Opinion
Case No. 14-10531-399 Adversary No. 14-01017-399
02-11-2015
In re: MICHAEL E. MCFADDEN, Debtors, JAMES S. MURPHY, Plaintiff, v. MICHAEL E. MCFADDEN, Defendant.
Chapter 7 Re. Doc. 31
NOT FOR PUBLICATION
MEMORANDUM OPINION
This matter comes before me on a Motion to Dismiss Petitioner/Creditor's Complaint and Request for Attorney Fees (the "Motion to Dismiss"), filed by defendant Michael E. McFadden (the "Debtor"). The Motion to Dismiss seeks dismissal of the Complaint Objecting to Discharge of Debtor (the "Complaint"), filed by James S. Murphy (the "Plaintiff"). On February 6, 2015, the Plaintiff filed a Motion in Response to Defendant's to Dismiss and Request for Attorney Fees (the "Response"). For the reasons stated, I grant the Debtor's Motion to Dismiss in part, and deny it in part. In connection therewith, I deny any request for relief by the Plaintiff under 11 U.S.C. § 727(c)(2).
BACKGROUND
On June 11, 2014, the Debtor filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code. On September 8, 2014, the Plaintiff filed an Adversary Complaint, commencing this adversary proceeding. On October 28, 2014, the Debtor filed a Debtor's Answer to the Complaint Objecting to Discharge.
The Complaint requests that the Debtor's discharge be denied because his actions violate sections 727(a)(2), (a)(3), (a)(4), (a)(5), (a)(6), or (a)(7) of Title 11 of the United States Code (the "Bankruptcy Code"). The Complaint also refers to § 727(c)(2). The Motion to Dismiss seeks dismissal of the Complaint in its entirety. For the reasons I state, the allegations in the Complaint under §§ 727(a)(2), (a)(3), (a)(5), (a)(6) and (a)(7) are dismissed and I deny the request for relief under § 727(c)(2). The only request for relief in the Complaint that remains pending after entry of this Order is the request made under §727(a)(4)(A).
DISCUSSION
I have jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334(b), 157(b)(2)(J) and Local Rule 9.01(B) of the United States District Court for the Eastern District of Missouri. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(J).
A. Standard
The Debtor's Motion is styled as a motion to dismiss, and it asks me to dismiss the Complaint. Although the Debtor does not cite to a rule as the basis for his request for relief in the Motion, it is clear that the Debtor's request for dismissal is premised on Federal Rule of Civil Procedure 12(b)(6), made applicable to bankruptcy proceedings by Federal Rule of Bankruptcy Procedure 7012(b). Rule 12(b) requires a motion to dismiss for failure to state a claim upon which relief can be granted to be "made before pleading if a responsive pleading is allowed." FED. R. BANKR. P. 12(b). However, Rule 12(h)(2) states that a defense of failure to state a claim upon which relief can be granted may be raised "by a motion under Rule 12(c)." FED. R. BANKR. P. 12(h)(2)(B). Rule 12(c) states "[a[fter the pleadings are closed-but early enough not to delay trial-a party may move for judgment on the pleadings." FED. R. CIV. P. 12(c). A motion for judgment on the pleadings is reviewed "under the same standard that governs a motion to dismiss under Rule 12(b)(6)." NanoMech, Inc. v. Suresh, No. 13-3671, 2015 WL 479928, at *2 (8th Cir. Feb. 6, 2015) (citing Mclvor v. Credit Control Servs., Inc., 773 F.3d 909, 912-13 (8th Cir. 2014)). The Debtor's Motion was filed after the pleadings were closed and early enough to not delay trial. Therefore, I treat the Debtor's Motion as a motion for judgment on the pleadings under Rule 12(c), arguing failure to state a claim upon which relief can be granted.
The title of the Motion to Dismiss states that it also includes a request for attorney fees. However, no request for attorney fees is made in that motion.
Federal Rule of Civil Procedure 8(a)(2), made applicable to bankruptcy proceedings by Federal Rule of Bankruptcy Procedure 7008, provides that a pleading must contain a "short and plain statement of the claim showing that the pleader is entitled to relief." FED. R. CIV. P. 8(a)(2). A motion made under Federal Rule of Civil Procedure 12(b)(6), made applicable to bankruptcy proceedings by Federal Rule of Bankruptcy Procedure 7012(b), concerns the legal sufficiency of a complaint based on failure to state a claim upon which relief can be granted. FED. R. CIV. P. 12(b)(6). The Supreme Court has articulated the standard for surviving a motion to dismiss for failure to state a claim upon which relief can be granted:
To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to "state a claim to relief that is plausible on its face." 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. 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. Where a complaint pleads facts that are "merely consistent with" a defendant's liability, it "stops short of the line between possibility and plausibility of 'entitlement to relief.' "Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal citations omitted; quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 556, 557, 570 (2007)). The plausibility standard applies in "all civil actions." Ashcroft, 556 U.S. at 684 (citation omitted).
Federal Rule of Bankruptcy Procedure 7009 adopts Rule 9 of the Federal Rules of Civil Procedure. It provides, in pertinent part, that "[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." FED. R. BANKR. P. 7009(b). "In other words, "Rule 9(b) requires plaintiffs to plead 'the who, what, when, where, and how: the first paragraph of any newspaper story.' " Summerhill v. Terminix, Inc., 637 F.3d 877, 880 (8th Cir. 2011) (quoting Great Plains Trust Co. v. Union Pac. R.R. Co., 492 F.3d 986, 995 (8th Cir.2007)).
B. 11 U.S.C. § 727
The Plaintiff's Complaint cites to 11 U.S.C. §§ 727(a)(2), (a)(3), (a)(4), (a)(5), (a)(6) and (a)(7). However, he sets forth allegations without specifying under which subsection of § 727(a) he travels. Therefore, I am charged with the task of determining, based on the allegations by the Plaintiff, under which provision he seeks relief.
1. 11 U.S.C. §§ 727(a)(2) and (c)(2)
Section 727(a)(2) states:
(a) The court shall grant the debtor a discharge unless -11 U.S.C. §727(a)(2)(A) and (B). "Fraudulent intent is presumed in section 727(a)(2) cases in which the debtor has gratuitously conveyed valuable property." The Abbot Bank-Hemingford v. Armstrong (In re Armstrong), 931 F.2d 1233, 1239 (8th Cir. 1991) (citing City Nat'l Bank v. Bateman, 646 F.2d 1220, 1222 (8th Cir. 1981) (under predecessor statute to section 727(a)(2)).
(2) the debtor, with intent to hinder, delay, or defraud a creditor or an officer of the estate charged with custody of property under this title, has transferred, removed, destroyed, mutilated, or concealed, or has permitted to be transferred, removed, destroyed, mutilated, or concealed -
(A) property of the debtor within one year before the date of the filing of the petition;
(B) property of the estate, after the date of the filing of the petition;
The § 727(a)(2) argument in the Complaint is that the Debtor entered into a conspiracy with Amy Lashley to hide assets from creditors by having Amy Lashley purchase household goods in her name and by putting the Debtor's vehicle in Amy Lashley's name. The allegations in the Complaint do not state a plausible claim for relief under § 727(a)(2). The Plaintiff makes only bald assertions absent of factual enhancement, leaving the Debtor uncertain as to the allegations against him. The Plaintiff's allegations are insufficient for his §727(a)(2) action to proceed. "A pleading that offers 'labels and conclusions' or 'a formulaic recitation of the elements of a cause of action will not do.' . . Nor does a complaint suffice if it tenders 'naked assertion[s]' devoid of 'further factual enhancement.' Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 555 and 557). And, to assert a cause of action for fraud, the Plaintiff must plead with particularity. The Plaintiff fails to plead "the who, what, when, where, and how" of his §727(a)(2) action. See Summerhill, 637 F.3d at 880 (8th Cir. 2011). Moreover, the Plaintiff's allegation that the Debtor transferred his car to Amy Lashley fails. The Certificate of Title to the Debtor's car (which is attached to the Debtor's Answer to the Complaint and made a part of the public record) shows that the car is owned by the Debtor "TOD" to Amy Lashely. This means that the car is to be transferred on the Debtor's death to Ms. Lashley, not that the Debtor already transferred his car to Ms. Lashley.
In the Complaint, the Plaintiff states that he "seeks to obtain financial records from Ms. Amy Lashley under 727(c)(2) to see if there is unexplained deposits into her accounts that would correspond with Mr. McFadden's earnings." Section 727(c)(2) states that "[o]n request of a party in interest, the court may order the trustee to examine the acts and conduct of the debtor to determine whether a ground exists for denial of discharge." 11 U.S.C. § 727(c)(2). I see no reason that would justify ordering an examination under §727(c)(2).
In his Response to the Debtor's Motion to Dismiss, the Plaintiff changes the subject of his § 727(a)(2) claim. Now, he alleges that he has an action under § 727(a)(2) because property that had been located at the Debtor's premises pre-petition (according to the Plaintiff, "household furniture, a GMC pickup and a red ATV") was no longer there within one year of fling his bankruptcy petition, and was not listed on the Debtor's schedules. According to the Plaintiff, the Debtor stated that the owners of the property had removed it from the Debtor's premises pre-petition, but the Debtor does not know how to contact the parties that he believes are the owners of the property. The Plaintiff submits that he is unable to adequately investigate the facts asserted by the Debtor.
The Plaintiff's § 727(a)(2) cause of action is a moving target. He may not change the basis for his cause of action without following the proper procedures. See Gallagher v. City of Clayton, 699 F.3d 1013, 1022 (8th Cir. 2012) ("It is a basic principle that the complaint may not be amended by the briefs in opposition to a motion to dismiss. . . .") (quoting Thomason v. Nachtrieb, 888 F.2d 1202, 1205 (7th Cir. 1989) (quotation marks omitted). And the deadline to file an action under § 727(a) was September 9, 2014. Moreover, even based on the Plaintiff's new § 727(a)(2) allegations, his §727(a)(2) cause of action does not survive dismissal. The Plaintiff's allegations are a confusing morass of contentions, absent of factual enhancement, that fail to put the Debtor on notice of the action against him.
Section 727(a)(4) states:
(a) The court shall grant the debtor a discharge unless -
(4) the debtor knowingly and fraudulently, in or in connection with the case -
(A) made a false oath or account;
(B) presented or used a false claim;
(C) gave, offered, received, or attempted to obtain money, property, or advantage, or a promise of money, property, or advantage, for acting or forbearing to act; or
(D) withheld from an officer of the estate entitled to possession
under this title, any recorded information, including books, documents, records, and papers, relating to the debtor's property or financial affairs;11 U.S.C. § 727(a)(4).
In three instances, the Plaintiff complains of falsehoods by the Debtor "signed under penalty of perjury." I understand these allegations to be brought under § 727(a)(4)(A). The Plaintiff sets forth three bases in his Complaint for an action under § 727(a)(4)(A): (1) on Question 5 of the Debtor's Statement of Financial Affairs ("SOFA"), the Debtor stated that his home was in foreclosure, but in reality the Debtor's home had been sold at a foreclosure sale pre-petition; (2) on Question 14 of the debtor's SOFA, the Debtor answered that he is not holding property owned by another person, but now the Debtor states that "several items that were in his possession are not his" but belong to others, and the Debtor also did not list the items on his bankruptcy schedules; and (3) on the Debtor's Schedule J he listed that he has certain expenses, yet the Debtor testified at his meeting of creditors that none of the bills for these expenses were in his name.
In his Response to the Debtor's Motion to Dismiss, the Plaintiff sets forth additional bases upon which he alleges that the Debtor violated § 727(a)(4)(A). For the same reasons why I do not permit the Plaintiff to change the basis for his § 727(a)(2) action, I do not consider § 727(a)(4)(A) allegations that were not included in the Complaint. I consider only the § 727(a)(4)(A) allegations that were set forth in the Complaint.
To support his first § 727(a)(4)(A) allegation in the Complaint (based on the contention that the Debtor stated on Question 5 of his SOFA that his home was in foreclosure, but the Debtor's home had actually been sold at a foreclosure sale pre-petition), the Plaintiff states that the foreclosure sale for the Debtor's home was complete "on the Courthouse steps in Wayne County Missouri on November 22, 2013 for $35,000." With respect to his second § 727(a)(4)(A) claim in the Complaint (based on the argument that the Debtor's SOFA reflects that he is not holding property for others, and the Debtor states that "several items that were in his possession are not his" but belong to others, and the Debtor did not list the items on his bankruptcy schedules), the Plaintiff specifies the names of the parties he believes the Debtor alleges to be the owners of the property, the address of one alleged owner and the location of a storage shed where he believes property is located. In addition, he attaches to the Complaint exhibits that he believes support his position. Lastly, with respect to the Plaintiff's third § 727(a)(4)(A) cause of action in the Complaint, the Plaintiff specifies that the expenses listed on the Debtor's Schedule J were "$300 for Utilities, $40.00 for Telephone, $60.00 for Satellite," and that the Plaintiff believes the Debtor's conflicting testimony was given at his meeting of creditors.
The Complaint pleads the § 727(a)(4)(A) cause of action sufficiently to survive dismissal. See BJC Health Sys. v. Columbia Cas. Co., 478 F.3d 908, 917 (8th Cir. 2007) ("The level of particularity required depends on, inter alia, the nature of the case and the relationship between the parties.") (citation omitted). Fraud must be stated with particularity under Rule 9, but "the overarching principles of notice pleading dictate that a plaintiff does not need to plead fraud 'with complete insight before discovery is complete.'" Garrett v. Cassity, No. 4:09CV01252 ERW, 2010 WL 5392767, at *17 (E.D. Mo. 2010) (quoting Gunderson v. ADM Investor Servs., Inc., 230 F.3d 1363, at *3 (8th Cir.2000) (citation omitted). Viewing the Complaint in its entirety, the § 727(a)(4)(A) allegations adequately apprise the Debtor of the claim against him and allow him to respond. I do not decide the merits of the action at this point of the proceedings. Rather, "[t]he issue in considering . . . a motion [to dismiss] is not whether the plaintiff will ultimately prevail, but whether the plaintiff is entitled to present evidence in support of the claim." Redd v. DePuy Orthopaedics, Inc., No. 4:13CV2228, 2014 WL 4467543, at *1 (E.D. Mo. Sept. 8, 2014).
3. 11 U.S.C. § 727(a)(3) , (a)(5), (a)(6) and (a)(7 )
The Plaintiff's Complaint includes reference to §§ 727(a)(3), (a)(5), (a)(6) and (a)(7), all of which are dismissed.
• Section 727(a)(3) states:
(a) The court shall grant the debtor a discharge unless -
(3) the debtor has concealed, destroyed, mutilated, falsified, or failed to keep or preserve any recorded information, including books, documents, records, and papers, from which the Debtor's financial condition or business transactions might be ascertained, unless such act or failure to act was justified under all of the circumstances of the case;
11 U.S.C. § 727(a)(3).
• Pursuant to § 727(a)(5):
(a) The court shall grant the debtor a discharge unless -
(5) the debtor has failed to explain satisfactorily, before determination of denial of discharge under this paragraph, any loss of assets or deficiency of assets to meet the debtor's liabilities;
11 U.S.C. §727(a)(5).
• Section 727(a)(6) provides:
(a) The court shall grant the debtor a discharge unless -
(6) the debtor has refused, in the case--
(A) to obey any lawful order of the court, other than an order to respond to a material question or to testify;
(B) on the ground of privilege against self-incrimination, to respond to a material question approved by the court or to testify, after the debtor has been granted immunity with respect to the matter concerning which such privilege was invoked; or
(C) on a ground other than the properly invoked privilege against self-incrimination, to respond to a material question approved by the court or to testify;
11 U.S.C. § 727(a)(6).
• Under § 727(a)(7):
(a) The court shall grant the debtor a discharge unless -The Plaintiff does not allege facts that would suggest a cause of action under any of these provisions.
(7) the debtor has committed any act specified in paragraph (2), (3), (4), (5), or (6) of this subsection, on or within one year before the date of the filing of the petition, or during the case, in connection with another case, under this title or under the Bankruptcy Act, concerning an insider;
11 U.S.C. §727(a)(7).
CONCLUSION
For the reasons stated, the Motion to Dismiss Petitioner/Creditor's Complaint and Request for Attorney Fees filed by defendant Michael E. McFadden, as construed as a motion for judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c) (made applicable in bankruptcy proceedings pursuant to Federal Rule of Bankruptcy Procedure 7012), is granted in part in that the allegations in the Complaint Objecting to Discharge of Debtor filed by James S. Murphy under §§ 727(a)(2), (a)(3), (a)(5), and (a)(7) are dismissed. Any request for relief under Bankruptcy Code § 727(c)(2) is denied. The Motion to Dismiss Petitioner/Creditor's Complaint and Request for Attorney Fees is denied in part in that the requests for relief in the Complaint Objecting to Discharge of Debtor under § 727(a)(4)(A) remain pending after entry of this Order. The Complaint Objecting to Discharge of Debtor is not amended by any new arguments or theories set forth in the Motion in Response to Defendant's to Dismiss and Request for Attorney Fees. DATED: February 11, 2015 St. Louis, Missouri
/s/_________
Barry S. Schermer
United States Bankruptcy Judge
Copies to: James S. Murphy
RR1 Box 13360
Patterson, MO 63956
Deidre Dawn Jewel
The Jewel Law Firm LLC
1416 North Kingshighway
Cape Girardeau, MO 63701
M. Dwight Robbins
Robbins Law Office
PO Box 87
Fredericktown, MO 63645
Tom K. O'Loughlin
O'Loughlin, O'Loughlin et al.
1736 N. Kingshighway
Cape Girardeau, MO 63701
U.S. Trustee
Office of the U. S. Trustee
111 So. 10th Street, Suite 6353
St. Louis, MO 63102