Case No. 10-17668, Adversary Case No. 11-1021.United States Bankruptcy Court, S.D. Ohio, Western Division.
July 14, 2011
Page 2
MEMORANDUM OF DECISION ON ORDER DENYING MOTION TO DISMISS
JEFFERY HOPKINS, Bankruptcy Judge
Page 2
Before the Court is a Fed.R.Civ.P. 12(b)(6) motion to dismiss (“Motion”) (Doc. 5) filed by the Defendant, Christopher C. Gavitt. The complaint asserts claims under 11 U.S.C. § 523(a)(2)(A), (a)(4), and (a)(6).
A claim is subject to dismissal under Rule 12(b)(6) if it is not plausible. Bell Atlantic Corp. v. Twombly, 550 U.S. 544
(2007). A claim is plausible if the complaint contains factual allegations that support a reasonable inference of liability Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009). When weighing plausibility, the complaint is construed in favor of the plaintiff, all allegations are accepted as true, and all reasonable inferences are drawn in favor of the plaintiff Bassett v. Nat’l Collegiate Athletic Ass’n, 528 F.3d 426, 430
(6th Cir. 2008).
For the reasons stated below, the Court finds the claims to be plausible.
ALLEGATIONS OF COMPLAINT
The parties entered into a business relationship to obtain a motorcycle dealership. Both parties made contributions to fund the endeavor. The parties understood that they would recoup their contributions if they were unable to obtain a dealership. The contribution of the Plaintiff, Steve Bright, included $27,000, three motorcycles, a trailer, leathers and tools, among other things.
The parties abandoned the business relationship when it became apparent that they would not obtain a dealership. Thereafter, the Defendant misappropriated the Plaintiff’s motorcycles, trailer, leathers and tools, refusing to return the Plaintiff’s contributions.
11 U.S.C. § 523(A)(2)(A)
A claim under § 523(a)(2)(A) is established by proof of “any deceit, artifice, trick or design . . . used to circumvent and cheat another.” In re Vitanovich, 259 B.R. 873, 877 (B.A.P. 6th
Cir. 2001).
Page 3
11 U.S.C. § 523(A)(4)
A claim under § 523(a)(4) is established by proof of embezzlement. In re Brady, 101 F.3d 1165, 1172-73 (6th Cir. 1996). “A creditor proves embezzlement by showing that he entrusted his property to the debtor, the debtor appropriated the property for a use other than that for which it was entrusted, and the circumstances indicate fraud.” Id. at 1173.
11 U.S.C. § 523(A)(6)
A claim under § 523(a)(6) is established by proof of a willful and malicious injury. In re Markowitz, 190 F.3d 455, 463 (6th
Cir. 1999). To be a willful injury, the actor must intend to cause the injury or believe that the injury is substantially certain to result from his or her action. Id. at 464. To be a malicious injury, there must be a “conscious disregard of one’s duties” or an act “without just cause or excuse.” Wheeler v. Laudani, 783 F.2d 610, 615 (6th Cir. 1986). Conversion constitutes a willful and malicious injury “when it is alleged (or proven) that the debtor intentionally transferred property to one who is not entitled to it without the authorization or approval of the one entitled to the property.” Vulcan Coals, Inc. v. Howard, 946 F.2d 1226, 1229 (6th Cir. 1991).
ANALYSIS
We begin with the proposition that it is not easy to prevail under Rule 12(b)(6). “[D]ismissal under Rule 12(b)(6) is likely to be granted by the district court only in the relatively unusual case in which the plaintiff includes allegations that show on the face of the complaint that there is some insuperable bar to securing relief.” 5B Charles Alan Wright Arthur R. Miller, Federal Practice and Procedure § 1357 (3d ed. 2004). For example, an affirmative defense. See Riverview Health Institute LLC v. Medical Mutual of Ohio, 601 F.3d 505, 512 (6th Cir. 2010).
Construing the complaint, and drawing all inferences, in favor of the Plaintiff, the Court finds all the claims to be plausible. Plausible does not necessarily mean that liability is probable Ashcroft, 129 S.Ct. at 1949. It simply means that the complaint, construed in favor of the plaintiff, establishes more than a mere possibility of liability. Id.
Page 4
The only “insuperable bar” highlighted by the Defendant is the absence of an express trust needed to establish a § 523(a)(4) claim for fraud or defalcation while acting in a fiduciary capacity. However, that does not preclude the Plaintiff from prevailing under § 523(a)(4) for embezzlement.
The Court agrees with the Defendant that there is some ambiguity about the type of business relationship created by the parties. However, regardless of the characterization of the relationship, it is unambiguously alleged that the parties understood that they would recoup their contributions if they did not acquire a dealership. It is also unambiguously alleged that the Defendant refused to return the Plaintiff’s property. This creates a plausible claim under § 523(a)(2)(A), (a)(4) and (a)(6).
FED. R. CIV. P. 9(B)
Alternatively, the Defendant argues that the complaint fails to plead fraud with the particularity required by Fed.R.Civ.P. 9(b).
The purpose of Rule 9(b) is to ensure that the defendant is given enough information to defend in a meaningful and informed manner. Advocacy Org. for Patients and Providers v. Auto Club Ins. Ass’n, 176 F.3d 315, 322 (6th Cir. 1999). At a minimum, the complaint must allege the time, place, and content of the alleged misrepresentation. Walburn v. Lockheed Martin Corp., 431 F.3d 966, 972 (6th Cir. 2005).
The complaint alleges that the fraud occurred in the second half of 2004. The misrepresentation or deceit is identified as the Defendant’s assurance that the Plaintiff’s contribution would only be used to acquire the dealership and returned if unsuccessful. The Court is satisfied that this provides enough information about the § 523(a)(2)(A) claim to defend in a meaningful and informed manner. The Defendant’s Rule 9(b) argument is not very persuasive when one considers that, preceding bankruptcy, the parties have been engaged in state court litigation that included discovery. See Doc. 1 at ¶ 8.
Page 5
CONCLUSION
Because the complaint states plausible claims under § 523(a)(2)(A), (a)(4) and (a)(6), the Motion will be DENIED. An order to this effect will be entered.
This document has been electronically entered in the records ofthe United States Bankruptcy Court for the Southern District ofOhio.
IT IS SO ORDERED.