In re Health Diagnostic Laboratory, Inc.

Case No. 15-32919 (KRH)

Adv. Pro. No. 16-03271 (KRH)

SUMMARY OF LIQUIDATING TRUSTEE’S RESPONSES TO MOVANTS’ 

ARGUMENTS IN SUPPORT OF THEIR MOTIONS TO DISMISS

This chart summarizes the arguments in the Movants’ motions to dismiss and/or corresponding memoranda of support (each a

“MTD,” and collectively, “MTDs”) filed in connection with the Liquidating Trustee’s Complaint [Adv. Pro. No. 16-03271 Dkt No. 

1], as well as the arguments in the Movants’ reply briefs in support of the MTDs (each a “Reply”) and the Liquidating Trustee’s 

responses to the arguments as reflected in the Liquidating Trustee’s Omnibus Opposition to Motions to Dismiss Complaint

(“Opposition”) [Adv. Pro. No. 16-03271 Dkt No. 221].1

 

1 Capitalized terms not otherwise defined herein shall have the meaning ascribed to them in the Opposition. 

Docket 

No.

Movant Movant’s Arguments in Support of

Motion to Dismiss

Response in Opposition to Movant’s 

Arguments by Liquidating Trustee

MTD

Dkt 

No. 76

Reply

Dkt 

No. 

253

Patrick W. Colberg, 

Nicole Finn,

Leigha Stream,

EELLS Consulting, 

Inc., Medcentric, 

LLC (collectively, 

“Colberg 

Defendants”)

 State law claims in Counts 65-70, 72-73 

should be dismissed for lack of postconfirmation subject matter jurisdiction.

Colberg Defendants MTD at 17-28.

 Claims in Counts 37-46, 52, 65-70, 72-73 

should be dismissed as against Colberg, 

Finn and Stream as beneficiaries of a 

release in Section 3.1 of the True Health 

Asset Purchase Agreement. Colberg 

Defendants MTD at 28-33; Colberg 

Defendants Reply at 2-3. Colberg, Finn 

and Stream are also protected by the 

covenant not to sue and an injunction 

barring and enjoining claims against 

them. Colberg Defendants Reply at 4-14. 

 The Court has subject matter 

jurisdiction over the enumerated Counts 

because there is a “close nexus” of the 

claims to the Cases and the Plan. See 

Opp. ¶¶ 32-45.

 The True Health Seller’s Release does 

not apply to the creditor causes of 

action because the Trust holds various 

claims and causes of action that did not 

belong to the Sellers at the time of the 

entry of the Sale Order, and were 

therefore not released thereby. See 

Opp. ¶¶ 65-68. As to such claims, 

including claims of Assigning 

Creditors, the Liquidating Trustee does 

not act in his capacity as successor to 

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Colberg, Finn and Stream were 

employees of THD at the time of the 

filing of the Omnibus Complaint. 

Colberg Defendants Reply at 14-15.

 Omnibus Complaint fails to meet the 

particularity requirement of Rule 9(b) of 

the Federal Rules of Civil Procedure.

Colberg Defendants MTD at 34-35.

 The Omnibus Complaint fails to identify 

transfers alleged to be fraudulent as to 

EELLS Consulting and Medcentric in 

Counts 37-46 such that these defendants 

can formulate a defense. Colberg 

Defendants MTD at 34-35.

 Preferential transfer claim in Count 52 is 

insufficiently pled by not including 

allegations as to specific transfers 

received by EELLS Consulting,

Medcentric and other BlueWave

transferee Defendants within 90 days of 

the Petition Date on account of 

antecedent debt as creditors of the estate. 

Colberg Defendants MTD at 35-37.

 There is no allegation that EELLS 

Consulting, Medcentric or any of the 

other BlueWave Transferee Defendants 

were insiders of the Debtors. Colberg 

Defendants MTD at 36.

the Debtors, but instead as a 

representative of the Trust appointed 

pursuant to the Plan to administer its 

assets for the benefit of all creditors. Id.

 The Omnibus Complaint complies with 

Rule 9(b) and meets the requisite 

pleading requirements for avoidance of 

fraudulent transfers. See Opp. ¶¶ 21-25, 

28-31.

 The Movants possess the knowledge 

regarding the subject transactions. The

Liquidating Trustee properly alleges 

transfers were made to the Movants, 

and will obtain specific information as 

to the transfers through discovery. See

Opp. ¶¶ 73-75.

 The Liquidating Trustee has sufficiently 

pled that Colberg (including EELLS 

Consulting, Medcentric, and other 

BlueWave Transferee Defendants) were 

initial, immediate and/or mediate 

transferees of the One Year Preferential 

Transfers under Section 550 of the 

Bankruptcy Code. See Opp. ¶ 133.

 The Movants are sufficiently alleged to 

have been initial, immediate and/or 

mediate transferees of the One Year 

Preferential Transfers under Section 

550 of the Bankruptcy Code. See Opp.

¶¶ 135-136.

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3

MTD 

Dkt 

No. 79

Reply 

Dkt 

No. 

261

Leah Bouton and 

additional 

defendants listed on 

Exhibit A attached 

to Bouton 

Defendants’ Motion 

to Dismiss [Dkt. 

No. 78] 

(collectively, 

“Bouton 

Defendants”)

 The Liquidating Trustee has failed to 

identify the Assigning Creditors or the 

basis on which they have a valid factspecific cause of action against the 

Bouton Defendants, falling short of 

requirements in Twombly and Iqbal.

Bouton Defendants MTD at 12-14; 

Bouton Defendants Reply at 4-5. The 

Liquidating Trustee seeks to apply an 

outdated standard of review for Rule 

12(b)(6) Motions. Bouton Defendants 

Reply at 3-4. 

 Claims for assumpsit and unjust 

enrichment in Counts 65 and 66 should be 

dismissed because the Liquidating 

Trustee fails to allege the benefits each 

Bouton Defendant obtained from a 

particular Assigning Creditor, the 

knowledge of the benefit or expectation

and/or promise to repay same, as well as 

what benefits each of the Bouton 

Defendants accepted or retained without 

paying for their value. Bouton Defendants 

MTD at 14-17; Bouton Defendants Reply 

at 7-8.

 Claims for intentional and constructive 

fraud in Counts 67 and 68 should be 

dismissed for failure to plead with 

particularity as required by Rule 9(b) of 

the Federal Rules of Civil Procedure.

Bouton Defendants MTD at 17-21.

 Alleged fraud claims of the Assigning 

Creditors (Counts 67 and 68) are barred 

 The identity of the Assigning Creditors 

can be ascertained from the Plan and 

related pleadings. See Opp. ¶26. The 

Creditor Causes of Action and facts 

supporting same are identified in the 

Omnibus Complaint. Id. ¶27. Rule 9 

standard is different for third parties 

such as estate representatives, and the 

Omnibus Complaint complies with the 

standard applicable to the Liquidating 

Trustee. Id. ¶¶ 21-31.

 The Liquidating Trustee has met his 

pleading obligations with respect to 

Counts 65 and 66, and has sufficiently 

pled the details of all transfers. See 

Opp. ¶¶ 143-155.

 The Liquidating Trustee has met the 

pleading requirements of Rule 9(b) as 

applied to third parties, such as estate 

representatives. See Opp. ¶¶ 21-23, 28-

31.

 The Movants’ affirmative defense is 

premature. See Opp. ¶ 189. A 

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by Virginia’s two-year statute of 

limitations. Bouton Defendants MTD at

19-21.

 Elements of claims in Counts 69 and 70 

for tortious interference with contracts, 

contract expectancy, prospective business 

relationships and the economic advantage 

of the Assigning Creditors are pled on 

conclusory basis and should be dismissed.

Bouton Defendants MTD at 21-23.

Regardless of which state law applies to 

the claims of tortious interference, 

tortious interference allegations do not 

measure up to the Twombly and Iqbal

standard. Bouton Defendants Reply at 5-

7.

 Common law and statutory business 

conspiracy in Counts 72 and 73 are pled 

on conclusory basis and should be 

dismissed. Bouton Defendants MTD at 

23-25.

 Because the conspiracy claims are based 

on the torts of fraud and intentional 

interference with contract/business 

limitations period cannot be applied in 

this case until the nature and timing of 

the transactions are clarified and it is 

determined whether there existed a 

unified fraudulent scheme or whether 

the statutory period was tolled. Id. ¶¶ 

188-196. Nor have Movants proven that 

Virginia statute of limitations law 

applies here; assigned claims arise 

under many other states’ laws (e.g., PA 

and CT, with longer limitations periods 

and well-established tolling doctrines).

 Claims for tortious interference are 

sufficiently stated under the laws of 

Virginia, Pennsylvania and 

Connecticut. See Opp. ¶¶ 168-177.

 The Omnibus Complaint contains 

detailed factual allegations supporting 

claims for common law conspiracy and 

for violation of the Virginia Business 

Conspiracy Act. See Opp. ¶¶ 160-167.

 The Omnibus Complaint sufficiently 

states claims for fraud and tortious 

interference, as well as conspiracy and 

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expectancies, which fail to state a valid 

claim, conspiracy claims must fail as 

well. Bouton Defendants MTD at 25.

 Pursuant to Va. Code §8.01-26, tort 

claims the Liquidating Trustee asserts are 

not assignable and are, therefore, barred.

Bouton Defendants MTD at 25-26; 

Bouton Defendants Reply at 8-9.

 All actions against the Released 

Defendants should be dismissed pursuant 

to the release in the True Health Asset 

Purchase Agreement. Bouton Defendants 

MTD at 26-30.

 The Liquidating Trustee lacks standing to 

assert claims on behalf of the Assigning 

Creditors because an absolute assignment 

was not obtained. Bouton Defendants 

MTD at 30-34.

violation of the Virginia Business 

Conspiracy Act. See Opp. ¶¶ 28-31, 

160-167, 168-177.

 The assignment to the Liquidating 

Trustee is unconditional and the

Assignment Agreements executed by 

the Assigning Creditors are governed 

by New York law. See Opp. ¶¶ 57, 64.

 The True Health seller’s release does 

not apply to the creditor causes of 

action. See Opp. ¶¶ 65-68.

 The Liquidating Trustee has standing to 

assert claims of Assigning Creditors 

pursuant to the unconditional 

assignment of their claims to the Trust 

and In re Bogdan, 414 F.3d 507 (4th 

Cir. 2005). See Opp. ¶¶ 57-63.

MTD 

Dkt 

No. 

100

Reply 

Dkt 

No. 

260

JP Cornwell, Inc. 

and Jeffrey 

“Boomer” Cornwell 

(collectively, 

“Cornwell”)

 State law claims in Counts 65-70, 72-73 

should be dismissed as to Mr. Cornwell 

for lack of subject matter jurisdiction.

Cornwell MTD at 7-8; Cornwell Reply at 

7. 

 The Omnibus Complaint is a shotgun 

pleading. Cornwell MTD at 8. 

 The Court has subject matter 

jurisdiction over the enumerated Counts 

because there is a “close nexus” of the 

claims to the Cases and the Plan. See 

Opp. ¶¶ 32-45.

 The Omnibus Complaint satisfies Rule 

8 and is necessarily lengthy and 

complex due to the systemic and 

multifarious nature of HDL’s fraudulent 

scheme. See Opp. ¶¶ 10-20.

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 The Omnibus Complaint does not comply 

with Rules 8(a)(2), 9(b), 10(b), 20(a)(2)

of the Federal Rules of Civil Procedure, 

such that the deficiencies warrant 

dismissal of the Omnibus Complaint, or 

in the alternative, severance of claims into 

separate, manageable adversary 

proceedings. Cornwell MTD at 8-9, 19-

20; Cornwell Reply at 3-7 (arguing noncompliance with Rules 8, 9 and 20) and 

12-13. The Assigning Creditor Counts are 

not assignable under Virginia law and 

enforcing the assignment would violate 

the state’s public policy. Cornwell Reply 

at 8-10.

 The Omnibus Complaint should be 

dismissed as to Mr. Cornwell because

counts in which he is named (Counts 65-

66 (assumpsit and unjust enrichment), 67-

68 (actual and constructive fraud), 69-70 

(tortious interference with contract and 

business expectancy), 72-73 (common 

law conspiracy and statutory business 

conspiracy)) fail to allege facts sufficient 

to state a claim upon which relief can be 

granted. Cornwell MTD at 9-16; 

Cornwell Reply at 10.

 The Omnibus Complaint should be 

dismissed as to Cornwell, Inc. as a 

BlueWave Transferee Defendant because 

counts in which it is named (Counts 37-

46 (fraudulent conveyances), 52 

(avoidance of preferential transfers), and 

Count 55 (trust fund doctrine)) fail to 

 The Omnibus Complaint complies with 

Rules 8, 9, 10 and 20 and cannot be 

severed into separate adversary 

proceedings given its complexity. See 

Opp. ¶¶ 10-20; see also fn. 5, 

incorporating [Adv. 16-03271 Dkt. Nos. 

91, 191].

 The Omnibus Complaint sufficiently 

states the claims in Counts 65-70, 72-23

as to all defendants. See Opp. ¶¶ 28-31, 

143-155, 160-167, 168-177.

 The Omnibus Complaint sufficiently 

states the claims in Counts 37-46, 52 

and 55 as to all defendants. See Opp. ¶¶

69-117, 129-139, 223-229.

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allege facts sufficient to state a claim 

upon which relief can be granted.

Cornwell MTD at 16-18; Cornwell Reply 

at 10-12.

 The Omnibus Complaint should be 

dismissed as to Cornwell, Inc. as a Major 

Sales Contractor Defendant because the 

counts in which it is named (Counts 55 

(trust fund doctrine), 65-66 (assumpsit 

and unjust enrichment), 67-68 (actual and 

constructive fraud), 69-70 (tortious 

interference with contract and business 

expectancy), and 72-73 (common law 

conspiracy and statutory business 

conspiracy)) fail to allege facts sufficient 

to state a claim upon which relief can be 

granted. Cornwell MTD at 18-19.

 The Omnibus Complaint sufficiently 

states the claims in Counts 55, 65-70 

and 72-73 as to all defendants. See Opp. 

¶¶ 21-23, 28-31, 143-155, 160-167, 

168-177, 223-229.

MTD 

Dkt 

No. 

102

Scott Mallory (“S.

Mallory”)

 Count 51 (avoidance of preferential 

transfers) should be dismissed as to Mr. 

Mallory because the Liquidating Trustee 

seeks to recover transfers that are less 

than the minimum amount established by 

law in Bankruptcy Code Section 

547(c)(9). S. Mallory MTD at 4-5.

 To the extent Count 52 (avoidance of 

preferential transfers to insiders) can be 

interpreted to include Mr. Mallory, this 

Count should be dismissed as to Mr. 

Mallory because the transfer to Mr. 

Mallory is only indicated on Exhibit E. 

Even if the Liquidating Trustee intended 

 In addition to be named as an initial 

transferee, Mr. Mallory is named as an 

immediate or mediate transferee of the 

90 Day Preferential Transfers and as a 

beneficiary of the One-Year Preferential 

Transfers. As such, the total preference 

claims against Mr. Mallory exceed the 

statutory limit of Section 547(c)(9). See

Opp. ¶ 134.

 In addition to be named as an initial 

transferee, Mr. Mallory is named as an 

immediate or mediate transferee of the 

90 Day Preferential Transfers and as a 

beneficiary of the One-Year Preferential 

Transfers. As such, the total preference 

claims against Mr. Mallory exceed the 

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to include Mr. Mallory in Count 52, this 

count should be dismissed as to Mr. 

Mallory because the statutory amount 

listed on Exhibit E is less than the 

minimum amount established by law in 

Bankruptcy Code Section 547(c)(9). S. 

Mallory MTD at 5-6.

 Mr. Mallory adopts and incorporates the 

motions to dismiss of all other defendants 

in this adversary proceeding to the extent 

those arguments are applicable to Mr. 

Mallory. S. Mallory MTD at 6. 

statutory limit of Section 547(c)(9). See 

Opp. ¶ 134.

 To the extent any other arguments are 

applicable to Mr. Mallory, they are 

addressed in ¶¶ 1-237 of the 

Opposition. 

MTD 

Dkt 

No. 

104

Reply 

Dkt 

No. 

263

BlueWave

Defendants as 

defined in Motion to 

Dismiss of 

Defendants 

BlueWave

Healthcare 

Consultants, Inc. et 

al. Pursuant to Rule 

12(b)(6) [Dkt. No. 

103]

 The Omnibus Complaint is a shotgun 

pleading, which fails to satisfy the 

requirements of Rule 8(a)(2) of the 

Federal Rules of Civil Procedure.

BlueWave Defendants MTD at 1, 27-30; 

BlueWave Defendants Reply at 1-4.

 The Omnibus Complaint does not comply 

with Rule 9(b) of the Federal Rules of 

Civil Procedure due to the improper 

group pleading of the fraudulent 

conveyance claims based on actual fraud.

BlueWave Defendants MTD at 9.

 The Liquidating Trustee’s actual 

fraudulent conveyance claims fail 

because he fails to sufficiently identify 

how HDL defrauded its creditors.

BlueWave Defendants MTD at 10-11; 

BlueWave Defendants Reply at 4.

 The Omnibus Complaint satisfies Rule 

8 and is necessarily lengthy and 

complex due to the systemic and 

multifarious nature of HDL’s fraudulent 

scheme. See Opp. ¶¶ 10-20.

 Rule 9 standard is different for third 

parties such as estate representatives, 

and the Omnibus Complaint complies 

with the standard applicable to the 

Liquidating Trustee. Id. ¶¶ 21-24, 28-

31.

 The Liquidating Trustee properly 

alleges all elements for avoidance of 

intentional fraudulent transfers, alleging 

badges of fraud and facts directly 

evidencing HDL’s illegal and 

fraudulent scheme, and its use of the 

various transfers to perpetuate and 

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 The Liquidating Trustee’s actual 

fraudulent conveyance claims fail 

because the Liquidating Trustee does not 

sufficiently allege HDL’s fraudulent 

intent through badges of fraud or through 

the theory of dominion or control over 

HDL by the HDL Board of Directors and 

conspiracy with the BlueWave

Defendants. BlueWave Defendants MTD 

at 11-16; BlueWave Defendants Reply at 

4-6.

 The Liquidating Trustee’s actual 

fraudulent conveyance claims under 

South Carolina law found in Counts 9 and 

45 fail because the Omnibus Complaint 

does not include an allegation that the 

Debtors’ fraudulent intent is imputable to 

the BlueWave Defendants. Bluewave 

Defendants MTD at 16-17; BlueWave 

Defendants Reply at 6.

 The Liquidating Trustee’s constructive 

fraudulent conveyance claims fail under 

Section 548 because the Omnibus 

Complaint establishes that BlueWave

received payments in exchange for 

reasonably equivalent value. BlueWave 

Defendants MTD at 17-19. 

benefit from it. See Opp. ¶¶ 69-73, 76-

78, 82, 86-90.

 The Liquidating Trustee sufficiently 

pleads the scienter requirement of 

actual intent as evidenced by 

enumerated badges of fraud, as well as 

through imputation of actual fraudulent 

intent of an officer or director to the 

Debtors, conspiring with BlueWave, 

Dent and Johnson. See Opp. ¶¶ 76-78, 

82, 96-98.

 The Omnibus Complaint contains 

allegations that the BlueWave 

Defendants and HDL shared the actual 

intent of defrauding HDL’s creditors. 

See Opp. ¶¶ 96-97.

 The Liquidating Trustee properly pleads 

that with regard to each category of 

avoidable transfers, the Debtors 

received less than reasonably equivalent 

value, and through his allegations, the 

Liquidating Trustee has pled viable 

claims for avoidance under Section 548. 

See Opp. ¶¶ 101-104.

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 The Liquidating Trustee’s constructive 

fraudulent conveyance claims fail under 

Virginia law because HDL made 

payments to BlueWave in exchange for 

consideration deemed valuable in law. 

BlueWave Defendants MTD at 19-20; 

BlueWave Defendants Reply at 6-7. 

 The Liquidating Trustee’s avoidance 

actions in Counts 1, 5-7, 9, 11-12, 37, 41-

43, 45, and 49-50 fail because he has not 

alleged the existence of any actual 

creditor holding a valid claim under 

Section 544(b)(1). BlueWave Defendants 

MTD at 20.

 The Liquidating Trustee’s preference 

actions do not plead the essential 

elements such as existence of an 

antecedent debt and insider status.

BlueWave Defendants MTD at 21-24; 

BlueWave Defendants Reply at 12-13. 

The Liquidating Trustee does not allege 

in the Omnibus Complaint that the 

BlueWave Defendants are non-statutory 

insiders. BlueWave Defendants Reply at 

13-14.

 Claims in Counts 55, 58-60, 66-70, 72 

and 73 should be dismissed because they 

include assertions pertaining to unnamed 

assigning creditors and are deficient 

pursuant to Rules 8 and 9(b) of the 

Federal Rules of Civil Procedure.

BlueWave Defendants MTD at 24; 

BlueWave Defendants Reply at 7-9. The 

 The Omnibus Complaint alleges that 

the transfers were not done in exchange 

for consideration deemed valuable in 

law. See Opp. ¶¶ 113-114. The 

existence or absence of any value 

exchanged is a question of fact for 

discovery. Id.

 The Liquidating Trustee has alleged the 

existence of the $94 million claim of 

the DOJ, which is based on HDL’s 

liability for conduct dating back to 

November 25, 2008. See Opp. ¶ 90.

 The Omnibus Complaint, together with 

Exhibits D and E, plausibly alleges all 

of the facts required to state a cause of 

action for recovery under Section 

547(b). See Opp. ¶¶ 129-139. The 

definition of “insider” in Section 

101(31) is non-exhaustive and 

encompasses “insiders” that are “nonstatutory.” Id. at ¶ 136.

 The Omnibus Complaint complies with 

the requirements of Rules 8 and 9. See 

Opp. ¶¶ 10-31. The identity of the 

Assigning Creditors can be readily 

ascertained from the Plan and related 

pleadings. Id. ¶ 26.

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documentation presented as to the list of 

Assigning Creditors is inconsistent in that 

the Tabulation of Ballots identifies 41 

Assigning Creditors, the Omnibus 

Complaint identifies 30, and the updated 

list filed with the quarterly report 

identifies 22 Assigning Creditors. 

BlueWave Defendants Reply at 8, fn.8. 

Because the Complaint contains no 

factual information about the 30 

Assigning Creditors, it is impossible to 

ascertain which state’s law is controlling. 

BlueWave Defendants Reply at 9-10.

 The claims for statutory business 

conspiracy and tortious interference fail 

because they are not pled with requisite 

level of particularity under Virginia law.

BlueWave Defendants MTD at 25-26; 

BlueWave Defendants Reply at 11-12.

 It is insufficient to incorporate by 

reference pleadings from separate cases 

such as in Count 71 because such 

incorporation violates Rules 8 and 10 of 

the Federal Rules of Civil Procedure. 

BlueWave Defendants MTD at 30-31; 

BlueWave Defendants Reply at 2.

 Counts 5-10, 12, 42-46, 49-50, 73 should

fail because they do not allege any facts 

that could allow each BlueWave

Defendant to determine any connection 

between them and any particular state.

BlueWave Defendants MTD at 31-32.

 The Omnibus Complaint sufficiently 

states claims for tortious interference, as 

well as conspiracy and violation of the 

Virginia Business Conspiracy Act. See 

Opp. ¶¶ 160-167, 168-177.

 The incorporation is permissible 

pursuant to Aetna’s absolute and 

unconditional assignment of the right to

pursue the Aetna Litigation to the Trust. 

See Opp. ¶ 24.

 In each of the counts challenged, the 

Liquidating Trustee alleges the Movants 

were initial, immediate and/or mediate 

transferees of the transferred funds. See 

Opp. ¶ 94.The exact movements of 

funds will be ascertained through 

discovery. Id.

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 The Liquidating Trustee’s common law 

and statutory conspiracy claims (Counts 

59, 60, 72, 73) are barred by the 

applicable statutes of limitations.

BlueWave Defendants MTD at 33-35; 

BlueWave Defendants Reply at 10-11.

 The Movants’ affirmative defense is 

premature. See Opp. ¶ 189. A 

limitations period cannot be applied in 

this case until the nature and timing of 

the transactions are clarified and it is 

determined whether there existed a 

unified fraudulent scheme or whether 

the statutory period was tolled. See 

Opp. ¶¶ 188-196. Defendants rely on 

irrelevant authority regarding 

application of the Virginia statute of 

limitations to claims under other states’ 

laws, and thus fail to apply the correct 

states’ statutes of limitation.

MTD 

Dkt 

No. 

106

Reply 

Dkt 

No. 

266

G. Russell Warnick 

(“Warnick”)

 The Omnibus Complaint does not satisfy 

the requirements of Rule 8(a)(2) of the 

Federal Rules of Civil Procedure.

Warnick MTD at 8-9; Warnick Reply at 

3.

 The Liquidating Trustee fails to allege the 

identity of the various Assigning 

Creditors and Counts 67-70, 72-73 should 

be dismissed. Warnick MTD at 9-10; 

Warnick Reply at 3-6. The various extrapleading documents do not cure this 

pleading defect. Warnick Reply at 5.

 The Liquidating Trustee fails to allege 

with particularity any act of fraud or 

conspiratorial act committed by Warnick 

as required by Rule 9(b) of the Federal 

Rules of Civil Procedure. Warnick MTD 

at 10-15; Warnick Reply at 6-12. The 

Liquidating Trustee is intimately familiar 

 The Omnibus Complaint satisfies Rule 

8 and is necessarily lengthy and 

complex due to the systemic and 

multifarious nature of HDL’s fraudulent 

scheme. See Opp. ¶¶ 10-20.

 The identity of the Assigning Creditors 

can be readily ascertained from the Plan 

and related pleadings. See Opp. ¶ 26.

 Rule 9 standard is different for third 

parties such as estate representatives, 

and the Omnibus Complaint complies 

with the standard applicable to the 

Liquidating Trustee. See Opp. ¶¶ 21-31.

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with HDL and its business practices such 

that there is no justification for relaxing 

the Rule 9(b) standards here. Warnick 

Reply at 9-11. For this reason, statutory 

business conspiracy counts should be 

dismissed as well. Reply at 11-12.

 The Liquidating Trustee engages in 

impermissible group pleading such that 

Counts 60, 67, 68, 71 and 73 should be 

dismissed. Warnick MTD at 15-16. 

 The Liquidating Trustee lacks standing to 

assert personal injury claims as assignee 

of the Assigning Creditors under Virginia 

law as to Counts 53-54, 63-64, 67-68, 71, 

because the Assigning Creditors could not 

have validly assigned those claims to the 

Liquidating Trustee. Warnick MTD at 17.

 The Liquidating Trustee does not state a 

viable claim for relief for tortious 

interference (Counts 69-71) under 

Virginia law, as the Omnibus Complaint 

lacks facts suggesting there was specific 

contract or business expectancy, requisite 

intent, a competitive relationship between 

Warnick and Assigning Creditors, and the 

fact that Warnick contacted – directly or 

indirectly – any source of any Assigning 

Creditors’ future business expectancy. 

Warnick MTD at 17-24. Warnick Reply 

at 13-16. Choice-of-law with regards to 

tort claims does not matter, as the tort 

 The Liquidating Trustee has complied 

with requirements of Rules 8 and 9. The 

Movant applies a wrong standard to the 

Liquidating Trustee. See Opp. ¶¶ 10-20, 

21-31.

 The Liquidating Trustee has standing to 

assert claims of Assigning Creditors 

pursuant to the unconditional 

assignment of their claims to the Trust 

and In re Bogdan, 414 F.3d 507 (4th 

Cir. 2005). See Opp. ¶¶ 57-64. The 

Assignment Agreements are governed 

by New York law. Id.

 The allegations in the Omnibus 

Complaint adequately plead causes of 

action for tortious interference under 

Virginia law, Pennsylvania law and 

Connecticut law, including the critical 

role Movants played in the fraudulent 

scheme that interfered with contracts of 

Assigning Creditors. See Opp. ¶¶ 168-

177. Virginia statute of limitations do 

not apply to claims under other states’ 

laws, and Warnick had thus not shown 

that the claims are time-barred on the 

face of the complaint.

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14

claims Warnick moves to dismiss fail to 

state a claim under any applicable state 

law. Warnick Reply at 12-13. Claims are 

also time-barred under Virginia’s 5-year 

statute of limitations. Warnick MTD at 

34.

 The Liquidating Trustee does not state 

viable claims for relief for assumpsit 

(Count 65) and unjust enrichment (Count 

66), because (1) Warnick’s executive 

compensation was established and paid 

pursuant to the terms of an express 

written employment agreement between 

Warnick and HDL, (2) the Liquidating 

Trustee fails to allege that the Assigning 

Creditors conferred a benefit on Warnick, 

and (3) the Omnibus Complaint does not 

include facts that Warnick should have 

reasonably expected to repay the Debtors 

and/or Assigning Creditors. Warnick 

MTD at 24-27; Warnick Reply at 16-17.

 The Liquidating Trustee’s avoidance 

claims under Virginia Code § 55-80 fail 

because no facts are alleged suggesting 

that HDL had notice of any potential 

claim against it by a creditor. Warnick 

MTD at 27-28; Warnick Reply at 18-19. 

To the extent the Liquidating Trustee is 

arguing the DOJ Settlement provided 

notice to HDL of a specific claim against 

it, that argument saves only transfers 

made after April 9, 2015. Warnick Reply 

at 19.

 The Liquidating Trustee has met his 

pleading obligations with respect to 

Counts 65 and 66, and has sufficiently 

pled the details of all transfers. See 

Opp. ¶¶ 143-155.

 Claims for avoidance of fraudulent 

transfers under Virginia Code §55-80

are sufficient. The Liquidating Trustee 

alleges the existence of a $94 million 

claim of the DOJ, which is based on 

HDL’s liability for conduct dating back 

to November 25, 2008. See Opp. ¶¶ 84-

98.

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15

 Virginia does not recognize an 

independent common law claim for 

corporate waste (Count 62). Warnick 

MTD at 28; Warnick Reply at 17. In 

LandAmerica, this Court recognized that 

a separate claim for corporate waste fails. 

Warnick Reply at 18.

 The Omnibus Complaint is time-barred as 

to claims for breach of fiduciary duty 

(Counts 53-54), unlawful distribution 

(Count 61), insider compensation (Count 

20), tortious interference (Counts 69-71), 

and conspiracy (Counts 59-60, 71).

Warnick MTD at 28-36. The Liquidating 

Trustee’s assertions regarding tolling are 

either insufficient to trigger tolling or 

have no basis in Virginia law. Warnick 

Reply at 20-24.

 Count 20 (fraudulent transfer of insider 

compensation) is time-barred by 

Washington State’s one-year statute of 

limitations. Warnick MTD at 33-34.

 Corporate Waste is not precluded by 

Virginia law. See Opp. ¶¶ 156-159. This 

Court found that a trustee’s corporate 

waste claim, while not previously 

recognized by a Virginia court, was 

akin to the Trustee’s claim for breach of 

fiduciary duty and could arise under the 

context of a Virginia Code § 13.1-692 

(unlawful distribution) violation or its 

common law counterpart. Id. 

 The affirmative defense of statute of 

limitations is premature. See Opp. ¶ 

189. A limitations period cannot be 

applied until the nature and timing of 

the transactions are clarified and it is 

determined whether there existed a 

unified fraudulent scheme or whether 

the statutory period was tolled. See 

Opp. ¶¶ 188-196. Tolling periods are 

established by binding Fourth Circuit 

precedent that this Court does not have 

discretion to ignore.

 Count 20 is also pled under Minnesota 

law. Even if Washington law applied, 

some transfers are within 1 year, and 

would be subject to discovery and 

adverse domination rules. Warnick’s 

argument also contradicts his later 

argument (Reply, at 22 n.10) that 

Virginia statutes of limitation – here, 2 

years – to claims under other states’ 

laws.

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MTD 

Dkt 

No. 

108

Reply 

Dkt 

No. 

264

LaTonya S. Mallory 

(“Mallory”)

 HDL’s Articles of Incorporation included 

a provision limiting liability for its 

officers and directors in actions brought 

by or on behalf of HDL, pursuant to Va. 

Code § 13.1-692.1(A)(1), which 

exculpates claims in Counts 53-54, 56-57 

and 61-64. Mallory MTD at 18-20; 

Mallory Reply at 1-2. The allegation of 

willful misconduct relating to HDL’s 

billing does not taint every HDL business 

judgment. Mallory Reply at 1-2.

 There is no independent cause of action 

for corporate waste in Virginia. Mallory 

MTD at 20; Mallory Reply at 2-3. This 

Court relied upon the In re James River 

Coal Co. decision in dismissing the waste 

claim in LandAmerica. Mallory Reply at 

3.

 Negligence and gross negligence are not 

measures of D&O conduct in Virginia.

Mallory MTD at 20-21; Mallory Reply at 

3.

 Va. Code § 13.1-690 bars certain claims 

in Counts 53-57 and 59-64 against 

Mallory as a director of HDL. Mallory 

MTD at 22-23; Mallory Reply at 3-5. 

 Elements of assumpsit and unjust 

enrichment are not properly alleged.

Mallory MTD at 23-24; Mallory Reply at 

5-7. Neither an express contract nor 

implied promise of Mallory to repay 

money she received is alleged. Mallory 

 Mallory’s willful misconduct defeats 

any limitation of liability provision in 

the Articles of Incorporation. See Opp. 

¶¶ 198-202. 

 Corporate Waste is not precluded by 

Virginia law and has been upheld in In 

re James River Coal Co. See Opp. ¶¶ 

156-159.

 Conduct outside of the scope of a role 

as director is subject to common law 

duties. See Opp. ¶¶ 203-210. 

 Conduct occurred outside of the scope 

of duties as a director and common law 

duties of loyalty control. See Opp. ¶¶ 

203-210. 

 The allegations of the Omnibus 

Complaint are more than sufficient to 

show the Movants are in possession of 

money, which in equity and good 

conscience, does not belong to them. 

See Opp. ¶¶ 143-155. Liquidating 

Case 16-03271-KRH Doc 293 Filed 06/01/17 Entered 06/01/17 17:40:55 Desc Main

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17

MTD at 23-24; Mallory Reply at 6. 

Mallory obtained payments from HDL 

pursuant to employment and shareholder 

agreements. Mallory MTD at 24, fn.9; 

Mallory Reply at 7.

 Count 61 (Unlawful Distributions) should 

be dismissed because there is no 

allegation that Mallory had actual notice 

of any claims of creditors, including the 

United States, when the distributions 

were made. Mallory MTD at 25; Mallory 

Reply at 7-8.

 Counts 19 and 20 do not comply with 

Rules 8 or 9 of the Federal Rules of Civil 

Procedure in that Mallory is unable to 

identify which, if any, transfers made to 

Mallory were sent to Minnesota or 

Washington and are subject to the laws of 

those states. Mallory MTD at 25-26; 

Mallory Reply at 8-9. 

 Counts 67 and 68, alleging common law 

and constructive fraud, fail to comply 

with the particularity requirements of 

Rule 9 of the Federal Rules of Civil 

Procedure. Mallory MTD at 26-28; 

Mallory Reply at 9-11.

 Counts 59-60 and 72-73 fail to allege 

common law and statutory conspiracy 

under Virginia law, such as requisite 

Trustee’s allegations in the Omnibus 

Complaint are sufficient to notify the 

Movants, despite their apparent refusal 

to look for themselves, of each benefit 

conferred, the basis of the Movants’ 

knowledge, expectation of repayment, 

and retention of the same without value. 

Id. 

 Actual notice is not an element, but if it 

is, actual notice is adequately pled. See 

Opp. ¶¶ 184-187.

 The Complaint complies in all respects 

with Rules 8 and 9. See Opp. ¶¶ 10-20, 

21-31. 

 All allegations of fraud contain the 

necessary levels of particularity to 

survive a Rule 12 motion. See Opp. ¶¶ 

10-20. 

 All allegations of conspiracy are 

sufficient to survive a Rule 12 motion. 

See Opp. ¶¶ 160-167.

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18

concert of action and agreement to 

effectuate a preconceived plan. Mallory

MTD at 28-30; Mallory Reply at 11-14. 

Counts 60 and 73 should also be 

dismissed because the Liquidating 

Trustee failed to allege legal malice or 

purposeful injury to HDL. Mallory MTD 

at 30; Mallory Reply at 13.

 Counts 69 and 70 fail to allege the 

requisite elements of tortious interference, 

such as identification of the HCPs and 

Assigning Creditors, knowledge of a 

specific contract or expectancy, facts as to 

interference or breach of contract, and a 

competitive relationship between the 

party interfered with and the interferor.

Mallory MTD at 30-32; Mallory Reply at 

14-16.

 Either Count 71 or the Aetna lawsuit 

should be dismissed as duplicative.

Mallory MTD at 32; Mallory Reply at 16.

 Claims in Counts 1-2, 13-14, 53-57, 61, 

65-66 are time barred. Mallory MTD at

33-36; Mallory Reply at 16-21.

 Under the various likely applicable state 

laws that apply, each element of 

tortious interference is adequately 

plead, each Assigning Creditor is 

readily ascertainable and the 

expectancy, interference and 

relationships are all apparent in the 

pleadings. See Opp. ¶¶ 168-177.

 Dismissal is not the appropriate remedy,

and Mallory already has a stay of the 

Aetna lawsuit. See Opp. ¶ 159. 

 The affirmative defense of statute of 

limitations is premature. See Opp. ¶ 

189. A limitations period cannot be 

applied until the nature and timing of 

the transactions are clarified and it is 

determined whether there existed a 

unified fraudulent scheme or whether 

the statutory period was tolled. See 

Opp. ¶¶ 188-196. Even if not tolled, 

many transfers are within the 

limitations periods and thus the causes 

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19

 Counts 53-55, 59-60 and 62-64 assert 

claims against Mallory for acts of 

Directors and Officers after she left HDL. 

Mallory MTD at 33-36; Mallory Reply at 

21.

 Count 52, seeking to avoid preferential 

transfers to insiders, should be dismissed 

as to Mallory because she was not an 

insider at all times. Mallory MTD at 36-

37. The Liquidating Trustee fails to meet 

his own standard for a former director 

and/or officer of a debtor because none of 

the allegations he cites in support 

mentions anything about the closeness of 

Mallory and HDL after she departed the 

company. Mallory Reply at 22.

 Counts 6, 14, 21, and 35-36 fail because 

Mallory provided the requisite value in 

exchange for the transfers under Virginia 

law, as well as Section 548 of the 

Bankruptcy Code. Mallory MTD at 37-

40; Mallory Reply at 24.

of action are valid. Earlier transfers are 

subject to other causes of action.

 Mallory still qualifies as an insider. 

See Opp. ¶¶ 99-110 and 135-139.

 Mallory qualifies as a “non-statutory” 

insider for the period of time after she 

left HDL. See Opp. ¶ 136. 

 Mallory’s contentions are factual ones 

and not appropriate for Rule 12 

consideration. The Omnibus Complaint 

alleges value was not provided in 

exchange. See Opp. ¶¶ 82, 99-110. 

MTD 

Dkt 

No. 

111

Karl F. Warnick and 

Kristan Warnick as 

Trustees of the 

Warnick Family 

2012 Irrevocable 

Trust, The Warnick 

Family LLC and 

Warnick 

 Legal standard for Movant’s Motion 

under Rule 12(b)(6) of Federal Rules of 

Civil Procedure is the plausibility 

standard articulated in Twombly and 

Iqbal. Warnick Transferee Defendants 

MTD at 8-9; Warnick Transferee 

Defendants Reply at 2-3.

 A party seeking to short-circuit a claim 

via Rule 12(b)(6) of the Federal Rules 

of Civil Procedure has the burden of 

proving that the factual allegations in 

the complaint do not state a claim for 

relief. See Opp. ¶ 8.

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20

Reply 

Dkt 

No. 

256

Management, LLC 

(“Warnick 

Transferee 

Defendants”)

 The Liquidating Trustee does not 

specifically identify the amounts, time 

and circumstances under which funds 

were transferred to the Warnick Family 

LLC and Warnick Mangement, LLC, and 

simply makes a conclusory statement that 

these defendants are immediate or 

mediate transferees. Warnick Transferee 

Defendants MTD at 9-10. The Omnibus 

Complaint contains no facts that would 

support the conclusion that funds received 

by either LLC Defendant can be traced to 

avoidable transfers. Warnick Transferee 

Defendants Reply at 7-8. 

 G. Russell Warnick is not a trustee of the 

Warnick Family 2012 Irrevocable Trust 

according to a copy of the trust document 

attached to the Warnick Transferee 

Defendants’ Motion to Dismiss. Warnick 

Transferee Defendants MTD at 10-11; 

Warnick Transferee Defendants Reply at 

4-5.

 The Omnibus Complaint does not provide 

factual support to the assertion that 

money was transferred to the Warnick 

Transferee Defendants under the implied 

promise of repayment such that Counts 

65 and 66 fail. Warnick Transferee 

Defendants MTD at 11-12; Warnick 

Transferee Defendants Reply at 8-10.

 The Omnibus Complaint does not provide

any factual support to the allegation that 

R. Russell Warnick owned, controlled 

 The Liquidating Trustee’s allegations 

are sufficient given that the Liquidating 

Trustee has limited access to transfer 

information without discovery. See 

Opp. ¶ 75.

 G. Russell Warnick may be deemed an 

equitable owner of the Warnick Trust 

such that the unity of interest and 

ownership requirement for purposes of 

alter ego liability is still satisfied. See 

Opp. ¶ 236.

 The Liquidating Trustee’s allegations in 

the Omnibus Complaint are sufficient to 

notify the Movants, despite their 

apparent refusal to look for themselves, 

of each benefit conferred, the basis of 

the Movants’ knowledge, expectation of 

repayment, and retention of the same 

without value. See Opp. ¶¶ 143-155.

 The Omnibus Complaint provides 

sufficient factual allegations of 

ownership, control and/or domination 

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21

and/or dominated and influenced the 

activities of the Warnick Family 2012 

Irrevocable Trust. Warnick Transferee 

Defendants MTD at 12; Warnick 

Transferee Defendants Reply at 4-7.

 The Court does not have subject matter 

jurisdiction over assumpsit and unjust 

enrichment claims in Counts 65 and 66. 

Warnick Transferee Defendants MTD at

12-15.

by R. Russell Warnick upon the 

activities of the Warnick Trust. See 

Opp. ¶ 235. G. Russell Warnick may be 

deemed an equitable owner of the 

Warnick Trust such that the unity of 

interest and ownership requirement for 

purposes of alter ego liability is still 

satisfied. Id. ¶ 236.

 The Court has subject matter 

jurisdiction over the assumpsit and 

unjust enrichment counts because there 

is a “close nexus” of these claims to the 

Cases and the Plan. See Opp. ¶¶ 32-45.

MTD 

Dkt 

No. 

115

Reply 

Dkt 

No. 

265

Janet Mallory 

Curtin as Trustee of 

the LaTonya 

Mallory 2012 

Irrevocable Trust 

(“Mallory 

Transferee 

Defendants”)

 A pleading should contain a short and 

plain statement of the claim showing that 

the pleader is entitled to relief pursuant to 

the standards articulated in Twombly and 

Iqbal. Mallory Transferee Defendants 

MTD at 5-6. The Liquidating Trustee 

relies on an incorrect legal standard for 

Rule 12(b)(6) motions. Mallory 

Transferee Defendants Reply at 2-3. 

 Claims for avoidance of transfers in 

Counts 1-22 fail because there are no 

factual allegations that support imposition 

of liability against Mallory Trust as an 

alter ego of Mallory. Mallory Transferee 

Defendants MTD at 6-11. Mallory 

Transferee Defendants Reply at 6. 

Additionally, neither a trust nor an 

individual can be an alter ego of another 

individual. Mallory Transferee 

Defendants MTD at 6-8.

 A party seeking to short-circuit a claim 

via Rule 12(b)(6) of the Federal Rules 

of Civil Procedure has the burden of 

proving that the factual allegations in 

the complaint do not state a claim for 

relief. See Opp. ¶ 8.

 Alter ego is sufficiently pled and 

applies to corporations as well as trusts. 

See Opp. ¶¶ 230-237.

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22

 There are insufficient factual allegations 

for the Complaint to state a cause of 

action for recharacterization of February 

4, 2014 Note debt to equity. Mallory 

Transferee Defendants MTD at 11-16.

Mallory Transferee Defendants Reply at 

8. Count 34 fails because neither of the 

Mallory Transferee Defendants has a 

“claim” against the estate, and therefore, 

recharacterization is not applicable. 

Mallory Transferee Defendants Reply at 

3-5.

 If the February 4, 2014 Note is not 

recharacterized as an equity contribution, 

then the Mallory Payment is merely the 

repayment of funds received by HDL, 

whereby the fraudulent transfer claims 

under 11 U.S.C. §§ 548 and 550, as well 

as 544 and applicable state law in Counts 

35 and 36 fail. Mallory Transferee 

Defendants MTD at 16.

 Claims for avoidance of transfers in 

Counts 1 and 2 are time-barred. Mallory 

Transferee Defendants MTD at 16-17.

Mallory Transferee Defendants Reply at 

8-9 (adding that Counts 35 and 36 are 

time-barred as well). Two-year lookback 

provision of Section 548 is not a statute 

of limitations, but rather a substantive 

statutory element that cannot be equitably 

tolled. Mallory Transferee Defendants 

Reply at 9. 

 Argument is premature since 

recharacterization is a fact-dependent 

inquiry that varies case-to-case, and the 

allegations are sufficient to state a 

claim. See Opp. ¶¶ 221-222. 

 Argument is a question of fact and 

inappropriate at a Rule 12 stage. See 

Opp. ¶ 115. 

 Many transfers are within the two-year 

period and thus the cause of action is 

valid. Earlier transfers are subject to 

other causes of action.

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23

 Preference claims in Counts 51 and 52 

fail because there are no factual 

allegations that the Mallory Trust 

received any payments during the 

relevant period or that the Mallory Trust 

is an initial, mediate or immediate 

transferee of the alleged preferential 

payments. Mallory Transferee Defendants 

MTD at 17-19. Mallory Transferee 

Defendants Reply at 7 (also stating same 

argument applies to Counts 1-22). 

 Claims for avoidance of transfers in 

Counts 7-12, 19 and 20 fail, as there are 

no allegations that the Mallory Trust 

acted outside of the Commonwealth of 

Virginia because there are no allegations 

that the Mallory Trust held or maintained 

any bank account outside of Virginia or 

did business outside of Virginia. Mallory 

Transferee Defendants MTD at 19-20.

Mallory Transferee Defendants Reply at 

7-8.

 Claims for avoidance of transfers in 

Counts 13-22 fail because there are no 

allegations that the Mallory Trust ever 

received any of the D&O Compensation 

or the Mallory Separation Amount. 

Likewise, liability under these counts 

cannot be imposed on the basis of the 

alter ego theory because there are no 

factual allegations that support the 

imposition of liability against the Mallory 

trust as an alter ego of Mallory. Mallory 

Transferee Defendants MTD at 20.

 Allegations are sufficiently pled to 

establish the transfers. See Opp. ¶ 133.

 Each count contains allegations with 

regards to out-of-state transfers, despite 

arguments to the contrary. See Opp. ¶ 

94. 

 The Omnibus Complaint contains 

allegations that the Mallory Trust 

received the transfers. See Opp. ¶ 95. 

The alter ego theory is properly 

supported with sufficient facts. See 

Opp. ¶¶ 231-237.

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24

 The assumpsit claim in Count 65 is 

inapplicable to the Mallory Trust, as the 

Liquidating Trustee does not allege that 

the Mallory Trust expressly or implicitly 

made a promise to pay anything to the 

Debtors. Mallory Transferee Defendants 

MTD at 21.

 The Liquidating Trustee does not state a 

cause of action for unjust enrichment 

against the Mallory Trust because there is 

no factual support of the unjust 

enrichment elements. Mallory Transferee 

Defendants MTD at 22.

 The express or implicit promises are 

properly alleged despite argument to the 

contrary and include, inter alia, the 

implicit promise to repay the fruits of 

an illegal enterprise. See Opp. ¶¶ 145, 

147-155.

 Allegations of unjust enrichment are 

sufficiently pled and include, inter alia, 

all payments made to the Mallory Trust 

(or transferred to it) from the illegal 

HDL scheme. See Opp. ¶¶ 145, 147-

155. 

MTD 

Dkt 

No. 

179

Reply 

Dkt 

No. 

250

Tipton Golias, 

Joseph Golias, 

Donald Golias, 

Karla Falgout, 

Tipton Golias as 

Trustee of the 

Wyndell L. Golias 

Voting Trust, 

Robert S. Galen, 

Noel D. Bartlett, Jr., 

Eric Petersen, David 

Mayes, John 

Tessler, Pamela 

Oates (collectively, 

“Golias 

Defendants”)

 The $36.6 million that HDL paid to the 

Golias shareholders to satisfy the passthrough tax liability cannot be fraudulent 

transfers because it was made in 

exchange for reasonably equivalent value. 

Golias Defendants MTD at 8-17; Golias 

Defendants Reply at 1-2. Cases cited by 

the Liquidating Trustee are inapplicable. 

Golias Defendants Reply at 2-4. HDL 

was solvent at the time of the tax

distributions, which were made pursuant 

to the Shareholders Agreement and 

cannot be recovered on a theory of actual 

fraud because they were taken in good 

faith. Golias Defendants Reply at 4-6.

 The $23.5 million in shareholder 

distributions in December 2012 cannot be 

avoided under a theory of constructive 

 Good faith defense is not available 

where HDL’s illegal business practices 

generated the very funds used to make 

the tax distributions. See Opp. ¶ 105.

Courts have rejected the reasonably 

equivalent value theory advanced by the 

Movants, as Bankruptcy Code’s 

specific definition of “value” does not 

include “checking the box” in a 

Shareholders Agreement. Id. ¶¶ 106-

107. Section 12(b) of the Shareholders 

Agreement contains an exception to the 

distribution obligation when such 

distributions are made in violation of 

applicable law, such as when a 

company’s liabilities exceed its assets. 

Id. ¶¶ 108. 

 Challenges to the avoidance claims 

involving questions of fact, such as 

HDL’s insolvency and reasonably 

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25

fraud because the Liquidating Trustee’s 

theory of retroactive insolvency fails. 

Golias Defendants MTD at 17-20; Golias 

Defendants Reply at 6-7. The Court must 

assess solvency by considering other 

undisputed aspects of the record such as 

the timeline of the issuance of the DOJ 

subpoena and OIG’s Special Fraud Alert, 

ability to secure loans in 2015 and HDL’s 

solvency representation in its settlement 

with DOJ. Golias Defendants Reply at 8. 

The Liquidating Trustee’s insolvency 

theory is based solely on hindsight. 

Golias Defendants Reply at 9-12.

 The $23.5 million in shareholder 

distributions in December 2012 cannot be 

avoided under a theory of actual fraud 

because there is no direct evidence of 

fraudulent intent, and the enumerated 

badges of fraud are insufficient to infer 

fraudulent intent. Golias Defendants 

MTD at 17-20; Golias Defendants Reply 

at 12-14.

 The Liquidating Trustee cannot avoid the 

$7.3 million loan repayment to Tipton 

Golias because the claims are time-barred 

under every source of law, except for the 

FDCPA, which the Liquidating Trustee 

cannot use. Golias Defendants MTD at 

20-24; Golias Defendants Reply at 14-18.

equivalent value are improper factual 

challenges in a Rule 12(b)(6) motion. 

See Opp. ¶¶ 99-105. HDL’s insolvency 

is sufficiently pled nevertheless. Id. ¶

46-56. Contingent liabilities are 

required by law to be considered as part 

of a solvency calculation; Defendants’ 

authorities do not stand for the 

proposition he asserts.

 The evidence of actual fraud is 

explicitly alleged, as are the badges of 

fraud, which are more than sufficient to 

overrule the Rule 12 motion. See Opp. 

¶¶ 71-83.

 Even assuming Defendant cites the 

correct statute of limitations, he applied 

it to the wrong filing date to calculate 

the statute of limitations cutoff; the 

transfer is within that statute of 

limitations. Defendant also relies on 

irrelevant authority regarding 

application of the Virginia statute of 

limitations and thus applies the wrong 

states’ law. The Liquidating Trustee 

has standing to use the FDCPA as 

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26

applicable law under Section 544(b) by 

stepping into the shoes of the DOJ. Id. 

¶¶ 123-128.

MTD 

Dkt

No. 

196

Reply 

Dkt 

No. 

249

Galen Associates, 

Inc. and Helena 

Laboratories 

Corporation 

(collectively, 

“Helena”)

 The Omnibus Complaint does not comply 

with the pleading requirements of Rule 

8(a)(2) of the Federal Rules of Civil 

Procedure and is a “shotgun pleading.” 

Helena MTD at 5-6. 

 Counts 51 and 52 fail to state a claim for 

avoidance of preferences, as they consist 

of mere recitations of elements of 11 

U.S.C. § 547 such as that the transfers to 

the Movants were for or on account of 

antecedent debt. Helena MTD at 6-8; 

Helena Reply at 1. The Liquidating 

Trustee has conceded this argument and 

abandoned the claims in Counts 51 and 

52. Helena Reply at 1.

 Claim for avoidance of insider 

preferences against Galen Associates fail 

because no transfers were made to Galen 

Associates and because Galen Associates 

is not an insider of the Debtors. Helena 

MTD at 7; Helena Reply at 1. The 

Liquidating Trustee does not properly 

plead that Galen Associates was an 

insider. Helena Reply at 2-4. The 

Opposition ignores and fails to address 

these arguments, whereby abandoning 

them. Helena Reply at 1.

 The Omnibus Complaint satisfies Rule 

8 and is necessarily lengthy and 

complex due to the systemic and 

multifarious nature of HDL’s fraudulent 

scheme. See Opp. ¶¶ 10-20.

 Sufficient allegations are pled with 

regard to each of the Section 547(b) 

elements. See Opp. ¶¶ 129-139. The 

Omnibus Complaints further 

sufficiently alleges that under Section 

550, the Liquidating Trustee may 

recover the transferred payments from 

the Movants as the initial, immediate 

and/or mediate transferees of the 90 

Day and One Year Preferential 

Transfers in amounts to be proved at 

trial. See Opp. ¶¶ 130-133.

 Definition of “insider” in Section 

101(31) is non-exhaustive and 

encompasses “insiders” that are “nonstatutory.” See Opp. ¶ 135. Complaint 

includes sufficient allegations of nonstatutory insider status of the Movants

and transfers to the Movants given the 

limited access to such information 

without discovery. Id. ¶¶ 135-137.

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 Assumpsit and unjust enrichment claims 

are duplicative under Virginia law. 

Helena MTD at 8.

 The Omnibus Complaint does not include 

an allegation that the transfers 

enumerated in Counts 65, 66 were 

directly or subsequently transferred to 

Helena. Helena MTD at 8-9; Helena 

Reply at 5. Allegations of subsequent 

transferee status are conclusory and fail 

the requirements of Rule 8. Helena Reply 

at 5-6. Assurance that additional details 

will be developed through discovery does 

not cure the deficiencies concerning the 

Movants. Helena Reply at 6.

 Count 75 (Objection to Proof of Claim) 

fails as to Helena for failure to adequately

plead wrongdoing by Helena. Helena 

MTD at 9-10. Since the Liquidating 

Trustee’s preference claims are subject to 

dismissal, Section 502(d) claim 

contingent on those claims must also be 

dismissed. Helena Reply at 7.

 Subordination of a claim is unwarranted 

because the Omnibus Complaint does not 

include allegations of inequitable conduct 

by Helena. Helena MTD at 10-11; Helena 

Reply at 7-8. 

 Virginia Supreme Court has not 

abolished the assumpsit cause of action, 

which has been recognized as recently 

as 2008. See Opp. ¶ 154.

 The Liquidating Trustee adequately 

pleads that the Movants are in 

possession of money, which in equity 

and good conscience does not belong to 

them. Opp. ¶ 144. Allegations in the 

Omnibus Complaint are sufficient to 

notify the Movants, despite their 

apparent refusal to look for themselves, 

of each benefit conferred, the basis of 

the Movants’ knowledge, expectation of 

repayment, and retention of the same 

without value. Id.

 Claims of a creditor who received an 

avoidable transfer must be disallowed 

until such transfer is relinquished for 

the benefit of the estate. See Opp. ¶¶ 

211-214. Because the avoidance claims 

are sufficiently asserted, the 

disallowance is properly claimed as 

well. Id.

 Courts closely scrutinize the conduct of 

claimants who bear a close relationship 

to the debtor. See Opp. ¶¶ 215-222.

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