Eden v. Eden (In re Eden)

584 B.R. 795

IN RE: Rhonda T. EDEN, Debtor.

Chris Eden, Plaintiff,

v.Rhonda T. Eden, Defendant,

CASE NUMBER: 17–40811–MGD

ADVERSARY PROCEEDING NO.: 17–4025–MGD

United States Bankruptcy Court, N.D. Georgia, Rome Division.

Signed March 2, 2018

Howard P. Slomka, Slipakoff & Slomka, PC, Atlanta, GA, for Plaintiff.

Brian S. Limbocker, Limbocker Law Firm, LLC, Woodstock, GA, for Defendant.

ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS AND GRANTING LEAVE TO AMEND COMPLAINT AND CORRECT SERVICE

Mary Grace Diehl, U.S. Bankruptcy Court Judge

Before the Court is the Motion to Dismiss filed by Rhonda T. Eden ("Defendant") on August 15, 2017 (the "Motion"). (Docket No. 4). Chris Eden ("Plaintiff") filed Plaintiff's Opposition to Debtor's Motion to Dismiss on August 28, 2017 (the "Response"). (Docket No. 6). Plaintiff filed a complaint (Docket No. 1) (the "Complaint"), objecting to Defendant's discharge and the dischargeability of "certain debts" owed to Plaintiff. The Complaint has six counts: (I) removing or concealing property which otherwise would have been available to pay debts, pursuant to 11 U.S.C. §§ 727(a)(2)(A) and (B)¹ ; (II) failure to keep or preserve records pursuant to § 727(a)(3) ; (III) making false oaths pursuant to § 727(a)(4) ; (IV) failure to explain loss of assets to pay debts pursuant to § 727(a)(5) ; (V) obtaining money, renewal and extensions of credit by false pretenses, false representations and/or by actual fraud pursuant to §§ 523(a)(2)(A) or (B); and (VI) engaging in fraudulent transfers, fraudulent conveyances and false representations which inflicted willful and malicious injury pursuant to § 523(a)(6). Complaint at *3–7. Defendant seeks dismissal for insufficient service of process pursuant to Fed. R. Civ. P. ("F.R.C.P.") 12(b)(5). Motion at *2 ¶ 5–6. Defendant also seeks dismissal of each of the six claims for failure to state a claim upon which relief can be granted pursuant to Fed. R. Bank. P. ("F.R.B.P.") 7012(b) and F.R.C.P. 12(b)(6). Motion at *2–5.

Briefly, this Court concludes that although Plaintiff did not properly serve Defendant, Plaintiff is permitted the opportunity to re-serve Defendant. Therefore, the Motion to Dismiss on the grounds of insufficient service of process is denied. This Court also concludes that while Plaintiff has met the pleading burden for Counts II and III, Plaintiff has failed to meet the pleading burden for Counts I, IV, V, and VI. The Court therefore dismisses without prejudice Counts I, IV, V, and VI pursuant to F.R.C.P. 12(b)(6).

BACKGROUND

Plaintiff and Defendant are former spouses and former business partners. Complaint at *2 ¶ 6. Plaintiff alleges that he and the Defendant each hold a 50% interest in K & M Hardware, Inc. and Eden Oak Properties, LLC, (collectively, the "Shared Entities") and he is the sole member of Tarene Farms, LLC. Complaint at *2 ¶ 7. Plaintiff alleges that Defendant breached her fiduciary duties with regard to the Shared Entities. Complaint at *2 ¶ 6. Plaintiff filed a state court action against Defendant for Accounting, Breach of Fiduciary Duty, and Fraud in Cherokee County Superior Court. Complaint at *2 ¶ 7. Plaintiff claims that Defendant was "skimming hundreds of thousands of dollars off of K & M Hardware ...." Complaint at *2 ¶ 8. Plaintiff also contends that Defendant's Amended Schedules falsely show that Defendant owns 100% of K & M Hardware, despite Defendant's alleged admission to the contrary at the § 341 meeting of creditors, and that Defendant destroyed documents stating that Plaintiff owns 50% of Eden Oak Properties. Complaint at *2–3 ¶ 11–12. Defendant denies all of these allegations. Defendant's Answer (Docket No. 5), passim . Defendant filed a motion to dismiss the complaint pursuant to F.R.C.P. 12(b)(5) and (6), applicable in this adversary proceeding through F.R.B.P. 7012. Motion at *1. First, this Order will address the Motion to Dismiss for insufficient service of process under F.R.C.P. 12(b)(5). It will then address which of Plaintiff's claims satisfy their respective pleading requirements and state a claim for which relief can be granted under F.R.C.P. 12(b)(6).

I. Insufficient Service of Process

Defendant first moved for dismissal for insufficient service of process, pursuant to F.R.B.P. 7004 and 7012(b)(5), because Plaintiff failed to serve both Defendant and Defendant's counsel. Motion at *2. There is no Certificate of Service attached to the Complaint or filed on the Docket. See Docket (passim ). Plaintiff asserts in the Response that "Debtor was mailed a copy of the Complaint and co-counsel of record, as noted in Debtor's lead bankruptcy case, was noticed by Plaintiff of the attempt to commence this action." Response at *3.² Plaintiff also asserts that he has cured any deficiency in service by "serving Defendant and her counsel concurrently" with the filing of the Response. Response at *3. There is no certificate of service on the docket evincing this. See Docket, passim .

A plaintiff may serve a defendant "by mailing a copy of the summons and complaint ...." FED. R. BANKR. P 7004(b)(9). Plaintiff claims to have mailed a copy of the complaint to Defendant. Response at *3. A summons was also issued on Defendant. (Docket No. 3). F.R.B.P. 7004(g), however, requires that "[i]f the debtor is represented by an attorney, whenever service is made upon the debtor under this Rule, service shall also be made upon the debtor's attorney by any means authorized under [F.R.C.P.] 5(b)." FED. R. BANKR. P 7004(g). Plaintiff claims that he "noticed" Defendant's "co-counsel" of record, but nothing in the record shows that Defendant's attorney was served with a copy of the complaint and summons. See Docket, passim .

Plaintiff asserts that the Motion to Dismiss should be denied for insufficient service of process because "[a] material prejudice must be shown before service of process may be found to have been improper, in the context of bankruptcy." Response at *2 (citing Gustin v. Graham (In re Graham) , 6 B.R. 219 (Bankr. N.D. Ga. 1980) (Kahn, J.) ). In Graham , the plaintiff served the defendant's attorney of record but failed to serve the defendant. Id. at 219. The court denied the defendant's motion to dismiss for insufficient service of process because the defendant "[had] not fallen into default ... [had] filed several pre-answer motions, and ... filed a formal answer ...." Id. at 220. The court determined that "no prejudice, material or otherwise, had resulted from the plaintiff's failure to serve the complaint properly." Id. Relying on that principle, Plaintiff further asserts that, in adversary proceedings, "to allow a [p]laintiff to rely upon information already placed in related proceeding court files regarding a debtor/[d]efendant for purposes of service of process is wholly sensible and fair." Response at *3 (quoting Graham, 6 B.R. at 220 ) (quotation marks omitted).

While Graham has not been overturned, it is no longer technically applicable because the court relied on F.R.B.P. 704(h), which does not exist in the current rules. Then–F.R.B.P. 704(h) stated that "[s]ervice of process under this rule shall be effective notwithstanding an error in the papers served or the manner or proof of service if no material prejudice resulted therefrom to the substantial rights of the party against whom the process issued." Graham, 6 B.R. at 220 (quoting F.R.B.P. 704(h) ). No close analog to this rule exists in the current F.R.B.P. or F.R.C.P. The "material prejudice" standard, as presented by Plaintiff, is therefore not determinative.

While Plaintiff did not properly serve Defendant because he did not mail Defendant's attorney a copy of the complaint and summons, he did provide Defendant with "actual notice" of the pending adversary proceeding. Response at *3. See Hechinger Liquidation Trust v. Porter–Cable Corp . (In re Hechinger Inv. Co. of Del., Inc. ), 308 B.R. 683 (Bankr. D. Del. 2003). In Hechinger , the Plaintiff failed to serve a corporate defendant in accordance with F.R.B.P. 7004(b)(3) because the person to whom he mailed the summons and complaint no longer worked for the defendant. Id. at 686. The recipient's wife signed the mail return receipt, and the defendant corporation filed a motion to dismiss less than two months later. Id. at 686–67. The court found that "despite Hechinger's inadequate service, [defendant] clearly had actual knowledge" of the action because "knowledge that [defendant] was a defendant in a preference action was quickly passed on to the appropriate persons," and "[defendant] retained counsel to defend the action." Id. at 687. The court denied defendant's motion to dismiss and allowed the plaintiff twenty days to effectuate proper service. Id. at 688–9.

Like the defendant in Hechinger , Defendant in this case received actual notice of this adversary proceeding and was able to file a response; the Motion to Dismiss was filed on August 15, 2017, less than one month after the Complaint was filed. As a result, while the concept of "material prejudice" may be inapplicable, the fact that Defendant had actual notice of the pending suit suggests that dismissal is unwarranted. See Teitelbaum v. Equitable Handbag Co. (In re Outlet Dep't Stores, Inc.), 49 B.R. 536, 540 (Bankr. S.D.N.Y. 1985) (holding that "the standards for service on individuals and corporations are to be liberally construed to further the purpose of finding personal jurisdiction in cases in which the party has received actual notice"); Wallace v. Shapiro (In re Shapiro ), 265 B.R. 373, 378 (Bankr. E.D.N.Y. 2001) (quoting Teitelbaum ). This concept aligns with the Supreme Court's guidance that notice must be "reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections." Mullane v. Cent. Hanover Bank & Trust Co. , 339 U.S. 306, 314, 70 S.Ct. 652, 94 L.Ed. 865 (1950). If Defendant had actual notice, dismissing this...