The debtor’s chapter 7 trustee filed an adversary proceeding to recover excessive compensation which she claims the debtor paid to an affiliate company, LTA Management, Inc., alleged to be owned by the debtor’s president, Norman D. Mason, his wife, and another insider. The defendants filed a motion to dismiss the complaint pursuant to Fed. R. Civ. P. 12(b)(6), which is made applicable to bankruptcy adversary proceedings by Bankruptcy Rule 7012.

Citing insufficient factual allegations to support the causes of action, the Court granted defendants' motion to dismiss the complaint as to Count 1 (turnover of estate property and accounting under Section 542), Count 3 (avoidance of voluntary conveyance under Va. Code Ann. § 55-81), Count 5 (avoidance of preferential transfers under Section 547), Count 8 (breach of fiduciary duty), Count 9 (aiding and abetting), Count 10 (breach of contract), and Count 12 (corporate waste) as the trustee failed to state a claim upon which relief could be granted. The Court partially granted the motion to dismiss as to Count 2 (avoidance of fraudulent transfers under Section 548) because insufficient facts were alleged beyond the mere recital of the elements of the cause of action -- the claims that the debtor was left with unreasonably small capital or that its principals intended to incur debts beyond the debtor's ability to pay. The Court also partially granted the motion as to Count 11 (conversion and money had and received). The court denied dismissal of Count 2 and Count 11 with regard to the rest of the claims.

Finding sufficient factual allegations to support the causes of action, the Court denied the motion to dismiss as to Count 4 (avoidance of fraudulent transfers under Va. Code § 55-80), Count 6 (avoidance of post-petition transfers), Count 7 (recovery under Section 550), Count 13 (objection to claims), and Count 14 (equitable subordination).