Defot-Sido v. Carr (In re Carr)

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In Re: James Alexander C. Carr Debtor.

Anne Defot-Sido, Plaintiff v. James Alexander C. Carr and Veronica Marie Carr

No. 21-11894-KHK

A.P. No. 22-01007-KHK

United States Bankruptcy Court, E.D. Virginia, Alexandria Division

November 25, 2022

MEMORANDUM OPINION

Klinette H. Kindred United States Bankruptcy Judge.

The matters before the Court are: (i) the Amended Motion to Partially Dismiss Amended Complaint (Doc. No. 49) (the "Motion to Dismiss") filed by James Alexander C Carr ("Mr. Carr", or the "Debtor"); (ii) the Motion to Adopt and Conform to James Carr's Motion to Partially Dismiss Amended Complaint (Doc. No. 45) filed by Veronica M. Carr; and (iii) the Motion to Dismiss Counterclaim (Doc. No. 54) filed by Anne Defot-Sido; and the various responses thereto. A hearing was held on July 13 2022, at the conclusion of which the Court took these matters under advisement. For the reasons that follow, the Court will (i) grant Ms. Carr's Motion to Adopt and Conform to James Carr's Motion, thereby deeming Mr. Carr's arguments to be also asserted by Ms. Carr, (ii) grant the Motion to Dismiss Counterclaim, and (iii) grant the Motion to Partially Dismiss Amended Complaint with respect to Counts One, Two Three, Five, Six and Seven.

Procedural Background

On November 17, 2021, Mr. Carr filed a petition under chapter 7 of the Bankruptcy Code. On February 18, 2022, Ms. Defot-Sido filed the original nine-count adversary Complaint (Doc. No. 1) against Mr. Carr and Ms. Carr seeking damages for alleged violations of the Virginia Consumer Protection Act, fraud, as well as asserting fraudulent conveyance actions under Virginia law, among other requests for relief. The Amended Complaint (Doc. No. 37) arose out of two contracts for a renovation of Ms. Defot-Sido's residence: one for the upper level (Doc. No. 37-1, pp. 20-23) (the "Upper Floor Contract"), and one for the main floor (Doc. No. 37-1, pp. 26-31) (the "Main Floor Contract"). A dispute exists between the parties as to whether Mr. Carr or an entity he owns, Passive Building, LLC, is the contract counterparty.

Following a hearing on May 3, 2022 on Mr. and Ms. Carr's Motions to Dismiss Adversary Proceeding (Doc. Nos. 11 and 24), the Court: 1) dismissed Counts One, Two, Three, Five and Six as to all parties, with leave to amend; and 2) dismissed Counts Seven, Eight and Nine with prejudice as to all parties. The Court found that Count Four of the Original Complaint had been sufficiently pled and denied the Motions with respect to Count Four.

On May 17, 2022, Ms. Defot-Sido filed her Amended Complaint. (Doc. No. 37)^[1]. Thereafter, Mr. Carr filed his Answer to the Amended Complaint (Doc. No. 43) and asserted a counterclaim for breach of contract against Ms. Defot-Sido. On the same day, Mr. Carr filed his Motion to Partially Dismiss the Amended Complaint.^[2] On June 8, 2022, Mr. Carr filed an Amended Motion to Partially Dismiss the Amended Complaint. (Doc. No. 49). Finally, on June 21, 2022, Ms. Defot-Sidot filed a Motion to Dismiss Counterclaim filed by the Defendant.

Jurisdiction

The Court has subject matter jurisdiction over this adversary proceeding under 28 U.S.C. §§ 157(a) and 1334 and the General Order of Reference from the United States District Court for the Eastern District of Virginia dated August 15, 1984. With respect to the dischargeability and fraudulent conveyance portions of the Amended Complaint, this is a core proceeding under 28 U.S.C. §§ 157(b)(2)(A), (H), (I), and (O), in which final orders or judgments may be entered by a bankruptcy judge. With respect to the remaining matters, this is a non-core proceeding for which the parties are deemed to have consented to final adjudication by the bankruptcy court. See Doc. No. 7 (parties not consenting to final adjudication by the Bankruptcy Court must file a motion or withdraw the reference by a date certain). Venue is appropriate in this Court under 28 U.S.C. § 1409(a).

Conclusions of Law

The standard for a motion to dismiss a complaint under Bankruptcy Rule 7012, incorporating Rule 12(b)(6) of the Federal Rules of Civil Procedure, is that the factual allegations of the complaint "must be enough to raise a right to relief above the speculative level." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). The Supreme Court has further instructed that "[w]hile legal conclusions can provide the framework of a complaint, they must be supported by factual allegations." Ashcroft v. Iqbal, 556 U.S. 662, 679, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). In order to withstand a motion to dismiss for failure to state a claim, a complaint must contain "enough facts to state a claim to relief that is plausible on its face." Twombly, 550 U.S. at 570, 127 S.Ct. 1955. "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. at 678, 129 S.Ct. 1937 (citing Twombly, 550 U.S. at 556, 127 S.Ct. 1955). A plaintiff's "[f]actual allegations must be enough to raise a right to relief above the speculative level ... on the assumption that all of the allegations in the complaint are true." Bell Atl. Corp., 550 U.S. at 555. The plausibility standard requires more than a "sheer possibility" Ashcroft, 556 U.S. at 678 (citation omitted); see VIA Design Architects, PC, v. U.S. Dev. Co., Civ. No. 2:13cv555, 2014 WL 12527480, at *1 (E.D. Va. Jul. 9, 2014).

For purposes of a motion to dismiss under Rule 12(b), the Court must accept "as true all of the factual allegations contained in the complaint and draw all reasonable inferences in favor of the plaintiff." Kensington Volunteer Fire Dep't v. Montgomery Cnty., 684 F.3d 462, 467 (4th Cir. 2012). The Court "may consider documents attached to the complaint ... 'so long as they are integral to the complaint and authentic.'" Id. (quoting Philips v. Pitt Cnty. Mem'l Hosp., 572 F.3d 176, 180 (4th Cir. 2009)). The Court will not, however, defer to baseless conclusions. Rowe v. Clarke, Civ. Action No. 3:18-cv-780, 2019 WL 2477612, at *2 (E.D. Va. June 13, 2019). If the court finds that the contents of the complaint and attached documents state a plausible claim, the motion to dismiss must be denied.

Federal Rule of Civil Procedure 9(b), incorporated by reference by Federal Rule of Bankruptcy Procedure 7009, states, "[i]n alleging fraud or mistake, a party must 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).

Ms. Carr's Motion to Adopt and Conform to James Carr's Motion to Partially Dismiss Amended Complaint

As a preliminary matter, the Court will grant Ms. Carr's Motion to Adopt and Conform to James Carr's Motion to Partially Dismiss Amended Complaint. No party opposed the requested relief, and no party will be prejudiced by it. As a result, Mr. Carr's arguments will also be attributed to Ms. Carr.

Mr. Carr's Motion to Dismiss

Count One: Violation of Virginia Code § 59.1-200(A)(46) and Nondischargeability Under 11 U.S.C. § 523(a)(2)

Count One of the Amended Complaint seeks (i) damages Ms. Defot-Sido asserts were caused by Mr. Carr's alleged violation of Virginia Code § 59.1-200(A)(46) and (ii) a determination that such damages are nondischargeable under section 523(a)(2) of the Bankruptcy Code.

Virginia Code § 59.1-200(A) (46), by cross reference to § 54.1-1115, prohibits a supplier from

Contracting for, or bidding upon the construction, removal, repair or improvements to or upon real property owned, controlled or leased by another person without a license or certificate, or without the proper class of license as defined in § 54.1-1100 for the value of work to be performed.

Virginia Code § 59.1-204(A) provides in relevant part:

Any person who suffers loss as the result of a violation of this chapter shall be entitled to initiate an action to recover actual damages, or $500, whichever is greater. If the trier of fact finds that the violation was willful, it may increase damages to an amount not exceeding three times the actual damages sustained, or $1,000, whichever is greater.

The Amended Complaint asserts that the Count One damages are nondischargeable because they sound in fraud, so the Court turns to the necessary elements of a section 523(a)(2)(A) claim.

To establish that a claim is non-dischargeable under section 523(a)(2)(A), "a plaintiff must prove four elements: (1) a fraudulent misrepresentation; (2) that induces another to act or refrain from acting; (3) causing harm to the plaintiff; and (4) ... justifiable reliance on the misrepresentation." In re Romano, 18-35464-KRH, 2019 WL 5204455, at *4 (Bankr. E.D. Va. Oct. 15, 2019) (citing Foley & Lardner v. Biondo (In re Biondo), 180 F.3d 126, 134 (4th Cir. 1999)). The Plaintiff must prove non-dischargeability under section 523 by a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 291, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991); see also Fed.R.Bankr.P. 4005.

Mr. Carr, in his Motion to Dismiss, asserts that the Amended Complaint fails to allege a knowingly false representation and that Ms. Defot-Sido cannot plausibly assert that the alleged misrepresentation was the proximate cause of the damages she asserts. Mr. Carr also asserts that courts in Virginia have declined to allow plaintiffs to recover physical injury damages under the VCPA. Doc. No. 41, p. 5. The Court need not reach the latter points because the Court agrees that Ms. Defot-Sido has not alleged a knowingly false representation with respect to Count One.

The Amended Complaint does not plead a knowingly false representation nor...