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In re Poplar Ridge, LLC

United States District Court, W.D. North Carolina, Asheville Division

January 27, 2015



MAX O. COGBURN, Jr., District Judge.

THIS MATTER is before the court on the appeal of the Trustee from the Order of the Bankruptcy Court dismissing appellant adversary proceeding in accordance with Rule 12(b)(6), Federal Rules of Civil Procedure. In that action, the Trustee sought to set aside a conveyance to appellee of the debtor's declarant rights, which were conveyed to appellee in conjunction with its purchase of the Poplar Ridge residential development at foreclosure. In sum, the Trustee contends that the declarant rights (which, inter alia, provide control to the developer of the Home Owners' Association during development) should not have been conveyed by the substitute trustee to appellee and that the bankruptcy court was in error when it dismissed his adversary proceeding for failure to state a claim. After conducting its own review of the Trustee's claim, this court also determines that the Trustee has failed to state a viable claim against the appellee and will affirm the decision of the bankruptcy court and dismiss this appeal.


On appeal, the court "may affirm, modify, or reverse a bankruptcy judge's judgment, order, or decree or remand with instructions for further proceedings." Fed.R.Bankr.P. 8013. District courts exercise de novo review over an appeal of a bankruptcy court's decision in an adversary proceeding, "effectively standing in its shoes to consider directly the findings of fact and conclusions of law by the bankruptcy court." Cypher Chiropractic Ctr. v. Runski (In re Runski), 102 F.3d 744, 745 (4th Cir. 1996); Bowers v. Atlanta Motor Speedway, Inc. (In re Southeast Hotel Props. Ltd. P'ship), 99 F.3d 151, 154 (4th Cir. 1996) ("Findings of fact are reviewed for clear error, and conclusions of law are reviewed de novo" (citation omitted)). Accordingly, this court reviews "legal conclusions by the bankruptcy court de novo and may overturn its factual determinations only upon a showing of clear error." Morris v. Quigley (In re Quigley), 673 F.3d 269, 271 (4th Cir. 2012); accord Terry v. Meredith (In re Meredith), 527 F.3d 372, 375 (4th Cir. 2008). The proper construction and interpretation of the Bankruptcy Code is a question of law subject to plenary review. Runski, 102 F.3d at 745.


In determining whether a claim can survive a motion under Rule 12(b)(6), the Supreme Court held in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) that the "no set of facts" standard only describes the "breadth of opportunity to prove what an adequate complaint claims, not the minimum adequate pleading to govern a complaint's survival." Id. at 563. The Court specifically rejected use of the "no set of facts" standard because such standard would improperly allow a "wholly conclusory statement of claim" to "survive a motion to dismiss whenever the pleadings left open the possibility that a plaintiff might later establish some set of [undisclosed] facts' to support recovery." Id. at 561 (alteration in original). Post Twombly, to survive a Rule 12(b)(6) motion to dismiss, a claimant must allege facts in his complaint that "raise a right to relief above the speculative level." Id., at 555.

[A] plaintiff's obligation to provide the "grounds" of his "entitle[ment] to relief" requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do....

Id. (second alteration in original; citation omitted). Further, a complaint will not survive Rule 12(b)(6) review where it contains "naked assertion[s] devoid of further factual enhancement." Id., at 557. Instead, a claimant must plead sufficient facts to state a claim for relief that is " plausible on its face." Id. at 570 (emphasis added).

Post-Twombly, the Court revisited the Rule 12(b)(6) pleading standard in Ashcroft v. Iqbal, 556 U.S. 662 (2009). In Iqbal, the Court determined that Rule 8 "demands more than an unadorned, the defendant-unlawfully-harmed-me accusation." Id. at 678. The Court explained that, "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 . (citing Twombly, supra; emphasis added). What is plausible is defined by the Court:

[a] claim has facial plausibility when the plaintiff pleads sufficient factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.

Id. This "plausibility standard" requires "more than a sheer possibility that a defendant has acted unlawfully." Id . Thus, a complaint falls short of the plausibility standard where a plaintiff pleads "facts that are merely consistent with' a defendant's liability...." Id . While the court accepts plausible factual allegations made in a claim as true and considers those facts in the light most favorable to plaintiff in ruling on a motion to dismiss, a court "need not accept as true unwarranted inferences, unreasonable conclusions, or arguments." Eastern Shore Mkt.'s Inc. v. J.D. Assoc.'s, LLP, 213 F.3d 175, 180 (4th Cir. 2000).

In sum, when ruling on a Rule 12(b)(6) motion, "a judge must accept as true all of the factual allegations contained in the complaint." Erickson v. Pardus, 551 U.S. 89, 94 (2007) ( per curiam ) (citations omitted). A complaint "need only give the defendant fair notice of what the claim is and the grounds upon which it rests." Id. at 93 (alteration and internal quotation marks omitted). However, to survive a motion to dismiss, the complaint must "state[] a plausible claim for relief" that "permit[s] the court to infer more than the mere possibility of misconduct" based upon "its judicial experience and common sense." Iqbal, 129 S.Ct. at 1950. While a complainant is not required to plead facts that constitute a prima facie case in order to survive a motion to dismiss, see Swierkiewicz v. Sorema N.A., 534 U.S. 506, 510-15 (2002), "[f]actual allegations must be enough to raise a right to relief above the speculative level, " Bell Atlantic Corp. v. Twombly, 550 U.S. at 555.


The pertinent facts underlying the Trustee's claim are not in dispute. A&H Development, LLC, was the initial developer of "Poplar Ridge, " a residential subdivision located in Asheville, North Carolina. As required under North Carolina's Planned Community Development Act, N.C. Gen. Stat. ยง 47F-1-101, et seq., Poplar Ridge was established pursuant to its Declaration of Covenants, Conditions, and Restrictions for Poplar Ridge, which were recorded in the office of the Buncombe County Register of Deeds (the "Declaration"). Through a series of transactions which are not at issue here, debtor Poplar Ridge, LLC became the owner and developer of the subdivision in ...

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