N.C. Business Court Rejects Novel Fraudulent Conveyance Defense Which Offered Up Assets of Allegedly Drained Entity.
The N.C. Business Court has issued three rulings this summer on the pleadings in Willard v. Barger, 19 CvS 182 (Davie County). See 2019 NCBC 42; 2019 NCBC 33; 2019 NCBC 30. Most recently, the Court granted Plaintiffs’ Rule 12(c) motion on a cleverly worded affirmative defense that attempted to navigate around Plaintiffs’ claims for fraudulent conveyance. See 2019 NCBC 42 at ¶¶4-5.
- The Business Court did not hesitate to grant judgment on an affirmative defense cast as a narrative that failed to meet what the Court viewed as the substance of Plaintiffs’ claim.
- The two proper methods to challenge the sufficiency of an affirmative defense are a motion for judgment on the pleadings under Rule 12(c) and a motion to strike under Rule 12(f).
- The Court rejected a conversion claim brought by a party that did not own the asset allegedly held improperly by the opponent.
The Complaint alleged a business arrangement under which Charles Willard and Tracy Barnes formed and owned Tracy Barnes Blimp Works, LLC (“Barnes Blimp Works”), a venture in which Willard would ultimately assume 100 percent ownership after Barnes died. After a disagreement and failed attempt to buy out Willard, allegedly, Barnes and a colleague impermissibly transferred the assets of Barnes Blimp Works to a new entity, Blimp Works, Inc. (“BW”), to Willard’s detriment.
Defendants asserted as an affirmative defense that after Barnes’ death, the Defendants offered to deliver to Willard the assets of Barnes Blimp Works which Willard claims were fraudulently converted. Moreover, Barnes Blimp Works was “hopelessly insolvent.”
Plaintiffs sought judgment on the defense under Rules 12(c) and 12(b)(6). The Court determined that Rule 12(b)(6) did not apply. But, Rule 12(c) was proper to challenge an affirmative defense (as is Rule 12(f)).
In granting the Plaintiffs judgment as to the defense, the Court noted that Defendants’ position “misses the point” of Plaintiffs’ claim that Barnes and his partner impermissibly transferred the assets of Barnes Blimp Works to an entity in which Plaintiff Willard had no interest. Id. at ¶¶ 10-11. Defendants’ heads I win, tails you lose offer of Barnes Blimp Works’ existing assets failed to confront, the Court said, that “Plaintiffs seek to recover from Defendants any assets that [it] previously possessed but which were fraudulently conveyed … without adequate consideration.” Id. at ¶11 (emphasis added).
Earlier in the year, the Court denied Plaintiffs’ Motion for a More Definitive Statement of Defendants’ Second Counterclaim (2019 NCBC 30) and granted Plaintiffs’ Motion to Dismiss Defendants’ Conversion claim (2019 NCBC 33).
In a May 14, 2019 order, the Court allowed a six-paragraph counterclaim to survive, which alleged that the decedent defendant had advanced in excess of $300,000 in loans to one of the Plaintiffs. Plaintiffs’ lament that the claim failed to allege an immediate right of payment or written evidence of the loan was unavailing, the Court found, under the liberal pleading requirements of Rule 8. 19 NCBC 30 at ¶¶ 4, 11. The fact that the Plaintiff answered the counterclaim contemporaneously with its motion to further define it, showed it “was able to sufficiently comprehend” the counterclaim. Id. at ¶11.
In a May 29, 2019 ruling, the Court dismissed what amounted to Defendants’ misdirected counterclaim for recovery of a 2014 Subaru automobile (19 NCBC 33). The decedent Defendant’s Estate moved to recover the car, but conceded in a pleading that the car was actually owned by Defendant BW. Id. at ¶12. The Court found it unavailing that the estate controlled all of the shares of BW. That, the Court said, “may give the Estate the practical ability to control BW’s affairs, including the disposition of BW’s assets, but ownership in BW’s shares does not equate to direct ownership in BW’s assets.” Id. at ¶14. Thus, it may be love that makes a Subaru a Subaru, but it is still undisputed title that allows you to claim it.
Brad Risinger is a partner in the Raleigh office of Fox Rothschild LLP. He maintains a commercial litigation practice that frequently involves business disputes before the North Carolina Business Court, and the state’s federal and state trial courts.