F&F Invs. Grp., LLC v. Jamila (In re Case)

• Decision Date: 23 February 2022
• Docket Number: Case No. 20-23672-PDR,Adv. Case No. 21-01240-PDR
• Citation: 636 B.R. 852
• Parties: IN RE: Kesi Jamila CASE, Debtor. F&F Investments Group, LLC, Plaintiff, v. Kesi Jamila Case, Defendant.
• Court: U.S. Bankruptcy Court — Southern District of Florida

636 B.R. 852

IN RE: Kesi Jamila CASE, Debtor.

F&F Investments Group, LLC, Plaintiff,

v.Kesi Jamila Case, Defendant.

Case No. 20-23672-PDR

Adv. Case No. 21-01240-PDR

United States Bankruptcy Court, S.D. Florida, Fort Lauderdale Division.

Signed February 23, 2022

Ariel Sagre, Miami, FL, for Plaintiff.

Michael A. Gort, Gort Law, P.A., Jupiter, FL, for Defendant.

ORDER GRANTING MOTION TO DISMISS AMENDED COMPLAINT

Peter D. Russin, United States Bankruptcy Judge

The Plaintiff, in an effort to transmute what appears to be a dischargeable debt for breach of contract into a nondischargeable debt for embezzlement under 11 U.S.C. § 523(a)(4), relies entirely on conclusory statements that are directly contradicted by the contract attached to the Amended Complaint. Simply put, the Plaintiff has not, and can never, state a cause of action for embezzlement under § 523(a)(4). Because certain pleading defects are incurable, the consequence must be dismissal with prejudice.

Background

The Amended Complaint alleges that in July 2019, Plaintiff F&F Investments Group, LLC contracted with K&K Design and Construction, LLC to perform work on real property in Fort Lauderdale, Florida. K&K is owned, in part, by Defendant Kesi Jamila Case. Between August 2019 and February 2020, the Plaintiff paid K&K over $250,000.00. Rather than put that money toward performance under the Contract, however, the Defendant allegedly withdrew funds from K&K's bank account for personal use, and K&K subsequently became insolvent. K&K met with the Plaintiff several times and failed to notify the Plaintiff of its insolvency until August 2020.

On December 15, 2020, the Defendant filed her voluntary Chapter 7 petition.¹ The Plaintiff and its principal, Fawzi Faroun, filed this adversary proceeding on July 28, 2021, seeking a determination that the Defendant committed embezzlement under 11 U.S.C. § 523(a)(4) and willful or malicious injury to property under 11 U.S.C. § 523(a)(6). The Defendant moved to dismiss the original complaint and, following a hearing on October 13, 2021, the Court granted the motion because the allegations, even if true, failed to establish that the Plaintiff and the principal had standing.

On November 10, 2021, the Plaintiff amended the complaint which names the Plaintiff, excludes the principal, and alleges a single count for embezzlement under 11 U.S.C. § 523(a)(4). The Defendant seeks dismissal of the Amended Complaint, which the Plaintiff opposes. The Court heard argument on the Motion to Dismiss on January 26, 2022.

Jurisdiction

The Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1334(b). The Court has statutory authority to hear and determine this case under 28 U.S.C. § 157(b)(2)(I) and the general order of reference from the United States District Court for the Southern District of Florida. S.D. Fla. Local Rule 87.2(a). Venue is proper under 28 U.S.C. § 1409.

Legal Standard

Motions under Rule 12(b)(6) are designed to test the legal sufficiency of the complaint. See GSW, Inc. v. Long Cty. , 999 F.2d 1508, 1510 (11th Cir. 1993). To survive a motion to dismiss, the complaint must make factual allegations sufficient "to state a claim for relief that is plausible on its face." Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). When deciding a motion under Rule 12(b)(6), the Court must limit its consideration to the four corners of the complaint, treat all well-pleaded facts as true, and interpret all facts in the light most favorable to the plaintiff. See Ortiz v. Deutsche Bank AG (In re Estrategias en Valores, S.A.) , 628 B.R. 722, 726 n.1 (Bankr. S.D. Fla. 2021) (citing Resnick v. AvMed, Inc. , 693 F.3d 1317, 1321–22 (11th Cir. 2012) ); Harvey M. Jasper Retirement Tr. v. Ivax Corp. , 920 F. Supp. 1260, 1263 (S.D. Fla. 1995) (quoting Milburn v. United States , 734 F.2d 762, 765 (11th Cir. 1984) ). Though the Court is required to accept the well-pleaded facts as true, it need not accept legal conclusions or other conclusory statements couched as factual allegations. See Erickson v. Pardus , 551 U.S. 89, 94, 127 S.Ct. 2197, 167 L.Ed.2d 1081 (2007) ; Papasan v. Allain , 478 U.S. 265, 286, 106 S.Ct. 2932, 92 L.Ed.2d 209 (1986).

In general, to state a claim, an adversary complaint must satisfy Fed. R. Bankr. P. 7008, which applies Fed. R. Civ. P. 8. Under Rule 8(a)(2), a claim for relief must include "a short and plain statement of the claim showing that the pleader is entitled to relief." Where the adversary complaint asserts a claim for fraud or mistake, however, the allegations must satisfy the heightened pleading standard under Fed. R. Bankr. P. 7009, which applies Fed. R. Civ. P. 9.² Under Rule 9(b), allegations must "state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally." Fed. R. Civ. P. 9(b) ; see also Cardenas v. Toyota Motor Corp. , 418 F. Supp. 3d 1090, 1098 (S.D. Fla. 2019) (explaining that Rule 9(b) applies where a cause of action "sounds in fraud"). To satisfy the heightened pleading standard of Rule 9, the complaint must provide at least "some indicia of reliability" to support the fraud allegations, which may be accomplished by pleading "facts as to time, place, and substance of the defendant's alleged fraud, specifically the details of the defendants’ allegedly fraudulent acts, when they occurred, and who engaged in them." United States ex rel. Clausen v. Lab. Corp. of Am. , 290 F.3d 1301, 1310–11 (11th Cir. 2002) ; see also FindWhat Inv. Grp. v. FindWhat.com , 658 F.3d 1282, 1296 (11th Cir. 2011) ; Ziemba v. Cascade Int'l, Inc. , 256 F.3d 1194, 1202 (11th Cir. 2001). "Essentially, a plaintiff satisfies Rule 9(b) by alleging who, what, when, where, and how." State Farm Mut. Auto Ins. Co. v. First Choice Chiropractic & Rehab. Ctr., Inc. , No. 8:20-cv-330-T-60CPT, 2020 WL 5583516, at *2 (M.D. Fla. Aug. 17, 2020).

Analysis

The Plaintiff seeks a determination that the Defendant owes it a nondischargeable debt for embezzlement under 11 U.S.C. § 523(a)(4). Under § 523(a)(4), "embezzlement" is "the fraudulent appropriation of property by a person to whom such property has been entrusted, or into whose hands it has lawfully come."³ Moore v. United States , 160 U.S. 268, 269, 16 S.Ct. 294, 40 L.Ed. 422 (1895). Standing to bring an embezzlement claim under § 523(a)(4) requires that the plaintiff own the allegedly embezzled property.⁴ See 11 U.S.C. § 523(c)(1) (requiring claims under § 523(a)(4) to be brought by "the creditor to whom such debt is owed"); Mouttet , 2020 WL 5993925, at *10 ; Marbella, LLC v. Cuenant (In re Cuenant) , 339 B.R. 262, 277 (Bankr. M.D. Fla. 2006). To plead embezzlement, the plaintiff must allege that (1) "property in the [defendant's] lawful possession but" (2) "belonging to the [plaintiff]" (3) "was appropriated by the [defendant] in a manner inconsistent with the property rights of the [plaintiff] and the scope of [the defendant's] authorization to deal with the property" (4) "with fraudulent intent."⁵ Lenox Pines, LLC v. Smith (In re Smith) , No. 18-05005-LRC, 2021 WL 1234245, at *10 (Bankr. N.D. Ga. Mar. 31, 2021) (quoting Reiss v. McQuillin (In re McQuillin) , 509 B.R. 773, 785 (Bankr. D. Mass. 2014) ); see also Taylor , 551 B.R. at 521 ("A creditor proves embezzlement by showing that (1) he entrusted property to the debtor, (2) the debtor appropriated the property for a use other than that for which it was entrusted, and (3) the circumstances indicate fraud.") (internal quotation marks omitted).

The Plaintiff contends that (1) K&K and the Defendant were alter egos, (2) it transferred money to K&K under a contract, (2) it entrusted the funds to K&K, (3) the Defendant withdrew the funds for personal use, which was inconsistent with the Plaintiff's rights to the funds because the Plaintiff entrusted them to K&K who earmarked them for the Plaintiff's benefit, and (4) the Defendant acted with fraudulent intent.⁶

The Defendant argues that the Amended Complaint lacks particularity because it relies primarily on conclusory statements and allegations based "upon information and belief." It is axiomatic that "threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice" under any pleading standard, much less Rule 9 ’s heightened requirements. Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (cleaned up); Twombly , 550 U.S. at 555, 127 S.Ct. 1955 (explaining that "courts ‘are not bound to accept as true a legal conclusion couched as a factual allegation’ " (quoting Papasan , 478 U.S. at 286, 106 S.Ct. 2932 )). "Information and belief" allegations often fall into this category of pleading.

Factual allegations made on information and belief, to the extent they are not just legal conclusions couched as factual allegations, generally satisfy Rule 8, but not Rule 9. See Lab. Corp. , 290 F.3d at 1310 ; Mukamal v. BMO Harris Bank N.A. (In re Palm Beach Fin. Partners, L.P.) , 488 B.R. 758, 767 (Bankr. S.D. Fla. 2013). A plaintiff may only plead upon information and belief under Rule 9 where the facts are "peculiarly within the defendant's knowledge or control" and are accompanied "with factual allegations that make her theoretically viable claim plausible." USA Nutraceuticals Grp., Inc. v. BPI Sports, LLC , No. 15-CIV-80352-BLOOM/Valle, 2016 WL 4254257, at *4 (S.D. Fla. Feb. 16, 2016) (quoting Hill v. Morehouse Med. Assoc., Inc. , No. 02-14429, 2003 WL 22019936, at *3 (11th Cir. Aug. 15, 2003) ). To satisfy Rule 9, therefore, information and belief allegations must include "a statement of the facts on which the belief is founded." Palm Beach Fin. , 488 B.R. at 767.

I. Defendant's Lawful Possession Through Alter Ego

The first element of embezzlement under § 523(a)(4) requires that the funds were in the defendant's lawful possession. See Smith , 2021 WL 1234245, at *10. The Plaintiff...