Opinion
Case No. 20-51336 Adv. Pro. No. 20-2071
2021-04-05
IN RE: Jeremy R. KEIRNS and Amanda L. Keirns, Debtors. Sean Stoner, et al., Plaintiffs, v. Jeremy R. Keirns, Defendant.
David J. Coyle, Toledo, OH, for Plaintiffs. John W. Kennedy, Strip Hoppers Leithart McGrath & Terleck, Myron N. Terlecky, Columbus, OH, for Defendant.
David J. Coyle, Toledo, OH, for Plaintiffs.
John W. Kennedy, Strip Hoppers Leithart McGrath & Terleck, Myron N. Terlecky, Columbus, OH, for Defendant.
OPINION AND ORDER DENYING DEFENDANT'S MOTION TO DISMISS OR FOR ABSTENTION (DOC. 7)
Jeffrey P. Hopkins, United States Bankruptcy Judge
In this adversary proceeding, Plaintiffs Sean Stoner and Title First Agency ("TFA") seek to deny Jeremy R. Keirns, the Defendant and one of the debtors in the underlying Chapter 7 bankruptcy case, a discharge of certain debts the Defendant allegedly owes them. According to the complaint (Doc. 1) (the "Complaint"), the Defendant's actions in connection with a contract to perform construction services and renovations at Stoner's residence and at certain office buildings owned by TFA not only violated the Ohio Consumer Sales Practices Act (the "CSPA"), but also caused those debts to be nondischargeable under § 523(a)(2), (4), and (6) of the Bankruptcy Code. The Defendant filed a motion to dismiss the Complaint (Doc. 7) (the "Motion") for failure to state a claim and lack of subject matter jurisdiction over the CSPA claims. In the alternative, the Defendant prays that this Court abstain from hearing the CSPA claims. For the reasons that follow, the Motion is DENIED .
I. Jurisdiction and Constitutional Authority
The Court has jurisdiction over this action pursuant to 28 U.S.C. § 1334(a) and (b). This proceeding arises in a case referred to this Court by the Standing Order of Reference entered in this District. Under 28 U.S.C. § 157(b)(2)(I), the determination of the dischargeability of the debt is a core proceeding in which the Court is authorized to enter final judgment.
The Defendant, however, contests both this Court's jurisdiction and its constitutional authority to enter a final judgment on the Plaintiffs' CSPA claims. According to the Defendant, the proceedings will have no effect on the administration of the estate—and therefore do not fall under the Court's "related to" jurisdiction under 28 U.S.C. § 1334(b). And the CSPA claims, the Defendant maintains, are pure "state law claims independent of bankruptcy law" on which the Court is constitutionally prohibited from entering a final judgment under Stern v. Marshall , 564 U.S. 462, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011). The Court disagrees on both fronts.
Courts have repeatedly held that, even after Stern v. Marshall , a bankruptcy court possesses both the jurisdiction and the constitutional authority to liquidate an underlying debt in connection with a nondischargeability proceeding. See Deitz v. Ford (In re Deitz) , 760 F.3d 1038 (9th Cir. 2014) (adopting the Bankruptcy Appellate Panel's "well-reasoned" opinion, 469 B.R. 11 (B.A.P. 9th Cir. 2012), which closely assessed a bankruptcy court's continuing authority to enter a final judgment on a state law claim in connection with nondischargeability after Stern ); Islamov v. Ungar (In re Ungar) , 633 F.3d 675, 679–80 (8th Cir. 2011) ("We agree with the determinations of the other circuits that have addressed this issue and unanimously concluded a ‘bankruptcy court, in addition to declaring a debt non-dischargeable, has jurisdiction to liquidate the debt and enter a monetary judgment against the debtor.’ " (quoting Morrison v. W. Builders of Amarillo, Inc. (In re Morrison), 555 F.3d 473, 478 (5th Cir. 2009), and citing cases)); Harvey v. Dambowsky (In re Dambowsky) , 526 B.R. 590, 597 (Bankr. M.D.N.C. 2015) (providing an in-depth analysis of a court's statutory and constitutional authority to liquidate a debt in connection with a § 523 action and noting that "the vast majority of the courts to consider the issue have concluded that the bankruptcy courts have both subject matter jurisdiction and constitutional authority to liquidate such debts in the context of dischargeability actions."); Gambrell v. Auerbach (In re Auerbach) , No. 14-16264, 2015 WL 6601776, at *4 (Bankr. N.D. Ohio Oct. 29, 2015) ("Bankruptcy courts retain ‘jurisdiction to adjudge the validity and amount of a claim’ when determining dischargeability, even after the Supreme Court's decision in Stern v. Marshall [.]" (quoting Longo v. McLaren (In re McLaren) , 3 F.3d 958, 965 (6th Cir. 1993) )); Lawson v. Conley (In re Conley) , 482 B.R. 191, 207 (Bankr. S.D. Ohio 2012) ("find[ing] it has the constitutional authority to enter a final judgment liquidating [a] debt under Ohio law").
The Plaintiffs' CSPA claims underlie their claims for nondischargeability. Based on its own review of Stern and the relevant authority, the Court sees no reason to depart from the vast weight of authority and holds that it has both the jurisdiction and the constitutional authority to decide the Plaintiffs' state law CSPA claims in connection with this nondischargeability proceeding. Thus, to the extent that it seeks dismissal of the Complaint's CSPA claims under Stern or on jurisdictional grounds, the Motion is DENIED .
II. Background
According to the Plaintiffs' Complaint, Stoner hired the Defendant, doing business as Home-Tech, to build a garage and an addition at his home located in New Albany, Ohio. Compl. ¶¶ 7, 9. In addition to being subject to rules of the City of New Albany Construction Department (the "City Department"), the home is part of a country club and is governed by rules of the New Albany Country Club Community Association (the "Association"), and a contractor must be approved by both the City Department and the Association to complete such construction projects. Id. ¶¶ 9, 11. According to Stoner, the Defendant specifically stated that he was an approved contractor with both the City Department and the Association, was authorized by "all applicable authorities" to do the work requested, and had performed such work for other New Albany residents. Id. ¶ 12. Stoner alleges that he relied on and was induced by these statements in hiring the Defendant and paying the Defendant a $30,000 deposit in January 2018 for the projected $300,000 project. Id. ¶¶ 13, 18. Further, Stoner relied on these statements in requesting, on behalf of his company TFA, that the Defendant also complete certain construction work at four of TFA's offices. Id. ¶¶ 14, 18.
This background constitutes a summary of the factual allegations in the Plaintiffs' Complaint; the Court here makes no findings of fact, as resolving any factual disputes would be inappropriate at this stage in the litigation.
The $30,000 deposit was provided so that the Defendant could purchase materials for the project at Stoner's home, and it was refundable "except for documented expenses incurred." Id. ¶¶ 19–21. The Defendant cashed the check and informed Stoner that he used the funds to purchase materials for Stoner's project, going over the list of materials with Stoner. Id. ¶ 22. Similarly, in March 2018, TFA provided the Defendant with a check for $26,775 to purchase materials for the office renovations, and the Defendant represented that he used the funds for this purpose and sent Stoner a photo of the allegedly purchased materials. Id. ¶¶ 28–29. TFA later issued checks for $6,000 and $5,043.75 for more materials and as progress payments for work performed at one of the offices. Id. ¶ 33.
Stoner later discovered that the Defendant was not—nor had applied to be—an approved contractor with either the City Department or the Association. Id. ¶ 16. And the Plaintiffs assert that, upon information and belief, and contrary to the Defendant's representations, the Defendant did not use the deposits to purchase materials for Stoner's and TFA's projects. Id. ¶¶ 23–25, 30–32. The Plaintiffs further believe that the photo the Defendant sent was not actually of the materials allegedly purchased for the TFA project, but rather was of materials for a different or prior project. Id. ¶¶ 30–31. The Defendant knew these representations about his licensing and use of the deposits were false, and he made them to induce the Plaintiffs to hire him and provide deposits. Id. ¶¶ 13, 15–16, 24, 31.
The Defendant completed some work on one of TFA's offices but never began work on the other three offices or Stoner's residence. Id. ¶¶ 33–34. After being asked to complete the work, the Defendant stated he had the supplies and would send them to TFA to complete the work. Id. ¶ 33. The Defendant did not return any of the supplies purchased, nor has he returned any of the deposits. Id. ¶¶ 33–35.
Based on the allegations in the Complaint, the Plaintiffs assert that, as to each Stoner and TFA, the Defendant engaged in fraud and deceptive business practices in violation of the CSPA. Id. ¶¶ 37, 48. The Plaintiffs further assert that due to the Defendant's "false pretenses, false representations, embezzlement, and/or actual fraud," any amounts owed by the Defendant to the Plaintiffs are nondischargeable under § 523(a)(2), (4), and (6). Id. ¶¶ 59, 61.
The Defendant filed the Motion seeking to dismiss the Complaint for failure to state a claim and lack of jurisdiction. Specifically, the Defendant argues that: (1) Stoner's contract was with Home-Tech, not the Defendant (and TFA has no written contract), and the Plaintiffs have asserted no basis to pierce the corporate veil or hold the Defendant liable for the debts of Home-Tech; (2) the Plaintiffs' allegations fail to meet heightened pleading standards applicable to fraud claims and necessary to sustain a claim under § 523(a)(2) ; (3) the Plaintiffs fail to adequately state a cause of action under § 523(a)(4) or (6); and (4) the Court lacks both the jurisdiction and constitutional authority to enter a judgment on the Plaintiffs' state-law CSPA claims. In the alternative, the Defendant asserts that the Court should abstain from hearing this matter. The Plaintiffs have filed a response (Doc. 9), and the Motion is now ripe for adjudication. III. Analysis
A. Motion to Dismiss Standard
On a motion to dismiss for failure to state a claim under Rule 12(b)(6), a court must "construe the complaint in the light most favorable to the plaintiff, accept all the factual allegations as true, and determine whether the plaintiff can prove a set of facts in support of its claims that would entitle it to relief." Bovee v. Coopers & Lybrand C.P.A. , 272 F.3d 356, 360 (6th Cir. 2001) ; Fabian v. Goss (In re Goss) , 605 B.R. 189, 193–94 (Bankr. S.D. Ohio 2019). In other words, a motion to dismiss contests the sufficiency of the complaint on its face and "should only be granted when the court, upon review of the complaint, is convinced that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Garzoni v. K-Mart Corp. (In re Garzoni) , 35 F. App'x 182, 184 (6th Cir. 2002). The failure to plead all the essential elements of a claim renders a complaint subject to dismissal. See Craighead v. E.F. Hutton & Co. , 899 F.2d 485, 491 (6th Cir. 1990) ("Having failed to plead an essential element of [the cause of action], there is no set of facts plaintiffs could prove in support of their claim that would entitle them to relief."); In re Nord Res. Corp. Sec. Litig. , No. C-3-90-380, 1992 WL 1258516, at *1 (S.D. Ohio Dec. 16, 1992) ("At a minimum, the plaintiff must plead the essential elements of the claim.").
B. The Plaintiffs May Maintain Their Claims Despite the Lack of a Contract or Veil-Piercing Allegations.
As an initial matter, the Defendant asserts that the Plaintiffs have failed to state a claim upon which relief can be granted because: (1) Stoner's contract is with (and checks were payable to) Home-Tech LLC—not the Debtor—and Stoner does not assert that the corporate veil should be pierced; and (2) TFA's contract was never reduced to writing. But the Court does not see either of these as barriers to relief.
The existence of a contract is not a prerequisite to maintaining a cause of action under § 523(a)(2), (4), or (6). Nor will the fact that the Defendant operated through a limited liability company necessarily shield him from liability on a debt and a potential judgment of nondischargeability. Ohio law makes clear that an individual "can be held personally liable for a tort committed while acting within the scope of his employment." Carter-Jones Lumber Co. v. Dixie Distrib. Co. , 166 F.3d 840, 846 (6th Cir. 1999) (citing Atram v. Star Tool & Die Corp. , 64 Ohio App.3d 388, 581 N.E.2d 1110, 1113 (1989) ); Hamerly v. Salupo (In re Salupo) , 386 B.R. 659, 667 (Bankr. N.D. Ohio 2008) (rejecting debtor's argument that any debt owed to creditors arose from transaction with debtor's company rather than debtor personally and holding that debtor could be held personally liable for his own participation in wrongful conduct); Luckoski v. Allstate Ins. Co. , 5 N.E.3d 73, 83, 85 (Ohio Ct. App. 2013) ("[A] corporate officer is individually liable for his acts which violate the [CSPA]. ... [Where] a supplier ... personally took part in the commission of, or cooperated and directly engaged in, violations of the [CSPA], [then] he can be held liable for damages that resulted from his violations."); Yo-Can, Inc. v. The Yogurt Exch., Inc. , 149 Ohio App.3d 513, 778 N.E.2d 80, 90–91 (2002) (distinguishing between veil piercing—placing personal liability on shareholders for the corporation's liabilities—and holding liable the individual officers who personally committed the fraud); see also Restatement (Second) of Agency § 348 (1958) ("An agent who fraudulently makes representations ... is subject to liability in tort to the injured person although the fraud ... occurs in a transaction on behalf of the principal.").
The Plaintiffs allege throughout the Complaint that it was the Defendant himself who made the misrepresentations upon which the Plaintiffs relied in contracting with the Defendant and his business Home-Tech. Because Ohio law would permit the Defendant to be held personally liable for fraudulent statements, the Plaintiffs did not need to state a cause of action for veil-piercing and their action against the Defendant may survive. See Luckoski , 5 N.E.3d at 85 (holding that the court "need not determine whether to pierce the corporate veil, since [the defendant's] liability is not based upon his status as a shareholder but upon his direct actions in violating the [CSPA]").
C. The Plaintiffs Adequately State a Claim Under § 523(a)(2), (4), and (6).
The Defendant next maintains that the Plaintiffs have failed to adequately allege a claim for fraud under § 523(a)(2), which is subject to heightened pleading standards, and have failed to allege even the requisite statutory elements of a claim under § 523(a)(4) or (a)(6). The Court will take each subsection in turn.
1. Section 523(a)(2)
Section 523(a)(2)(A) of the Bankruptcy Code excepts from a debtor's discharge any debt "for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by ... false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor's or an insider's financial condition." 11 U.S.C. § 523(a)(2)(A). To except a debt from discharge under § 523(a)(2)(A), a creditor must prove, by the preponderance of the evidence, that: "(1) the debtor obtained money through a material misrepresentation that, at the time, the debtor knew was false or made with gross recklessness as to its truth; (2) the debtor intended to deceive the creditor; (3) the creditor justifiably relied on the false representation; and (4) its reliance was the proximate cause of loss." Rembert v. AT&T Universal Card Servs., Inc. (In re Rembert) , 141 F.3d 277, 280–81 (6th Cir. 1998) (footnote omitted).
Although the Plaintiffs do not specify upon which provision of § 523(a)(2) they rely, the Plaintiffs' multiple statements alleging "false representations," "false pretenses," and "actual fraud," see Compl. ¶¶ 7, 8, 37, 59, and lack of allegations regarding written statements respecting the debtor's financial condition, lead the Court to conclude that the Plaintiffs are proceeding solely under § 523(a)(2)(A) and not § 523(a)(2)(B).
Federal Rule of Civil Procedure 9(b), made applicable to adversary proceedings by Bankruptcy Rule 7009, provides that a party alleging fraud or mistake "must state with particularity the circumstances constituting fraud or mistake." Fed. R. Civ. P. 9(b) ; SFS Check, LLC v. First Bank of Del. , 774 F.3d 351, 358 (6th Cir. 2014) (" Fed. R. Civ. P. 9(b) establishes a heightened pleading standard for fraud allegations[.]"). This heightened pleading standard has been applied to complaints under § 523(a)(2)(A). See Bennett v. Lindsey (In re Lindsey) , 733 F. App'x 190, 192 (5th Cir. 2018) ; Fabian v. Goss (In re Goss) , 605 B.R. 189, 198 (Bankr. S.D. Ohio 2019) (" Civil Rule 9(b) indeed applies to § 523(a)(2)(A) complaints."). To meet Rule 9(b)'s requirements, "a plaintiff must generally (1) specify the time, place, and content of the alleged misrepresentation; (2) identify the fraudulent scheme and the fraudulent intent of the defendant; and (3) describe the injury resulting from the fraud." SFS Check , 774 F.3d at 358. The purpose of Rule 9(b) is to ensure that the defendant is given enough information to defend in a meaningful and informed manner. U.S. ex rel. Sheldon v. Kettering Health Network , 816 F.3d 399, 408 (6th Cir. 2016) ("[P]roviding the defendant with sufficient information to respond is Rule 9's ‘overarching purpose.’ " (quoting U.S. ex rel. SNAPP, Inc. v. Ford Motor Co. , 532 F.3d 496, 504 (6th Cir. 2008) )). As long as the complaint satisfies this purpose, it will be deemed to sufficiently plead the "time, place, and content of the alleged misrepresentation." Id.
The Court finds here that the Plaintiffs have pleaded sufficient facts in support of their § 523(a)(2) claim to survive the Defendant's motion to dismiss. As recounted above, the Plaintiffs claim that the Defendant made specific misrepresentations to them regarding his approved licensing to induce the Plaintiffs to hire him and provide the deposits. They also allege that he made false representations as to his intended and actual use of their deposits. Further, they maintain that the Defendant knew these representations were false, that they reasonably relied on the misrepresentations, and that the misrepresentations caused them damage. See Rice v. Morse (In re Morse) , 504 B.R. 462, 470 (Bankr. E.D. Tenn. 2014) (finding adequate pleading of § 523(a)(2) claim based on similar misrepresentations in connection with a construction contract and earnest money deposit). Finally, the Plaintiffs' representations are sufficiently detailed to provide the Defendant with enough information to meaningfully defend the Complaint, thus satisfying the heightened pleading standards for fraud-based claims. Accordingly, the Defendant's Motion to dismiss the Plaintiffs' § 523(a)(2) claim is DENIED .
2. Section 523(a)(4)
Section 523(a)(4) excepts from discharge a debt "for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny." 11 U.S.C. § 523(a)(4). Nowhere in the Complaint do the Plaintiffs allege that the Defendant was ever acting in a fiduciary capacity or that the Defendant committed larceny. The Complaint does, however, allege that the amounts owed by the Defendant to the Plaintiffs arose from, among other things, the Defendant's embezzlement. Compl. ¶¶ 59, 61.
"Federal law defines ‘embezzlement’ under section 523(a)(4) as ‘the fraudulent appropriation of property by a person to whom such property has been entrusted or into whose hands it has lawfully come.’ " Brady v. McAllister (In re Brady) , 101 F.3d 1165, 1172–73 (6th Cir. 1996) (quoting Gribble v. Carlton (In re Carlton) , 26 B.R. 202, 205 (Bankr. M.D. Tenn. 1982) ). To prove embezzlement, a creditor must show "(1) that he entrusted his property to the debtor, (2) that the debtor appropriated the property for a use other than that for which it was entrusted, and (3) that the circumstances indicate fraud." Cash Am. Fin. Servs. v. Fox (In re Fox) , 370 B.R. 104, 115–16 (B.A.P. 6th Cir. 2007) (quoting Brady , 101 F.3d at 1173 ) (internal quotation marks omitted).
The Plaintiffs here have alleged that they entrusted the deposits—amounts totaling $67,818.75—to the Defendant to pay for the construction of a garage, a home addition, and other renovation work at multiple office buildings. They also contend that, although the deposits were intended for the purchase of materials for Stoner's and TFA's projects, the Defendant did not use the money for that purpose. And, although it is a close call, the Court finds that the Plaintiffs have alleged enough facts of deceit or a scheme to suggest fraudulent intent—that the Defendant did not intend to use the funds to purchase materials and continued to mislead the Plaintiffs by providing allegedly false lists and a photo of the materials purchased. See Morse , 504 B.R. at 473 (finding that intended purchasers of new build adequately alleged that builder had embezzled earnest money deposit). At this stage in the litigation, then, and in light of the strong preference to try a case on its merits, the Court finds that the Plaintiffs' embezzlement claim under § 523(a)(4) survives, and they will have an opportunity through discovery and trial to prove the Defendant's misappropriation and fraudulent intent. See id. at 476 (denying a motion to dismiss despite it being a "close call," noting in part the "strong policy in the Sixth Circuit that disputes should be resolved on the merits, rather than on procedural technicalities"). The Defendant's Motion to dismiss for failure to state a claim under § 523(a)(4) is therefore DENIED .
See, e.g. , Burkeen v. A.R.E. Accessories, LLC , 758 F. App'x 412, 416 (6th Cir. 2018) (noting the "well-established preference for allowing claims to be decided on their merits where possible").
3. Section 523(a)(6)
Section 523(a)(6) excepts from discharge debts "for willful and malicious injury by the debtor to another entity or to the property of another entity." 11 U.S.C. § 523(a)(6). "A debt is discharged unless both willfulness and maliciousness are established. ... Willfulness requires proof that the actor intended to cause the injury or believed that the consequences of the act were substantially certain to result," and "[m]aliciousness requires an act done ‘in conscious disregard of one's duties or without just cause or excuse.’ " Ryt v. Peace (In re Peace) , 546 B.R. 65, 75–76 (Bankr. S.D. Ohio 2015) (quoting Wheeler v. Laudani , 783 F.2d 610, 615 (6th Cir. 1986) ).
The Court is concerned that, as the Defendant points out, the Plaintiffs' Complaint does not clearly allege the statutory elements of a § 523(a)(6) claim. Nowhere do they allege in so many words that the Defendant's actions were "willful," and only once do the Plaintiffs state that the Defendant "made the false statements ... intentionally and with actual malice with the intent of deceiving and defrauding" the Plaintiffs. Compl. ¶ 13. Nevertheless, it is difficult to conceive of a debt caused by a party's intentional misrepresentations and designed to deprive another of money or property not also being a debt willfully and maliciously incurred. Indeed, "[c]ourts have observed that allegations stating a claim for relief under section 523(a)(2)(A) may also state a claim for relief under section 523(a)(6)." Robinson v. Thompson (In re Thompson) , 617 B.R. 296, 320 (Bankr. E.D. Tenn. 2020) ; see also Woodbourne Invs., LLC v. Boyd (In re Boyd) , No. 17-50593 MPP, 2019 WL 948347, at *11 (Bankr. E.D. Tenn. Feb. 22, 2019) ("[T]o the extent that the debtor intentionally defrauded the plaintiffs, such that their judgments are nondischargeable under § 523(a)(2)(A), the debtor also willfully and maliciously injured the plaintiffs within the scope § 523(a)(6)."); Weiss v. Alicea (In re Alicea) , 230 B.R. 492, 507 (Bankr. S.D.N.Y. 1999) ("[T]he provisions of § 523(a)(2)(A) and § 523(a)(6) are not mutually exclusive."). In the end, what is important is that a complaint contain "either direct or inferential allegations respecting all the material elements" and make "more than bare assertions of legal conclusions." Tahfs v. Proctor , 316 F.3d 584, 590 (6th Cir. 2003) (quoting Scheid v. Fanny Farmer Candy Shops, Inc. , 859 F.2d 434, 436 (6th Cir. 1988) ). Although the Plaintiffs could have done more to tie their factual allegations into the specific statutory elements of a § 523(a)(6) claim, the Court nonetheless finds that the Complaint contains sufficient allegations respecting all the material elements of a willful and malicious injury claim to withstand the Motion to dismiss. As to the Plaintiffs' § 523(a)(6) claim, the Motion is therefore DENIED .
Although the Supreme Court has cautioned against "adopt[ing] an interpretation of a congressional enactment which renders superfluous another portion of that same law," Mackey v. Lanier Collection Agency & Serv., Inc. , 486 U.S. 825, 837, 108 S.Ct. 2182, 100 L.Ed.2d 836 (1988), deeming a claim for nondischargeability under § 523(a)(2) to also possibly give rise to a claim under (a)(6) does not obviate the need for § 523(a)(6). There are a number of injuries that would fall under § 523(a)(6) that would not also qualify for a discharge exception under (a)(2).
D. The Court Declines to Abstain From Hearing the Plaintiffs' CSPA Claims.
If the Court declines (as it does) to dismiss the Complaint, the Defendant asks that the Court at least exercise its discretion to permissively abstain from hearing the Plaintiffs' CSPA claims. Permissive abstention is governed by 28 U.S.C. § 1334(c)(1), which provides that: "nothing in this section prevents a district court in the interest of justice, or in the interest of comity with State courts or respect for State law, from abstaining from hearing a particular proceeding arising under title 11 or arising in or related to a case under title 11." Numerous factors may inform a court's decision to permissively abstain from hearing a matter, including:
There are also some circumstances under which a court must abstain from hearing a matter. See 28 U.S.C. § 1334(c)(2) ; Giese v. Lexington Coal Co. (In re HNRC Dissolution Co.) , 761 F. App'x 553, 561 (6th Cir. 2019) (bankruptcy court must abstain "when the proceeding: (1) is based on a state law claim or cause of action; (2) lacks a federal jurisdictional basis absent the bankruptcy; (3) is commenced in a state forum of appropriate jurisdiction; (4) is capable of timely adjudication; and (5) is a ‘non-core’ proceeding"). The Defendant acknowledges, as he must, that mandatory abstention is inapplicable here because there is no pending (or removed) state court case.
(1) the effect or lack of effect on the efficient administration of the estate if a court abstains, (2) the extent to which state law issues predominate over bankruptcy issues, (3) the difficulty or unsettled nature of the applicable state law, (4) the presence of a related proceeding commenced in state court or other non-bankruptcy court, (5) the jurisdictional basis, if any, other than 28 U.S.C. § 1334, (6) the degree of relatedness or remoteness of the proceeding to the main bankruptcy case, (7) the substance rather than form of an asserted core proceeding, (8) the feasibility of severing state law claims from core bankruptcy matters to allow judgments to be entered in state court with enforcement left to the bankruptcy court, (9) the burden on this court's docket, (10) the likelihood that the commencement of the proceeding in bankruptcy court involves forum shopping by one of the parties, (11) the existence of a right to a jury trial, (12) the presence in the proceeding of nondebtor parties and (13) any unusual or other significant factors.
Junk v. CitiMortgage (In re Junk) , 512 B.R. 584, 616–17 (Bankr. S.D. Ohio 2014) (quoting Meritage Homes Corp. v. JPMorgan Chase Bank, N.A. , 474 B.R. 526, 573 (Bankr. S.D. Ohio 2012) ). "This is a multifactor balancing test, not a rule in which every element must be satisfied; not all factors need to weigh in favor of permissive abstention in order for it to be appropriate," and "no one factor is necessarily determinative." Johnston v. City of Middletown (In re Johnston) , 484 B.R. 698, 714–15 (Bankr. S.D. Ohio 2012).
Applying these factors here, the Court determines that it should not abstain from hearing the Plaintiffs' CSPA claims. It is true, as the Defendant argues, that there is no effect on the administration of this case—indeed this is true for virtually any nondischargeability proceeding in a no-asset Chapter 7 case. And while the CSPA claims could easily be severed from the § 523 claims, the Court sees no reason to force the Plaintiffs to initiate a new proceeding in state court (as none is pending) merely to resolve claims that this Court is perfectly capable of addressing. See Manchester v. Kretchmar (In re Kretchmar) , 591 B.R. 876, 882 (Bankr. W.D. Okla. 2018) (finding "no compelling reason to have the state court liquidate" the claim when "[t]his Court can do so as easily, and at least as quickly, with no loss in judicial economy or additional expense"). The Plaintiffs' CSPA claims do not appear to address any unsettled or difficult areas of law, and in fact, many bankruptcy courts resolve such claims in making dischargeability determinations and liquidating debts. See Holzhueter v. Groth (In re Holzhueter) , 571 B.R. 812, 817–18 (Bankr. W.D. Wis. 2017) ("Even if liability is determined based on state law, bankruptcy courts regularly apply state law in determining dischargeability. ... [I]t does not appear the state securities law issues can be said to predominate over the bankruptcy issues.").
Of course, if the parties end up agreeing that they would prefer to have the Defendant's underlying liability on the CSPA claims or other fraud claims determined in state court, the Court may be willing to hold any nondischargeability determination here in abeyance pending the outcome. Should the Plaintiffs be successful, they could then move this Court for summary judgment on the grounds of issue preclusion. And should the Defendant be successful and defeat any claim of liability, this action could be dismissed.
Further, as discussed above, liquidating a state law claim in connection with a dischargeability action is clearly within this Court's jurisdiction and constitutional authority and is intertwined with that core bankruptcy proceeding. There is no special burden that this case will place on the Court's docket, there are no nondebtor parties apart from the plaintiffs voluntarily here, and there is nothing else unusual about this proceeding. Finally, while the Defendant has a right to a jury trial, he is perfectly free to exercise that right in this Court.
In sum, the Court finds that any factors weighing in favor of permissive abstention are vastly outweighed by those against. The Court will exercise its discretion to not abstain from hearing the Plaintiffs' CSPA claims, and the Defendant's alternative motion to abstain is therefore DENIED .
IV. Conclusion
For the reasons stated above, the Defendant's Motion to dismiss the Plaintiffs' Complaint is DENIED . It is FURTHER ORDERED that the Defendant's request to abstain from hearing any part of this proceeding is DENIED .