545 B.R. 477
Bankr. M.D. Penn.2016Background
- Debtor James Peter Sobol filed Chapter 7 on December 12, 2013; schedules listed a judgment in favor of creditor Richard Symonies (no proof of claim filed). Court avoided Symonies’ judicial lien in underlying case.
- Symonies filed an adversary complaint on February 18, 2015; original complaint was dismissed and Symonies filed a 2‑count Amended Complaint (September 25, 2015) asserting nondischargeability under §523(a)(2)(A) and (a)(4) and denial of discharge under §727(a)(2)–(5) & (7).
- Amended Complaint alleges preferential transfers and insider payments (not listed on Debtor’s SOA/Schedules), and the transfer of a truck owned by the parties’ business S & S to Debtor’s girlfriend’s entity.
- Procedural/timing posture: deadline to object to discharge was extended to March 26, 2015; deadline to commence §523 nondischargeability actions ran April 8, 2014. Court found the defense of untimeliness waived by Debtor for the original complaint and treated the Amended Complaint as relating back.
- Court treated S & S as a distinct LLC (stipulated). Symonies asserted both individual and derivative claims but did not plead or attach the S & S operating agreement or a state judgment copy in the pleading.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Timeliness / relation back of Amended Complaint | Amended Complaint relates to original pleadings and should be allowed despite extensions deadline | Amended Complaint raises new matters and is untimely under FRBP 4007(c) | Court held Debtor waived timeliness defense; Amended Complaint relates back to original complaint (allowed) |
| §523(a)(2)(A) nondischargeability (fraud/false pretenses) | Sobol’s post‑stipulation transfers (truck to insider) and insider payments amount to fraud making debt nondischargeable | Transfers involved S & S property and occurred after the debt arose; complaint fails to plead transfer of money/property to Debtor by fraud | Dismissed with prejudice for failure to plead that creditor transferred money/property to Debtor by misleading conduct and other elements of §523(a)(2)(A) |
| §523(a)(4) (fraud/defalcation in fiduciary capacity) | Sobol, as 50% member, breached fiduciary duties to Symonies and committed defalcation | S & S is a separate entity; no well‑pled allegation that Debtor owed a pre‑existing fiduciary duty to Symonies individually or that Symonies had standing to sue derivatively | Dismissed with prejudice: plaintiff failed to plead a fiduciary relationship or derivative standing to sue on behalf of S & S |
| §727(a)(2) (transfer to hinder creditors) | Transfer of S & S vehicle to insider within one year was intent to hinder creditors | Transfers were of S & S property (separate entity), not Debtor or estate property; no veil‑piercing or allegation to ignore separateness | Dismissed with prejudice: alleged transfers were S & S property, not Debtor/estate property, so §727(a)(2) not plausibly alleged |
| §727(a)(3) (failure to keep/preserve records) | Debtor failed to produce tax returns and S & S records requested in discovery | Missing items are largely S & S business records; debtor is unsophisticated and only one year’s tax return is claimed missing | Dismissed without prejudice (leave to amend): allegations insufficiently specific to meet plausibility standard |
| §727(a)(4) (false oath/omission) | Debtor omitted preferential transfers/payments to insiders from Petition/Schedules (false oath) | Alleged omissions relate to S & S, not Debtor personally; plaintiff did not identify specific false statements with particularity | Dismissed without prejudice (leave to amend): pleading fails Rule 9(b) particularity and does not show omitted items were Debtor’s assets |
| §727(a)(5) (failure to explain loss of assets) | Debtor cannot explain disappearance of assets (e.g., trailer sale proceeds) | Alleged missing assets belong to S & S, not Debtor individually | Dismissed with prejudice: plaintiff failed to allege loss of assets that belonged to Debtor; amendment would be futile |
| §727(a)(7) (acts in another case concerning insider) | Debtor committed acts within one year concerning an insider warranting denial under §727(a)(7) | No allegation or evidence of related bankruptcy cases involving an insider; S & S is not in bankruptcy | Dismissed with prejudice: no other related bankruptcy case; claim implausible |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (plausibility standard for pleading)
- Ashcroft v. Iqbal, 556 U.S. 662 (legal conclusions vs. well‑pleaded facts; plausibility)
- Grogan v. Garner, 498 U.S. 279 (preponderance standard for nondischargeability)
- Kontrick v. Ryan, 540 U.S. 443 (time‑bar defenses under bankruptcy rules are waivable)
- Kehr Packages, Inc. v. Fidelcor, Inc., 926 F.2d 1406 (treat factual allegations as true at motion to dismiss)
- Fowler v. UPMC Shadyside, 578 F.3d 203 (Third Circuit summary of Twombly/Iqbal pleading analysis)
- Lorenz v. CSX Corp., 1 F.3d 1406 (factors for dismissing with prejudice)
- In re Cohn, 54 F.3d 1108 (exceptions to discharge construed narrowly; fresh start policy)