Opinion
Case No. 09-16027-A7 Adv. No. 11-90477-A7
04-27-2012
In re CLARENCE M. URBANSKI, Debtor(s) LESLIE T. GLADSTONE, Plaintiff, v. VICKI ACRI, et al., Defendants.
WRITTEN DECISION - NOT FOR PUBLICATION
MEMORANDUM DECISION
I.
INTRODUCTION
At the hearing held on March 29, 2012, in the above-referenced adversary proceeding, the Court took under submission paragraph two of its tentative ruling addressing the motion of Vicki Acri ("Defendant") to dismiss the second and third claims for relief in the first amended complaint ("FAC") filed by Leslie Gladstone ("Trustee" or "Plaintiff). The second and third claims for relief seek to avoid and recover transfers received by the Defendant pursuant to 11 U.S.C. §§ 544(b), 548 and 550. For the reasons more fully set forth below, the Court reaffirms its tentative ruling denying the motion to dismiss these claims.
Hereinafter, all code and section references refer to 11 U.S.C. § 101, et seq. unless otherwise specified.
II.
FACTS
The Debtor filed his chapter 7 bankruptcy petition on October 22, 2009, and the Trustee was appointed. The Trustee determined that the Debtor made substantial transfers to the Defendant and others within the four years preceding the petition date which appeared to be avoidable transfers. Accordingly, the Trustee filed her avoidance adversary proceeding on October 13, 2011 ("Avoidance Action"). In response to the Defendant's motion to dismiss the complaint for failure to state a claim, the Trustee filed the FAC. Thereafter, the Defendant filed her present motion to dismiss.
The Trustee pleads most of her allegations on information and belief since she has no firsthand knowledge of the facts. The pertinent allegations are as follows:
GENERAL ALLEGA TIONS
• FAC ¶ 5: The Defendant was the live-in girlfriend/partner of Clarence Urbanski, the chapter 7 debtor ("Debtor"), so she was an "insider" within the meaning of § 101 (31).
• FAC ¶ 6: Hensel Financial, Inc. is a California corporation with its principal place of business in Oceanside, California ("Hensel").
• FAC ¶ 13: Within the one year preceding the Debtor's petition date, the Debtor made transfers (identified in the FAC) to Defendant for services that
Defendant allegedly rendered to Hensel Financial, Inc. ("Hensel Transfers").
• FAC ¶ 14: Additionally, during the four years preceding the petition date, the Debtor made other payments (identified in the FAC) to Defendant in 2006, 2007, 2008 and 2009 ("Payments") which, for tax purposes, he characterized as "non-employee compensation" (collectively, the Payments and the Hensel Transfers are the "Acri Transfers").
FIRST CLAIM FOR RELIEF
(Preferential Transfer - § 547)
• FAC ¶ 25: The Hensel Transfers, the 2008 Payment, and the 2009 Payment were for or on account of an antecedent debt owed by the Debtor to Defendant and/or Hensel before each such transfer was made in return for "services" purportedly rendered by Defendant to the Debtor and/or Hensel in advance of the Hensel Transfers, the 2008 Payment, and the 2009 Payment.
SECOND CLAIM FOR RELIEF
(Fraudulent Transfer - § 548)
• FAC ¶ 29: The Trustee realleges and incorporates by reference herein paragraphs 1 through 28, inclusive.
• FAC ¶ 31: The Hensel Transfers, the 2008 Payment, and the 2009 Payment were in payment for services purportedly rendered by Defendant to Hensel, not the Debtor.
• FAC ¶ 33; The services giving rise to the Hensel Transfers, the 2008 Payment, and the 2009 Payment were made for the benefit of Hensel, not Debtor and, therefore, the Debtor received less than reasonably equivalent value in exchange for the Hensel Transfers, the 2008 Payment, and the 2009 Payment within the meaning of § 548(a)(1)(B).
THIRD CLAIM FOR RELIEF
(Fraudulent Transfer - § 544(b))
• FAC ¶ 38: The Trustee realleges and incorporates by reference herein paragarpahs 1 through 37, inclusive.
• FAC ¶ 40: The Acri Transfers were in payment for services purportedly rendered by Defendant to Hensel, not the Debtor.
• FAC ¶ 41: The services giving rise to the Acri Transfers were made for the benefit of Hensel, not Debtor, and therefore, the Debtor received less than reasonably equivalent value in exchange for the Acri Transfers within the meaning of California Civil Code § 3439.04(a)(2).
III.
ANALYSIS
The issue under submission is whether the second and third claims for constructively fraudulent transfer are fatally flawed because they impermissibly plead inconsistent facts within the same claim for relief. Specifically, the Defendant argues that FAC ¶ 25 is incorporated by reference into the second and third claims for relief by virtue of FAC ¶¶ 29 and 38. She argues that the Court must accept as true the allegation in FAC ¶ 25 that the transfers were on account of an antecedent debt owed by the Debtor. Therefore, it cannot be factually plausible that the Debtor received no benefit and no reasonably equivalent value in return for the transfers as alleged in FAC ¶¶ 31, 33 and FAC ¶¶ 40, 41. This fatal flaw means the second and third claims for constructively fraudulent conveyance do not plausibly give rise to an entitlement to relief as demanded by the United States Supreme Court in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) and Ashcroft v. Iqbal, 556 U.S. 662 (2009).
The Defendant recognizes that Federal Rule Civil Procedure ("Rule") 8(d) allows a plaintiff to plead alternative theories in a complaint. However, she contends that Rule 8(d) does not permit a plaintiff to plead inconsistent factual statements within the same claim for relief. The Defendant has cited several cases to support this legal proposition. However, none of these cases are binding upon this Court. The Court is unable to reconcile these cases with the plain language of Rule 8(d)(2) and (3) which permit inconsistent pleading in a single count:
Federal Rule Bankruptcy Procedure 7008 provides that Rule 8 applies in every adversary proceeding. Effective December 1, 2007, Rule 8(e) was renumbered Rule 8(d) without textual change.
National Western Life Ins. Co. v. Merrill, Lynch, Pierce, Fenner & Smith, Inc., 175 F. Supp. 2d 489, 492 (S.D.N.Y. 2000); In re McCann, Inc., 318 B.R. 276, 290 (Bankr. S.D.N.Y. 2004).
(d) Pleading to Be Concise and Direct; Alternative Statements; Inconsistency.(Emphasis added).
(2) Alternative Statements of a Claim .... A party may set out 2 or more statements of a claim ... alternatively or hypothetically, either in a single count ... or in separate ones. If a party makes alternative statements, the pleading is sufficient if any one of them is sufficient.
(3) Inconsistent Claims .... A party may state as many separate claims ... as it has, regardless of consistency.
Additionally, there is contrary authority recognizing that Rule 8 is drafted to provide maximum flexibility in allowing a party to plead inconsistent facts and theories in a complaint, and even within the same count. See Henry v. Daytop Village, Inc., 42 F.3d 89, 95 (2d Cir. 1994); In re Heller Ehrman LLP, 2011 WL 1539796, *6 (Bankr. N.D. Cal. April 22, 2011). Specifically, in Heller Ehrman, the Defendant brought a motion to dismiss the Debtor's fraudulent transfer claim on the ground that, inter alia, plaintiff had pled inconsistent facts within the same count. Id. at *6. The court denied the motion stating:
The Trustee attached this unpublished opinion to her opposition as Ex. "D".
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While Defendant seeks to dismiss or at least pin down Debtor on which of these alternative theories it relies, the court is satisfied that Debtor's alternate pleading here may survive the Motion. The development of the factual record will establish which theory prevaifs, and thus what defenses are available to defendant.
Id.
The Heller Erhman analysis is appropriate here because the Trustee has no first hand knowledge of the facts. The Trustee drafted the FAC to give clear notice of her alternative avoidance theories based upon the limited facts that she possesses. The factual inconsistency arises because the Trustee incorporated by reference into her second and third claims for relief all of the earlier allegations in the FAC. While the better practice is to incorporate by reference only the prior paragraphs that are pertinent to a particular count, the Court declines to dismiss based upon this pleading technicality. The FAC gives the Defendant has fair notice of the Trustee's alternative theories and the basic facts that support them. As in Heller Erhman, the development of the factual record will establish which theory prevails as to which transfer. The discovery may also reveal that some, or all, of the transfers are not avoidable under any theory.
Finally, the Court does not agree that the United States Supreme Court's holdings in Twombly and Iqbal overruled the prior case law permitting a plaintiff to plead alternative statements in a single count. In Twombly and Iqbal, the Supreme Court addressed the minimum pleading requirements to satisfy Rule 8(a)(2), but it did not address Rule 8(d). In discussing the function of Rule 8(d), the Wright & Miller treatise provides:
In contrast to common law and code practice, the federal rules recognized that inconsistency in pleadings does not necessarily mean dishonesty, and that frequently a party, after a reasonable inquiry and for proper purposes, must assert contradictory statements when he or she legitimately is in doubt about the factual background of the case .... Under Rule 8[(d)], a party may include inconsistent allegations in a pleading's statement of facts.5 Charles A. Wright & Arthur R. Miller, Fed. Prac. & Proc, § 1283 (3rd ed., Supp. 2011) (citing Henry v. Daytop, Village, Inc., 42 F.3d 89 (2d Cir. 1994)). This is a classic situation where the Trustee is legitimately in doubt of the factual background of the case. As in Heller Erhman, the Court is satisfied that the Trustee's alternative pleading should survive the motion to dismiss.
IV.
CONCLUSION
The Court reaffirms its tentative ruling to deny the Defendant's motion to dismiss the second and third claims for relief. The factual inconsistency is created only by virtue of the FAC's general incorporation of FAC ¶ 25 into the second and third claims for relief. While the better practice is to incorporate only those prior paragraphs that are pertinent to these claims, the Court declines to dismiss these claims for relief based upon this pleading technicality. The Court will prepare its own order.
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LOUISE DE CARL ADLER, JUDGE