Antonucci v. Carbone (In re Carbone)

• Decision Date: 26 March 2020
• Docket Number: Bky. No. 18-13403 ELF,Adv. No. 19-221
• Citation: 613 B.R. 410
• Parties: IN RE Salvatore CARBONE, Debtor. John Antonucci, Plaintiff, v. Salvatore Carbone, Defendant.
• Court: U.S. Bankruptcy Court — Eastern District of Pennsylvania

613 B.R. 410

IN RE Salvatore CARBONE, Debtor.John Antonucci, Plaintiff,

v.Salvatore Carbone, Defendant.

Bky. No. 18-13403 ELF

Adv. No. 19-221

United States Bankruptcy Court, E.D. Pennsylvania.

Signed March 26, 2020

Michael W. Gallagher, East Norriton, PA, for Plaintiff.

Peter E. Meltzer, Weber Gallagher Simpson Stapleton Fires, Philadelphia, PA, for Defendant.

MEMORANDUM

ERIC L. FRANK, U.S. BANKRUPTCY JUDGE

I. INTRODUCTION

In this adversary proceeding, John Antonucci ("the Plaintiff") seeks to revoke the discharge granted to Salvatore Carbone ("the Debtor"). The Plaintiff alleges that that the Debtor failed to report the existence of certain assets in his bankruptcy schedules and failed to deliver those assets to the chapter 7 trustee. (Compl. ¶¶ 56-57) (Doc. # 1). Based on these allegations, the Plaintiff asserts that revocation of the Debtor’s discharge is warranted pursuant to 11 U.S.C. § 727(d)(2).¹

The Debtor filed a Motion to Dismiss pursuant to Fed. R. Civ. P. 12(b)(6) ("the Motion").

For the reasons explained below, the Motion will be granted, but I will grant the Plaintiff leave to amend the Complaint.

II. PROCEDURAL HISTORY

The Debtor filed a chapter 7 bankruptcy petition on May 22, 2018. He received a discharge on November 8, 2018.

On November 8, 2019, exactly one year after the entry of the discharge order, the Plaintiff commenced this adversary proceeding. On December 12, 2019, the Debtor filed the Motion, along with a supporting memorandum. (Doc. #’s 3, 4).²

The Debtor argues that the Complaint fails to state a claim under § 727(d)(2) because it does not allege that he acquired or became entitled to any property of the estate post-petition that he was required to disclose or deliver to the chapter 7 trustee. Accordingly, the Debtor asserts that dismissal of the Complaint is warranted pursuant to Fed. R. Civ. P. 12(b)(6).

The Plaintiff responded to the Motion to Dismiss on January 9, 2020, arguing generally that the conduct alleged in the Complaint falls within the scope of § 727(d)(2). (Doc. # 7).

III. MOTION TO DISMISS STANDARD

The Debtor moves to dismiss the Complaint for failure to state a claim.

Fed. R. Civ. P. 12(b)(6) applies in adversary proceedings under Fed. R. Bankr. P. 7012. I have previously discussed the legal standard for a motion to dismiss:

A motion to dismiss under Fed. R. Civ. P. 12(b)(6) tests the legal sufficiency of the factual allegations of a complaint, seeKost v. Kozakiewicz, 1 F.3d 176, 183 (3d Cir. 1993), and determines whether the plaintiff is entitled to offer evidence to support the claims, Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 563 n.8, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). A defendant is entitled to dismissal of a complaint only if the plaintiff has not pled enough facts to state a claim to relief that is plausible on its face. Twombly, 550 U.S. at 547, 127 S.Ct. 1955. A claim is facially plausible where the facts set forth in the complaint allow the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009).

In evaluating the plausibility of the plaintiff's claim, the court conducts a context-specific evaluation of the complaint, drawing from its judicial experience and common sense. See, e.g., Fowler v. UPMC Shadyside, 578 F.3d 203, 211 (3d Cir. 2009) ; In re Universal Marketing, Inc., 460 B.R. 828, 834 (Bankr. E.D. Pa. 2011) (citing authorities). In doing so, the court is required to accept as true all allegations in the complaint and all reasonable inferences that can be drawn therefrom, viewing them in the light most favorable to the plaintiff. See, e.g., Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 81 L.Ed.2d 59 (1984) ; Taliaferro v. Darby Township Zoning Board, 458 F.3d 181, 188 (3d Cir. 2006). But, the court is not bound to accept as true a legal conclusion couched as a factual allegation. Twombly, 550 U.S. at 555, 127 S.Ct. 1955 ; Iqbal, 556 U.S. at 678, 129 S.Ct. 1937.

The Third Circuit Court of Appeals has condensed these principles into a three (3) part test:

First, the court must take note of the elements a plaintiff must plead to state a claim. Second, the court should identify allegations that, because they are no more than conclusions, are not entitled to the assumption of truth. Finally, where there are well-pled factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement for relief.

Santiago v. Warminster Twp., 629 F.3d 121, 130 (3d Cir. 2010) (quotations and citations omitted).

In assessing a Rule 12(b)(6) motion, the court may "consider the allegations in the complaint, exhibits attached to the complaint and matters of public record ... [as well as] ‘undisputedly authentic’ documents where the plaintiff's claims are based on the documents and the defendant has attached a copy of the document to the motion to dismiss." Unite Nat'l Ret. Fund v. Rosal Sportswear, Inc., 2007 WL 2713051, at *4 (M.D. Pa. Sept. 14, 2007) (citing Pension Benefit Guar. Corp. v. White Consol. Indus., Inc., 998 F.2d 1192, 1196 (3d Cir. 1993) ); see alsoIn re Angulo, 2010 WL 1727999, at *12 n.1 (Bankr. E.D. Pa. Apr. 23, 2010).

In re Boltz-Rubinstein, 574 B.R. 542, 547-48 (Bankr. E.D. Pa. 2017).

IV. FACTS

The Plaintiff alleges that the Debtor fraudulently failed to disclose the true nature and value of his personal assets and financial condition when he filed his schedules and statement of financial affairs. Examples of this deficiency include: failing to disclose the value of his interest in Carbone Realty, Inc. (Compl. ¶22); falsely claiming that Carbone Brothers LLP was no longer in existence (¶¶24-25); failing to disclose income from two houses that Carbone Brothers completed sometime after 2014 (¶¶31-33, 37); and failing to disclose income from a snow plowing business that the Carbone Brothers operated (¶¶47-48).

The Plaintiff also alleges that the Debtor operates and controls an entity known as "Builder Pros Contracting," from which he earns $76,000.00 annually, (¶51), and that Builder Pros Contracting is a mere continuation of Carbone Brothers LLP that was established to avoid liabilities attributable to that entity. (¶52).

The Complaint’s prayer for relief summarizes the above allegations by stating that the Debtor fraudulently failed to deliver or report his entitlement to various pre-petition assets to the chapter 7 trustee. (¶¶56-57). But for this fraud, the Plaintiff asserts, the Debtor would not have received his discharge. (¶¶61-63).

V. DISCUSSION

In the Motion to Dismiss and supporting memoranda, the Debtor generally disputes the Complaint’s factual assertions and argues that, as a matter of law, the facts, even if true, fail to state a claim under 11 U.S.C. § 727(d)(2).

Based on the plain language of § 727(d)(2), case law interpreting this subsection, and pertinent statutory history, I agree with the Debtor that § 727(d)(2) only applies to property of the estate that a debtor acquires or becomes entitled to acquire post-petition. Because the Complaint fails to allege any relevant post-petition misdeeds, the pleading fails as a matter of law and will, consequently, be dismissed.

A. 11 U.S.C. § 727(d)(2)

Section 727(d) of the Bankruptcy Code permits creditors and trustees to seek the revocation of a debtor’s discharge. Section 727(d)(2) provides:

(d) On request of the trustee, a creditor, or the United States trustee, and after notice and a hearing, the court shall revoke a discharge granted under subsection (a) of this section if—

[...]

(2) the debtor acquired property that is property of the estate, or became entitled to acquire property that would be property of the estate, and knowingly and fraudulently failed to report the acquisition of or entitlement to such property, or to deliver or surrender such property to the trustee;

11 U.S.C. § 727(d)(2) (emphasis added).

1. Plain Language

Read together with additional bankruptcy provisions, § 727(d)(2) plainly refers to property of the estate that the debtor did not have an interest in at the time the petition was filed.

A debtor’s "estate" is created at the time the petition is filed. 11 U.S.C. § 541(a). Debtors filing under chapter 7 must disclose all their assets and surrender to the trustee all property of the estate. See 11 U.S.C. § 521(a)(1)(B)(i), (a)(4). In broad terms, the estate consists of the debtor’s present interests in property at the time of filing ( § 541(a)(1)-(2) ); interests in property that are subsequently recovered, preserved, or transferred to the estate ( § 541(a)(3)-(4) ); and certain interests in property that are otherwise acquired by the debtor or the estate after the filing of the petition ( § 541(a)(5)-(7) ).

Reading § 727(b)(2) together with § 541(a) strongly suggests that § 727(d)(2) only applies to property of the estate that the debtor develops an interest in post-petition. The operative language in § 727(d)(2) —"acquired" or "became entitled to acquire" — seems to refer only to property of the estate under § 541(a)(5)-(7) ; that is, property that accrues to the estate at a point in time after a debtor files a bankruptcy petition. Accord 6 Collier on Bankruptcy, ¶ 727.17[4] (Alan N. Resnick & Henry J. Sommer eds. 16th ed.) ("Collier") (noting that § 727(d)(2) imposes a duty on debtors to report any post-petition acquisitions of property to the trustee that may belong to the estate under § 541(a)(5)-(7) ).

If § 727(d)(2) applied to prepetition assets under § 541(a)(1)-(2), one would expect § 727(d)(2) to refer to such interests in the present tense (property the debtor "has") or to cross-reference § 541(a)(1)-(2). It would make little sense for a Code provision to refer to prepetition assets that already are part of the estate upon the commencement of the case as being "acquired" by the debtor or to speak of the debtor as "becoming entitled to acquire" such property.

2. Case Law

Not surprisingly, co...