Pa. Emps. Benefit Trust Fund v. Brown (In re Brown)

591 B.R. 587

IN RE: Kevin Joseph BROWN

Pennsylvania Employees Benefit Trust Fund, Plaintiff(s)

v.Kevin Brown, Defendant(s)

Case No.: 5-18-bk-00787 RNO

Adversary No.: 5-18-ap-00041 RNO

United States Bankruptcy Court, M.D. Pennsylvania.

Signed October 11, 2018

Michael Joseph Laffey, Laffey & Associates, P.C, Carnegie, PA, for Plaintiff(s)

Paul P Ackourey, Ackourey & Turel, P.C., Tunkhannock, PA, for Defendant(s)

OPINION ¹

Robert N. Opel, II, Chief Bankruptcy Judge _(BI)

The Plaintiff seeks a finding of non-dischargeability for its claim against the Debtor/Defendant for medical benefits paid to him and his dependents. It is alleged that the benefits were paid based upon the Debtor's fraudulent misrepresentations as to his marital status. On motion, I will dismiss the Complaint, with leave to amend.

I. Jurisdiction

This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334. This is a core proceeding under 28 U.S.C. § 157(b)(2)(I).

II. Facts and Procedural History

Kevin Joseph Brown ("Brown") filed a Voluntary Petition under Chapter 7 of the Bankruptcy Code on February 28, 2018. The required schedules and statements were filed with the bankruptcy petition.

On April 24, 2018, the Pennsylvania Employees Benefit Trust Fund ("PEBTF") commenced this Adversary Proceeding seeking non-dischargeability of its claim against Brown. A First Amended Complaint was filed by PEBTF on April 25, 2018 ("Complaint"). Am. Adversary Compl., ECF No. 2.

The Complaint contains a total of fifteen numbered paragraphs. Unfortunately, the paragraphs are not numbered sequentially. For example, the Complaint contains four (4) written paragraphs, each of which are numbered "1." This does not ease review or construction of the Complaint.

I characterize the Complaint as a single count complaint seeking to determine PEBTF's claim against Brown, for benefits paid to Brown and his dependents, in the amount of $154,837.93, to be non-dischargeable pursuant to 11 U.S.C. § 523(a)(2)(A).² Complaint, ¶ 2, p 2, ECF No. 2. Brown responded to the Complaint by filing several Motions under the Federal Rules of Bankruptcy Procedure. The Motions include a motion to dismiss for failure to state a claim upon which relief can be granted, a motion for a more definite statement, and a motion to join an indispensable party (collectively the "Motion").

PEBTF filed what is titled Plaintiff's Reply to Defendant's Consolidated Motion to Dismiss Pursuant to Rule 12 and Request for Summary Judgement Pursuant to Rule 7056(a). ECF No. 14.

The Motion has been briefed and a hearing was held on September 13, 2018.

III. Discussion

A. Standard to Decide Motions to Dismiss

Generally, a complaint must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2), made applicable to adversary proceedings by Fed. R. Bankr. P. 7008. Further, certain matters, including fraud allegations, must be pled with particularity. Fed. R. Civ. P. 9(b) ; In re Adalian , 474 B.R. 150, 158-59 (Bankr. M.D. Pa. 2012).

While detailed factual allegations are generally not required in a complaint filed in Federal court:

[P]laintiff's obligation to provide the grounds of his entitlement to relief require more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.

Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555, 127 S.Ct. 1955, 1964-65, 167 L.Ed.2d 929 (2007) (internal quotations omitted).

To withstand the motion to dismiss for failure to state a claim upon which relief can be granted, the Complaint must contain enough factual content to allow me to draw the reasonable inference that the PEBTF's claim against Brown is non-dischargeable. This plausibility standard requires more than a sheer possibility that a defendant acted unlawfully. Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009).

When considering a motion to dismiss, I must view the Complaint's factual allegations and its legal conclusions in different lights. The Third Circuit has explained:

The District Court must accept all of the complaint's well-pleaded facts as true, but may disregard any legal conclusions. Second, a District Court must then determine whether the facts alleged in the complaint are sufficient to show that the plaintiff has a "plausible claim for relief." In other words, a complaint must do more than allege the plaintiff's entitlement to relief. A complaint has to "show" such an entitlement with its facts.

Fowler v. UPMC Shadyside , 578 F.3d 203, 210-11 (3d Cir. 2009) (internal citations omitted); In re EP Liquidation, LLC , 583 B.R. 304, 314 (Bankr. D. Del. 2018).

When considering a motion to dismiss, a court considers the complaint, as well as attached exhibits and matters of public record. Fed. R. Bankr. P. 7010 (incorporating Fed. R. Civ. P. 10(c) ); Pension Ben. Guar. Corp. v. White Consol. Indus., Inc. , 998 F.2d 1192, 1196 (3d Cir. 1993) ; Taylor v. Henderson , 2015 WL 452405, at *1 (D. Del., Jan. 30, 2015). Federal Rule of Evidence 201 allows the court to take judicial notice of facts that are not subject to reasonable dispute. For example, a bankruptcy court may take judicial notice of the docket entries in a case and the contents of the bankruptcy schedules to determine the timing and status of case events and other facts which are not reasonably in dispute. In re Harmony Holdings, LLC , 393 B.R. 409, 413 (Bankr. D.S.C. 2008) ; In re Paolino , 1991 WL 284107, at *12, n. 19 (Bankr. E.D. Pa., Jan. 11, 1991).

I take judicial notice of the dockets in Brown's underlying Chapter 7 case and in this Adversary Proceeding. I will also take notice of the contents of the bankruptcy schedules which are not in dispute.

B. Dischargeability Generally

One of the underlying purposes of the Bankruptcy Code is to allow a debtor a fresh start. Exceptions to discharge are strictly construed against creditors and liberally construed in favor of debtors.

Insurance Co. of N. Am. v. Cohn (In re Cohn) , 54 F.3d 1108, 1113 (3d Cir. 1995) ; In re Gotwald , 488 B.R. 854, 865 (Bankr. E.D. Pa. 2013) ; Customers Bk. v. Roman P. Osadchuk , 2018 WL 4562403, at *2 (D.N.J., Sept. 24, 2018) ; In re Adalian , 474 B.R. 150, 160 (Bankr. M.D. Pa. 2012).

C. What Are the Required Elements to Prove a Non-Dischargeable Claim?

In a non-dischargeability action, the bankruptcy court generally addresses two separate questions. First, has PEBTF pled an enforceable obligation under state law? If so, is the debt non-dischargeable under § 523(a)(2)(A) of the Bankruptcy Code ? Black v. Gigliotti , 514 B.R. 439, 444 (E.D. Pa. 2014) ; In re August , 448 B.R. 331, 346 (Bankr. E.D. Pa. 2011).

Considering the first question, a bankruptcy court looks to state law to determine whether there is an enforceable claim against the debtor. Grogan v. Garner , 498 U.S. 279, 282-84, 111 S.Ct. 654, 657-58, 112 L.Ed.2d 755 (1991) ; In re Hazelton , 304 B.R. 145, 150 (Bankr. M.D. Pa. 2003).

The issue of the alleged non-dischargeability of a creditor's valid claim is a matter of federal law governed by the provisions of the Bankruptcy Code. Grogan , 498 U.S. at 284, 111 S.Ct. 654 ; In re Pulvermacher , 567 B.R. 881, 886 (Bankr. W.D. Wis. 2017) ; In re Guest , 193 B.R. 745, 747 (Bankr. E.D. Pa. 1996).

D. Has an Enforceable Claim Been Pled Under State Law?

The text of the Complaint itself contains relatively few factual allegations. However, the Complaint is supplemented by a number of attached exhibits.

The Complaint alleges that PEBTF paid medical benefits to Brown and his dependents in the total amount of $154,837.93 ("Medical Benefits"). It is further alleged that the Medical Benefits were paid based upon Brown's fraudulent representations as to his marital status. It is alleged that Brown's fraudulent representations violated "Section 1.21 of the PEBTF Medical Plan Agreement" ("Contract"). Compl. ¶ 6, p. 4, ECF No. 2.

I note that Exhibit D to the Complaint provides pages 10 and 11 of the Contract. A portion of the Contract reads:

1.21 Misrepresentation or Fraud

A Member who receives benefits under the Plan as a result of false information or a misleading or fraudulent representation shall be suspended from eligibility for coverage under the Plan (where fraud or material misrepresentation is involved, the suspension may be retroactive), shall repay all amounts paid by the Fund on or after the suspension, and shall be liable for all costs of collection, including attorneys' fees.

Compl., Ex. D, p 46, ECF No. 2.

The Complaint alleges that Brown represented to PEBTF that he was in a common law marriage. Attached as a portion of Exhibit B to the Complaint is an Affidavit Attesting to the Existence of Common Law Marriage ("Affidavit"). The Affidavit appears to bear the signatures of Brown and Diane M. Miller ("Miller"). The notarized Affidavit is dated August 28, 2002 and, in part, provides, "[w]e hold ourselves out to the community as husband and wife, and have cohabited for 8 ½ years." Compl., Ex. B, p. 13, ECF No. 2.

The Complaint further alleges that Miller subsequently brought a state court divorce action against Brown. Reference is made to an opinion of the Superior Court of Pennsylvania which considered an appeal from the dismissal of Miller's divorce action.

Miller v. Brown , 2017 WL 5157354, 2017 Pa.Super. Unpub. LEXIS 4102 (Pa. Super., Nov. 7, 2017). The Superior Court affirmed the dismissal of Miller's divorce action finding that she had not presented clear and convincing evidence that "words stating a present intent to marry were exchanged between the parties." Id. at *6, 2017 Pa.Super. Unpub. LEXIS 4102 at *15.

In Pennsylvania, three elements are necessary to plead a cause of action for breach of contract. Namely: (1) the existence of a contract, including its essential terms; (2) a breach of the contract; and, (3) resulting damages. Meyer, Darragh, Buckler, Bebenek & Eck, P.L.L.C. v. Law Firm of Malone Middleman, P.C. , 635 Pa. 427, 137 A.3d 1247, 1258 ...