584 B.R. 795
Bankr. N.D. Ga.2018Background
- Chris Eden (Plaintiff) filed an adversary complaint objecting to Rhonda T. Eden's (Defendant/debtor) discharge and the dischargeability of certain debts, asserting six counts under §§ 727 and 523.
- Plaintiff alleges Defendant, a former business partner/ spouse, skimmed funds from two entities they jointly controlled and misrepresented ownership interests (e.g., admitted 50% ownership at the § 341 meeting but schedules list 100%).
- Defendant moved to dismiss for insufficient service of process and for failure to state a claim under Rules 12(b)(5) and 12(b)(6) (via Fed. R. Bankr. P. 7012).
- The court found service was not technically proper because Plaintiff did not serve debtor’s counsel as required, but Defendant had actual notice and responded; the court declined dismissal and granted time to perfect service.
- On the merits, the court applied Twombly/Iqbal plausibility and Rule 9(b) heightened pleading where fraud is alleged, and granted dismissal without prejudice as to Counts I (§ 727(a)(2)), IV (§ 727(a)(5)), V (§ 523(a)(2)(A)/(B)), and VI (§ 523(a)(6)), while denying dismissal as to Counts II (§ 727(a)(3)) and III (§ 727(a)(4)).
- Plaintiff was given leave to amend Counts I, IV, V, and VI within 14 days and ordered to perfect service within 14 days; discovery was reopened for a 90-day period.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Proper service of process | Service by mail to debtor & notice to co-counsel in lead case sufficed; actual notice occurred | Plaintiff failed to serve debtor's counsel as required by Rule 7004(g) | Dismissal denied; service defective but excused given actual notice; Plaintiff given extension to perfect service |
| § 727(a)(3) — failure to preserve records | Defendant failed to keep/produce records for Shared Entities, rendering financial condition unknowable | Complaint too vague about what records are missing | Denied dismissal — allegations that records re: proceeds are missing suffice under normal pleading standard |
| § 727(a)(4) — false oaths (schedules / § 341 statements) | Schedules and §341 testimony conflict re: ownership percentages; omissions were false oaths | Allegations lack specificity as to time/place/content | Denied dismissal — Rule 9(b) applied with relaxed particularity for schedule omissions; defendant can meaningfully respond |
| § 727(a)(2), § 727(a)(5), § 523(a)(2)/(B), § 523(a)(6) — fraudulent transfers, unexplained loss, fraud-based nondischargeability, willful/malicious injury | Alleged skimming/fraudulent transfers rendered assets unavailable and created nondischargeable debt or willful/malicious injury | Allegations are conclusory, lack identifiable assets, transaction specifics, misrepresentations, reliance, intent, or facts showing intentional willful/malicious injury | Granted dismissal without prejudice for Counts I, IV, V, and VI; plaintiff may amend to plead required specifics |
Key Cases Cited
- Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306 (U.S. 1950) (due-process notice must be reasonably calculated to apprise interested parties)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (complaint must plead facts permitting plausible claim)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (Iqbal clarifies Twombly plausibility standard)
- Field v. Mans, 516 U.S. 59 (U.S. 1995) (distinguishes § 523(a)(2)(A) and (B))
- Kawaauhau v. Geiger, 523 U.S. 57 (U.S. 1998) (willful and malicious standard for § 523(a)(6))
- Foman v. Davis, 371 U.S. 178 (U.S. 1962) (standards for granting leave to amend pleadings)
- Tello v. Dean Witter Reynolds, Inc., 494 F.3d 956 (11th Cir. 2007) (Rule 9(b) particularity test for fraud pleading)