Opinion
No. 7-03-14833 ML, Adv. Proc. 03-1291 M.
July 16, 2004
Olga Pedroza, New Mexico Legal Aid, Las Cruces, NM, Attorney for Plaintiffs.
R. "Trey" Arvizu, III, Las Cruces, NM, Attorney for Defendants.
MEMORANDUM OPINION
THIS MATTER comes before the Court on the Defendants' Motion to Dismiss ("Motion to Dismiss") filed on September 11, 2003. Defendants have filed affidavits and exhibits in support of the Motion to Dismiss; therefore, the Court will treat it as a Motion for Summary Judgment (hereinafter, "Motion for Summary Judgment"). See Fed.R.Bankr.P. 7012(b). In support of the Motion for Summary Judgment, Defendants filed a Supplement to Motion to Dismiss on March 1, 2004 (Doc. 12)with an Affidavit by Defendant Cecilia Villegas (Doc. 13) on March 1, 2003; and a Brief on June 7, 2004 (Doc. 17). Plaintiffs filed responsive pleadings and briefs along with exhibits, affidavits and responses to interrogatories. (Doc. 7, 14, 18). Plaintiffs also filed a Motion to Strike the Affidavit of Cecilia Villegas (Doc. 15). Plaintiffs filed a Motion for Leave to Amend the Complaint ("Motion to Amend") on June 21, 2004 as part of one of their responsive pleadings (Doc. 19). The Motion to Amend presents issues that are dispositive of the Motion for Summary Judgment. The following are the undisputed facts:
The following pleadings were filed by Plaintiff in response to the Motion to Dismiss/Motion for Summary Judgment:
1) Plaintiffs' Response to Defendants' Motion to Dismiss for Failure to State A Claim and Memorandum in Support Thereof (Doc. 7);
2) Plaintiffs' Response to Defendants' Motion to Dismiss and Supplemental Motion to Dismiss filed March 1, 2004 and to Strike Cecilia Villegas' Affidavit (Docs. 14 15); and
3) Plaintiffs' Response to Defendants' Motion to Dismiss Cecilia Villegas and Plaintiffs' Memorandum for Motion for Leave to Amend to Name Cecilia Villegas in her Individual Capacity and in Her Corporate Capacity (Doc. 18 19).
1. This bankruptcy case was filed as a Chapter 13 on June 16, 2003 and was converted to a Chapter 7 bankruptcy on July 23, 2003.
2. The last date to file non-dischargeability complaints was October 23, 2003. See Notice of Chapter 7 Bankruptcy, Meeting of Creditors, and Deadlines, filed July 26, 2003 (Doc. 20); Fed.R.Bankr.P. 4007(c).
3. The Complaint to Determine Dischargeability of Debt (hereinafter, the "Non-dischargeability Complaint") was filed on July 23, 2003 against Cecilia Villegas, Cornelio R. Villegas ("Roger Villegas") and CV Consultants and Associates, Inc. ("CV Consultants").
At the hearing on the Motion for Summary Judgment, held May 17, 2004, this Court dismissed the non-dischargeability action against CV Consultants.
4. The Non-dischargeability Complaint asks this Court to declare non-dischargeable under § 523(a)(2)(A) a judgment from the Third Judicial District Court, Dona Ana County, State of New Mexico entered on March 12, 2003. Plaintiffs allege that the judgment is non-dischargeable as a debt obtained by false pretenses, false representations or actual fraud.
5. The Plaintiffs filed a state court complaint from which the judgment arises against Roger Villegas individually and in his capacity as agent for CV Consultants and against CV Consultants. See Complaint, CV 2002-1218, Third Judicial District Court, Dona Ana County, State of New Mexico filed September 10, 2002 (hereinafter, the "State Court Complaint").
6. The State Court Complaint alleged breach of contract and fraud in connection with a transaction in which the Plaintiffs purchased vacant land from Roger Villegas and CV Consultants. Plaintiffs claimed that Roger Villegas misrepresented that the land would be improved to enable Plaintiffs to move a mobile home onto the land. In reliance on those representations, Plaintiffs purchased a new mobile home and moved it onto the property. Soon thereafter, officials of Dona Ana county informed Plaintiffs that the mobile home was placed on the property illegally and could not be inhabited until the infrastructure was in place as required by the county's subdivision act.
According to the state court complaint, Roger Villegas promised that the necessary infrastructure work would be completed. This work included installing water and sewer lines, paving roads, and installing electric and gas connections.
7. Roger Villegas and CV Consultants did not answer the State Court Complaint. After an entry of default, the state court held a hearing on damages and awarded Plaintiffs a judgment for actual, compensatory and consequential damages in the amount of $34,830.06 and punitive damages in the amount of $25,000.00. Specifically, the state court found that Roger Villegas and CV Consultants breached their contract with Plaintiffs and that both Defendants "intended to take unfair advantage of Plaintiffs." See Judgment and Order, filed March 12, 2003 at ¶ 4.
DISCUSSION
In the Motion for Summary Judgment, Defendants assert that Cecilia Villegas and Roger Villegas should be dismissed from this action because the Plaintiffs failed to make specific allegations against the Villegases in their individual capacities. First, Defendants argue that the State Court Complaint was against Roger Villegas only in his capacity as agent of CV Consultants and not in his individual capacity; therefore, he should be dismissed from the non-dischargeability action. This argument fails because the State Court Complaint alleged breach of contract and fraud against Roger Villegas individually and as agent for CV Consultants. The judgment did not so limit his liability. Therefore, the Court finds that Roger Villegas individually, is subject to the state court judgment and will not be dismissed from this non-dischargeability proceeding. See, Kenny v. Block (In re Kenny), 75 B.R. 515, 518 (Bankr. E.D.Mich. 1987) (finding that parties were given adequate notice in original complaint that they were being sued both as individuals and as government officials).
Next, Defendants argue that Cecilia Villegas was not named in the State Court Complaint and although she was named as a party in the Non-dischargeability Complaint, no allegations were made against her in the Non-dischargeability Complaint. Defendants argue that Plaintiffs were aware of or should have been aware of any allegations that they may have had against Cecilia Villegas both at the time the original State Court Complaint was filed and when the Non-dischargeability Complaint was filed.
The Non-dischargeability Complaint relies on the State Court judgment as the basis for the alleged non-dischargeable debt against Cecilia Villegas and makes no specific allegations against Cecilia Villegas. However, incorporated into their pleadings in response to the Motion for Summary Judgment, Plaintiffs have filed a Motion for Leave to Amend the Non-dischargeability Complaint (hereinafter, "Motion to Amend") on June 21, 2004 to add allegations of fraud against Cecilia Villegas in connection with the sale transaction. Presumably, the amended non-dischargeability complaint would outline specific allegations of fraud against Cecilia Villegas. If the Court allows Plaintiffs to amend the Nondischargeability Complaint, the Motion for Summary Judgment can be denied; however, if the Motion to Amend is denied, the Court can grant the Motion for Summary Judgment in part and dismiss Cecilia Villegas from this proceeding.
The Plaintiffs have not submitted a proposed amended non-dischargeability complaint. At the hearing on the Motion for Summary Judgment the Plaintiffs' counsel argued that Cecilia Villegas participated in the fraud.
Motion to Amend.
The Court notes that Defendants' Motion to Dismiss was filed on September 11, 2003, more than a month before the expiration of the 60 day statute of limitations for non-dischargeability complaints which was October 23, 2003. In the Motion to Dismiss, Defendants assert that the Nondischargeability Complaint should be dismissed as to Cecilia Villegas because no allegations were made against her. Plaintiffs filed their first Response to the Motion to Dismiss on September 28, 2003, in which they ask for leave to amend their Non-dischargeability Complaint without specifying how they wanted to amend it. Plaintiffs offer no explanation as to why they did not file an amended complaint within the 60-day period or pursue their request to amend set forth in their Response filed on September 28, 2003. Nor do Plaintiffs offer an explanation as to why in September 2003 they did not ask for an extension of time to file an amended complaint under Rule 9006(b), Fed.R.Bankr.P.
Under Federal Rule of Civil Procedure 15, a party may amend a pleading with leave of the court, which "shall be freely given when justice so requires." Rule 15 is made applicable to bankruptcy adversary proceedings by Bankruptcy Rule 7015, Fed.R.Bankr.P. However, Bankruptcy Rule 4007(c) provides that a complaint for non-dischargeability of a debt under § 523(a)(2)(A) must be filed "no later than 60 days after the first date set for the meeting of creditors under § 341(a)." Fed.R.Bankr.P. 4007(c). At this point, an amended complaint would fall well outside the 60 day period. Therefore, the Motion to Amend the Non-dischargeability Complaint would not be time-barred only if the proposed amendment relates back to the timely filed Non-dischargeability Complaint in accordance with Rule 15(c), Fed.R.Civ.P. USPS v. Steinmeyer (In re Steinmeyer), 274 B.R. 201 (Bankr. S.D.S.C. 2001) (citing several courts that apply Rule 15 to the dischargeability statute of limitations in Rule 4007).
The Motion for Summary Judgment actually alleges that the amendment is untimely under Bankruptcy Rule 4004(a), dealing with objections to discharge under § 727(a). Although the reference to that rule is incorrect, the time period under Rule 4007(c) is the same. See Re/Max Properties, Inc. v. Barnes (In re Barnes), 96 B.R. 833, 835 (Bankr. N.D.Ill. 1989) (same mistake overlooked and 4007(c) applied).
Rule 15(c) provides in relevant part as follows:
(c) An amendment of a pleading relates back to the date of the original pleading when . . .
(2) the claim or defense asserted in the amended pleading arose out of the conduct, transaction, or occurrence set forth or attempted to be set forth in the original pleading,
Leave to amend is not automatic and will be allowed only if the claim in the amended complaint arose out of the same conduct, transaction or occurrence set forth in the original complaint. Re/Max Properties, Inc. v. Barnes (In re Barnes), 96 B.R. 833, 835 (Bankr. N.D. Ill. 1989). In determining whether to allow an amendment to relate back to the original Non-dischargeability Complaint, "[n]otice to the opponent is clearly the critical element in the Rule 15(c) determination." Barnes, 96 B.R. at 836; see also Gerardo Sons Motor Service, Inc. v. Gerardo (In re Gerardo Leasing, Inc.), 173 B.R. 379, (Bankr. N.D. Ill. 1994) (stating that most important factor in allowing amended complaint to relate back is whether original complaint provided defendant with sufficient notice of what must be defended against in the amended pleading); and Flexi-Van Leasing, Inc. v. Perez (In re Perez), 173 B.R. 284, 292 (Bankr. E.D.N.Y. 1994) (denying amendment where no facts asserted in original pleading suggested that the Debtor engaged in fraud). In this case, the Non-dischargeability Complaint simply requested this Court to hold the state court judgment non-dischargeable under § 523(a)(2)(A). The State Court judgment was not against Cecilia Villegas and the Non-dischargeability Complaint contained no allegations against Cecilia Villegas. The allegations centered around Roger Villegas's conduct as described in the State Court Complaint. Cecilia Villegas had no notice that the Plaintiffs were alleging that her conduct made her liable for a non-dischargeable judgment debt. Simply naming her as a party to the non-dischargeability action could not have caused Cecilia Villegas to have a reasonable expectation that this proceeding involved her conduct regarding the purchase transaction. A basic test for notice is sufficient for relation back is whether the evidence with respect to the amended set of allegations could have been introduced under the original complaint liberally construed. Id. at 837, citing, Gelling v. Dean (In re Dean), 11 B.R. 542, 545 (9th Cir. BAP 1981). Evidence of Cecilia Villegas' conduct in relation to the purchase transaction could not have been introduced under the original Non-dischargeability Complaint, even if liberally construed, because the original Nondischargeability Complaint simply asks for a declaration that the state court judgment is nondischargeable. At this late date and in light of the fact that Plaintiffs were made aware of the deficiency before the 60-day deadline, the Court will not allow an amendment to add allegations of fraud against Cecilia Villegas.
For the reasons set forth above, the Court denies the Motion for Leave to Amend. The Court grants the Motion for Summary Judgment in part and will dismiss Cecilia Villegas from this adversary proceeding. The Motion for Summary Judgment is denied in part and Roger Villegas will not be dismissed from this proceeding. In light of this holding, the Motion to Strike the Affidavit of Cecilia Villegas is moot. An appropriate order will be entered. This opinion constitutes the Court's findings of fact and conclusions of law pursuant to Rule 7052, Fed.R.Bankr.P.