460 B.R. 793
Bankr. D. Kan.2011Background
- Plaintiffs invested $80,000 for 40% stock in Success Meals of St. Louis, Inc.; Debtor controlled related Success Meals entities and Diet Delivery, LLC.
- St. Louis venture operated 2005–2008; Debtor allegedly misappropriated funds and failed to disclose records; dissolved St. Louis entity without notice to plaintiffs.
- Plaintiffs allege Debtor commingled funds, transferred assets to Kansas City entities without consideration, and mismanaged corporate affairs.
- Diet Delivery, LLC formed in 2009 as a continuation of Debtor's businesses, funded partly with St. Louis assets; plaintiffs allege further misappropriation.
- Debtor filed bankruptcy April 5, 2011; state court case against Debtor and related entities removed to this Court; plaintiffs sought dischargeability determinations under 11 U.S.C. §523.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Remand jurisdiction over non-debtor actions | Counts 4–8 proceed derivatively for Success Meals. | Non-debtors' actions are related-to and belong in state court only if appropriate. | Counts against non-debtors remanded to state court. |
| Dismissal standards for claims against Debtor | Complaint plausibly alleges fraud and misappropriation under §523(a)(2) and (a)(4). | Some allegations are conclusory or improperly framed. | denial of motion to dismiss for counts against Debtor. |
| Sufficiency of §523(a)(2)(A) allegations | Investors' $80,000 procurement alleged; reliance and intent alleged. | Some misrepresentations not standalone claims. | Plausible individual claim under §523(a)(2)(A) stated. |
| Derivation under §523(a)(4) fiduciary issue | Debtor as corporate officer had fiduciary duties to corporation assets. | No express/technical trust shown; external fiduciary requirement. | Corporate officer fiduciary duty found; derivative §523(a)(4) claim viable. |
| Relation of derivative claims to bankruptcy proceeding | Derivative actions are proper to address corporate misappropriation. | Suits between non-debtors should be handled in state court absent related-to jurisdiction. | Derivative actions properly removed to bankruptcy court; remand limited to non-debtor counts. |
Key Cases Cited
- In re Gardner, 913 F.2d 1515 (10th Cir. 1990) (related-to jurisdiction guidance in bankruptcy)
- In re Edmonds, 924 F.2d 176 (10th Cir. 1991) (pleading standards for dismissal under 12(b)(6))
- In re Young, 91 F.3d 1367 (10th Cir. 1996) (fiduciary status narrower in § 523(a)(4); corporate officers may be fiduciaries)
- In re Karr, 442 B.R. 785 (Bankr.D.Kan.2011) (state-law fiduciary concepts integrated with federal §523(a)(4))
- In re Buildings by Jamie, Inc., 230 B.R. 36 (Bankr.D.N.J.1998) (related-to jurisdiction; non-debtor claims not automatically in bankruptcy court)
- Allied Signal Recovery Trust v. Allied Signal, Inc., 298 F.3d 263 (3d Cir.2002) (standard for remand and bankruptcy jurisdiction)