McPherson Co-op Credit Union v. Wortham (In re Wortham), Case No. 19-13349-SAH

In re: JEFFERY CLARK WORTHAM, Debtor.

McPHERSON CO-OP CREDIT UNION, Plaintiff, v. JEFFERY CLARK WORTHAM, Defendant.

Case No. 19-13349-SAH

Adv. No. 20-01018

UNITED STATES BANKRUPTCY COURT WESTERN DISTRICT OF OKLAHOMA

April 7, 2020

The following is ORDERED:

Chapter 7

ORDER GRANTING AMENDED MOTION TO DISMISS ADVERSARY COMPLAINT, BRIEF IN SUPPORT, AND NOTICE OF OPPORTUNITY FOR HEARING [DOC. 5]

On February 10, 2020, plaintiff McPherson Co-op Credit Union ("Credit Union") filed its Complaint [Doc. 1] seeking to deny debtor, Jeffery Clark Wortham ("Debtor"), his discharge pursuant to 11 U.S.C. § 727(a)(2)(b) and (a)(4), and excepting from discharge debt arising from three separate loans under 11 U.S.C. § 523(a)(2)(A).¹ Debtor filed his Motion to Dismiss Adversary Complaint, Brief in Support, and Notice of Opportunity for Hearing [Doc. 4] on March 2, 2020, and amended to correct misstated dates on March 4, 2020 [Doc. 5] (the "Motion"). Credit Union filed its Objection to Defendant's Amended Motion to Dismiss Adversary Complaint [Doc. 8] on March 13, 2020.

JURISDICTION

The Court has jurisdiction to hear this Amended Motion pursuant to 28 U.S.C. § 1334(b), and venue is proper pursuant to 28 U.S.C. § 1409. Reference to the Court of this matter is proper pursuant to 28 U.S.C. § 157(a), and this is a core proceeding as contemplated by 28 U.S.C. § 157(b)(2)(I) and (J).

PROCEDURAL BACKGROUND

The procedural posture of the underlying bankruptcy case and this adversary proceeding is crucial to unwinding the various legal issues raised by the Motion. The Court takes judicial notice of such facts based on its own docket.²

1. Debtor filed a voluntary petition under chapter 7 of the Bankruptcy Code on August 14, 2019 (the "Petition Date"), commencing Case No. 19-13349 (the "Bankruptcy Case").

2. The deadline to file a complaint objecting to the dischargeability of a debt under Section 523 or to Debtor's discharge under Section 727 was November 12, 2019.

3. Susan Manchester, the chapter 7 trustee in the Bankruptcy Case ("Trustee"), filed her Motion by Trustee for Additional Time within which to Object to the Discharge of Debtor(s) with Notice of Opportunity for Hearing with Brief in Support [Doc. 23 in Bankruptcy Case] on November 11, 2019 (the "Trustee Extension Motion"), pursuant to which Trustee sought an extension of time for Trustee to file a complaint objecting to Debtor's discharge under Section 727 for ninety (90) days.

4. Trustee's request was granted, and the Order Granting Additional Time within which to Object to Discharge of Debtor(s) [Doc. 30 in Bankruptcy Case] was entered on November 26, 2019 (the "Trustee Extension Order"), providing:

Trustee be, and she is hereby granted, an additional ninety (90) days from November 11, 2019, or until February 9, 2020, within which to object to the Debtor(s) discharge.

5. Credit Union also sought an extension to object to Debtor's discharge. On November 11, 2019, just after the Trustee Extension Motion was filed, it filed the Creditor McPherson Co-op Credit Union's Application for Additional Time within which to Object to the Discharge of Debtor with Notice of Opportunity for Hearing with Brief in Support [Doc. 24 in Bankruptcy Case] (the "Credit Union Extension Motion").

6. Although no objections were filed to the Credit Union Extension Motion by the objection deadline, November 25, 2019, Credit Union failed to upload an order granting the Credit Union Extension Motion. See Bankruptcy Case Docket generally.

7. Nevertheless, Credit Union filed its Complaint on February 10, 2020, seeking (i) money judgment, (ii) denial of Debtor's discharge under Section 727(a)(2)(B) and (a)(4), and (iii) an exception to Debtor's discharge under Section 523(a)(2)(A).

8. However, on February 11, 2020, the Court entered the Order Striking Creditor McPherson Co-op Credit Union's Application for Additional Time within which to Object to the Discharge of Debtor with Notice of Opportunity for Hearing with Brief in Support [Doc. 24] as Stale and Order to Show Cause Why Counsel should not be Required to Attend Basic Bankruptcy Seminar [Doc. 41 in Bankruptcy Case] which struck the Credit Union Extension Motion as stale in accordance with Local Rule 9013-1.I.6.

9. On March 2, 2020, Debtor filed its Motion arguing Credit Union's Complaint should be dismissed because it is time-barred and fails to state a claim for relief under Federal Rule of Civil Procedure 12(b)(6). For the reasons explained below, this Court agrees.

FACTUAL ALLEGATIONS FROM THE COMPLAINT

Under Rule 12(b)(6), a complaint must be construed in the light most favorable to the plaintiff, taking as true all factual allegations and making all reasonable inferences in the plaintiff's favor that can be drawn from the pleadings. Casanova v. Ulibarri, 595 F.3d 1120, 1124 (10^th Cir. 2010). The Complaint alleges Debtor is indebted to Credit Union for about $161,575 plus interest and fees as a result of three loan transactions. After alleging the transactions and amounts owed, the Complaint moves on to a section titled "Misrepresentations and Fraudulent Transfers." All relevant, albeit primarily conclusory, allegations are as follows:

A. Debtor obtained an extension, renewal or refinancing of credit by false representation or actual fraud. The specific false representations or fraud included, stating his father was sick, needed open heart surgery, died on the surgery table, was going to inherit from his father's estate, which included oil and gas revenues, the estate was tied up in probate, he had hired a lawyer to handle the probate,hired another lawyer to handle the oil and gas revenues, location of collateral, had suffered theft of personal property, Debtor was sick to an extent he had required seven cancer surgeries, his actual address, income from oil and gas revenues, size of father's estate and life insurance proceeds, failed to list stolen personal property loss on line 15 of Statement of Financial Affairs and English bulldog on Bankruptcy Schedules, failed to properly list answer for three years on Form 107, question 2 all in violation of 11 U.S.C. § 523(a)(2)(A) as well as the laws of the State of Oklahoma.

B. Upon information and belief, it is believed Debtor may have made several transfers of interests in property to various people such as friends and significant others by purchasing expensive items such as a Polaris, Charger and Toy Hauler purchased directly or indirectly from Credit Union's extension of credit to Debtor.

C. Debtor made such transfers within two (2) years prior to the Petition Date.

D. Debtor intended to hinder, delay and defraud Credit Union when he made such transfers.

E. All such transfers were made during a time when Debtor was indebted to Credit Union and other creditors.

F. Debtor did not receive reasonably equivalent value in exchange for such transfers.

G. When Debtor made the transfers, he was insolvent or became insolvent because of such transfers or any one or more of such transfers.

H. When Debtor made such transfers, he intended to incur debts beyond his ability to pay as such debts were incurred, as is demonstrated by Debtor's failure to pay toCredit Union and other creditors his debts as they became due for a substantial period of time predating the Petition date.

STANDARDS GOVERNING RULE 12(b)(6) MOTIONS TO DISMISS

To survive a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure, made applicable here pursuant to Rule 7012 of the Federal Rules of Bankruptcy Procedure, "a complaint must contain sufficient factual detail 'to state a claim to relief that is plausible on its face.'" Olson v. Carmack, 641 F. App'x 822, 826 (10^th Cir. 2016) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is plausible "when it provides sufficient factual allegations that, taken as true, allow the court to reasonably infer the defendant is liable for the alleged misconduct." Olson, 641 F. App'x at 826 (citing Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). The plausibility requirement "serves not only to weed out claims that do not (in the absence of additional allegations) have a reasonable prospect of success, but also to inform the defendants of the actual grounds of the claim against them." Robbins v. Oklahoma ex rel. Okla. Dep't of Human Serv., 519 F.3d 1242, 1248 (10^th Cir. 2008).

Bare legal conclusions and simple recitations of the elements of a cause of action do not satisfy this standard. Twombly, 550 U.S. at 555, 568; Iqbal, 556 U.S. at 678. A court must evaluate a motion to dismiss to determine whether the complaint alleges sufficient facts supporting all of the elements necessary to establish an entitlement to relief under the claims raised. Lane v. Simon, 495 F.3d 1182, 1186 (10^th Cir. 2007). As summarized by the Tenth Circuit:

To survive dismissal under Rule 12(b)(6) for failure to state a claim, plaintiffs must "nudge[ ] their claims across the line from conceivable to plausible." Bell Atl. Corp. v. Twombly, 550 U.S.544, 570 (2007). While factual assertions are taken as true, legal conclusions are not. A plaintiff is "not required to set forth a prima facie case for each element, [but] is required to set forth plausible claims." Khalik, 671 F.3d at 1193. "A claim has facial plausibility when the [pleaded] factual content . . . 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 (2009).

Cook v. Baca, 512 F. App'x. 810, 821 (10^th Cir. 2013).

Complaints asserting claims based on fraud must meet a heightened pleading standard. Rule 9(b) of the Federal Rules of Civil Procedure, made applicable by Federal Rule of Bankruptcy Procedure 7009, requires that "[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake." Specifically, the Tenth Circuit "requires a complaint alleging fraud to set forth the time, place and contents of the false representation,...