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Post-Confirmation Committee for Small Loans, Inc. v. Innovate Loan Servicing Corporation

United States District Court, M.D. Georgia, Albany Division

January 30, 2015

POST-CONFIRMATION COMMITTEE FOR SMALL LOANS, INC., Plaintiff,
v.
INNOVATE LOAN SERVICING CORPORATION, et al., Defendants.

ORDER

W. LOUIS SANDS, Sr., District Judge.

Pending before the Court is Defendant Innovate Loan Servicing Corp.'s Motion for Judgment on the Pleadings (Doc. 30). For the reasons that follow, that Motion (Doc. 30) is DENIED.

FACTUAL BACKGROUND[1]

The Money Tree of Georgia, Inc. ("TMG"), Small Loans, Inc. ("SLI"), The Money Tree, Inc. ("TMT"), The Money Tree of Florida, Inc. ("TMF"), and The Money Tree of Louisiana, Inc. ("TML", collectively "the Debtors"), were engaged in the consumer finance business in Georgia, Alabama, Florida, and Louisiana, respectively. (Doc. 9 at ¶ 4.) The Debtors, who were insolvent since at least 2009, filed voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code on December 16, 2011, in the United States Bankruptcy Court for the Middle District of Alabama. ( Id. at ¶¶ 5 & 14.) The Debtors' creditors are primarily individual investors in Georgia. ( Id. at ¶ 13.) Plaintiff Post-Confirmation Committee for Small Loans, Inc., was formed pursuant to an Amended Joint Plan of Liquidation ("the Plan"), and has standing to bring any claims and causes of action held by the Debtors' estates. ( Id. at ¶ 5.) The Plan expressly preserved claims against Defendant Innovate Loan Servicing, Corp. ("Innovate"), a Texas corporation with its principal place of business in Texas. ( Id. at ¶¶ 5 & 6.)

Defendant Best Buy Autos of Bainbridge, Inc. ("Best Buy"), a Georgia corporation and subsidiary of TMG, was in the business of selling and financing automobiles to subprime borrowers. ( Id. at ¶¶ 7, 11 & 12.) Best Buy generated accounts receivable when it financed the purchase of automobiles by consumers, typically held the promissory notes, and collected the accounts in the ordinary course of its business. ( Id. at ¶ 11.) Best Buy financed its operations by borrowing cash from TMG, and owes TMG at least $16.97 million. ( Id. ) Best Buy and Innovate entered into a Purchase and Sale Agreement of Contracts, dated June 23, 2010 ("the 2010 Agreement"), pursuant to which Best Buy assigned accounts with a face value of at least $880, 000 in exchange for $749, 236 in cash. ( Id. at ¶ 15.) The actual value of the assigned accounts was substantially higher than either of those figures because the accounts bore an average interest rate above 21%. ( Id. ) The contract required

Best Buy to repurchase unpaid accounts. ( Id. ) Best Buy's management did not understand the import of the repurchase obligations when the 2010 Agreement was signed and, although management was advised against entering the 2010 Agreement by at least one third party, they would not have entered into that Agreement if they had understood the terms. ( Id. at ¶ 16.)

Best Buy and Innovate entered into a second agreement dated December 14, 2011 ("the 2011 Agreement"), pursuant to which Best Buy assigned accounts receivable with a face value of at least $5, 210, 339.97 in exchange for $4, 428, 788.98 in cash. ( Id. at ¶ 18.) The 2011 Agreement was executed two days prior to the Debtors' bankruptcy filing. ( Id. at ¶ 24.) As with the 2010 Agreement, the actual value was significantly higher than the face value or amount paid because the accounts bore an average interest rate above 19%. ( Id. at ¶ 18.) Under the 2011 Agreement, Best Buy assumed the same repurchase obligations contained in the 2010 Agreement. ( Id. )

Innovate conducted extensive due diligence and purchased the highest quality accounts owned by Best Buy. ( Id. at ¶ 21.) Those accounts were also secured by the vehicles' titles. ( Id. ) These actions by Innovate eliminated most of the risk associated with purchasing the referenced accounts. ( Id. ) Pursuant to the 2010 Agreement, Best Buy guaranteed nine monthly payments to Innovate by the account debtors. ( Id. at ¶ 22.) If any of those payments were not made on a particular account, Innovate could require Best Buy to repurchase that account. ( Id. ) Pursuant to the terms of the 2011 Agreement, Best Buy guaranteed three monthly payments or six biweekly payments to Innovate by the account debtors. ( Id. at ¶ 23.) If any of those payments were not made, Innovate could require Best Buy to repurchase that account. ( Id. ) As a result of the repurchase obligations, Best Buy was required to pay Innovate more than $1 million to repurchase accounts. ( Id. at ¶ 26.)

The Amended Complaint in this case, which was filed on February 26, 2014, seeks to set aside the 2010 and 2011 Agreements and the repurchase obligations contained in those Agreements as fraudulent transfers under Georgia's Fraudulent Transfer Act. ( Id. at ¶ 27.)

ANALYSIS

"Judgment on the pleadings under [Federal Rule of Civil Procedure 12(c)] is appropriate where there are no material facts in dispute, and judgment may be rendered by considering the substance of the pleadings and any judicially noticed facts." Horsley v. Rivera, 292 F.3d 695, 700 (11th Cir. 2002) (citing Hawthorne v. Mac Adjustment, Inc., 140 F.3d 1367, 1370 (11th Cir. 1998). "If upon reviewing the pleadings it is clear that the plaintiff would not be entitled to relief under any set of facts that could be proved consistent with the allegations, the court should dismiss the complaint." Horsley, 292 F.3d at 700 (citing White v. Lemacks, 183 F.3d 1253, 1255 (11th Cir. 1999). Accordingly, the Court, when reviewing a motion for judgment on the pleadings, must "accept the facts in the complaint as true and view them in the light most favorable to the nonmoving party." Ortega v. Christian, 85 F.3d 1521, 1524 (11th Cir. 1996) (citing Swerdloff v. Miami Nat'l Bank, 584 F.2d 54, 57 (5th Cir. 1978)).

I. Sufficiency of allegations

Innovate moves to dismiss the Committee's complaint for failing to state causes of action for constructive or actual fraud. (Doc. 30 at 12-22.) Innovate bases its argument on its contention that the Committee must meet the pleading requirements found at Federal Rule of Civil Procedure 9(b), not the less-stringent requirements of Rule 8(a). ( See id. ) The Committee argues that Rule 9(b) only applies to its ...


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