Rice v. Luken Communications LLC et al

Filing 111

OPINION AND ORDER denying 105 Motion to Dismiss for Lack of Jurisdiction. Trial in this matter remains set as scheduled for Monday, June 17, 2013. Signed by Judge Kristine G. Baker on 6/7/13. (kpr)

IN THE UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF ARKANSAS
WESTERN DIVISION
M. RANDY RICE, as Chapter 7 Trustee
v.

PLAINTIFF

Case No. 4:11CV00386 KGB

LUKEN COMMUNICATIONS, LLC

DEFENDANT

OPINION AND ORDER
Before the Court is the motion to dismiss for lack of subject matter jurisdiction filed by
defendant Luken Communications, LLC (“Luken Communications”) (Dkt. No. 105). 1 This
motion to dismiss reasserts certain arguments raised by Luken Communications in its first
motion in limine and to strike and request for emergency hearing (Dkt. No. 91). M. Randy Rice,
Chapter 7 trustee of Equity Media Holdings Corporation (“Equity Media”) and its jointly
administered subsidiary debtors, including C.A.S.H. Services, Inc. (“C.A.S.H.”), filed a response
to the first motion in limine (Dkt. No. 107).
Trustee Rice at the time of filing the operative complaint was the Chapter 7 trustee of
Equity Media and its jointly administered subsidiary debtors, including C.A.S.H. He initiated
this adversary proceeding in bankruptcy court to avoid and recover an alleged preferential and
fraudulent transfer of an interest in property from the transferors or transferor Equity Media
and/or C.A.S.H. to defendant Luken Communications.

On June 24, 2008, Equity Media,

C.A.S.H., and Retro Programming Services, Inc., on the one hand, and Luken Communications,
on the other hand, closed the Stock Purchase Agreement. 2 Trustee Rice seeks to avoid the RTN

1

This motion was filed on June 4, 2013. Although he has responded to the substance of the
arguments by responding to the first motion in limine, Trustee Rice has not responded to the
motion to dismiss, and his deadline for doing so is not until after the trial is scheduled to begin.
No party has moved for a continuance of the scheduled trial date.
2
The Court will refer to this transaction as the “RTN Transfer,” as the parties have.

Transfer on the basis that the purchase by Luken Communications constituted a preference under
11 U.S.C. § 547 and constituted a fraudulent conveyance pursuant to 11 U.S.C. § 548 and the
Uniform Fraudulent Transfer Act, Ark. Code Ann. § 4-59-201 et seq. Trustee Rice also seeks to
recover the alleged preferential and fraudulent transfer under 11 U.S.C. § 550.
The burden of proving subject matter jurisdiction rests on the plaintiff.

Hoekel v.

Plumbing Planning Corp., 20 F.3d 839, 840 (8th Cir. 1994). To survive a challenge pursuant to
Rule 12(b)(1) of the Federal Rules of Civil Procedure for lack of subject matter jurisdiction, the
pleadings must sufficiently demonstrate a basis for the subject matter jurisdiction. Bowe v.
Northwest Airlines, Inc., 974 F.2d 101, 103 (8th Cir. 1992). In certain circumstances, the Court
may consider matters outside the pleadings in making subject matter jurisdiction determinations.
Drevlow v. Lutheran Church, 991 F.2d 468, 470 (8th Cir. 1993); Osborn v. United States, 918
F.2d 724, 729 (8th Cir. 1990). When considering a challenge to subject matter jurisdiction
pursuant to Rule 12(b)(1), the Court must assume the factual allegations provided by the plaintiff
are true. Wheeler v. St. Louis Southwestern Ry. Co., 90 F.3d 327, 329 (8th Cir. 1996). For these
reasons, the Court should dismiss plaintiff’s cause of action for lack of subject matter jurisdiction
sparingly and cautiously and only when no basis for subject matter jurisdiction exists. Wheeler,
90 F.3d at 329; Bowe, 974 F.2d at 103; Huelsman v. Civic Ctr., Corp., 873 F.2d 1171, 1174 (8th
Cir. 1989).
In moving to dismiss for lack of subject matter jurisdiction, Luken Communications
characterizes the present matter as “an action by a chapter 7 trustee, on behalf of a debtor
transferor, for avoidance and recovery, pursuant to statutory authority under Title 11 of the
United States Code, including § 548(a)(1)(B)” (Dkt. No. 105, at 1). Luken Communications
asserts that actions pursuant to 11 U.S.C. § 548(a)(1)(B) are granted only to a bankruptcy trustee

2

and may be pursued only to recover a transfer by a debtor. Luken Communications contends
that, on November 19, 2012, Trustee Rice filed his Report of No Distribution, requested to be
discharged from his duties as trustee in the C.A.S.H. bankruptcy, and was relieved of his duties
as trustee for C.A.S.H. See Docket Sheet, Case No. 4:08-bk-17974. Luken Communications
asserts that, because there was neither a debtor nor a trustee related to the former C.A.S.H. as of
the date it filed its motion to dismiss for lack of subject matter jurisdiction, Trustee Rice lacks
authority to pursue a cause of action on behalf of C.A.S.H. Luken Communications also asserts
that Equity Media had no ownership interest in the asset transferred by C.A.S.H. to Luken
Communications and that, therefore, standing on behalf of Equity Media does not lie without the
association of C.A.S.H.
Trustee Rice responds by noting that he has moved to reopen C.A.S.H.’s bankruptcy and
that he also is seeking to recover the RTN Transfer in his capacity as Chapter 7 trustee of Equity
Media. As an initial matter, the Court notes that the bankruptcy court entered an order reopening
case and instructing appointment of trustee in the C.A.S.H. bankruptcy, determining prior to
entering the order that no notice or hearing was appropriate under the circumstances set out in
the motion to reopen the case. See Docket Sheet, Case No. 4:08-bk-17974.
Trustee Rice also asserts that, in addition to pursuing this lawsuit in his capacity as
Chapter 7 trustee of C.A.S.H., he has always maintained he can alternatively recover in his
capacity as Chapter 7 trustee of Equity Media. Regardless of the language used in the Stock
Purchase Agreement between Equity Media, C.A.S.H., and Luken Communications, Trustee
Rice maintains that “all of the consideration benefitted Equity Media. If the Trustee is able to
establish that RTN was in substance ‘an interest of [Equity Media] in property,’ see 11 U.S.C. §

3

548(a)(1), then he can recover the RTN Transfer in his capacity as chapter 7 trustee of Equity
Media” (Dkt. No. 107, at 9).
Given the applicable law, the state of the C.A.S.H. bankruptcy at this time, and the
allegations made by Trustee Rice in the operative complaint and in response to arguments that
this Court lacks subject matter jurisdiction, the Court denies Luken Communications’s motion to
dismiss for lack of subject matter jurisdiction (Dkt. No. 105). Trial in this matter remains set as
scheduled for Monday, June 17, 2013.
SO ORDERED this the 7th day of June, 2013.

_____________________________
Kristine G. Baker
United States District Judge

4