MAGDELINE D. COLEMAN, UNITED STATES BANKRUPTCY JUDGE.
Before this Court for consideration is the Motion to Dismiss (the "Motion") filed by Michael D. Brown and Tracey M. Brown (the "Debtors"). The Debtors seek the Court's dismissal of the First Amended Complaint (the "Amended Complaint") filed by TotalFacility, Inc. (the "Plaintiff" or "TotalFacility") requesting that the Court (1) find TotalFacility's alleged claims against the Debtors nondischargeable pursuant to §§ 523(a)(2)(A), 523(a)(4) or 523(a)(6); and (2) adjudicate and liquidate
Pursuant to an Order dated March 3, 2016, this Court denied the Debtors request to dismiss Count I (nondischargeablility of debt under § 523(a)(2)(A)) of the Amended Complaint and took under advisement (1) the Debtors' request to dismiss Counts II through IX for failure to state a claim, and (2) the Debtors' request to dismiss Counts IV through IX as barred by the gist of the action doctrine. The Court furthered ordered the parties to submit briefs on the issue of its jurisdiction to address TotalFacility's state law based claims.
After a hearing on the Motion and having fully considered the parties' pleadings, the various arguments made before this Court at the hearing and the parties' post-hearing briefs, the Court will:
1. With regard to Count II (nondischargeability pursuant to § 523(a)(4)),
2. With regard to Count III (nondischargeability pursuant to § 523(a)(6)),
3. With regard to Counts IV through IX (state law based claims),
As alleged by TotalFacility, it is a Pennsylvania corporation that provides managed facility services to retail, commercial and industrial enterprises. To service its clients, TotalFacility hires contractors to
On May 11, 2012, TotalFacility initiated this adversary proceeding seeking to have its claim, premised on various state law causes of action, declared nondischargeable. TotalFacility's alleged claim consists of potential damages resulting from the Debtors' unlawful receipt of at least $750,000.00 in money, goods and services provided to the Debtors in connection with an alleged commercial bribery scheme (the "Claim").
In response, the Debtors filed a Motion to Dismiss dated December 15, 2015. In response to the Debtors' original motion to dismiss, on December 20, 2015, TotalFacility filed the Amended Complaint. Thereafter, the Debtors filed the Motion.
On January 29, 2016, TotalFacility responded to the Motion by filing an Objection dated January 29, 2016 (the "Objection")
As an initial matter, this Court must first consider whether TotalFacility's
As this Court has previously observed, this Court retains the authority to adjudicate in nondischargeability proceedings any state law causes of action that form the basis of a creditor's claim. In re Skinner, 519 B.R. 613, 618 (Bankr.E.D.Pa. 2014); In re Wezner, 470 B.R. 344, 350 n. 6 (Bankr.E.D.Pa.2012). However, this Court's authority to adjudicate TotalFacility's underlying causes of action is predicated upon TotalFacility's capacity to assert a nondischargeability cause of action against the Debtors. In re Reinford, Bky. No. 08-15120, 2011 WL 139207, *3 (Bankr.E.D.Pa. 2011) (dismissing state law causes of action after determining that the plaintiff's non-dischargeability causes of action were time barred). As this Court has determined that TotalFacility's allegations are sufficient to support a finding of nondischargeability pursuant to § 523(a)(2)(A), this Court may conclude that it may adjudicate TotalFacility's state law causes of action that form the basis of its Claim. Because TotalFacility's standing to assert its Claim is nondischargeable is dependent upon the merits of TotalFacility's underlying causes of action against the Debtors, this Court concludes that it has the authority to fully adjudicate whether TotalFacility is entitled to payment from the Debtors and in what amount.
As acknowledged by this Court at the February 9th hearing on the Motion and its subsequent Order, this Court has determined that the Amended Complaint is sufficient with regard to Count I. Therefore, this Court is left with the task of addressing the sufficiency of TotalFacility's §§ 523(4) and 523(a)(6) causes of action. Applying the standard enunciated by Iqbal, the Third Circuit explained that its courts should conduct a two-part analysis to determine whether a claim survives a Rule 12(b)(6) motion. Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir.2009). First, this Court must distinguish between the factual and legal elements of the claim. Second, this Court must determine whether based upon the facts alleged the plaintiff has a plausible claim for relief. Fowler, 578 F.3d at 210 (quoting Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1950, 173 L.Ed.2d 868 (2009)).
To prevent dismissal for reasons of factual insufficiency, "all civil complaints must now set out sufficient factual matter to show that the claim is facially plausible." Fowler, 578 F.3d at 210. As required by Rule 8(a)(2), a valid complaint must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." F.R.C.P. 8(a)(2). "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." Iqbal, 129 S.Ct. at 1949.
To determine whether a claim is facially plausible, this Court may only consider the facts alleged by the Complaint and its attachments, Jordan v. Fox, Rothschild, O'Brien & Frankel, 20 F.3d 1250, 1261 (3d Cir.1994), as well as any "undisputedly authentic document that a defendant attaches as an exhibit to a motion to dismiss if the plaintiff's claims are based on the document." Pension Benefit Guar. Corp. v. White Consol. Indus., 998 F.2d 1192, 1196 (3d Cir.1993). In identifying the facts alleged by a complaint, this Court must distinguish between (1) well-plead allegations and (2) mere conclusory allegations. With regard to the former, this Court must accept as true all well-plead allegations and construe all reasonable inferences drawn therefrom in the light most favorable to the plaintiff. Iqbal, 129 S.Ct. 1937; Morse v. Lower Merion Sch. Dist., 132 F.3d 902, 906 (3d Cir.1997); Jordan, 20 F.3d at 1261; Rogin v. Bensalem Township, 616 F.2d 680, 685 (3d Cir.1980). With regard to the latter, this Court must disregard and afford no weight to "threadbare recitals of the elements of a cause of action, supported by mere conclusory statements." Fowler, 578 F.3d at 210. As elaborated by the Supreme Court:
Iqbal, 129 S.Ct. at 1949 (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 556-57, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (internal citations omitted)).
In performing this analysis, this Court must limit its consideration to the issues identified by the party moving for dismissal. This Court must limit its consideration to the matters raised by the Debtors. Hedges v. United States, 404 F.3d 744, 750 (3d Cir.2005) ("The defendant bears the burden of showing that no claim has been presented.").
If this Court finds that the allegations supporting a claim are insufficient, this Court must next decide whether that insufficiency may be cured by the inclusion of additional pleadings. If so, this Court must permit a plaintiff to file a curative amendment. Phillips v. County of Allegheny, 515 F.3d 224, 236 (3d Cir.2008). In evaluating the possibility of curative amendment, this Court must be aware of its role as an impartial decision maker and do its best to refrain from advising a litigant as to how any defects may be cured. Pliler v. Ford, 542 U.S. 225, 231, 124 S.Ct. 2441, 159 L.Ed.2d 338 (2004) (advice "would undermine district judges' role as impartial decision makers"). However, if this Court finds that amendment would be futile, this Court may dismiss a claim with prejudice.
Pursuant to § 523(a)(4), a debt "for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny" is excepted from discharge. 11 U.S.C. § 523(a)(4). TotalFacility asserts claims under the first prong of § 523(a)(4). "Defalcation" refers to the failure to account for or the misappropriation of funds entrusted to a fiduciary. LL Lifestyle, Inc. v. Vidal (In re Vidal), Adv. No. 10-335, 2012 WL 3907847, *23-24 (Bankr.E.D.Pa. Sep. 6, 2012) ("to be acting in a fiduciary capacity for purposes of the fraud or defalcation exception to discharge, the debtor must have been entrusted with the money or property on which the debt at issue was based."); Graves v. James (In re James), 94 B.R. 350, 353 (Bankr.E.D.Pa.1988) ("Defalcation has been defined as the failure by a trustee to properly account for the funds entrusted to him.").
For purposes of § 523(a)(4), the definition of "fiduciary" is a question of federal law and the scope of persons who may be considered fiduciaries is narrower than the scope provided under state or common law. In re Vidal, Adv. No. 10-335, 2012 WL 3907847, *22 (the fact that a fiduciary relationship exists under state law does not necessitate such a finding under section 523(a)(4)"); In re Masdea, 307 B.R. 466, 472 (Bankr.W.D.Pa.2004) ("The concept of a fiduciary is narrower in a bankruptcy context than it is under the common law."); In re Zoldan, 221 B.R. 79, 87 (Bankr.S.D.N.Y.1998) ("The concept of fiduciary under Section 523(a)(4) ... is far narrower in scope than under state law.").
The majority of bankruptcy courts do not hold that a partner or other corporate officer is a fiduciary for purposes of § 523(a)(4). Villas at Bailey Springs Homeowners Ass'n v. LaRicci,
TotalFacility alleges that Mr. Brown was a fiduciary of TotalFacility as a result of his status as an officer of TotalFacility. Complaint, ¶ 49. The Complaint does not contain any allegation as to the existence of an express or technical trust. Because the Complaint fails to allege any trust-like features, such as an identifiable res, TotalFacility has failed to state a plausible a § 523(a)(4) cause of action. Moreover, TotalFacility's allegations are inconsistent with any theory that the Debtors' allegedly unlawful conduct relates to the existence of an express or technical trust. For this reason, this Court concludes that TotalFacility will not be able to cure the insufficiencies of its § 523(a)(4) cause of action through further amendment of its complaint and this cause of action must be dismissed with prejudice.
To state a claim pursuant to § 523(a)(6), the Complaint must include allegations that would establish the following elements: (1) wrongful conduct, (2) done intentionally, (3) with the knowledge substantial certainty that its conduct would produce injury, and (4) performed without just cause or excuse. The Sherwin Williams Co. v. Grasso (In re Grasso), 497 B.R. 434 (Bankr.E.D.Pa.2013); In re Vepuri, 2009 WL 2921305, at *8 (Bankr.E.D.Pa. 2009). As this Court has previously elaborated:
In re Grasso, 497 B.R. at 445.
Here, TotalFacility alleges that Mr. Brown engaged in commercial bribery. While this Court acknowledges that some courts have determined that a debt resulting from a debtor's pre-petition participation in a commercial bribery scheme may be declared nondischargeable pursuant to § 523(a)(6),
In addition to the nondischargeability causes of action pled in Counts I through III of the Complaint, the Complaint asserts several private law causes of action (Counts IV through IX) as a basis for the Debtors' liability to TotalFacility. The Debtors do not address these causes of action in seriatim. Rather, the Debtors argue the application of Pennsylvania's Gist of the Action Doctrine requires dismissal of the entirety of the non-bankruptcy causes of action. The Debtors raise no other basis for this Court to infer that TotalFacility's nonbankruptcy causes of action fail to state an actionable claim.
The Gist of the Action Doctrine bars tort claims that: (1) arise solely from a contract between the parties; (2) where the duties allegedly breached were created and grounded in the contract itself; (3) where the liability stems from a contract; or (4) where the tort essentially duplicates a breach of contract claim or the success of which is wholly dependent on the terms of the contract. eToll Inc. v. Elias/Savion Advertising Inc., 811 A.2d 10, 19 (Pa.Super.2002).
The fact that the parties may be subject to a contractual relationship is not in and of itself sufficient to establish that a plaintiff's tort claims are barred. Bruno v. Erie Ins. Co., 630 Pa. 79, 106 A.3d 48, 69 (Pa.2014) ("the mere existence of a contract between two parties does not, ipso facto, classify a claim by a contracting party for injury or loss suffered as the result of actions of the other party in performing the contract as one for breach of contract"). For tort liability to attach, a plaintiff must allege the existence of an independent, non-contractual obligation that was owed by the defendant. Walsh v. Alarm Security Group, Inc., 95 Fed.Appx. 399, 402 (3d Cir.2004) (quoting Bala Corp. v. McGlinn, 295 Pa. 74, 144 A. 823 (1929)); Duquesne Light Co. v. Westinghouse Elec. Corp., 66 F.3d 604, 618 (3d Cir.1995) (stating the doctrine "prohibits plaintiffs from recovering in tort economic losses to which their entitlement flows only from a contract"); In re Computer Personalities Systems, Inc., Bky. No. 01-14231, 2003 WL 22844863, *7 (Bankr.E.D.Pa. Nov. 18, 2003) (finding "common law fraud claim clearly stems from Stockton's alleged reckless disregard of its duty to follow a standard of care as an accountant, a duty which is collateral to the contracts between the Debtor and Stockton and therefore brings the claim outside the gist of the action doctrine."). Accordingly, if the duties breached by a defendant flow from a contract and do not exist independently in law, a plaintiff's tort claims will be barred by the Gist of the Action Doctrine. Caudill Seed and Warehouse Co., Inc. v. Prophet 21, Inc., 123 F.Supp.2d 826, 833 (E.D.Pa.2000) ("if the claim essentially alleges a breach of duties that flow from an agreement between the parties, the claim is contractual in nature, whereas if the duties allegedly breached were of a type imposed on members of society as a matter of social policy, the claim is essentially tort-based."); Bruno v. Erie Ins. Co., 630 Pa. 79, 106 A.3d 48 (2014).
Here, it is apparent that TotalFacility's various nonbankruptcy causes of action implicate a duty imposed by law and not contract, namely the duty not to engage in commercial bribery and to otherwise abstain from criminal conduct. A & L Precision Products v. Alloy Bellows & Precision Welding, Inc., Civ. No. 07-0345, 2009 WL 2959608, *7 (W.D.Pa. Sept. 14, 2009) (recognizing that allegations implicating commercial bribery are "actionable in tort and outside Pennsylvania's gist of the action bar.").
As stated above, this Court will grant the Motion in part and deny it in part. TotalFacility has failed to plead the existence of an express or technical trust. Because this Court cannot conceive of any amendment that may cure this deficiency, this Court will grant the Motion with prejudice with regard to Count II of the Amended Complaint. Similarly, TotalFacility's allegation are presently insufficient to state a cause of action within the meaning of § 523(a)(6). However, this Court cannot rule out the possibility that the absence of malice allegations may be cured by amendment. As a result, this Court will grant the Motion without prejudice with regard to Count III of the Amended Complaint. Finally, the Debtor's blanket assertion that TotalFacility's nonbankruptcy causes of action are barred by application of the Gist of the Action Doctrine is insufficient to warrant dismissal of Counts IV through IX.
An Order consistent with this Memorandum will be entered.
Yocca., 806 A.2d at 944 rev'd on other grounds, 578 Pa. 479, 854 A.2d 425 (2004); see also eToll, Inc. v. Elias/Savion Advertising, Inc., 811 A.2d 10, 14 (Pa.Super.2002) ("Tort actions lie for breaches of duties imposed by law as a matter of social policy, while contract actions lie only for breaches of duties imposed by mutual consensus agreements between particular individuals.").
18 Pa. C.S.A. § 4108(a).