ROBERT SUMMERHAYS, Bankruptcy Judge.
This is an action brought by Alan H. Goodman, the trustee of the Gulf Fleet Liquidating Trust (with respect to Mr. Goodman, the "Trustee" and with respect to the Gulf Fleet Liquidating Trust, the "Trust") against H.I.G. Capital, LLC and other defendants. The Trustee's claims arise out of H.I.G.'s leveraged buyout and subsequent management of Gulf Fleet Holdings, Inc. and its affiliates ("Gulf Fleet" or "Debtors"). H.I.G. and the other defendants filed a motion to dismiss the Trustee's complaint under Rules 12(b)(6) and 12(e) of the Federal Rules of Civil Procedure. The court took the motions under advisement and, after considering the parties' arguments, the Trustee's complaint, and the relevant authorities, the court GRANTS the defendants' motions to dismiss IN PART, and DENIES the motions IN PART as set forth herein.
Prior to bankruptcy, Gulf Fleet owned and operated a fleet of supply vessels used to support oil and gas exploration and production companies in the Gulf of Mexico and other locations. (Trustee's Complaint-in-Intervention ("Complaint") at ¶ 17). Gulf Fleet was formed in 1999 by Michael and Darlene Hillman. (Id.). H.I.G. Capital, LLC is a private investment firm with its principal place of business in Miami, Florida. (Id. at ¶ 9). H.I.G. Capital operates through various subsidiaries and affiliates, including defendants H.I.G. Gulf Fleet Acquisition, LLC, H.I.G. GP-II, H.I.G. Capital Partners IV, L.P., H.I.G. Advisors IV, L.L.C., Gulf Fleet Tiger Holdings, Inc., Gulf Fleet Tiger Acquisition, LLC, and Gulf Fleet Financing, LLC (collectively, the "H.I.G. Defendants"). (Complaint at ¶¶ 10-14, 20-22). In May 2007, the Hillmans and H.I.G. entered into a leveraged buyout transaction (the "LBO"). The Hillmans sold all of their ownership interest in Gulf Fleet to H.I.G. in exchange for $23.5 million in cash and a 35% equity interest in the new Gulf Fleet entity created as a result of the buyout. (Id. at ¶ 19). As a result of the LBO, H.I.G. held a 65% controlling interest in Gulf Fleet. (Id.). According to the Trustee, H.I.G. Gulf Fleet Acquisition, LLC, ("Gulf Fleet Acquisition") was a "shell" Delaware LLC and "indirectly wholly-owned subsidiary of H.I.G. Capital" that was formed in connection with the LBO to hold the stock of Gulf Fleet Holdings. (Complaint ¶¶ 10-11). The Trustee alleges that H.I.G. Capital controlled Gulf Fleet through Gulf Fleet Acquisition and H.I.G. GP-II. (Complaint at ¶¶ 10-12). After the LBO, Gulf Fleet Holdings, Inc. had three direct subsidiaries: Gulf Fleet Offshore, LLC ("GFO"), Gulf Ocean Marine
The LBO was funded by a loan underwritten by a syndicate of banks led by Comerica Bank. This senior loan was secured by Gulf Fleet's property and certain accounts receivable. The senior loan included a term loan of $42 million and a revolving credit commitment of $10 million. (Complaint at ¶ 20). The Trustee alleges that Gulf Fleet received the full $42 million term debt and drew approximately $4 million under the revolving credit commitment at the time the LBO was closed on May 1, 2007. The Trustee further alleges that Brightpoint Capital Partners Master Fund, L.P. ("Brightpoint") extended Gulf Fleet an additional $6 million subordinated loan with a maturity date of May 1, 2012. According to the Trustee, the proceeds of these loans were used to pay Gulf Fleet's pre-LBO debt and to fund the $23.5 million cash paid to the Hillmans. (Complaint at ¶ 23). The Trustee further alleges that, out of the loan proceeds, Gulf Fleet ultimately retained $500,000 cash.
The Trustee contends that, after the LBO, H.I.G. "dominated and controlled" Gulf Fleet. Specifically, H.I.G. employees — including defendants Jeff Zanarini, Jonathon Fox, and Anthony Tamer — were appointed to the board of directors of the various Gulf Fleet entities. (Complaint at ¶ 24). The Trustee contends that these H.I.G. employees prevented Michael Hillman from attending board meetings and withheld information from Mr. Hillman. (Complaint at ¶ 24). The Trustee also alleges that H.I.G. and its employees managed Gulf Fleet so as to benefit H.I.G. at the expense of Gulf Fleet, its minority shareholders, and its creditors.
The Trustee alleges that H.I.G. required Gulf Fleet to enter into a Professional Services Agreement ("PSA") and Consulting Services Agreement ("CSA"). (Complaint at ¶ 33). These agreements provided that H.I.G. would provide professional advice and assist in evaluating potential acquisitions in exchange for an annual management fee of $500,000 as well as other fees set forth in the agreements. (Id.). According to the Trustee, H.I.G. "provided no value to Gulf Fleet for these arrangements." (Id. at ¶ 34). The Trustee alleges that the agreements "were an artifice used to funnel money from Gulf Fleet to other arms of the H.I.G. enterprise." (Id.).
The Complaint also addresses the sale of Gulf Fleet's interests in the construction contract for the M/V Gulf Tiger. Gulf Fleet contracted with Thoma-Sea Shipbuilders, LLC to construct the M/V Gulf Tiger in July 2007. The cost of the contract was approximately $17.975 million, and Gulf Fleet paid $4 million as a deposit for the vessel. (Id. at ¶ 50). Gulf Fleet assigned its rights to the M/V Gulf Tiger construction contract to an H.I.G. subsidiary, GF Tiger Acquisition, in July 2008. According to the Trustee, GF Tiger Acquisition paid Gulf Fleet $8 million for the contract. (Id. at ¶ 51). After the assignment, H.I.G.'s representatives at Gulf Fleet required Gulf Fleet to continue supporting the construction of the M/V Gulf Tiger even though Gulf Fleet no longer had an interest in the contract. (Id. at ¶ 52). According to the Trustee, defendant Jeff Zanarini assured the Chief Financial Officer of Gulf Fleet that H.I.G. would reimburse Gulf Fleet for the expenditures, but no reimbursements were ever made. (Id.). According to the Trustee,
After the LBO, Gulf Fleet entered into a factoring agreement with GF Financing (the "Factoring Agreement"), an H.I.G. subsidiary. (Id. at ¶ 58). According to the Trustee, Michael Hillman objected to this Factoring Agreement. Under the terms of the agreement, GF Financing could purchase up to $4 million in accounts receivable from Gulf Fleet. (Id. at ¶ 59). The Trustee alleges that Gulf Fleet assigned $2,897,400 in accounts receivable to GF Financing in November 2009. The Trustee further alleges that this agreement and assignment of accounts receivable violated the covenants of the senior loan with Comerica Bank, and that Comerica Bank demanded the return of the collateral when it learned of the assignment. (Id. at ¶ 61). As a result, Gulf Fleet and GF Financing restructured the Factoring Agreement to cover only "ineligible accounts" as defined in the documents governing the senior loan by Comerica. The Trustee contends that the purpose of the Factoring Agreement was to provide liquidity for Gulf Fleet without requiring H.I.G. to risk a capital contribution. (Id. at ¶ 62).
The Trustee alleges that H.I.G. undercapitalized Gulf Fleet by refusing to inject new capital into the company and its affiliates. Instead, H.I.G. attempted to fund Gulf Fleet's short-term cash needs through the Factoring Agreement and short-term promissory notes issued by H.I.G.'s affiliates. For example, in January 2010, Gulf Fleet issued two promissory notes to GF Financing for $5.5 million and approximately $2.9 million. (Id. at ¶ 63). According to the Trustee, the $2.9 million note was intended to replace Gulf Fleet's obligations under the amended Factoring Agreement for the accounts receivable that had to be returned to cure the breach of the covenants in the senior loan documents. (Id.). According to the Trustee, Gulf Fleet had no obligation to enter into the promissory note because the assignment of the accounts receivable was without recourse. (Id.). The Trustee further alleges that both promissory notes were essentially a "de facto equity contribution" disguised as a loan. (Id. at ¶ 66). In this regard, the Trustee points to the terms of the promissory notes, which gave GF Financing the right to convert the balance of the notes into stock for $10 per share at any time before maturity. (Id. at ¶ 64). The Trustee characterizes these notes as "the perfect investment vehicle" because if Gulf Fleet succeeded "the notes would become an equity contribution and H.I.G. would own nearly all of Gulf Fleet," but if Gulf Fleet failed "H.I.G. would claim the notes were debt." (Id. at ¶ 67). The Trustee also alleges that H.I.G. intended to undercapitalize Gulf Fleet and to take actions that solely benefitted H.I.G.'s interests at the expense of Gulf Fleet and its creditors. Specifically, the Trustee alleges:
Gulf Fleet and its affiliated entities filed for relief under Chapter 11 of the Bankruptcy Code on May 14, 2010. The court ultimately confirmed a liquidating plan of reorganization for the substantively consolidated Gulf Fleet entities after an evidentiary hearing on April 26, 2011. The confirmed plan provided for the creation of the Trust and Mr. Goodman was ultimately appointed Trustee. The confirmed plan assigned certain causes of action to the Trust. The present action was initially commenced by Michael Hillman. The Trustee subsequently intervened as plaintiff. The Trustee's Complaint asserts 14 separate counts: (1) Fraudulent transfer claims under 11 U.S.C. §§ 544, 548, and 550, (2) a claim to recharacterize H.I.G.'s debt as equity, (3) simulation under Louisiana Civil Code Article 2027, (4) a claim for subordination, (5) state law breach of fiduciary duty claims, (6) state law breach of duty of loyalty and tort, (7) aiding and abetting breach of fiduciary duty, (8) delictual action and conversion, (9) unjust enrichment, (10) quantum meruit, (11) partnership liability, (12) single business enterprise, (13) a direct action against the defendants' insurance carrier, and (14) a request for attorney fees. The H.I.G. Defendants subsequently filed the present Motion to Dismiss, and requested dismissal of all of the Trustee's claims under Rule 12(b)(6) of the Federal Rules of Civil Procedure. Brightpoint also filed a separate Motion to Dismiss and Motion for More Definite Statement under Rule 12(e) of the Federal Rules of Civil Procedure.
Rule 7012(b) of the Federal Rules of Bankruptcy Procedure provides that Rule 12(b)(6) of the Federal Rules of Civil Procedure applies in adversary proceedings. Rule 12(b)(6) allows dismissal if a plaintiff fails "to state a claim upon which relief can be granted." Fed.R.Civ.P. 12(b)(6). Rule 12(b)(6) must be read in conjunction with Rule 8(a), which requires "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R.Civ.P. 8(a)(2). Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007); Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). To withstand a Rule 12(b)(6) motion, a complaint must contain "enough facts to state a claim to relief that is plausible on its face." Twombly, 550 U.S. at 570, 127 S.Ct. 1955; see also Elsensohn v. St. Tammany Parish Sheriff's Office, 530 F.3d 368, 372 (5th Cir.2008) (quoting Twombly, 550 U.S. 544, 127 S.Ct. at 1974, 167 L.Ed.2d 929). A claim satisfies the plausibility test "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Twombly's plausibility standard is
Rule 9(b) of the Federal Rules of Civil Procedure imposes additional requirements for pleading claims of fraud. Rule 9(b) requires the plaintiff to plead the circumstances constituting fraud with particularity. See Fed.R.Civ.P. 9(b); Tuchman v. DSC Communications Corp., 14 F.3d 1061, 1068 (5th Cir.1994). To satisfy Rule 9(b), a plaintiff must allege the identity of the person making a fraudulent statement, the time, place and content of the misrepresentation, the resulting injury, and the method by which the misrepresentation was communicated. Tuchman, 14 F.3d at 1061. This standard requires sufficient factual detail to lend some measure of substantiation to a claim that the defendant committed fraud. Id. Rule 9(b) applies not only to fraud claims, but also to "non-fraud" claims that are based upon allegations of fraud. For example, a breach of fiduciary duty claim is not generally subject to Rule 9(b). However, if a breach of fiduciary duty claim is grounded in whole or in part on allegations of fraud, the allegations of fraud must comply with Rule 9(b). Similarly, fraudulent transfer claims based on allegations of actual fraud are subject to the pleading standards of Rule 9(b).
Under Rule 12(e) of the Federal Rules of Civil Procedure, a defendant may move for a more definite statement of a pleading "which is so vague or ambiguous that the party cannot reasonably prepare for a response." Fed. R. Civ. Pro. 12(e). Courts have traditionally viewed Rule 12(e) motions with disfavor given the liberality of notice pleading and the availability of discovery to obtain the information needed for a party to present its case. See, e.g., Mitchell v. E-Z Way Towers, Inc., 269 F.2d 126, 132 (5th Cir.1959); 5A C. Wright & A. Miller, Federal Practice and Procedure § 1377 (2nd ed. 1990). Relief under Rule 12(e) is limited to cases where the "complaint is ambiguous or does not contain sufficient information to allow a responsive pleading to be framed." Beanal v. Freeport-McMoran, Inc., 197 F.3d 161, 164 (5th Cir.1999).
11 U.S.C. § 548(a)(1) allows a trustee to avoid any transfer of the debtor's interest in property if the transfer was the result of actual or constructive fraud. Section 548(a)(1)(A) governs "actual" fraud and allows a trustee to avoid a transfer made "with actual intent to hinder, delay, or defraud any entity to which the debtor was or became ... indebted." Section 548(a)(1)(B) in turn, governs "constructive" fraud and requires proof that (1) the debtor had an interest in property; (2) a transfer of that interest occurred within two years of the bankruptcy filing; (3) the debtor was insolvent at the time of the transfer or became insolvent as a result of the transfer; and (4) the transfer resulted in no value for the debtor or the value received was not "reasonably equivalent" to the value of the transferred property interest. 11 U.S.C. § 548(a)(1)(B); BFP v. Resolution Trust Corp., 511 U.S. 531, 535, 114 S.Ct. 1757, 128 L.Ed.2d 556 (1994). With respect to both actual and constructive fraud, a trustee cannot challenge transfers that occurred more than two years before the filing of the bankruptcy petition even if all of the other elements of a fraudulent transfer claim are satisfied. 11 U.S.C. § 550(a) outlines the Trustee's remedies. Section 550(a) provides that a trustee "may recover, for the benefit of the estate, the property transferred, or, if the court so orders, the value of such property, from (1) the initial transferee of such transfer or the entity for whose benefit such transfer was made; or (2) any immediate or mediate transferee of such initial transferee." 11 U.S.C. § 550(a).
Under 11 U.S.C. § 544(b), a trustee succeeds to the rights of an unsecured creditor to avoid a transaction under non-bankruptcy law. See In re Moore, 608 F.3d 253, 260 (5th Cir.2010). In other words, if "an actual, unsecured creditor can, on the date of the bankruptcy, reach property that the debtor has transferred to a third party, the trustee may use section 544(b) to step into the shoes of that creditor and `avoid' the debtor's transfer." Id. The Trustee's rights under section 544 arise under federal law, but the scope of the rights are defined by non-bankruptcy law. Id.; In re Cyrus II Partnership, 413 B.R. 609, 614 (Bankr.S.D.Tex.2008) (describing section 544(b) claims as "unique because they exist only to the extent of applicable state law," but the claims "are federal causes of action rooted in federal bankruptcy law and policy"). In many cases, the parties do not dispute the applicable state or non-bankruptcy law that serves as a predicate for a section 544(b) claim. Here, however, the Trustee grounds his section 544(b) claim on both Louisiana and Delaware law. Specifically, the Trustee relies on Louisiana's revocatory action under Louisiana Civil Code Article 2036, which provides that an "obligee has a right to annul an act of the obligor, or the result of a failure to act of the obligor, made or effected after the right of the obligee arose, that causes or increases the obligor's insolvency." With respect to Delaware law, the Trustee relies on Delaware Code Ann. Title 6, §§ 1304 and 1305. Section 1304(a) provides that a transfer or obligation is fraudulent as to a creditor, "whether the creditor's claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation: (1) with the actual intent to hinder, delay or defraud any creditor of the debtor; or (2) without receiving a reasonably equivalent value in exchange for the transfer or obligation,
Choice of law is important in the present case because the "reachback" period of the relevant Delaware and Louisiana statutes differ. The Delaware provisions cited by the Trustee allow creditors to avoid transactions occurring up to four years prior to the filing of a bankruptcy case. Del. Stat. Ann. Title 6, § 1309. In contrast, a Louisiana revocatory action allows avoidance of transfers occurring up to three years prior to the bankruptcy filing. La. Civ.Code art.2041. Here, some of the transfers challenged by the Trustee fall outside the three-year reachback period covered by the Louisiana revocatory statute (and, accordingly, under section 544(b)) if Louisiana law applies. In performing a choice of law analysis, the first question that the court must answer is whether federal or state choice-of-law rules govern. In Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941), the Supreme Court held that a court must apply the choice-of-law rules of the forum in which it sits when the court has jurisdiction based on diversity of citizenship. However, because this court's jurisdiction over the present matter is grounded on 28 U.S.C. § 1334(b), not diversity under 28 U.S.C. § 1332, Klaxon does not dictate that the court adhere to the forum state's choice-of-law rules. Where, as here, the court is not bound by Klaxon, bankruptcy courts often will apply the choice-of-law rules of the state where they sit with respect to state law claims that do not implicate federal policy. See Woods-Tucker Leasing Corp. of Ga. v. Hutcheson-Ingram Dev. Co., 642 F.2d 744, 748 (5th Cir.1981); In re Gaston & Snow, 243 F.3d 599, 605 (2d Cir.2001); In re Merritt Dredging Co., Inc., 839 F.2d 203, 206 (4th Cir.1988); Warfield v. Carnie, No. 3:04-cv-633-R, 2007 WL 1112591, at *7 (N.D.Tex. Apr. 13, 2007). Although the Trustee's rights under section 544(b) are defined by state law, courts have generally held that federal common law governs the choice-of-law for section 544(b) claims because these claims are ultimately federal causes of action grounded in important federal bankruptcy policy. See, e.g., In re Cyrus II Partnership, 413 B.R. at 614; In re Best Products Co., Inc., 168 B.R. 35, 51 (Bankr.S.D.N.Y.1994), aff'd 68 F.3d 26 (2d Cir.1995) ("In determining the choice-of-law issue, the court probably would apply federal common law choice-of-law rules because the court possesses federal question jurisdiction over any claim based on section 544(b) of the Bankruptcy Code."). In Cyrus II Partnership, the court reasoned that section 544(b) claims implicate important federal policy in that the purpose of these avoidance provisions "is to prevent debtors from illegitimately disposing of property that should be available to their creditors." 413 B.R. at 614 (quoting Palmer & Palmer, P.C. v. U.S. Trustee (In re Hargis), 887 F.2d 77, 79 (5th Cir.1989)).
Id. at § 145 (1971). The court agrees with the approach taken by the Cyrus II Partnership court.
While the Trustee cites both Louisiana and Delaware law, he argues that Delaware law applies because some of the debtor entities were formed under Delaware law. Specifically, Gulf Fleet Holdings, Inc. is a Delaware corporation and Gulf Fleet Services, LLC and Gulf Wind LLC are Delaware limited liability companies. The remaining debtor entities are
The Trustee first challenges the PSA and the CSA as well as the payments made pursuant to the agreements. The H.I.G. Defendants contend that both of these agreements were executed more than three years prior to bankruptcy and, therefore, are not subject to avoidance under Louisiana Civil Code article 2036. According to the Complaint, these agreements were executed at the time of the May 1, 2007 LBO, which is more than three years prior to the filing of Gulf Fleet's bankruptcy petition on May 14, 2010. As a result, these agreements cannot be avoided under article 2036. They also cannot be avoided under section 548 because that provision only reaches transfers occurring within the two-year period prior to bankruptcy.
The Trustee alternatively argues that even if these two agreements are not avoidable, the individual payments made pursuant to the agreement occurred within the three-year period prior to bankruptcy and can be avoided under article 2036. Specifically, the Complaint identifies the following management fees paid by Gulf
09/05/2007 $125,000 10/04/2007 125,000 02/28/2008 125,000 08/08/2008 250,000 10/03/2008 125,000 01/05/2009 125,000 04/01/2009 125,000
(Complaint at ¶ 81). The Complaint also alleges that Gulf Fleet paid over $500,000 in expense reimbursements pursuant to the CSA from June 18, 2007 through June 21, 2010.
Nor can these allegations support a claim under section 544 based on Louisiana law. A revocatory action under Civil Code article 2036 requires that the Trustee plead and prove that the payments at issue "caused" or "increased" Gulf Fleet's insolvency. La. Civ.Code art.2036. While the Complaint alleges that Gulf Fleet was insolvent at the time of these payments, it does not plead facts showing that the payments increased insolvency. Rather, on its face, the Complaint merely shows payments
The Trustee also asserts a claim for "actual" fraud under section 548(a)(1)(A) on the grounds that the transfers were made with the "actual intent to hinder, delay, or defraud" Gulf Fleet's creditors. Rule 9(b)'s heightened pleading requirements apply to fraudulent transfer claims grounded on allegations of actual fraud. In re American International Petroleum, 402 B.R. 728, 738 (Bankr.W.D.La. 2008). Under Rule 9(b), a plaintiff must "allege facts that give rise to a strong inference of fraudulent intent." In re Musicland Holding Corp., 398 B.R. 761, 773 (Bankr.S.D.N.Y.2008); In re Dreier LLP, 452 B.R. 391, 408 (Bankr.S.D.N.Y.2011). A strong inference of fraudulent intent "may be established either (a) by alleging facts to show that defendants had both motive and opportunity to commit fraud, or (b) by alleging facts that constitute strong circumstantial evidence of conscious misbehavior or recklessness." In re Dreier, 452 B.R. at 408. Moreover, Rule 9(b) generally precludes "group pleading" because "each defendant is entitled to know what he is accused of doing." In re AlphaStar Ins. Group, Ltd., 383 B.R. 231, 257-58 (Bankr.S.D.N.Y.2008).
A plaintiff may establish the fraudulent intent required under section 548(a)(1)(A) by pleading so-called "badges of fraud" as circumstantial evidence of fraudulent intent. These badges of fraud include:
See In re Soza, 542 F.3d 1060, 1067 (5th Cir.2008). No particular "badge" is dispositive, and courts typically require the confluence of multiple badges to establish fraudulent intent. In re Equipment Acq. Resources, Inc., 481 B.R. 422, 431 (Bankr. N.D.Ill.2012) ("A single badge of fraud is insufficient to establish intent, but the presence of several may create a presumption that the debts acted with the requisite intent to defraud."). The Trustee's allegations must still comply with Rule 9(b) and plead specific facts showing the circumstances constituting fraud. See In re Sharp Intern. Corp., 403 F.3d 43, 56, (2d Cir.2005); In re Charys Holding Co., Inc., 2010 WL 2774852, at *3-4 (Bankr.D.Del. July 14, 2010).
Here, the Trustee has pled facts showing that the transfers were made to an insider and that Gulf Fleet was insolvent before and after the transfers, but pleads no facts (as opposed to conclusions) explaining how these transfers, which satisfied an antecedent debt, could have impacted Gulf Fleet's solvency. With respect to "lack or inadequacy of consideration," these payments were made to satisfy antecedent debts and, as explained above, resulted in the receipt of reasonably equivalent value by definition. See 11 U.S.C. § 548(d)(2)(A). The Trustee also has not pled facts showing that Gulf Fleet retained "possession, benefit or use" of the funds paid pursuant to the
The Trustee further challenges certain expenditures made by Gulf Fleet in connection with the construction of the M/V Gulf Tiger. The Trustee contends that GF Tiger Acquisition and H.I.G. required Gulf Fleet to continue committing equipment, funds, materials, and labor to Thoma-Sea for the construction of the vessel even though Gulf Fleet had no contractual obligation to fund the completion of the vessel after the contract was assigned. (Complaint at ¶ 52). According to the Trustee, "Zanarini promised [Gulf Fleet's CEO] that H.I.G. and/or H.I.G. Subsidiaries would repay Gulf Fleet for the expenditures." (Id.) The Trustee alleges that Zanarini "made this promise either knowing it was false or with reckless disregard to its falsity, expecting Gulf Fleet to rely on it." (Id.). The H.I.G. Defendants respond that Gulf Fleet did receive reasonably
The H.I.G. Defendants' argument that the Trustee's claim should be dismissed because Thoma-Sea received the transfer and not GF Tiger Acquisition fails based on the language of section 550(a)(1). This provision provides that "the trustee may recover, for the benefit of the estate the property transferred, or, if the court so orders, the
Moreover, the Trustee has adequately pled that Gulf Fleet did not receive reasonably equivalent value from these expenditures. The Trustee alleges that nothing in the assignment documents obligated Gulf Fleet to contribute additional equipment and labor to a project that would benefit GF Tiger Acquisition even though Gulf Fleet had locked into a substantial profit on the assignment. The assignment and the subsequent contributions to the construction contract must be viewed as separate transactions absent allegations of fact showing that the later contributions were made pursuant to the assignment agreement or facts that would support collapsing the transactions. Finally, the option agreement cited by the moving defendants may ultimately support their claim that Gulf Fleet received reasonably equivalent value if the option agreement and assignment agreement are considered together. However, this is a question that involves matters outside the pleadings and cannot be considered on a Rule 12(b)(6) motion to dismiss. Causey v. Sewell Cadillac-Chevrolet, Inc., 394 F.3d 285, 288 (5th Cir.2004). In sum, the Trustee has pled facts with respect to the M/V Gulf Tiger expenditures that, accepted as true, state "a claim that is plausible on its face." Twombly, 550 U.S. at 570, 127 S.Ct. 1955; Bowlby v. City of Aberdeen, Miss., 681 F.3d 215, 227 (5th Cir.2012).
The Trustee further challenges the repayment of Michael Hillman's $4 million loan as a fraudulent transfer. These allegations suffer from the same problem as the allegations involving the PSA and the CSA: it is apparently a payment that satisfies an antecedent debt and is not avoidable under section 548 or Louisiana law based on the facts pled in the Complaint. The Trustee, however, argues that the payment to H.I.G. and Hillman
Here, the Trustee's argument on the conversion of unsecured debt into secured debt suffers from at least two flaws. First, the Trustee does not plead sufficient facts to support his conclusion that Gulf Fleet did not receive reasonably equivalent value from the satisfaction of the $4 million loan. The allegations in the complaint with respect to the secured loan used to pay the $4 million loan are "bare bones", and provide no details about the relationship between the secured loan and the repayment of the $4 million note, the nature of the collateral that secured the loan, or the value of the collateral. See Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir.2009) (noting that "it is clear that conclusory or `bare-bones' allegations will no longer survive a motion to dismiss.") Indeed, the Complaint only identifies the secured lender in a brief footnote to paragraph 35 of the Complaint. Absent these details, the Trustee cannot state a plausible claim that Gulf Fleet failed to receive reasonably equivalent value for a payment that discharged an antecedent debt. At most, the Trustee alleges that the unsecured note was replaced with a secured loan. Courts have held that a transfer that results in a new security interest — in other words, the conversion of an unsecured loan to a secured loan — is not by itself sufficient to support a finding that the debtor did not receive reasonably equivalent value. See In re Marketxt, 361 B.R. at 398 ("The cases are uniform that the grant of collateral for a legitimate antecedent debt is not, without more, a constructive fraudulent conveyance.").
Second, the repayment of the loan to Hillman and the secured loan with LBC Credit were two distinct transactions involving two distinct creditors. In comparing
The court further concludes that the Trustee has not stated a claim for actual fraud under section 548 for the same reasons outlined with respect to the payments made under the CSA and the PSA. The court, however, will grant the Trustee leave to re-plead his section 544 and section 548 claims in order to plead any additional facts showing that the repayment of the $4 million loan and the secured loan by LBC Credit should be collapsed, and that Gulf Fleet did not receive reasonably equivalent value when the two transactions
The H.I.G. Defendants next challenge the Trustee's fraudulent transfer claim based on the $2.9 million GF Financing promissory note. The Trustee alleges that Gulf Fleet entered into this promissory note to replace its obligations under the Factoring Agreement when that agreement had to be modified because of objections by Comerica Bank. According to the Trustee, the original Factoring Agreement was non-recourse and Gulf Fleet had no obligation to enter into the promissory note to replace its obligations under the Factoring Agreement. (Complaint at ¶ 62). Moreover, the Trustee alleges that the promissory note imposed obligations on other affiliated Gulf Fleet entities that were not liable under the original Factoring Agreement. (Id. at 80). The court agrees with the Trustee that these allegations, taken as true, are sufficient to withstand dismissal under Iqbal and Twombly. See In re TOUSA, Inc., 422 B.R. 783 (Bankr.S.D.Fla.2009), aff'd 680 F.3d 1298 (11th Cir.2012).
With respect to the Trustee's section 548 claim based on actual fraud, the court concludes that the Trustee has not stated a claim for actual fraud based on the $2.9 million GF Financing note for the same reasons outlined with respect to the payments made under the CSA and the PSA. The court, however, will grant the Trustee leave to re-plead his section 548 claim to the extent that it is based on actual fraud.
Count 2 of the Complaint addresses the Trustee's claim that the $2.9 million and $5.5 million promissory notes and H.I.G.'s contract claims under the CSA and PSA should be recharacterized as equity contributions under 11 U.S.C. § 105 and Louisiana Civil Code articles 2025-2027. A "recharacterization" action challenges a claim characterized as debt and requests that the court treat that debt as an equity investment. In re AutoStyle Plastics, Inc., 269 F.3d 726, 749 (6th Cir. 2001); In re Insilco Technologies, Inc., 480 F.3d 212, 217 (3d Cir.2007). Courts generally base their power to recharacterize debt as equity on the bankruptcy court's equitable powers under 11 U.S.C. § 105. Recharacterization fundamentally alters a creditor's rights in bankruptcy because, as one court has explained, creditors "present their claims to the court by filing a proof of claim, whereas equity security holders assert their rights to distribution of the proceeds of a solvent corporate debtor by filing a proof of interest." In re AVN Corp., 235 B.R. 417, 423 (Bankr.W.D.Tenn.1999). If a creditor's claim is successfully recharacterized as an
Lothian Oil precludes Count 2 of the Complaint to the extent that it is based on federal recharacterization principles that rely on the court's equitable powers under section 105. If the Trustee has a viable recharacterization claim, that claim must be based on state law. The Trustee cites Louisiana law on simulations in Counts 2 and 3 of the Complaint.
The H.I.G. Defendants contend that the Trustee cannot rely on Civil Code articles 2025-2027 to support a recharacterization claim or an independent claim for simulation because the Complaint concedes that some consideration was exchanged in the transactions challenged in Counts 2 and 3. According to the H.I.G. Defendants, an exchange of any consideration defeats a simulation claim as a matter of law. (H.I.G. Defendants' Memorandum
With respect to H.I.G.'s contract claims under the CSA and PSA, it is not clear what the Trustee is seeking to recharacterize under articles 2025-2027. According to the allegations in the Complaint, H.I.G. agreed to provide certain services pursuant to the agreements in exchange for the payment of regular management fees, commissions, and expense reimbursements. If the Trustee is arguing that the services provided pursuant to these agreements were intended to be equity contributions, the fact that Gulf Fleet made a number of payments to H.I.G. under those agreements seems to refute the theory that both parties intended the services to be equity contributions.
Second, in order to maintain a recharacterization claim based on Civil Code articles 2025-2027, the Trustee must establish that all of the prerequisites for the effects that parties actually intended have been satisfied. Bennett, 58 S.3d at 671. For example, where a purported sale is intended to be a donation, the transaction must satisfy the requirements for a donation under the Civil Code. See Tate v. Tate, 42 So.3d 439, 442-43 (La.App. 1st Cir.2010) (relative simulation "will only constitute a valid donation if all the requirements for a donation have been satisfied."). Here, treatment of the promissory notes as equity contributions would have to be consistent with the law under which the applicable Gulf Fleet entity was organized, the applicable formation documents and, in the case of entities organized as an LLC, the applicable LLC agreements. The Complaint simply does not address whether the $2.9 million and $5.5 million promissory notes can be treated as an equity contribution under the relevant law of the state of formation or each entity's governing agreements. Because these pleading defects may be curable, the court will grant the Trustee leave to re-plead its recharacterization and simulation claims under Counts 2 and 3 of the Complaint.
In Count 4 of the Complaint, the Trustee contends that any claims under the CSA and PSA, the Brightpoint note, the $5.5 million promissory note, the $2.9 million GF Financing promissory note, and H.I.G.'s contract claims should be equitably subordinated under 11 U.S.C. §§ 510(b) and 510(c). According to the Trustee, H.I.G. dominated Gulf Fleet and breached its fiduciary duties to Gulf Fleet by requiring Gulf Fleet to enter into transactions that solely benefitted H.I.G. (Complaint at ¶ 105). The Trustee contends that this inequitable conduct by H.I.G. supports the subordination of its claim. The H.I.G. Defendants contend that these allegations are insufficient because they fail to include specific facts that show inequitable conduct by H.I.G. that resulted in damage to Gulf Fleet's creditors. (H.I.G.'s Memorandum in Support of Motion to Dismiss at 18). A claim for equitable subordination requires proof that (1) the claimant was engaged in inequitable conduct; (2) the misconduct must have resulted in injury to creditors of the debtor or conferred an unfair advantage on the claimant; and (3) equitable subordination of the claim must not be inconsistent with the provisions of the Bankruptcy Code. See In re SI Restructuring, Inc., 532 F.3d 355, 360 (5th
The Trustee's allegations, taken as true, address each of the elements of a section 510(c) claim and fall into one or more of the categories identified by the CTS Truss court. The court is satisfied that these allegations are sufficient to avoid dismissal. Accordingly, the court denies the H.I.G. Defendants' Motion to Dismiss with respect to the Trustee's equitable subordination claim.
The H.I.G. Defendants next challenge the Trustee's breach of fiduciary duty claims in Counts 5 and 6 of the Complaint. The Trustee alleges that H.I.G. and H.I.G.'s affiliates owed fiduciary duties to all of the Gulf Fleet entities, and that they breached those duties following the LBO in May 2007. The Trustee also alleges that the individual defendants, Mssrs. Tamer, Zanarini, and Fox owed fiduciary duties to the Gulf Fleet entities because they served on Gulf Fleet's board, and that they breached those duties by taking actions that favored H.I.G. at the expense of Gulf Fleet, Gulf Fleet's minority shareholder, and Gulf Fleet's creditors.
The court must first address choice of law. The Trustee alleges that Louisiana law should govern his fiduciary duty claims because decisions "made about the Gulf Fleet entities were made in Louisiana, about a Louisiana business with operations, assets and personnel in Louisiana." (Complaint at ¶ 108). Under Louisiana choice-of-law rules, "the law of the place where the corporation was incorporated governs disputes regarding the relationship between the officers, directors, and shareholders and the officers' and directors' fiduciary duties." Torch Liquidating Trust Ex Rel. Bridge Associates, LLC v. Stockstill, 561 F.3d 377, 385 n. 7 (5th Cir.2009) Gulf Fleet Holdings, Inc. is a Delaware corporation, and Gulf Fleet Services, LLC and Gulf Wind, LLC are Delaware limited liability companies. Accordingly, Louisiana choice-of-law rules dictate that any fiduciary duty claims with respect to these entities are governed by Delaware law. Louisiana law governs the remaining Gulf Fleet entities that are Louisiana limited liability companies. As the H.I.G. Defendants point out, however, the fiduciary duty claims in Counts 4 and 5 focus on the Delaware entities. Accordingly, the court will apply Delaware law to the Trustee's claims except where any claim relates specifically to a Louisiana entity and applicable Louisiana law differs from Delaware law.
Under Delaware law, the directors of a Delaware corporation owe fiduciary duties of loyalty and care to the corporation. See Mills Acq. Co. v. Macmillan, Inc., 559 A.2d 1261, 1280 (Del. 1989). These duties require that directors exercise their authority on an informed basis and in the good faith pursuit of maximizing the value of the corporation for the benefit of its stockholders. eBay Domestic Holdings, Inc. v. Newmark, 16 A.3d 1, 35 (Del.Ch.2010). A controlling stockholder may owe fiduciary duties to the corporation that it controls as well as any minority, non-controlling stockholders. See Weinberger v. UOP, Inc., 457 A.2d 701,
In Counts 5 and 6, the Trustee alleges that H.I.G., H.I.G.'s subsidiaries, and Mssrs. Tamer, Zanarini and Fox breached their fiduciary duties to Gulf Fleet and its affiliates in the following ways:
(Complaint at ¶ 111). The Trustee also alleges that at the time of these actions, Gulf Fleet and its affiliates were either insolvent or in the "vicinity or zone of insolvency." (Id. at ¶ 110).
The Trustee alleges sufficient facts to show that Mssrs. Tamer, Zanarini, and Fox owed fiduciary duties to Gulf Fleet Holdings, Inc. by virtue of their membership on Gulf Fleet's board of directors. The Complaint also includes sufficient facts that, if accepted as true, support the Trustee's allegations that Gulf Fleet was insolvent after the May 2007 LBO (Complaint at ¶¶ 42-43, 110). Accordingly, any duties owed by the individual defendants to Gulf Fleet Holdings were for the benefit of Gulf Fleet Holdings' creditors. Trenwick, 906 A.2d at 195 n. 75. The Complaint also alleges that Mssrs. Zanarini, Tamer, and Fox had divided loyalties based on their positions with H.I.G. and their role as Gulf Fleet directors, and that they used their positions as Gulf Fleet directors to advance H.I.G.'s interests with respect to (1) the Factoring Agreements, and (2) the $2.9 million and $5.5 million promissory notes. According to the Trustee, the terms of the Factoring Agreements and the promissory notes favored H.I.G. and its affiliates to the detriment of Gulf Fleet and its creditors. These allegations are sufficient to "plead around the business judgment rule" with respect to the Trustee's duty of care claims. In re BH S & B Holdings LLC, 420 B.R. 112, 146-47 (Bankr.S.D.N.Y.2009); see also In re Musicland Holding Corp., 398 B.R. 761, 788-89 (Bankr.S.D.N.Y.2008) (fiduciary duty claims based on allegations that officers of parent corporation who sat on the board of subsidiary and took actions that favored the parent to the detriment of the subsidiary were sufficient to survive dismissal).
Nevertheless, the Trustee's fiduciary duty allegations fail to state a fiduciary duty claim against Mssrs. Zanarini, Tamer, and Fox for two reasons. First, with three exceptions, the Complaint refers to Mssrs. Zanarini, Tamer, and Fox collectively as the "H.I.G. Employees" in pleading the Trustee's breach of fiduciary duty claims. The problem with this mode of pleading is that a breach of fiduciary duty "is determined on an individual-rather than a collective-basis." In re Farmland Industries, Inc., 335 B.R. 398, 410 (Bankr.W.D.Mo.2005) (dismissing claims against individual director where there were no "specific allegations of wrongdoing by" that defendant). The Trustee correctly notes that it may be permissible to plead fiduciary duty claims against certain directors as a group where it is clear from the context of the allegations that the defendants acted collectively. For example, a fiduciary duty claim based on a decision made at a board of directors meeting attended by a group of director defendants may be pled collectively. However, that is not the case here. The Complaint provides little in the way of context that would allow an inference that the actions ascribed to Mssrs. Zanarini, Tamer, and
Second, the Trustee appears to base his fiduciary duty claims in part on allegations that Mssrs. Zanarini, Tamer, and Fox breached duties to Gulf Fleet Holding's subsidiaries and affiliates. (See Complaint at ¶ 111). While the Complaint states that "H.I.G. directed the H.I.G. Subsidiaries to appoint Fox, Zanarini, and Tamer to the boards of directors of various Debtor entities," the Complaint only identifies these defendants as officers or directors of Gulf Fleet Holdings. It is unclear that these facts are sufficient to support the existence of a fiduciary duty with respect to all of the Gulf Fleet entities. In In re USACafes, L.P. Litigation, 600 A.2d 43 (Del. Ch.1991), the Delaware court of chancery concluded that not only did a corporate general partner owe fiduciary duties to its limited partners, but that the individual directors of the corporate general partner also owed fiduciary duties to the limited partners. Delaware courts, however, have sharply limited the reach of USACafes to situations where the directors of the parent are engaged in personal self-dealing. See Gotham Partners, L.P. v. Hallwood Realty Partners, L.P., 2000 WL 1476663, at *12 (Del.Ch.2000). While the Trustee alleges that the individual defendants acted for the benefit of H.I.G., the facts pled in the Complaint do not support a plausible claim that these individual defendants engaged in personal self-dealing.
The Trustee's allegations with respect to defendant H.I.G. Capital satisfies the pleading standards adopted in Iqbal and Twombly with respect to whether H.I.G. Capital owed a fiduciary duty to Gulf Fleet Holdings. The H.I.G. Defendants argue that it is improper to impose fiduciary duties on H.I.G. Capital because H.I.G. Capital was not the direct parent of Gulf Fleet Holdings. (See H.I.G. Defendants' Reply Memorandum at 7) ("The Trustee has cited no authority for the dangerous proposition that the alleged shareholder (e.g., H.I.G.) of a corporation (e.g., GFA) that holds the shares of another corporation (e.g., GFH) that holds the shares of other corporations (e.g., Gulf Fleet) owes fiduciary duties throughout the entire corporate structure.") Delaware courts, however, have extended the reach of fiduciary duties to include shareholders who control a Delaware corporation through an intermediate affiliate. See In re Primedia, Inc. Derivative Litigation, 910 A.2d 248, 251 (Del.Ch.2006). In
The Trustee's fiduciary duty claims, however, suffer from at least two pleading defects with respect to H.I.G. Capital and its affiliates that require the Trustee to replead his claims. First, like the allegations pertaining to Mssrs. Zanarini, Tamer, and Fox, the Complaint improperly groups H.I.G. Capital and its related subsidiaries and affiliates for purposes of pleading the Trustee's fiduciary duty claims. As with the individual defendants, the question of whether a fiduciary duty exists and, if so, whether the duty has been breached must be decided on an individual basis. While the Trustee's allegations may be sufficient to support the existence of a fiduciary duty on the part of H.I.G. Capital, these allegations do not necessarily support an extension of that duty to all of H.I.G. Capital's affiliates, such as Brightpoint. With respect to Brightpoint, the Complaint merely pleads that Brightpoint made a loan to Gulf Fleet. Without more, the mere fact that Brightpoint is a subsidiary of H.I.G. Capital and made a loan to Gulf Fleet does not establish that it owed a fiduciary duty to Gulf Fleet Holdings. The same holds for the other H.I.G. affiliates who are merely referenced in the Complaint collectively as "H.I.G. Subsidiaries." While the Trustee argues that these affiliates can be referenced as a group because they acted collectively, there is nothing in the Complaint establishing that every H.I.G. affiliate incorporated in the definition "H.I.G. Subsidiaries" owed a fiduciary relationship to Gulf Fleet Holdings and its subsidiaries, or acted collectively in breaching any such duties. The Trustee suggests that H.I.G. and its affiliates can be grouped together because they operated collectively as a "single business enterprise." These allegations are also the basis for the Trustee's claim in Count 12 of the Complaint. As explained below, the Trustee has not pled grounds to pierce the corporate veil of H.I.G. Capital and each of its subsidiaries. Accordingly, the Trustee cannot rely on the single business enterprise doctrine to escape the requirement that he plead a factual basis for his fiduciary duty claims against each H.I.G. affiliated defendant.
Second, the Complaint alleges that the duties owed by the defendants shifted to creditors when Gulf Fleet entered the "vicinity or zone of insolvency." (Complaint at ¶ 110). As recognized by the Fifth Circuit, Delaware courts have held that actual insolvency, not the "vicinity or zone of insolvency" is the determining factor as to whether fiduciary duties owed to the corporation must be exercised for the benefit of creditors. See, e.g., Torch Liquidating Trust ex rel. Bridge Assoc. L.L.C. v. Stockstill, 561 F.3d 377, 391 n. 16 (5th Cir.2009); In re SI Restructuring, Inc., 532 F.3d 355, 363-64 (5th Cir.2008). The Trustee also apparently asserts a claim for
In Count 7, the Trustee alleges that H.I.G. and its subsidiaries aided and abetted Mssrs. Tamer, Zanarini, and Fox in breaching their fiduciary duties to Gulf Fleet. To state a claim for aiding and abetting a breach of fiduciary duty under Delaware law, the Trustee must plead "(1) the existence of a fiduciary relationship, (2) a breach of the fiduciary's duty, (3) knowing participation in that breach by the defendants, and (4) damages proximately caused by the breach." Malpiede v. Townson, 780 A.2d 1075, 1096 (Del.2001). Delaware courts have also limited an aiding and abetting claim to defendants who are not fiduciaries. See Feeley v. NHAOCG, LLC, 2012 WL 6840577, at *6 (Del.Ch. Nov. 28, 2012).
The Trustee's aiding and abetting claims suffer from at least two flaws. First, as discussed with respects to Counts 5 and 6, the Trustee has not adequately pled his breach of fiduciary duty claims, which is a prerequisite for asserting an aiding and abetting claim. See Malpiede, 780 A.2d at 1096. Second, a claim for aiding and abetting a breach of fiduciary duty claim, by definition, only applies to non-fiduciaries. As a result of the Trustee's collective mode of pleading his breach of fiduciary duty claims, it is not clear which defendant falls within which category — aiding and abetting liability or primary liability. Since the elements of the claims and defenses may well differ, the defendants are entitled to pleadings that clearly delineate which claim applies to which defendant. Accordingly, the court grants the H.I.G. Defendants' Motion to Dismiss with respect to Count 7, but will grant the Trustee leave to re-plead.
In Count 8 of the Complaint, the Trustee asserts a delictual action for conversion based on his allegations that Gulf Fleet (1) contributed approximately $1 million toward the M/V Gulf Tiger without reimbursement, (2) paid $500,000 of H.I.G.'s legal fees, (3) executed the $2.9 million promissory note to G.F. Financing when it had no obligation to do so under the Factoring Agreement, and (4) paid over $1 million to H.I.G. pursuant to the CSA and PSA and received nothing in return. (Complaint at ¶¶ 126-127). The H.I.G. Defendants counter that the Trustee's conversion claim fails as a matter of law because the payment of money cannot be grounds for a conversion claim. (H.I.G. Defendants' Memorandum in Support of Motion to Dismiss at 13). Because the parties cite Delaware, Louisiana, and Florida law, the court must decide what law applies to the Trustee's conversion claims. The general choice-of-law principles outlined in connection with the Trustee's section 544 claims apply here with a significant exception: the Trustee's state law conversion claims do not implicate important federal policy as in the case of the Trustee's section 544 claims. Accordingly, the court will look to Louisiana choice-of-law rules. See In re Endeavour Highrise, L.P., 432 B.R. 583, 637 (Bankr.S.D.Tex. 2008) (applying forum choice-of-law rules to state law claims). Louisiana Civil Code article 3542 provides that "an issue of delictual or quasi-delictual obligations is governed by the law of the state whose policies
Article 3515 provides that a court should consider "(1) the relationship of each state to the parties and the dispute; and (2) the policies and needs of the interstate and international systems...." La. Civ.Code art. 3515. Here, those factors weigh in favor of Louisiana law. Specifically, the Gulf Fleet entities are based in Louisiana, the focus of the two agreements at issue was to be services provided to a Louisiana-based business, the payments involving the M/V Gulf Tiger were made to Louisiana-based Thoma-Sea, and the obligations created by the $2.9 promissory note involve the property of and payment of funds by a Louisiana-based business. In contrast, the only contact with Delaware is the fact that some of the Gulf Fleet entities were formed under Delaware law. With respect to Florida, the sole contact is H.I.G.'s principal place of business. Based on the court's consideration and evaluation of these contacts, the court concludes that Louisiana's policies would be most seriously impaired if its law is not applied to the Trustee's conversion claim.
The Louisiana Civil Code does not specifically identify a cause of action for "conversion." Conversion is a common law doctrine. However, Louisiana courts have identified a type of delictual action often termed "conversion" where "(1) possession is acquired in an unauthorized manner; (2) the chattel is removed from one place to another with the intent to exercise control over it; (3) possession of the chattel is transferred without authority; (4) possession is withheld from the owner or possess; (5) the chattel is altered or destroyed; (6) the chattel is used improperly; or (7) ownership is asserted over the chattel." Dual Drilling Co. v. Mills Equip. Invest., Inc., 721 So.2d 853, 857 (La.1998). While the H.I.G. Defendants argue that the payment of money cannot support a delictual action for conversion, cases appear to recognize a delictual action for conversion of money. See, e.g., Trust for Melba Margaret Schwegmann v. Schwegmann Family Trust, 51 So.3d 737, 741 (La.App. 5th Cir.2010). Nevertheless, the Trustee's allegations do not satisfy the essential elements of a conversion claim. Specifically, the Trustee has not pled facts to show how the defendants acquired possession "in an unauthorized manner" with respect to the payment of legal fees, the execution of the promissory note, the funding of the M/V Gulf Tiger, or the payments pursuant to the CSA and PSA. Nor does the Complaint address the other elements of a conversion claim. The court, therefore, grants the H.I.G. Defendants' Motion to Dismiss with respect to Count 8, but will grant the Trustee leave to replead.
In Counts 9 and 10 of the Complaint, the Trustee challenges the $1
With respect to the Trustee's quantum meruit claim in Count 10 of the Complaint, Louisiana law governs this claim because the transactions challenged in Count 10 originated or centered in Louisiana. Louisiana courts have recognized that "quantum meruit is an equitable remedy, based on former LSA-C.C. article 1965, which provided that `no one ought to enrich himself at the expense of another,' and on LSA-C.C. articles 2292-2294, relating to quasi-contracts." Sam Staub Enterprises, Inc. v. Chapital, 88 So.3d 690, 695 (La.App. 4th Cir.2012) (citing Coastal Timbers, Inc. v. Regard, 483 So.2d 1110, 1113 (La.App. 3rd Cir.1986)). As with an unjust enrichment claim, a quantum meruit claim is inapplicable where there is a contract between the parties. Accordingly, for the reasons set forth with respect to the Trustee's unjust enrichment claim, the Trustee cannot state a quantum meruit claim with respect to payments made under the PSA and the CSA, and grants the H.I.G. Defendants' Motion to Dismiss with respect to the quantum meruit claims based on those payments. The court, however, denies the Motion to Dismiss with respect to the quantum meruit claims based on payments that the Trustee alleges were not made pursuant to contracts.
In Count 12 of the Complaint, the Trustee asserts that Gulf Fleet Holdings, all of the Gulf Fleet-affiliated entities, H.I.G., all of the H.I.G.-affiliated defendants, and Mssrs. Tamer, Zanarini, and Fox operated as a "single business enterprise" and that, under Louisiana's single business enterprise doctrine, the defendants are liable for all the debts of Gulf Fleet. Specifically, the Trustee alleges that the single business enterprise arose when Gulf Fleet and its affiliates "acted in conjunction with H.I.G. and the H.I.G. Employees to further the enterprise goal of H.I.G." (Complaint at ¶ 145). With respect to H.I.G. and its subsidiaries, the Trustee contends that these entities "show a deliberate fracturing of a single business between thinly capitalized companies with identical control, offices, and ownership." (Complaint at ¶ 148). As a result "H.I.G. treated all of the H.I.G. Subsidiaries (including the Gulf
The Trustee's allegations in Count 12 are grounded on the single business enterprise doctrine set forth in Green v. Champion Ins. Co., 577 So.2d 249 (La.App. 1st Cir.), writ denied, 580 So.2d 668 (1991). The Trustee contends that Louisiana law governs his single business enterprise allegations because the enterprise was formed in Louisiana and the actions taken by Gulf Fleet and the defendants occurred in Louisiana. The H.I.G. Defendants, however, argue that the Trustee is merely asserting a veil-piercing claim that should be governed by the law of the state of each entity's incorporation. Under Louisiana's choice-of-law rules, the law of the state of incorporation governs a request to pierce the corporate veil. See Patin v. Thoroughbred Power Boats, Inc., 294 F.3d 640, 647 (5th Cir.2002) (citing Quickick, Inc. v. Quickick Int'l, 304 So.2d 402, 406 (La.App. 1st Cir.) writ denied, 305 So.2d 123 (1974)) (agreeing with "the district court's determination that the Louisiana State Supreme Court would most likely conclude the law of the state of incorporation governs the determination when to pierce a corporate veil."); see also Lone Star Industries, Inc. v. Redwine, 757 F.2d 1544, 1548 n. 3 (5th Cir.1985) (same); In re CLK Energy Partners, LLC, 2010 WL 1930065, at *6 (Bankr.W.D.La. May 12, 2010) (same). The Trustee argues that this choice-of-law rule is inapplicable to his claim in Count 12 because Louisiana's single business enterprise doctrine is not a traditional veil-piercing claim. According to the Trustee, a traditional alter ego or veil-piercing claim imposes liability on a parent company or shareholder, while the single business enterprise doctrine "imposes liability on entities that may not be parent-subsidiary entities because those entities behave as a single entity." (Trustee's Memorandum Opposing H.I.G. Defendants' Motion to Dismiss at 24). The Trustee's argument requires closer examination of Louisiana's single business enterprise doctrine.
As in most jurisdictions, however, Louisiana courts recognize that under certain circumstances the corporate veil may be pierced to impose personal liability on a corporation's owners. Id. Traditional veil-piercing doctrines are generally limited to cases where the separate existence of the corporation has been abused and where the court finds that piercing the corporate veil is necessary to remedy fraud, illegality, or other inequitable conduct by the corporation's shareholders. Id. In this regard, Louisiana courts have recognized traditional veil-piercing theories such as the alter ego doctrine. See Id. at 1168. The alter ego doctrine allows courts to disregard corporate formalities "to the extent that the corporation ceases to be distinguishable from its shareholders." Id. (citing Gordon v. Baton Rouge Stores Co., 168 La. 248, 121 So. 759 (1929)). Factors that Louisiana courts consider in applying the alter ego doctrine include: "(1) co-mingling of corporate and shareholder funds; (2) failure to follow statutory formalities for incorporating and transacting corporate affairs; (3) undercapitalization; (4) failure to provide separate bank accounts and bookkeeping records; and (5) failure to hold regular shareholder and director meetings." Id. Louisiana courts do not require proof of actual fraud to pierce the corporate veil under the alter ego doctrine. However, if allegations of fraud are absent, a party bears "a heavy burden of proving that the shareholders disregarded the corporate entity to such an extent that it ceased to become distinguishable from themselves." Id.
In Green v. Champion Ins. Co., the court created a new distinct doctrine for disregarding the legal distinctions between separate corporate entities and imposing personal liability for the debts of one corporation on a separate, but affiliated company. The Green case involved the well-publicized failure of a large insurance company with multiple affiliated "sister" companies. In traditional veil-piercing cases, courts pierce the veil between corporation and shareholder. Here, however, there was no shareholder relationship between the failed insurer and its sister companies. Nevertheless, the court allowed the liquidator of the failed insurance company to
577 So.2d at 257-58. Following the Green case, courts outside of Louisiana's First Circuit have applied the single business enterprise doctrine in varying forms, although some commentators have criticized the broad scope of the doctrine and some courts have attempted to tether the doctrine to more traditional veil-piercing doctrines. See, e.g., Kyle M. Bacon, "The Single Business Enterprise Theory of Louisiana's First Circuit: An Erroneous Application of Traditional Veil-piercing," 63 La. L.Rev. 75 (Fall 2002); Town of Haynesville, Inc. v. Entergy Corp., 956 So.2d 192, 195-99 (La.App. 2d Cir.2007) (applying traditional veil-piercing requirements to claim that affiliated entities were a single business enterprise).
Considering the Trustee's allegations in the context of the single business
Applying the same choice-of-law rule for traditional veil-piercing doctrines to the Trustee's claims in Count 12 is also consistent with the underlying rationale for applying the law of the state of formation to veil-piercing claims. Courts that apply the law of the state of incorporation to veil-piercing claims do so because these claims implicate matters of internal corporate operations and organization that are typically governed by the law of the state of incorporation, including the rights and duties of shareholders, the corporate formalities that must be observed by the corporation, and the rules governing the limited liability of shareholders. See, e.g., Fusion Capital Fund II, LLC v. Ham, 614 F.3d 698, 700 (7th Cir.2010) (whether a corporation's investors are liable for its debts "is an aspect of the internal affairs doctrine," which dictates application of the law of the state of formation). Although the Trustee correctly notes that Louisiana's single business enterprise doctrine is not tied to a parent-subsidiary or shareholder relationship, the eighteen-factor test announced in Green bears directly on the organization and operation of a corporation and corporate group. See 577 So.2d at 257-58. Moreover, to the extent that this doctrine allows courts to ignore the boundaries between affiliated companies, it implicates state corporate law that limits the extent to which the liability of a corporation can be imputed to a separate, albeit affiliated company.
Finally, the effect of a single business enterprise determination in this case is the same as a determination of liability under a traditional veil-piercing theory such as the alter ego doctrine. Specifically, under an alter ego doctrine, the Trustee would seek to impose liability on H.I.G. and its
Applying Louisiana's choice-of-law rule for veil-piercing claims, the court will look to the law of the state of incorporation. Here, the Trustee is seeking to pierce the corporate veil of Gulf Fleet and impose personal liability on Gulf Fleet's immediate parent, as well as the other members of H.I.G.'s corporate group. Accordingly, the court will look to the state of incorporation of Gulf Fleet, which is Delaware. See, e.g., ASARCO, LLC, 382 B.R. at 65 (looking to the law of the state of incorporation of the subsidiary in determining whether to hold a parent company liable for the debts of its subsidiary by piercing the corporate veil of the subsidiary). Delaware has not adopted the same "single business enterprise" doctrine adopted by Louisiana and pled in Count 12 of the Complaint. Delaware does, however, recognize the traditional alter ego doctrine as grounds to pierce the corporate veil in cases involving the members of a corporate group. To state an alter ego claim under Delaware law, the Trustee must plead (1) that Gulf Fleet and the H.I.G. defendants "operated as a single economic entity" and (2) that an "overall element of injustice or unfairness" is present. See In re Moll Industries, Inc., 454 B.R. 574, 587 (Bankr.D.Del.2011) (quoting In re Broadstripe, LLC, 444 B.R. 51, 101 (Bankr.D.Del.2010)). The factors relevant to whether one or more companies constitute a "single economic entity" include: "(1) undercapitalization; (2) failure to observe corporate formalities; (3) non-payment of dividends; (4) the insolvency of the debtor corporation at the time; (5) siphoning of the corporation's funds by the dominant stockholder; (6) absence of corporate records; and (7) the fact that the corporation is merely a facade for the operations of the dominant stockholder or stockholders." Broadstripe, 444 B.R. at 102. With respect to the second prong of the alter ego doctrine — the presence of injustice or unfairness-while proof of actual fraud is not required, courts have held that "something like fraud must be proven" and that a party seeking to pierce the corporate veil must prove "reasonable reliance and intent to deceive." In re Moll Industries, Inc., 454 B.R. at 591 (citing In re Foxmeyer, 290 B.R. 229, 236 (Bankr. D.Del.2003)).
Applying the requirements for a Delaware alter ego claim to Count 12, the Trustee's single business enterprise allegations
Second, the Trustee's allegations do not support the second prong of an alter ego claim under Delaware law: the presence of fraudulent intent, inequitable conduct, or injustice. While Delaware courts do not require proof of actual fraud, Delaware courts have held that a plaintiff must plead facts establishing "something like fraud" and that the distinction between actual fraud and the requirement to plead injustice or unfairness as part of an alter ego claim is "largely superficial." In re Moll Industries, Inc., 454 B.R. at 591. The Trustee's allegations do not satisfy this standard. Allegations of injustice or unfairness must be grounded on a misuse or abuse of the corporate forum. Here, as explained above, the facts pled in the Complaint do not support the Trustee's claim that Gulf Fleet was merely a facade for H.I.G. or that H.I.G. and Gulf Fleet operated as a single economic unit. While the Trustee does allege fraudulent transfers, those transfers are predominately grounded on allegations of constructive fraud and not the illegal and inequitable conduct required to support piercing the corporate veil under Delaware law. With respect to the Trustee's allegations of actual fraud in connection with these transfers, the court previously held that the Trustee has not sufficiently pled fraud to satisfy the standards of Rule 9(a) or Iqbal and Twombly.
Third, the Trustee has failed to plead facts supporting his request to pierce the corporate veil of each of the H.I.G.-affiliated defendants. Under Delaware law, if a plaintiff seeks to establish liability for all members of a corporate group, it must "establish alter ego liability with respect to each one of the entities." See In re The Heritage Org. LLC, 413 B.R. at 514 ("The Delaware two-prong test must be applied to, and satisfied at, each level or layer of ownership applicable within the multi-faceted entity structure."); See also In re Foxmeyer, 290 B.R. at 243-44 (same). The Trustee has not pled facts — as opposed to conclusions — sufficient to support alter ego liability at all layers of the H.I.G. corporate group.
In Count 11 of the Complaint, the Trustee alleges that the H.I.G. defendants and Gulf Fleet formed a partnership
Brightpoint filed a separate Motion to Dismiss and Motion for More Definite Statement on the grounds that the Complaint fails to assert specific allegations against Brightpoint, but instead merely groups Brightpoint into the Trustee's definition of "H.I.G. Subsidiaries." The court agrees with Brightpoint in this regard. With respect to all of the Trustee's claims, the Trustee must allege specific facts to establish conduct by Brightpoint that serves as a basis for liability against Brightpoint. As explained previously, the Trustee cannot rely on Louisiana partnership law, Louisiana's single business enterprise doctrine, or Delaware veil-piercing principles to impute liability up and down the H.I.G. corporate chain. Here, Brightpoint is referenced three times in the Complaint and with respect to the allegations that form the basis of the Trustee's claims, Brightpoint is merely consolidated into the definition of "H.I.G. Subsidiaries." Accordingly, the court grants Brightpoint's motion and requires the Trustee to re-plead his complaint to include specific allegations showing conduct by Brightpoint that gives rise to each of the claims asserted against Brightpoint.
As a final matter, the court concludes that it has authority to enter an order on the Motion to Dismiss under Stern v. Marshall, ___ U.S. ___, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011). Courts have held that an order denying a motion to dismiss in part, and granting leave to re-plead is not a final order within the meaning of Stern v. Marshall. See In re Pompa, 2012 WL 2571156, at *1 (Bankr. S.D.Tex. June 29, 2012); In re Noram Resources, Inc., 2011 WL 6936361, at *1 (Bankr.S.D.Tex. Dec. 30, 2011); In re TMG Liquidation Co., 2012 WL 4467553, at *2 (Bankr.D.S.C. Sept. 26, 2012). However, to the extent that this matter is deemed to fall within the class of cases where this court lacks authority to enter an order, these Reasons for Decision shall serve as the court's report and recommendation under 28 U.S.C. § 157.
For the reasons set forth herein, the court
Within 10 days, counsel for each Defendant shall submit orders in conformity with the foregoing Reasons for Decision as to their respective motions, to be approved as to form by counsel for Trustee.
