July 1, 2019, Southern District of Alabama – The bankruptcy court opinion reviews the standing of a motion to dismiss filed by a Defendant Levada EF Five, LLC (“Levada”), to which the Plaintiff, A. Richard Maples as Chapter 11 Trustee responded in the matter of In re Charles K. Breland, Jr., 16-2272-JCO.
On July 8, 2016, the Debtor Charles K. Breland, Jr filed his Chapter 11 petition for relief. On June 14, 2018, the Plaintiff, A. Richard Maples as Chapter 11 Trustee brought an adversary proceeding against the Defendant to set aside Levada’s prepetition transfers as a preference pursuant to 11 U.S.C. § 547. There was also a judgment from the District Court in the amount of $2,397,695.94 in favor of Levada against Breland earlier. The Trustee alleged that Levada’s judgment was recorded within the ninety-day preference period and should be set aside to prevent Levada from receiving more than it would if this case were a chapter 7 case.
Levada contended that the adversary proceeding should be dismissed pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim upon which relief can be granted. The Defendant argued that the Trustee failed to identify the real properties to which the transfer applied and that the recording of its judgment was not a preference under § 547. Specifically, Levada contended that the earlier case, In re Speir, 190 B.R. 657, 663 (Bankr. N.D. Ala. 1995), stands for the proposition that because Breland’s execution of the said deeds constitute a fraudulent transfer, that Levada’s judgment lien attaches to the properties as of the transfer dates (the date of the wrong). Levada added that even though Levada’s certificate of judgment was recorded after the fraudulent transfers occurred, the Spier holding meant that Levada’s lien attached as of the date of the wrong and therefore fell outside the 90-day preference period. In the alternative, Levada contended that if the transfers of the deeds were not fraudulent, its lien did not attach to the property of the estate upon which preference would apply because in that case the new entities and Breland’s wife, not the Debtor, would have owned the properties.
The Trustee countered that under Alabama law, a judgment lien does not relate back to the wrong committed, but rather, a judgment only becomes a lien after the proper recording of a certificate of judgment. The Trustee further asserted that under § 551, any transfer avoided under §§ 544 or 547 is preserved for the benefit of the estate if the property transferred was the property of the estate. In support of his § 551 arguments, the Trustee highlighted that at least some of the properties to which Levada’s lien could attach and which were allegedly fraudulently transferred, have been avoided already, and are thus preserved for the benefit of the estate.
Upon review the Court found that although the Plaintiff’s complaint, which sought to set aside prepetition transfers by Debtor as preferences pursuant to 11 U.S.C.S. § 547, was bare in terms of relevant facts alleged and how each element was met in relation to the facts alleged, it still passed Twombly standard and asserted a plausible preference action. The Court highlighted that the Supreme Court has stated in the past – that the concern on a motion to dismiss “is not that the allegations in the complaint were insufficiently ‘particularized;’ rather, the complaint warranted dismissal because it failed in toto to render plaintiffs’ entitlement to relief plausible. “A claim is considered factually plausible when ‘the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.'” In re All Am. Semiconductor, Inc.,427 B.R. 559 (Bankr. S.D. Fla. 2010) (citing Ashcroft, 129 S. Ct. at 1949). ”
The Court added that the determination of the merits of the preference action and whether the creation of a lien satisfied the elements of preference as to property of the estate was left to be determined either on summary judgment or at trial.
Accordingly, the Court denied the Defendant’s motion to dismiss.