In Howell v. U.S. Foods, Inc., Ch. 7 Case No. 11-13160, Adv. Proc. No. 13-1054, 2014 Bankr. LEXIS 681 (Bankr. N.D. Ga. Feb. 5, 2014) (click here for .pdf of Order), the individual debtor owned and managed a restaurant incorporated as Bilbo’s Bar-B-Que, Inc. However, the Trustee alleged that the Debtor operated the business as a sole proprietorship known as “Bilbo’s BBQ.” During the 90 day preference period, payments were made to U.S. Foods by checks which identified the drawer as “Bilbo’s BBQ.” The account agreement states that the account is owned by a “Corporation-For Profit,” with another individual identified as the “Owner/Signer” and Debtor as the “Non-Individual Owner.” The Trustee filed a complaint against U.S. Foods to recover the alleged preferential transfers, contending that because Debtor operated the business as a sole proprietorship rather than a corporate entity, the payments were a transfer of an “interest in the debtor” in property and on account of an antecedent debt owed by the Debtor. U.S. Foods filed a motion to dismiss for failure to state a claim, contending “that the corporation is distinct and separate from the Debtor and that the complaint is ‘devoid’ of any justification for attributing the corporation’s debts and asset transfers to the Debtor.” Judge Drake granted the Motion.
Although the complaint alleged that Debtor operated the business as a sole proprietorship, it was a conclusory allegation supported only by the fact that the restaurant was operated under the name “Bilbo’s BBQ” rather than “Bilbo’s Bar-B-Que, Inc.,” Debtor’s individual name was listed on the checking account, and Debtor treated the restaurant as a sole proprietorship for tax purposes. However, although the theory of veil piercing may be applied to link the debts of an individual and corporate entity, thus creating joint and several liability, the Trustee would still have to prove that assets transferred by the corporation were property interests of the Debtor.
However, to link assets, ostensibly belonging to the corporation, to the Debtor, the Trustee would not be attempting traditional veil piercing, but the contrary. “[R]everse veil piercing extends the traditional veil piercing doctrine to permit a third-party creditor to pierce the veil to satisfy the debts of an individual out of the corporation’s assets.” Acree v. McMahan, 276 Ga. 880, 881, 585 S.E.2d 873 (Ga. 2003) (internal quotations omitted). With the exception of one exceedingly narrow context, Georgia has firmly rejected the concept of “reverse piercing, at least to the extent that it would allow an ‘outsider,’ . . . to reach a corporation’s assets to satisfy claims against an individual corporate insider…”
The Trustee contends that the Debtor’s corporation was operated like a sole proprietorship, as presumably the alter-ego of the Debtor. Assuming the Trustee establishes the antecedent debt of the corporation as simultaneously the antecedent debt of the Debtor, the Trustee must make a plausible showing that the assets of the corporation, itself, could be attached to the Debtor’s individual antecedent debt and would have been property of the estate in the absence of their transfer. Because Georgia does not recognize a general theory of reverse veil piercing–and because this Court should otherwise respect the corporation as an entity, distinct from the Debtor-it appears that, assuming the truth of all facts asserted, there would be no cause of action linking the corporation’s assets to the Debtor under a theory of alter-ego or veil piercing.
The Court also rejected the Trustee’s argument that because the checks had the name of an unregistered trade name, it should be regarded as a personal business name of the Debtor and, therefore, payments from the account should be deemed payments of the Debtor.
[O]n the face of the complaint, it does not appear that “Bilbo’s BBQ,” the name on the checks, in any manner confuses the party intending to contract with US Foods. It appears to be a mere misnomer of the spelled out “Bilbo’s Bar-B-Que, Inc.” No other factual allegations are advanced by the Trustee that raise the right to relief above the speculative level under a theory that the Debtor operated under a fictitious or personal trade name.
The Trustee’s Complaint was, therefore, dismissed for failure to state a claim.