JENNIE D. LATTA, Bankruptcy Judge.
BEFORE THE COURT is the motion of Plaintiff/Counter-Defendant Joseph B. Sharp, II, [Adv. Proc. Dkt. No. 16] to dismiss the Counterclaim [Adv. Proc. Dkt. No. 6, p. 3] raised by Defendant/Counter-Plaintiff Amy Deevers Long ("Long") pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted and Federal Rule of Civil Procedure 9(b) for failure to plead fraud or misrepresentation with particularity.
This adversary proceeding was commenced on August 15, 2018, with a Complaint to Determine Discharge of Marital Debt in which Sharp seeks a declaration that "certain debts" Sharp was compelled to pay pursuant to a Marital Dissolution Agreement and Final Decree of Divorce (the "MDA") are dischargeable pursuant to 11 U.S.C. §§ 523(a)(15) and 1328(a). The Counterclaim filed by Long on December 3, 2018, asks, among other things, that the obligations of Sharp under the MDA be excepted from discharge pursuant 11 U.S.C. §§ 523(a)(2)(A) and 523(a)(6).
Jurisdiction over a contested matter arising under the Bankruptcy Code lies with the district court. 28 U.S.C. § 1334(b). Pursuant to authority granted to the district courts at 28 U.S.C. § 157(a), the district court for the Western District of Tennessee has referred to the bankruptcy judges of this district all cases arising under Title 11 and all proceedings arising under Title 11 or arising in or related to a case under Title 11. In re Jurisdiction and Proceedings Under the Bankruptcy Amendments Act of 1984, Misc. No. 81-30 (W.D. Tenn. July 10, 1984). Determinations of the dischargeability of particular debts are core proceedings arising under the Bankruptcy Code. See 28 U.S.C. § 157(b)(2)(I). The bankruptcy court has authority to enter an order determining the dischargeability of particular debts subject only to appellate review. 28 U.S.C. § 157(b)(1).
Sharp and Long were married in 1990 and divorced in 2011. Pursuant to the MDA entered into between them, Sharp agreed to indemnify and hold Long harmless from certain debts including personal lines of credit and debts secured by assets retained by Sharp. In addition, the parties were partners in certain business ventures, and the MDA made provision for the division of those interests. The MDA made separate provision for child support and for a nominal amount of alimony in futuro until the earlier of Long's death, remarriage, or receipt of sale proceeds for her interest in Indigo, LLC, and Indigo LR, LLC, two of the parties' business ventures.
Sharp filed a voluntary petition for relief under Chapter 13 of the Bankruptcy Code on June 19, 2012, a little more than a year after the divorce was final. His Chapter 13 plan was confirmed more than a year after that, on September 16, 2013. The confirmed plan provides for the priority claim of Long to be paid outside the plan. See Bankr. Dkt. No. 68. Long did not file a proof of claim. See Claims Register. Nearing the completion of his plan, Sharp filed this adversary complaint asking for a determination that debts created by the MDA that are not domestic support obligations ("DSO"s) are dischargeable pursuant to 11 U.S.C. § 1328(a).
Long filed her Answer and Counterclaim on December 3, 2018. Adv. Proc. Dkt. No. 6. The Counterclaim asks for (1) an accounting; (2) a declaratory judgment concerning continuing payments from Indigo, LLC; (3) a charging order, equitable lien, or constructive trust regarding 10% interest in Indigo, LLC; (4) a charging order, equitable lien, or constructive trust regarding Sharp's interest in various other assets; (5) a declaration of nondischargeability regarding Sharp's obligations under the MDA based on fraud, misrepresentation, and bad faith; and (6) a denial of exemptions for interests in Indigo, LLC, and Indigo LR, LLC, and denial of confirmation.
Sharp filed his Motion to Dismiss on February 6, 2019. Adv. Proc. Dkt. No. 16. It focuses solely on the allegations of paragraph 14 of the Counterclaim which is part of the fifth request for relief that asks for a declaration of nondischargeability as to the non-DSO marital debts. Paragraph 14 provides in its entirety:
Counterclaim, Adv. Proc. Dkt. No. 6.
Long filed a Response to the Motion to Dismiss on March 7, 2019. Adv. Proc. Dkt. No. 22. In support of her Response, Long attached a Federal Income Tax Summary for Sharp from 2012 and a financial statement provided by Sharp to Cadence Bank that is undated, but appears to provide financial information for the year 2010.
Sharp has not filed a reply.
Sharp argues that Long's claim that Sharp's non-DSO marital debts should be excepted from discharge must be dismissed under Federal Rule of Civil Procedure 12(b)(6) or Federal Rule of Civil Procedure 9(b). Each of his arguments will be considered in turn.
The Supreme Court has made clear that in order to survive a motion to dismiss under Rule 12(b)(6):
Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 1949 (2009). Long has stated two claims that Sharp challenges. The first is a claim under section 523(a)(2)(A) of the Bankruptcy Code, which provides an exception to discharge for any debt
In a Chapter 13 case, such debts are excepted from discharge pursuant to section 1328(a) but only if a complaint to determine the dischargeability of the debt is filed no later than 60 days after the first date set for the meeting of creditors under section 341(a). 11 U.S.C. § 523(c); Fed. R. Bankr. P. 4007(c). The court may extend this period for cause, but only upon motion of a party in interest filed before the time has expired. Fed. R. Bankr. P. 4007(c). Enlargement outside of that period is prohibited by rule (Fed. R. Bankr. P. 9006(b)(3)) but the court of appeals has determined that the deadline is not jurisdictional. Rather, it is subject to "generally accepted defenses of waiver, estoppel, and equitable tolling." Nardei v. Maughan (In re Maughan), 340 F.3d 337, 344 (6th Cir. 2003).
Long did not timely file a complaint pursuant to section 523(c).
Long does not argue that she failed to receive notice of the deadline to file complaints. Rather, she says that she did not know that Sharp would seek to discharge his obligations under the MDA. This argument must fail because the filing of a petition in bankruptcy by an individual is, except in highly unusual circumstances, a request for discharge, and non-DSO marital debts are subject to discharge in Chapter 13. See 11 U.S.C. §§ 523(a)(15) and 1328(a). The first two of the Maughan factors weigh against equitable tolling.
The third Maughan factor is diligence. Long waited six years after the deadline to file a complaint to raise her request for relief and then only in response to Sharp's Complaint. Long apparently argues that it was only the filing of the Complaint that informed her that Sharp would seek to discharge his non-DSO marital debts, and by implication, that she responded diligently when she received the Complaint. Non-DSO marital debts have been subject to discharge in Chapter 13 since the 2005 amendments to the Bankruptcy Code. Long does not claim that she was ignorant of this fact. If she was confused about the meaning of the notice she received from the Bankruptcy Court Clerk, she should have consulted an attorney. If she had, she would have been informed of the dischargeability of non-DSO marital debts in Chapter 13 and of the need to file a timely complaint if she sought to prevent discharge of those debts under another theory. Long apparently did not do this, and the court can only conclude that Long did not diligently pursue her rights. The third Maughan factor weighs against equitable tolling.
The fourth Maughan factor is absence of prejudice to the defendant. Long did not address this factor, but Sharp is nearing completion of his Chapter 13 plan, which was proposed and confirmed under the premise that his non-DSO marital debts are subject to discharge. To permit Long to litigate the question of discharge under section 523(a)(2)(A) now, near the end of the plan, would be highly prejudicial to Sharp. The fourth Maughan factor weighs against equitable tolling.
The fifth Maughan factor is the plaintiff's reasonableness in remaining ignorant of the notice requirement. This last factor is a bit confusing insofar as it speaks of a "notice requirement." The Maughan court relied for its factors on Andrews v. Orr, 851 F.2d 146 (6th Cir. 1988), an employment discrimination case, which in turn looked to earlier cases for its factors. Those cases depended upon statutes or regulations that require notice to be given before a complaint is filed. In this context, the "notice requirement" makes sense. There is no similar notice requirement in section 523(c) of the Bankruptcy Code. For this reason, the court need not consider the fifth Maughan factor.
Having reviewed each of the Maughan factors, the court concludes that equitable tolling should not be applied in this case to permit Long to seek a declaration of nondischargeability as to the non-DSO marital debts under section 523(a)(2)(A). When no other exception applies, non-DSO marital debts are subject to discharge in Chapter 13. See 11 U.S.C. §§ 523(a)(15) and 1328(a). DSOs consisting of child support and alimony in futuro were specifically provided for in the parties' MDA. This does not, however, foreclose the possibility that other debts created by the MDA were in the nature of alimony, maintenance, or support, and thus DSOs excepted from discharge pursuant to section 523(a)(5) of the Bankruptcy Code. There is no time limit for filing complaints to determine the dischargeability of debts under section 523(a)(5). See 11 U.S.C. § 523(c)(1); Fed. R. Bankr. P. 4007(b) ("A complaint other than under § 523(c) may be filed at any time."). The court expresses no opinion about the outcome of such a claim should it be made in this case.
Long's second claim is made under section 523(a)(6) of the Bankruptcy Code. That section excepts from discharge debts "for willful and malicious injury by the debtor, to another entity or to the property of another entity." 11 U.S.C. § 523(a)(6). In Chapter 13, however, section 523(a)(6) debts are dischargeable. See 11 U.S.C. § 1328(a). In Chapter 13, in place of the section 523(a)(6) exception, a separate exception to discharge was created "for restitution, or damages, awarded in a civil action against the debtor as a result of willful or malicious injury by the debtor that caused personal injury to an individual or the death of an individual." 11 U.S.C. § 1328(a)(4). This exception does not apply to injuries to property, however. It only excepts debts for willful or malicious injuries to individuals. The only potential injuries complained about by Long are financial injuries. They are not excepted from discharge in Chapter 13.
Sharp's motion to dismiss for failure to state a claim under sections 523(a)(2)(A) and 523(a)(6) should be granted.
Sharp's second argument for dismissal of Long's claim for nondischargeability based upon fraud, misrepresentation, and bad faith is that it was not pled with the particularity required by Federal Rule of Civil Procedure 9(b). That rule provides:
Because the court has determined that Long's claim for exception to discharge based on section 523(a)(2)(A) was not timely filed, it need not address this additional argument.
For the foregoing reasons, the Motion to Dismiss is
