Kansas Penn Gaming, LLC v. HV Properties of Kansas LLC et al

Filing 32

MEMORANDUM AND ORDER denying 26 HVP's Motion to Dismiss. Signed by District Judge Richard D. Rogers on 6/19/2012. (meh)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS

KANSAS PENN GAMING, LLC,
Plaintiff,
vs.

Case No. 11-4155-RDR

HV PROPERTIES OF KANSAS LLC,;
BENTLEY INVESTMENTS OF
NEVADA LLC; GARY L. HALL;
STEPHEN G. VOGEL; ROSS VOGEL;
and TIM SHALLENBURGER,
Defendants.
MEMORANDUM AND ORDER
This is a diversity action brought by Kansas Penn Gaming, LLC
(KPG)

against

HV

Properties

of

Kansas

LLC

(HPV);

Bentley

Investments of Nevada, LLC (Bentley Investments); Gary L. Hall;
Stephen G. Vogel; Ross Vogel and Tim Shallenburger.

KPG asserts a

claim of fraudulent transfer in violation of the Kansas Uniform
Fraudulent Transfer Act (KUFTA), K.S.A. 33-201 et seq., against
HVP.

Kansas Penn further seeks a declaratory judgment that the

individual defendants are alter egos of HVP and therefore liable
for a fees judgment imposed by this court in an earlier case.
matter

is

presently

before

the

court

upon

the

This

individual

defendants’ motion to dismiss for failure to state a claim upon
which relief can be granted pursuant to Fed.R.Civ.P. 12(b)(6).
Factual Background/Allegations
This case arises from prior litigation between KPG and HVP.

In September 2007, KPG entered into a real estate sales contract
with HVP for the purchase of certain real estate with the intent of
building a casino on the land.

KPG obtained a warranty deed to the

real estate from HVP in exchange for $2.5 million.

The contract

between the parties provided that KPG would pay HVP another $37.5
million in two separate installments when certain contingencies
were

met.

KPG

ultimately

decided

Lawsuits were filed by both parties.

not

to

build

the

casino.

The real estate contract

provided that the prevailing party in any lawsuit arising from it
would be entitled to recover attorneys’ fees. The court eventually
granted judgment to KPG on July 23, 2010.

The court found the

contingencies in the real estate sales contract were not met and
HVP was not entitled to the remainder of payments due under the
contract. The court later granted a fees and expenses award to KPG
in an amount of approximately one million dollars.
Circuit affirmed both orders of this court.

The Tenth

Kansas Penn Gaming,

LLC v. HV Properties of Kansas, LLC, 662 F.3d 1275 (10th Cir. 2011).
In

August

2010,

the

defendants

purported

to

transfer

a

warranty deed of certain land located near the land that had been
sold to KPG to Bentley Investments.
member is Gary Hall.

Bentley Investments’ managing

The warranty deed was purportedly entered as

of July 16, 2012, but was signed by members of HVP and notarized on
August 9 and 10, 2010.

The purported entry of the warranty deed

was only four days after KPG filed its motion for attorneys’ fees

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in the underlying action. The warranty deed was recorded on August
17, 2010.

Stephen Vogel has testified that the land in question

was worth more than $500,000 at the time it was transferred.

He

also testified that (1) HVP received no consideration for this
conveyance; (2) this was the final asset of any substantial value
owned by HVP; and (3) following this conveyance, HVP was unable to
pay its debts and was insolvent since the only remaining asset
anywhere was a bank account in Missouri with under $200 on deposit.
KPG’s complaint contains two counts.

In the first count, KPG

alleges that the transfer of the land from HVP to Bentley was
fraudulent under K.S.A. 33-204(a)(1) because HVP made the transfer
with

actual

intent

to

hinder,

delay,

collection of the fees judgment.

or

defraud

KPG

in

its

KPG suggests that the following

factors, inter alia, support a finding of actual intent:

(1) the

transfer of the land was to an insider, i.e., Gary Hall, a member
of HVP and Bentley Investments; (2) Hall constructively retained
possession of the land before and after the dispute; (3) the land
comprised the overwhelming majority of HVP’s assets; (4) HVP
received no consideration for the transfer of the land; (5) HVP was
insolvent at the time of the transfer or became insolvent as a
result of the transfer; and (6) the transfer was completed shortly
after KPG filed a motion seeking fees and expenses under the real
estate sales contract.

In the alternative, KPG asserts that the

transfer of the land is fraudulent under K.S.A. 33-204(a)(2) and/or

3

K.S.A.

33-205(a)

because

HVP

did

not

receive

a

reasonably

equivalent value in exchange for the transfer of the land and HVP
reasonably believed or should have reasonably believed that it
would incur debts beyond HVP’s ability to pay them as they became
due.
In the second count, KPG seeks a declaratory judgment that the
individual defendants are the alter egos of HVP.

In support of

this count, KPG alleges that individual defendants (1) own, or have
owned, all membership interests in HVP since its formation and have
exercised complete and unfettered domination and control over HVP;
(2) have used HVP to promote fraud and injustice by, inter alia,
causing the transfer of the land to another entity controlled by
Hall with the actual intent to hinder, delay, or defraud KPG in its
collection of a monetary judgment; and (3) have relied upon the
separateness of the HVP corporate entity as a basis to avoid
satisfying the fees judgment, and have required KPG to engage in
additional litigation to pursue satisfaction of the fees judgment.
KPG therefore requests that the court pierce the corporate veil and
hold the individual defendants responsible for the fees judgment.
In the instant motion, the individual defendants contend that
KPG has failed to sufficiently allege facts to support its claims
against them.

They argue that the complaint contains few specific

allegations of acts by them.

They also argue that KPG has failed

to plead fraud with the specificity required for its fraudulent

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conveyance or alter ego claims.
Standard of Review
A pleading that states a claim for relief must contain a short
and plain statement of the claim showing that the pleader is
entitled to relief.

Fed.R.Civ.P. 8(a)(2).

“Rule 8 does not

empower respondent to plead the bare elements of his cause of
action, affix the label ‘general allegation,’ and expect his
complaint to survive a motion to dismiss.”

Ashcroft v. Iqbal, 556

U.S. 662, 687 (2009). “To survive a motion to dismiss, a complaint
must contain sufficient factual matter, accepted as true, to ‘state
a claim to relief that is plausible on its face.’” Id. at 678
(quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A
claim has facial plausibility when the plaintiff pleads factual
content that allows the court to draw the reasonable inference that
the defendant is liable for the misconduct alleged.”

Id.

For the

purposes of a motion to dismiss, a court assumes all factual
allegations in the complaint are true, but does not assume the same
for legal conclusions. Id. “[D]etermining whether a complaint
states

a

plausible

claim

is

context-specific,

requiring

the

reviewing court to draw on its experience and common sense.”

Id.

at 663-664.
Rule 9(b) requires parties asserting fraud to “state with
particularity the circumstances constituting fraud or mistake.”
Fed.R.Civ.P.

9(b).

“Malice,

intent,

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knowledge,

and

other

conditions of a person’s mind may be alleged generally.”

Id. Rule

9 “merely excuses a party from pleading discriminatory intent under
an elevated pleading standard. It does not give him license to
evade the less rigid-though still operative-strictures of Rule 8.”
Iqbal, 556 U.S. at 686-87.

“[T]he general ‘short and plain

statement of the claim’ mandate in Rule 8(a) should control the
second sentence of Rule 9(b).”
require

courts

to

credit

a

Id. at 687.
complaint’s

Rule 9(b) “does not

conclusory

statements

without reference to its factual context.” Id. at 665.

The

complaint must “set forth the time, place and contents of the
failed representation, the identity of the party making the false
statements and the consequences thereof.”

Schwartz v. Celestial

Seasonings, Inc., 124 F.3d 1246, 1252 (10th Cir. 1997) (quoting
Lawrence Nat’l Bank v. Edmonds, 924 F.2d 176, 180 (10th Cir. 1991)).
KUFTA
KUFTA defines a transfer made by a debtor to be fraudulent
concerning a creditor if it is made with actual intent to hinder,
delay, or defraud any of the debtor’s creditors.

K.S.A. 33-

204(a)(1).

In determining intent, the following factors may be

considered:

1) the transfer or obligation was to an insider; (2)

the

retained

debtor

possession

or

control

of

the

property

transferred after the transfer; (3) the transfer or obligation was
disclosed or concealed; (4) before the transfer was made or
obligation was incurred, the debtor had been sued or threatened

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with suit; (5) the transfer was of substantially all the debtor’s
assets; (6) the debtor absconded; (7) the debtor removed or
concealed assets; (8) the value of the consideration received by
the debtor was reasonably equivalent to the value of the asset
transferred or the amount of the obligation incurred; (9) the
debtor was insolvent or became insolvent shortly after the transfer
was made or the obligation was incurred; (10) the transfer occurred
shortly before or shortly after a substantial debt was incurred;
and (11) the debtor transferred the essential assets of the
business to a lienor who transferred the assets to an insider of
the debtor.

K.S.A. 33-204(b).

The parties have disagreed on whether the heightened pleading
requirements of fraud under Rule 9(b) apply to KUFTA claims.

KPG,

relying on a case from a bankruptcy court in New York interpreting
Oklahoma law and a Georgia federal case interpreting Georgia law,
argues that the pleading requirements of Rule 9(b) do not apply to
fraudulent transfer claims.
(Bankr.S.D.N.Y.
Holdings,

770

See In re Tronox Inc., 429 B.R. 73

2010);

Akanthos

F.Supp.2d

1315

Capital

(N.D.Ga.

Mgmt.
2001).

v.

Compucredit

HVP,

however,

suggests that at least one Kansas federal district judge has
concluded that Rule 9(b) does apply to claims under KUFTA.

See

Jersey Realty and Inv. Co. v. Emco Mfg. Co., Inc., 187 F.R.D. 649
(D.Kan. 1999).

This court is inclined to agree with Judge Vratil

that Rule 9(b) does apply to KUFTA claims.

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See also In re Crescent

Oil Co., Inc., 2011 WL 3878377 at * 1(Bankr.D.Kan. Aug. 31, 2011).
The court has thoroughly reviewed KPG’s fraudulent transfer
claim.

The court is persuaded that KPG has adequately alleged

fraud as required for a KUFTA claim.

KPG has provided the

necessary who, what, when and where of the alleged fraudulent
conveyance.

KPG has indicated that the individual defendants each

signed and notarized a warranty deed that transferred certain
property--the only valuable asset belonging to HVP--without any
consideration to an entity controlled by one of the individual
defendants. KPG has further alleged that the individual defendants
did so after they lost a lawsuit to KPG and were confronted with a
contractual fees request by KPG.

These allegations are sufficient

to assert a claim under KUFTA based upon the factors set forth in
K.S.A. 33-204(b).
Alter Ego
Under Kansas law, “[t]he doctrine of alter ego is used to
impose liability on the individual who uses a corporation merely as
an instrumentality to conduct his own business. Such liability
arises from fraud or injustice perpetrated . . . on third persons
dealing with the corporation.” Sampson v. Hunt, 233 Kan. 572, 579,
665 P.2d 743, 751 (1983). “[P]ower to pierce the corporate veil is
to be exercised reluctantly and cautiously,” with each case resting
on its unique facts.

Id.

The Kansas Supreme Court has identified

the following factors for consideration:

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An examination of the cases discloses that some of the
factors considered significant in justifying a disregard
of the corporate entity are: (1) Undercapitalization of
a one-man corporation, (2) failure to observe corporate
formalities, (3) nonpayment of dividends, (4) siphoning
of corporate funds by the dominant shareholder, (5)
nonfunctioning of other officers or directors, (6)
absence of corporate records, (7) the use of the
corporation as a facade for operations of the dominant
stockholder or stockholders, and (8) the use of the
corporate entity in promoting injustice or fraud.
Amoco Chemicals Corp. v. Bach, 222 Kan. 589, 567 P.2d 1337, 1341-42
(1977).
The parties again disagree on whether the heightened pleading
requirements of Rule 9(b) apply to alter ego claims. KPG points to
a Kansas federal case which states: “[A]llegations of alter ego
liability, even when premised on claims of potentially fraudulent
conduct, are governed by the liberal notice standard of Rule 8(a)
rather than the particularity standard contained in Rule 9(b).”
Wiebe v. Benefits Mgmt. Corp., 1993 WL 246096 at * 1 (D.Kan. June
17, 1993) (citations omitted).

HVP suggests that Wiebe should not

be followed because it was pre-Twombly.
The court finds it unnecessary to resolve this issue because
we find that KPG has met the standards required by both Rule 8(a)
and Rule 9(b).

KPG has set forth sufficient allegations to

establish the application of the alter ego theory. KPG has alleged
that the individual defendants are the sole owners of HVP, that
defendant Hall controls Bentley, and that each of the individual
defendants “have exercised complete and unfettered domination and

9

control” over HVP.

Such allegations adequately present the alter

ego claim under Rule 8(a) and Rule 9(b).

The totality of the

allegations provides the who, what, when and where that are
necessary.
In sum, the court shall deny HVP’s motion to dismiss.
IT IS THEREFORE ORDERED that the individual defendants’ motion
to dismiss (Doc. # 26) be hereby denied.
IT IS SO ORDERED.
Dated this 19th day of June, 2012 at Topeka, Kansas.
s/Richard D. Rogers
United States District Judge

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