526 B.R. 246
Bankr. N.D. Ohio2015Background
- Debtor Mohammad W. Aseireh and his wife filed Chapter 7 on Sept. 26, 2014; Burton Food Services filed an adversary complaint on Dec. 29, 2014 seeking (1) nondischargeability of a debt under 11 U.S.C. § 523(a)(2)(A), (a)(4), and (a)(6), and (2) denial of discharge under § 727(a)(3), (a)(4), and (a)(5).
- Dispute arises from operation of a restaurant under a lease/agreement in which debtor allegedly agreed to pay sales and payroll taxes and other expenses but failed to do so.
- Burton Food alleges debtor never intended to pay those taxes/expenses, causing losses of $76,118.99, and that debtor received $45,385 in 2013 management fees he did not report on tax returns or bankruptcy schedules.
- Debtor moved to dismiss under Fed. R. Civ. P. 12(b)(6), arguing fraud allegations trigger the heightened pleading standard of Rule 9(b) and that Burton Food failed to plead fraud with particularity.
- Burton Food conceded it failed to state a claim under § 523(a)(4) and consented to dismissal of that claim; it argued Rule 9(b) does not apply to its § 523(a)(2)(A), § 523(a)(6), § 727(a)(3), or § 727(a)(5) allegations, and that its § 727(a)(4) allegation meets 9(b).
- Court evaluated which claims require Rule 9(b) particularity (claims alleging actual fraud) and which survive under the Rule 8 plausibility standard, then granted dismissal as to § 523(a)(4) and denied dismissal as to the remaining claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Rule 9(b) applies to plaintiff's nondischargeability fraud claims | Burton Food: § 523(a)(2)(A) and § 523(a)(6) allege false pretenses/representations or willful injury, not "actual fraud," so Rule 8 governs | Aseireh: fraud allegations invoke Rule 9(b); Burton Food failed to plead fraud with particularity | Court: Rule 9(b) applies only to allegations of actual fraud; § 523(a)(4) and § 727(a)(4) require 9(b), other claims governed by Rule 8 |
| Sufficiency of § 523(a)(2)(A) allegations (false pretenses/representations) | Burton Food: alleged debtor agreed to pay taxes/expenses while intending not to, Burton relied, suffered $76,118.99 loss | Aseireh: attacks pleading sufficiency under heightened standard | Court: Under Rule 8 plausibility, factual allegations suffice to state a claim under § 523(a)(2)(A) |
| Sufficiency of § 523(a)(6) allegations (willful and malicious injury) | Burton Food: debtor willfully entered agreement without intent to pay, causing loss | Aseireh: challenges adequacy of pleading | Court: Allegations plausible under Rule 8; § 523(a)(6) claim survives |
| Sufficiency of § 727(a)(3), (a)(4), (a)(5) denial-of-discharge allegations | Burton Food: debtor failed to keep records, made false oath by omitting $45,385 management fee, and failed to explain loss of assets | Aseireh: contends insufficient particulars for fraud-based § 727(a)(4) | Court: § 727(a)(4) (fraudulent false oath) must meet Rule 9(b) but Burton Food’s pleading met the particularity elements; § 727(a)(3) and (a)(5) plausible under Rule 8 and survive |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (plausibility standard for pleadings)
- Ashcroft v. Iqbal, 556 U.S. 662 (context-specific plausibility and evaluating legal conclusions)
- Republic Bank & Trust Co. v. Bear Stearns & Co., 683 F.3d 239 (Rule 9(b) particularity elements)
- Ind. State Dist. Council of Laborers & Hod Carriers Pension & Welfare Fund v. Omnicare, 583 F.3d 935 (Rule 9(b) pleading requirements)
- Sanderson v. HCA-The Healthcare Co., 447 F.3d 873 (harmonizing Rules 8 and 9)
- NM Holdings Co. v. Deloitte & Touche LLP, 622 F.3d 613 (complaint must plead more than formulaic recitation of elements)
- Rondigo, L.L.C. v. Township of Richmond, 641 F.3d 673 (courts need not accept legal conclusions as true)
- Albrecht v. Treon, 617 F.3d 890 (pleading standards under Iqbal/Twombly)