640 B.R. 884
Bankr. S.D. Tex.2022Background
- Plaintiffs K.V. Chowdary, M.D. and Valley Gastroenterology Clinic, P.A. sued debtor Fatih Ozcelebi to except a >$2,000,000 state-court judgment, attorneys’ fees, and sanctions from discharge under 11 U.S.C. §§ 523(a)(2)(A), (a)(4), and (a)(6).
- Plaintiffs alleged multiple theories: stolen patient list, breach of employment agreement, fraudulent-transfer scheme (spendthrift trusts), conspiracy, abusive litigation, and a sanctions award; the Corrected Second Amended Complaint contained 11 counts.
- Defendant moved for a more definite statement under Rule 12(e) or dismissal under Rule 12(b)(6); the Court had earlier ordered a Rule 12(e) repleading of the First Amended Complaint.
- Plaintiffs responded invoking Rule 12(g)(2) to preclude Defendant’s later Rule 12(e) motion and sought limited leave to correct factual errors (employment date) in certain counts.
- The Court denied Defendant’s Rule 12(e) motion under Rule 12(g)(2), granted limited leave to amend Counts A, B, D, and H to fix date-related errors, dismissed with prejudice Counts C, E, F, I, and J for failure to state claims, and allowed Counts G and K to proceed to discovery.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Rule 12(g)(2) bars a later Rule 12(e) motion | Defendant should be allowed to seek a more definite statement | Rule 12(g)(2) precludes raising a Rule 12(e) defense after earlier Rule 12 motions that omitted it | 12(g)(2) bars Defendant’s Rule 12(e); Defendant’s 12(e) motion denied |
| Whether Plaintiffs deserve leave to amend counts with employment-date errors | Allow limited amendment to correct dates and time-proximity allegations | Opposed as substantive or meaningless edits | Limited leave granted to amend Counts A, B, D, H (and paras 9–25) to correct dates |
| Whether §523(a)(2)(A) liability can be based on post-judgment fraudulent transfers (Count C) | Fraudulent transfers to trusts make the judgment nondischargeable under Husky | The fraudulent transfers postdated the debt and did not ‘obtain’ the debt | Count C dismissed with prejudice: debt not shown to be "obtained by" the transfers |
| Whether §523(a)(4) fiduciary/embezzlement/larceny claims were pleaded adequately (Counts E, F) | Transfers and conspiracies support fiduciary breach or embezzlement/lárceny | Pleadings fail to show fiduciary status at time of transfers or unlawful taking/appropriation | Counts E and F dismissed with prejudice for failure to plead requisite fiduciary/embezzlement/larceny elements |
| Whether §523(a)(6) covers abusive litigation and sanctions (Counts G, I, J, K) | Abusive litigation, fraudulent transfers, conspiracy, and sanctions caused willful and malicious injury making judgment nondischargeable | Transfers/conspiracy occurred after debt arose and cannot have given rise to the debt; property injury not identified | Counts G (abusive litigation) and K (sanctions) survive; Counts I and J dismissed with prejudice for failing to allege debt "arising from" the conduct or identify injured property |
Key Cases Cited
- Husky Int'l Elecs., Inc. v. Ritz, 578 U.S. 355 (2016) (actual fraud can include fraudulent-transfer schemes but §523(a)(2)(A) requires the debt be “obtained by” the fraud)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading must contain sufficient factual matter to state a plausible claim)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility standard for complaints)
- Kawaauhu v. Geiger, 523 U.S. 57 (1998) (willful and malicious standard for §523(a)(6))
- Cohen v. De La Cruz, 523 U.S. 213 (1998) (interpretation of "to the extent obtained by" in dischargeability context)
- In re Tran, 151 F.3d 339 (5th Cir. 1998) (§523(a)(4) fiduciary requirement is narrow)
- Miller v. J.D. Abrams, Inc., 156 F.3d 598 (5th Cir. 1998) (elements of embezzlement for §523(a)(4))
- In re Ritz, 567 B.R. 715 (Bankr. S.D. Tex. 2017) (post-Husky analysis applying "obtained by" to fraudulent-transfer facts)
- RES-GA Diamond Meadows, LLC v. Robertson (In re Robertson), 576 B.R. 684 (Bankr. N.D. Ga. 2017) (fraudulent transfers after debt incurred do not necessarily make existing debt nondischargeable)