Applied Machinery Rentals LLC v. Big B Crane LLC - Ponzi Scheme Dismissal

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Jan. 28, 2026 Get Citation Alerts Download PDF Add Note

In re: Applied Machinery Rentals, LLC v. Big B Crane LLC and Bruce Basden

United States Bankruptcy Court, W.D. North Carolina

• Citations: None known
• Docket Number: 25-03073

• Precedential Status: Unknown Status

• Opinion

• Authorities (28)

• Cited By (0)

• Summaries (0)

• Similar Cases (53.2K)

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Trial Court Document

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ILED & JUDGMENT ENTERED isi: Ahn iS!
Christine F. Ramsey + he zh im:
*, aa i
January 28 2026 “se taney gg nt Co
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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
ee)
)
Cole Hayes, Chapter 7 Trustee )
for the Bankruptcy Estate of )
Applied Machinery Rentals, LLC, )
)
Plaintiff, )
)
Vv. ) Adv. No. 25-03073
)
Big B Crane LLC, )
and Bruce Basden )
)
)
Defendants. )
□□□□□□□□□□□□□□□□□□□□□□□□
MEMORANDUM OPINION AND ORDER GRANTING DEFENDANTS’ MOTION TO
DISMISS AMENDED COMPLAINT AS TO BRUCE BASDEN
This adversary proceeding is before the Court on Defendants’
motion to dismiss with respect to Defendant Bruce Basden. For the
reasons stated on the record at the hearing, and for those detailed

herein, the Court will grant Defendants’ motion to dismiss
Defendant Bruce Basden.
JURISDICTION AND AUTHORITY
The district court has jurisdiction over this proceeding
under 28 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 Defendants do not contest, that this
matter is a statutorily core proceeding under 28 U.S.C. § 157.
ECF No. 17, ¶ 14. The parties have consented to this Court entering
final orders and judgment in this adversary proceeding. Id. ¶ 18.
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 filed the Complaint initiating this adversary
proceeding on July 7, 2025, ECF No. 1, and later 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. 17 (the “Amended Complaint”).1
Defendants Big B Crane, LLC (“Big B”) and Bruce Basden
(collectively with Big B, “Defendants”) timely responded by filing
a Motion to Dismiss Amended Complaint and Brief in Support. ECF
Nos. 22 & 23. Plaintiff Cole Hayes, as Chapter 7 Trustee
(“Plaintiff”) for the Bankruptcy Estate of Applied Machinery
Rentals, LLC, (“Debtor”) filed a Brief in Opposition to the Motion,
ECF No. 28, to which Defendants filed the Reply Memorandum of Law
in Support of Motion to Dismiss. ECF No. 29. On December 1, 2025,
the parties filed a Joint Stipulation of Voluntary Dismissal of

Plaintiff’s fourth and fifth claims for relief leaving only the
first through third claims. ECF No. 30.

1 Defendants filed a Motion to Dismiss the original complaint on September 8,
2025, ECF No. 10, which the Court denied as moot after Plaintiff filed the
Amended Complaint. ECF No. 17.
FACTS2
I. Debtor’s Ponzi Scheme
Debtor filed the above-captioned chapter 7 case on July 17,
2023. Case No. 23-30461, ECF No. 1. Prepetition, Garth Errol
McGillewie Jr. was the sole member, manager, and principal of
Debtor, over which he exercised complete dominion and control of
its affairs and assets. Adv. No. 25-03073, ECF No. 17 ¶ 22. Debtor
purported to be in the business of acquiring, distributing,
leasing, and selling Merlo Telehandlers, but it was largely a
fraud. Id. ¶ 21. Debtor’s business model, subject to limited

exceptions, was part of a fraudulent and illegal Ponzi scheme from
at least 2019 until McGillewie took his own life in 2023. Id. ¶¶
23 & 35.
Between 2019 and 2023, McGillewie borrowed money from
creditors on false pretenses and used proceeds from new investors
to fund an extravagant lifestyle for his family, to enrich his
friends, to pay previous investors and hide his fraud. Id. ¶¶ 45,

2 The Court has accepted the factual allegations in the Amended Complaint, ECF
No. 17, and Plaintiff’s Brief in Opposition, ECF No. 28, 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).
46 & 53. To maintain the Ponzi scheme, McGillewie preserved an
off-book portfolio for “friends and family.” Id. ¶ 24. According
to Stephanie Hofinga, accountant for Debtor from May 2021 to

November 2022, McGillewie had sole access to Debtor's bank accounts
and moved money between accounts freely. Id. ¶ 25. McGillewie
also controlled all information related to Debtor’s legitimate
sales and leases, and according to Ms. Hofinga, getting information
from him was “difficult to impossible.” Id. Ms. Hofinga inquired
with McGillewie about Debtor’s books. He explained that he entered
loans, investments, or deals between business friends, separate
from Debtor’s operations and that these transactions did not
involve the sale of telehandlers. Id. ¶ 26. Ms. Hofinga testified
that those deals were part of McGillewie’s separate portfolio, of
which she was provided little to no information. Id. Ms. Hofinga
created a limited spreadsheet of these questionable transactions

in 2021, and Big B’s name appears approximately three times on
this spreadsheet.3 Id. ¶¶ 28 & 29; id. Ex. A. Debtor’s balance
sheet listed millions in sales and receivables based on fictitious
sales. Id. ¶ 42. These telehandlers either did not exist or they
never changed hands, and the buyers had to be paid back at a
premium. Id. As a result of these practices, and at least four
years before the Petition Date, Debtor’s liabilities exceeded its

3 Big B is listed for a purported $900,000 purchase on November 1, 2020, and a
$990,000 buyback. Id. ¶ 32.
assets, and by the end of 2022 that amount exceeded
$123,000,000. Id. ¶¶ 43 & 52.
II. Debtor’s Relationship with Defendants
Debtor began doing business with Big B in 2020. Basden had
a personal relationship with McGillewie, and, through Big B, made

a series of investments in Debtor to profit from the Ponzi scheme.
Id. ¶¶ 43 & 55. Big B conducted a limited amount of legitimate
business with Debtor that was handled by other employees of Big B.
Id. ¶ 56. All illegitimate business was handled by Basden and
McGillewie directly. Id. ¶ 59. McGillewie and Basden, despite
conducting sizeable business transactions, did not produce
documentation or communications regarding their transactions, id.
¶ 60, with the exception of “fraudulent invoices that purported to
sell telehandlers to Big B.” Id. No such telehandlers ever
existed, they were previously sold to another party, or they
remained on Debtor’s lot. Id. For example, the serial numbers

provided in the fictitious invoices between McGillewie and Basden
do not exist, and no telehandlers were ever located with the
corresponding numbers. Id.; id. Ex. C.
Between April 2020 and March 2023, Defendants engaged in a
series of individual investments with Debtor resulting in returns
of over $7.4 million of principal and profit. Id. ¶ 61. These
investments were wired to Debtor in exchange for a guarantee that
Big B would receive at least a 10% return in 45 to 60 days. Id.
¶ 64. McGillewie prepared invoices listing Big B as the buyer of
certain telehandlers, but no such deliveries ever took place, and
the machines were never insured even though they were listed as

assets on Big B’s balance sheets. Id. ¶¶ 68 & 70. Further, Big
B would re-rent the machines to Debtor. Id. ¶ 71. Big B provided
Debtor invoices for monthly rent payments, which used the same
fabricated addresses and often were made without even listing the
machine purportedly being re-rented to Debtor by Big B. Id. ¶¶ 71
& 73; id. Ex. E. Defendants conducted little to no due diligence
before entering each transaction with Debtor and never took
reasonable steps to ensure the existence and security of their
telehandlers which was collateral for their loans. Id. ¶¶ 77 &
78. These transactions were “short-term investments at high rates
of return fraudulently papered to look like the purchase or rental
of equipment.” Id. ¶ 66. Defendants never inquired with

McGillewie about why Debtor would need to borrow money from a
third-party to purchase telehandlers. Id. ¶ 83. As a result of
the investments made through Big B, it received the following
transfers from Debtor. Id. ¶ 84.
Transfer Date Transfer Amount
07/09/2020 $19,800.00
07/15/2020 $28,809.00
09/01/2020 $990,000.00
09/16/2020 $19,800.00
10/27/2020 $19,800.00
31/12/2020 $19,800.00
03/03/2021 $873,400.00
03/30/2021 $19,800.00
07/08/2021 $990,000.00
07/16/2021 $990,000.00
10/08/2021 $39,600.00
10/26/2021 $39,600.00
12/31/2021 $990,000.00
03/10/2022 $90,000.00
04/22/2022 $990,00.00
08/12/2022 $132,000.00
08/26/2022 $290,000.00
12/30/2022 $290,000.00
03/24/2023 $290,000.00
TOTAL $7,402,409.00
The transfers constituted the return of principal to Defendants
and a profit to them based on an “exorbitant” interest rate. Id.
¶¶ 82 & 87.
STANDARD OF REVIEW
Defendants move to dismiss the Amended Complaint with respect
to Defendant Basden for failure to state a claim under Federal
Rule of Civil Procedure 12(b)(6), made applicable to this adversary
proceeding by Bankruptcy Rule 7012. 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 Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “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. While the plausibility
requirement is not a probability requirement, it “asks for more
than a sheer possibility that a defendant has acted
unlawfully.” Id. This Court employs 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 accepts all well-pleaded facts in the
Amended Complaint as true and views 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 . . .”). Second, 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.
When a plaintiff alleges fraud, Federal Rule of Civil
Procedure 9(b), made applicable to this proceeding by Federal Rule
of Bankruptcy Procedure 7009, requires that a party alleging fraud
“state with particularity the circumstances constituting fraud .
. . ,” but “[m]alice, intent, knowledge, and other conditions of
a person's mind may be alleged generally.” Fed. R. Civ. P. 9(b).

The requirement of Rule 9(b) “is not intended to be an
insurmountable hurdle for claimants to overcome; the complaint
must give the party adequate notice of the charges-it need not
marshal all of the evidence against him.” In re Whitley, No. 12–
02028, 2013 WL 486782, at *13 (Bankr. M.D.N.C. Feb. 7, 2013)
(quoting In re Commercial Fin. Servs., Inc., 322 B.R. 440, 448 (Bankr. N.D. Okla. 2003)). Consistent with this principle, courts
“should hesitate to dismiss a complaint under Rule 9(b) if the
court is satisfied (1) that the defendant has been made aware of
the particular circumstances for which [the defendant] will have
to prepare a defense at trial, and (2) that plaintiff has
substantial prediscovery evidence of those facts.” Harrison v.
Westinghouse Savannah River Co., 176 F.3d 776, 784 (4th Cir. 1999).

DISCUSSION
Plaintiff’s first claim for relief seeks to avoid and recover
the portion of the transfers made to “Defendants” within the two
years prior to the petition date under §§ 548 and 550. In its
second claim, Plaintiff seeks to recover all transfers from
Defendants under §§ 544 and 550 as constructively or actually
fraudulent under North Carolina law or South Carolina law.
Plaintiff’s third claim asserts an independent claim for piercing
the corporate veil, seeking to hold Defendants jointly and
severally liable “for damages proximately caused to Plaintiff by
their fraudulent conduct.” ECF No. 17, ¶ 161. Defendants move to

dismiss Plaintiff’s first, second, and third Claims for Relief as
to Basden only. ECF No. 22, at 2.
I. Plaintiff Fails to Allege that Basden was a Transferee
of Any of the Transfers Under §§ 544, 548, or 550.
Defendants move to dismiss the first and second claims as to
Basden based on the absence of any allegation that Basden was a
transferee of any of the transfers. ECF No. 23, at 2. Plaintiff
argues that by alleging that “Defendants” received the transfers,
and by detailing the relationship between Basden and McGillewie,
Plaintiff has put both Basden and Big B on notice that the Trustee
believes both Defendants received the transfers. ECF No. 28, at
5-6. These allegations are insufficient to state a plausible claim
for recovery of transfers under the applicable sections against
Basden.
“Impermissible group pleading occurs where a complaint fails
to distinguish between defendants.” In re Swarthmore Grp., Inc., 667 B.R. 258, 269 (Bankr. E.D. Pa. 2025) (citation omitted). Group
pleading is permissible when the complaint sets forth facts that
sufficiently put individual defendants on notice of the claims
against them. Id.; In re Neighbors Legacy Holdings, Inc., 645
B.R. 864, 895 (Bankr. S.D. Tex. 2022) (“Group pleading is

acceptable if the plaintiff ‘intend[s] to allege that each
defendant committed the alleged acts’ and the acts could have been
committed by more than one defendant.”) (alterations in original)
(quoting In re Northstar Offshore Grp., LLC, 616 B.R. 695, 723

(Bankr. S.D. Tex. 2020)).
To state a claim against a transferee at the pleading stage,
plaintiff does not have to provide an exact accounting of the funds
at issue, Sec. Inv. Prot. Corp. v. Bernard L. Madoff Inv. Sec.
LLC, 655 B.R. 149, 165 (Bankr. S.D.N.Y. 2023), but “must allege
‘the necessary vital statistics –the who, when, and how much-’ of
the purported transfers . . . .” Sec. Inv. Prot. Corp. v. Bernard
L. Madoff Inv. Sec. LLC, 594 B.R. 167, 195 (Bankr. S.D.N.Y. 2018)
(citation modified). Similarly, to establish the liability of an
entity for whose benefit the transfer was made, the following
elements are necessary: (1) the debtor’s intent to confer a
benefit; (2) whether the benefit was actually received by the

beneficiary; (3) whether the benefit was quantifiable; and (4)
whether the benefit was accessible by the beneficiary. In re
Grube, 500 B.R. 764, 777 (Bankr. C.D. Ill. 2013).
The United States Bankruptcy Court for the District of
Delaware has dismissed a complaint based on similarly insufficient
allegations and arguments. In In re DBSI, Inc., 445 B.R. 351 (Bankr. Del. 2011), the trustee alleged that a transfer was
recoverable under § 550(a) where the individual defendant was
alleged to have control over his corporation such that the
transfers were made for his benefit. 445 B.R. at 356. As in this
case, the complaint in DBSI did not contain any specific facts to
support a benefit to the principal beyond mere conclusory

statements. Id. Having failed to identify any transfers made to,
or for the benefit of the individual defendant, the complaint
failed to sufficiently allege a claim to recover fraudulent
transfers from the individual defendants. Id. Plaintiff alleges that “Defendants” received each of the
contested transfers and that he is entitled to recover each of the
transfers from Defendants jointly and severally under § 550. But
the Amended Complaint is sufficiently clear that Big B was the
only recipient of any transfer, and the balance of the Amended
Complaint does not sufficiently allege facts demonstrating a
transfer or benefit to Basden. See, e.g., ECF No. 17 ¶ 87.
Plaintiff states that “[t]his adversary proceeding seeks to

recover over $7.4 million of fraudulently transferred cash to the
Defendants Big B, LLC . . . and, through Big B, Bruce Basden . .
. .” Id. ¶ 1 (emphasis added). Even construing this allegation in
a light favorable to Plaintiff, it states that the transfers were
made to Big B. Likewise, the complaint refers to the transfers as
“[t]he transfers to Big B . . . .” Id. ¶ 2. Indeed, Plaintiff
concedes that it had no indication, absent conjecture, that Basden
received any transfer from Debtor. ECF No. 31, at 00:29:00-
00:30:10. The Amended Complaint is likewise devoid of any factual
allegation that Basden was the intended beneficiary of the
transfers. The Amended Complaint does not identify a single
instance where Basden used his position to transfer any of the

money received by Big B to himself. Thus, the Amended Complaint
fails to allege that Basden was a recipient of any transfer or
received a benefit from any transfer, and fails to state a claim
for avoidability or recovery of the transfers from Basden under §§
544, 548, or 550. The Court will dismiss Plaintiff’s first and
second claims for relief as to Basden.
II. Plaintiff Fails to Sufficiently Allege a Basis for
Piercing the Corporate Veil.
Plaintiff’s third claim asserts an independent claim for
piercing the corporate veil seeking to hold Defendants jointly and
separately liable “for damages proximately caused to Plaintiff by
their fraudulent conduct.” ECF No. 17, ¶ 161. Defendants argue
that Texas state law should control the outcome of the third claim,
and that the claim should be dismissed because the Amended
Complaint fails to allege sufficient grounds to pierce the
corporate veil under Texas law. ECF No. 23, at 2. Plaintiff
argues that a choice of law analysis is inappropriate at this stage
of the proceeding. ECF No. 28, at 7-9. Plaintiff further contends
that it has stated a claim for piercing the corporate veil under
both Texas and North Carolina law. Id. at 9.
a. The Court will apply the laws of the state of Texas
as to the alter ego claim.
Defendants assert that Plaintiff’s alter ego claim should be
addressed at this stage and analyzed under Texas law because the
Amended Complaint plainly states Big B’s state of incorporation.
ECF No. 29, at 4; Minute Man Anchors, Inc. v. Oliver Techs., Inc.,
No. 1:04 CV 27, 2005 WL 1871164, at *9 (W.D.N.C. Aug. 5, 2005).
Plaintiff argues that determining choice of law at the motion to
dismiss stage is premature. Movement Mortgage, LLC v. McDonald,
No. 3:17-CV-00716, 2018 WL 6733953, *3 (W.D.N.C. Nov. 6, 2018).

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) (“When considering a motion to
dismiss, many courts are reluctant to engage in a choice of law
analysis given the potentially fact-intensive inquiry.”); Clean
Earth of Md., Inc. v. Total Safety, Inc., No. 2:10–cv–119, 2011 WL
1627995, at *4 (N.D. W. Va. Apr. 28, 2011) (“Importantly, a court
is typically in a better position to decide a choice of law issue
after the parties have developed the factual evidence through the

process of discovery.”) (collecting cases). 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. As a federal court sitting in North Carolina, North Carolina

choice of law principles control. Friedman v. Wellspring Cap.
Mgmt., LLC, Adv. No. 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 Supreme Court
has yet to prescribe what choice of law rules it would apply when
addressing an alter ego claim or remedy. Thus, this Court must
predict how the North Carolina Supreme Court might rule if faced
with the same question.
Plaintiff has not cited, and the Court did not find, a North
Carolina Supreme Court case determining the appropriate choice of
law with respect to claims seeking to pierce the corporate veil.
In Minute Man Anchors, Inc., the United States District Court for

the Western District of North Carolina determined that, when “faced
with a choice-of-law question regarding the equitable remedy of
piercing the corporate veil, the North Carolina Supreme Court would
adopt the internal affairs doctrine and apply the law of the state
of incorporation.” No. 1:04CV27, 2005 WL 1871164, at *9 (W.D.N.C.
Aug. 5, 2005) (citing DeWitt v. Hutchins, 309 F. Supp. 2d 743, 751 (M.D.N.C. 2004)); see also Dassault Falcon Jet Corp. v. Oberflex,
Inc., 909 F. Supp. 345, 349 (M.D.N.C. 1995) (determining that North
Carolina would apply the internal affairs doctrine, and the law of
the state of incorporation controls). In Oberflex, Inc., the court
relied on North Carolina’s adoption of other portions of the
Restatement (Second) of Conflict of Laws for purposes of the sale

of goods to support the conclusion that it would also apply the
internal affairs doctrine to veil piercing claims. Id. The
analysis and conclusions in Minute Man and Oberflex, Inc. are
persuasive.
Although courts in the Fourth Circuit typically resist
undertaking a choice of law analysis at the motion to dismiss
stage, because the internal affairs doctrine does not require a
fact intensive inquiry to ascertain which law applies, determining
the applicable law is appropriate at this stage and for this
purpose. Plaintiff has alleged that Big B is a member-managed
limited liability company formed and existing under the laws of
the state of Texas. ECF No. 17, ¶ 10. Thus, Under the internal

affairs doctrine, the law of the state of Texas applies to
Plaintiff’s claim for piercing the corporate veil.
b. To the extent Plaintiff’s claim for piercing the
corporate veil is asserted as an independent cause of
action, the claim is dismissed.

Plaintiff’s third claim to relief asserts that
“Defendants, [are] jointly and severally, [] liable for damages
proximately caused to Plaintiff by their fraudulent conduct.” ECF
No. 17, ¶¶ 132-166. Thus, Plaintiff suggests that piercing the
corporate veil is a separate claim that would allow Plaintiff to
hold Defendants liable for damages proximately caused to
Plaintiff, rather than a remedy for holding Basden and Big B
jointly and separately liable for the fraudulent transfers. Id.

¶ 166. Under Texas law, alter ego suits are not separate claims
for relief. Spring St. Partners-IV, L.P. v. Lam, 730 F.3d 427,
443 (5th Cir. 2013) (“Under Texas law, ‘an assertion of veil
piercing or corporate disregard does not create a substantive cause
of action[;] . . . such theories are purely remedial and serve to
expand the scope of potential sources of relief by extending to
individual shareholders or other business entities what is
otherwise only a corporate liability.’”) (citing In re JNS
Aviation, LLC, 376 B.R. 500, 521 (Bankr. N.D. Tex. 2007)).4 At no
point in the Amended Complaint does Plaintiff clarify that veil
piercing is asserted as a basis of recovery on the first or second
claims rather than an independent cause of action. Instead,

Plaintiff contends that he can recover from Basden, or Big B, as
immediate or mediate transferees. ECF No. 17, ¶ 117. Thus, to
the extent Plaintiff's alter ego claim is plead as a separate cause
of action, rather than a theory of recovery and remedy, it will be
dismissed. See, e.g., U.S. Bank v. Verizon Communications Inc.,

4 The same would be true even if Plaintiff were correct that North or South
Carolina law applies. Shearson Lehman Hutton, Inc., v. Venners, 165 F.3d 912 (table), 1998 WL 761505 at *2 (4th Cir.1998) (explaining that under North
Carolina law piercing the corporate veil is “a method of imposing liability on
an underlying cause of action,” not a separate claim for relief); Drury Dev.
Corp. v. Found. Ins. Co., 380 S.C. 97, 102 (2008) (same). 892 F. Supp. 2d 805, 829 (N.D. Tex. 2012) (Summary
Judgment) (explaining that the district court “already dismissed
the plaintiff's alter ego claim, but only to the extent that it is

pled as a separate cause of action.”). Even if the Court were to
construe Plaintiff’s third claim for relief as a request for the
remedy of veil-piercing, it still fails.
c. The Texas Business Organizations Code applies to
Plaintiff’s alter ego and sham to perpetuate fraud
claims.
Defendants and Plaintiff dispute whether the Texas Business
Organizations Code (“TBOC”), Tex. Bus. Org. Code. § 21.223., or
Texas common law applies to Plaintiff’s alter ego claim. ECF No.
28, at 9-10; ECF No. 29, at 6-7. Plaintiff asserts that Texas
common law applies, Defendants urge this Court to apply the TBOC.
Texas law recognizes two primary methods for holding
individual corporate officers personally liable where they are
acting within the scope of their employment. See Shandong Yinguang
Chem. Indus. Joint Stock Co. v. Potter, 607 F.3d 1029, 1035 (5th
Cir. 2010). First, although Texas Business and Organizations Code
§ 21.223(a) ordinarily protects members of corporations and LLCs
from liability under a theory of “alter ego of the corporation or
on the basis of actual or constructive fraud, a sham to perpetrate
a fraud, or other similar theory,” see Tex. Bus. Orgs. Code §
21.223; and Spring Street Partners v. Lam, 730 F.3d 427, 443 (5th
Cir. 2013) (“Veil-piercing and ‘alter ego’ principles apply
equally to corporations and LLCs.”), § 21.223 strips a principal,

or member, of his protection where he has“caused the corporation
to be used for the purpose of perpetrating and did perpetrate an
actual fraud on [an] obligee primarily for the direct personal
benefit of the holder, beneficial owner, subscriber, or
affiliate.” Id. § 21.223(b). The statute pre-empts other bases
for piercing the corporate veil, but “[a]part from any veil
piercing theory seeking vicarious liability, it has long been
established that a corporations employee is personally liable for
tortious acts which he directs or participates in during his
employment.” Bates Energy Oil & Gas v. Complete Oilfield Servs., 361 F. Supp. 3d 633, 666–67 (W.D. Tex. 2019) (explaining that
common law veil-piercing and alter ego claims persist despite the
adoption of the TBOC).
These two distinct methods of holding corporate agents acting

within the scope of their employment personally liable can be
categorized as: (1) claims seeking to hold an individual liable by
piercing the corporate veil, which are governed by the TBOC; and
(2) claims asserting that the defendant is directly liable in tort.
The TBOC applies when a plaintiff asserts veil piercing theories
for claims for which the corporation is liable but in which the
individual corporate agent may, or may not, have personally
participated. Bates Energy Oil & Gas, 361 F. Supp. 3d at 666–67
(discussing the complex history of § 21.223(a)(2) and evaluating
the inconsistent caselaw in light of the statutes changes). Common
law applies when an individual’s own tortious conduct is the basis
of the claim. Id. at 667, 673; see O'Connor's Texas Causes of

Action Ch. 38, § F (“Vicarious liability can be imposed on a
defendant for certain acts of a corporation under any one of seven
theories for disregarding the corporate form, commonly referred to
as ‘piercing the corporate veil.’”). With this backdrop, we assess
the Parties’ argument.
Plaintiff urges this Court to apply the common law test used
by the Fifth Circuit in Massimo Motor Sports, LLC v. Shandong Odes
Indus. Co., No. 3:21-CV-2180-X, 2024 WL 1895086, at *2 n.7 (N.D.
Tex. Apr. 30, 2024) (citing Century Hotels v. United States, 952
F.2d 107, 110 (5th Cir. 1992). As Defendants correctly assert,
that case did not apply Texas law; instead, the test applied arose
out of federal common law and the Law of the State of Louisiana.

Because this Court has determined that Texas law applies when
considering whether to disregard the corporate form, that case is
inapposite. Century Hotels, 952 F.2d at 110 n.4. (5th Cir. 1992).
Defendants argue that TBOC controls because, at its core,
Plaintiff’s claims relate to business contracts and putative
corporate activities, rather than sounding in tort. ECF No. 23,
at 11. Plaintiff does not allege that Big B was operated as a
sham entity to perpetuate fraud, or “as a mere tool or business
conduit of another corporation.” AHBP LLC v. Lynd Co., 649 F.
Supp. 3d 371, 386 (W.D. Tex. 2023) (citation omitted). In fact,
Plaintiff’s allegations state that some of the transactions
between Big B and Debtor were legitimate. ECF No. 17, ¶ 56.

“Whether a plaintiff may pierce an entity's veil . . . depends on
whether the plaintiff's claims sound primarily in tort or
contract.” AHBP LLC, 649 F. Supp. 3d at 386 (citation omitted).
Defendants’ cite Holland v. CryptoZoo Inc., No. 25-03073, 2025 WL
2492970, at *12 (W.D. Tex. Aug. 14, 2025), for the proposition
that the statute applies both to contract claims, and to other
matters, either tort or contract, relating to or arising from the
corporation’s contractual transactions. With respect to the
allegedly avoidable transfers,5 the underlying transactions, even
if shams, were contractual, and the TBOC applies. See ECF No. 17,
¶ 64 (“Big B wired funds to an account of Debtor in exchange for
a guarantee that it would typically get at least a 10% return in

45 to 60 days.”); id. ¶ 59; ECF No. 23, at 11; Tex. Bus. Orgs.
Code § 21.224 (“for an obligation that is limited by Section
21.223 [the statute] is exclusive and preempts any other liability
imposed for the obligation under common law or otherwise”).
Section 21.223(a)(2) applies not only to contract claims, but also

5 The Amended Complaint previously contained claims against Basden based in tort
for aiding and abetting breach of fiduciary duty and aiding and abetting
corporate waste. Those claims have been dismissed, ECF No. 30, but to the
extent Basden were directly liable in tort, any such claims would not have
required piercing the corporate veil and therefore likely would have been
subject to Texas common law. Bates, 361 F. Supp. 3d 672 -73.
to “any matter relating to or arising from the [contractual]
obligation.” Tex. Bus. Org. Code. § 21.223(a)(2). This language
indicates that the statute “applies to claims holding a shareholder

or owner liable for a contract-related corporate obligation (both
contract and tort) . . . .” Bates Energy, 361 F. Supp. 3d at
673 (emphasis omitted). Plaintiff counters that the Amended
Complaint does not allege business contracts; instead, Plaintiff
alleges “a disturbing paucity of documentation and communication
related to the Transfers,” and that this documentation fails to
support the application of the TBOC. ECF No. 28, at 10. Even
assuming these contracts were fraudulent or involved deceit on
part of Defendants, as alleged in the Amended Complaint, the
transfers were based on putative contractual obligations, and the
Court will apply the TBOC.6

6 The complaint also fails to state a claim for piercing the corporate veil
under the common law. At common law, courts:

[D]isregard the corporate fiction, even though corporate
formalities have been observed and corporate and individual
property have been kept separately, when the corporate form has
been used as part of a basically unfair device to achieve an
inequitable result. Specifically, we disregard the corporate
fiction:

(1) when the fiction is used as a means of perpetrating fraud;

(2) where a corporation is organized and operated as a mere tool or
business conduit of another corporation;

(3) where the corporate fiction is resorted to as a means of evading
an existing legal obligation;

(4) where the corporate fiction is employed to achieve or perpetrate
monopoly;
III. The Amended Complaint Fails to Assert Sufficient Facts
to Support Piercing the Corporate Veil under the Texas
Business Organization Code.
As explained above, where “the obligee demonstrates that the
. . . beneficial owner . . . caused the corporation to be used for
the purpose of perpetrating and did perpetrate an actual fraud on
the obligee primarily for the direct personal benefit of the . .
. beneficial owner,” veil piercing is appropriate. Belliveau v.
Barco, Inc., 987 F.3d 122, 128 (5th Cir. 2021) (emphasis omitted).
The statute provides three potential avenues for veil-piercing:
“(1) the corporation is the alter ego of its owners and/or
shareholders; (2) the corporation is used for illegal purposes;
and (3) the corporation is used as a sham to perpetrate a fraud.”
AHBP, 649 F. Supp. 3d at 385 (quoting W. Horizontal Drilling, Inc.
v. Jonnet Energy Corp., 11 F.3d 65, 67 (5th Cir. 1994). Even then,
the plaintiff must show that the violation was for the benefit of
the individual defendant. “And so, to except a corporate officer

from that general shield—under Section 21.223(b)—regardless of
avenue, a plaintiff must demonstrate the corporate officer (1)

(5) where the corporate fiction is used to circumvent a statute;
and

(6) where the corporate fiction is relied upon as a protection of
crime or to justify wrong.

Castleberry v. Branscum, 721 S.W.2d 270, 271-72 (Tex. 1986). The only basis
relevant here is (1) which is reflective of “a shame to perpetrate a fraud.”
See id. at 272 n.2. The Amended Complaint fails to sufficiently allege that
Big B was a sham corporation used as a means of perpetrating fraud.
perpetrated an actual fraud (2) primarily for the officer's
personal benefit.” CryptoZoo Inc., 2025 WL 2492970, at *11 (quoting
In re Ritz, 832 F.3d 560, 566 (5th Cir. 2016); see also AHBP, 649

F.Supp.3d at 386 (quoting Tex. Bus. Orgs. Code § 21.223(b) for
the proposition that “the contract claimant must show that the
‘holder, beneficial owner, subscriber, or affiliate caused the
corporation to be used for the purpose of perpetrating and did
perpetrate an actual fraud on the obligee primarily for the direct
personal benefit of the holder, beneficial owner, subscriber, or
affiliate’”).
The Court does not need to consider whether the Amended
Complaint sufficiently states a claim for actual fraud because the
factual allegations are insufficient to plausibly state a claim
that Basden received a benefit. Under this second requirement,
any benefit derived must be alleged to be one that is both direct

and personal to the individual who plaintiff seeks liability from.
Tex. Bus. Orgs. Code § 21.223(b). Direct personal benefit is not
defined in the statute, but cases “in which the direct personal
benefit showing has been met, [included allegations that] showed
that funds derived from the corporation's allegedly fraudulent
conduct were pocketed by or diverted to the individual defendant.”
Hong v. Havey, 551 S.W.3d 875, 885 (Tex. Ct. App. 2018) (collecting
cases). Because the Amended Complaint fails to allege facts
supporting a direct, personal benefit to Basden, the Court will
dismiss Plaintiff’s claim.
Plaintiff alleges that the Amended Complaint sufficiently

states a benefit to Basden because it “describes in great detail
Big B's receipt of fraudulent transfers for the direct personal
benefit of Basden, who ‘siphoned funds from Big B that he then
invested with [Debtor] through [McGillewie].’” ECF No. 28 (quoting
ECF No. 17, ¶ 144). Further, Plaintiff alleged that Basden
facilitated Big B’s investments with Debtor so that Big B took the
risk of loss for Basden’s investment decision. ECF No. 28, at 12.
Even if these allegations were not conclusory, the Amended
Complaint lacks the factual allegations from which the Court
reasonably could make an inference that Basden directly received
any benefit. See CryptoZoo Inc, 2025 WL 2492970, at *12 (declining
to pierce the corporate veil where there was no indication in the

complaint that defendant actually received the transfers).
Instead, these allegations merely explain that Basden was the
principal of Big B, and that Big B invested funds at risk with
Debtor through McGillewie. To succeed, Plaintiff was required to
allege that the money was then diverted to Basden personally.
Because the Amended Complaint fails to do so, Plaintiff has failed
to plausibly allege alter ego, or sham to perpetuate fraud, and
cannot plausibly pierce the corporate veil under Texas Law.
NOW, THEREFORE, IT IS HEREBY ORDERED, ADJUDGED, AND DECREED
that Defendants’ motion to dismiss claims against Basden is
granted.

[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.