591 B.R. 587
Bankr. M.D. Penn.2018Background
- Debtor Kevin J. Brown filed Chapter 7 on February 28, 2018; PEBTF filed an adversary complaint seeking a § 523(a)(2)(A) determination that $154,837.93 in medical benefits paid to Brown/dependents is non-dischargeable.
- PEBTF's claim rests on an allegation that Brown fraudulently misrepresented his marital status (common-law marriage) and relied on a notarized affidavit signed by Brown and Diane M. Miller (dated Aug. 28, 2002).
- Miller later filed (and the Superior Court later considered) a divorce action; the Superior Court in 2017 concluded there was insufficient proof of verba in praesenti for a common-law marriage.
- Complaint included contract provision (PEBTF Plan § 1.21) that suspends eligibility and requires repayment for benefits obtained by misrepresentation or fraud.
- Brown moved to dismiss for failure to state a claim, for a more definite statement, and to join an indispensable party; PEBTF also moved for summary judgment in its reply.
- The court took judicial notice of bankruptcy dockets and schedules, found PEBTF plausibly pled a breach-of-contract claim under Pennsylvania law but dismissed the § 523(a)(2)(A) non-dischargeability claim for failure to plead known falsity/scienter; PEBTF was granted 21 days to amend.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether PEBTF pled an enforceable state-law claim | Brown contracted with PEBTF and breached Plan §1.21 by misrepresenting marital status; damages $154,837.93 | Brown disputes the factual/legal basis for liability | Court: PEBTF plausibly pled a Pennsylvania breach-of-contract claim |
| Whether statute of limitations bars the claim | N/A (did not show dates of last payments) | Limitations expired prepetition; claim time-barred | Court: Cannot resolve at dismissal stage; not clear from complaint; defense improper on motion to dismiss now |
| Whether debt is non-dischargeable under §523(a)(2)(A) (fraud: falsity, scienter, intent, reliance, proximate loss) | Brown knowingly misrepresented marital status when signing affidavit and obtaining benefits | Superior Court ruling and legal uncertainty show Brown could have honestly believed in a common-law marriage; no pleaded known falsity or recklessness | Court: Dismissed non-dischargeability claim for failure to plead that Brown knew the representation was false (scienter); leave to amend granted |
| Procedural motions: more definite statement, joinder, summary judgment | PEBTF opposed; moved for summary judgment in reply | Brown sought more definite statement and joinder of PA Dept. of Transportation | Court: Denied motion for more definite statement and joinder as moot given partial dismissal; denied PEBTF summary judgment; granted leave to amend (21 days) |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (Sup. Ct. 2007) (pleading must state plausible claim beyond labels and conclusions)
- Ashcroft v. Iqbal, 556 U.S. 662 (Sup. Ct. 2009) (plausibility standard for pleadings)
- Fowler v. UPMC Shadyside, 578 F.3d 203 (3d Cir. 2009) (accept well-pleaded facts, disregard legal conclusions; plausibility inquiry)
- Grogan v. Garner, 498 U.S. 279 (Sup. Ct. 1991) (state law defines underlying claim; dischargeability governed by federal law)
- Insurance Co. of N. Am. v. Cohn (In re Cohn), 54 F.3d 1108 (3d Cir. 1995) (exceptions to discharge construed narrowly)
- Celotex Corp. v. Catrett, 477 U.S. 317 (Sup. Ct. 1986) (summary judgment standard)
- Field v. Mans, 516 U.S. 59 (Sup. Ct. 1995) (justifiable reliance standard under fraud claims)