This proceeding relates to the Chapter 7 bankruptcy case of Dozier Financial, Inc. ("Debtor") pending in this Court. The United States District Court for the District of South Carolina has jurisdiction under 28 U.S.C. § 1334(b). Pursuant to 28 U.S.C. § 157(a) and Local Civ. Rule 83.IX.01 (D.S.C.), the district court has referred this proceeding to the bankruptcy court. This proceeding involves claims for damages under non-bankruptcy law and is not a "core proceeding" within
Trustee brings this action on behalf of the estate ("Estate Claims") and as a result of claims assigned to the estate that were personal to certain investors/creditors of Debtor ("Investor Claims"). All of the claims arise from actions relating to Defendants' involvement with the restructuring of Michael Dozier's business operations and selling of securities to third party investors to raise funds. Trustee seeks to recover the losses that resulted from the sale of such securities and alleges that all Defendants played a role in causing the losses.
Michael Dozier was the sole shareholder, director, and officer of Debtor and operated used car dealerships in South Carolina. In April 2009, Michael Dozier employed WebsterRogers, LLP and WebsterRogers Financial Advisors, LLC (collectively, "WebsterRogers") and Sequence Financial Specialists, LLC ("Sequence") to facilitate in the restructuring of his business and to raise capital to support the dealerships' operations. Throughout their involvement, Sequence and WebsterRogers marketed themselves and operated as a single firm providing accounting and investment advice services to Debtor.
WebsterRogers and Sequence provided Michael Dozier with advice to create a business model that involved the formation of several business entities, including Debtor. Debtor's business primarily involved servicing financing contracts for Michael Dozier's used car dealerships. WebsterRogers and Sequence also recommended Michael Dozier begin selling securities to investors to raise funds. Sequence agreed to act as the placement agent for any private offering of any securities, as an underwriter in any public offering of securities, and as a broker in soliciting investments in Debtor.
In July 2009, Michael Dozier engaged Willcox Buyck and Williams, P.A. ("WBW"), a law firm located in South Carolina, to provide legal services, including advice related to the restructuring of his business and the securities transactions. WBW assisted with the formation of the various entities that formed Michael Dozier's business model, including Debtor and the car dealerships. WBW also assisted with enabling Debtor to secure capital through security offerings, including the drafting of offerings for the solicitation of investments from third parties. Sequence and WebsterRogers were also engaged to seek additional financing necessary for implementing the business model it had previously developed and to consult with WBW regarding the issuance of a private placement memorandum to raise capital. WebsterRogers also specifically agreed to determine and evaluate the tax and generally accepted accounting principles and reporting options for the businesses.
Sequence, WebsterRogers, and WBW generated the financial reports for the Debtor, which included the company ledgers for the car dealerships and Debtor, profit and loss statements, balance sheets, income statements, and cash flow statements. These Defendants knew these financial reports would be used by Debtor in acquiring capital through the sale of securities. These financial reports were deficient, false, and misleading because they, through improper accounting methods: improperly allocated assets, liabilities, and costs; significantly overestimated the accounts receivable owed to the Debtor from the related entities; and significantly underestimated the amounts payable by the Debtor. As a result, the financial statements made it appear that Debtor had a positive net worth when the business was actually operating at or near a net loss.
When confronted with numerous red flags concerning the accuracy of Debtor's financial statements, Sequence and WebsterRogers did not abide by the standards of due diligence governing the conduct of brokers, underwriters, and investment advisers. Sequence and its employees also assisted Michael Dozier in his concealment of Debtor's financial condition from Debtor and the investors.
The financial statements were used to market the securities to be purchased by the investors. The investors were first solicited to invest in Debtor in September 2009 through a Private Placement Memorandum ("2009 PPM"), which was drafted by WBW. Prior to approval of these materials and their distribution to investors, Sequence and WebsterRogers did not conduct independent investigations into the capital requirements of Michael Dozier's business. Overall, in offering and selling these investments, Defendants
In October 2009, Michael Dozier began selling securities to the public that he believed were exempt offerings under federal and state securities laws. Sequence and WebsterRogers did not conduct independent investigations to ensure that Michael Dozier did not sell stock to unaccredited investors, which would destroy any safe harbor registration exemption for the securities issued under the 2009 PPM.
In March 2010, Sequence, WebsterRogers, and WBW compiled an addendum to the 2009 PPM to be sent to prior and new, prospective investors ("2010 Executive Summary"). The 2010 Executive Summary attached unaudited financial reports for the Debtor that were prepared by Sequence and WebsterRogers. These financial reports included the same material misrepresentations in the prior financial reports and 2009 PPM. Despite this, WBW, Sequence, and WebsterRogers approved the 2010 Executive Summary and enclosed information to be used by Michael Dozier in future solicitations from investors.
Upon the recommendation of WebsterRogers and Sequence, SGC was retained by the Debtor in late 2010 or early 2011. SGC is an accounting firm located in Houston, Texas, with extensive experience with used car dealerships and their related finance companies. Debtor and SGC entered into an Engagement Agreement dated January 3, 2011, which includes the following forum selection clause ("FSC"):
SGC was engaged to conduct an audit of Debtor's 2010 financial statements. SGC also performed administrative and consolidation work in connection with Debtor's annual financials and performed other services for the Debtor.
SGC failed to comply with auditing standards by failing to obtain reasonable assurance that the financial statements it was auditing were free of material misstatements and failing to assess the risk that Debtor's financial statements could be materially misstated as a result of fraud. SGC, in violation of professional standards, either knowingly misrepresented the financial records of the Debtor or merely accepted management's representations without attempting to corroborate or collect support for those representations. SGC also failed to obtain sufficient competent evidence regarding the amounts recorded in Debtor's financial statements and failed to adequately evaluate the competence and sufficiency of information. There were significant accounting red flags within the SGC-prepared audit report of Debtor that SGC, Sequence, and WebsterRogers should have been aware of and resulted in a severely deficient audit report, which was subsequently used in the issuance of private placement memoranda and other marketing materials to raise capital for the Debtor.
In 2011, Michael Dozier began a check kiting scheme between the accounts of the Debtor and the car dealerships. These fraudulent transfers gave rise to obligations of Michael Dozier, the Debtor, and the dealerships in excess of $3,000,000.00 to the banks with negative cash balances. Michael Dozier disclosed to WBW, Sequence, and WebsterRogers that liabilities were generated at banks where he and the Debtor held accounts as a result of a series of overdrafts. WBW also learned that several of the overdrafts were directly tied to proceeds from the prior offerings. To correct this significant shortfall, Michael Dozier,
The 2011 PPM did not explain the intended use of the proceeds to pay off these liabilities, even though these proceeds were immediately used for liabilities of Debtor and Michael Dozier and were wrongfully diverted for personal payments to Michael Dozier. Additionally, the 2011 PPM incorporated misstatements from the previous offerings and provided financial reports for Debtor, including those subject to SGC's audit, that included incorrect information. Like the 2009 PPM, the 2011 PPM made a selling point to investors that independent underwriters, brokers, and attorneys had performed due diligence and, thus, acted as gatekeepers against possible misdeeds by the Debtor and Michael Dozier — even though the Defendants were already aware of Michael Dozier's improper conduct.
When the investors' first notes became due in Fall 2012, additional information was sent to them regarding the ability to extend the terms of their notes as well as soliciting new investments ("Rollover Letters"). The Rollover Letters informed investors that they could renew their notes or liquidate them and receive their interest and principal in full, even though Debtor lacked the ability to repay the notes. The Rollover Letters stated Debtor was continuing its growth and success, when in actuality it was insolvent.
In late 2013, Debtor began missing scheduled note payments and Michael Dozier informed the investors that the delay would be temporary. WBW should have advised the investors that the missed note payments signaled a material risk that the business was failing and, therefore, in order to protect themselves from harm, the investors should verify any representations.
From October 2009 through June 2013, Debtor raised approximately $3,621,116.14 from at least 36 investors in at least two states (North and South Carolina). These funds were raised through the sale of at least 73 nonnegotiable promissory notes to both accredited and unaccredited investors; however, many of the investors were unaccredited, unsophisticated, and elderly. Much of the money raised through the improper securities offerings was appropriated by Michael Dozier to pay the fees for the services rendered by Sequence, WebsterRogers, WBW, and SGC, or for Michael Dozier's own personal obligations.
In Spring 2014, WBW began collecting the necessary information for filing a Form D with the Securities and Exchange Commission or the Attorney General, but ultimately failed to comply with this requirement. An involuntary Chapter 7 petition was filed against Debtor in this Court on July 29, 2014, and the order for relief was entered on August 28, 2014.
Trustee asserts generally that SGC, in connection with the offer and sale of securities, disseminated or approved false statements that it knew or reasonably should have known were false or misleading in that they contained misrepresentations and failed to disclose material facts necessary in order to make the statements not misleading and the investors relied on such misrepresentations and omissions. As a result, SGC also breached its contractual and common law duties owed to the Debtor and the investors. Trustee asserts similar claims against the other Defendants.
The causes of action in the Complaint are divided into two categories: personal claims to the Debtor stemming from Trustee's role as bankruptcy trustee for the
With regard to the Investor Claims, the Complaint alleges that between January 2, 2017, and October 6, 2017, numerous individuals who invested in Debtor assigned to Trustee all of their right, title, and interest in and to the claims set forth in the Complaint and the Trustee is now the true and lawful owner of the claims. The Investor Claims against SGC are: (1) violation of § 10 and Rule 10b-5 of the Securities and Exchange Act of 1934, which makes it unlawful to employ deceptive or manipulative devices "in connection with the purchase or sale of any security[,]" 15 U.S.C. § 78j; (2) common law fraud; (3) negligence; (4) breach of fiduciary duty; and (5) constructive fraud.
By filing the instant Motion seeking relief from this Court and not expressly objecting to this Court making a final determination on this Motion, the parties have consented to the Court's determination of this Motion under 28 U.S.C. § 157(c)(2).
SGC moves to dismiss this adversary proceeding, arguing the FSC renders this venue improper under Rule 12(b)(3). Rule 12(b)(3) permits a party to file a motion to dismiss for improper venue. Fed. R. Civ. P. 12(b)(3); Pee Dee Health Care, P.A. v. Sanford, 509 F.3d 204, 209 (4th Cir. 2007). When a defendant objects to venue under Rule 12(b)(3), the plaintiff bears the burden of establishing that venue is proper. Motley Rice, LLC v. Baldwin & Baldwin, LLP, 518 F.Supp.2d 688 (D.S.C. 2007). The plaintiff is required to make only a prima facie showing of proper venue in order to survive a motion to dismiss. Aggarao v. MOL Ship Mgmt. Co., 675 F.3d 355, 366 (4th Cir. 2012). In assessing whether plaintiff has made that showing, courts must construe all factual allegations in favor of the plaintiff. Id.
In Atl. Marine Const. Co. v. U.S. Dist. Court for W. Dist. of Texas, 571 U.S. 49, 134 S.Ct. 568, 187 L.Ed.2d 487 (2013), the Supreme Court held that whether the venue is "improper" for Rule 12(b)(3) purposes "depends exclusively on whether the court in which the case was brought satisfies the requirements of federal venue laws..." and is governed by the applicable venue statute. Id. at 577. "Whether the parties entered into a contract containing a forum-selection clause has no bearing on whether a case falls into one of the categories of cases listed in [the applicable venue statute]. As a result, a case filed in a district that falls within [the applicable
Venue in the bankruptcy court is governed by 28 U.S.C. §§ 1408 and 1409. As applicable here, § 1409 states that "a proceeding arising under title 11 or arising in or related to a case under title 11 may be commenced in the district court in which such case is pending." 28 U.S.C. § 1409(a). Debtor's Chapter 7 bankruptcy case is pending in this district. Therefore, under § 1409(a), the District of South Carolina is a proper venue for this adversary proceeding that relates to Debtor's bankruptcy case. The Estate and Investor Claims may not be dismissed solely because the Debtor and SGC entered into a pre-petition contract with an FSC providing any case arising therefrom must be brought in a different court. See Atl. Marine, 134 S.Ct. at 577. Consequently, dismissal pursuant to Rule 12(b)(3) is not warranted.
SGC moves for alternative relief to transfer some or all of the causes of action against it to the United States District Court for the Southern District of Texas pursuant to 28 U.S.C. § 1404(a), which provides "[f]or the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought or to any district or division to which all parties have consented." 28 U.S.C. § 1404(a).
"When the parties have agreed to a valid forum-selection clause, a district court should ordinarily transfer the case to the forum specified in that clause." Atl. Marine Const. Co., 134 S.Ct. at 581. The "enforcement of valid forum-selection clauses, bargained for by the parties, protects their legitimate expectations and furthers vital interests of the justice system." Id. (quoting Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 33, 108 S.Ct. 2239, 101 L.Ed.2d 22 (1988) (Kennedy, J., concurring)). Further, a valid FSC pointing to another forum should be "given controlling weight in all but the most exceptional cases." Id. at 579.
The presence of a valid FSC requires a court to adjust its usual analysis under § 1404(a). Id. at 581. The plaintiff's initial choice of forum is given no weight, and the burden shifts to the party opposing enforcement of the FSC to establish that transfer to the selected forum is unwarranted. Id. at 581. The original venue's choice-of-law rules will not be applied by the transferee venue. Id. at 582. The court should not consider the private interests of the contracting parties, but should assume the private interest factors weigh entirely in favor of the forum specified in the FSC because "[w]hatever `inconvenience' [the parties] would suffer by being forced to litigate in the contractual forum as [they] agreed to do was clearly foreseeable at the time of contracting." Id. (citations omitted). As a result, the court should consider only the public interest factors, as opposed to weighing both the public and private interest factors. Id.
Id. at 582, n.6 (emphasis added) (citing Norwood v. Kirkpatrick, 349 U.S. 29, 32, 75 S.Ct. 544, 99 S.Ct. 789 (1955)). These factors are not exhaustive and courts have found the following to also be instructive for determining whether to transfer venue under § 1404: (1) the interest in having the trial of a diversity case in a forum that is at home with the law that must govern the action; (2) the unfairness of burdening citizens in an unrelated forum with jury duty, Piper Aircraft Co. v. Reyno, 454 U.S. 235, 260 n.6, 102 S.Ct. 252, 70 L.Ed.2d 419 (1981); (3) the enforceability of the judgment; (4) practical considerations that could make the trial easy, expeditious, or inexpensive; (5) the relative administrative difficulty in the two forums resulting from court congestion; (6) the local interest in deciding local controversies at home; (7) the public policies of the forums; (8) and the familiarity of the trial judge with the applicable state law in diversity cases. Jumara v. State Farm Ins. Co., 55 F.3d 873, 879-80 (3d Cir. 1995). Because the public interest "will rarely defeat a transfer motion, the practical result is that forum-selection clauses should control except in unusual cases." Atl. Marine, 134 S.Ct. at 582.
Other public interest factors have been considered in the bankruptcy context, including the creditors' interests since the estate is often operating on limited funds and asserting actions solely to maximize the recovery to creditors. See Bavaria Yachts USA, LLLP v. Bavaria Yachtbau GmbH (In re Bavaria Yachts USA, LLLP), 575 B.R. 540, 560-63 (Bankr. N.D. Ga. 2017); In re Veros Energy, LLC, C/A No. 16-70021-JHH, 587 B.R. 134, 156-57, 2018 WL 1989475, at *16 (Bankr. N.D. Ala. Apr. 26, 2018); In re I.E. Liquidation, Inc., C/A No. 06-62179, 2015 WL 5307446, at *6 (Bankr. N.D. Ohio Sept. 10, 2015) ("Because bankruptcy courts, when analyzing matters similar to those in Atlantic Marine, evaluate litigation costs as public interest factors, it provides additional support for retaining litigation expenses as a relevant factor in bankruptcy, even in light of a forum selection clause."). Although "there is the public policy of enforcing a contract ... there [also] is the public policy of centralizing bankruptcy proceedings, and there is a strong presumption in favor of maintaining the venue of an adversary proceeding where the bankruptcy is pending." Id. at 558 (citing In re Hechinger Inv. Co. of Delaware, Inc., 288 B.R. 398, 402 (Bankr. D. Del. 2003)). "Because the bankruptcy system implicates interests far broader than the private rights of the two parties in question, it is not unusual for prepetition contract obligations, particularly those dictating forum ... to be modified or even ignored in a bankruptcy case." Id. at 559 (citing Walker v. Got'cha Towing & Recovery (In re Walker), 551 B.R. 679, 690 n.21 (Bankr. M.D. Ga. 2016)).
Assuming a valid FSC is applicable to the claims asserted against SGC, the Court is not convinced that public interest factors such as familiarity, conflict or application of laws are relevant here. Nor is it clear that there are significant differences in comparative congestion between the South Carolina and Texas courts. However, examining "the local interest in having localized interests decided at home" factor is somewhat helpful. Although SGC argues the audit work was performed in Texas, the investments and losses in question involved a South Carolina business, investors located in South Carolina, and resulted in a South Carolina bankruptcy proceeding. These facts weigh in favor of a South Carolina forum.
While Atlantic Marine involved the transfer of an entire case in which all claims were brought by a single plaintiff against a single defendant and all claims and parties were covered by a valid FSC, this case is different. Although there is no dispute as to whether this FSC itself is valid, it is contained in an Engagement Agreement executed only by the Debtor and SGC. This case involves claims based on a core set of facts against SGC and five other Defendants that are not parties to the Engagement Agreement. This case also involves some Investor Claims that are likely not governed by the FSC. The Supreme Court pointed out that "courts should not unnecessarily disrupt the parties' settled expectations." Id. at 583. However, those expectations have been disrupted here by the intervention of this bankruptcy case and the filing of this adversary proceeding involving parties not subject to and claims not covered by this FSC.
An FSC is intended to give parties greater predictability about where they would engage in future litigation and "may have been a critical factor in their agreement to do business together in the first place." Id. at 583. However, that purpose is not served and is actually counterproductive in a situation such as this where the Trustee is pursuing other substantial, overlapping claims to which the
Having determined that venue in this Court is proper, the Court turns to the remaining grounds for dismissal asserted in SGC's Motion.
Rule 8 provides that a complaint must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). A motion filed under 12(b)(6) challenges the legal sufficiency of the Complaint and provides that a party may move to dismiss for failure to state a claim upon which relief can be granted. When ruling on a motion to dismiss under Rule 12(b)(6), "the court should accept as true all well-pleaded allegations and should view the complaint in a light most favorable to the plaintiff." Mylan Labs., Inc. v. Matkari, 7 F.3d 1130, 1134 (4th Cir. 1993). In order 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, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)).
"In addition to meeting the plausibility standard of Iqbal, fraud claims ... must be pleaded with particularity pursuant to Rule 9(b) of the Federal Rules of Civil Procedure." U.S. ex rel. Nathan v. Takeda Pharm. N. Am., Inc., 707 F.3d 451, 455-56 (4th Cir. 2013) cert. denied, 572 U.S. 1033, 134 S.Ct. 1759, 188 L.Ed. 2d 592 (2014) (citing Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 783-85 (4th Cir. 1999)). Pursuant to Rule 9(b), "[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally." Fed. R. Civ. P. 9(b). "To meet this standard, [a] plaintiff must, at minimum, describe `the time, place, and contents of the false representations as well as the identity of the person making the misrepresentation and what he obtained thereby.'" U.S. ex rel. Wilson v. Kellogg Brown & Root, Inc., 525 F.3d 370, 379 (4th Cir. 2008) (quoting Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 784 (4th Cir. 1999)).
SGC asserts the Investor Claims are barred by the applicable statute of
"Ordinarily, a defense based on the statute of limitations must be raised by the defendant through an affirmative defense, see Fed. R. Civ. P. 8(c), and the burden of establishing the affirmative defense rests on the defendant." Goodman v. Praxair, Inc., 494 F.3d 458, 464 (4th Cir. 2007). However, "where facts sufficient to rule on an affirmative defense are alleged in the complaint, the defense may be reached by a motion to dismiss filed under Rule 12(b)(6)." Id. "This principal only applies, however, if all facts necessary to the affirmative defense `clearly appear on the face of the complaint.'" Id. (quoting Richmond, Fredericksburg & Potomac R.R. v. Forst, 4 F.3d 244, 250 (4th Cir. 1993) (emphasis in original)).
The parties agree that the claim for violations of § 10 of the Securities and Exchange Act and Rule 10b-5 is governed by the statute of limitations as set forth in 28 U.S.C. § 1658, which provides in relevant part:
28 U.S.C. § 1658(b). Therefore, this claim is subject to a two-year statute of limitations and five-year statute of repose.
The Securities and Exchange Act imposes liability for material misrepresentations with respect to the "purchase or sale" of a security. 15 U.S.C. § 78j(b). Thus, "[t]he statute of repose for a Section 10(b) claim `starts to run on the date the parties have committed themselves to complete the purchase or sale transaction.'" Carlucci v. Han, 886 F.Supp.2d 497, 514 (E.D. Va. 2012) (quoting Arnold v. KPMG LLP, 334 Fed. App'x 349, 351 (2d Cir. 2009)). "In the Fourth Circuit, the statute of limitations begins to run when the fraud is discovered or should have been discovered by the exercise of due diligence." Latham v. Matthews, 662 F.Supp.2d 441, 450 (D.S.C. 2009) (citing Brumbaugh v. Princeton Partners, 985 F.2d 157, 162 (4th Cir. 1993)). The Complaint fails to include on its face all the facts necessary to determine that the purchase of the securities at issue occurred more than 5 years prior to the Trustee bringing this action or that more than 2 years passed after the fraud was discovered or should have been discovered. Therefore, the Court cannot determine that the applicable statute of repose or statute of limitations bars this claim against SGC and its request must be denied.
With regard to the other Investor Claims asserted against SGC — common law fraud, negligence, breach of fiduciary duty, and constructive fraud — the potential statute of limitations period ranges from two to four years
Because these claims were purportedly assigned to the Trustee by certain investors, the relevant time period begins to run when those investors reasonably should have known about the alleged conduct giving rise to these claims. There are no allegations in the Complaint to clearly discern what point in time the investors knew, or by the exercise of reasonable diligence should have known, about SGC's alleged fraudulent or negligent conduct. Accordingly, looking to the face of the Complaint alone on a Rule 12(b)(6) Motion, the Court cannot determine these claims against SGC are barred by the statute of limitations. Therefore, SGC's Motion to Dismiss must be denied on these grounds.
Joining in the arguments asserted by the other Defendants, SGC asserts the Investor Claims should be dismissed because the Trustee lacks standing to bring the Investor Claims. SGC contends the assignments from the investors to the Trustee are improper and unenforceable because the claims are not assignable under South Carolina law. In support of this argument, SGC relies on the dissenting opinion in In re Bogdan, 414 F.3d 507 (4th Cir. 2005) and attempts to distinguish Bogdan from the case at hand. In Bogdan, the debtor was involved with others in a real estate "flipping scheme" that defrauded numerous mortgage lenders. Some of the lenders injured by this scheme unconditionally assigned to the trustee all of their claims against the debtor and his alleged coconspirators. The trustee then filed an adversary proceeding as assignee of these mortgage lenders and asserted various causes of action against the alleged coconspirators,
The Fourth Circuit reversed the lower court's decision and concluded that the trustee had standing because he was not making any claim on behalf of the creditors, but by taking unconditional assignments from the creditors, was making his claim on behalf of the estate. Id. at 511. The court reasoned that "[t]he mortgage lenders will recover, if at all, like any other creditor of the estate, by sharing from the assets the trustee is able to collect on behalf of the estate." Id. at 512. The Fourth Circuit also determined there was no potential for duplicative and inconsistent litigation by the assignees because "[b]y giving the trustee unconditional assignments of their potential claims, the mortgage lenders have relinquished all rights to seek recovery against Bogdan and the alleged coconspirators." Id. The court also concluded that the Bankruptcy Code implicitly authorizes the type of suit brought by the trustee. Id. ("[T]he unconditional assignments acquired by Bogdan's trustee from the mortgage lenders after commencement of this bankruptcy case constitute `property of the estate' that the trustee is authorized to `collect and reduce to money' on behalf of the estate ... Accordingly, the trustee has the requisite standing to sue Bogdan's alleged coconspirators `to collect and reduce to money' the causes of action he acquired for the estate from the mortgage lenders after commencement of this bankruptcy case.").
The dissenting opinion acknowledged that the majority's decision "is predicated entirely on the assumed validity of the assignments, a proposition we accept in viewing the complaint in the light most favorable to the trustee ..." However, it went on to state that "the assignments here are likely invalid under Maryland law, which precludes the assignment of claims if it contravenes public policy." Id. at 516 (citations omitted). The dissenter believed the assignment contravened Maryland's public policy because "the trustee for the estate of a tortfeasor is seeking to sue the debtor's joint tortfeasors. Put simply, one of several thieves, purportedly acting on behalf of his victims, is suing his fellow thieves." Id. at 517.
SGC has challenged the validity of the assignments under South Carolina law, which was not analyzed in Bogdan. Therefore, the Court must look further into this issue. The general rule followed in the Fourth Circuit is that "[f]ederal bankruptcy law looks to state law for definition of what interests are rights of the debtor or creditors of the debtor." Steyr-Daimler-Puch of Am. Corp. v. Pappas, 852 F.2d 132, 135 (4th Cir. 1988). State law limitations on the assignability of state law claims are not preempted by the Bankruptcy Code and remain effective as "limitations imposed upon the debtor by applicable nonbankruptcy law." Integrated Solutions Inc. v. Serv. Support Specialties, Inc., 124 F.3d 487, 493 (3d Cir. 1999) (citations omitted).
S.C. Code Ann. § 15-5-90. "The general survivability statute has a wide ambit that includes all causes of action not covered by specific exceptions." Ferguson v. Charleston Lincoln Mercury, Inc., 349 S.C. 558, 563, 564 S.E.2d 94, 96-97 (2002). Despite the clear language of the statute, South Carolina courts have created certain exceptions to the survivability statute, including actions for fraud and deceit. Id. (citing Mattison v. Palmetto State Life Ins. Co., 197 S.C. 256, 15 S.E.2d 117 (1941) (a cause of action for fraud did not survive the death of a person who was allegedly defrauded by an apparent cancellation of an insurance policy)).
The plaintiff in Ferguson brought an action under the South Carolina Regulation of Manufacturers, Distributors, and Dealers Act, alleging the dealer included an improper fee in the purchase price of the car and concealed that price through either fraudulent actions or negligent practices. Id. at 561-62, 564 S.E.2d 94. The Dealers Act defined fraud broadly to include "a misrepresentation in any manner, whether intentionally false or due to gross negligence, of a material fact; a promise or representation not made honestly and in good faith; and an intentional failure to disclose a material fact." S.C. Code Ann. § 56-15-10(m). The South Carolina Supreme Court found that even though the plaintiff's cause of action arose directly under the Dealers Act, because it was based upon a theory of fraud and deceit it did not survive the plaintiff's death.
In Tilley v. Pacesetter Corp., 355 S.C. 361, 585 S.E.2d 292 (2003), the South Carolina Supreme Court did not expand its holding in Ferguson to actions brought under the Consumer Protection Code. The court reasoned that, even though "[t]he Consumer Protection Code and the Dealers Act share a common purpose: protection of the consumer ... the Dealers Act arguably expanded the definition of fraud to include actions that would not normally amount to fraud. The Consumer Protection Code does not define fraud at all." Id. at 378, 585 S.E.2d 292. Further, the plaintiff in Ferguson alleged the dealer committed an unfair act by failing to disclose a closing fee in the price of the car whereas in Tilley, the plaintiffs asserted the defendant violated statutory mandates of "S.C. Code Ann. § 37-10-102 in failing to notify them of their right to choose an attorney and insurance agent of their preference. Neither § 37-10-102 nor the penalty section, § 37-10-105, refer to violation of the statutory preference requirements in terms of unfairness, fraud, or deceit." Id. at 378, 585 S.E.2d 292.
Based on the foregoing,
Creekridge Capital, LLC v. Louisiana Hosp. Ctr., LLC, 410 B.R. 623, 629 (D. Minn. 2009) (emphasis added). Granting SGC's request and having duplicate actions pending in South Carolina and Texas would not promote the economic and efficient administration of Debtor's bankruptcy estate.
