Nayyar v. Charles (In re Charles)

In Re: Joshua Martin Charles, Debtor.

Harsh Nayyar Plaintiff(s), v. Joshua Martin Charles Defendant(s).

Case No. 18-10075

Adv. No. 18-90020

UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF NEW YORK

April 15, 2019

Chapter 7

APPEARANCES:

JOSHUA MARTIN CHARLES, Pro Se

Debtor Defendant

79 Reynolds Lane

Woodstock, NY 12498

HARSH NAYYAR, Pro Se

Plaintiff

P.O. Box 286117

New York, NY 10128

Robert E. Littlefield, Jr., United States Bankruptcy Judge

MEMORANDUM-DECISION AND ORDER

Currently before the Court is the Debtor's Motion to Dismiss Harsh Nayyar's ("Nayyar") adversary proceeding seeking relief pursuant to 11 U.S.C. §§ 523, 707, and 727. The Court has jurisdiction over this core matter pursuant to 28 U.S.C. § 157(a), (b)(1), (b)(2)(A), (I), and (J).

FACTS AND PROCEDURAL HISTORY

Below, the Court summarizes a nearly decade long landlord-tenant dispute that has followed the Debtor into bankruptcy. On or around December 2009, the Debtor entered into an eighteen-month lease with Nayyar for a residence located at 41 The Ridge, Glenford, NY 12433 (the "Premises"). However, the Debtor moved out of the Premises in June 2010. On or around October 14, 2010, Nayyar sued in state court asserting four causes of action for breach of contract against the Debtor. Nayyar's state court complaint does not include any cause of action for fraud. (Complaint ¶ 15-19.) Nayyar sought $39,179.55 for unpaid rent and physical damage to the Premises. (Complaint ¶ 21.)

In Ulster County Supreme Court, Justice Gilpatric held ten (10) days of trial over the course of nine (9) months and heard testimony from Nayyar's nine witnesses. Justice Gilpatric concluded that the Debtor did not breach the contract and determined that Nayyar had constructively evicted the Debtor by continuously entering the Premises without notice to the Debtor. The Supreme Court also found that:

Mr. Nayyar's regularly repeated attempts to use his right to inspect the premises appears to be a ruse in order to use the premises telephone (which, curiously, he required remain in his name) so that he could call his insurance company in an apparent act of deceiving his own insurance company that he personally resided in the home and not a tenant.

(Main Case ECF No. 40 at 5) (emphasis omitted). Additionally, the Debtor "was required to have the police called to keep Mr. Nayyar from entering the premises." Id.

However, Justice Gilpatric did find the Debtor liable to Nayyar for $2,681.75, which was comprised of $514.00 for reasonable occupancy for a two-week period in June 2010, $367.75 for unpaid utility bills, and $1,800 for damages caused by a canine. With statutory interest, the Supreme Court entered judgment in Nayyar's favor for the total amount of $5,266.69 (the "Judgment"). (Complaint ¶ 23.) Nayyar appealed the Judgment to the Appellate Division, Third Department, seeking an "upward modification," and continued his attempts to enforce the Judgment in the interim. Nayyar claims that the Supreme Court rejected his first attempt to hold the Debtor in contempt of court due to the Debtor misrepresenting his address. Subsequently,Nayyar filed another order to show cause for contempt against the Debtor and it was returnable on January 26, 2018.

Just two days prior to the hearing on the order to show cause for contempt, the Debtor, pro se, filed a voluntary chapter 7 petition on January 24, 2018. (Main Case ECF No. 1.) On the same day, the Debtor also filed an application to waive the filing fee and, later that day, the Court waived the filing fee.¹ According to the Debtor's petition and schedules, Nayyar is the Debtor's only creditor. The parties' litigious behavior continued in this Court, and after motion practice and a Rule 2004 examination of the Debtor, Nayyar commenced this adversary proceeding seeking relief pursuant to 11 U.S.C. §§ 523, 707, and 727 on July 31, 2018. The Debtor filed a Motion to Dismiss on September 14, 2018 (the "Motion"). (ECF No. 12.) Subsequently, Nayyar filed an Amended Complaint and a Second Amended Complaint on October 4, 2018 and October 5, 2018, respectively. The Debtor filed a response to the Second Amended Complaint and requested that the Court grant his Motion to Dismiss. (ECF No. 27.) With regard to the Second Amended Complaint, the Court entered an order indicating that the Second Amended Complaint is improper because Nayyar did not seek court approval prior to filing it. After filing an appropriate application and receiving leave to amend, Nayyar filed a Third Amended Complaint on January 31, 2019 (the "Complaint"). (ECF No. 44.) Due to the nature of the amendment, the order granting Nayyar leave also indicates that the Third Amended Complaint would not render moot the pending motion to dismiss.² (ECF No. 40.)

DISCUSSION

I. Federal Rule of Civil Procedure 12(b)(6) Standard

The Court construes the Debtor's Motion to Dismiss as a motion pursuant to Federal Rule of Civil Procedure 12(b)(6), made applicable to this proceeding by Federal Rule of Bankruptcy Procedure 7012. "To 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 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007)). "Determining whether a complaint states a plausible claim for relief will, as the Court of Appeals observed, 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. "Where a complaint pleads facts that are 'merely consistent with' a defendant's liability, it 'stops short of the line between possibility and plausibility of 'entitlement to relief.'" Id. at 678.

While a factual allegation must be accepted as true, a court is "not bound to accept as true a legal conclusion couched as a factual allegation." Id.; see also Breeden v. Bennett (In re Bennett Funding Grp., Inc.), 367 B.R. 302, 321-22 (Bankr. N.D.N.Y. 2007) (holding that "conclusory allegations or legal conclusions masquerading as factual conclusions will not suffice to prevent a motion to dismiss"). Additionally, the Court may consider "(1) documents attached as an exhibit to the complaint or answer, (2) documents incorporated by reference in the complaint (and provided by the parties), (3) documents that, although not incorporated by reference, are 'integral' to the complaint, or (4) any matter of which the court can take judicial notice for the factual background of the case." Planck v. Schenectady County, 2012 U.S. Dist. LEXIS 76241, at *17 (N.D.N.Y. June 1, 2012); see also Stambaugh v. Stambaugh (In re Stambaugh), 533 B.R. 449, 454 (Bankr. M.D. Pa. 2015); Scheidelman v. Henderson (In reHenderson), 423 B.R. 598, 620 (Bankr. N.D.N.Y. 2010). Courts must also be cognizant that "complaints by pro se parties continue to be accorded more deference than those filed by attorneys." Ajamian v. New York, 2014 U.S. Dist. LEXIS 110839, at *6 (N.D.N.Y. Aug. 11, 2014) (citing Erickson v. Pardus, 551 U.S. 89 (2007)). Therefore, "Twombly and Iqbal notwithstanding, this Court must . . . 'construe [a pro se complaint] broadly, and interpret [it] to raise the strongest arguments that [it] suggests.'" Ajamian, 2014 U.S. Dist. LEXIS 110839, at *6 (quoting Weixel v. Bd. of Educ., 287 F.3d 138, 146 (2d Cir. 2002)).

II. The Complaint

The Complaint contains Twelve Causes of Action, nine of which object to discharge or dischargeability pursuant to Sections 727(a) or 523(a). In bankruptcy, denying a debtor's discharge is the death penalty. See O'Connor v. Leone (In re Leone), 463 B.R. 229, 248 (Bankr. N.D.N.Y. 2011). Similarly, denying the dischargeability of a particular debt is equally drastic but limited in scope.³ For these reasons, objections pursuant to Sections 727(a) and 523(a) must be strictly construed against the Plaintiff. See Henderson, 423 B.R. at 615-16. Below, the Court analyzes each of Nayyar's twelve causes of action under the framework set forth by the Supreme Court in Iqbal and Twombly while raising the strongest arguments that the Complaint suggests.

A. First Cause of Action - 11 U.S.C. § 523(a)(2)(A)

Nayyar's first cause of action seeks a determination that the debt owed to him is nondischargeable pursuant to 11 U.S.C. § 523(a)(2)(A). This Section provides:

(a) A discharge under section 727 . . . does not discharge an individual debtor from any debt-

(2) for money, property, services, or an extension, renewal or refinancing of credit, to the extent obtained, by-(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor's . . . financial condition[.]

11 U.S.C. § 523(a)(2)(A). In order to succeed on a cause of action under Section 523(a)(2)(A), a creditor must establish the following elements:

(i) The debtor made a false representation;

(ii) At the time the representation was made, the debtor knew it was false;

(iii) The debtor made the representation with the intention of deceiving the creditor;

(iv) The creditor justifiably relied on the representation; and

(v) The creditor sustained loss or damage as the proximate consequence of the false, material misrepresentation.

Chase Bank, U.S.A., N.A. v. Vanarthos (In re Vanarthos), 440 B.R. 67, 73 (Bankr. S.D.N.Y. 2010) (quoting In re Giuffrida, 302 B.R. 119, 123 (Bankr. E.D.N.Y. 2003)).

In the present case, Nayyar's Section 523(a)(2)(A) cause of action is based on two different alleged misrepresentations, one implied and one affirmative. First, Nayyar claims that the Debtor made an implied misrepresentation by executing the lease without the intent to pay.⁴ As a matter of law, a debt is not rendered nondischargeable based on an implied misrepresentation if a debtor simply fails to pay rent. Sparks v. King (In re King), 258 B.R. 786, 794 (Bankr. D. Mont. 2001) ("A debtor's simple failure to perform according to the terms of an ordinary residential lease, without more, constitutes a breach of contract but does...