Antonucci v. Carbone (In re Carbone)

In re Bruno Marco Carbone Debtor

John Antonucci Plaintiff v. Bruno Marco Carbone Defendant

Case No. 18-13852 (JKF)

Adv. No. 19-0178 (JKF)

UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA

December 11, 2019

Chapter 7

MEMORANDUM OPINION

Introduction

The Plaintiff has sued the Debtor to revoke the discharge granted him. The Debtor now moves for dismissal of the complaint under F.R.C.P. 12(b)(6).¹ For the reasons which follow, the Motion will be granted.²

Ground for Dismissal

The Defendant's motion offers two reasons why the Complaint should be dismissed. First, the request is precluded by this Court's denial of an earlier motion to revoke filed in the main case. Second, even if these claims are not precluded, neither count states a cause of action.

Preclusion and Motions to Dismiss

The Defendant maintains that the motion must be dismissed under applicable doctrines of preclusion. They rely here on res judicata which, although an affirmative defense, may be raised on a motion to dismiss for failure to state a claim if the defect appears on the face of the pleading. See Brody v. Hankin, 299 F.Supp.2d 454, 458 (E.D.Pa.2004) rev'd on other grounds 145 Fed.Appx. 768 (3d Cir.2005) ("Although it is an affirmative defense, res judicata may be raised in a Rule 12(b)(6) motion and such a motion is particularly appropriate if the defense is apparent on the face of the complaint." citing Rycoline Prod's. v. C & W Unlimited, 109 F.3d 883, 886 (3d Cir.1997); In re Faust, 353 B.R. 94, 101 (Bankr. E.D. Pa. 2006). Res judicata, also known as claim preclusion, bars a party from initiating a second suit against the same adversary based on the same "cause of action" as the first suit. See In re Mullarkey, 536 F.3d 215, 225 (3d Cir.2008). A party seeking to invoke res judicata must establish three elements: "(1) a final judgment on the merits in a prior suit involving (2) the same parties or their privies and (3) a subsequent suit based on the same cause of action." Id. (quotation marks omitted). "The doctrine of res judicata bars not only claims that were brought in a previous action, but also claims that could have been brought." Id.

Upon reading the complaint,³ the Court immediately recalled that in the main bankruptcy case, it denied Mr. Antonucci's earlier motion revoke the Defendant's discharge. That prompted the Court to review its ruling to determine if—as Defendant maintains—the claims in this complaint have already been adjudicated. See In re RIH Acquisitions NJ, LLC, 551 B.R. 563, 565 (Bankr. D.N.J. 2016) citing Rashid v. Kite, 934 F.Supp. 144, 146 (E.D.Pa.1996) (observing that the court may also take into account matters of public record and orders and items appearing in the record of the case when considering a motion to dismiss under Rule 12(b)(6)). The earlier motion to revoke alleged fraud in the Defendant's schedules as the basis for revoking the discharge. Specifically, Mr. Antonucci charged the Defendant with:

• mischaracterizing the status of a legal proceeding against him,

• fraudulently transferring an asset to his wife,

• failing to disclose mineral rights owned by one of his businesses, and

• stating that his construction business was defunct when it was still operating.

See Am. Mot. to Vacate, ¶¶ 6-14.

In denying that motion, the Court found that Mr. Antonucci met neither requirement for revoking a discharge under the applicable Bankruptcy Code section: 727(d)(1).⁴ The Court found no evidence that the Defendant procured that dischargethrough fraud or that Mr. Antonucci first learned of the fraud after the discharge had been granted. See Order Denying Motion to Revoke Discharge, p. 7.

While Mr. Antonucci's Motion was denied, the allegations in it appeared to have prompted the Trustee to inquire into at least one of the instances of fraud alleged in the Motion: the Defendant's transfer of his residence in Norristown from himself to himself and his wife, by the entireties, and for consideration of $1. The Trustee filed an adversary proceeding to avoid that transfer as a fraudulent conveyance. In the pretrial phase of that litigation, the Trustee undertook discovery and Mr. Antonucci alleges that this discovery unearthed new instances of fraud on the Defendant's part. They include:

• the failure to disclose monthly cash received from the Defendant's mother in law;

• the failure to disclose substantial other income received by the Debtor and deposited in the form of cash at an account at KeyBank;

• the under-reporting of income for 2017 on his Statement of Financial Affairs by at least half;

• his payment of a third mortgage and certain utilities despite previously stating in his answer to the Trustee's complaint that his wife was paying current household expenses; and

• the failure to disclose income received from Carbone Bros.

Comp. ¶¶ 21- 39.

A comparison of the allegations of fraud itemized in the complaint with those alleged in the motion reveals that the complaint pleads different instances of fraud. That raises the question of whether res judicata applies where new evidence is offered to support a cause of action previously ruled upon. The Third Circuit has not ruled onwhether newly discovered evidence can constitute an exception to res judicata.⁵ Courts that have dealt with this question have made clear that "[n]ewly discovered evidence does not prevent the application of res judicata, 'unless the evidence was either fraudulently concealed or it could not have been discovered with due diligence.'" Bosley v. The Chubb Inst., 516 F. Supp. 2d 479, 484-85 (E.D. Pa. 2007) quoting Borough of Lansdale v. PP & L, Inc., 426 F.Supp.2d 264, 307 (E.D.Pa.2006) (quoting Haefner v. N. Cornwall Twp., 40 Fed.Appx. 656, 658 (3d Cir.2002)).

As to why this new evidence was not known to Mr. Antonucci earlier in the main case, the complaint is silent. He alleges only that during the deposition of the Defendant's wife, in June of this year, Mr. Antonucci first learned of these new frauds. Comp. ¶ 20. But the allegation begs the question of why he did not investigate on his own and much sooner. This Court's previous order denying his motion to revoke discharge found that Mr. Antonucci was involved in the main case well before discharge was entered. See Order Denying Motion to Revoke Discharge at p. 7 n.4 (finding that Mr. Antonucci's motion alleged that he learned of the fraud at the 341 meeting at which he attended and with his attorney). The docket reflects that he was added to the creditor matrix one month before the objection deadline and more than two weeks before the date of the continued creditors meeting. Yet there is no allegation explaining why he did not request an extension of the deadline to object to discharge or to investigate the fraud that "became apparent" at the 341 meeting. Am. Mot. to Vacate Order of Discharge ¶ 5; see also B.R. 4004(b) (allowing for extension of time to object to discharge both before the deadline to object as well the time between the expiration ofthat deadline and the entry of the order of discharge). Such an extension would have given the Mr. Antonucci the opportunity to undertake discovery of both the Defendant and his wife. See B.R. 2004(a), (b) (permitting a "party in interest to examine any entity ... relat[ing] to the acts, conduct, or property or to the liabilities and financial condition of the debtor"); see also In re Millennium Lab Holdings II, LLC, 562 B.R. 614, 626 (Bankr. D. Del. 2016) (noting the broad scope of Rule 2004). There is no allegation that Mr. Antonucci sought such relief and that it was denied to him. To the contrary, had he requested an extension of time to object and to examine the Defendant and his wife, the Court would have granted him that relief. So it is quite possible that the new evidence of fraud discovered by the Trustee in June 2019 would have been discovered by Mr. Antonucci many months earlier and in time to object to discharge. Instead, the docket reflects that Mr. Antonucci would wait the full one year after entry of discharge before filing this complaint to revoke discharge. That hardly alleges diligence on Mr. Antonucci's part. For that reason, he will be precluded from seeking to revoke the Defendant's discharge.

Motion to Dismiss Under F.R.C.P. 12(b)(6)

Even were the claims not precluded, Defendant argues that they fail to state a cause of action. To plead a claim under Rule 8⁶ of the Federal Rules of Civil Procedure, a complaint must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." F.R.C.P. 8(a)(2). However, "recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (citing Bell Atl.Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). Rather, "a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.' " Id. at 678, 129 S.Ct. at 1949 (quoting Twombly, 550 U.S. at 570, 127 S.Ct. 1955).

The Third Circuit has outlined a three-part test in deciding a motion to dismiss pursuant to Rule 12(b)(6):

First, the court must tak[e] note of the elements a plaintiff must plead to state a claim. Second, the court should identify allegations that, because they are no more than conclusions, are not entitled to the assumption of truth. Finally, where there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement for relief.

In re Schering Plough Corp. Intron/Temodar Consumer Class Action, 678 F.3d 235, 243 (3d Cir. 2012) quoting Santiago v. Warminster Twp., 629 F.3d 121, 130 (3d Cir.2010)

Legal Sufficiency Of Count I

The first count seeks to revoke the discharge on the grounds that "such discharge was obtained through the fraud of the debtor, and the requesting party did not know of such fraud until...