John E. Waites, US Bankruptcy Judge, District of South Carolina.
This matter is before the Court on the Motion to Dismiss the Amended Complaint filed by Joshua L. Kessler, Triton Stone Group, LLC, and Triton Stone of Southaven (collectively, "Defendants"). At the hearing on the Motion, Defendants raised for the first time the issue of whether Defendants, as manager or general manager,
1. On January 26, 2012, the Debtor filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code.
2. On June 29, 2012, the case was converted to a case under Chapter 7 and Robert F. Anderson was appointed as Chapter 7 Trustee ("Trustee").
3. On March 10, 2014, the Trustee commenced this adversary proceeding by filing a complaint ("Original Complaint") asserting claims for fraudulent conveyance under 11 U.S.C. §§ 544(b) and 548(a)(1)(B), preference under 11 U.S.C. § 547, and avoidance of certain promissory notes under 11 U.S.C. § 544(a)(1) against Defendants, among others.
4. The claims asserted against Defendants in the Original Complaint arise out of or are related to a transaction that closed on March 11, 2011 (the "Purchase Transaction"), wherein the Debtor acquired substantially all of the assets of TSCLT and TSMB through an Asset Purchase Agreement ("APA").
5. On April 3, 2014, the Trustee filed an Amended Complaint, which added Triton Partners Management Group ("TPMG"), TSCLT, and TSMB as defendants. In the Amended Complaint, the Trustee replaced the original claims against the Defendants with causes of action for breach of fiduciary duty, constructive fraud, avoidance of corporate form, equitable subordination, and restitution. The Amended Complaint alleges that TPMG was the manager of TSCLT and TSMB under a Management Agreement entered into on July 13, 2009 ("Management Agreement"). The Trustee alleges that Joshua L. Kessler ("Kessler") was the general manager of TSCLT and TSMB and a principal of Triton Stone Group, LLC ("TSG"), and Triton Stone of Southaven ("TSS"). TSG and TSS are alleged to be members of TPMB, and are also alleged to be one and the same entity.
6. In the Amended Complaint, the Trustee's Eleventh Cause of Action for breach of fiduciary duty and Twelfth Cause of Action for constructive fraud are asserted against Kessler and TPMB. In the Thirteenth Cause of Action, the Trustee seeks to avoid the corporate form of TPMG to hold TSS (and thus TSG) liable for TPMG's breach of fiduciary duty and constructive fraud.
Defendants contend that the Trustee's breach of fiduciary duty and constructive fraud causes of action should be dismissed because the Trustee has not alleged or otherwise demonstrated that Kessler and TPMG owe a fiduciary duty pursuant to S.C.Code Ann. § 33-8-420 or N.C. Gen. Stat. Ann. § 55-8-42, which impose fiduciary duties upon officers of a corporation.
"To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to `state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). To satisfy the plausibility standard, the Trustee must plead factual content that allows the Court to draw the reasonable inference that the Defendants are liable for the misconduct alleged. Iqbal, at 1949. The Trustee must nudge his claims across the line from conceivable to plausible to resist dismissal. Bell Atlantic, 127 S.Ct. 1955 at 1960. "Where a complaint pleads facts that are `merely consistent with' a defendant's liability, it `stops short of the line between possibility and plausibility of entitlement to relief.'" Iqbal, at 1949.
Defendants first argue that the Trustee has not adequately alleged that Kessler and TPMG are "officers" subject to fiduciary duties, because the Trustee has merely alleged that Kessler and TPMG were either managers or general managers of TSMB and TSCLT, neither of which constitute an officer of a corporation. The parties agree that the term "officer" is not defined under South Carolina or North Carolina corporate law. Defendants argue there is no authority to support the Trustee's position that a manager or general manager is subject to the same fiduciary obligations of an officer, but they do not identify any case where a court has concluded that a general manager did not constitute an officer.
The Trustee asserts that the issue of whether Kessler and TPMG are subject to the statutory standards of conduct as an officer depends upon their authority with respect to TSMB and TSCLT. While there appears to be no case law addressing this issue under South Carolina or North Carolina law, the Trustee cites an unpublished opinion, Pomeroy, Inc. v. Four Jaks, Inc., where the Fourth Circuit, applying West Virginia law, held that a general manager who had total authority over the operations of the company's facility was a corporate officer or director for that company. 11 Fed.Appx. 275 (4th Cir.2001). In making this determination, the Fourth Circuit noted that "Black's Law Dictionary defines corporate officers as: `those persons who fill the offices which are provided for in the corporate charter such as president, treasurer, etc., though in a broader sense the term includes vice presidents, general manager and other officials of the corporation.'" Id. (citing BLACK'S LAW DICTIONARY 340 (6th ed. 1990)). The Fourth Circuit observed that West Virginia case law provided no assistance in defining a corporate officer, but found that, regardless of the general manager's title, he had decision-making power, which came with a fiduciary duty to use it for the benefit of the company.
The Trustee has alleged facts in the Amended Complaint which indicate that Kessler and TPMG had full and total control over TSMB and TSCLT's operations and management, including personnel issues, retaining and dismissing employees, adjusting salaries and compensation, and any expenditure related to day to day operation of the company. Kessler is alleged to have had total and final executive power on managing and running TSMB and TSCLT. TPMG is alleged to have had the authority pursuant to the Initial Management Agreement to execute decisions without the Board of Director's consent on behalf of TSMB and TSCLT. The Amended Complaint also contains allegations detailing Kessler and TPMG's extensive involvement in negotiating the terms of the Asset Purchase Agreement. These allegations appear adequate, under the standard applied in Pomeroy, to state a plausible claim that Kessler and TPMG, as general managers or managers, were subject to a fiduciary duty as corporate officers.
Even if Kessler and TPMG did not constitute officers under state corporate law, the Trustee further argues that a common law fiduciary duty arises due to the established confidential relationship existing between these defendants and TSMB and TSCLT. Both North Carolina and South Carolina law provide for a common law fiduciary duty where one person reposes a special confidence in another, so that the other is bound to act in good faith and with due regard to the interests of the one imposing the confidence. See Dixon v. Gist, ___ N.C.App. ___, 724 S.E.2d 639, 643 (2012); Davis v. Greenwood School Dist. 50, 365 S.C. 629, 620 S.E.2d 65, 68 (2005). In addition, under North Carolina law, "an individual may owe a fiduciary duty to the corporation if he is considered to be a de facto officer or director, with authority for tasks such as signing tax returns, offering major input as to the company's formation and operation, or managing the company." Kinesis Advertising v. Hill, 187 N.C. App. 1, 652 S.E.2d 284, 295 (2007). As detailed above, the Court finds that the Amended Complaint includes sufficient allegations of fact, which if true, could also give rise to a fiduciary duty owed by Kessler and TPMG under South Carolina and North Carolina common law or as de facto officers under North Carolina law with regard to TSCLT.
Defendants argue that the Trustee cannot maintain a claim for breach of fiduciary duty and constructive fraud against Kessler and TPMG because he has not sufficiently alleged the existence of any fiduciary duty owed to the Debtor.
"A trustee in bankruptcy succeeds to all rights of the debtor, including the right to assert any causes of action belonging to the debtor.... A debtor's right to bring a legal claim is part of the bankruptcy estate under 11 U.S.C. § 541(a)." Vieira v. Anderson (In re Beach First Nat'l Bancshares,
Based upon the foregoing, the Defendants' Motion to Dismiss the Trustee's breach of fiduciary duty and constructive fraud claims is denied.
(emphasis added).