Fid. Bank v. Jimenez (In re Jimenez)

608 B.R. 322

In the MATTER OF: Margo Angela JIMENEZ, Debtor

Fidelity Bank, Plaintiff

v.Margo Angela Jimenez, et al, Defendants

Case No. 19-30018-JPS

Adversary Proceeding No. 19-3009, 19-3015 and 19-3016 (Consolidated)

United States Bankruptcy Court, M.D. Georgia, Athens Division.

Signed October 10, 2019

Entered October 11, 2019

For Plaintiff: Eric J. Breithaupt, Stites & Harbison, PLLC, 303 Peachtree Street, 2800 SunTrust Plaza, Atlanta, GA 30308

For Defendant Margo Angela Jimenez: David Scott Klein, Rountree Leitman & Klein, LLC, 2987 Clairmont Road, Suite 175, Atlanta, GA 30329

For Defendant Dorian Louis Jimenez: David Scott Klein, William A. Rountree, Rountree Leitman & Klein, LLC, 2987 Clairmont Road, Suite 175, Atlanta, GA 30329

For Defendants Jason Elliott Morris and Patricia Whitmore Morris: Will B. Geer, Wiggam & Geer, LLC, Suite 1245, 50 Hurt Plaza SE, Atlanta, GA 30303

BEFORE James P. Smith, United States Bankruptcy Judge

MEMORANDUM OPINION

James P. Smith, Chief United States Bankruptcy Judge

In these consolidated adversary proceedings, Plaintiff seeks a determination that Defendants' debts are nondischargeable under 11 U.S.C. § 523(a)(4) and (6). Defendants have filed motions to dismiss Plaintiff's complaints. The Court, having considered the motions to dismiss, the complaints, the briefs of counsel and the applicable law, now publishes this memorandum opinion.

Motion to Dismiss Standard

As Judge Laney recently explained in the case of Sheffield v. United States of America (In re Sheffield), 2019 WL 3986290 (Bkrtcy.M.D. Ga. August 22, 2019) :

Under Federal Rule of Civil Procedure 12(b)(6), made applicable to this proceeding under Federal Rule of Bankruptcy Procedure 7012, a court may dismiss an action where the complaint fails to state a claim upon which relief can be granted. "The scope of review [in a Rule 12(b)(6) motion] must be limited to the four corners of the complaint." St. George v. Pinellas Co. , 285 F.3d 1334, 1337 (11th Cir. 2002). And where the complaint has been amended, as it has here, the court's review is limited only to the operative complaint, even where the original complaint contained allegations that may have supported dismissal. See W. Run Student Hous. Assocs., LLC v. Huntington Nat'l Bank , 712 F.3d 165, 173 (3rd Cir. 2013) ("[A]t the motion to dismiss stage, when the district court typically may not look outside the four corners of the amended complaint, the plaintiff cannot be bound by allegations in the superseded complaint."); Kelley v. Crosfield Catalysts , 135 F.3d 1202, 1205 (7th Cir. 1998) ("A court cannot resuscitate...facts [from an original complaint] when assessing whether the amended complaint states a viable claim.")

When evaluating the merits of a Rule 12(b)(6) motion, a court must construe the pled allegations in the light most favorable to the plaintiff and accept them as true. Day v. Taylor , 400 F.3d 1272, 1275 (11th Cir. 2005). Further, "[t]o survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (internal quotation marks omitted). "Determining whether a complaint states a plausible claim for relief will...be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Iqbal , 556 U.S. at 679, 129 S.Ct. 1937. As the Supreme Court noted in Twombly , "a well-plead[ ] complaint may proceed even if it strikes a savvy judge that actual proof of those facts is improbable, and that recovery is very remote and unlikely." 550 U.S. at 556, 127 S.Ct. 1955.

Procedural History

Margo Angela Jimenez filed a Chapter 7 petition in this Court on January 8, 2019. Dorian Louis Jimenez and Jason Elliot Morris and his wife, Patricia Whitmore Morris, filed Chapter 7 petitions on January 8 and 9, 2019 respectively, in the Bankruptcy Court for the Northern District of Georgia. (The four debtors will be referred to as "Defendants" and January 8 and 9, 2019 will be referred to, collectively, as "Petition Date"). Plaintiff filed a complaint, which it later amended, in each of the three bankruptcy cases. After Defendants filed motions to dismiss, the two adversary proceedings pending in the Bankruptcy Court for the Northern District of Georgia were transferred to this Court and consolidated into the adversary proceeding pending against Margo Angela Jimenez (Adv. Pro. No. 19-3009).

Factual Allegations

Accepting the allegations in the amended complaints as true, the relevant facts are as follows. Defendants are doctors of podiatric medicine and were principals in Georgia Ambulatory Surgery Center, LLC, A. Louis Jimenez D.P.M., P.C. and Primera Podiatry Laser and Foot Spa, P.C. (collectively "Primera").

On January 31, 2014, as modified on April 4, 2014, Plaintiff made a loan of $725,000 to Primera. To secure the loan, Primera pledged a security interest in all assets of the business including furnishings, fixtures, equipment, accounts receivable and intangibles. As of the Petition Date, the loan had a balance due of not less than $413,208.30.

On October 4, 2017, Plaintiff made a loan of $1,485,000 to Primera. To secure the loan, Primera again pledged a security interest in all assets of the business including furnishings, fixtures, equipment, accounts receivable and intangibles. The loan proceeds were used by Primera to build out and equip an ambulatory surgical center (the "Surgery Center"). As of the Petition Date, the loan had a balance due of not less than $1,432,345.47. Defendants are guarantors on both the January 2014 and October 2017 loans.

Primera began to experience financial difficulties around April 2018. Neither Primera nor Defendants alerted Plaintiff to any financial stress on the business.

Sometime prior to the Petition Date, Defendants commenced negotiations with Extremity Healthcare, Inc. and its wholly owned subsidiary, Village Podiatry Group, LLC (collectively "Village") for the acquisition of Primera for less than reasonably equivalent value. Defendants aided and abetted Village in the determination of which assets of Primera had value which could be transferred to Village. Village offered Defendants future employment in exchange for the patient lists, electronic medical records ("EMR"), good will and other intangibles of Primera. The negotiations with Defendants continued for an undetermined length of time prior to the Petition Date.

Village further strategized with Defendants on how best to acquire the leased space at the Surgery Center and acquire the equipment in which Fidelity held a security interest at a liquidation price such that the newly built out Surgery Center, which was funded by Plaintiff, could be recapitalized without paying Plaintiff or other creditors for the true value of the practice.

Just prior to the Petition Date, Primera closed its doors. Defendants filed for Chapter 7 relief on January 8 and 9, 2019. As of the Petition Date, Primera was insolvent and Defendants were unemployed.

On or about January 16, 2019, Defendants and Village executed a HIPAA Business Associate Agreement whereby all patient lists and EMR of Primera, covering 35 years of podiatric practice, were transferred to the custody and control of Village for no consideration other than the retention of Defendants as employees. As the blanket lien holder of all of the assets of Primera, Fidelity suffered a significant loss in the value of its collateral through the transfer of the Primera assets to Village by Defendants for less than reasonably equivalent value. Also on January 16, 2019, Village entered into a Letter Agreement executed by Defendant Dorian Jimenez on behalf of the "Primera Physicians" for the provision of services (collectively the "Village Agreements"). Defendants obtained employment no later than January 16, 2019, with Village at a level commensurate with their prior compensation with Primera. Immediately upon the execution of the Village Agreements, the web sites of both Primera and Village were altered to direct Primera patients to Village. Further, Village posted that it would soon be reopening the Pimera Surgery Center.

Plaintiff first learned that Primera had ceased operations at the first meeting of creditors of Defendants Jason and Patricia Morris on February 11, 2019. Thereafter, Defendants and their agents made themselves generally unavailable to assist Plaintiff in securing its collateral including patient records, EMR, accounts receivable access or the company bank accounts.

ANALYSIS

In Count One of its amended complaint, Plaintiff asserts a breach of fiduciary claim under § 523(a)(4), which, in part, bars the discharge of a claim "for fraud or defalcation while acting in a fiduciary capacity...". Defendants argue that Plaintiff's claim must fail because no express or technical trust existed that created a fiduciary relationship. In the case of Quaif v. Johnson, 4 F.3d 950 (11th Cir. 1993), the Eleventh Circuit explained:

The language of § 523(a)(4) is similar, but not identical, to provisions of the various bankruptcy statutes in effect since 1841. Although the wording has changed slightly, all of the versions have referred to "defalcation" and to "fiduciary capacity" or "fiduciary character." The Supreme Court has consistently held that the term "fiduciary" is not to be construed expansively, but instead is intended to refer to "technical" trusts. SeeChapman v. Forsyth , 43 U.S. (2 How.) 202, 11 L.Ed. 236 (1844) ; Upshur v. Briscoe , 138 U.S. 365, 11 S.Ct. 313, 34 L.Ed. 931 (1891) ; Davis v. Aetna Acceptance Co. , 293 U.S. 328, 55 S.Ct. 151, 79 L.Ed. 393 (1934). Unfortunately, the Supreme Court has not spoken on this issue since the Davis case, leaving the lower courts to struggle with the concept of "technical" trusts.

In nineteenth century

...