Stoner v. Keirns (In re Keirns)

628 B.R. 911

IN RE: Jeremy R. KEIRNS and Amanda L. Keirns, Debtors.

Sean Stoner, et al., Plaintiffs,

v.Jeremy R. Keirns, Defendant.

Case No. 20-51336

Adv. Pro. No. 20-2071

United States Bankruptcy Court, S.D. Ohio, Eastern Division.

Signed April 5, 2021

David J. Coyle, Toledo, OH, for Plaintiffs.

John W. Kennedy, Strip Hoppers Leithart McGrath & Terleck, Myron N. Terlecky, Columbus, OH, for Defendant.

OPINION AND ORDER DENYING DEFENDANT'S MOTION TO DISMISS OR FOR ABSTENTION (DOC. 7)

Jeffrey P. Hopkins, United States Bankruptcy Judge

In this adversary proceeding, Plaintiffs Sean Stoner and Title First Agency ("TFA") seek to deny Jeremy R. Keirns, the Defendant and one of the debtors in the underlying Chapter 7 bankruptcy case, a discharge of certain debts the Defendant allegedly owes them. According to the complaint (Doc. 1) (the "Complaint"), the Defendant's actions in connection with a contract to perform construction services and renovations at Stoner's residence and at certain office buildings owned by TFA not only violated the Ohio Consumer Sales Practices Act (the "CSPA"), but also caused those debts to be nondischargeable under § 523(a)(2), (4), and (6) of the Bankruptcy Code. The Defendant filed a motion to dismiss the Complaint (Doc. 7) (the "Motion") for failure to state a claim and lack of subject matter jurisdiction over the CSPA claims. In the alternative, the Defendant prays that this Court abstain from hearing the CSPA claims. For the reasons that follow, the Motion is DENIED .

I. Jurisdiction and Constitutional Authority

The Court has jurisdiction over this action pursuant to 28 U.S.C. § 1334(a) and (b). This proceeding arises in a case referred to this Court by the Standing Order of Reference entered in this District. Under 28 U.S.C. § 157(b)(2)(I), the determination of the dischargeability of the debt is a core proceeding in which the Court is authorized to enter final judgment.

The Defendant, however, contests both this Court's jurisdiction and its constitutional authority to enter a final judgment on the Plaintiffs' CSPA claims. According to the Defendant, the proceedings will have no effect on the administration of the estate—and therefore do not fall under the Court's "related to" jurisdiction under 28 U.S.C. § 1334(b). And the CSPA claims, the Defendant maintains, are pure "state law claims independent of bankruptcy law" on which the Court is constitutionally prohibited from entering a final judgment under Stern v. Marshall , 564 U.S. 462, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011). The Court disagrees on both fronts.

Courts have repeatedly held that, even after Stern v. Marshall , a bankruptcy court possesses both the jurisdiction and the constitutional authority to liquidate an underlying debt in connection with a nondischargeability proceeding. See Deitz v. Ford (In re Deitz) , 760 F.3d 1038 (9th Cir. 2014) (adopting the Bankruptcy Appellate Panel's "well-reasoned" opinion, 469 B.R. 11 (B.A.P. 9th Cir. 2012), which closely assessed a bankruptcy court's continuing authority to enter a final judgment on a state law claim in connection with nondischargeability after Stern ); Islamov v. Ungar (In re Ungar) , 633 F.3d 675, 679–80 (8th Cir. 2011) ("We agree with the determinations of the other circuits that have addressed this issue and unanimously concluded a ‘bankruptcy court, in addition to declaring a debt non-dischargeable, has jurisdiction to liquidate the debt and enter a monetary judgment against the debtor.’ " (quoting Morrison v. W. Builders of Amarillo, Inc. (In re Morrison), 555 F.3d 473, 478 (5th Cir. 2009), and citing cases)); Harvey v. Dambowsky (In re Dambowsky) , 526 B.R. 590, 597 (Bankr. M.D.N.C. 2015) (providing an in-depth analysis of a court's statutory and constitutional authority to liquidate a debt in connection with a § 523 action and noting that "the vast majority of the courts to consider the issue have concluded that the bankruptcy courts have both subject matter jurisdiction and constitutional authority to liquidate such debts in the context of dischargeability actions."); Gambrell v. Auerbach (In re Auerbach) , No. 14-16264, 2015 WL 6601776, at *4 (Bankr. N.D. Ohio Oct. 29, 2015) ("Bankruptcy courts retain ‘jurisdiction to adjudge the validity and amount of a claim’ when determining dischargeability, even after the Supreme Court's decision in Stern v. Marshall [.]" (quoting Longo v. McLaren (In re McLaren) , 3 F.3d 958, 965 (6th Cir. 1993) )); Lawson v. Conley (In re Conley) , 482 B.R. 191, 207 (Bankr. S.D. Ohio 2012) ("find[ing] it has the constitutional authority to enter a final judgment liquidating [a] debt under Ohio law").

The Plaintiffs' CSPA claims underlie their claims for nondischargeability. Based on its own review of Stern and the relevant authority, the Court sees no reason to depart from the vast weight of authority and holds that it has both the jurisdiction and the constitutional authority to decide the Plaintiffs' state law CSPA claims in connection with this nondischargeability proceeding. Thus, to the extent that it seeks dismissal of the Complaint's CSPA claims under Stern or on jurisdictional grounds, the Motion is DENIED .

II. Background

According to the Plaintiffs' Complaint,¹ Stoner hired the Defendant, doing business as Home-Tech, to build a garage and an addition at his home located in New Albany, Ohio. Compl. ¶¶ 7, 9. In addition to being subject to rules of the City of New Albany Construction Department (the "City Department"), the home is part of a country club and is governed by rules of the New Albany Country Club Community Association (the "Association"), and a contractor must be approved by both the City Department and the Association to complete such construction projects. Id. ¶¶ 9, 11. According to Stoner, the Defendant specifically stated that he was an approved contractor with both the City Department and the Association, was authorized by "all applicable authorities" to do the work requested, and had performed such work for other New Albany residents. Id. ¶ 12. Stoner alleges that he relied on and was induced by these statements in hiring the Defendant and paying the Defendant a $30,000 deposit in January 2018 for the projected $300,000 project. Id. ¶¶ 13, 18. Further, Stoner relied on these statements in requesting, on behalf of his company TFA, that the Defendant also complete certain construction work at four of TFA's offices. Id. ¶¶ 14, 18.

The $30,000 deposit was provided so that the Defendant could purchase materials for the project at Stoner's home, and it was refundable "except for documented expenses incurred." Id. ¶¶ 19–21. The Defendant cashed the check and informed Stoner that he used the funds to purchase materials for Stoner's project, going over the list of materials with Stoner. Id. ¶ 22. Similarly, in March 2018, TFA provided the Defendant with a check for $26,775 to purchase materials for the office renovations, and the Defendant represented that he used the funds for this purpose and sent Stoner a photo of the allegedly purchased materials. Id. ¶¶ 28–29. TFA later issued checks for $6,000 and $5,043.75 for more materials and as progress payments for work performed at one of the offices. Id. ¶ 33.

Stoner later discovered that the Defendant was not—nor had applied to be—an approved contractor with either the City Department or the Association. Id. ¶ 16. And the Plaintiffs assert that, upon information and belief, and contrary to the Defendant's representations, the Defendant did not use the deposits to purchase materials for Stoner's and TFA's projects. Id. ¶¶ 23–25, 30–32. The Plaintiffs further believe that the photo the Defendant sent was not actually of the materials allegedly purchased for the TFA project, but rather was of materials for a different or prior project. Id. ¶¶ 30–31. The Defendant knew these representations about his licensing and use of the deposits were false, and he made them to induce the Plaintiffs to hire him and provide deposits. Id. ¶¶ 13, 15–16, 24, 31.

The Defendant completed some work on one of TFA's offices but never began work on the other three offices or Stoner's residence. Id. ¶¶ 33–34. After being asked to complete the work, the Defendant stated he had the supplies and would send them to TFA to complete the work. Id. ¶ 33. The Defendant did not return any of the supplies purchased, nor has he returned any of the deposits. Id. ¶¶ 33–35.

Based on the allegations in the Complaint, the Plaintiffs assert that, as to each Stoner and TFA, the Defendant engaged in fraud and deceptive business practices in violation of the CSPA. Id. ¶¶ 37, 48. The Plaintiffs further assert that due to the Defendant's "false pretenses, false representations, embezzlement, and/or actual fraud," any amounts owed by the Defendant to the Plaintiffs are nondischargeable under § 523(a)(2), (4), and (6). Id. ¶¶ 59, 61.

The Defendant filed the Motion seeking to dismiss the Complaint for failure to state a claim and lack of jurisdiction. Specifically, the Defendant argues that: (1) Stoner's contract was with Home-Tech, not the Defendant (and TFA has no written contract), and the Plaintiffs have asserted no basis to pierce the corporate veil or hold the Defendant liable for the debts of Home-Tech; (2) the Plaintiffs' allegations fail to meet heightened pleading standards applicable to fraud claims and necessary to sustain a claim under § 523(a)(2) ; (3) the Plaintiffs fail to adequately state a cause of action under § 523(a)(4) or (6); and (4) the Court lacks both the jurisdiction and constitutional authority to enter a judgment on the Plaintiffs' state-law CSPA claims. In the alternative, the Defendant asserts that the Court should abstain from hearing this matter. The Plaintiffs have filed a response (Doc. 9), and the Motion is now ripe for adjudication.

III. Analysis

A. Motion to Dismiss Standard

On a motion to dismiss for failure to state a claim under Rule 12(b)(6), a court must "construe the complaint in the light most...