George A. Bavelis v. Ted Doukas

09/27/2018
IN THE COURT OF APPEALS OF TENNESSEE
AT KNOXVILLE
July 18, 2018 Session
GEORGE A . BAVELIS v. TED DOUKAS ET AL.
Appeal from the Chancery Court for Knox County
No. 191625-2 Clarence E. Pridemore, Jr., Chancellor
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No. E2017-02050-COA-R3-CV
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This is a fraudulent transfer case. Defendant-debtor purportedly orchestrated the removal
and transfer of large sums of money to and from several different business entities—all of
which are controlled by Defendant. Plaintiff-creditor sued, at first naming only
Defendant and one entity; however, during the course of litigation, Plaintiff discovered
two other entities possibly involved in Defendant’s scheme. After being added as
defendants, these two additional entities moved to dismiss Plaintiff’s TUFTA claim
against them pursuant to Tennessee Rule of Civil Procedure 12.02(6), which the trial
court granted. We reverse.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancert Court Reversed
and Remanded
ARNOLD B. GOLDIN, J., delivered the opinion of the court, in which D. MICHAEL SWINEY,
C.J., and JOHN W. MCCLARTY, J., joined.
W. Edward Shipe, Knoxville, Tennessee, and Christopher J. Hogan, Columbus,
Tennessee, for the appellant, George A Bavelis.
Mark E. Brown, Knoxville, Tennessee, for the appellees, Athena of S.C., LLC, and FZA
Note Buyers, LLC.
OPINION
BACKGROUND AND PROCEDURAL HISTORY
On May 16, 2016, Plaintiff filed a Verified Complaint for Injunctive Relief and
Damages in the Knox County Chancery Court, asserting a claim under Tennessee’s
Uniform Fraudulent Transfer Act (“TUFTA”) against Ted Doukas (“Doukas”) and Likos
of Tennessee Corp. (“Likos”). Nearly a month later, on June 15, 2016, Plaintiff filed a
First Amended Complaint for Injunctive Relief and Damages (“Amended Complaint”),
asserting a similar claim against Doukas and Likos, but also naming as defendants
Athena of SC, LLC (“Athena”) and FZA Note Buyers, LLC (“FZA”). In the Amended
Complaint, Plaintiff asserted that Doukas—who controls Likos, Athena, and FZA—faced
substantial monetary liability to Plaintiff for fraud and breach of fiduciary duties as part
of an Adversary Proceeding filed in 2010, which was pending before the U.S. Bankruptcy
Court for the Southern District of Ohio.1 According to Plaintiff, however, despite the
pendency of these claims, Doukas—through Likos, Athena, and FZA—took steps to
fraudulently conceal and shield his assets from Plaintiff. Such assets include two real
estate properties located in Tennessee. The first pertains to certain apartment properties
located in Monroe County, Tennessee, which Doukas acquired in conjunction with a
settlement in a separate lawsuit (“Monroe Apartment Properties”).2 The second pertains
to a parcel of real property located in Oak Ridge, Tennessee (“Oak Ridge Property”).
Following a successful judicial settlement conference, a report and
recommendation memorializing the Stooksbury settlement was submitted to the District
Court. Pursuant to the settlement, the Monroe Apartment Properties were transferred to
Doukas directly by two quitclaim deeds, both of which were executed on August 17,
2015. Subsequently, on August 21, 2015, both deeds were recorded with the Register of
Deeds for Monroe County; however, in such recordings, the “Owner” was identified as
Likos, not Doukas. Further, on August 26, 2015, Doukas and Likos executed an
Assignment of Receiver’s Quitclaim Deeds, which indicated that Likos, as the Assignee,
had previously maintained equitable ownership of the Monroe Apartment Properties
since a December 1, 2014 settlement agreement between Doukas and the receiver.
Plaintiff, in the Amended Complaint, asserted that this assignment was prepared, signed,
and recorded just weeks after Plaintiff had filed an emergency motion with the
Bankruptcy Court for an order allowing the immediate registration of a contempt
judgment against Doukas. Plaintiff also asserted that the assignment’s language
purporting that Likos had been the true and lawful owner of the Monroe Apartment
Properties since December 1, 2014 was contrary to the report and recommendation issued
in Stooksbury, which unequivocally stated that such properties were to be transferred to
Doukas individually.
In May 2016, Likos borrowed approximately $1.4 million from Pinnacle Bank in
Nashville, granting Pinnacle Bank a security interest in the Monroe Apartment
1
On February 22, 2017, the Bankruptcy Court issued Proposed Findings of Fact and Conclusions
of Law in which it recommended that the District Court award Plaintiff $116,600 in compensatory
damages and $1,000,000 in punitive damages as a result of Doukas’ fraudulent scheme. See Bavelis v.
Doukas, Case No. 2:10-ap-02508 (Bankr. S. D. Ohio). Defendants, in their brief on appeal, admit that
“[t]here is no dispute that [Plaintiff] is a creditor of [Doukas] as a result of the proceedings in the United
States Bankruptcy Court for the Southern District of Ohio.”
2
That separate litigation is captioned as Stooksbury v. Ross, Case No. 3:12-CV-548 (E.D. Tenn.)
(“Stooksbury”).
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Properties. At a June 1, 2016 hearing, Doukas testified that such loan proceeds were then
used to pay off a separate obligation owed by Athena to Pinnacle Bank, which was
secured by the Oak Ridge Property. The Oak Ridge Property, at the time, was being
occupied by an entity called Nucsafe, which, in January 2016, purportedly conveyed, by
way of a quitclaim deed, all of its interest in the Oak Ridge Property to Athena. Plaintiff,
however, asserts that Doukas used the loan proceeds not to pay off Athena’s debt to
Pinnacle Bank, but rather to help FZA purchase a debt owed by Nucsafe to Pinnacle
Bank.
On June 29, 2016, Athena and FZA moved to dismiss Plaintiff’s Amended
Complaint pursuant to Tennessee Rule of Civil Procedure 12.02(6), stating that it failed
to state a claim upon which relief could be granted. According to Athena and FZA, the
Amended Complaint alleged a single cause of action for a fraudulent transfer from
Doukas to Likos, and that Plaintiff did not—and could not—allege that either Athena or
FZA had engaged in fraudulent transactions. On July 19, 2016, the day after Plaintiff
filed his opposition to the motion to dismiss, Athena and FZA, together with Doukas and
Likos, filed an action in the United States District Court for the Eastern District of
Tennessee, requesting that the District Court order the Knox County Chancery Court to
dismiss Plaintiff’s Amended Complaint on the grounds that the chancery court’s
temporary restraining order and temporary injunction interfered with a prior order issued
by the District Court.3 Plaintiff, pursuant to Federal Rule of Civil Procedure 12(b)(6),
moved to dismiss this federal action, which the District Court granted on February 22,
2017.
On August 9, 2017, with the above federal matter dismissed, the Knox County
Chancery Court scheduled a hearing for the previously referenced motion to dismiss. On
September 13, 2017, after hearing argument on the motion, the chancery court ruled from
the bench that Plaintiff’s TUFTA claim against Athena and FZA would be dismissed,
stating that “it’s clear from what I’ve seen that [Plaintiff] is not a creditor of either
Athena or FZA.” In the October 5, 2017 order memorializing it’s ruling, the court stated
that Plaintiff failed to state a claim upon which relief can be granted pursuant to
Tennessee Rule of Civil Procedure 12.02(6). Plaintiff timely appealed.
ISSUE PRESENTED
Plaintiff raises the following issue for review, which we restate as follows:
Whether the trial court erred in determining Plaintiff could not assert viable claims
against Athena and FZA under TUFTA on the ground that Plaintiff was not a direct
creditor of either entity and, from such determination, dismissing Plaintiff’s claims
3
The federal action referenced here was captioned Likos of Tennessee Corp., et al. v. Bavelis,
Case No. 3:16-cv-449 (E.D. Tenn.).
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against Athena and FZA for failure to state a claim under Tennessee Rule of Civil
Procedure 12.02(6).
STANDARD OF REVIEW
“A Rule 12.02(6) motion challenges only the legal sufficiency of the complaint,
not the strength of the plaintiff’s proof or evidence.” Webb v. Nashville Area Habitat for
Humanity, Inc., 346 S.W.3d 422, 426 (Tenn. 2011). “The resolution of a 12.02(6) motion
to dismiss is determined by an examination of the pleadings alone.” Id. “A defendant
who files a motion to dismiss ‘admits the truth of the relevant and material allegations
contained in the complaint, but . . . asserts that the allegations fail to establish a cause of
action.’” Id. (quoting Brown v. Tenn. Title Loans, Inc., 328 S.W.3d 850, 854 (Tenn.
2010)). “In considering a motion to dismiss, courts ‘must construe the complaint
liberally, presuming all factual allegations to be true and giving the plaintiff the benefit of
all reasonable inferences.’” Id. (quoting Tigg v. Perelli Tire Corp., 232 S.W.3d 28, 31-32
(Tenn. 2007)). “A trial court should grant a motion to dismiss ‘only when it appears that
the plaintiff can prove no set of facts in support of the claim that would entitle the
plaintiff to relief.’” Id. (quoting Crews v. Buckman Labs. Int’l, Inc., 78 S.W.3d 852, 857
(Tenn. 2002)). Accordingly, “[t]he scope of review following the grant or denial of a
motion to dismiss involves a question of law, which we review de novo, without any
presumption of correctness.” Hill v. City of Memphis, No. W2013-02307-COA-R3-CV,
2014 WL 7426636, at *3 (Tenn. Ct. App. Oct. 22, 2014) (citing Lind v. Beaman Dodge,
Inc., 356 S.W.3d 889, 894-95 (Tenn. 2011)).
DISCUSSION
In its order dismissing Plaintiff’s TUFTA claim as to Athena and FZA, the Knox
County Chancery Court stated that Plaintiff failed to state a claim upon which relief could
be granted pursuant to Tennessee Rule of Civil Procedure 12.02(6) because “Plaintiff is
not a creditor of Athena and FZA.” Plaintiff, however, asserts that TUFTA—codified at
Tennessee Code Annotated sections 66-3-301 et seq.—plainly permits a creditor4, like
Plaintiff, to recover against not only the actual debtor, but also against subsequent
transferees. In Tennessee Code Annotated section 66-3-308, entitled “Remedies of
creditors,” TUFTA provides that a creditor may obtain “[a]n injunction against further
disposition by the debtor or a transferee, or both, of the asset transferred or of other
property.” Tenn. Code Ann. § 66-3-308(a)(3)(A) (emphasis added). Moreover, section
66-3-309, entitled “Defenses, liability, and protection of transferee,” provides that a
creditor may recover a judgment for the value of the asset transferred and that the
judgment may be entered against “[t]he first transferee of the asset or the person for
whose benefit the transfer was made” or against “[a]ny subsequent transferee other than a
4
TUFTA defines a “creditor” broadly as “a person who has a claim.” Tenn. Code Ann. § 66-3-
302(4).
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good-faith transferee or obligee who took for value or from any subsequent transferee or
obligee.” Id. at § 66-3-309(b)(1)-(2). Furthermore, “the person who invokes this defense
carries the burden of establishing good faith and the reasonable equivalence of the
consideration exchanged.” Id. at cmt. 1. Accordingly, these statutory provisions indicate
that an innocent purchaser of a fraudulently transferred asset may be protected to the
extent that he or she paid for the asset; however, such purchaser must have purchased in
good faith. After our review of Plaintiff’s allegations in the Amended Complaint and the
relevant statutory language referenced above, we are of the opinion that Plaintiff
presented sufficient factual allegations such that the Knox County Chancery Court’s
dismissal of Plaintiff’s TUFTA claim against Athena and FZA was in error.
As Plaintiff asserts in the Amended Complaint, Doukas assigned and transferred
ownership of the Monroe Apartment Properties to Likos without any consideration and
with the intent to hinder Plaintiff in his efforts to collect on an anticipated judgment in the
Adversary Proceeding. Doukas then orchestrated the removal of $1.4 million in equity
from the Monroe Apartment Properties. Subsequently, Doukas made that sum available
to Athena and/or FZA, although there are different accounts as to whom and for what
purpose. In the Amended Complaint, Plaintiff claimed that Doukas, at the June 1, 2016
temporary injunction hearing, testified that the $1.4 million was used “to pay a separate
obligation of Athena ‘to pay a loan’ to Pinnacle Bank.”. Contrary to such testimony,
however, Plaintiff, in the Amended Complaint, claimed that Doukas actually used the
proceeds “to help FZA purchase a debt owed by Nucsafe to Pinnacle Bank.” The
intention, according to Plaintiff, was the same—to further deprive him of a potential
recovery. By adding Athena and FZA as defendants in the Amended Complaint, Plaintiff
was simply following the money and the transactional trail allegedly orchestrated by
Doukas. Presuming the above factual allegations to be true and giving Plaintiff the
benefit of all reasonable inferences, we find that the Knox County Chancery Court erred
in granting Athena’s and FZA’s motion to dismiss.
CONCLUSION
For the foregoing reasons, the trial court’s order is reversed, and the case is
remanded for further proceedings as may be necessary and are consistent with this
Opinion.
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ARNOLD B. GOLDIN, JUDGE
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