Trustee’s Complaint Did Not Provide Sufficient Allegations to Support Plausible Claims Against a Partnership Under the Massachusetts Fraudulent Transfer Act

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May 7, 2020, Massachusetts – Gary W. Cruickshank, Chapter 7 Trustee for the bankruptcy estate of Debtor DebBlast Fitness Group, LLC (“BFG”), brought lawsuits against forty named and dozens of unnamed defendants, including Dixon Family Limited Partnership (the “Partnership”), a Delaware limited partnership whose general partner was a Defendant, Harold R. Dixon. Dixon also controlled BFG. BFG filed a voluntary petition for relief under Chapter 7 of the United States Bankruptcy Code on January 26, 2016. At the time of the bankruptcy filing, the Partnership owned 36% of BFG.  

In response to the Trustee’s complaint, the Partnership moved under Fed. R. Civ. P. 12(b)(6), per Fed. R. Bankr. P. 7012(b), to dismiss various counts related to constructive and actual fraudulent transfers in the Trustee’s complaint pursuant to § 548(a)(1)(B), § 548(a)(1)(A)) of the Bankruptcy Code and Massachusetts Fraudulent Transfer Act.

The Court found that the Trustee’s complaint did not provide sufficient allegations to support plausible claims against a Partnership under the Massachusetts Fraudulent Transfer Act (MUFTA) because it could not be inferred that every act of malfeasance by the general partner could be attributed in equal measure to the Partnership based on conclusory allegations that all of his actions were taken for the benefit of the Partnership. The Court also held that the allegations that the Partnership and the general partner shared a common plan to fraudulently transfer certain real estate to the Partnership were insufficient to support a claim for civil conspiracy. However, the Court denied the Defendant’s motion to dismiss on fraud claim because a reasonable inference could be drawn that the general partner was acting within the course of the Partnership’s business and within his authority when he presented membership consent to the Debtor’s members.

Accordingly the Court granted the Defendant’s motion to dismiss as to most counts in the Trustee’s complaint, and denied as to the one count.