Summary:
In Hayes v. Total Equipment & Rental of El Paso, LLC, Adv. No. 25-03074 (Bankr. W.D.N.C. Jan. 23, 2026), the Chapter 7 trustee cleared the first—and often most important—procedural hurdle: keeping his fraudulent-transfer case alive past Rule 12(b)(6). In a thorough memorandum opinion denying the defendant’s motion to dismiss, the Court held that the trustee plausibly pled actual and constructive fraudulent transfer claims under both North Carolina and South Carolina law, as well as related claims under §§ 502(d) and 510(c).
The setup.
The debtor, Applied Machinery Rentals, LLC, was allegedly nothing more than a vehicle for a classic Ponzi scheme run by its principal, involving nonexistent or double-pledged telehandlers, sale-out-of-trust transactions, and “rent” payments that functioned as disguised investments. The trustee targeted two prepetition transfers totaling $150,000 made in early 2020, transfers that were undocumented, oddly round-numbered, and purportedly tied to equipment that may not have existed at all.
No ‘shotgun pleading’ escape hatch.
The defendant first argued that the trustee’s complaint should be tossed as an impermissible “shotgun pleading” because it grouped multiple causes of action into a single count. The Court was unimpressed. The touchstone is notice, not aesthetic pleading preferences, and the motion itself demonstrated the defendant understood exactly which claims were being asserted. That argument died quickly.
Choice-of-law fights belong to discovery, not dismissal.
On the more substantive issues, the Court refused to short-circuit the case with a premature choice-of-law ruling. Applying North Carolina choice-of-law principles and the UVTA’s location-of-the-debtor framework, the Court held that determining whether North Carolina or South Carolina law governs requires a fact-intensive inquiry into where the debtor’s places of business and chief executive office were located. At the pleading stage, the trustee’s allegations—that the debtor was run from North Carolina and South Carolina by a single principal—were more than enough.
Actual fraud: Ponzi presumptions still matter.
For actual fraudulent transfer claims, the alleged existence of a Ponzi scheme did real work. Under South Carolina’s Statute of Elizabeth and analogous North Carolina principles, the Court held that the trustee plausibly alleged not only fraudulent intent by the debtor, but facts sufficient to impute that intent to the transferee—either through knowledge or circumstances that would have put a reasonably prudent party on inquiry notice. Undocumented six-figure transfers, whole-number amounts, and a total lack of business explanation were enough to get past dismissal.
Constructive fraud: ‘Reasonably equivalent value’ isn’t magic words.
The Court also rejected the argument that the trustee failed to plead constructive fraud because he didn’t incant the precise phrase “no or nominal consideration.” What matters are facts, not labels. Allegations that the trustee could discern no basis for the transfers, that the transactions lacked documentation or business purpose, and that they mirrored other fraudulent conduct sufficed to plausibly allege a lack of value.
Claims allowance consequences remain in play.
Because the fraudulent transfer claims survived, so too did the trustee’s § 502(d) disallowance and § 510(c) equitable subordination theories. The defendant effectively conceded as much at the hearing.
Commentary:
This is not a merits ruling, but it is an important reminder that well-pled trustee complaints—especially those grounded in Ponzi-scheme allegations—are not easily dispatched at the pleading stage. Courts remain reluctant to resolve fact-heavy issues like choice of law, intent, and value on a cold record, and rightly so.
And finally, a brief sarcastic aside: because this opinion was authored by Judge Benjamin Kahn of the Middle District of North Carolina, sitting by designation in the Western District, lawyers from the Eastern District can, in the grand tradition of parochialism in the bankruptcy courts, take comfort in having two perfectly respectable reasons to ignore it entirely.
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To read a copy of the transcript, please see:
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