ERIC L. FRANK, Chief Judge.
Murat K. Aslansan, the defendant herein (hereafter "the Debtor"), filed this chapter 13 bankruptcy case on March 27, 2012. Plaintiff Commercial Properties, LLC ("the Plaintiff") filed a complaint ("the
Before me is the Debtor's Motion to Dismiss the Complaint ("the Motion"), which was filed on February 17, 2013. The Debtor asserts that the bankruptcy court lacks subject matter jurisdiction and that the Complaint fails to state a claim upon which relief may be granted. The Plaintiff responded to the Motion on March 4, 2013.
For the reasons set forth below, the Motion will be granted with respect to the State Law Claims and denied with respect to the § 523(a)(3) claim.
In the Complaint, the Plaintiff alleges the following:
The Debtor is an individual and resident of Philadelphia, Pennsylvania. The Plaintiff is a Massachusetts limited liability company. (Compl. ¶¶ 2-3).
On July 26, 2005, the Debtor entered into a loan transaction ("the Mortgage Loan") with the Plaintiff as evidenced by a note and mortgage encumbering the property located at One Brock's Court, Nantucket, Massachusetts ("the Property"). (Id. ¶¶ 7-8). Pursuant to the terms of the Mortgage Loan, the Plaintiff advanced $200,000.00 to the Debtor, repayable at an interest rate of 22%. (Id. ¶ 9-10). In accordance with Massachusetts law, the Plaintiff notified the Usury Division of the Office of Attorney General of the Commonwealth of Massachusetts of its intent to enter into the loan transaction with a 22% interest rate, see 49 M.G.L.A. c. 271, § 49(d). (Comp. ¶ 11).
On March 3, 2006, following a restructuring of the Mortgage Loan, the Plaintiff filed a discharge and release of the original July 2005 mortgage and a new, "updated" mortgage on the Property ("the Updated Mortgage") with the county registry of deeds. (Id. ¶¶ 12-16). By September 2007, the Debtor defaulted on his obligations under the Mortgage Loan. (Id. ¶ 17).
In January 2008, the Debtor caused a forged discharge and release of the Updated Mortgage ("the Forged Discharge of Mortgage") to be recorded. (Id. ¶¶ 21-27). The Forged Discharge of Mortgage falsely states that the Plaintiff was paid in full on the debt secured by the Updated Mortgage. (Id. ¶ 23). The Debtor also entered into a loan transaction with Indymac Mortgage Services that resulted in the recordation of a mortgage on the Property in favor of Indymac securing a debt in the amount of $1,690,000.00. (Id. ¶¶ 22, 27). Resultantly, the Plaintiff's mortgage was wrongfully dissolved and the Plaintiff was wrongfully deprived of its collateral. (Id. ¶ 27).
On July 7, 2010, the Debtor filed a chapter 7 bankruptcy case in this court ("the Chapter 7 Case"). The Debtor failed to give notice to the Plaintiff of the Chapter 7 Case and the Plaintiff was unaware of the case. (Id. ¶¶ 32-34).
The Debtor received a chapter 7 discharge on July 23, 2010. The Debtor has stipulated that he is not entitled to a discharge in the present, chapter 13 case. See 11 U.S.C. § 1328(f)(1).
The purpose of a motion to dismiss a case under Fed.R.Civ.P. 12(b)(6) (incorporated by Fed. R. Bankr.P. 7012) is to test the legal sufficiency of the factual allegations of a complaint, see Kost v. Kozakiewicz, 1 F.3d 176, 183 (3d Cir.1993), and to determine whether a plaintiff is "entitled to offer evidence to support the claims," Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 563 n. 8, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (quoting Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974)).
In deciding a Rule 12(b)(6) motion, the court is required to accept as true all allegations in the complaint and all reasonable inferences that can be drawn therefrom, viewing them in the light most favorable to the plaintiff, but is not bound by mere speculation or legal conclusions couched as factual allegations. The court may consider the allegations in the complaint, exhibits attached to the complaint and matters of public record, undisputedly authentic documents (where the plaintiff's claims are based on the documents and the defendant has attached a copy of the document to the motion to dismiss). The court must determine whether the alleged facts demonstrate that the plaintiff has a "plausible" claim for relief in which the facts set forth in the complaint allow the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. In evaluating the facts alleged and the plausibility of the claim for relief, the court accepts only the well-pleaded facts as true and may disregard any legal conclusions. The court conducts a context-specific evaluation of the complaint, drawing from its judicial experience and common sense. See, e.g., Fowler v. UPMC Shadyside, 578 F.3d 203, 209-10 (3d Cir.2009);
In the Motion, the Debtor contends that: (1) the court lacks subject matter jurisdiction over this adversary proceeding, see Fed.R.Civ.P. 12(b)(1); and (2) the Complaint fails to state a claim upon which relief can granted, see Fed.R.Civ.P. 12(b)(6).
As explained below, I conclude that: (1) the court lacks jurisdiction over the State Law Claims; (2) the court has jurisdiction over the § 523(a)(3) claim; and (3) the Complaint states a cause of action under § 523(a)(3).
In filing a complaint setting forth traditional state law causes of action and a request for a money judgment in a chapter 13 bankruptcy case, the Plaintiff misunderstands the bankruptcy process and the limited jurisdiction of this court. In chapter 13 cases, creditors do not file complaints against debtors seeking money judgments based on pre-petition claims;
In re Reinford, 2011 WL 139207, at *3 (Bankr.E.D.Pa. Jan. 11, 2011).
In this chapter 13 case, the only proper functions of the bankruptcy court (other than determining dischargeability issues) are to determine whether the Plaintiff's claim against the bankruptcy estate should be allowed
The State Law Claims are cognizable in this bankruptcy case only insofar as they form the underlying basis for the Plaintiff's proof of claim (and the § 523(a)(3) nondischargeability claim to be discussed further below). Standing alone, as legal actions requesting the entry of money judgments on state law claims, the State Law Claims are unrelated to the bankruptcy case and this court lacks authority to consider them.
It is not clear exactly why the Debtor contends that this court lacks subject matter jurisdiction over the Fifth Count, the Plaintiff's nondischargeability claim under 11 U.S.C. § 523(a)(3). However, it does not matter. It is clear that this court has jurisdiction.
A nondischargeability proceeding "arises in" a bankruptcy case and is a core matter. See 28 U.S.C. § 1334(b); 28 U.S.C. § 157(b)(2)(I); Stoe v. Flaherty, 436 F.3d 209, 218 (3d Cir.2006). Further, in the present circumstances, the nondischargeability determination sought by the Plaintiff not only is a core aspect of the prior Chapter 7 Case, but, if not a core proceeding in the chapter 13 case,
For these reasons, no serious issue exists regarding this court's subject matter jurisdiction over the Plaintiff's § 523(a)(3) claim.
The Debtor offers four (4) arguments in support of its Rule 12(b)(6) argument:
There is no dispute that the Debtor received a chapter 7 discharge and that the Plaintiff did not seek a determination of nondischargeability in the prior case. With the expiration of the deadline for seeking a nondischargeability determination in the Chapter 7 Case under 11 U.S.C. § 523(a)(2), (4) and (6), the Plaintiff cannot resurrect a time-barred nondischargeability claim by asserting the claim in this subsequent bankruptcy case. See Fed. R. Bankr.P. 4007(c). If the Plaintiff's underlying claim was discharged in the Chapter 7 Case, the Debtor might be correct that the Complaint fails to state a claim. See generally In re August, 448 B.R. 331, 346-47 (Bankr.E.D.Pa.2011) (for a debt to be nondischargeable under 11 U.S.C. § 523(a), the plaintiff must establish that the debt itself is valid as well as satisfying all of the requirements of one of the subsections of § 523(a)). However, in the Complaint, the Plaintiff addresses the prior discharge issue head-on and has pleaded facts that support a nondischargeability determination under § 523(a)(3)(B).
The Plaintiff asserts that the debt was not discharged in the Chapter 7 Case because: (a) it had no notice of the prior case, and (b) its claim is of a kind specified in § 523(a)(2), (4) or (6). These allegations state a claim under § 523(a)(3)
The Debtor contends, nonetheless, that the Complaint fails to state a claim under § 523(a)(3) and makes two (2) arguments in support of dismissal based on the prior discharge.
First, the Debtor cites Judd v. Wolfe, 78 F.3d 110 (3d Cir.1996) for the proposition that a debtor is entitled to receive a full discharge "even when a debt was unlisted." (Debtor's Memorandum at 4) (unpaginated). The Debtor misreads Judd, which held only that an unlisted debt is discharged, even without the necessity of reopening a bankruptcy case to add the debt to the debtor's schedules, provided that the debt was not of a type referenced in subsections (A) or (B) of § 523(a)(3). Thus, Judd is inapposite.
Second, the Debtor contends that § 523(a)(3) is inapplicable because the Plaintiff, a limited liability company, was "dissolved" before and during the Chapter 7 Case: "Since the plaintiff did not legally exist during the Chapter 7 [C]ase, they [sic] cannot now complain that they did not receive notice of the case." (Debtor's Mem. at 5-6) (unpaginated). As evidentiary support for this argument, the Debtor attached a document to his Memorandum that appears to be a computer printout of a "docket" of the Corporation Division of the Commonwealth of Massachusetts that references a "Dissolution by Court Order or by the SOC" dated April 30, 2009.
Therefore, the dissolution does not establish the Debtor's entitlement to judgment in his favor as a matter of law.
Fed.R.Civ.P. 9(b), incorporated by Fed. R. Bankr.P. 7009, requires that "[i]n alleging fraud ... a party must state with particularity the circumstances constituting fraud or mistake." The Debtor acknowledges that in Paragraph 21 of the Complaint, the Plaintiff alleges that the Debtor forged a document that resulted in the satisfaction of the Updated Mortgage, but complains that the Complaint falls short of the requirements of Rule 9 because the Complaint includes "no further information" or "supporting facts" to support this allegation. (Debtor's Mem. at 7-8) (unpaginated). In making this argument, the Debtor fails to appreciate the distinction between the pleading and trial stages of the case.
The principles governing the application of the requirement under Rule 9(b) that fraud be pleaded "with particularity" have been summarized by my colleague, Judge Fox, as follows:
E.g., In re Reading Broadcasting, 390 B.R. 532, 549-50 (Bankr.E.D.Pa.2008) (citing, inter alia, Seville Industrial Machinery Corp. v. Southmost Machinery Corp., 742 F.2d 786, 791 (3d Cir.1984)); accord In re Jamuna Real Estate, LLC, 2010 WL
In this adversary proceeding, the allegations of fraud in the Complaint satisfy Rule 9.
This is not a complaint composed of conclusory allegations that the defendant acted fraudulently and that the conduct harmed the plaintiff. The Complaint sets forth, with some precision, the circumstances that the Plaintiff contends constituted fraud. The Complaint describes a scheme in which the Debtor forged a mortgage satisfaction document that falsely represented that his debt to the Plaintiff had been paid and then obtained a new loan from a new lender by encumbering the Plaintiff's collateral. In short, the Complaint sets out when, where and how the fraud occurred and specifically alleges that the Debtor participated in the scheme. Whether the Plaintiff can prove these allegations remains to be seen, but the Complaint undoubtedly describes the nature of the fraudulent scheme at issue and the role the Debtor played in sufficient detail to warrant imposing upon the Debtor the obligation to respond.
Next, the Debtor argues that the Complaint should be dismissed because the statute of limitations has expired.
The statute of limitations is not listed among the defenses that may be raised in a motion to dismiss. Thus, "[t]echnically, the Federal Rules of Civil Procedure require that affirmative defenses be pleaded in the answer." Robinson v. Johnson, 313 F.3d 128, 135 (3d Cir.2002). However, in this Circuit, it is permissible to raise a limitations defense by motion under Rule 12(b)(6), if the limitations bar is apparent on the face of the complaint. Id.; accord Brawner v. Education Management Corp., 2013 WL 518588, at *1 n. 1 (3d Cir. Feb. 13, 2013).
In support of the Motion, the Debtor points out that no payments on this debt have been made in over five (5) years and that the alleged fraudulent conduct described in the Complaint occurred more than four (4) years ago. Without further explanation, the Debtor assumes that these facts make out his defense.
For a number of reasons, the Debtor's argument is without merit.
Initially, the Debtor fails to distinguish between two (2) distinct nondischargeability claims that may be at issue in this proceeding. The Plaintiff has a breach of contract claim against the Debtor based on the Debtor's failure to pay the underlying loan note. The Plaintiff also may have a claim for a tort: a fraud claim arising from the Debtor's alleged conduct (filing a forged mortgage satisfaction) that injured the Plaintiff's property rights, i.e., its mortgage position on the Property. These distinct claims may have different statutes of limitations under applicable nonbankruptcy law.
The Debtor has neither fleshed out his statute of limitations defense nor taken the trouble to cite the limitations statute that he contends warrants dismissal of the Complaint. He seems to believe that the statute of limitations commenced more than four (4) years ago when the alleged fraud occurred or perhaps more than (5) years ago when the payments ceased and the loan went into default.
Regardless whether the focus is on the limitations period governing the loan note or the Debtor's alleged filing of a forged mortgage release, dismissal of the Complaint is not appropriate.
The statute of limitations for breach of contract under Massachusetts law is either six (6) years or twenty (20) years. See M.G.L.A. c. 260 § 2 (six (6) year limitations period for breach of contract); M.G.L.A. c. 260 § 1 (twenty (20) year limitations period for breach of "promissory notes signed in the presence of an attesting witness").
As for the Plaintiff's fraud claim and the more than four (4) year period since the alleged fraud occurred,
Given the applicability of the discovery rule, it is not possible to determine from the face of the Complaint that the Plaintiff's fraud claim expired before the commencement of this bankruptcy case. Consequently, if the Debtor wishes to pursue this defense, it must be raised in his Answer to the Complaint.
Finally, the Debtor contends that the Complaint should be dismissed because the underlying transaction was usurious and unenforceable. The Debtor cites the Massachusetts criminal usury statute, M.G.L. c. 271 § 49, which provides, in pertinent part:
(emphasis added).
In making this argument, the Debtor again supplements the Complaint by attaching various documents to the Motion. The documents are intended to demonstrate that before making the loan to the Debtor with an interest rate in excess of twenty percent (20%) on July 26, 2005, the Plaintiff failed to invoke the "safe harbor" provision in § 49(d). Therefore, according to the Debtor, the loan is "voidable."
A loan that runs afoul of M.G.L. c. 271 § 49 is not void ab initio. Potentially, it is voidable, but it also may be subject to nothing more than reformation by a court of competent jurisdiction. See Balerna v. Gilberti, 281 F.R.D. 63, 70 n. 8 (D.Mass. 2012); LBM Financial, LLC v. Edgewater Investment Limited Partnership, 2004 WL 2075565, at *4 (Mass.Super.Ct. Aug. 5, 2004); Burnside Holdings, Inc. v. Keystone Associates L.P., 2000 WL 33943426, at *7 (Mass.Super.Ct. Dec. 13, 2000); see also Begelfer v. Najarian, 381 Mass. 177, 409 N.E.2d 167, 174-75 (1980) ("there is no apparent legislative intent that a loan in violation of s 49(a) must be declared void in the absence of circumstances and conditions which would cause the integrity of the loan itself to be questionable") (internal quotations and citation omitted).
Based on Massachusetts law, it is not possible to conclude as matter of law, based merely on the potential applicability of M.G.L. c. 271 § 49, that no debt exists, making it unnecessary presently to consider the Plaintiff's claims for nondischargeability. At a minimum, if § 49(c) should be applied in this case to void the underlying loan entirely (and assuming the bankruptcy court is the proper court to take that action), that judicial action requires a full record and cannot occur at the pleading stage. As the Massachusetts Supreme Judicial Court has directed,
Begelfer, 409 N.E.2d at 175.
In short, whatever the precise impact, if any, that M.G.L. 271 § 49 may have on the Plaintiff's right to enforce its loan note, it does not provide a basis for dismissal of the Complaint. At this stage of the proceeding, there is, at a minimum a genuine issue of material fact regarding the Debtor's entitlement to relief (i.e., his entitlement to a judicial voiding of the loan). Pursuant to Fed.R.Civ.P. 56, the dispute is sufficient to require denial of the Motion. See n.3, supra.
For the reasons set forth above, the Motion will be denied and the Debtor directed to file an Answer to the Complaint.
1. The Motion is
2. The First, Second, Third and Fourth Counts of the Complaint are
3. The Motion is
4. The Defendant shall file an Answer to the Complaint
Under Rule 56, a moving party is entitled to summary judgment by demonstrating that "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a); see, e.g., Liberty Lincoln-Mercury, Inc. v. Ford Motor Co., 676 F.3d 318, 323 (3d Cir.2012). "[I]t is inappropriate to grant summary judgment in favor of a moving party who bears the burden of proof at trial unless a reasonable juror would be compelled to find its way on the facts needed to rule in its favor on the law." United States v. Donovan, 661 F.3d 174, 185 (3d Cir.2011) (quoting El v. Se. Pa. Transp. Auth., 479 F.3d 232, 238 (3d Cir. 2007)). If the moving party meets its initial burden, the responding party may not rest on the pleadings, but must designate specific factual averments through the use of affidavits or other permissible evidentiary material which demonstrate a genuine issue of material fact to be resolved at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-50, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).
The court's role is not to weigh the evidence, but to determine whether there is a disputed, material fact for resolution at trial. Anderson, 477 U.S. at 249, 106 S.Ct. 2505. A genuine issue of material fact is one in which the evidence is such that a reasonable fact finder could return a verdict for the non-moving party. Id. at 248. 106 S.Ct. 2505. The court must view the underlying facts and make all reasonable inferences therefrom in the light most favorable to the party opposing the motion. Wright v. Corning, 679 F.3d 101, 105 (3d Cir.2012); Pennsylvania Coal Ass'n v. Babbitt, 63 F.3d 231, 236 (3d Cir.1995). Thus, if it appears that the evidence "is so one-sided that one party must prevail as a matter of law," the court shall enter judgment accordingly in that party's favor. Anderson, 477 U.S. at 252, 106 S.Ct. 2505.
Notwithstanding, this aspect of the Motion, which is being treated as on for summary judgment, will be denied as a matter of law.
