Opinion
Case No. 12-31393 Adv. No. 14-3044
09-04-2014
In re: BEN D. CLOUSER AND TENNILLE R. CLOUSER, Debtors JEFFREY M. KELLNER, CHAPTER 13 TRUSTEE, Plaintiff, v. ARMY AND AIR FORCE EXCHANGE SERVICE, Defendant.
Judge L. S. Walter
Chapter 13
DECISION AND ORDER OF THE COURT DENYING MOTION TO DISMISS BUT REQUIRING AMENDMENT OF THE COMPLAINT
The matter is before the court on the "Motion to Dismiss Complaint to Recover Preferential Payment" filed by Defendant Army and Air Force Exchange Service ("AAFES") [Adv. Doc. 12]. A response was filed by Plaintiff Jeffrey M. Kellner, Chapter 13 Trustee ("the Trustee") [Adv. Doc. 15]; and AAFES filed a reply [Adv. Doc. 16].
FACTUAL AND PROCEDURAL BACKGROUND
This adversary proceeding was initiated with the filing of a complaint on March 13, 2014 styled "Complaint to Recover Preferential Payment Made to the Army and Air Force Exchange." It consists of five numbered paragraphs, the first three of which are routine statements of jurisdiction and venue. The fourth paragraph contains all the alleged facts which, because this matter is before the court on a motion to dismiss, must be deemed to be true. Paragraph four is quoted in its entirety below:
The Debtors filed a Chapter 13 Case on March 25, 2012. The preference amounts are wage garnishments for January, February and March of 2012 which total $471.92 and $4,244.00 garnished from the Debtors' 2011 Federal Income Tax Return and received by the Army and Air Force Exchange. This makes the total preference amount $4,715.93 paid to the Army and Air Force Exchange. Attached as Exhibit 1 is the letter received by the Debtors on February 8, 2012 from the Department of the Treasurer Financial Management Service indicating that the Army & Air Force Exchange Service was to receive their 2011 Federal Income Tax Refund in the amount of $4,244.00.
The referenced exhibit is indeed as described, a one-page notice from the Department of the Treasury advising the Debtors that a setoff of their tax refund had been effectuated to pay a portion of their debt to AAFES. The final paragraph of the complaint, paragraph number five, consists of a single sentence: "Pursuant to 11 U.S.C. Section 550, Plaintiff may recover the preferential payments of the Garnishments of Wages as well as the Federal Income Tax Refund for 2011 from the Defendant." The prayer for relief simply demands that the Defendant be required to "payover" to the Trustee "the preference amount of $4,715.93."
STANDARD FOR DISMISSAL
AAFES requests dismissal of the Trustee's complaint under Fed. R. Civ. P. 12(b)(6), incorporated in bankruptcy adversary proceedings by Fed. R. Bankr. P. 7012 for failure of the Trustee to state a claim upon which relief can be granted. To survive a 12(b)(6) attack, the Trustee's complaint "must contain sufficient factual matter, accepted [by the court] as true, to 'state a claim to relief that is plausible on its face.' " Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949 (2009) (further citation omitted). 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." Id. The plausibility standard is "not akin to a 'probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Id.
The factual allegations provided in the complaint need not be detailed. Id.; Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). Instead, a complaint must only include "a short and plain statement of the claim showing that the pleader is entitled to relief" in order to give the defendant fair notice of what the claim is and the grounds upon which it rests. Fed. R. Civ. P. 8(a)(2) (incorporated in bankruptcy by Fed. R. Bankr. P. 7008); Twombly, 550 U.S. at 555. Nonetheless, the facts provided must be sufficient to raise a right to relief "above the speculative level" and the plaintiff has the obligation to provide more than just "labels and conclusions" or a "formulaic recitation of the elements of a cause of action." Twombly, 550 U.S. at 555. See also Iqbal, 129 S.Ct. at 1949 (noting that "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements do not suffice").
In assessing the complaint, the court must keep in mind that the purpose of a Rule 12(b)(6) motion to dismiss is to test the legal sufficiency of the plaintiff's claims for relief and not to weigh the evidence. Perry v. United Parcel Service, 90 Fed. Appx. 860, 2004 WL 193203, at *1 (6th Cir. Jan. 30, 2004); Armengau v. Cline, 7 Fed. Appx. 336, 2001 WL 223857, at *5 (6th Cir. March 1, 2001). "Therefore, when deciding a motion to dismiss a court may consider only matters properly a part of the complaint or pleadings." Armengau, 2001 WL 223857, at *5. See also Kostrzewa v. City of Troy, 247 F.3d 633, 643-44 (6th Cir. 2001) (noting that if matters outside the pleadings are presented to and not excluded by the court, the motion must be treated as one for summary judgment under Fed. R. Civ. P. 56 and the parties must be provided additional notice and an opportunity to supplement the record).
LEGAL ANALYSIS
The complaint in this case is grossly deficient. It fails to meet the minimal standards set by Iqbal and Twombly and does not come close to stating a claim upon which relief may be granted. The flaws in the complaint are so fundamental that the court is strongly inclined to dismiss the adversary proceeding. However, AAFES has not complained of these flaws and has apparently not been prejudiced by them, choosing instead to focus on what it supposes to be the merits of the case. AAFES assumes that certain causes of action have been asserted and then argues that these causes cannot prevail as a matter of law. Due to the accommodating position taken by AAFES, the court will not sua sponte interpose a more severe judgment, but the court cannot address the merits of claims that are not effectively expressed in the complaint.
As noted above, simple labels, conclusory statements, or a "formulaic recitation of the elements of a cause of action" are not sufficient to ward off dismissal of a complaint. Twombly, 550 U.S. at 555. In this instance, even the recitation of the elements of a preference are missing and there is no reference to 11 U.S.C. § 547 (governing preferences) or 11 U.S.C. § 553(b) (governing the avoidance of setoffs that improve the creditor's position within 90 days of the petition date). The only Bankruptcy Code section cited in the complaint is § 550 which pertains to the recovery of property that was the subject of a previously avoided transfer. At best, the Trustee has stated a cause of action for a § 550 recovery, but this cause of action cannot prevail where there has been no transfer avoided. Simply put, the Trustee has not set forth a cause of action for avoidance of a preference (or improvement of position under § 553(b)) and there is consequently nothing to recover under § 550.
Surprisingly, AAFES does not focus on this simple issue in its Motion to Dismiss, but instead jumps to unwarranted conclusions about what the Trustee intends in his complaint. Among other things, AAFES addresses the elements of a proper setoff, including mutuality, explains that its offset did not violate the automatic stay, disputes the Debtors' right to exempt their tax refund, and argues that §§ 553(b) and 547 do not apply to the government's exercise of its statutory authority. The Complaint does not raise any of these issues. Only in his Response to the Motion to Dismiss does the Trustee reference § 553(b) and make some attempt to set forth the elements of avoidance under that section.
While it is tempting to join the parties in their explication of the purported substantive legal issues, these arguments and analyses are built on air. The complaint simply does not supply a foundation sufficient for the court to proceed. As already noted, AAFES has ignored the complaint's fundamental flaws, choosing instead to argue that the complaint must be dismissed because the Trustee's supposed causes of action cannot prevail as a matter of law. Neither the court nor AAFES should be required to guess what causes of action the Trustee intends and whether they are plausible. The Trustee must make that clear in his complaint and the court, reluctantly, will allow him another opportunity to do so.
CONCLUSION
For the foregoing reasons, the court DENIES the Motion to Dismiss and allows the Trustee 30 days to file an amended complaint that fully addresses the concerns raised herein.
SO ORDERED.
This document has been electronically entered in the records of the United States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.
Dated: September 4, 2014
/s/_________
Lawrence S. Walter
United States Bankruptcy Judge
cc: Lester Thompson, Attorney for Plaintiff, 1340 Woodman Drive, Dayton, OH 45432
Margaret Schutte, Attorney for Defendant, 200 West Second Street, Suite 600, Dayton, OH
45402
Office of the U.S. Trustee, 170 North High Street, Suite 200, Columbus, OH 43215