Stambaugh v. Stambaugh (In re Stambaugh)

533 B.R. 449

In re: Michael B. Stambaugh, Debtor(s)Alvin B. Stambaugh, Guy A. Stambaugh, Plaintiff(s)

v.Michael B. Stambaugh, Defendant(s)

Case Number: 1–12–bk–07007 RNO

Adversary No: 1–14–ap–00246 RNO

United States Bankruptcy Court, M.D. Pennsylvania.

Signed May 14, 2015

Matthew Donald Menges, Trinity Law, York, PA, for Plaintiffs.

Brent Diefenderfer, CGA Law Firm, York, PA, for Defendants.

OPINION¹

Robert N. Opel, II, Bankruptcy Judge

A Motion to Dismiss the original Complaint in this non-dischargeability action was previously granted, with leave to amend. The Plaintiffs/Creditors timely filed an Amended Complaint which the Debtor moved to dismiss. For the reasons stated below, I will grant the Motion to Dismiss the Amended Complaint, but allow twenty-one days to file an amended complaint which conforms with this Opinion.

I. Jurisdiction

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

II. Facts and Procedural History

Michael B. Stambaugh (“Debtor”) filed a voluntary petition under Chapter 13 of the Bankruptcy Code on December 12, 2012. The Debtor filed the required schedules and statements as well as a Chapter 13 plan and the § 341 meeting of creditors has been held.

The subject Adversary Proceeding was commenced by an original Complaint, filed on November 10, 2014, by Alvin B. Stambaugh and Guy A. Stambaugh (jointly, “Plaintiffs”). The original Complaint contained fifteen numbered paragraphs and one exhibit, a petition filed by the Plaintiffs in state court. The Debtor moved to dismiss the original Complaint on various grounds. After briefing and oral argument on January 29, 2015, Judgment was entered dismissing the original Complaint for failure to state a claim under 11 U.S.C. § 523(a)(6).² The judgment further provided:

[T]he Motion to Dismiss the Complaint for alleged untimeliness is DENIED due to the issue of whether either of the Plaintiffs had notice or actual knowledge of the Chapter 13 case filed to Number 1–12–bk–07007 RNO prior to the March 25, 2013, dischargeability deadline;....

Judgment, January 29, 2015, ECF No. 8. The Judgment also allowed the Plaintiffs twenty-one days to file an amended complaint.

On February 9, 2015, the Plaintiffs timely filed an Amended Complaint. The Amended Complaint contains seventeen numbered paragraphs, as well as the same exhibit which was attached to the original Complaint. The Debtor has moved to dismiss the Amended Complaint alleging various grounds; the matter has been briefed and oral argument was heard on April 23, 2015.

III. Discussion

A. Motion to Dismiss Amended Complaint for Failure to State a Claim Upon Which Relief Can be Granted.

The Motion to Dismiss the Amended Complaint alleges that the Plaintiffs have failed to state a claim upon which relief can be granted. Federal Rule of Civil Procedure 12(b)(6) provides that the defense of failure to state a claim upon which relief can be granted may be raised by motion. That Rule is made applicable to bankruptcy adversary proceedings by Federal Rule of Bankruptcy Procedure 7012. When considering an F.R.B.P. 7012(b)(6) motion to dismiss, the court must determine, viewing the facts in the light most favorable to the nonmoving parties, whether the plaintiff has alleged a plausible claim for relief. Bell Atlantic Corp., et al. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 1966, 167 L.Ed.2d 929 (2007).

The alleged facts are viewed in the light most favorable to the plaintiff. Conversely, legal conclusions are not assumed to be correct at the motion to dismiss stage. Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009). In Iqbal, Justice Kennedy noted:

While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations. When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief.

Iqbal, 129 S.Ct. at 1950.

Decisions in the Third Circuit have clarified the plausibility standard. In discussing, Iqbal, supra, the Third Circuit noted:

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).

Also see, Tri–Valley Corporation, et al. v. DMJ Gas–Marketing Consultants, LLC, 2015 WL 110074, *2 (Bankr.D.Del., Jan. 7, 2015) ; In re Griffith, 2014 WL 4385743, *3 (Bankr.M.D.Pa., Sept. 4, 2014).

When considering a motion to dismiss, the 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. Industries, Inc., 998 F.2d 1192, 1196 (3d Cir.1993) ; Taylor v. Henderson, 2015 WL 452405, *1 (D.Del., Jan. 30, 2015). Also, Federal Rule of Evidence 201 allows the court to take judicial notice of facts that are not subject to reasonable dispute. 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 as well as facts 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, *12, n. 19 (Bankr.E.D.Pa., Jan. 11, 1991). I will take judicial notice of the dockets in the Debtor's underlying Chapter 13 case and in this Adversary Proceeding. I will take judicial notice of the contents of the bankruptcy schedules which are not in dispute.

I will proceed to consider the Motion to Dismiss the Amended Complaint, applying the above standards.

B. What are the General Elements to Prove a Non–Dischargeable Claim?

In a non-dischargeability proceeding, the bankruptcy court must address two separate questions. First, does the plaintiff/creditor hold an enforceable obligation under state law? Second, is the debt non-dischargeable under a provision 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). A bankruptcy court looks to state law to determine whether there is an enforceable claim against the debtor. In re Hazelton, 304 B.R. 145, 150 (Bankr.M.D.Pa.2003).

As noted above, an exhibit was filed with the Amended Complaint. The exhibit is a petition which was filed by the Plaintiffs in the York County Court of Common Pleas, Orphans' Court Division (“State Court Petition”). Generally, the State Court Petition alleges that the plaintiff, Alvin Stambaugh, was the settlor of a revocable trust known as the Stambaugh Family Trust (“Trust”). It also alleged that the plaintiff, Guy Stambaugh, and the Debtor are two of the six beneficiaries of the Trust. The State Court Petition alleges that the Debtor serves as trustee of the Trust. It further alleges that the trustee mortgaged certain real property held by the Trust in contravention of the terms of the trust agreement. The revocable inter vivos trust agreement was attached as an exhibit to the State Court Petition and also was filed with the Amended Complaint. The State Court Petition seeks three forms of relief: (1) removal of the Debtor as trustee; (2) surcharge of the Debtor as trustee; and, (3) voiding of certain mortgages allegedly granted by the Debtor as trustee of the Trust.

A determination of whether the Plaintiffs have stated a plausible claim will ultimately be based upon Pennsylvania law. However, I think it is important to note that the Bankruptcy Code broadly defines the term “claim.” Section 101(5), in part, provides the term means:

[R]ight to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured;....

The United States Supreme Court has noted that the term “claim,” has the “broadest available definition....” F.C.C. v. NextWave Pers. Commc'ns, Inc., 537 U.S. 293, 123 S.Ct. 832, 839, 154 L.Ed.2d 863 (2003) ; Also see, In re Ruitenberg, 745 F.3d 647, 651–53 (3d Cir.2014) ; In re Grossman's Inc., 607 F.3d 114, 121 (3d Cir.2010). I will next address whether Alvin and Guy Stambaugh hold enforceable claims against the Debtor.

The State Court Petition seeks removal of the Debtor as trustee of the Trust. Removal of a trustee requires a strong showing under Pennsylvania law. The Pennsylvania Superior Court has noted:

Our Supreme Court has recognized, however, that “the removal of a trustee is a drastic remedy, and the need for such action must be clear.” As stated in White, consideration of removal under section 3182 “must be viewed in conjunction with the settlor's expressed confidence in the trustee, evinced by the trustee's appointment” and “where a settlor appoints a particular trustee, removal should only occur when required to protect the trust property.” Finally, ordinarily removal cannot occur unless some fiduciary duty has been violated, and the “mere displeasure of a beneficiary” is not sufficient reason for removal.

In re Estate of Mumma, 41 A.3d 41, 49–50 (Pa.Super.2012) (internal citations omitted). Further, the removal of a fiduciary is a drastic step to be taken only when necessary to protect property of the estate. In re Pitone's Estate, 489 Pa. 60, 413 A.2d 1012, 1016 (1980). The State Court Petition alleges that the Debtor encumbered property of the Trust in violation of the underlying trust agreement. I conclude that the Plaintiffs have unliquidated, enforceable claims against the Debtor in this regard.

Secondly, the State Court Petition seeks to surcharge the Debtor. A...