630 B.R. 466
Bankr. D. Md.2021Background
- Cantwell-Cleary Co., Inc. obtained a $4,715,764.98 state-court judgment against Cleary Packaging LLC (the debtor).
- Cleary Packaging filed a Chapter 11 petition and elected Subchapter V on Feb. 7, 2021.
- Cantwell-Cleary filed an adversary complaint seeking nondischargeability under 11 U.S.C. §§ 523(a)(2) and (a)(6).
- Debtor moved to dismiss under Rule 12(b)(6), arguing § 523(a) exceptions do not apply to entity debtors in Subchapter V; parties asked the court to decide pre-confirmation.
- The court concluded § 523(a) exceptions apply only to individual debtors in Subchapter V (relying on the addition of § 1192 to § 523(a), statutory text, and legislative context) and dismissed the complaint for failure to state a claim.
- The opinion notes that if a Subchapter V debtor confirms a consensual plan under § 1191(a), § 1141(d) governs discharge and § 523(a) does not apply to the entity debtor.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether § 523(a) exceptions to discharge apply to an entity debtor in a Subchapter V case | § 1192(2) references “debts of the kind specified in § 523(a),” so § 523(a) exceptions should be available to the creditor against the Subchapter V debtor | § 523(a) speaks of an “individual debtor,” and Congress added § 1192 into § 523(a), which limits those exceptions in Subchapter V to individuals | § 523(a) exceptions do not apply to Subchapter V entity debtors; § 523(a) is confined to individual debtors in Subchapter V cases |
| Sufficiency of the adversary complaint (Rule 12(b)(6)) | Complaint pleads nondischargeability under §§ 523(a)(2) and (a)(6) based on state-court judgment | Legal insufficiency because § 523(a) is inapplicable to an entity debtor in Subchapter V | Complaint fails to state a claim and is dismissed under Rule 12(b)(6) |
Key Cases Cited
- Satellite Restaurants Inc. Crabcake Factory USA v. Gaske, 626 B.R. 871 (Bankr. D. Md. 2021) (statutory interpretation holding §523(a) exceptions limited to individuals in Subchapter V)
- Valley Historic Ltd. P’ship v. Bank of New York, 486 F.3d 831 (4th Cir. 2007) (discussing bankruptcy’s purpose to discharge or restructure debtor obligations)
- Kubota Tractor Corp. v. Strack (In re Strack), 524 F.3d 493 (4th Cir. 2008) (broad definition of dischargeable obligations)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading standard for surviving a Rule 12(b)(6) motion)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility pleading standard)
- Whitman v. American Trucking Associations, 531 U.S. 457 (2001) (statutory interpretation canon: Congress does not hide major changes in ancillary provisions)
- Dietrich Corp. v. King Resources Co., 583 F.2d 1143 (10th Cir. 1978) (historical discussion of corporate discharge in reorganization)
- In re Exide Technologies, 601 B.R. 271 (Bankr. D. Del. 2019) (discussing limits on applying §523(a) exceptions to corporate debtors)