necessarily require Trustee to allege a breach of a fiduciary duty. Accounting is appropriate where there is a long complicated account or a need for discovery. See Rogers v. Salisbury Brick Corp., 299 S.C. 141, 382 S.E.2d 915, 917 (1989). Accounting may also be appropriate to prevent unjust enrichment and require the relinquishment of property when there is a breach of a confidential relationship or a fiduciary duty. See id. In paragraphs 82, 83, and 86 of the amended complaint, Trustee sufficiently alleges grounds to support a cause of action for accounting.
II. Defendants’ Motion Under Fed. R.Civ.P. 12(b)(1)
A. Standard For Granting the Motion Under Rule 12(b)(1)
Defendants move to dismiss Trustee’s fourth cause of action under the “Trust Fund Doctrine” on grounds that she lacks standing to pursue the claim. Article III of the Constitution requires a party to have standing to invoke the powers of a federal court. See Warth v. Seldin, 422 U.S. 490, 498, 95 S.Ct. 2197, 2205, 45 L.Ed.2d 343 (1975). A complaint brought by a plaintiff that lacks standing may be dismissed pursuant to Fed.R.Civ.P. 12(b)(1). Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 94, 118 S.Ct. 1003, 140 L.Ed.2d 210 (1998) (finding where there is no jurisdiction “the only function remaining to the court is that of announcing the fact and dismissing the cause”): In re Student Finance Corp., 335 B.R. 539 (D.Del.2005). Standing requires that the party seeking relief has alleged a personal injury traceable to the conduct of another that may be redressed by the relief requested. See Valley Forge Christian College v. Americans United for Separation of Church and State, Inc., 454 U.S. 464, 471—476, 102 S.Ct. 752, 757-761, 70 L.Ed.2d 700 (1982). Section 704(1) authorizes Trustee to “collect and reduce to money the property of the estate.” 11 U.S.C. § 704(1). Because claims of Debtor constitute property of a bankruptcy estate, § 704(1) grants Trustee the right to assert causes of action on behalf of Debtor. See 11 U.S.C. §§ 541(a)(1), 704(1). See also, Polis v. Getaways, Inc., (In re Polis), 217 F.3d 899, 901 (7th Cir.2000) (noting that § 541(a) has “uniformly been interpreted to include causes of action”). However, if a claim belongs solely to creditors, Trustee generally has no standing under 11 U.S.C. §§ 541 or 544(b) to pursue the claim unless it is assigned to him by the creditors, notwithstanding the fact that recovery may benefit creditors. See Caplin v. Marine Midland Grace Trust Co., 406 U.S. 416, 92 S.Ct. 1678, 32 L.Ed.2d 195 (1972); In re Bogdan, 414 F.3d 507, 513 (4th Cir.2005). Whether a particular claim belongs to Debtor, thus constituting “property of the estate,” depends upon state law. See Steyr-Daimler-Puch of Am. Corp. v. Pappas, 852 F.2d 132, 135 (4th Cir.1988).
B. Application of Law to Defendants’ Rule 12(b)(6) Motion
Trustee relies on 11 U.S.C. § 544(b) as the source of her authority to sue on behalf of the creditor body as a whole for Defendants alleged breach of the trust fund doctrine. A review of South Carolina case law does not indicate that an action for violation of the trust fund doc
Moreover, the harm alleged in the complaint only appears to have injured a particular class of creditors, i.e. those creditors whose stolen lumber was liquidated by Defendants. It is well settled that Trustee does not have derivative standing to pursue an action on behalf of a particular class of creditors. See Caplin, 406 U.S. at 434, 92 S.Ct. 1678. Therefore, the fourth cause of action must be dismissed for lack of standing.
III. Conclusion
Based upon the foregoing, Defendants’ motion to dismiss is granted in part and denied in part. Trustee’s fourth cause of action is dismissed. Trustee shall re-plead her second, third, and fifth causes of action pursuant to the terms of this Order.
AND IT IS SO ORDERED.
Based upon the Findings of Fact and Conclusions of Law made in the attached Order of the Court, the Motion of AGM, II, LLC and Lancelot Investor Fund, L.P. to dismiss the amended complaint filed by Michelle L. Vieira, as Chapter 7 Trustee (“Trustee”) for Worldwide Wholesale Lumber, Inc., is granted in part and denied in part. Trustee shall amend her amended complaint pursuant to the terms of the attached Order. The Fourth Cause of Action of the amended complaint is dismissed for lack of standing.
. To the extent any of the following Findings of Fact constitute Conclusions of Law, they are adopted as such, and to the extent any Conclusions of Law constitute Findings of Fact, they are also adopted as such.
. A written order granting AGM relief from the automatic stay was entered on May 9, 2006 effective nunc pro tunc to the oral ruling delivered by the Court on April 28, 2006.
. AGM’s initial proof of claim was filed on April 26, 2006.
. Trustee estimated at the hearing on the motion to dismiss that she was provided 600,000 documents by AGM shortly before the deadline to conclude discovery.
. This position was restated by AGM's counsel at a hearing on November 7, 2006 at which counsel stated:
From the outset, I thought that [Allowance Motion] was a matter that we brought to invite any counter litigation against us so that we could be done with this case and get our money, if any, pay our money if we owe it, and move on.
So, apparently those issues will not be presented by the Trustee at the trial, and that’s a decision that the Trustee made, and that’s fine.
So, with that decision having been made, I do think that the trial will be a fairly simple mathematics exercise.
.AGM’s claim was reduced to $3,866,460.85 as a result of AGM’s collection from other sources and the $1 million credit bid at the UCC Sale. The Court also found that the claim should be further reduced to the extent that the funds held in the segregated account constitute accounts receivables collected by AGM prior to the date of the UCC Sale.
. By consent, the second adversary was dismissed without prejudice upon the consolidation of the causes of action contained in the complaint in that proceeding with the amended complaint in this proceeding.
. Lancelot is not common to this adversary and the contested matter; however, the Court need not determine whether Lancelot can invoke res judicata because the Court finds that the defense fails as a matter of law on the third element of claim preclusion.
. As more fully set forth herein, the actions now at issue require an adversary proceeding and the Federal Rules of Bankruptcy Procedure did not compel Trustee to raise these actions in response to the Allowance Motion.
. The Fourth Circuit ultimately affirmed the district court's dismissal of the action by finding that the debtor waived the right to bring the action. See County Fuel, 832 F.2d at 292-293. Unlike the facts in County Fuel. Trustee did not unreasonably delay in bringing this action but rather brought it in district court prior to the trial on the Allowance Motion and joined actions for subordination and reclassification immediately following the entry of the Allowance Order. Further, unlike the Debtor in County Fuel. Trustee has not acquiesced to Defendants' position but has at all times maintained that she has a right to seek the subordination of AGM’s claim and seek damages against Defendants. Therefore, it would not appear proper to find that Trustee has waived any of her rights. See Arizona v. California, 530 U.S. 392, 412-413, 120 S.Ct. 2304, 147 L.Ed.2d 374 (2000) (finding courts should be cautious about raising a preclusion bar sua sponte especially when no judicial resources were expended on the resolutions of the questions at issue).
. The Court held on January 5, 2007 that issues of subordination, priority, lender liability and reclassification were not expressly before the Court and the Court was not making a ruling on these issues. Therefore, unlike Spartan Mills v. Bank of America Illinois, 112 F.3d 1251 (4th Cir.1997), the Court did not make an express ruling in a contested matter on the issues now raised in this adversary and therefore this adversary is not a collateral attack on the Allowance Order.
. Unlike Spartan Mills, there was no specific adjudication of priority in the prior contested matter but rather the Court ordered on January 5, 2007 that it was not determining issues of priority and subordination.
.AGM relies on Trustee’s reply to the Allowance Motion and her letter dated June 30, 2006 for the position that Trustee put at issue subordination and other claims effecting AGM’s right to payment. In her reply to the Allowance Motion, Trustee generally stated that the motion should be denied until the Court determined whether AGM’s claim should be subordinated. Trustee did not seek affirmative relief or an adjudication on whether she had such a claim against AGM. Further, Trustee’s letter to the Court dated June 30, 2006 does not alter the scope of the trial on the Allowance Motion. Trustee's letter merely proposed that the Court set a discovery schedule so that all matters “could” be
. The Court presumes, at this stage, that Debtor had a sufficient interest in the proceeds from the sale of the allegedly stolen goods for purposes of 11 U.S.C. § 547(b). See In re Nova Tool & Engineering, Inc., 228 B.R. 678, 684 (Bankr.N.D.Ind.1998).
. In subsequent causes of action, Trustee alleges that Defendants obtained property of Debtor.
. It appears that the position reflected in Miller is the majority position with respect to a trustee’s standing to maintain an action on behalf of all individual creditors. As noted in Miller, the case law from the Circuit Courts supporting a trustee’s right to sue for an injury to the entire creditor body have been limited by the subsequent decisions of those courts. See Miller, 197 B.R. at 814. James River is distinguishable in that the trastee was assigned the claims at issue through a confirmed chapter 11 plan. Further, the Eastern District of Virginia has previously cited Miller with approval and noted that a trustee may not have standing to bring claims belonging solely to creditors. See Fidelity Nat. Title Ins. Co. of New York v. Bozzuto, 227 B.R. 466, 472, fn. 15 (E.D.Va.1998).