Applied Machinery Rentals LLC v. Total Equipment & Rental of El Paso LLC - Motion to Dismiss Denied

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Jan. 23, 2026 Get Citation Alerts Download PDF Add Note

In re: Applied Machinery Rentals, LLC v. Total Equipment & Rental of El Paso, LLC

United States Bankruptcy Court, W.D. North Carolina

• Citations: None known
• Docket Number: 25-03074

• Precedential Status: Unknown Status

• Opinion

• Authorities (20)

• Cited By (0)

• Summaries (0)

• Similar Cases (0)

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Trial Court Document

ILED & JUDGMENT ENTERED isi: Ay “Si
Christine F. Winchester + ie i : ca
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January 23 2026 v=5, we ante
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Clerk, U.S. Bankruptcy Court AA oy
Western District of North Carolina|
Benjamin A. Kahn
United States Bankruptcy Judge

UNITED STATES BANKRUPTCY COURT
WESTERN DISTRICT OF NORTH CAROLINA
CHARLOTTE DIVISION
In re: )
)
Applied Machinery Rentals, LLC, ) Chapter 7
)
Debtor. ) Case No. 23-30461
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)
Cole Hayes, Chapter 7 Trustee )
for the Bankruptcy Estate of )
Applied Machinery Rentals, LLC, )
)
Plaintiff, )
)
Vv. ) Adv. No. 25-03074
)
Total Equipment & Rental of El )
Paso, LLC, )
)
)
Defendant. )
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MEMORANDUM OPINION AND ORDER DENYING DEFENDANT’ S
MOTION TO DISMISS AMENDED COMPLAINT
This adversary proceeding came before the Court for hearing
on the Motion to Dismiss Amended Complaint filed by Total Equipment
& Rental of El Paso, LLC (“Defendant”), ECF No. 12, as well as the

Response in Opposition and supporting brief filed by Cole Hayes,
as chapter 7 trustee (“Plaintiff”) for the bankruptcy estate of
Applied Machinery Rentals, LLC, (“Debtor”). ECF Nos. 17 & 18. At

the close of hearing the Court took this matter under advisement.
For the reasons stated herein, the Court will deny Defendant’s
motion to dismiss.
JURISDICTION AND AUTHORITY
The district court has subject matter jurisdiction over this
adversary proceeding under 11 U.S.C. § 1334 (b). On April 14, 2014,
the district court entered its Amended Standing Order of Reference,
referring all proceedings arising under title 11 and arising in or
related to a case under title 11 to the bankruptcy judges for the
Western District of North Carolina. Under 28 U.S.C. § 155 (a), the
Honorable Albert Diaz, Chief Judge of the United States Court of
Appeals for the Fourth Circuit, assigned and designated the above-

signed judge to this Court and to the above-captioned case,
together with all associated adversary proceedings. Case No. 23-
30461, ECF No. 489, at 3. Thereafter, Chief Judge Laura T. Beyer
entered an Order referring this case and all related proceedings
to the above-signed as contemplated by the Order entered by the
Honorable Albert Diaz. Id. at 1-2.
Plaintiff alleges, and Defendant does not contest, that this
matter is a statutorily core proceeding under 28 U.S.C. § 157.
ECF No. 10, ¶ 5. The parties have consented to this Court entering
final orders and judgment in this adversary proceeding. Id. ¶ 9;
see Wellness Int’l Network, Ltd. v. Sharif, 575 U.S. 665, 678 (2015). Venue is proper under 28 U.S.C. § 1409.

PROCEDURAL BACKGROUND
Plaintiff initiated this adversary proceeding on July 8,
2025. ECF No. 1. On September 4, 2025, Defendant filed a motion
to dismiss Plaintiff’s Second and Fourth Claims for Relief. ECF
No. 7. On September 25, 2025, Plaintiff timely filed an Amended
Complaint as of right under Federal Rule of Civil Procedure
15(a)(1)(B), made applicable to this adversary proceeding by
Bankruptcy Rule 7015. ECF No. 10 (the “Amended Complaint”). On
September 29, 2025, the Court entered an order denying the motion
to dismiss the original complaint as moot. ECF No. 11. Defendant
thereafter filed a motion to dismiss the Amended Complaint. ECF
Nos. 12. On November 20 and 24, 2025, Plaintiff filed a response

in opposition and supporting brief. ECF Nos. 17 & 18.
FACTS1
Debtor filed a petition under chapter 7 of title 11 on July
17, 2023. Case No. 23-30461, ECF No. 1. Plaintiff serves as

chapter 7 trustee in the case. See Case No. 23-30461, ECF No. 16.
Prepetition, Debtor purported to be in the business of acquiring,
distributing, leasing, and selling Merlo Telehandlers. ECF No.
10, ¶ 12. Garth Errol McGillewie Jr. acted as Debtor’s sole
member, manager, and principal. Id. ¶ 13. McGillewie ran Debtor
from his home in North Carolina and from Debtor’s facility in South
Carolina. Id. ¶ 14. McGillewie used Debtor to operate a Ponzi
scheme. Id. ¶ 15. He borrowed money from creditors on false
pretenses and used proceeds from new investors to pay previous
investors and hide his fraud. Id. McGillewie obtained loans purportedly to finance the import
and purchase of telehandlers and represented to lenders that Debtor

would purchase and then lease telehandlers and use lease proceeds
to repay the loans. Id. ¶ 16. McGillewie pledged nonexistent

1 The Court has accepted the factual allegations in the Amended Complaint, ECF
No. 10, as true for purposes of determining whether the Amended Complaint states
a claim under Fed. R. Civ. P. 12(b)(6), except those facts of which the Court
may take judicial notice. See Fed. R. Civ. P. 12(b)(6). “[A] court may take
judicial notice of its own records.” Watkins v. Wells Fargo Bank, No. CIV.A.
3:10-1004, 2011 WL 777895, at *3 (S.D.W. Va. Feb. 28, 2011); see, e.g., Anderson
v. Fed. Deposit Ins. Corp., 918 F.2d 1139, 1141 n.1 (4th Cir. 1990) (finding
that a district court “should properly take judicial notice of its own records”
at the motion to dismiss stage); see also Fed. R. Evid. 201(c). “[B]oth the
Supreme Court of the United States and the Fourth Circuit have found that courts
may take judicial notice of items or matters in the public record, even at the
12(b)(6) stage of a proceeding.” Watkins, 2011 WL 777895, at *3; see Papasan
v. Allain, 478 U.S. 265, 268 n.1 (1986); Sec’y of State for Defence v. Trimble
Navigation Ltd., 484 F.3d 700, 705 (4th Cir. 2007).
telehandlers and pledged telehandlers to multiple lenders,
representing that each lender had a first-priority lien on the
same machine. Id. ¶ 17. McGillewie also sold telehandlers out of

trust to third parties without the lenders’ knowledge or consent
and without remitting the sale proceeds to the lenders. Id. ¶ 18.
McGillewie’s scheme included inducing creditors to purchase
telehandlers that usually did not exist and at well below fair
market value, and then, without the creditors taking possession,
leasing the telehandlers back to Debtor to be leased to other
parties. Id. ¶ 19. This arrangement allowed investors in the
Ponzi scheme to be paid returns. Id. McGillewie used the proceeds
to fund an extravagant lifestyle for himself and his family as
well as to enrich his friends. Id. ¶¶ 22, 23.
Debtor’s liabilities substantially exceeded its assets as of
year-end 2019 through 2022 and Debtor became more indebted as time

passed. Id. ¶ 47. Debtor also lacked revenue from legitimate
business activities throughout this time. Id. ¶ 28. But
McGillewie hid the fact that Debtor’s liabilities far exceeded its
assets and siloed fraudulent deals so that investors were not aware
of his conduct. Id. ¶¶ 27, 33. No party – other than McGillewie
– could have known of the widespread fraud scheme until 2023. Id.
¶¶ 15, 30.
Debtor made two transfers to Defendant: $100,000.00 on
February 13, 2020, and $50,000.00 on February 28, 2020. Id. ¶ 34.
These transfers are not documented in Debtor’s books. Id. ¶ 38.
Plaintiff investigated the relationship between Debtor and
Defendant, including by sending Rule 2004 subpoenas, but was unable

to discern the basis of the transfers. Id. ¶ 37. These transfers
were made under the guise of rent for or payment to repurchase
telehandlers that may or may not have existed. Id. ¶ 40. In
reality, any rent arrangement associated with these transfers was
a façade for an investment by Defendant in the Ponzi scheme. Id.
¶ 41.
On August 14, 2023, Defendant filed a proof of claim for
$62,152.63 (POC No. 7). Id. ¶ 44. This claim represents late
charges from 2020 or 2021 assessed on “rent” owed by Debtor to
Defendant for telehandlers that (i) may or may not have existed or
(ii) were paid for by Debtor in 2020, 2021, and 2022. Id. ¶ 45.
STANDARD OF REVIEW

Federal Rule of Civil Procedure 12(b)(6), made applicable to
this adversary proceeding by Bankruptcy Rule 7012, states that a
complaint, or certain claims therein, may be dismissed for “failure
to state a claim upon which relief can be granted.” To survive a
motion to dismiss under Rule 12(b)(6), “a complaint must contain
sufficient factual matter, accepted as true, to ‘state a claim to
relief that is plausible on its face.’” Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S.
544, 570 (2007)). The Supreme Court has explained that “[a] claim
has facial plausibility when the plaintiff pleads factual content
that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.” Iqbal, [556 U.S.

at 678](https://www.courtlistener.com/opinion/145875/ashcroft-v-iqbal/#678). While the plausibility requirement is not a probability
requirement, it “asks for more than a sheer possibility that a
defendant has acted unlawfully.” Id. When there are two plausible inferences from the facts, the
court must accept the inference favorable to the claimant. As
explained by Judge Drain,
‘Because plausibility is a standard lower than
probability, a given set of actions may well be subject
to diverging interpretations, each of which is
plausible,’ and ‘[t]he choice between two plausible
inferences that may be drawn from factual allegations is
not a choice to be made by the court on a Rule 12(b)(6)
motion.’ Thus, ‘[a] court ruling on such a motion may
not properly dismiss a complaint that states
a plausible version of the events merely because the
court finds a different version more plausible.’
In re Tops Holding II Corp., 646 B.R. 617, 646-47 (Bankr. S.D.N.Y.
2022) (quoting Anderson News, L.L.C. v. Am. Media, Inc., 680 F.3d
162, 184-85 (2d Cir. 2012)).
Courts employ a two-part test to determine whether a claim
should be dismissed under Rule 12(b)(6). In re Bynum, No. 12-
10660, 2012 WL 2974694, at *2 (Bankr. M.D.N.C. July 20,
2012). First, the Court must accept all the complaint’s well-
pleaded facts as true and view the complaint in a light most
favorable to the non-moving party. Mylan Laboratories, Inc. v.
Matkari, 7 F.3d 1130, 1134 (4th Cir. 1993); see also In re
Rutledge, 510 B.R. 491, 499 (Bankr. M.D.N.C. 2014) (noting that
the Court will “consider documents [or facts] incorporated into
the Complaint by reference”). Then, the Court must determine

whether facts cited in support of each claim demonstrate that the
plaintiff may plausibly be entitled to relief. Id.; see also In
re Gause, 525 B.R. 35, 37 (Bankr. M.D.N.C. 2014) (explaining that
all inferences are liberally construed in the plaintiff’s
favor). “In general, a motion to dismiss for failure to state a
claim should not be granted unless it appears certain that the
plaintiff can prove no set of facts which would support its claim
and would entitle it to relief.” Matkari, 7 F.3d at 1134.
DISCUSSION
In the Amended Complaint, Plaintiff first seeks to avoid,
recover, and preserve the $150,000.00 that Debtor transferred to
Defendant in February 2020 under 11 U.S.C. §§ 544, 550, and 551
based on constructive fraud and actual fraud under North Carolina

law and South Carolina law. ECF No. 10, at 8. Second, if Plaintiff
is successful on the first claim and Defendant does not repay the
amount transferred to Plaintiff, Plaintiff asserts that
Defendant’s proof of claim should be disallowed under § 502(d).
Id. ¶ 77. Alternatively, if Plaintiff is successful on the first
claim and Defendant does not repay the amount transferred to
Plaintiff, Plaintiff asserts that Defendant’s proof of claim
should be equitably subordinated to the claims of all other
creditors with allowable claims under § 510(c). Id. ¶ 80.
In its motion to dismiss, Defendant asserts six arguments: 1)

Plaintiff’s First Claim for Relief should be dismissed because it
constitutes a “shotgun pleading” as it fails to separate each cause
of action into separate counts, ECF No. 12, ¶¶ 4-7; 2) Plaintiff’s
claims for actual and constructive fraud arising under North
Carolina law should be dismissed because the facts alleged are
insufficient to warrant the application of North Carolina law,
id. ¶ 15;2 3) Plaintiff’s claim for actual fraud under South
Carolina law should be dismissed because Plaintiff has failed to
allege that Debtor’s fraudulent intent is imputable to Defendant,
id. ¶ 20; 4) Plaintiff’s claim for constructive fraud under South
Carolina law should be dismissed because Plaintiff has failed to
allege that Debtor received no (or nominal) consideration in

exchange for the transfer, id. ¶¶ 21, 22; 5) Because Plaintiff’s
First Claim for Relief should be dismissed Plaintiff’s claim under
§ 502(d) should also be dismissed, id. ¶ 25; and 6) Plaintiff’s
claim under § 510(c) should be dismissed because the Amended
Complaint is devoid of any allegations that Defendant engaged in
inequitable conduct. Id. ¶¶ 27, 28.

2 Defendant does not contend that the allegations in the Amended Complaint are
insufficient to state a claim to the extent that North Carolina law applies.
See ECF No. 12.
I. Defendant’s motion to dismiss Plaintiff’s First Claim for
Relief on the basis that it constitutes a “shotgun
pleading” is denied.
Rule 8(a)(2) requires a short and plain statement of the claim
showing that the pleader is entitled to relief. Fed. R. Civ. P.
8(a)(2). Rule 10(b) requires the plaintiff to state his claims in
numbered paragraphs, each limited as far as practicable to a single
set of circumstances. Fed. R. Civ. P. 10(b). Rule 10(b) also
states that “[i]f doing so would promote clarity, each claim
founded on a separate transaction or occurrence . . . must be
stated in a separate count . . . .” Id.
A “shotgun pleading” violates Federal Rule of Civil Procedure
8(a)(2), 10(b), or both.3 Barmapov v. Amuial, 986 F.3d 1321, 1324 (11th Cir. 2021). The Eleventh Circuit has identified “four rough
types or categories of shotgun pleadings.” Weiland v. Palm Beach
Cnty. Sheriff's Off., 792 F.3d 1313, 1321 (11th Cir. 2015). One
type of shotgun pleading identified by the Eleventh Circuit is a

pleading that does not separate into a different count each cause
of action or claim for relief. Id. at 1323. Importantly, a
complaint is not subject to dismissal as an impermissible shotgun
pleading just because it falls into one of the categories
identified by the Eleventh Circuit. See In re OpenPeak, Inc., No.
16-28464 (SLM), 2020 WL 7360482, at *17 (Bankr. D.N.J. Dec. 14,

3 Federal Rules of Civil Procedure 8 and 10 are made applicable to this adversary
proceeding by Federal Rules of Bankruptcy Procedure 7008 and 7010 respectively.
2020). Instead, the touchstone inquiry is whether the complaint
“give[s] the defendants adequate notice of the claims against them
and the grounds upon which each claim rests.” Weiland, [792 F.3d

at 1323](https://www.courtlistener.com/opinion/2815299/christopher-j-weiland-v-palm-beach-county-sheriffs-office/#1323); see also Wilkinson v. Wells Fargo Bank, N.A., No. 3:19-
CV-00580-RJC, 2020 WL 2542867, at *3 (W.D.N.C. May 19, 2020) (“A
shotgun pleading is one that fails to articulate claims with
sufficient clarity to allow the defendant to frame a responsive
pleading or one in which it is virtually impossible to know which
allegations of fact are intended to support which claims for
relief.”) (quotations omitted), aff'd Wilkinson v. FINRA, No. 22-
1090, 2023 WL 418063 (4th Cir. Jan. 26, 2023).
Plaintiff’s First Claim for Relief is based on a single set
of circumstances, and the inclusion of each of the causes of action
asserted in this claim does not confuse the issues. Defendant’s
motion to dismiss demonstrates that Defendant understands the

claims asserted against it and can formulate a response. See ECF
No. 12, ¶ 6 (“Plaintiff’s First Claim for Relief appears to assert
four (4) separate and distinct causes of action: (i) actual
fraudulent transfer under North Carolina fraudulent transfer law;
(ii) constructive fraudulent transfer under North Carolina
fraudulent transfer law; (iii) actual fraudulent transfer under
South Carolina fraudulent transfer law; and (iv) constructive
fraudulent transfer under South Carolina fraudulent transfer
law.”). Therefore, Plaintiff’s First Claim for Relief does not
constitute an impermissible “shotgun pleading” and Defendant’s
motion to dismiss on this basis is denied.
II. Defendant’s motion to dismiss is denied as to Plaintiff’s
claims for actual and constructive fraud under North
Carolina law.
Section 544(b) permits the trustee to avoid any transfer of
an interest in the debtor in property that is voidable under
applicable law by an unsecured creditor. 11 U.S.C. § 544 (b). The
“applicable law” upon which a trustee relies is most often state
law. Friedman v. Wellspring Cap. Mgmt., LLC, No. AP 19-80071-DD, 2020 WL 5083319, at *4 (Bankr. D.S.C. Aug. 27, 2020).
Courts often defer choice of law decisions until after
completion of discovery. M.D. Russell Constr., Inc. v. Consol.
Staffing, Inc., No. 22-1420, 2023 WL 8798086, at *3 (4th Cir. Dec.
20, 2023) (collecting cases); see also In re Martinez Quality
Painting & Drywall, Inc., No. 22-30357, 2025 WL 828882, at *4
(Bankr. W.D.N.C. Mar. 14, 2025) (stating that “many courts are

reluctant to engage in a choice of law analysis given the
potentially fact-intensive inquiry” when considering a motion to
dismiss). If a court defers the choice of law analysis, it may
apply the choice of law as alleged in the complaint under the Rule
12(b)(6) standard. Id. To the extent that a federal court engages in a choice of law
analysis, it generally must apply the choice of law principles of
the state in which the federal court sits. Yancey v. Remington
Arms Co., LLC, No. 1:10CV918, 2013 WL 5462205, at *3 (M.D.N.C.
Sept. 30, 2013) (citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313
U.S. 487, 496 (1941)). As a federal court sitting in North

Carolina, the Court must apply North Carolina choice of law
principles. See Friedman v. Wellspring Cap. Mgmt., LLC, No. AP
19-80071-DD, 2020 WL 5083319, at *4 (Bankr. D.S.C. Aug. 27, 2020)
(citing In re Merritt Dredging Co., Inc., 839 F.2d 203, 205 (4th
Cir. 1988)).
North Carolina’s Uniform Voidable Transactions Act contains
a choice of law provision which provides that a claim “is governed
by the local law of the jurisdiction in which the debtor is located
when the transfer is made.” N.C. Gen. Stat. § 39-23.9A(b). “A
debtor that is an organization and has only one place of business
is located at its place of business.” N.C. Gen. Stat. § 39 -
23.9A(a)(2). “A debtor that is an organization that has more than

one place of business is located at its chief executive office.” N.C. Gen. Stat. § 39-23.9A(a)(3). A determination of where Debtor
maintained a place of business and where Debtor’s chief executive
office was located is a question of fact.
In Howard v. Iomaxis, LLC, the plaintiffs alleged that the
purported debtor had been a North Carolina LLC since 2004. 2024
NCBC 76, 123 (N.C. Super. Ct. Nov. 27, 2024). The North Carolina
Superior Court of Mecklenburg County found that this allegation
was insufficient to support an inference that its chief executive
office was in North Carolina, and therefore the allegations did
not support a plausible claim that the transferor was a debtor
under N.C.G.S. § 39-23.9A(a). Id. at 124. In Iomaxis the

plaintiffs did not allege that the purported debtor had one or
more places of business and, if more than one place of business,
the location of its chief executive office. Id. In fact, in a
separate document attached to the complaint in that case, the
purported debtor professed to have a principal place of business
in Dallas, Texas. Id. at 124 n.21. Even if Howard were binding
precedent,4 Plaintiff’s allegations in this case nudge the claim
across the line of plausibility.
Plaintiff has alleged that McGillewie ran Debtor from his
home in North Carolina and from Debtor’s facility in South
Carolina, and that McGillewie was the sole member, manager, and
principal. ECF No. 10, ¶¶ 13, 14. Interpreting these facts in a

light most favorable to Plaintiff, it is plausible that Debtor
maintained a place of business in North Carolina and South Carolina
and that Debtor’s chief executive office was in North Carolina.

4 Although persuasive precedent, Howard is not binding precedent because this
Court must forecast what the North Carolina Supreme Court would do and is not
bound by the decisions of state trial courts. See Adamson v. Columbia Gas
Transmission, LLC, 579 F. App'x 175, 177 (4th Cir. 2014) (“A federal court
sitting in diversity has an obligation to apply the law of the forum state as
it is interpreted by the state's highest court. If the highest state court has
not addressed the issue or the law is unclear, the federal court must forecast a
decision of the state’s highest court in light of canons of construction,
restatements of the law, treatises, recent pronouncements of general rules or
policies by the state’s highest court, well considered dicta, and
the state’s trial court decisions.”) (citations omitted).
Determining what law applies in this proceeding will require a
factual inquiry into whether North Carolina and South Carolina
each constituted a place of business for Debtor, and if so, which

of these locations was Debtor’s chief executive office. The Court
cannot make this factual determination at the Rule 12(b)(6) stage.
Therefore, the Court will defer making a choice of law
determination until the factual record is developed and deny
Defendant’s motion to dismiss Plaintiff’s claims of actual and
constructive fraud under North Carolina law.
III. Defendant’s motion to dismiss Plaintiff’s claims for actual
and constructive fraud under South Carolina law is denied.

Even if South Carolina law applies, the Court would not
dismiss the claims at this stage. Under S.C. Code Ann. § 27-23 -
10, also known as the Statute of Elizabeth, “[e]xisting creditors
may avoid transfers under an actual fraudulent transfer theory or
under a constructive fraud theory.” In re J.R. Deans Co., Inc., 249 B.R. 121, 130 (Bankr. D.S.C. 2000).
a. Actual Fraud
Under South Carolina law, the elements of an actual fraudulent
transfer are “‘(1) the transfer was made by the grantor with the
actual intent of defrauding his creditors; (2) the grantor was
indebted at the time of the transfer; and (3) the grantor's intent
is imputable to the grantee.” Id. (quoting Mathis v. Burton, 319
S.C. 261, 264-65 (Ct. App. 1995)). The existence of a Ponzi scheme
creates a presumption of fraudulent intent on the part of the
proponent of the scheme. Ashmore v. Taylor, No. CA 3:13-2303-MBS, 2014 WL 6473714, at *3 (D.S.C. Nov. 18, 2014). This intent is
imputable to the transferee if the transferee had actual knowledge

of or participated in the scheme or “at the time of the transfer
the transferee had notice of circumstances which would arouse the
suspicion of an ordinarily prudent man and cause him to make
inquiry as to the purpose for which the transfer was being made,
which would disclose the fraudulent intent of the maker.” Id. at
*4 (quotations omitted).
Plaintiff alleges: (1) the transfers had no identifiable
business purpose and were made by McGillewie under the guise of
“rent” for or payment to repurchase telehandlers that may or may
not have existed, ECF No. 10, ¶ 40; (2) this rent arrangement was
a façade for an investment by Defendant in the Ponzi scheme, id.
¶ 41; (3) the transfers were part of McGillewie’s fraud scheme, id. ¶ 42; (4) Defendant’s proof of claim represents late charges
on “rent” due by Debtor to Defendant for those telehandlers, id.
¶ 45; and (5) the whole-number dollar amounts and lack of
documentation of the transfers are badges of fraud. Id. ¶ 38.
These allegations, construed in the light most favorable to
Plaintiff, support a plausible inference that either Defendant
knew about the fraud or that under the circumstances, an ordinarily
prudent person would have inquired into and discovered the fraud.
Defendant argues that the Amended Complaint’s allegations
that McGillewie siloed fraudulent deals “so that other investors
were not aware of his conduct” and that no creditor could have or

did discover the “widespread fraud scheme” until 2023 conclusively
establish that Defendant did not have knowledge of Debtor’s fraud
and belie that Defendant should have known about the fraud. ECF
No. 12, ¶¶ 18, 19. Drawing the allegations in the light most
favorable to Plaintiff and even accepting that Defendant could not
and did not discover the widespread fraud scheme until 2023, it
remains plausible that Defendant discovered or could have
discovered any of McGillewie’s fraudulent actions in relation to
these specific transfers. The badges of fraud alleged in the
Amended Complaint when considered in light of the entire
transaction and construed in a light most favorable to Plaintiff,
including the whole number dollar figures and the lack of
documentation5 or any business purpose for the transfers, plausibly

state a claim that Defendant should have been aware of the
avoidability of the transfers. Thus, the Amended Complaint,
construed in a light most favorable to the non-moving party,

5 Consistent with the allegation that Debtor’s records lacked any documentation,
Defendant’s proof of claim attaches invoices for late payments and account
statements but does not attach a lease agreement or loan documentation. ECF
No. 23-30461, Claim No. 7. There also is no allegation that the transfers were
related to the transactions, if any, in the proof of claim, and the Court may
not make such an inference at this stage of the litigation.
sufficiently alleges that Debtor’s fraudulent intent is imputable
to Defendant for purposes of South Carolina law.
b. Constructive Fraud

Under a theory of constructive fraud, actual fraudulent
intent is not necessary. In re J.R. Deans Co., Inc., 249 B.R.
121, 130 (Bankr. D.S.C. 2000). The elements of a constructive
fraudulent transfer are “(1) the debtor makes a transfer but does
not receive valuable consideration in return; (2) the debtor was
indebted to the plaintiff at the time of transfer; and (3) the
debtor does not have sufficient property to pay his debt to
plaintiff in full.” In re Genesis Press, Inc., No. CV 6:16-3762-
TMC, 2018 WL 11672750, at *3 (D.S.C. Mar. 5, 2018). Valuable
consideration is any “right, interest, profit, or benefit,
accruing to the one party, or some forbearance, detriment, loss,
or responsibility given, suffered, or undertaken by the other.”

Furman Univ. v. Waller, 117 S.E. 356, 358 (1923) (quotations
omitted). “‘[G]ross inadequacy of consideration and “without
consideration” are not synonymous in the law.’” Royal Z Lanes,
Inc. v. Collins Holding Corp., 337 S.C. 592, 595 (1999) (quoting
Jeffords v. Berry, 247 S.C. 347, 351 (1966)). Grossly inadequate
consideration does not make a conveyance constructively
fraudulent. In re Hanckel, 512 B.R. 539, 549 (Bankr. D.S.C. 2014),
order aff'd, appeal dismissed sub nom., In re Richardson Miles
Hanckel, III, No. 2:14-CV-2898, 2015 WL 7251714 (D.S.C. Mar. 10,
2015). Instead, the adequacy of the consideration is treated as
a badge of fraud and actual intent must be proven. Id. Plaintiff alleges: (1) Plaintiff was unable to determine the

basis of the transfers, ECF No. 10, ¶ 37; (2) the transfers had no
identifiable business purpose and lacked documentation, id. ¶¶ 38,
40; (3) the whole-number dollar amounts and lack of documentation
of the transfers are badges of fraud, id. ¶ 38; (4) these transfers
mirror other fraudulent transactions made by McGillewie with the
intent to hinder, delay, or defraud creditors, id. ¶ 39; (5)
McGillewie made the transfers under the guise of “rent” for or
payment to repurchase telehandlers that may or may not have
existed, id. ¶ 40; and (6) the transfers were part of McGillewie’s
fraud scheme. Id. ¶ 42. These allegations, construed in the light
most favorable to Plaintiff, create a plausible inference that
Debtor received no (or nominal) consideration in exchange for the

transfers.
Defendant argues that because Plaintiff alleges that Debtor
“did not receive reasonably equivalent value in exchange for” the
transfers instead of alleging that Debtor received no (or nominal)
consideration for the transfers, Plaintiff fails to state a claim
for constructive fraud under South Carolina law. ECF No. 12, ¶
22. These statements in the Amended Complaint are legal
conclusions, not allegations of fact. Plaintiff is not required
to explicitly state in the Amended Complaint that Debtor received
no (or nominal) consideration for the transfers. Instead,
Plaintiff need only allege facts that create a plausible inference
of the lack of consideration. The Amended Complaint sufficiently

pleads that Debtor received no (or nominal) consideration in
exchange for the transfers. Accordingly, Defendant’s motion to
dismiss Plaintiff’s claims for actual and constructive fraud under
South Carolina law is denied.
III. Defendant’s motion to dismiss Plaintiff’s claims under §§
502(d) and 510(c) is denied.

At the hearing, Defendant conceded that the claims under §§
502(d) and 510(c) must survive at this stage to the extent that
the actual fraudulent transfer claims survive. ECF No. 19, at
00:16:50-00:18:00. Since the Court has permitted the actual
fraudulent transfer claims to move forward at this time,
Plaintiff’s §§ 502(d) and 510(c) claims similarly will move forward
and Defendant’s motion to dismiss these claims is denied.
NOW, THEREFORE, IT IS HEREBY ORDERED, ADJUDGED, AND DECREED
that Defendant’s motion to dismiss is denied.
[END OF DOCUMENT]

SO ORDERED.
This Order has been signed United States Bankruptcy Court
electronically. The Judge’s
signature and Court’s seal
appear at the top of the Order.