Crowder v. Wilbur (In re Wilbur)

IN RE: PHILLIP RUSSELL WILBUR, JR., Debtor.

LANDA CROWDER, STANLEY CROWDER, and AMY RILEY, Plaintiffs, v. PHILLIP RUSSELL WILBUR, JR., Defendant.

CASE NO. 16-67262-BEM

ADVERSARY PROCEEDING NO. 17-5044-BEM

UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF GEORGIA ATLANTA DIVISION

December 13, 2017

IT IS ORDERED as set forth below:

CHAPTER 7

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION TO DISMISS AMENDED COMPLAINT

This matter comes before the Court on Defendant's "Answer to Amended Complaint Objecting to Discharge and Motion to Dismiss" (the "Motion to Dismiss"). [Doc. 31]. The Motion to Dismiss seeks to dismiss Counts I, II, III, and VI of Plaintiffs' amended complaint (the "Amended Complaint") [Doc. 30] for failure to state a claim upon which relief may be granted. Counts I, II, and III of the Amended Complaint allege the attorney fees in the amount of $28,639.98 awarded to Plaintiffs in a state court lawsuit are nondischargeable under 11 U.S.C. § 523(a)(5), (a)(15), and (a)(6), respectively. Count VI objects to Defendant's discharge under various subsections of § 727(a). This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(I), (J).

I. Background

The Amended Complaint is nearly identical to the original complaint, with all the original counts retained. Defendant filed a motion to dismiss portions of the original complaint [Doc. 8], which the Court granted in part and denied in part (the "Prior Order"). [Doc. 28]. The Court dismissed Counts I and II and, with respect to Count VI dismissed claims under 11 U.S.C. § 727(a)(2)(A), (a)(4)(D), and (a)(6), and gave Plaintiffs an opportunity to amend their complaint to correct the deficiencies in the dismissed claims. The Amended Complaint adds allegations relevant to Count VI, but otherwise remains unchanged. Defendant again seeks dismissal of Counts I, II, III, and VI for failure to state a claim.

II. Motion to Dismiss Standard

Fed. R. Civ. P. 8(a)(2), made applicable in adversary proceedings by Fed. R. Bankr. P. 7008, sets forth a liberal pleading standard that requires the complaint contain only a "short and plain statement of the claim showing that that the pleader is entitled to relief[.]" To survive a motion to dismiss for failure to state a claim under Fed. R. Civ. P. 12(b)(6), made applicable in adversary proceedings by Fed. R. Bankr. P. 7012(b), the 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." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S. Ct. 1937, 1949 (2009) (citations omitted). Although the complaint "does not need detailed factual allegations" to survive a motion to dismiss, it "requires more than labels and conclusions[;] a formulaic recitation of the elements of a cause of action will not do[.]" Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S. Ct. 1955, 1964-65 (2007). "Factual allegations must be enough to raise a right to relief above the speculative level[.]" Id., 127 S. Ct. at 1965. "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Iqbal, 556 U.S. at 678, 129 S. Ct. at 1949.

To the extent Plaintiffs' claims allege fraud, they must survive the heighted pleading standard in Fed. R. Civ. P. 9(b), made applicable to adversary proceedings by Fed. R. Bankr. P. 7009. Under Rule 9(b), a plaintiff is required to "state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally." Fed. R. Civ. P. 9(b).¹ A complaint satisfies Rule 9(b) "if it alerts the defendant to the precise misconduct with which they are charged." Kerr v. Venetian Casino Resort (In re Medici), 524 B.R. 902, 905 (Bankr. N.D. Ga. 2014) (Ellis-Monro, J.) (internal quotation marks and citations omitted).

III. Factual Allegations

The Amended Complaint does not alter or remove any of the factual allegations in the original complaint. Therefore, the Court adopts Part II of the Prior Order: "Factual Allegations Applicable to Counts I, II, III, and VI of the Complaint" [Doc. 28 at 3-6], and supplements it to include the following allegations, added in the Amended Complaint, which are relevant to Count VI:

Defendant failed to disclose income he received in 2015 as a result of a worker's compensation claim, including without limitation a payment of $4,008.69 on July 30, 2015, and payments of $445.41 on August 4, 2015, August 11, 2015, August 25, 2015, and October 26, 2015. [Amended Complaint ¶ 40]. Defendant failed to disclose a worker's compensation claim and income in the amount of $37,435 received in 2016. [Id. ¶ 41]. Defendant has received funds that he has claimed as loans that are actually compensation for work performed for his employer. [Id. ¶ 42]. Defendant has failed to disclose income and has falsified loan documentation. [Id. ¶ 78-79]. The foregoing new allegations were made on information and belief.

For the calendar year 2014, Defendant reported income of $30,000 on his statement of financial affairs ("SOFA"). [Id. ¶ 43]. A review of Defendant's bank records for January 2014 to September 2014 shows deposits in the amount of $44,536.31. [Id.]. Bank records for the remainder of the year were not provided. [Id.]. For the calendar year 2015, Defendant reported income of $14,000 on his SOFA. [Id. ¶ 44]. A review of Defendant's bank records for July 2015 to December 2015 shows deposits in the amount of $19,996.67. [Id.]. Bank records for the remainder of the year were not provided. [Id.]. For the period of January 1, 2016 to September 30, 2016, Defendant reported income of $19,648 on his SOFA. [Id. ¶ 45]. A review of Defendant's bank records for that period shows deposits in the amount of $59,478.96. [Id.]

IV. Counts I, II, and III: 11 U.S.C. §§ 523(a)(5), (a)(15), and (a)(6)

A. Domestic Support Obligation § 523(a)(5) and Debt Incurred in Connection With Divorce § 523(a)(15)

In the Prior Order, the Court dismissed Count I (§ 523(a)(5)) and Count II (§ 523(a)(15)) of the original complaint. The Amended Complaint did not add any new allegations relevant to Plaintiffs' claims under either count, nor do the claims implicate Rule 9(b). Accordingly, the Court adopts its reasoning in the Prior Order and finds that Plaintiffs have failed to state a claim upon which relief may be granted pursuant to 11 U.S.C. § 523(a)(5) and (a)(15), such that Counts I and II of the Amended Complaint will be dismissed.

B. Willful and Malicious Injury § 523(a)(6)

In the Prior Order, the Court found Plaintiffs stated a claim in Count III under § 523(a)(6). The Amended Complaint did not add any allegations relevant to Plaintiffs' claim under Count III, and the claim does not implicate Rule 9(b). The Motion to Dismiss renews Defendant's request to dismiss the claim and contends that the Amended Complaint does not include allegations to support a finding that Defendant intended Plaintiffs to incur the attorney fees at issue and knew with virtual certainty that they would incur the fees. The Court finds no basis to revisit its prior ruling. Accordingly, the Court adopts its reasoning in the Prior Order and finds that Plaintiffs have stated a claim under § 523(a)(6), such that Count III will not be dismissed.

V. Count VI: 11 U.S.C. § 727(a)

A. 11 U.S.C. § 727(a)(3), (a)(4)(A), and (a)(4)(B) - Claims Upheld in the Prior Order

1. Concealment of Financial Records § 727(a)(3). In the Prior Order, the Court found Plaintiffs stated a claim under 11 U.S.C. § 727(a)(3). The Amended Complaint does not alter or remove any of the allegations relevant to that claim, and it does not implicate Rule 9(b). Accordingly, the Court will adopt its reasoning as to § 727(a)(3) in the Prior Order, and the claim will not be dismissed.

2. False Oath § 727(a)(4)(A). In the Prior Order, the Court found Plaintiffs stated a claim under 11 U.S.C. § 727(a)(4)(A). The Amended Complaint does not alter or remove any of the allegations relevant to that claim. However, the claim includes elements of fraud, and the Court did not previously apply the heightened pleading standard of Rule 9(b). Therefore, the Court will now apply Rule 9(b) and consider any new allegations that are relevant to the claim.

To state a claim for objection to discharge under § 727(a)(4)(A), Plaintiffs must allege sufficient facts to show Defendant made a false oath in connection with the case that is fraudulent and material. Bank of Am. v. Seligman (In re Seligman), 478 B.R. 497, 504 (Bankr. N.D. Ga. 2012) (Ellis-Monro, J.) (citing Swicegood v. Ginn, 924 F.2d 230, 232 (11th Cir. 1991)). A false oath, which includes omissions from the schedules and SOFA, is material when "'it bears a relationship to the bankrupt's business transactions or estate, or concerns the discovery of assets, business dealings, or the existence and disposition of his property.'" Id. (quoting Chalik v. Moorefield (In re Chalik), 748 F.2d 616, 618 (11th Cir. 1984)). Fraudulent intent may be inferred from the circumstances. Id.

The Amended Complaint alleges Defendant failed to disclose income. It alleges Defendant's SOFA shows he earned $19,648 in 2016, $14,000 in 2015, and 30,000 in 2014, but that his partial bank records show deposits of $44,536.31 for January to September 2014, deposits of $19,996.67 for July to December 2015, and deposits of $59,478.96 for January to September 2016. Furthermore, the Amended Complaint alleges Defendant received income from workers compensation in 2015 and 2016 that was not disclosed in the bankruptcy filings.² Finally, the Amended Complaint alleges that Defendant received money from his employer that Defendant claims was a loan but was actually compensation for work and that Defendant falsified loan documents.

With respect...