589 B.R. 550
Bankr. S.D. Miss.2018Background
- Plaintiff Barbara Parker sued defendant April Miller in state court for fraud, embezzlement, intentional infliction of emotional distress, and alienation of affection arising from an affair between April and Barbara's then-husband Roger and alleged transfers of marital funds.
- April filed Chapter 7 bankruptcy days before a scheduled jury trial in the state case; Barbara then removed and later filed an adversary in bankruptcy seeking (1) liquidation and a determination that her debt is nondischargeable under 11 U.S.C. § 523 and (2) denial of April’s discharge under § 727.
- The District Court remanded the state action to Circuit Court, finding any judgment would not affect the bankruptcy estate; April moved to dismiss the adversary and Barbara moved to strike excerpts of April’s reply.
- The bankruptcy court denied the motion to strike (treating attached court orders as public records), found the District Court’s remand persuasive under law-of-the-case principles, and modified the automatic stay sua sponte to allow the state court to liquidate the claims.
- The bankruptcy court held dischargeability and denial-of-discharge claims in abeyance pending resolution of the state-court action and gave Barbara leave to amend her adversary complaint to (a) specify which § 523(a) exception she relies on and (b) plead fraud and § 727(a)(4) allegations with particularity.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether bankruptcy court can liquidate state-law tort claims now | Barbara seeks liquidation in bankruptcy to determine nondischargeability | April argues lack of jurisdiction for personal-injury torts and that some claims belong to Roger/marital estate | Court declined to liquidate; modified stay to allow Circuit Court to liquidate state claims and held adversary in abeyance |
| Whether claims are "personal injury torts" barred from bankruptcy adjudication | Barbara treats claims as creditor claims suitable for liquidation | April contends IIED and alienation of affection are personal injury torts and outside bankruptcy core power | Court found IIED and alienation of affection are personal injury claims under the adopted middle approach and cited concern over bankruptcy authority; deferred to state court |
| Sufficiency of § 523 pleading (identifying specific subsection & fraud specificity) | Barbara incorporated state complaint but did not identify which § 523(a) subsection applies | April argued complaint is ambiguous and, if fraud-based, must meet Rule 9 particularity | Court dismissed § 523 claims without prejudice, ordered amendment to specify the § 523(a) subsection and plead fraud with particularity after state-court resolution |
| Sufficiency of § 727(a)(4) pleading (false oath/false claim) | Barbara alleged false household/debt statements in schedules | April argued allegations lack particularity and fail to show fraudulent intent or materiality | Court dismissed § 727 claims without prejudice, granted leave to amend to plead elements and fraud particularity; stayed adversary pending state resolution |
Key Cases Cited
- Reaves Brokerage Co. v. Sunbelt Fruit & Vegetable Co., 336 F.3d 410 (5th Cir. 2003) (pleading must be viewed in light most favorable to nonmoving party on Rule 12(b)(6) motion)
- Vanderbrook v. Unitrin Preferred Ins. Co., 495 F.3d 191 (5th Cir. 2007) (documents central to claims and referenced in complaint may be considered on motion to dismiss)
- Cinel v. Connick, 15 F.3d 1338 (5th Cir. 1994) (court may consider matters of public record on motion to dismiss)
- Dorsey v. Portfolio Equities, Inc., 540 F.3d 333 (5th Cir. 2008) (may take judicial notice of certain information on Rule 12 motion)
- Morrison v. W. Builders of Amarillo, Inc., 555 F.3d 473 (5th Cir. 2009) (bankruptcy courts have jurisdiction and constitutional authority to liquidate state-law claims in dischargeability proceedings)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (Rule 8 pleading standard requires enough factual matter to state plausible claim)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (Twombly plausibility standard applies to Rule 8)
- Stern v. Marshall, 564 U.S. 462 (U.S. 2011) (limits on bankruptcy authority to enter final judgment on certain state-law claims and discussion of personal-injury jurisdictional provisions)
- Arizona v. California, 460 U.S. 605 (U.S. 1983) (law-of-the-case doctrine restrains reconsideration of prior rulings in same case)
- Beaubouef v. Beaubouef, 966 F.2d 174 (5th Cir. 1992) (elements required to deny discharge under § 727(a)(4)(A))
- Byrd v. Bates, 220 F.2d 480 (5th Cir. 1955) (courts should allow opportunity to amend deficient complaints)