Shukairy v. Odeh (In re Odeh)

1

In re: Awad Odeh & Julia Salameh Debtor.

Mohamad Shukairy Plaintiff, v. Awad Odeh Defendant.

No. 23 B 05875

Adv. No. 23 A 333

United States Bankruptcy Court, N.D. Illinois, Eastern Division

August 9, 2024

Chapter 11

MEMORANDUM OPINION

HONORABLE DAVID D. CLEARY UNITED STATES BANKRUPTCY JUDGE

Plaintiff Mohamad Shukairy ("Plaintiff") filed a single-count complaint ("Complaint") against Defendant Awad Odeh ("Defendant"), seeking a finding that a debt owed by Defendant to Plaintiff is nondischargeable under section 523(a)(2). Defendant filed a motion to dismiss the complaint ("Motion") under Fed.R.Civ.P. 12(b)(6), asserting that the Complaint should be dismissed because Plaintiff failed to state a claim for relief and seeks dismissal with prejudice. The court entered a briefing schedule, Plaintiff filed a response ("Response"), and Defendant filed a reply ("Reply"). Having reviewed the Complaint as well as the papers filed, the court finds that the Complaint contains sufficient allegations to state a claim for relief against Defendant. Accordingly, the Motion is denied.

I. JURISDICTION

This court has subject matter jurisdiction under 28 U.S.C. § 1334 and the district court's Internal Operating Procedure 15(a). This is a core proceeding 28 U.S.C. § 157(b)(2)(I). Venue is proper under 28 U.S.C. § 1409(a).

II.BACKGROUND

In resolving a motion to dismiss, the court considers well-pleaded facts and the reasonable inferences drawn from them in the light most favorable to the plaintiff. See Reger Dev., LLC v. Nat'l City Bank, 592 F.3d 759 763 (7th Cir. 2010). Every allegation that is well-pleaded by a plaintiff is taken as true in ruling on the motion. See Berger v. Nat'l Collegiate Athletic Ass'n, 843 F.3d 285, 289-90 (7th Cir. 2016). For purposes of deciding this Motion, the court accepts the following well-pleaded facts as true:

Defendant represented to Plaintiff that Defendant was an agent of North American Trading, Inc., d/b/a North American Metal Refinery ("NAR"). NAR's principal place of business was in Bridgeview, IL. Defendant represented to Plaintiff that NAR is a business that invests in precious metals.

Plaintiff and Defendant were both involved in, and frequented, some of the same charitable and community organizations in the Chicago area in and around 2019. They became acquainted through those charitable groups.

In or around July, 2019, Defendant pitched Plaintiff on investing money with NAR. Defendant explained that the funds would be used for buying precious metals and selling them at a profit. In exchange, Plaintiff would receive 50 percent of the profits on a quarterly basis. Plaintiff could request the return of his investment at any point.

Plaintiff invested $200,000 with NAR in connection with an investment agreement dated August 16, 2019 ("2019 Agreement"). Defendant instructed Plaintiff on how to transfer the $200,000 to a bank account.

Defendant, directly or through NAR, exercised control over the bank account.

From August, 2019, through the spring of 2020, Defendant or NAR made three payments to Plaintiff, which Defendant identified as profits from Plaintiff's invested funds.

The three payments were not the result of any legitimate investment and were made with the intention to mislead Plaintiff into believing that his investment was producing a profit and to induce Plaintiff into making another investment with Defendant or NAR.

In the spring of 2020, Defendant proposed to Plaintiff a second investment in NAR with similar terms to the first investment. Plaintiff made another separate investment in NAR for $150,000 in connection with an investment agreement dated April 3, 2020 ("2020 Agreement"). The 2020 Agreement contains an explicit guaranty by Defendant of NAR's obligations under the 2020 Agreement and represents that Defendant was the owner of NAR.

Defendant instructed Plaintiff on how to transfer the $150,000 to a bank account.

Plaintiff relied on Defendant's statements that NAR was a legitimate business that invested in precious metals when deciding to make both investments.

Defendant was not the owner of NAR in 2019 or 2020.

Defendant knew, at the time of the 2019 Agreement and 2020 Agreement, that NAR would not purchase precious metals with the investment funds. He had no intention of making either investment. NAR did not invest the funds in precious metals.

Defendant was part of a larger scheme employed by Defendant and his associate to fraudulently obtain funds from individuals in the Chicago area through promises to invest money in precious metals and then promising lucrative returns. Defendant, and others, were however, operating a Ponzi scheme.

Beyond the three payments mentioned, neither NAR nor Defendant repaid Plaintiff any of his investment funds.

Plaintiff obtained a judgment against Defendant and NAR in Cook County, Illinois, in the amount of $350,000. The amount owed to Plaintiff by Defendant under the judgment is $389,353.42.

III. DISCUSSION

To defeat a motion to dismiss, a complaint must describe the claim in enough detail to give notice to the defendant. See Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). In addition, it must be "plausible on its face." Id. at 570. "A claim has facial plausibility when the plaintiff pleads factual content that 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).

A complaint need only offer "a short and plain statement of the claim showing that the pleader is entitled to relief[,]" Fed.R.Civ.P. 8(a)(2), unless the subject matter of that pleading implicates a heightened standard. See Fed. R. Civ. P. 9. The circumstances supporting an action sounding in fraud must be articulated with particularity under Rule 9.

A. The Sole Count - 11 U.S.C. § 523(a)(2)

The Complaint is brought under 11 U.S.C. § 523(a)(2) generally. Section 523(a)(2) bars debtors, such as Defendant, from discharging debts "obtained by 'false pretenses, a false representation, or actual fraud,' 11 U.S.C. § 523(a)(2), or, if made in writing, by a materially false 'statement … respecting the debtor's … financial condition,' 11 U.S.C. § 523(a)(2)(b)." Lamar, Archer & Cofrin, Llp v. Appling, 584 U.S. 709, 712 (2018). If the debt was obtained by a statement respecting the debtor's financial condition, and "[i]f that statement is not in writing, then, the associated debt may be discharged, even if the statement was false." Id. Section 523(a)(2)(A) and (B) state in their entirety:

(a) A discharge under section 727, 1141, 1192, 1228(a), 1228(b), or 1328(b) of this title 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 or an insider's financial condition;

(B) use of a statement in writing-

(i) that is materially false;

(ii) respecting the debtor's or an insider's financial condition;

(iii) on which the creditor to whom the debtor is liable for such money, property, services, or credit reasonably relied; and

(iv) that the debtor cause to be made or published with intent to deceive[.]

11 U.S.C. § 523(a)(2)(A), (B).

For this claim for relief to survive a motion to dismiss under section 523(a)(2)(A), Plaintiff must plausibly allege: (1) Defendant made a false representation or omission; (2) they knew that representation was false or made it with reckless disregard for the truth; (3) they made the statement with the intent to deceive Plaintiff; and (4) Plaintiff justifiably relied on the representation. See Ojeda v. Goldberg, 599 F.3d 712, 716-17 (7th Cir. 2010).

While "it is only necessary to set forth a basic outline of fraud in order to alert the defendant of the purported fraud he is defending against[,]" New Century Bank, N.A. v. Carmell (In re Carmell), 424 B.R 401, 412 (Bankr. N.D.Ill. 2010), some level of particularity is required by Fed.R.Civ.P. 9. "Particularity means the 'who, what, when, where, and how of the fraud … .'" Schneider v. Billon (In re Billon), No. 20 A 413, 2021 WL 2908970, at *3 (Bankr. N.D.Ill. July 12, 2021) (quoting United States ex rel. Berkowitz v. Automation Aids, Inc., 896 F.3d 834, 839 (7th Cir. 2018)). "[F]raud requires more than [a] breach of promise … ." U.S. ex rel. Main v. Oakland City Univ., 426 F.3d 914, 917 (7th Cir. 2005). "[F]ailure to honor one's promise is (just) breach of contract, but making a promise that one intends not to keep is fraud." Id.

1. The Claim Under Section 523(a)(2)(A) versus Section 523(a)(2)(B)

a. The Parties' Contentions

The Complaint does not specify whether Plaintiff is proceeding under section 523(a)(2)(A), (B), or both.^[1] In their Motion, Defendant argue Plaintiff's claim is actionable only under section 523(a)(2)(B) because Plaintiff's allegations revolve around misrepresentations about NAR's financial condition. If true, and if the false statements are only oral in nature, then the debt is dischargeable. 11 U.S.C. § 523(a)(2)(B). Defendant points to allegations of false statements that NAR would return the investment at any time, how NAR used the funds loaned, and that NAR would have funds available to repay the Note.

In Plaintiff's Response he states that "[t]his case proceeds under Section 523(a)(2)(A) … ." Response, p. 2. Plaintiff argues that the statements respecting financial condition referenced in section 523(a)(2)(A) must be interpreted to mean "what are understood by debtor-creditor professionals as 'financial statements.'" Response, p. 8. The exception to discharge under section 523(a)(2)(A) is not defeated if statements focus...