AT&T Latin America Corp. v. Northland

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF MARYLAND
at Greenbelt
In re: 	:
Patricio Ernesto Northland 	: 	Case no. 05-19191-PM
Chapter 7
:
Debtor.
____________________________________
AT&T Latin America Corp. 	:
Plaintiff, 	:
Adv. Proc. No. 05-1873
v. 	:
Patricio Ernesto Northland 	:
:
Defendant.
_____________________________________________________________________________
MEMORANDUM OF DECISION
On August 22, 2005, the Plaintiff, AT&T Latin America Corporation (“AT&T”), filed
this complaint against the Debtor and Defendant, Patricio Ernesto Northland. Plaintiff seeks the
imposition of a constructive trust, denial of discharge under 11 U.S.C. § 727 as well as a finding
of non-dischargeability under 11 U.S.C. § 523. 	Defendant filed a motion to dismiss on
September 15, 2005, arguing that the Complaint failed to state claims for the imposition of a
Date signed November 22, 2005
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constructive trust, for denial of discharge under §727, and for non-dischargeability under §523.
Defendant also argues that Counts II through IX of the Complaint violate Fed. R. Bankr. P. 7008
and 7010. The Plaintiff filed a response to the motion. A hearing was held on October 31, 2005.
Upon consideration of the relevant papers and the arguments made at the hearing on the motion
to dismiss, the court will grant the motion to dismiss, with leave to amend the Complaint in
twenty-one days.
Background
The Defendant is the former chairman and chief executive officer of Plaintiff. Plaintiff is
a debtor in a case filed under Chapter 11 now pending in the United States Bankruptcy Court for
the Southern Division of Florida (the “Florida Bankruptcy Case”). 	Prior to the filing of this
bankruptcy case under chapter 7 by the Defendant, Plaintiff sued the Debtor and his wife in the
Florida Bankruptcy Court, seeking avoidance and recovery of preferential transfers pursuant to
11 U.S.C. § 547(b) and judgment for joint and several liability under 11 U.S.C. § 550. Both this
adversary proceeding, and the adversary proceeding commenced in the Florida, involve
payments totaling approximately $2.5 million dollars made to Defendant in the months prior to
Plaintiff’s bankruptcy filing. 	Defendant allegedly received the majority of these payments in
the form of deferred compensation distributions from a contingent deferred executive
compensation plan. These distributions were made in the form of a life insurance policy, for the
benefit of Defendant and his wife, with a cash surrender value of approximately $2.19 million
dollars. Furthermore, Plaintiff alleges that Defendant took steps to insulate the proceeds from
recourse on these preferential transfers by placing them into exempt status. For instance, the
Complaint alleges that Defendant made technical adjustments to the life insurance policy,
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resulting in the issuance of a replacement policy.
Discussion
As a preliminary matter, the court finds the overall framework of the Complaint to be
deficient. Counts II through IX of the Complaint violate Fed. R. Bankr. P. 7008. Each of those
counts incorporate, in addition to the general allegations set forth in Paragraphs 1-34, all of the
allegations set forth in each preceding count. 	Fed. R. Bankr. P. 7008(a), that incorporates Fed.
R. Civ. P. 8, requires that a complaint set forth a “short and plain statement of the claim showing
that the pleader is entitled to relief [.]” 	Because each of these counts have incorporated
allegations not be relevant to the specific claim alleged therein, Counts II through IX are
confusing and non-specific and, fail to comply with the requirements of Rule 7008(a).
Additionally, the court finds that several of the counts are deficient for other reasons.
With respect to Count I (“Imposition of a Constructive Trust”), the court finds that there are
several impediments to the imposition of a constructive trust in favor of the Plaintiff. Plaintiff
seeks to impose a constructive trust on the replacement life insurance policy issued to Defendant
on the basis that this policy constitutes traceable proceeds of a preferential transfer made to
Defendant. 	Plaintiff, however, is not the only creditor listed on Defendant’s schedules. The
other creditors - none of whom admittedly have claims in an amount as great as Plaintiff’s claim
- are parties to this adversary proceeding. 	In accordance with the holding in In re Jeter, 73 F.3d
205 (CA8 1996), the court finds that a constructive trust should not be imposed in favor of a
single creditor. 	Plaintiff is “situated like every other creditor of and [is] not entitled to any
special rights.” Id. at 207.
Furthermore, it is questionable whether Plaintiff can impose a constructive trust against
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1The court notes that, in pursuing a constructive trust claim in the instant matter, the Plaintiff
seems to have adopted a position that is inconsistent with that asserted by it in the preference action
against the Defendant and his wife. Assuming that an antecedent debt was pleaded in the latter
action, judicial estoppel may operate to bar a constructive trust claim in this proceeding.
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the Defendant alone with respect to the assets at issue inasmuch as the Complaint alleges that
those assets were transferred to the Defendant and his wife. 	Under Maryland law, the
constructive trust doctrine operates “to convert the holder of the legal title to property into a
trustee for one who in good conscience should reap the benefits of the possession of said
property.” Wimmer v. Wimmer, 414 A.2d 1254, 1258 (Md. 1980) (emphasis added). In seeking
to impose a constructive trust upon assets to which Defendant does not hold sole legal title, the
Plaintiff is seeking to expand the reach of this doctrine. The court, however, need not address
whether such an expansive reading of the constructive trust doctrine is permitted under Maryland
law in light of the fact that the court has already determined that Plaintiff on its own account
alone, may not bring a constructive trust claim based upon the holding in Jeter.1
With respect to Counts IV and VII (“Denial of Discharge Pursuant to § 727(a)(4)” and
“Non-Dischargeability of Debt Pursuant to § 523(a)(2)”, respectively), the court agrees with
Defendant that both of those counts violate Fed. R. Bankr. P. 7010 by stating multiple theories of
recovery. Counts IV and VII seek denial of discharge pursuant to § 727(a)(4)(A), (C), and (D)
and § 523(a)(2)(A) and (B), respectively. Fed. R. Bankr. P. 7010, which incorporates Fed. R.
Civ. P. 10, requires “[e]ach claim founded upon a separate transaction or occurrence . . [must] be
stated in a separate count . . .whenever a separation facilitates the clear presentation of the
matters set forth.” 	It is impossible to ascertain if all of the claims asserted by Plaintiff under the
different subsections of §§ 523 and 727 are based upon the same actions allegedly committed by
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Defendant. As such, the Complaint should contain a separate count for each subsection of
§§ 523 and 727 under which relief is sought.
Furthermore, the court finds that Counts IV and VII fail to plead fraud adequately under
Fed. R. Bankr. P. 7009. That rule incorporates Fed. R. Civ. Pr. 9(b), which provides that “[i]n
all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated
with particularity.” See Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 784 (CA4
1999) (holding that “the time, place, and contents of the false representations, as well as the
identity of the person making the misrepresentation and what he obtained thereby” are the
circumstances that must be pleaded with particularity). 	Plaintiff’s bare allegations of fraud do
not meet the heightened pleading standards of Rule 7009.
An appropriate order will be entered.
cc:
Plaintiff
Plaintiff’s counsel
Defendant
Defendant’s counsel
Chapter 7 Trustee
End of Memorandum of Decision
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