Rucker et al v. Brown

1 	The complaint in this proceeding refers to the plaintiffs
as Gail Rucker and Merrill Jones, but the caption and subsequent
papers name only Gail Rucker as the plaintiff. 	As such, the
court assumes that there is only one plaintiff, Gail Rucker.
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF COLUMBIA
In re
DANIELLE N. BROWN,
Debtor.
____________________________
GAIL RUCKER,
Plaintiff,
v.
DANIELLE NICOLE BROWN
(CLARK),
Defendant.
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
Case No. 07-00451
(Chapter 7)
Adversary Proceeding No.
07-10033
Not for Publication in
West’s Bankruptcy Reporter
MEMORANDUM DECISION AND ORDER RE
DEFENDANT’S MOTION TO DISMISS ADVERSARY PROCEEDING
The defendant Brown, who is the debtor in the bankruptcy
case within which this adversary proceeding is pursued, has moved
to dismiss the plaintiff Rucker’s complaint. 1 	Styled “Complaint
Objecting to Discharge of Debt,” the complaint alleges that
The Memorandum Decision and Order below is hereby
signed. Dated: February 13, 2008.
_____________________________
S. Martin Teel, Jr.
United States Bankruptcy Judge
Case 07-10033 Doc 25 Filed 02/14/08 Entered 02/14/08 11:40:12 Desc Main
Document Page 1 of 13

2
jurisdiction is founded upon 11 U.S.C. § 727. 	Section 727(a)
deals with the grant to the debtor of a discharge, and sets forth
grounds for objecting to the grant of a discharge. 	The complaint
contains four counts, each of which states that “the plaintiff
objects to the discharge of the debt owed plaintiff.”
The complaint appears to confuse two different concepts. 	An
objection to discharge, if successful, results in all of a
debtor’s debts not being discharged. 	In contrast, a declaration
that a particular debt is of a nondischargeable character under
§523(a) leads to that debt being unaffected by the debtor’s
discharge. 	The complaint’s first three counts can be viewed as
objecting under §727(a) to the debtor’s being granted a
discharge. 	The last count can be viewed as seeking a declaration
that the debt is of a nondischargeable character under § 523(a).
The complaint’s allegations of fact must be accepted as true
for purposes of ruling on the motion to dismiss. 	By way of
background, Rucker holds a claim against Brown, who, doing
business as Whimsical Designs, entered into a contract with
Rucker for contractor services to be rendered by Brown in
redesigning and renovating real property owned by Rucker. 	Brown
held herself out as able to perform the work under the contract
both competently and legally; however, she was not a licensed
contractor.
I
Case 07-10033 Doc 25 Filed 02/14/08 Entered 02/14/08 11:40:12 Desc Main
Document Page 2 of 13

2 	Brown has submitted evidence showing that the two
properties were sold by her years before the filing of her
bankruptcy petition. 	Rucker does not dispute that the sales
occurred, but does not clearly admit this. 	She should not renew
the claims of non-disclosure of ownership on the petition date of
the two properties if she has no basis under the standards of
Fed. R. Bankr. P. 9011(a) to assert that the debtor owned the
properties when she filed her petition.
3
Count One (Failure to Disclose Assets) alleges, first, that
Brown failed to disclose certain assets and income.
Specifically:
• 	Brown received $21,000 from Rucker that does not appear
to have been reported on Brown’s petition;
• 	Brown was employed but failed fully to disclose
complete income information; and
• 	Brown failed to disclose on her bankruptcy petition
that she owned two undisclosed real properties
(specified by address in the complaint). 2
Rucker thus “objects to the discharge of the debt owed [Rucker].”
Under 11 U.S.C. § 727(a)(4)(A), the court may deny the debtor a
discharge if the debtor knowingly and fraudulently, in or in
connection with the case, made a false oath or account. 	Rucker’s
allegations fail to allege that the debtor knowingly and
fraudulently failed to disclose information in connection with
the case. 	Moreover, the petition did not call for the types of
disclosures that allegedly were not included on the petition, and
Rucker does not specify some other filing(s) or testimony by
Case 07-10033 Doc 25 Filed 02/14/08 Entered 02/14/08 11:40:12 Desc Main
Document Page 3 of 13

4
Brown in which she failed to make the alleged disclosures.
Finally, Rucker does not point to a false oath (that is, a
document or testimony under oath) or a false account relating to
such non-disclosures. 	In the case of the alleged failure to
fully disclose complete income information, the allegations fail
to specify what income was not disclosed.
Count One alleges, second, that Brown held various real
properties jointly with her husband and conveyed them to him
without adequate reason or explanation. 	Again, based on this
allegation, Rucker “objects to the discharge of the debt owed
[Rucker].” 	Although certain transfers can give rise to a denial
of discharge pursuant to § 727(a)(2), such transfers:
• 	must have been made “with intent to hinder, delay, or
defraud a creditor or an officer of the estate charged
with custody of property under [the Bankruptcy Code],”
and
• 	in the case of a prepetition transfer, must have been
made “within one year before the date of the filing of
the petition.”
Count One thus fails to state a claim upon which relief can be
granted under § 727(a)(2) or (4). 	The court will grant Rucker 14
days within which to file an amended complaint attempting to
state proper claims under §727(a)(2) and (4).
II
Case 07-10033 Doc 25 Filed 02/14/08 Entered 02/14/08 11:40:12 Desc Main
Document Page 4 of 13

5
Count Two (Failure to Protect Assets) alleges that Brown
“made certain conveyances of real property without paying their
debts or protecting the assets from those conveyances.” 	As in
the case of the allegations in Count One regarding transfers to
Brown’s husband, these allegations do not come close to stating a
basis for denying a discharge under § 727(a)(2). 	Rucker will be
granted 14 days to amend Count Two.
III
Count Three alleges that Brown “failed to maintain a bank
account or business records in the name of Whimsical Designs,”
although “[a]t all times relevant to the filing of the bankruptcy
petition, [Brown] was required to maintain books and business
records regarding her enterprise.” 	Under § 727(a)(3), the court
must deny the debtor a discharge if:
the debtor has . . . failed to keep or preserve any
recorded information, including books, documents,
records, and papers, from which the debtor’s financial
condition or business transactions might be
ascertained, unless such act or failure to act was
justified under all of the circumstances of the case.
Count Three fails to state a claim under § 727(a)(3). 	If Brown
kept other records from which her financial condition and
business transactions could be ascertained, it would not matter
that she did not keep a bank account or business records in the
name of Whimsical Designs. 	For example, if she ran the business
through her personal bank account, and her checkbook register and
deposit receipts accurately reflect income and expenses, that
Case 07-10033 Doc 25 Filed 02/14/08 Entered 02/14/08 11:40:12 Desc Main
Document Page 5 of 13

6
might suffice to permit ascertainment of her financial condition
and business transactions.
There is no allegation that the failure to maintain records
was “not justified under all of the circumstances of the case.”
However, case law suggests that this prong of § 727(a)(3) is one
on which the debtor bears the burden of proof, and I defer
deciding whether a complaint fails to pass muster under
§ 727(a)(3) when it fails to allege that prong of the provision.
It may be that a complaint must allege that prong of § 727(a)(3),
but that a plaintiff at trial establishes a prima facie case
regarding that prong if the record contains no evidence showing
circumstances justifying the failure (the consequence being that
a plaintiff may be deemed to have established that prong even if
there is no evidence whatsoever regarding the circumstances).
Count Three must be dismissed, but, again, I will give
Rucker 14 days to file an amended complaint.
IV
Count Four incorporates the allegation that Brown held
herself out as able to perform the work under the contract both
competently and legally, but that she was not a licensed
contractor. 	It then alleges that Rucker sued Brown in the
Superior Court of the District of Columbia for breach of
contract, and obtained a grant of a motion for summary judgment.
These allegations fail to plead a claim for nondischargeability
Case 07-10033 Doc 25 Filed 02/14/08 Entered 02/14/08 11:40:12 Desc Main
Document Page 6 of 13

7
under 11 U.S.C. § 523(a)(2) (making nondischargeable, as relevant
here, any debt “for money [or] property . . . to the extent
obtained by . . . false pretenses, a false representation, or
actual fraud, other than a statement respecting the
debtor’s . . . financial condition.”
First, although Brown's representations may have been false,
there is no allegation that they were made with an intent to
deceive. 	For all we know, Brown in good faith believed she was
competent and free under the law to perform the work.
Second, there is no allegation that Rucker justifiably
relied on those misrepresentations. 	For all we know, Rucker
became aware that there were misrepresentations before she
entered into the contract, but elected to proceed because the
contract price was quite low.
Third, there is no allegation that the alleged
misrepresentation proximately caused the damages at issue and
gave rise to the debt. 	If the damages proximately arose from
some other cause than the misrepresentation, the debt could not
be deemed to be one arising from property obtained by fraud. 	As
this court explained in Davis v. Melcher (In re Melcher), 319
B.R. 761, 773-74 (Bankr. D.D.C. 2004):
Only debts proximately arising from the obtaining of
property by fraud are nondischargeable under §
523(a)(2)(A). 	United States v. Spicer, 57 F.3d 1152,
1157 (D.C. Cir. 1995), cert. denied, 516 U.S. 1043, 116
S.Ct. 701, 133 L.Ed.2d 658 (1996). 	It is not enough to
show that false representations were made; [the
Case 07-10033 Doc 25 Filed 02/14/08 Entered 02/14/08 11:40:12 Desc Main
Document Page 7 of 13

8
plaintiff] must also show that her damage flowed
directly from the misrepresentations. 	McCrory v.
Spigel (In re Spigel), 260 F.3d 27 (1st Cir. 2001). . .
As the court of appeals observed in Spicer, 57
F.3d at 1157:
Proximate causation-loss or damage to the
creditor “as a proximate result of” the
debtor's misrepresentation-is an element that
must be proved in order to establish
nondischargeability under § 523(a)(2)(A).
[Citations omitted.] 	And in general, the
causation element in fraud cases demands more
than mere “but-for” causation. 	See Greenberg
v. de Tessieres, 902 F.2d 1002, 1004 (D.C.
Cir. 1990) (“but-for” causation is not
sufficient to establish common law fraud); In
re Hibbs, 568 F.2d 347 (3d Cir. 1977)
(“but-for” causation is not sufficient to
establish claim under False Claims Act);
Restatement (Second) of Torts § 548A (1977)
(to establish fraud, fraudulent act must be a
“substantial cause” of victim's loss).
See also Archer v. Warner, 538 U.S. 314, 325-26, 123
S.Ct. 1462, 155 L.Ed.2d 454 (2003) (Thomas, J., joined
by Stevens, J., dissenting) (for § 523(a)(2)(A) to
apply, the creditor's loss must be proximately
traceable to the fraudulent act, and superseding
independent causes can sever any causal nexus even if
there was some remote connection between the injury and
the loss). 	As Spicer and subsequent decisions,
including Field v. Mans, 516 U.S. 59, 116 S.Ct. 437,
133 L.Ed.2d 351 (1995), make clear, it is appropriate
to look to the Restatement (Second) of Torts (1976)
(cited hereinafter as “Restatement”) in determining
what proximate cause entails. Proximate cause requires
both causation in fact (but-for causation) and legal
causation. See, e.g., Shaw v. Santos (In re Santos),
304 B.R. 639, 669-70 (Bankr. D.N.J. 2004):
“If the misrepresentation has in fact induced
the recipient to enter into the transaction,
there is causation in fact of the loss
suffered in the transaction.... [T]he
plaintiff must have relied upon the
misrepresentation in incurring the loss.”
RESTATEMENT § 546 cmt. a and b. 	Causation in
Case 07-10033 Doc 25 Filed 02/14/08 Entered 02/14/08 11:40:12 Desc Main
Document Page 8 of 13

9
fact can be established through evidence
demonstrating that the debtor's false
statements induced the creditor to enter into
an agreement with the debtor for his services
and that the misrepresentation was a
substantial factor in influencing the
creditor's decision. [Gem Ravioli, Inc. v.
Creta (In re Creta), 271 B.R. 214, 219 (1st
Cir. BAP 2002)].
By contrast to factual causation,
“[m]isrepresentation is a legal cause only of
those pecuniary losses that are within the
foreseeable risk of harm that it creates....
This means that the matter misrepresented
must be considered in the light of its
tendency to cause those losses and the
likelihood that they will follow.”
RESTATEMENT § 548A cmt. a and b. 	Legal
causation can be established through evidence
showing that the creditor's loss could
reasonably have been expected to result from
its reliance on the debtor's
misrepresentation. 	Gem Ravioli, 271 B.R. at
221.
As stated in District of Columbia v. Harris, 770 A.2d
82, 92 (D.C. 2001):
Proximate cause is “that cause, which in
natural and continued sequence, unbroken by
any efficient intervening cause, produces the
injury and without which the result would not
have occurred.” 	Lacy v. District of
Columbia, 424 A.2d 317, 320 (D.C.1980)
(internal quotation omitted). 	The “defendant
need not have foreseen the precise injury,
nor should [he] have had notice of the
particular method in which a harm would
occur, if the possibility of harm was clear
to the ordinary prudent eye.” 	Spar v.
Obwoya, 369 A.2d 173, 177 (D.C. 1977) (citing
Kendall v. Gore, 98 U.S.App. D.C. 378, 387,
236 F.2d 673, 682 (1956)).
In Davis v. Melcher, 319 B.R. at 775, the court discussed cases
in which a debtor fraudulently induces a creditor to enter into a
Case 07-10033 Doc 25 Filed 02/14/08 Entered 02/14/08 11:40:12 Desc Main
Document Page 9 of 13

10
contract to provide the debtor professional services based on a
fraudulent representation regarding the debtor's holding the
necessary professional license to provide the services,
observing:
In those cases, the debtor obtained a contract by false
representations that were of importance to the
plaintiff's entering into the contract, and his debt
for damages arising from procuring that contract
rightfully are nondischargeable. See In re Creta, 271
B.R. 214, 220 (1st Cir. BAP 2002). 	See also Lee-Benner
v. Gergely (In re Gergely), 110 F.3d 1448, 1453 (9th
Cir. 1997). 	. . . The Melchers may have a fraud claim
against Frolia for misrepresenting to them throughout
the construction that he was a licensed contractor, but
that is because Frolia obtained something from them, a
contract on which they made payments, and thus any harm
to them is a direct consequence of his obtaining the
contract by fraud (unless negligent performance was not
a foreseeable consequence of his false representation
that he was licensed). [Footnote omitted.]
As this court further explained in Stello v. Aikin (In re Aikin),
No. 07-10017, 2007 WL 3305364, at *4 (Bankr. D.D.C. Nov. 5,
2007):
for purposes of evaluating whether a link of proximate
causation has been adequately alleged between any fraud
and the benefits allegedly obtained by the defendant,
. . . 	the plaintiffs' allegation that the contract
itself would not have been entered into but for the
defendant's alleged fraud (once fraud is adequately
pled) might satisfy the causation requirement of a
claim asserted under § 523(a)(2)(A) as to damages
proximately caused by the fraud of procuring the
contract. 	See In re Creta, 271 B.R. 214, 220 (1st Cir.
BAP 2002) (debtor obtained a contract by false
representations that were of importance to the
plaintiff's entering into the contract and of essence
to the performance of the contract, and his debt for
damages arising from procuring that contract were
nondischargeable); Lee-Benner v. Gergely (In re
Gergely), 110 F.3d 1448, 1453 (9th Cir. 1997); Kendrick
Case 07-10033 Doc 25 Filed 02/14/08 Entered 02/14/08 11:40:12 Desc Main
Document Page 10 of 13

11
v. Pleasants (In re Pleasants), 231 B.R. 893 (Bankr.
E.D. Va. 1999) (debtor misrepresented that he was an
architect); Kadlecek v. Ferguson (In re Ferguson), 222
B.R. 576, 585-86 (Bankr. N.D. Ill. 1998). [Emphasis
added; footnote omitted.]
In the footnote to that text, the court added:
However, if any damages suffered by the plaintiffs were
not a reasonably foreseeable consequence of the false
representations, the debt owed by the debtor could not
be said to be a debt for property obtained by fraud.
Compare Parker v. Grant (In re Grant), 237 B.R. 97, 119
(Bankr. E.D. Va. 1999) (false representation that
debtor was married, relied upon by landlord in entering
into lease with debtor, could not reasonably have been
expected to result in the debt for nonpayment of rent)
with McCain v. Fuselier (In re Fuselier), 211 B.R. 540
(Bankr. W.D. La. 1997) (false representations that the
debtor-contractor was a licensed contractor, and that
payments made by the homeowners to him would be used
for the costs of construction); McDaniel v. Border (In
re McDaniel), 181 B.R. 883 (Bankr. S.D. Tex. 1994);
Peterson v. Bozzano (In re Bozzano), 173 B.R. 990
(Bankr. M.D.N.C. 1994); Bottari v. Baiata (In re
Baiata), 12 B.R. 813, 820 (Bankr. E.D.N.Y. 1981).
Stello v. Aikin, No. 07-10017, 2007 WL 3305364, at *4, n.4.
Here, we have no allegation that Rucker entered into the contract
based on the false representation, thereby giving rise to Brown’s
obtaining property (the contract and consideration paid by Rucker
under the contract), and that the debt related thereto is based
on damages proximately traceable to that misrepresentation (that
is, damages that were a foreseeable consequence).
Although Count Four fails to state a claim upon which relief
can be granted, the court will give Rucker 14 days to file an
amended complaint.
V
Case 07-10033 Doc 25 Filed 02/14/08 Entered 02/14/08 11:40:12 Desc Main
Document Page 11 of 13

12
The adversary proceeding file includes no address for
Rucker. 	The attorney who filed the complaint, Janai C. Reed, has
withdrawn her appearance. 	The mailing matrix in the main case
reflects an address for Rucker care of another attorney, and that
address will be used for purposes of transmitting this Memorandum
Decision and Order. 	However, the court will also send this
Memorandum Decision and Order to Reed with a separate order
directing by February 20, 2008, she (1) mail a copy of this
Memorandum Decision and Order to Rucker, and (2) file a
certificate of mailing of the same reflecting the current address
for Rucker. 	Because Rucker may not actually receive the
Memorandum Decision and Order until Reed mails it to her, the 14-
day period for Rucker to file an amended complaint shall run from
February 20, 2008, thus making any amended complaint due by March
5, 2008.
VI
In accordance with the foregoing, it is
ORDERED that by March 5, 2008, the plaintiff Rucker may file
an amended complaint. 	It is further
ORDERED that if she fails by March 5, 2008, to file an
amended complaint, the court will dismiss this adversary
proceeding with prejudice on the basis that the complaint fails
to state a claim upon which relief can be granted.
[Signed and dated above.]
Case 07-10033 Doc 25 Filed 02/14/08 Entered 02/14/08 11:40:12 Desc Main
Document Page 12 of 13

13	O:\Judge Temp Docs\Rucker vs Brown Mem Dcsn re MTD Complaintv2.wpd
Copies to:
Gail Rucker
c/o Elizabeth Menist, Esq.
700 E Street, SE
Washington, DC 20003
Janai C. Reed, Esq.
Harris S. Ammerman, Esq.
Case 07-10033 Doc 25 Filed 02/14/08 Entered 02/14/08 11:40:12 Desc Main
Document Page 13 of 13