Montoya v. Richesin et al

1 (See Docket #9 - Defendant Michael B. Richesin’s Motion for Summary Judgment
Against Trustee and Memorandum in Support and Docket #11 - Defendant Michael B.
Richesin’s [sic.] Motion for Summary Judgment Against Trustee and Memorandum in Support)
1
UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
In re: 	MICHAEL BROWN RICHESIN, 	No. 7-04-10884 MA
Debtor.
______________________________________________________________________________
PHILIP J. MONTOYA,
Plaintiff,
v. 	Adversary No. 07-1034 M
DONALD W. RICHESIN and
MICHAEL B. RICHESIN,
Defendants.
MEMORANDUM
THIS MATTER is before the Court on the motions for summary judgment filed by
Defendants Michael Richesin and Donald Richesin. 1 Defendant Michael Richesin’s motion for
summary judgment raises the following arguments: 1) that the adversary proceeding is time-
barred by operation of 11 U.S.C. § 546(a); 2) that Defendant Michael Richesin had no ownership
interest in The Car Company, Inc. or in Lomas Auto Mall, Inc. as of the date of the filing of the
petition, so that the stock of such companies is not subject to turnover under § 542 because it is
not property of the estate; and 3) that Plaintiff cannot sustain a claim based on alter-ego or
piercing the corporate veil because under applicable New Mexico law, such claims require proof
of fraud or other culpable activity, which was not plead with sufficient particularity as required
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under Rule 9(b), Fed.R.Civ.P. 	Defendant Donald W. Richesin’s motion for summary judgment
also asserts that Plaintiff’s claim for recovery of an alleged fraudulent transfer under 11 U.S.C. §
548 is time-barred by operation of 11 U.S.C. §546(a). In support of the Motion for Summary
Judgment, Defendant Michael Richesin filed an Affidavit with several exhibits attached. (See
Docket # 10). 	Plaintiff filed a response to the motions for summary judgment, with several
exhibits attached, asserting that genuine issues of material fact preclude summary judgment.
(See Trustee’s Response to Motion to Dismiss (Docket No. 8) and Motions for Summary
Judgment (Docket Nos. 9 and 11) (“Trustee’s Response” - Docket #13)).
Based on the motions for summary judgment, the affidavit and exhibits offered in support
thereof, and the Plaintiff’s response with supporting exhibits, the Court finds that genuine issues
of material fact preclude summary judgment as to Defendants’ assertion that the action is time-
barred under 11 U.S.C. § 546 and as to Defendant Michael Richesin’s contention that he never
had any interest in the stock of Lomas Auto Mall, Inc. and had no ownership interest in the stock
of The Car Company, Inc. as of the date of the filing of his bankruptcy petition.
With regard to Defendant Michael Richesin’s argument that Plaintiff’s cause of action
based on corporate alter ego theories and/or piercing the corporate veil should be dismissed
because such causes of action require a showing of fraud that Plaintiff has failed to plead with
sufficient particularity, the Court finds that such claims under New Mexico law do not implicate
Rule 9(b), Fed.R.Civ.P. 	But because the Complaint contains only conclusory allegations of
dominion and control and fails to allege the remaining elements necessary to such a claim, the
Court finds that Plaintiff should be required to amend the Complaint or suffer dismissal of those
portions of the Complaint that rely on alter-ego as a basis for recovery.
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2See Seattle-First Nat. Bank v. Carlstedt, 800 F.2d 1008, 1011 (10 th Cir. 1986) (per
curiam) (“The dismissal of a complaint or counterclaim for failing to satisfy the requirements of
Rule 9(b) is treated as a dismissal for failure to state a claim upon which relief can be granted
under Fed.Rules Civ.P. 12(b)(6)”)(citations omitted).
3
STANDARDS
Summary judgment is appropriate when all pleadings, depositions, answers to
interrogatories, admissions and affidavits on file “show that there is no genuine issue as to any
material fact and . . . the moving party is entitled to judgment as a matter of law.” Rule 56(c),
Fed.R.Civ.P., made applicable to adversary proceedings by Rule 7056, Fed.R.Bankr.P. 	An issue
is "genuine" if there is sufficient evidence on each side so that a rational trier of fact could
resolve the issue either way. Adler v. Wal-Mart Stores, Inc. 144 F.3d 664, 670 (10 th Cir. 1998),
citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202
(1986). 	An issue of fact is "material" if under the substantive law it is essential to the proper
disposition of the claim. Id. In determining whether any genuine issues of material fact exist, the
court must construe the record liberally in favor of the party opposing the summary judgment.
McKibben v. Chubb, 840 F.2d 1525, 1528 (10th Cir.1988)(citation omitted).
Dismissal for failure to plead a claim for alleged fraud with sufficient particularity is
governed by Rules 9(b) and 12(b)(6), Fed.R.Civ.P., made applicable to bankruptcy proceedings
by Rules 7009 and 7012, Fed.R.Bankr.P.,2 Rule 9(b), Fed.R.Civ.P. provides:
In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall
be stated with particularity. Malice, intent, knowledge, and other condition of mind of a
person may be averred generally.
Rule 9(b), Fed.R.Civ.P.
“One of the purposes for Rule 9(b) is ‘to afford defendant fair notice of plaintiff's claims and the
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factual background upon which [they] are based . . .’” In re Universal Factoring Co., Inc., 279
B.R. 297, 300 (Bankr.N.D.Okla. 2002) (quoting Koch v. Koch Indus., Inc., 203 F.3d 1202, 1236
(10th Cir.2000)). 	“‘Rule 9(b) does not ... require the pleading of detailed evidentiary matter, nor
does it require any particularity in connection with an averment of intent, knowledge, or
condition of mind. It only requires identification of the circumstances constituting fraud or
mistake.’” Seattle-First Nat. Bank v. Carlstedt, 800 F.2d at 1011 (quoting Trussell v. United
Underwriters, Ltd., 228 F.Supp. 757, 774 (D.Colo. 1964)). 	Generally, however, "Rule 9(b)'s
requirement that 'circumstances constituting fraud' be pleaded with particularity means that the
plaintiff must specify the source, time, place, manner and content of the allegedly fraudulent
representations, and the consequences thereof." In re Commercial Fin. Services, Inc., 322 B.R.
440, 448 (Bankr.N.D.Okla. 2003) (citing Koch v. Koch Indus., 203 F.3d at 1236)(remaining
citations omitted).
FACTS
The following facts are undisputed:
1. Lomas Auto Mall, Inc. is a New Mexico corporation organized on November 30,
1999. For some period of time, Debtor Michael Richesin served as president of Lomas Auto
Mall, Inc.
2. 	The Car Company, Inc. is a New Mexico corporation organized on March 22, 1993.
Defendant Michael Richesin is the president of The Car Company, Inc. Defendant Michael
Richesin owns 100% of the stock of The Car Company, Inc., subject to a lien by a third party on
the entirety of the stock. (See Defendant Michael Richesin’s Answer to Trustee’s Complaint
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3Defendant Donald Richesin stated in his answer to the complaint that he is without
knowledge sufficient to admit or deny these facts. (See Defendant Donald Richesin’s Answer to
Trustee’s Complaint filed on March 1, 2007 - Docket # 6). Because these facts relate only to the
claims against Defendant Michael Richesin, the Court has included it as part of the undisputed
facts even though Defendant Donald Richesin has not admitted these facts.
5
filed 3/1/2007; Docket # 7). 3
3. Debtor filed a voluntary petition under Chapter 13 of the Bankruptcy Code on
February 10, 2004.
4. The Chapter 13 Trustee was appointed as trustee in the Debtor’s chapter 13
proceeding on the same day.
5. On March 30, 2005, the case converted from Chapter 13 to Chapter 11.
6. On July 7, 2006, the case converted from Chapter 11 to Chapter 7, and Plaintiff was
appointed Chapter 7 Trustee.
7. On March 1, 2007, the Chapter 7 Trustee filed this adversary proceeding seeking
turnover of certain alleged property of the estate under § 542, and seeking to avoid alleged
fraudulent transfer(s) under §§ 548 and 550. See Complaint to Avoid Fraudulent or Post-Petition
Transfer, to Recover Property for the Estate, and for Turnover (“Complaint”). 	The Complaint
also asserts that Lomas Auto Mall, Inc. and The Car Company, Inc. are alter egos of each other.
See Complaint, ¶ 10.
8. 	The case converted from Chapter 13 to Chapter 11 within two years of the date of the
filing of the petition.
DISCUSSION
Whether the Complaint is Time-barred Under 11 U.S.C. § 546(a).
Section 546 contains a statute of limitations applicable to proceedings to recover alleged
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4The limitations period set forth in 11 U.S.C. § 546(a) does not apply to actions for
turnover brought under 11 U.S.C. § 542. See 11 U.S.C. § 546(a).
6
fraudulent transfers under 11 U.S.C. § 548.4 It provides:
An action or proceeding under section 544, 545, 547, 548, or 553 of this title may
not be commenced after the earlier of --
(1) the later of--
(A) 2 years after the entry of the order for relief; or
(B) 1 year after the appointment or election of the first trustee
under section 702, 1104, 1163, 1202, or 1302 of this title if
such appointment or such election occurs before the
expiration of the period specified in subparagraph (A); or
(2) the time the case is closed or dismissed.
11 U.S.C. § 546(a).
Under 11 U.S.C. § 546(a), the limitation period expires two years after the order for relief, or one
year after the appointment of the first trustee, whichever is later, provided the trustee is
appointed during the two-year period following the order of relief. 11 U.S.C. § 546(a). A
mechanical application of 11 U.S.C. § 546(a) to this adversary proceeding indicates that the
Plaintiff's claim for recovery of the stock of Lomas Auto Mall, Inc. as an alleged fraudulent
transfer is time-barred.
The Defendant-Debtor filed a voluntary petition under Chapter 13 of the Bankruptcy
Code on February 10, 2004. 	By operation of 11 U.S.C. § 301, the commencement of the
Defendant-Debtor's voluntary bankruptcy case constituted an order for relief. The two-year
limitations period following the order for relief ended February 10, 2006. Under 11 U.S.C. §
546(a)(1)(B), the alternate period provided under the statute, the Chapter 13 Trustee was the first
trustee appointed under 11 U.S.C. § 1302 upon the commencement of the Defendant-Debtor's
voluntary Chapter 13 proceeding. One year after the appointment of the first trustee expired
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7
February 10, 2005. 	This adversary proceeding was not filed until March 1, 2007 well outside
the later of the two expiration dates provided under § 546(a)(1). Thus, because 11 U.S.C. §
546(a) sets as the outer limit the expiration of the periods in subsection (1) or the time the case is
closed or dismissed (whichever is earlier), and because both of the limitation periods set forth
under subsections (A) and (B) of subsection (1) expired before the Plaintiff filed the Complaint,
the claim for recovery of an alleged fraudulent transfer under § 548 is untimely.
Plaintiff urges the Court to toll the limitations period during the time the case proceeded
under Chapter 11. Under Plaintiff's theory, because the case converted from Chapter 13 to
Chapter 11 during the two year limitations period, the statute of limitations should not
recommence until conversion of the case to Chapter 7 in order to afford the Chapter 7 trustee an
opportunity to bring a timely action for fraudulent transfer under 11 U.S.C. § 548. 	Plaintiff
asserts that because the Defendant-Debtor had little incentive to bring a fraudulent transfer
action during the pendency of the case under Chapter 11, public policy weighs in favor of tolling
the limitations period during the pendency of the Chapter 11. This Court disagrees.
Section § 546(a)(1) applies to avoidance actions commenced by a debtor-in-possession
during the pendency of a case under Chapter 11. See Zilkha Energy Co. v. Leighton, 920 F.2d
1520, 5124 (10th Cir. 1990)("we construe § 546(a)(1) to apply to actions filed by a debtor in
possession, and we believe the period of limitation begins to run from the date of the filing of a
petition for reorganization under chapter11."). In Jobin v. Boryla (In re M & L Bus. Mach. Co.,
Inc.), 75 F.3d 586 (10th Cir. 1996), the Tenth Circuit considered whether the limitations period
should begin anew following the conversion of a case from Chapter 11 to Chapter 7. 	It held that
it does not, and applied the plain language of 11 U.S.C. § 546(a), noting that "[o]nce a trustee is
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5In re Dec, 272 B.R. 218, 224 (Bankr.N.D.Ill. 2001)(under equitable tolling doctrine, “a
plaintiff may avoid the bar of a statute of limitations if despite all due diligence on its part, it is
unable to obtain vital information bearing on the existence of its claim)(citations omitted). See
also, Moratzka v. Pomaville (In re Pomaville), 190 B.R. 632, 636-637 (Bankr.D.Minn.1995)
(stating that “[w]hen fraud goes undiscovered because the defendant has taken positive steps
after commission of the fraud to keep it concealed, § 546(a)(1) is tolled until there is actual
discovery of the fraud” (citing Tomera v. Galt, 511 F.2d 504, 510 (7th Cir.1987) and noting
further that “[i]n such instances there is no obligation on the part of the plaintiff to use due
diligence to discover the fraud” (citing In re Lyons, 130 B.R. 272, 280 (Bankr.N.D.Ill.1991). . . .
8
appointed, the limitations period is set in motion." Id. at 590 (citing Gillman v. Mark Oakes
Trucking (In re CVA Assocs.), 171 B.R. 122, 127 (D.Utah 1994)). 	As stated by the court in CVA
Assocs., "[a]lthough a trustee may be appointed under a variety of different Code sections, §
546(a) plainly states that once any trustee has been appointed, the two year limitations period
begins to run." 171 B.R. at 127. 	And while it is unusual for a case to begin as a Chapter 13,
convert to Chapter 11, and then convert to Chapter 7 more than two years after the
commencement of the bankruptcy proceeding, these facts alone are insufficient to toll the
limitations period contained in 11 U.S.C. § 546(a) according to its terms. "[T]he focus of
statutes of limitations is to protect defendants-not to provide a clean slate for trustees to bring old
claims." CVA Assocs., 171 B.R. at 128 (citations omitted). 	Plaintiff's policy arguments must,
therefore, fail in the face of the plain language of the statute.
Alternatively, Plaintiff argues that equitable tolling should prevent the statute from
running. "Section 546(a) is subject to the doctrine of equitable tolling." M & L Bus. Mach., 75
F.3d at 591 (citing In re United Ins. Management, Inc., 14 F.3d 1380, 1384 (9th Cir. 1994)).
Under the doctrine of equitable tolling, the statute of limitations under 11 U.S.C. § 546(a) will
not run when the trustee, despite the exercise of due diligence, is prevented from timely asserting
a cause of action due to fraud. M & L Bus. Mach., 75 F.3d at 591. 5 Generally, equitable tolling
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because “[t]he defendant's conduct justifies tolling of the statute of limitations.”)).
6In re J & D Sciences, Inc., 335 B.R. 791, 797 (Bankr.M.D.Fla. 2006)(“In the case of . . .
a fraudulent transfer, application of the principle of equitable tolling requires the trustee to prove
that: (1) the alleged fraud was concealed by affirmative acts or misrepresentations by any of the
parties involved; or (2) if the fraud was not affirmatively concealed, it went undiscovered in spite
of the trustee’s due diligence to discover the fraud.”)(citing IBT Int’l, Inc., v. Northern, (In re
Int’l Admin. Services, Inc.), 408 F.3d 689, 701 (11 th Cir. 2005)).
9
requires the following: 1) wrongful conduct that prevented plaintiff from timely asserting the
claim; and 2) extraordinary circumstances outside the plaintiff's control which made it
impossible to timely assert the claim. See In re Hydro-Action, Inc., 341 B.R. 186, 190
(Bankr.E.D.Tex. 2006) (stating that “‘the application of equitable tolling is appropriate where:
(1) a defendant has actively misled a plaintiff; (2) a plaintiff has been prevented , in some
extraordinary way or circumstance, from asserting his rights; or (3) a plaintiff has asserted his
rights in a timely manner, but in the wrong forum.’”)(quoting In re Miller, 333 B.R. 368, 372
(Bankr.N.D.Tex. 2005).6 Equitable tolling does not apply just because it was impossible for the
Chapter 7 trustee to commence a proceeding due to the fact that the trustee's appointment
occurred after the expiration of the limitation period. See Hydro-Action, 341 B.R. at 191 (noting
that “the singular fact that the limitations period expired prior to the appointment of the Chapter
7 trustee does not constitute an equitable consideration sufficient to trigger the tolling
doctrine.”). 	See also In re Bodenstein, 253 B.R. 46, 50 (8th Cir. BAP 2000)(finding that
equitable tolling did not apply to toll the limitations in § 546(a) during pendency of Chapter 13
proceeding). Whether equitable tolling should be applied is a fact-based inquiry. See Pomaville,
190 B.R. at 636 (“Because the applicability of equitable tolling is a fact-based decision, the
bankruptcy court determines whether equitable tolling governs in any given case.”)(citation
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omitted). See also, Hydro-Action, 341 B.R. at 191 (stating that equitable tolling is generally a
fact question, but acknowledging that it can, in certain circumstances be decided as a matter of
law)(citation omitted). Plaintiff asserts in his response that Debtor never scheduled the stock of
the Lomas Auto Mall, Inc. in his bankruptcy statements and schedules, and has actively
concealed his interest in that entity during the pendency of his bankruptcy proceeding. In
several of the cases which decline to apply equitable tolling, the transfers at issue were clearly
disclosed in the debtor's statements and schedules. See, e.g., Bodenstein, 253 B.R. at 50 (noting
that the debtors disclosed the transfers in their original statement of financial affairs so that the
Chapter 13 trustee was aware of those transfers at the outset); Hydro-Action, 341 B.R. at 192-
193 (all preferential transfers and transferees were disclosed in schedules; equitable tolling did
not apply to the trustee’s claims under 11 U.S.C. § 547). In this case, they were not. Whether
Defendant-Debtor actively concealed an interest in Lomas Auto Mall, Inc. and whether this is
sufficient to apply equitable tolling to Plaintiff's fraudulent transfer claims is a question of fact
that precludes summary judgment in favor of Defendants at this time. Cf. M & L Bus. Mach., 75
F.3d at 591 (declining defendants' invitation to deny equitable tolling as a matter of law). 	In
addition, there has been little indication of the Plaintiff’s diligence in investigating and bringing
this action. 	Nearly eight months elapsed between the date the case converted to Chapter 7 and
the date the Plaintiff filed this adversary proceeding. 	But because equitable tolling is a question
of fact and because Defendants’ argument was limited to the strict application of 11 U.S.C. §
546(a), the Court cannot not grant summary judgment on this issue.
Summary judgment cannot be granted on claims for turnover under 11 U.S.C. § 542.
With regard to the stock of Lomas Auto Mall, Inc., Defendants contend that the stock
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was initially issued to Donald Richesin and that Michael Richesin never had any ownership
interest in the stock. 	In support of this contention, Michael Richesin filed an Affidavit stating,
among other things, that he never owned any stock of Lomas Auto Mall, Inc., that he never
served as its president, and that he signed documents as president on behalf of the Lomas Auto
Mall, Inc. only as “authorized agent and on behalf of the actual president of the company,
Donald Richesin.” See Affidavit of Michael Richesin, ¶ 7. 	Attached to the Affidavit of Michael
Richesin is a copy of the stock certificate for Lomas Auto Mall, Inc. in the amount of 50,000
shares issued to his brother, Defendant Donald Richesin. 	However, the stock certificate is
undated. 	Moreover, Plaintiff attached as exhibits to his response a copy of a corporate
information inquiry sheet from the New Mexico Public Regulation Commission reflecting
Michael Richesin as president of Lomas Auto Mall, Inc., and a Financing Statement and Security
Agreement dated April 23, 2004 signed by Michael Richesin as president on behalf of both
Lomas Auto Mall, Inc. and The Car Company, Inc. The Financing Statement and Security
Agreement do not state that Michael Richesin is signing on behalf of Donald Richesin as
president of Lomas Auto Mall, Inc. 	These exhibits and the fact that the stock certificate issued
to Donald Richesin is undated are sufficient to raise fact issues as to whether Michael Richesin
ever owned the stock of Lomas Auto Mall, Inc. or served as its president.
As to the stock of The Car Company, Inc., Defendant Michael Richesin argues that
because the stock was pledged as security and transferred to M. D. Lohman prior to the filing of
the bankruptcy petition, the stock is not property of the bankruptcy estate. 	This argument is
flawed. 	“Purchaser” as defined by N.M.S.A. 1978 § 55-1-201(30) (Cum Supp. 2005) “means a
person that takes by purchase,” which in, turn, includes “taking by . . . pledge, lien, [or] security
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7Cf. Rubin v. U.S., 449 U.S. 424, 429, 101 S.Ct. 698, 701, 66 L.Ed.2d 633 (1981)
(construing Section 17(a) of the Securities Act of 1933 to hold that a pledge of stock is an “offer
of sale” but acknowledging generally that “pledges [of stock as collateral for a loan] transfer less
than absolute title”).
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interest.” N.M.S.A. 1978 § 55-1-201(29) (Cum Supp. 2005). 	Under N.M.S.A. 1978 § 55-8-
104(a), (Repl. Pamp. 2001) “[a] person acquires a security or an interest therein . . . if . . . the
person is a purchaser to whom a security is delivered pursuant to Section 55-8-301 NMSA
1978.” (emphasis added). Nothing in these statutes indicates that the “purchaser,” as a person
who acquires a security interest in a stock by delivery acquires all interests in the stock; rather,
such party holding a stock certificate as security for a loan holds an interest therein. 7 Defendant
Michael Richesin concedes that the stock of The Car Company, Inc. was pledged as security for
a loan obtained by M. D. Lohman, and that he “will get the stock back once the promissory notes
to Mr. Lohman have been paid.” See Defendant’s Motion for Summary Judgment, p. 7. 	In this
case, the “transfer” of the stock, and the physical possession of the stock by M. D. Lohman did
not transfer ownership, but merely served as the method to perfect M.D.Lohman’s security
interest in the stock. See N.M.S.A. § 55-9-313(a) (Cum. Supp. 2005) (“A secured party may
perfect a security interest in certificated securities by taking delivery of the certificated securities
under Section 55-8-301 NMSA 1978.”). Summary judgment, therefore, cannot be granted in
favor of Defendant Michael Richesin as to the stock of The Car Company, Inc.
Failure to Plead Claims of Alter-Ego/Corporate Veil Piercing with Sufficient Specificity.
Defendant asserts that the Plaintiff’s claim based on a theory of alter ego fails because
Plaintiff failed to plead this theory with particularity in accordance with Rule 9(b), Fed.R.Civ.P.
Plaintiff responds to this argument by stating that “the alter ego theory so maligned by the debtor
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8See, Lowell Staats Mining Co., Inc., v. Pioneer Uravan, Inc., 878 F.2d 1259 (10th Cir.
1259)(applying Colorado law governing corporate veil piercing); In re Hertzler Halstead Hosp.,
334 B.R. 276 (Bankr.D.Kan. 2005)(applying Kansas law to determine whether to pierce the
corporate veil); Towe v. Martinson, 195 B.R.137, 140 (D.Mont. 1996)(stating that “[w]hether . . .
13
is not the only focus of the trustee’s complaint.” See Trustee’s Response, p. 7. While it is
correct that the alter ego doctrine is not itself a cause of action, Plaintiff’s Complaint does appear
to rely on the doctrine as a basis for recovery under his action for turnover. See Complaint,
prayer for relief, ¶ B; Fidelity Nat. Title Ins. Co. of New York v. Bozzuto, 227 B.R. 466, 471 n.8
(E.D.Va. 1998) (noting that “[t]he alter ego doctrine is a method of imposing liability on an
underlying cause of action, not an independent cause of action.”)(citation omitted). The Court,
will, therefore, examine the Complaint to determine whether it contains sufficient allegations of
alter ego.
The Complaint asserts that "[t]o the extent that The Car Company and Lomas Auto Mall
are alter egos, debtor should be required to turn over the entire business," (See Complaint, ¶ 14),
and asks the Court to “determine that Lomas Auto Mall and the Car Company are alter egos of
each other, [and] are the sole property of the debtor Michael Richesin." See Complaint, ¶ A.,
prayer for relief. 	Other allegations in the Complaint concerning Plaintiff’s claim of alter ego
and/or corporate veil piercing are limited to the following:
The Car Company Inc. conducts business using the trade name of Lomas Auto Mall.
Upon information and belief, Lomas Auto Mall, Inc. and the Car Company, Inc. are alter
egos of one another. Debtor Michael Richesin effectively controls all operations of the
Car Company and Lomas Auto Mall, and Defendant Donald Richesin has no control. See
Complaint, ¶ 10. Debtor Michael Richesin has the sole management and control of
Lomas Auto Mall. Complaint, ¶ 7.
State law applies to determine whether a non-debtor corporation is, in fact, the alter-ego
of the debtor or whether the corporate veil should be pierced.8 Under New Mexico law, the alter
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a trustee can claim the right of alter ego to reach assets of the estate depends on state
law”)(citation omitted). See also, Spartan Tube and Steel, Inc. v. Himmelspach, (In re RCS
Engineered Products, Co., Inc.), 102 F.3d 223, 225 (6th Cir. 1996) (noting that “[w]hether a
particular cause of action is available to the debtor, and thus constitutes ‘property of the estate,’
is determined by state law.”)(citation omitted).
9See also, Garcia v. Coffman, 124 N.M. at 15, 946 P.2d at 219 (“The three requirements
for piercing the corporate veil are: (1) instrumentality or domination; (2) improper purpose; and
(3) proximate cause.”)(citing Harlow v. Fibron Corp., 100 N.M. 379, 382, 671 P.2d 40, 43
(Ct.App.1983) (citing Cathy S. Krendl & James R. Krendl, Piercing the Corporate Veil:
Focusing the Inquiry, 55 Denver L.J. 1 (1978)).
14
ego doctrine is a requisite to piercing a corporate veil. Garcia v. Coffman, 124 N.M. 12, 16, 946
P.2d 216, 220 (Ct.App. 1997). 	Corporate veil piercing claims requiring a showing of the
following elements under New Mexico law: “instrumentality or domination, improper purpose
and proximate causation.” Scott v. AZL Resources, Inc., 107 N.M. 118, 121, 753 P.2d 897, 900
(1988)(citation omitted). 9 The instrumentality or domination requirement for corporate veil
piercing is the alter ego doctrine. Id. 	Because corporate veil piercing is an equitable remedy,
something more than mere domination or control is required, so that the separate form of the
corporate entity will be ignored only “where the corporation was set up for fraudulent purposes
or where to recognize the corporation would result in injustice.” Id. (citing Scott Graphics, Inc.
v. Mahaney, 89 N.M. 208, 211, 549 P.2d 623, 626 (Ct.App.)). 	The New Mexico Supreme Court
explained further that the alter ego/corporate veil piercing theory “also requires a showing that
recognition of the separate corporate existence of the two corporations would sanction fraud or
other improper purposes.” AZL Resources, 107 N.M. at 121, 946 P.2d at 900 (citing Harlow, 100
N.M. at 382, 671 P.2d at 43).
Defendant Michael Richesin asserts that these statements indicate that New Mexico law
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10See Wiebe v. Benefits Management Corp., 1993 WL 246096, *1 (D.Kan. 1993) (“As a
general rule, allegations 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).”)(citations omitted). Cf. In re Harvard Knitwear,
Inc., 153 B.R. 617, 626 (Bankr.E.D.N.Y. 1993) (finding that allegations premised on alter ego
theory were not fraud claims, implicating Rule 9(b), Fed.R.Civ.P., where claim was predicated
on allegations of domination, control, and treatment of corporate assets as defendant’s personal
assets); Rolls-Royce Motor Cars, Inc. v. Schudroff, 929 F.Supp. 117, (S.D.N.Y. 1996) (because
under New York law “a veil piercing claimant can prevail without proving fraud, plaintiff's alter
ego allegations will not be held to the particularity requirement of Fed.R.Civ.P. 9(b).” Rather,
allegations of alter ego are judged under the liberal “notice pleading” standard of Fed.R.Civ.P.
8(a)).
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governing alter ego/corporate veil piercing requires a showing of fraud, which must be plead
with particularity in accordance with Rule 9(b), Fed.R.Civ.P. 	This Court disagrees.
Fraud is not one of the necessary elements for recovery under an alter ego theory. 	Under
applicable New Mexico law, relief can be granted where recognizing the separate existence of
the two corporations “would sanction fraud or other improper purposes” or when “the
corporation was set up for fraudulent purposes or where to recognize the corporation would
result in injustice.” AZL Resources, 107 N.M. at 121, 753 P.2d at 900. 	Fraud can serve as the
basis for alleging alter ego, but other improper purpose or injustice may also suffice. 	Thus the
specificity required under Rule 9(b), Fed.R.Civ.P. does not apply to claims based on theory of
alter ego.10 Rather, the more liberal notice pleading standards of Rule 8, Fed.R.Civ.P. applies to
claims based on the alter ego doctrine.
Under Rule 8, Fed.R.Civ.P., made applicable to adversary proceedings by Rule 7008,
Fed.R.Bankr.P., a complaint must contain “a short and plain statement of the claim showing that
the pleader is entitled to relief.” Rule 8(a), Fed.R.Civ.P. Its purpose it to ensure that defendants
are put on sufficient notice of the plaintiff’s claims and the factual basis to support those
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11See In re Sheffield Steel Corp., 320 B.R. 405, 415-416 (Bankr.N.D.Okla. 2004) (noting
that to satisfy the notice pleading standard under Rule 8 the statement of the claim need only
“give the defendant fair notice of what the plaintiff's claim is and the grounds upon which it
rests.”). See also Garcia v. Coffman, 124 N.M. at 15, 946 P.2d at 219 (under the “notice
pleading” requirements, “‘it is sufficient that defendants be given only a fair idea of the nature of
the claim asserted against them sufficient to apprise them of the general basis of the claim
[.]’”)(quoting Petty v. Bank of N.M. Holding Co., 109 N.M. 524, 526, 787 P.2d 443, 445 (1990).
12 The Court notes that neither Lomas Auto Mall, Inc. nor The Car Company, Inc. are
named as defendants in this proceeding.
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claims.11
The Court finds that the Complaint put Defendants on sufficient notice of Plaintiff’s alter
ego theory; however, the allegations to support Plaintiff’s alter ego theory are deficient.
Plaintiff’s alter ego theory is an attempt to show that both companies are really assets of the
bankruptcy estate that should be turned over under 11 U.S.C. § 542. 	The Complaint contains
assertions of dominion and control, and asserts further that the transfer of stock of Lomas Auto
Mall, Inc. was a sham that was made with the intent to hinder, delay or defraud creditors. Cf. In
re Harvard Knitwear, Inc., 153 B.R. 617, 626 (Bankr.E.D.N.Y. 1993) (noting that “[f]ederal
courts have consistently held that general allegations of dominion and control will suffice to
survive a motion to dismiss claims predicated on an alter ego theory.”)(citations omitted). But
the Complaint fails to allege how Lomas Auto Mall, Inc. and The Car Company, Inc. acted as
alter egos, i.e., did the corporations share one bank account or co-mingle assets, or did Defendant
Michael Richesin treat the assets of both companies as his own personal assets. Nor do the
paragraphs describing Plaintiff’s alter ego theory specifically articulate an improper purpose or
proximate causation, two of the elements necessary to a veil piercing claim.12
Of course, within the context of bankruptcy, the implied improper purpose is to keep
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17
valuable assets out of the bankruptcy estate, and the implied proximate cause of damage is that
creditors of the estate will be prevented from sharing in those assets. 	Therefore, because the
Complaint put Defendants on notice of the Plaintiff’s theory that Lomas Auto Mall, Inc. and the
Car Company, Inc. are alter egos of each other due to Defendant Michael Richesin’s alleged
domination, control, and sham transfer of stock to his brother, the Court finds that Plaintiff
should be allowed to amend the Complaint rather than suffer dismissal at this juncture. 	Cf.
Wiebe v. Benefits Management Corp., 1993 WL 246096, *3 (D.Kan. 1993)(noting that even if
plaintiff’s complaint were “insufficient in setting forth the nature of her claims of alter ego, the
correct remedy would be to permit amendment rather than require dismissal.”). The Complaint
should describe with greater particularity the underlying facts supporting Plaintiff’s belief that
the two companies are alter egos of one another such that all assets of both companies are
property of the bankruptcy estate that should be turned over to the trustee.
Based on the foregoing, the Court will deny the motion for summary judgment as to the
claims for recovery of fraudulent transfer and turnover of assets, and grant the motion as to the
allegations of recovery based on alter ego unless Plaintiff amends the Complaint to plead a more
definite statement as to his alter ego theory. An order will be entered in accordance with this
Memorandum.
____________________________________
MARK B. McFEELEY
United States Bankruptcy Judge
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COPY TO:
Daniel J. Behles 	William F. Davis 	Russell C. Lowe
Attorney for Plaintiff 	Charles R. Hughson 	Attorney for Donald Richesin
226-A Cynthia Loop NW 	Attorney for Michael Richesin 	PO Box 90536
Albuquerque, NM 87114 	6079 Academy NE, Suite A 	Albuquerque, NM 87199
Albuquerque, NM 87109
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