Opinion
Case No. 16-14370 Adv. No. 19-1008
07-07-2020
In re: KENNETH R. RILEY GLORIA G. RILEY Debtors REINHART FOODSERVICE, LLC Plaintiff v. KENNETH R. RILEY, ET AL. Defendants
Chapter 7
MEMORANDUM DECISION DENYING DEBTORS' MOTION TO DISMISS [Docket Number 18] [This opinion is not intended for publication.]
This matter is before this Court on the Defendant-Debtors' Motion to Dismiss [Docket Number 18] ("Motion"); and the Plaintiff's Response in Objection to the Debtors' Motion to Dismiss [Docket Number 20].
In their Motion, Defendant-Debtors Kenneth and Gloria Riley ("Debtors") request that the adversary complaint filed by Plaintiff Reinhart FoodService, LLC ("RFS") be dismissed pursuant to Federal Rule of Civil Procedure ("Rule") 12(b)(6) for failure to state a claim upon which relief can be granted. Although their Motion is untimely because it is filed after the answer, this Court construes the Motion as one for judgment on the pleadings pursuant to Rule 12(c) which contains the same standard for review as a Rule 12(b)(6) motion. Upon review of the Motion, this Court concludes that the Debtors do not test the sufficiency of the allegations raised in RFS's adversary complaint, but, instead, dispute those allegations with new evidentiary materials. The disputed facts are not appropriately resolved on either a motion to dismiss or motion for judgment on the pleadings. Accordingly, the Debtors' Motion is denied.
I. JURISDICTION
This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157(a) and 1334, and the standing General Order of Reference in this District. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(I) and (J).
II. BACKGROUND
A. RFS's Adversary Complaint
On February 22, 2019, RFS filed its adversary complaint to object to, or revoke, the Debtors' discharge under various provisions of 11 U.S.C. § 727 or, alternatively, to except certain debts from the Debtors' discharge under 11 U.S.C. § 523(a)(3)(B) [Docket Number 1] ("Complaint"). The Complaint focuses on a prepetition Customer Incentive Agreement ("Incentive Agreement") signed by RFS and Debtor Kenneth Riley in August of 2016 for the purpose of establishing the Debtors' minimum purchase requirements of RFS products and services to be used in the Debtors' restaurant business [Id., ¶¶ 10-11]. As part of the Incentive Agreement, RFS asserts that it agreed to pay the Debtors a one-time cash incentive payment in the amount of $125,000.00 ("Incentive Payment") [Id., ¶ 12].
According to the Complaint, the Incentive Agreement provided that the Debtors would purchase at least $30,000 a week of RFS products during the term of the Incentive Agreement from August 5, 2016 through August 5, 2019 [Id., ¶ 13]. The Incentive Agreement further provided that if they failed to make the minimum purchase requirements from RFS, the Debtors agreed to refund the unearned portion of the Incentive Payment [Id., ¶ 14].
RFS asserts that Debtors never complied with the minimum purchase requirements under the Incentive Agreement and only made a "handful" of small purchase orders from RFS before closing the doors to their restaurant on January 1, 2017 [Id., ¶ 16]. Despite failing to meet the minimum purchase requirements, RFS asserts that the Debtors never repaid the Incentive Payment [Id., ¶ 17].
The Debtors filed their Chapter 7 bankruptcy petition on November 23, 2016 [Id., ¶ 18]. RFS asserts that it is not listed as a creditor in the Debtors' bankruptcy petition, schedules or mailing list of creditors, and further, asserts that it did not have notice of the bankruptcy case while the case was originally pending [Id., ¶¶ 19-20]. In addition, the Incentive Payment is not disclosed as a payment or income received by the Debtors within one year of the bankruptcy petition filing date [Id., ¶ 21].
B. Debtors' Answer
On March 13, 2019, Debtors filed their answer to the Complaint [Docket Number 3] ("Answer"). In the Answer, Debtors categorically deny all allegations in the Complaint [Id.]. The Answer includes no affirmative defenses [Id.].
C. Debtors' Motion to Dismiss
On March 5, 2020, Debtors filed the Motion to dismiss RFS's Complaint pursuant to Rule 12(b)(6) for failure to state a claim. In their Motion, the Debtors assert that the Incentive Agreement was signed with an addendum that RFS failed to provide with the Complaint [Id.]. The Debtors attach the alleged addendum to the Motion [Id., Ex A] ("Addendum"). According to the Debtors, the Addendum clarifies that they were not required to make minimum purchase requirements under the Incentive Agreement nor did the Incentive Agreement require the Incentive Payment to be used in any specific manner. In the Motion, the Debtors dispute other factual allegations in RFS's Complaint including the amount of purchases made and whether the Debtors were personally obligated to RFS for repayment of the Incentive Payment [Id., pp. 3-4, Exs. B-F].
D. RFS's Response
On April 16, 2020, RFS responded to the Debtors' Motion [Docket Number 20] ("Response"). Attached to the Response is a document described as Debtor Gloria Riley's personal guaranty of obligations owed to RFS [Id., Attached Dec., ¶ 5 and Ex. A]. Furthermore, RFS disputes the nature of the Addendum describing it as a checklist and asserting that it predates RFS signing the Incentive Agreement [Id., Attached Dec., ¶¶ 7-11]. Because of an alleged integration clause in the Incentive Agreement, RFS asserts that the Incentive Agreement supersedes the Addendum rather than incorporates it.
III. LEGAL ANALSYIS
A. Standard of Review
Debtors move this Court to dismiss RFS's Complaint pursuant to Federal Rule of Civil Procedure ("Rule") 12(b) (6) incorporated into bankruptcy adversary proceedings via Federal Rule of Bankruptcy Procedure 7012(b). Rule 12(b)(6) provides for a defendant to file a motion to dismiss a complaint for failure to state a claim upon which relief may be granted. However, a Rule 12(b)(6) motion must be filed prior to the filing of a responsive pleading, such as an answer. Fed. R. Civ. P. 12(b). In this case, the Debtors filed their Answer on March 13, 2019 and subsequently filed their Motion on March 5, 2020. Accordingly, the Motion is untimely.
Nonetheless, "[t]he Sixth Circuit has held, that 'as a matter of motions practice, such a motion may be properly considered as one for judgment on the pleadings under [Rule] 12(c), and evaluated . . . under the standards for dismissal under Rule 12(b)(6)." Braun v. Ultimate Jetcharters, Inc., 2013 U.S. Dist. LEXIS 22325, at *6, 2013 WL 623495, at *2 (N.D. Ohio Feb. 19, 2013) (quoting Scheid v. Fanny Farmer Candy Shops, Inc., 859 F.2d 434, 436 n.1 (6th Cir. 1988)). A party may move for judgment on the pleadings after the pleadings are closed but early enough not to delay trial. Fed. R. Civ. P. 12(c).
Accordingly, this Court will construe the Debtors' Motion filed after their Answer as one for judgment on the pleadings which is reviewable under the same standard applicable to a Rule 12(b)(6) motion to dismiss for failure to state a claim. Ziegler v. IBP Hog Market, Inc., 249 F.3d 509, 511-12 (6th Cir. 2001); Michael v. Javitch, Block & Rathbone, LLP, 825 F. Supp. 2d 913, 918 (N.D. Ohio 2011).
A Rule 12(b)(6) motion to dismiss "operates to test the sufficiency of the complaint and permits dismissal of a complaint for 'failure to state a claim upon which relief can be granted.'" Antioch Lit. Trust v. McDermott Will & Emery, LLP, 2013 U.S. Dist. LEXIS 1487, at *4, 2013 WL 66647, at *1 (S.D. Ohio Jan. 4, 2013). Under this standard, a court is to construe a complaint in a light most favorable to the plaintiff accepting all of the complaint's well-pleaded factual allegations as true to determine whether the plaintiff has stated a claim for relief that is plausible on its face. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009); Ziegler, 249 F.3d at 512. However, a pleading that offers "labels and conclusion," a "formulaic recitation of the elements of a cause of action," or "'naked assertions devoid of further factual enhancement" is insufficient to survive dismissal. Iqbal, 556 U.S. at 678 (cleaned up).
On a motion to dismiss or motion for judgment on the pleadings, materials outside the pleadings are generally not considered. Fed. R. Civ. P. 12(d); Simpson v. Champion Petfoods USA, Inc., 397 F.Supp.3d 952, 960 (E.D. Ky. 2019) (citing Rondigo, L.L.C. v. Twp. of Richmond, 641 F.3d 673, 680 (6th Cir. 2011)). However, "a court may consider: (1) any documents attached to, incorporated by, or referred to in the pleadings; (2) documents attached to the motion . . . that are referred to in the complaint and are central to the plaintiffs' allegations, even if not explicitly incorporated by reference; (3) public records; and (4) matters of which the court may take judicial notice." Embassy Realty Inv., LLC v. City of Cleveland, 877 F. Supp. 2d 564, 570 (N.D. Ohio 2012) (further citation omitted). See also Seaton v. TripAdvisor LLC, 728 F.3d 592, 596 (6th Cir. 2013) (stating that although matters outside the pleadings are not to be considered when ruling on a Rule 12(b)(6) motion to dismiss, documents attached to the motion to dismiss are considered part of the pleadings if they are referred to in the complaint and are central to the plaintiff's claims).
B. Debtors' Extraneous Evidentiary Materials Intended to Dispute Allegations in the Complaint May Not Be Considered
In their Motion, the Debtors do not seek to test the sufficiency of the allegations raised by RFS in its Complaint. Instead, the Debtors attempt to refute those allegations by raising new facts that are not referenced in the Complaint and which are disputed by RFS. Although the Debtors believe that RFS's case is "wrought with misrepresentation and deception" [Docket Number 18, p. 5], such factual disputes are not resolvable at this stage of the litigation.
First, the Debtors assert that RFS's Complaint should be dismissed because RFS omits an Addendum to the Incentive Agreement. The alleged Addendum is not referenced in RFS's Complaint or the Debtors' Answer, but is attached to the Debtors' Motion [Docket Number 18, Ex. A, p. 2]. The Debtors argue that the Addendum, along with an email between Debtor Kenneth Riley and an RFS Division President which is also attached to the Debtors' Motion, demonstrate that the minimum purchases set forth in the Incentive Agreement were only an "average" and not a requirement [Id., Ex. B]. In response, RFS asserts that the alleged Addendum is a mere "checklist" reviewed by the parties and signed prior to RFS entering the Incentive Agreement. Based on what RFS asserts to be an integration clause in the Incentive Agreement, RFS argues that the checklist was never incorporated into the Incentive Agreement that supersedes all prior and contemporaneous agreements between the parties. RFS attaches the declaration of William Stacey, an RFS employee, to further support that the parties' Incentive Agreement is a one-page document that does not incorporate the Addendum [Docket Number 20, Attached Dec., ¶¶ 7-11]. The facts set forth in both the Debtors' Motion and RFS's Response go well beyond the allegations in the Complaint and highlight a dispute regarding the nature of the Addendum that cannot be resolved on a motion to dismiss or motion for judgment on the pleadings.
In the Motion, the Debtors raise other fact allegations and evidence outside of and in conflict with the Complaint's allegations. The extraneous allegations and evidentiary materials, many of which are disputed by RFS in its Response, focus on whether or not the Debtors personally guaranteed repayment of debts to RFS, whether or not a fictitious company name was used by the Debtors, whether or not the Debtors' businesses purchased RFS products after January 1, 2017, and whether or not the Incentive Payment was used by the Debtors for personal or business purposes [Docket Number 18, pp. 2-4 and attached Exs. A-F].
As noted above, a Rule 12(b)(6) motion to dismiss for failure to state a claim is intended to test the sufficiency of the allegations in a complaint and the standard requires this Court to treat the Complaint's well-pleaded factual allegations as true. In accordance with that principle, the Debtors' extraneous evidence intended to refute the Complaint's allegations is not appropriate for consideration. While under Rule 12(d), this Court could consider evidence outside the pleadings if it converts the Debtor's Motion to one for summary judgment and allows reasonable opportunity for discovery and response, the evidentiary materials filed by both parties highlight apparent disputes of fact unlikely to be resolvable on summary judgment. See Fed. R. Civ. P. 56(a) (stating that summary judgment may only be granted if the movant demonstrates "that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law"). Thus, this Court declines to convert the Motion.
IV. CONCLUSION
For the reasons set forth, Defendant-Debtors' Motion to Dismiss [Docket Number 18] is DENIED.
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.
/s/ _________
Beth A. Buchanan
United States Bankruptcy Judge Dated: July 7, 2020 Distribution List:
Neil C. Sander, Esq.
Suellen M. Brafford, Esq.