WILLIAM T. THURMAN, Bankruptcy Judge.
The Court has two matters before it in this adversary proceeding filed by Peggy Hunt, the Chapter 7 Trustee and Plaintiff.
The Defendant filed a voluntary chapter 7 petition on November 5, 2012, and the Trustee filed a timely complaint on June 3, 2013 seeking to deny the Defendant's discharge pursuant to 11 U.S.C. § 727(a)(2)(A) and (B); § 727(a)(3); § 727(a)(4)(A), (C), and (D); and § 727(a)(5).
The Court conducted a hearing on the Defendant's Revised Motion and Motion to Strike on March 19, 2014, at which hearing Steven T. Waterman and Jeffrey M. Armington appeared on behalf of the Plaintiff and the Defendant appeared pro se. The Court then took the matters under advisement. After carefully considering the parties' briefs and the arguments of counsel, and after conducting its own independent research of applicable law, the Court issued its ruling from the bench on April 29, 2014, making its findings of fact and conclusions of law on the record. The Court expressly reserved the right to issue a written memorandum decision memorializing and supplementing that oral ruling without changing its judgment. In accordance with that ruling, the Court now issues the following Memorandum Decision, which constitutes the Court's findings of fact and conclusions of law under Federal Rule of Civil Procedure 52, made applicable to this proceeding by Federal Rules of Bankruptcy Procedure 9014 and 7052.
The Court's jurisdiction over this adversary proceeding is properly invoked under 28 U.S.C. § 1334(b) and § 157(a) and (b). The Plaintiff's complaint seeks to deny the Defendant's discharge, making this a core proceeding under 28 U.S.C. § 157(b)(2)(J). Venue is appropriately laid in this District under 28 U.S.C. § 1409, and notice of the hearing on the Defendant's Revised Motion and Motion to Strike was properly given in all respects.
The Court will first address the Defendant's Motion to Strike, which argues that the Court should strike the Plaintiff's Memorandum in Opposition to the Revised Motion and the Plaintiff's Declaration. The Defendant's argument is that the Declaration
Federal Rule of Civil Procedure 56(c)(1), made applicable in adversary proceedings by Federal Rule of Bankruptcy Procedure 7056, requires that a "party asserting that a fact cannot be or is genuinely disputed must support the assertion by: citing to particular parts of materials in the record, including ... affidavits or declarations...."
The Defendant is correct that the Plaintiff obtained two extensions of time to file a response to the Defendant's Revised Motion, and that February 26, 2014 was the date by which the Plaintiff had to file a response. The Defendant is also correct that the Plaintiff's Memorandum in Opposition was filed on February 26, but the Declaration was not filed until the next day, on February 27.
The Plaintiff opposes the Motion to Strike, arguing that the Trustee was not available to sign the Declaration on February 26, and counsel for the Plaintiff could not ethically file the Declaration without explicit authorization.
In effect, the Plaintiff's last argument is a Rule 9006(b) argument, and the Court interprets and deems it as such. That rule provides that a court may enlarge the time for taking action prescribed by, inter alia, a court order. Because the Plaintiff's request to enlarge the time to file the Declaration comes after the expiration of the deadline to file it, the Plaintiff must file a motion to enlarge the time, show cause, and demonstrate that the failure to file the Declaration timely was the result of excusable neglect.
In that case, the Supreme Court stated that Rule 9006(b)(1) permits courts, "where appropriate, to accept late filings caused by inadvertence, mistake, or carelessness, as well as by intervening circumstances beyond the party's control."
The Court concludes here that all of the Pioneer factors are in the Plaintiff's favor. The Defendant has not been prejudiced because the Declaration was filed only one day late, which did not affect the Defendant's ability to file a timely reply to the Plaintiff's Memorandum in Opposition. In addition, the one-day delay has caused no harmful effects to the judicial proceedings. The Court concludes that the reasons for the delay, especially the Trustee's absence and the ethical obligations of the Trustee's counsel to refrain from filing the Declaration without the Trustee's authorization, were not within the reasonable control of the Plaintiff. Lastly, the Court concludes that the Plaintiff has acted in good faith. Accordingly, the one-day delay is de minimis, and has not affected this proceeding. The Court consequently finds excusable neglect.
Therefore, in accordance with the Plaintiff's request, the Court treats the Plaintiff's response to the Defendant's Motion to Strike as a motion to enlarge the time. The Court also concludes that the Plaintiff has shown cause and has demonstrated that the failure to file the Declaration by February 26, 2014 was the result of excusable neglect. The Court will therefore enlarge the time for the Plaintiff to file the Declaration to February 27, 2014. As a result, the Plaintiff's Declaration is timely filed, and the Defendant's Motion to Strike will be denied. The Court also finds that this relief accords with the Court's discretion under Rule 56(e) and the preference frequently expressed in the Tenth Circuit for resolving matters on the merits.
The Court also notes that the Defendant's reply in support of the Motion to
Even if the Court considered the language in the Defendant's reply as a Rule 12(f) motion, the Defendant's request suffers from three fatal defects. First, Rule 12(f) applies to pleadings. Rule 7(a) lists what pleadings are allowed, and declarations are not among them. "Although some cases have held that Rule 12(f) may be used to strike documents other than pleadings, the weight of recent authority is that such an action is not contemplated or permitted by the Rules."
Second, the Defendant's argument does not quite track the language and application of Rule 12(f), which permits the Court to strike any scandalous matter.
Third, the Rule 12(f) motion would fail on the merits. Such motions are generally disfavored and are typically denied unless the allegations sought to be stricken "have no possible relation to the controversy and are likely to cause prejudice to one of the parties."
The Court will now address the Defendant's Revised Motion. Because the Revised Motion is a hybrid — it seeks to dismiss the Plaintiff's complaint under Rule 12(b)(6) and seeks judgment as a matter of law under Rule 56 — the Court must analyze the complaint and the Revised Motion under the standards of both rules.
The Court will first analyze the Defendant's Revised Motion as one to dismiss the Plaintiff's complaint. Under Federal Rule of Civil Procedure 12(b)(6), made applicable in adversary proceedings by Federal Rule of Bankruptcy Procedure 7012(b), a plaintiff's complaint will avoid dismissal if it contains enough facts "to state a claim to relief that is plausible on its face."
The Tenth Circuit Court of Appeals has stated that this standard announced by Twombly and Iqbal represents "a middle ground between heightened fact pleading, which is expressly rejected, and allowing complaints that are no more than labels and conclusions or a formulaic recitation of the elements of a cause of action, which the [Supreme] Court stated will not do."
When considering a motion to dismiss brought pursuant to Rule 12(b)(6), the Court must treat all well-pleaded allegations in the complaint as true, and must view them in the light most favorable to the plaintiff.
After laying out sixty-seven paragraphs of facts, the Defendant argues that those facts show that the Plaintiff's factual allegations in the complaint are untrue. The Defendant then proceeds to argue that when the Plaintiff's "untrue facts" are eliminated from consideration, the complaint "fails to state sufficient `facts to state a claim to relief that is plausible on
The Defendant's argument misses the mark and fails to grasp the standards by which a court must abide on a motion to dismiss. As stated previously, a court considering a motion to dismiss brought under Rule 12(b)(6) must treat all well-pleaded allegations in the complaint as true. Therefore, the Plaintiff's complaint does not need to "set forth sufficient true facts" as the Defendant argues because the Court assumes the truth of the Plaintiff's factual allegations on a Rule 12(b)(6) motion.
Therefore, to the extent that the Defendant's Revised Motion seeks a blanket dismissal of the Plaintiff's complaint because it is contradicted by the Defendant's statement of facts, the Revised Motion should be denied. The Revised Motion also makes discrete arguments for dismissal with regard to each of the Plaintiff's claims for relief. The Court will now address those in turn.
The Plaintiff's first claim for relief seeks denial of discharge under § 727(a)(2)(A) and (B). Those provisions operate to deny the debtor a discharge where the debtor, with intent to hinder, delay, or defraud a creditor or an officer of the estate, transferred, removed, destroyed, mutilated, or concealed property of the debtor in the year before the petition date or property of the estate after the petition date.
The Defendant argues that the allegations in paragraphs 42 and 43 of the complaint are conclusory and, with regard to paragraph 42, that it is unsupported by any evidence.
In particular, the Plaintiff directs the Court's attention to paragraphs 35-40 of the complaint, which allege that the Defendant failed to inform the Trustee of a decision entered in a state court case in which the Defendant is a plaintiff. The decision permitted the Defendant to retrieve personal property items for which he clearly has an identifiable property interest. The Plaintiff also alleges that the Defendant engaged in settlement talks in the state court case without disclosing the state court decision or the personal property he obtained thereby. Assuming these allegations to be true, the Court concludes that the Plaintiff's complaint states a facially plausible claim for relief under § 727(a)(2)(A) and (B).
The Plaintiff's second claim for relief seeks denial of discharge pursuant to
The Defendant asserts that the only financial records he lacks are up-to-date Quickbooks data, but he argues that a failure to keep Quickbooks data is not sufficient grounds for relief under § 727(a)(3).
The Defendant overemphasizes the allegations regarding the Quickbooks data. Paragraph 21 of the complaint alleges that the Defendant testified at the § 341 meeting of creditors that "he does not maintain accounting records related to [the entities through which he practices law]." Taken as true, this and other allegations in the complaint state a facially plausible claim for relief to deny the Defendant's discharge under § 727(a)(3).
The Plaintiff's third claim for relief seeks denial of discharge under § 727(a)(4)(A), (C), and (D). At the outset, the Court notes that because one element of a § 727(a)(4) claim is fraudulent intent, the Plaintiff's complaint must meet the particularity requirements of Rule 9(b).
Section 727(a)(4)(A) provides that a debtor's discharge will be denied where he knowingly and fraudulently made a false oath or account in or in connection with the case. "A `false oath' may be either `(1) a false statement or omission in the debtor's schedules or (2) a false statement by the debtor at an examination during the course of the proceedings.'"
The Plaintiff directs the Court's attention to paragraphs 23-40 of the complaint to find factual allegations that support a § 727(a)(4)(A) claim. Those paragraphs allege non-disclosure of income with the requisite factual content for the Court to infer that the Defendant is liable for the misconduct alleged. Therefore, the Plaintiff has stated a facially plausible claim for relief under § 727(a)(4)(A) and has met the standards of Rule 9(b).
Section 727(a)(4)(C) operates to deny the debtor's discharge where the debtor knowingly and fraudulently, in or in connection with the case, gave, offered, received, or attempted to obtain money, property, or advantage (or a promise thereof) for acting or forbearing to act. This provision has been interpreted to bar discharge where a debtor has engaged in bribery or extortion in or in connection with his bankruptcy case.
The complaint does not contain an allegation of bribery or extortion, nor does it contain factual allegations supporting a plausible § 727(a)(4)(C) claim. Therefore, the Court will dismiss the Plaintiff's § 727(a)(4)(C) claim.
Under § 727(a)(4)(D), a debtor's discharge will be denied where he, knowingly and fraudulently, in or in connection with his case, withheld from an officer of the estate any recorded information relating to the debtor's property or financial affairs.
In paragraphs 18 and 19 of the complaint, the Plaintiff alleges that the Trustee requested certain recorded information from the Defendant regarding loans to the Defendant's law practice. The Plaintiff further alleges that the information the Defendant provided was, in essence, inadequate or incomplete. These allegations support a facially plausible claim under § 727(a)(4)(D) and meet the requirements of Rule 9(b).
The Plaintiff's fourth claim for relief seeks denial of discharge under § 727(a)(5). That provision operates to deny the debtor's discharge where "the debtor has failed to explain satisfactorily, before determination of denial of discharge under this paragraph, any loss of assets or deficiency of assets to meet the debtor's liabilities." The party "objecting to a debtor's discharge under § 727(a)(5) has the burden of proving facts establishing that a loss or shrinkage of assets actually occurred."
The Plaintiff's allegations regarding this claim are contained in paragraphs 26-30 of the complaint. In essence, the Plaintiff alleges that the Defendant received income from his law practice and from lawsuits in which he is a plaintiff, and the disposition of such income is presently unknown. Taken as true, this states a facially plausible claim for relief under § 727(a)(5).
In conclusion, the Defendant's Revised Motion, taken as one for dismissal under Rule 12(b)(6), should be denied except as regards the Plaintiff's § 727(a)(4)(C) claim.
The Court will next consider the Defendant's Revised Motion as one for summary judgment. Under Federal Rule of Civil Procedure 56(a), made applicable in adversary proceedings by Federal Rule of Bankruptcy Procedure 7056, the Court is required to "grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law."
The moving party bears the burden to show that it is entitled to summary judgment,
When considering a motion for summary judgment, the Court views the record in the light most favorable to the nonmoving party,
While the Defendant's Revised Motion is captioned as one for summary judgment, it fails to argue any of the standards applicable under Rule 56. Instead, it goes through each of the Plaintiff's claims for relief and argues that they do not meet the standards of Twombly and Iqbal — in other words, the Plaintiff's claims do not meet the pleading standards of the Federal Rules of Civil Procedure. Because the Defendant fails to make a summary judgment argument, the Court will deny the Revised Motion as one for summary judgment on that basis alone.
The Court will additionally deny the Revised Motion as one for summary judgment because it asks this Court to find, by a Rule 56 analysis, that the Defendant's "sworn statements of fact" show that the Plaintiff's factual allegations in the complaint are "all untrue."
In addition, contrary to the Defendant's assertions, his "sworn statements of fact," far from showing that the Plaintiff's facts are untrue, create genuine disputes of material fact that preclude the entry of summary judgment on the Plaintiff's claims. This is particularly true when the Defendant's sworn statements are viewed in conjunction with the Plaintiff's responses to those statements in the Plaintiff's Memorandum in Opposition.
Therefore, the Defendant's Revised Motion, taken as one for summary judgment under Rule 56, should be denied.
In conclusion, the Court will deny the Defendant's Motion to Strike. The Court will grant the Defendant's Revised Motion in part and will deny it in part. In particular, the Court will grant the Revised Motion as regards the Plaintiff's § 727(a)(4)(C) claim, which should be dismissed. The Court will deny the Revised Motion on all other grounds, including the Defendant's request for fees and costs.
A separate Order and Judgment will be issued in accordance with this Memorandum Decision.