Opinion
22-31221 Adv. 23-3003
05-22-2023
In re: EARL G. HARRIS JEANETTE C. HARRIS, Debtor. v. Jeanette C. Harris, Defendant. Ohio Attorney General, Plaintiff,
Chapter 7
DECISION DENYING DEFENDANT'S MOTION TO STRIKE PLAINTIFF'S APPENDIX (DOC. 8)
GUY R. HUMPHREY, UNITED STATES BANKRUPTCY JUDGE
In this adversary proceeding, the Ohio Attorney General, on behalf of the state of Ohio ("Ohio"), filed a complaint requesting that this court enter judgment against Jeanette C. Harris, the debtor ("Harris"), for her simultaneous role within various charter schools and also two corporate entities, both of which had contractual relationships with those same charter schools. Doc. 1. Ohio accuses these entities of misappropriation of funds. In turn, Harris is alleged to be strictly responsible for this misappropriation as a public official under Ohio law. Id. at 14. In addition, Ohio seeks to be reimbursed for income Harris received from these corporate entities under certain fiduciary duty theories. Id. Additionally, Ohio asks this court to find that any such judgment is non-dischargeable pursuant to 11 U.S.C. § 523(a)(7). Id. at 13. Harris has moved to dismiss the complaint for failure to state a claim, which the court will address in a separate decision. Doc. 10. See also Ohio's response, doc. 16. This decision is focused only upon Harris' separate Motion to Strike an Appendix to the complaint. For the reasons to be explained, the motion must be denied.
A description of the allegations of the complaint is in order. Harris was involved in the creation of various community schools, commonly referred to as charter schools. Doc. 1 at 2, ¶ 5. See Ohio Rev. Code Chapter 3314 (Community Schools). These community schools operate from funds transferred from traditional school districts and also by way of federal grants. Id. at 4, ¶ 12. Significant to the allegations, the community schools in question had a contract with a corporation to operate these schools, IMR. IMR was paid over $19 million in public funds between 2006 and 2012. Id. at 4, ¶ 14. IMR did not obtain this contract by competitive bidding. Id. at 4, ¶ 15. Harris was a founder of IMR, and also its CEO, president, and a director. Id. at 4, ¶ 17. Further, Harris signed these contracts with the community schools on behalf of IMR. Id. In addition, Ohio alleges that Harris was involved with another entity known as ICSMR, and ICSMR leased buildings for the community schools or facilitated leases for the schools with third parties. Id. at 2, 5, ¶¶ 5, 18-19. Ohio alleges that Harris is considered a public official under Ohio law and that Harris is strictly liable for improper distributions to the schools in the principal amount of at least $2,198,651, plus statutory interest. Id. at 10, ¶ 29. Further, Ohio alleges Ohio is entitled to judgment in the amount of $876,829, plus statutory interest for compensation, in the form of salary and benefits, she received from IMR and/or ICSMR. Id. at 12, ¶ 53
Attached to the 14-page complaint is a 496-page appendix (the "Appendix"). Doc. 1-1. The Appendix contains copies of various audits of these community schools completed by Ohio. Harris requests that the reports be stricken from the complaint because on page 31 of the Appendix (or page 24 of the Independent Accountant's Report), it contains the following disclaimer from Dave Yost, Auditor of State: "We intend this report solely for the information and use of management, the audit committee, the Governing Board, School's sponsor, and others within the School. We intend it for no one other than these specified parties." Harris' argument for striking the Appendix rests completely on this disclaimer.
Although Harris does not cite any legal authority for her argument, a motion to strike part of a pleading is governed by Federal Rule of Civil Procedure 12(f), which applies to this adversary proceeding pursuant to Federal Rule of Bankruptcy Procedure 7012(b). Rule 12(f) allows the court to "strike from a pleading . . . any redundant, immaterial, impertinent, or scandalous matter." Fed.R.Civ.P. 12(f). "Motions to strike are viewed with disfavor and are not frequently granted." Operating Eng'rs Local 324 Health Care Plan v. G & W Const. Co., 783 F.3d 1045, 1050 (6th Cir. 2015). Motions to strike allow the court to "avoid the expenditure of time and money that must arise from litigating spurious issues by dispensing with" them early in the litigation. Id. (cleaned up).
Ohio's response is three-fold: 1) exhibits to a complaint are not subject to Rule 12(f); 2) the disclaimer in the report has no effect on the admissibility of the Appendix; and 3) the Appendix is a public record and prima facie evidence of the allegations.
The court finds it unnecessary to wade into the legal issue of whether an exhibit to a complaint can ever by stricken pursuant to Rule 12(f). See Gruener v. Ohio Cas. Co., 416 F.Supp.2d 592, 599 (S.D. Ohio 2005) (declining to strike exhibits from a summary judgment record and indicating that "[t]he court will, however, disregard any exhibits that are unauthenticated"). Further, at this early pleading stage of this litigation, the court finds it inappropriate to opine on whether some or all of the Appendix may ultimately be admissible and, if so, its evidentiary weight. Instead, the court is denying Harris' motion because the only possible basis under Rule 12(f) to strike it is because it is immaterial. The Appendix would be immaterial if this disclaimer removed any possibility of the Appendix being included as part of the allegations in a complaint. Ohio suggests that the disclaimer is taken out of context and concludes by stating "while the independent auditor's report on internal controls is directed towards management, the auditor's overall opinion on the financial statements applies to all users of the financial statements. The disclaimer at issue does not restrict the Ohio's reliance on the factual information contained in the audit and it does not make the entire audit report inadmissible in legal proceedings which would be contrary to Ohio law." Doc. 12 at 6. The Debtor did not file a reply brief to address any of the State's arguments.
The court will, if this adversary proceeding progresses beyond the pleading stage, rule upon any and all evidentiary issues surrounding the Appendix but, for now, it is sufficient to determine that Harris has not met the burden to show the Appendix is immaterial to the allegations in the complaint. The Appendix appears to merely provide detail consistent with Ohio's allegations in the body of the complaint. Further, while the court expresses no opinion on those allegations in this decision, Harris has not demonstrated the Appendix contains "spurious issues." G & W Constr. Co., 783 F.3d at 1050.
For these reasons, the motion to strike is denied. The court will enter a separate order consistent with this decision.