Central Mutual Insurance Company v. Starr

UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF OHIO
In re:
STEVEN R. STARR,
Debtor.
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CENTRAL MUTUAL
INSURANCE COMPANY,
Plaintiff,
v.
STEVEN R. STARR,
Defendant.
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Case No. 11-16958
Chapter 7
Adversary Proceeding
No. 11-1317
Judge Arthur I. Harris
MEMORANDUM OF OPINION1
This matter is currently before the Court on the defendant’s motion to
dismiss the plaintiff’s amended complaint under Federal Rule of Civil
Procedure 12(b)(6) for failure to state a claim upon which relief can be granted.
This opinion is not intended for official publication.1
The court incorporates by reference in this paragraph and adopts as the findings and orders of this
court the document set forth below. This document was signed electronically on February 13, 2012,
which may be different from its entry on the record.
IT IS SO ORDERED.
Dated: February 13, 2012
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For the reasons that follow, the Court finds that the plaintiff’s amended complaint
does not state a claim upon which relief can be granted but allows the plaintiff 21
days to file a second amended complaint.
JURISDICTION
An action to determine the dischargeability of a debt is a core proceeding
under 28 U.S.C. § 157(b)(2)(I). This Court has jurisdiction over core proceedings
under 28 U.S.C. §§ 157(a) and 1334 and Local General Order Number 84, entered
on July 16, 1984, by the United States District Court for the Northern District of
Ohio.
PROCEDURAL HISTORY
On August 11, 2011, Steven Starr (“the debtor”) filed a petition for relief
under Chapter 7 of the Bankruptcy Code. On November 16, 2011, Central Mutual
Insurance Company (“the plaintiff”) initiated this adversary proceeding by filing a
complaint to determine the dischargeability of a debt. The plaintiff amended its
complaint on November 17, 2011. The plaintiff’s amended complaint alleges that
a state court judgment the plaintiff obtained against the debtor should be excepted
from discharge under 11 U.S.C. § 523(a)(2), (a)(4), and (a)(6). Although the
allegations are largely conclusory, the plaintiff alleges that the debtor’s employer
sustained a loss due to the debtor’s embezzlement/conversion of funds; that the
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plaintiff indemnified the debtor’s employer as a result of an employee dishonesty
claim; and that the plaintiff obtained a state court judgment against the debtor on
or about June 28, 2011. On January 9, 2012, the debtor moved to dismiss the
amended complaint under Rule 12(b)(6), and on January 24, 2012, the plaintiff
filed its brief in opposition.
DISCUSSION
The debtor seeks dismissal of this adversary proceeding under
Federal Rule of Civil Procedure 12(b)(6), made applicable to bankruptcy
proceedings pursuant to Federal Rule of Bankruptcy Procedure 7012(b).
Rule 12(b)(6) provides that a complaint may be dismissed for failure to state a
claim upon which relief can be granted. Pleadings in adversary proceedings are
governed by Federal Rule of Civil Procedure 8, made applicable to bankruptcy
proceedings pursuant to Federal Rule of Bankruptcy Procedure 7008. “Federal
Rule of Civil Procedure 8(a)(2) requires only ‘a short and plain statement of the
claim showing that the pleader is entitled to relief,’ in order to ‘give the defendant
fair notice of what the . . . claim is and the grounds upon which it rests.’ ” Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 555, 127 S. Ct. 1955 (2007) (quoting Conley v.
Gibson, 355 U.S. 41, 47, 78 S. Ct. 99 (1957)).
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A complaint must also “state a claim to relief that is plausible on its face.”
Twombly, 550 U.S. at 570. The Supreme Court has stated that 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, 129 S. Ct. 1937, 1949 (2009) (citing Twombly,
550 U.S. at 556). The Supreme Court further noted that:
Determining whether a complaint states a plausible claim
for relief will . . . be a context-specific task that requires
the reviewing court to draw on its judicial experience
and common sense. But where the well-pleaded facts do
not permit the court to infer more than the mere
possibility of misconduct, the complaint has alleged–but
it has not “show[n]”–“that the pleader is entitled to
relief.”
Iqbal, 129 S. Ct. at 1950 (citations omitted). Under the pleading standard
conveyed in Iqbal and Twombly, a complaint must allege more than a mere
“formulaic recitation” of the elements of a claim to withstand a Rule 12(b)(6)
challenge. NM EU Corp. v. Deloitte & Touche LLP (In re NM Holdings Co.),
622 F.3d 613, 623 (6th Cir. 2010) (citing Iqbal, 129 S. Ct. at 1949); See also
Albrecht v. Treon, 617 F.3d 890, 893 (6th Cir. 2010). “[A] legal conclusion
couched as a factual allegation” need not be accepted as true. Rondigo, L.L.C. v.
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Township of Richmond, 641 F.3d 673, 680 (6th Cir. 2011) (citing Twombly,
550 U.S. at 555).
In this case, the plaintiff’s amended complaint alleges that a state court
judgment the plaintiff obtained against the debtor is excepted from discharge
under 11 U.S.C. § 523(a)(2), (a)(4), and (a)(6). A party may set out more than one
statement of a claim in a single count; however, at least one of the statements must
be sufficient for the pleading to be sufficient. Fed. R. Civ. P. 12(d)(2). The
plaintiff’s amended complaint is not plausible on its face because the factual
content pleaded is insufficient for the Court to draw the reasonable inference that
the debtor is liable for the misconduct alleged. In its amended complaint, the
plaintiff alleges the following facts relevant to its claim: (1) the debtor owes the
plaintiff $25,000, (2) the debtor was an employee of Guaranteed Finishings
(“Guaranteed”), (3) on or about April 7, 2011, Guaranteed sustained a loss in
embezzlement/conversion of funds by the debtor through his employment in
excess of $25,000, (4) plaintiff paid $25,000 to Guaranteed on its employee
dishonesty insurance claim; and (5) on or about June 28, 2011, plaintiff obtained a
judgment in Cuyahoga County Common Pleas Court against the debtor. As
explained, more fully below, these conclusory allegations are insufficient to meet
the post-Twombly/Iqbal pleading standards when it comes to claims of
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nondischargeability. For example, without more specific facts or without
attaching the state court complaint and judgment, it is unclear what claim or
claims provided the basis of the state court judgment. If the state court judgment
is the result of the debtor’s embezzlement or conversion of funds that belonged to
the debtor’s employer, that may well state a claim of nondischargeability. With
the first amended complaint, however, there are no factual allegations connecting
the state court judgment with actions by the debtor that would make the state court
judgment nondischargeable under the plaintiff’s alternative theories.
Section 523(a)(2) provides, in pertinent part, that a discharge under
Section 727 does not discharge an individual debtor from any debt for money or
property obtained by false pretenses, a false representation, actual fraud, or use of
a statement in writing under certain circumstances. The plaintiff does not plead
sufficient facts that allow the Court to draw the reasonable inference that the
debtor intentionally misrepresented any fact or made any affirmative
misrepresentations, and that this conduct provided the basis for the state court
judgment against the debtor. Hence, the amended complaint is not plausible on its
face as to the allegation of nondischargeability under Section 523(a)(2).
Section 523(a)(4) provides, in pertinent part, that a discharge under
Section 727 does not discharge an individual debtor “for fraud or defalcation
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while acting in a fiduciary capacity, embezzlement, or larceny[.]” The plaintiff’s
amended complaint fails to allege sufficient facts that allow the Court to draw the
reasonable inference that the debtor acted in a fiduciary capacity during his
employment at Guaranteed, was entrusted with any money or property during his
employment at Guaranteed, or that the debtor took Guaranteed’s personal property
with the intent to steal it, and that this conduct provided the basis for the state
court judgment against the debtor. Therefore, the amended complaint is not
plausible on its face as to the allegation of nondischargeability under
Section 523(a)(4).
With regard to plaintiff’s third alternative claim, Section 523(a)(6) provides,
in pertinent part, that a discharge under Section 727 does not discharge an
individual debtor “for willful and malicious injury by the debtor to another entity
or to the property of another entity[.]” Once again, the amended complaint fails to
allege sufficient facts that allow the Court to draw the reasonable inference that
the debtor’s actions were willful and malicious, and that this conduct provided the
basis for the state court judgment against the debtor. Hence, the amended
complaint is not plausible on its face as to the allegation of nondischargeability
under Section 523(a)(6).
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Accordingly, the amended complaint fails to state a claim upon which relief
can be granted. The Court grants the plaintiff 21 days to file a second amended
complaint.
CONCLUSION
For the foregoing reasons, the amended complaint is dismissed with leave to
amend. The plaintiff must file a second amended complaint that complies with
Federal Rule of Civil Procedure 8(a)(2) within 21 days, or this adversary
proceeding will be dismissed. Pursuant to Federal Rule of Bankruptcy
Procedure 7015, the debtor shall respond to the second amended complaint within
14 days.
IT IS SO ORDERED.
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