Anzalone v. Dulgerian

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
In re : Chapter 11
GEORGE DULGERIAN, :
Debtor. : Case No. 06-10203 (JKF)
________________________________
BERNICE ANZALONE, :
Plaintiff, :
v. :
GEORGE DULGERIAN, :
Defendant. : Adversary No. 06-0612
________________________________
MEMORANDUM OPINION
BY: JEAN K. FITZSIMON
United States Bankruptcy Judge
This matter is before the Court on Defendant George Dulgerian’s Motion to
Dismiss Pursuant to Federal Rule of Civil Procedure 12(B)(6). For reasons
discussed below, the Motion is granted in part and denied in part. Counts I and
III of the Complaint will not be dismissed. Count II is dismissed without prejudice.
Case 06-00612-bif Doc 24 Filed 04/01/08 Entered 04/02/08 13:44:23 Desc Main
Document Page 1 of 20

The bankruptcy case was reassigned from Judge Raslavich to Judge FitzSim on on	1
Novem ber 19, 2007. This adversary proceeding was reassigned on January 16, 2008.
2
I. BACKGROUND
An involuntary Chapter 7 bankruptcy petition was filed against George
Dulgerian on January 19, 2006. The Debtor voluntarily converted his case to
Chapter 11 on June 7, 2006. On November 13, 2006, the Plaintiff, Bernice1
Anzalone, filed this adversary proceeding against the Debtor, seeking a
determination that a total debt of $500,000 is nondischargeable. The Complaint
states three causes of action: count I pursuant to11 U.S.C. § 523(a)(2), count II
pursuant to § 523 (a)(4), and count III pursuant to § 523 (a)(6).
The Plaintiff’s deceased husband, Robert Anzalone, was the uncle of the
Debtor’s wife, Kathyrn Dulgerian. The Debtor and his wife operated Enclave
Development Inc. (“Enclave”) and G&D Developers (“G&D”), which were in the
land development business.
In November 2001, the Debtor, his wife, Enclave, and G&D (collectively,
the “Borrowers”) took an initial loan of $400,000 from the Plaintiff and her
husband in order to develop the 57 acre Point Ardash property owned by the
Debtor (the “Property”). The Borrowers allegedly promised to pay 10% yearly
interest on the loan. The Complaint alleges that the following deceptions were
perpetrated on the Plaintiff and her husband in order fraudulently to induce them
to loan money to the Borrowers: 1) representing that the Property was subject to
Case 06-00612-bif Doc 24 Filed 04/01/08 Entered 04/02/08 13:44:23 Desc Main
Document Page 2 of 20

3
immediate sale for $14,000,000 (Complaint ¶11a); 2) presenting a written
document purporting to be an Agreement of Sale (Complaint ¶11a); 3) mis-
representing the Borrowers’ ownership interest in the Property (Complaint ¶11b);
4) misrepresenting the Borrowers’ history of financial success in other land
development projects (Complaint ¶11c); 5) concealing the Debtor’s intention to
embezzle the loan proceeds for his personal benefit (Complaint ¶11d); and
6) concealing the Borrowers’ dire financial condition and inability to repay the loan
(Complaint ¶11e).
From January 2002 to July 2002, the Borrowers made interest payments
on the loan to the Plaintiff and her husband. (Complaint ¶14.) In July 2002, the
Anzalones loaned the Borrowers an additional $100,000. (Complaint ¶17.) The
interest payments then stopped. (Complaint ¶18.) In March 2005, Plaintiff met
with the Defendant to seek repayment of the loan or, at a minimum, interest
payments on the loan. (Complaint ¶23.) At that point, Mr. Dulgerian allegedly
told the Plaintiff that he did not have the money to repay the loans. (Complaint
¶24.) The Complaint alleges that instead of using the $500,000 in loan proceeds
received from the Anzalones to improve the Property (as the parties agreed), the
Debtor converted and embezzled the loan proceeds for his personal benefit in
breach of his fiduciary duties. (Complaint ¶19.)
In November 2005 (Plaintiff’s husband now having passed away),
Mrs. Anzalone sued the Borrowers in district court in the Eastern District of
Case 06-00612-bif Doc 24 Filed 04/01/08 Entered 04/02/08 13:44:23 Desc Main
Document Page 3 of 20

4
Pennsylvania (the “EDPA Action”). (Complaint ¶25.) The EDPA Action contains
four counts: 1) fraud; 2) breach of contract; 3) negligent misrepresentation; and
4) violation of the New Jersey Consumer Fraud Act. (See Complaint, Exhibit D.)
Two months after the EDPA Action was filed, on January 19, 2006, an
involuntary bankruptcy petition was filed against the Debtor, and the stay
prevented further prosecution of the EDPA suit against Mr. Dulgerian. (Complaint
¶26.) However, in July 2006, a default judgment was entered in that action
against the remaining parties (the Debtor’s wife, Enclave, and G&D) in the
amount of $802,105. (Complaint ¶28.)
W ith regard to this adversary proceeding, the Debtor has not answered the
Complaint, but rather filed a 12(b)(6) Motion to Dismiss in December of 2006.
The Motion seeks to have the Complaint dismissed on the following grounds:
1) fraud was not pled with particularity pursuant to Federal Rule of Civil
Procedure 9(b) (the Motion asserts that the Plaintiff has made only vague
allegations regarding the Defendant’s alleged misrepresentations, over-
statements concerning ownership of the Property, and statements about his past
successes and other land development projects); 2) the Plaintiff has failed to
state a claim under § 523(a)(2) because the pleadings do not even exhibit
evidence of the correct loan repayment or interest terms; 3) the Plaintiff has failed
to state a claim under § 523(a)(4) where there is no statement of an independent
fiduciary relationship or an express trust, nor an allegation of fraudulent
Case 06-00612-bif Doc 24 Filed 04/01/08 Entered 04/02/08 13:44:23 Desc Main
Document Page 4 of 20

5
appropriation that would rise to a sufficient allegation of embezzlement or larceny;
and 4) the Plaintiff has failed to state a claim under § 523(a)(6) where there is no
showing whatsoever that Debtor intended to cause injury or that simply borrowing
money is tantamount to a tort.
The parties put the decision on this Motion on hold for a time by entering
into a Settlement Stipulation, which was approved by this Court on April 5, 2007.
(See docket entry #10.) However, the terms of the settlement were apparently
never met; the adversary was reinstated, by consent, on January 29, 2008. (See
docket entry # 21.)
Reinstatement of this proceeding came with the Defendant’s fully briefed
Motion to Dismiss. The parties represented to the Court at a February 13, 2008
hearing that they wished to proceed on their filed papers. After reviewing the
pleadings and relevant law, and for reasons discussed more fully below, the
Court concludes that counts I and III of the Complaint are viable. However,
Count II fails to state a claim on which relief may be granted. For these reasons,
the Motion is granted in part and denied in part.
II. STANDARD ON A MOTION TO DISMISS
The purpose of a Rule 12(b)(6) motion is to “test the legal sufficiency of the
complaint.” Dee v. Marriott Int’l, Inc., 1999 W L 975125, at *2 (E.D. Pa. Oct. 6,
1999). In considering a motion to dismiss, a court is “required to accept as true
all allegations in the complaint and all reasonable inferences that can be drawn
Case 06-00612-bif Doc 24 Filed 04/01/08 Entered 04/02/08 13:44:23 Desc Main
Document Page 5 of 20

6
therefrom, [viewing] them in the light most favorable to the plaintiff.” Taliaferro v.
Darby Township Zoning Board, 458 F.3d 181,188 (3d Cir. 2006) (citation
omitted). See also W inter Family Trust v. Queen, 503 F.3d 319, 327 (3d Cir.
2007). In deciding a motion to dismiss under Rule 12(b)(6), the court accepts as
true the facts pleaded in the complaint and any reasonable inferences derived
from those facts. Langford v. City of Atlantic City, 235 F.3d 845, 847 (3d Cir.
2000). The inquiry is “not whether plaintiffs will ultimately prevail in a trial on the
merits, but whether they should be afforded an opportunity to offer evidence in
support of their claims.” In re Rockefeller Center Properties, Inc. Securities
Litigation, 311 F.3d 198, 215 (3d Cir. 2002) (citation omitted). While 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” it is “a plaintiff’s obligation to provide
the grounds of his entitlement to relief, [which] requires more than labels and
conclusions, and a formulaic recitation of the elements of a cause of action.” Bell
Atlantic v. Twombly, 127 S.Ct. 1955, 1964-5 (2007) (internal citations and
quotations omitted).
III. THE COMPLAINT ADEQUATELY PLEADS FRAUD
WITH PARTICULARITY PURSUANT TO
FEDERAL RULE OF CIVIL PROCEDURE 9(B)
The crux of the Complaint, that the Debtor fraudulently induced the Plaintiff
and her deceased husband to lend them a substantial amount of money, is
adequately detailed and thus stands up to the heightened pleading standard of
Case 06-00612-bif Doc 24 Filed 04/01/08 Entered 04/02/08 13:44:23 Desc Main
Document Page 6 of 20

7
Rule 9(b). The Federal Rules require that “[i]n alleging fraud or mistake, a party
must state with particularity the circumstances constituting fraud or mistake . . .”
Fed. R. Civ. P. 9(b). According to the Third Circuit, this means that a plaintiff
should accompany her pleading with “the first paragraph of any newspaper
story . . . the who, what, when, where and how of the events at issue.” In re
Rockefeller Center Properties, Inc. Securities Litigation, 311 F.3d 198, 217 (3d
Cir. 2002) (internal quotation and citation omitted). Elsewhere, however, the
Court has commented that
Rule 9(b) requires plaintiffs to plead with particularity the
‘circumstances’ of the alleged fraud in order to place the defendants
on notice of the precise misconduct with which they are charged . . . .
It is certainly true that allegations of ‘date, place or time’ fulfill these
functions, but nothing in the rule requires them. Plaintiffs are free to
use alternative means of injecting precision and some measure of
substantiation into their allegations of fraud.
Seville Industrial Machinery Corp. v. Southmost Machinery Corp., 742 F.2d 786,
791 (3d Cir. 1984). See also In re Suprema Specialties, Inc. Securities Litigation,
438 F.3d 256, 270 (3d Cir. 2005) (noting that “Rule 9(b) serves to give
defendants notice of the claims against them, provide[ ] an increased measure of
protection for their reputations, and reduce[ ] the number of frivolous suits brought
solely to extract settlements.”) (internal quotations and citations omitted);
W olstein v. Doctoroff, 133 F.3d 210, 217 (3d Cir. 1997) (“the purpose of [Rule
9(b)] is to allow a defendant to meaningfully respond to a complaint”).
Case 06-00612-bif Doc 24 Filed 04/01/08 Entered 04/02/08 13:44:23 Desc Main
Document Page 7 of 20

8
In this case, Mrs. Anzalone not only provides the Debtor with enough
material so that he may meaningfully respond to the Complaint, but she also
details Mr. Dulgerian’s alleged fraud with the who, what, when, where, and how
that more than satisfy the heightened standard of pleading outlined above.
Specifically, the Complaint alleges that Mr. Dulegrian, his wife and affiliates
Enclave and G& D (“who,” see Complaint, ¶¶ 6,9) induced the Plaintiff and her
husband to loan them a total of $500,000 (“what,” see Complaint, ¶¶ 9, 13, 15,
17) from November 2001 to July 2002 (“when,” see Complaint, ¶¶ 9, 17) in New
Jersey (“where,” see Exhibit A, check drawn on a New Jersey bank). The last
element - how the Debtor’s alleged fraud was perpetrated - is detailed at some
length by the Plaintiff. (See Complaint, ¶11, pgs. 3-4.) The Complaint fully
describes Mr. Dulgerian’s alleged deceit and defrauding of the Plaintiff and her
husband. Mrs. Anzalone alleges that the Defendant presented a false Agreement
of Sale (the “Agreement”), fraudulently represented that the Property would be
sold imminently for $14,000,000, misrepresented the Borrowers’ interest in the
Property, and overstated the Debtor’s and the Borrowers past successes. Id.
Further, it is alleged that the Debtor concealed both his intent to embezzle the
loan proceeds and his dire financial condition. Id. The Complaint provides more
than enough details both to give the reader a picture of the alleged deception and
to allow the Debtor to answer the pleading.
Case 06-00612-bif Doc 24 Filed 04/01/08 Entered 04/02/08 13:44:23 Desc Main
Document Page 8 of 20

9
Because the Complaint adequately pleads Mr. Dulgerian’s alleged
fraudulent activity, the Defendant is incorrect when he argues that the Complaint
merely “makes vague allegations.” (Motion, pg.3). Further, the Debtor’s
insistence that the Complaint falls short because it fails to answer specific
questions such as “[w]hat exactly did Defendant state about his past success?”
and “[d]id Defendant mention any profits from projects?” (Motion, pg.4) is
unsupported by Third Circuit case law, which, as discussed, calls for a
heightened pleading standard in order to put a defendant on notice and protect
reputations, not, as the Defendant indicates, a need to answer any and all
questions prior to discovery. In re Suprema Specialties, Inc. Securities Litigation,
438 F.3d 256, 270 (3d Cir. 2005). See also Shapiro v. UJB Financial Corp., 964
F.2d 272, 284 (3d Cir. 1992) (noting that courts should be “sensitive to the fact
that application of [Rule 9(b)] prior to discovery may permit sophisticated
defrauders to successfully conceal the details of their fraud . . . . They should also
respect the general simplicity and flexibility of the Federal Rules of Civil
Procedure.”) (internal quotations and citations omitted). Discovery will provide
the opportunity for both sides in this dispute to exchange information and to have
more detailed questions answered. For now, it is sufficient to conclude that the
Plaintiff has pled fraud in enough detail to satisfy Federal Rule 9(b) and to move
beyond the pleading stage. For these reasons, the Motion to Dismiss will not be
granted with regard to the allegations of fraud in the Complaint.
Case 06-00612-bif Doc 24 Filed 04/01/08 Entered 04/02/08 13:44:23 Desc Main
Document Page 9 of 20

10
IV. THE COMPLAINT STATES A CLAIM
UNDER 11 U.S.C. § 523(a)(2)
The Plaintiff also states a claim in count I under Section 523(a)(2) of the
Code. The Complaint does not specify if it intends to proceed under § 523(a)(2)(A)
or under § 523(a)(2)(B). The parties’ briefs assume that both sections are under
consideration, and the Court will do the same.
Section 523(a)(2)(A) excepts from a bankruptcy discharge an individual
debt obtained by “false pretenses, a false representation, or actual fraud, other
than a statement respecting the debtor's or an insider's financial condition.” In
order successfully to state a cause of action under § 523(a)(2)(A), a plaintiff must
show the following: (1) the debtor made a representation knowing at the time that
it was false; (2) the debtor made the representation with the intent and purpose of
deceiving the plaintiff; (3) the plaintiff justifiably relied on the debtor's false
representation; and (4) the plaintiff suffered a loss or damage as a proximate
consequence of the representation having been made. In re Ishmael, 2008 W L
80040, at *3 (Bankr. E.D. Pa. Jan. 7, 2008) (citation omitted). See also In re
Farrell, 2006 W L 1997423 (Bank. E.D. June 14, 2006).
The Complaint alleges all four of these elements. It describes several
representations the Debtor and the Borrowers made to the Anzalones regarding
the Property while knowing that such assertions were false (Complaint, ¶31).
The Complaint alleges that these representations were made with the intent of
Case 06-00612-bif Doc 24 Filed 04/01/08 Entered 04/02/08 13:44:23 Desc Main
Document Page 10 of 20

11
deceiving the Plaintiff. (Id.). The Plaintiff relied on the Debtor’s alleged
fraudulent statements in acting to lend money (¶¶ 13, 17). Lastly, the Complaint
alleges that the Plaintiff is out $500,000 as a direct result of the Debtor’s fraud.
(¶¶ 13, 17, 32). Thus, the Plaintiff has stated a claim on which relief may be
granted under § 523(a)(2)(A).
The Defendant alleges, without benefit of citation to law, that the loans
made to the Plaintiff cannot support a claim pursuant to § 523(a)(2)(A) because
the Complaint does not attach a loan agreement or promissory note. (Motion,
pg. 5). This argument is not correct. See, e.g., In re Harrison, 301 B.R. 849
(Bankr. N.D. OH. 2003) (stating a cause of action under § 523(a)(2)(A) based on
an oral contract).
Alternatively, the Complaint states a cause of action under § 523(a)(2)(B).
This section excepts from discharge a debt obtained by “use of a statement in
writing - (i) that is materially false; (ii) respecting the debtor's or an insider's
financial condition; (iii) on which the creditor to whom the debtor is liable for such
money, property, services, or credit reasonably relied; and (iv) that the debtor
caused to be made or published with intent to deceive.” 11 U.S.C. § 523(a)(2)(B).
W hether a statement is material is a question for a court to decide. In re Kleiman,
2008 W L, at *4 (Bankr. D.N.J. Jan. 30, 2008) (citations omitted). The reasonable
reliance prong of § 523 (a)(2)(B) requires that “the creditor actually relied upon the
statement at issue.” Id. (citing In re Cohn, 54 F.3d 1108, 1115 (3d Cir. 1995). It is
Case 06-00612-bif Doc 24 Filed 04/01/08 Entered 04/02/08 13:44:23 Desc Main
Document Page 11 of 20

12
unnecessary that the financial statement at issue be a formal document; it need
only “describe the financial condition of the debtor or an insider of the debtor.” In
re Nicolai, 2007 W L 405851, at *2 (Bankr. D.N.J. Jan. 31, 2007).
Mrs. Anzaone has here satisfied each of the necessary elements in order
to plead a cause of action under § 523 (a)(2)(B). The Complaint alleges that the
Agreement of Sale falsely represented in writing the Debtor’s financial condition
and that she relied on the Agreement in deciding to make a loan to the Debtor.
(Complaint ¶¶ 12-13.) The Complaint further alleges that the Agreement was
published with the intent to deceive the Plaintiff and her husband. (Complaint
¶ 12.) The Defendant offers no argument or case law to the contrary. Therefore,
Plaintiff’s cause of action under § 523 (a)(2)(B) will not be dismissed.
V. THE COMPLAINT FAILS TO STATE A CLAIM
UNDER 11 U.S.C. § 523(a)(4)
Because the Complaint does not state a claim on which relief may be
granted pursuant to 11 U.S.C. § 523(a)(4), this portion of the Complaint will be
dismissed without prejudice. Section 523(a)(4) of the Code excepts from
discharge any debt obtained “for fraud or defalcation while acting in a fiduciary
capacity, embezzlement, or larceny.”
The Defendant is correct that the Complaint does not state a claim with
regard to the first part of § 523(a)(4), i.e. there is no cause of action that rests on
Case 06-00612-bif Doc 24 Filed 04/01/08 Entered 04/02/08 13:44:23 Desc Main
Document Page 12 of 20

The Court notes recent contrary developm ents in Delaware law, see, e.g., North Am erican	2
Catholic Educational Program m ing Foundation, Inc. v. Gheewalla, 930 A.2d 92 (Del. Supr. 2007);
Trenwick Am erica Litig. Trust v. Ernst & Young, L.L.P., 906 A.2d 168 (Del. Ch. 2006), but is not now
(continued...)
13
the assertion that the Debtor has misappropriated funds while acting in a fiduciary
capacity. The fiduciary relationship is a prerequisite to a determination of
nondischargeability for fraud or defalcation under § 523(a)(4). In re Shervin, 112
B.R. 724, 730-1 (Bankr. E.D. Pa. 1990) (citations omitted). The concept of
“fiduciary” has been narrowly construed under § 523(a)(4). In re Ishmael, 2008
W L 80040, at *4 (Bankr. E.D. Pa. Jan. 7. 2008). Mrs. Anzalone argues that the
Debtor was acting in a fiduciary capacity because he was an officer or director of
G&D and Enclave (to whom the loans in question were made jointly and
severally) and that “the fiduciary duties owed by Defendant shifted to the creditors
of Enclave and G&D.” (Memorandum of Law in Support of Plaintiff’s Answer,
pg. 11). The Plaintiff asserts that because she is a creditor of Enclave and G&D,
the Debtor owed her a fiduciary duty as well. Id. It is true that an officer or
director of a corporation owes a duty to the corporation’s creditors once the
corporation becomes insolvent. See In re Docteroff, 133 F.3d 210, 217 (3d Cir.
1997); In re Picard, 339 B.R. 542, 552 (Bankr. D. Conn. 2006); In re Scott
Acquisition Corp., 344 B.R. 283 (Bankr. D. Del. 2006) (holding that directors and
officers of an insolvent wholly owned subsidiary owe fiduciary duty to the
subsidiary and its creditors); In re Carretta, 219 B.R. 66 (Bankr. D.N.J. 1998)
(discussing Pennsylvania law). Yet there is no allegation in the Complaint2
Case 06-00612-bif Doc 24 Filed 04/01/08 Entered 04/02/08 13:44:23 Desc Main
Document Page 13 of 20

(...continued)	2
prepared to opine on whether this law would apply here.
Because Count II will be dism issed without prejudice, the Plaintiff is free to am end this portion of	3
the Com plaint.
Larceny, on the other hand, requires that “the original taking of the property was unlawful.” In re	4
Ishm ael, 2008 W L 80040, at *6 n.14 (Bankr. E.D. Pa. Jan. 7. 2008).
14
regarding either G&D or Enclave’s insolvency. Thus, the Plaintiff’s argument that
the Debtor owes her a fiduciary duty must fail.3
Nor does the Complaint state a viable claim that the Debtor embezzled
funds pursuant to 11 U.S.C. § 523(a)(4). In order to state a claim for
embezzlement, the existence of a fiduciary relationship is unnecessary. In re
Ishmael, 2008 W L 80040, at *6 (Bankr. E.D. Pa. Jan. 7. 2008); In re Shervin, 112
B.R. 724, 735 (Bankr. E.D. Pa. 1990). Embezzlement is defined as “the
fraudulent appropriation of property by a person to whom such property has been
entrusted or into whose hands it has lawfully come.” In re Steele, 2005 W L
281154, at *3 (Bankr. E.D. Pa. Jan. 28, 2005) (citing Moore v. United States, 160
U.S. 268, 269 (1895). To establish a cause of action for embezzlement pursuant4
to 11 U.S.C. § 523(a)(4), a plaintiff must show: 1) the debtor was entrusted;
2) with property; 3) of another; 4) which the debtor appropriated for his own use;
and 5) with fraudulent intent. In re Ishmael, 2008 W L 80040, at *6 (Bankr. E.D.
Pa. Jan. 7. 2008) (citation omitted). See also In re Docteroff, 133 F.3d 210, 217
(3d Cir. 1997).
Case 06-00612-bif Doc 24 Filed 04/01/08 Entered 04/02/08 13:44:23 Desc Main
Document Page 14 of 20

15
Count II of the Complaint fails to state a claim for embezzlement pursuant
to § 523(a)(4) and the standard set forth above because, while there is an
assertion of fraudulent intent and misappropriation of use, there is no allegation
that the Defendant was entrusted with the property of another. Rather, the
money Mr. Dulgerian allegedly misused for his own purposes was a loan from
Mrs. Anzalone and therefore belonged to him and the other Borrowers. One
cannot embezzle one’s own property. In re Phillips, 882 F.2d 302 (8th Cir. 1989)
(holding that a creditor with merely a security interest in collateral did not have a
claim for embezzlement pursuant to § 523(a)(4)) ; In re Shervin, 112 B.R. 724
(Bankr. E.D. Pa. 1990); In re Moller, 2005 W L 1200916 (Bankr. N.D. Iowa,
May 16, 2005). Because the money at issue did not belong to the Plaintiff, she
cannot allege that the Debtor embezzled it from her. If anyone has a claim of
embezzlement against Mr. Dulgerian, it is his co-borrowers in the business
venture with whom he jointly owned the funds in question, not Mrs. Anzalone,
who lent him the money. Because the Plaintiff has not stated a viable cause of
action pursuant to § 523 (a)(4), count II of the Complaint will be dismissed.
VI. THE COMPLAINT STATES A CLAIM
UNDER 11 U.S.C. § 523(a)(6)
Lastly, the Complaint states a claim under 11 U.S.C. § 523 (a)(6) in
count III. This section of the Code exempts from discharge any debt “for willful
Case 06-00612-bif Doc 24 Filed 04/01/08 Entered 04/02/08 13:44:23 Desc Main
Document Page 15 of 20

16
and malicious injury by the debtor to another entity or to the property of another
entity.” Generally, the “willfulness requirement refers to conduct that is
‘deliberate’ or ‘intentional.’” In re Jacobs, 381 B.R. 128, 136 (Bankr. E.D. 2008)
(citing Collier on Bankruptcy). The word “‘willful’ in (a)(6) modifies the word
‘injury,’ indicating that nondischargeability takes a deliberate or intentional injury,
not merely a deliberate or intentional act that leads to injury.” Kawaauhau v.
Geiger, 523 U.S. 57, 61 (1998) (emphasis in the original). “W illful means
deliberate or intentional . . . for the injury to have been ‘willed’ by the debtor, it
must at least have been substantially certain to result from the debtor’s act.” In re
Granoff, 2006 W L 1997408, at *6-*7 (Bankr. E.D. Pa. Jun. 6, 2006) (citing In re
Conte, 33 F.3d 303, 307 (3d Cir. 1994)). An injury is willful and malicious under
the Code only if “the actor purposefully inflicted the injury or acted with substantial
certainty that injury would result.” Granoff, 2006 W L 1997408, at *7 (citing,
Conte, 33 F.3d at 305).
In this case, the Complaint’s allegations that the Debtor diverted funds from,
and perpetrated an elaborate scheme upon, the Plaintiff may at least arguably
amount to a “willful and malicious” injury pursuant to 11 U.S.C. § 523(a)(6). Faced
with similar facts, where a Debtor was charged with diverting funds that were
meant to further a business venture, the Third Circuit held that “there can be no
doubt that [the Debtor] inflicted a willful injury on the plaintiffs.” In re Docteroff,
133 F.3d 210, 217 (3d Cir. 1997). Thus, at least at the preliminary pleading stage,
Case 06-00612-bif Doc 24 Filed 04/01/08 Entered 04/02/08 13:44:23 Desc Main
Document Page 16 of 20

17
the allegations put forth in the Complaint adequately give rise to a cause of action
under § 523(a)(6).
In asserting that the portion of the Complaint alleging a cause of action
pursuant to § 523(a)(6) should be dismissed, the Defendant cites a single case.
That case, In re Gaebler, 83 B.R. 264 (Bankr. E.D. Pa. 1988), was overruled
some 20 years ago. See In re Gaebler, 88 B.R. 62, 65 (E.D. Pa. 1988) (“[t]his
Court finds that the Bankruptcy Court erred in concluding . . . that creditor was
required to prove that the debtor acted with the specific intent of harming creditor
in order to successfully challenge dischargeability in the basis of 11 U.S.C.
Section 523(a)(6)”). Mr. Dulgerian therefore offers no convincing argument to
rebut the above assessment that the Complaint states a viable cause of action
pursuant to 11 U.S.C. § 523 (a)(6).
VII. CONCLUSION
For the reasons discussed, the Court concludes that the Complaint states a
claim upon which relief may be granted in counts I and III and should not be
dismissed with regard to those counts at this early stage. The Plaintiff has pled
fraud with sufficient particularity to satisfy both the parameters of Federal Rule
9(b) and the requirements set forth by the Third Circuit, as well as to allow the
Defendant satisfactorily to answer the charges against him. In addition, the
Complaint sets forth sufficient allegations concerning its causes of action under
Case 06-00612-bif Doc 24 Filed 04/01/08 Entered 04/02/08 13:44:23 Desc Main
Document Page 17 of 20

18
sections 523(a)(2) and (a)(6) of the Code. However, because count II fails to
allege the elements necessary to state a claim under § 523(a)(4), this portion of
the Complaint will be dismissed without prejudice. Therefore, the Motion to
Dismiss Pursuant to Federal Rule of Civil Procedure 12(B)(6) is granted in part
and denied in part.
Case 06-00612-bif Doc 24 Filed 04/01/08 Entered 04/02/08 13:44:23 Desc Main
Document Page 18 of 20

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
In re : Chapter 11
GEORGE DULGERIAN, :
Debtor. : Case No. 06-10203 (JKF)
________________________________
BERNICE ANZALONE, :
Plaintiff, :
v. :
GEORGE DULGERIAN, :
Defendant. : Adversary No. 06-0612
________________________________
ORDER
This 1st day of April, 2008, for reasons discussed in the Memorandum
Opinion, Debtor George Dulgerian’s Motion to Dismiss Pursuant to Federal Rule
of Civil Procedure 12(B)(6) is denied with regard to counts I and III of the
Complaint and granted with regard to count II of the Complaint. Count II is
dismissed without prejudice.
______________________________
JEAN K. FITZSIMON
United States Bankruptcy Judge
Case 06-00612-bif Doc 24 Filed 04/01/08 Entered 04/02/08 13:44:23 Desc Main
Document Page 19 of 20

Copies to:
Vladislav Tinovsky, Esquire
Tinovsky Law Firm
1515 Market Street, Suite 810
Philadelphia, PA 19102
Garen Meguerian, Esquire
21 Industrial Boulevard, Suite 201
Paoli, PA 19301
Albert A. Ciardi, III, Esquire
Ciardi & Ciardi P.C.
Once Commerce Square
2005 Market Street, Suite 2020
Philadelphia, PA 19103
Case 06-00612-bif Doc 24 Filed 04/01/08 Entered 04/02/08 13:44:23 Desc Main
Document Page 20 of 20