Baker v. Carter

• Decision Date: 22 March 2013
• Docket Number: CASE NO. 4:12-CV-478
• Parties: CAROL SUE BAKER, Appellant, v. CHARLES CARTER, Appellee.
• Court: United States District Courts. 5th Circuit. United States District Court of Eastern District Texas

CAROL SUE BAKER, Appellant,
v.
CHARLES CARTER, Appellee.

CASE NO. 4:12-CV-478

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF TEXAS

Dated: March 22, 2013

MEMORANDUM AND ORDER

Pending before the court is an appeal from an order issued by the United States Bankruptcy Court for the Eastern District of Texas denying Appellant Carol Sue Baker's ("Baker") Motion for Leave to File Second Amended Complaint and granting Appellee Charles Carter's ("Carter") Motion to Dismiss. See No. 12-4015 (Bankr. E.D. Tex. June 12, 2012), ECF No. 18. Having reviewed the order, the record, the submissions of the parties, and the applicable law, the court is of the opinion that the bankruptcy court's decision should be reversed in part.

I. Background

This dispute concerns an adversary proceeding arising out of Carter's bankruptcy. On November 2, 2011, Carter filed for Chapter 7 bankruptcy protection. See In Re Charles Carter, Case No. 11-43358 (E.D. Tex. Nov. 2, 2011). The meeting of creditors took place on November 28, 2011. Pursuant to Federal Rule of Bankruptcy Procedure 4007, the deadline to file a complaint to determine the dischargeability of a debt or to object to discharge was January 27, 2012.

On January 23, 2012, Baker, acting without the assistance of an attorney, sent a letter to the bankruptcy court. In the letter, Baker asked the bankruptcy court to "accept this as my Letter

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of Objection for Dismissal . . . ." She stated that Carter owed her over $1,000,000.00 on two promissory notes and that Carter borrowed money from a life insurance policy securing the notes without her permission. Attached to the letter were the following documents: Baker's proof of claim, copies of the two promissory notes, account statements reflecting the balance on each note, letters from the Charles Carter Company informing Baker of changes in interest payments on the notes, documents related to a Mass Mutual life insurance policy against which Carter borrowed, and documents showing that Baker held an interest in the promissory note executed in favor of her son Dan Baker.¹ The letter did not contain a prayer for relief. Instead, it stated that Baker "believe[d] discovery of the facts regarding this bankruptcy will assist myself and other creditors to challenge the debtor's discharge and our claim to the assets of this bankruptcy estate."

Although it alleged some facts, Baker's letter did not cite any law, state the basis for her objection, or state whether she objected to Carter's discharge in its entirety or only to the dischargeability of specific debts. The clerk nevertheless docketed the letter as a complaint.² The next day, January 24, 2012, the bankruptcy judge entered an order (the "Restatement Order") requiring Baker to restate her complaint and properly serve Carter. The Restatement Order specified that the bankruptcy court "had accepted [the] correspondence as a complaint, as a temporary measure only, for the purpose of meeting a deadline for the filing of a complaint to determine the dischargeability of a particular debt or as a general objection to discharge." (emphasis in original). It also requested that Baker specify whether she was objecting to the

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dischargeability of particular debts or lodging a general objection to discharge. In addition, the Restatement Order required Baker to do the following:

(1) within 21 days of the entry of this Order, restate the Plaintiff's claims in a proper form of complaint that states in short and plain terms the precise legal relief sought by the Plaintiff and the factual basis upon which that claim for relief rests and file such complaint with the Court utilizing the [appropriate case caption];
(2) provide, upon filing of the restated complaint, for the issuance by the Court of a summons to the Defendant, Charles Carter;
(3) thereafter effect service of the complaint and the summons on such Defendant in the proper manner and within the time constraints of FED. R. BANKR. P. 7004(e); and
(4) thereafter file proof of service demonstrating that the complaint and the summons issued to the Defendant in this cause were properly served within fourteen (14) days of the issuance of such summons to the Defendant, pursuant to FED. R. BANKR. P. 7004.

After outlining these directives, the Restatement Order stated, in boldface type and in all caps, that failure to comply with them in a prompt manner would result in dismissal of the adversary proceeding "without further notice of hearing."

Baker attempted to comply with the Restatement Order by filing a second letter on February 14, 2012, which the court accepted as her first amended complaint. In it, Baker responded to the court's request for a clarification about the nature of her objection to discharge by stating that she sought "to declare an objection to discharge of every debt as non-dischargeable." She also repeated the allegation that Carter owed her money on two promissory notes and that Carter borrowed money on a life insurance policy intended to secure his debts to her. She provided additional detail regarding the notes' interest terms as well as the representations Carter allegedly made about the status of Baker's investment funds. As with the

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original complaint, the first amended complaint did not state a readily identifiable claim for relief; rather, it expressed Baker's desire to obtain more information about the financial situation of Carter's business enterprises. In short, the second letter failed to comply with paragraph (1) of the Restatement Order.³

Carter never filed an answer or other responsive pleading. Instead, on March 27, 2012, he filed a motion to dismiss Baker's first amended complaint arguing that it failed to satisfy the pleading requirements of Federal Rules of Civil Procedure 8 and 9. On April 11, 2012, Baker, assisted by counsel, filed a Motion for Leave to File Second Amended Complaint and a response to Carter's motion to dismiss. The newest complaint presented, in the proper format, new factual allegations and brought new claims under 11 U.S.C. §§ 523(a)(2), (4), (6), and (19). Carter later filed an objection and brief opposing Baker's motion for leave.

On June 11, 2012, the bankruptcy court entered an order (the "Dismissal Order") denying Baker's motion for leave and granting Carter's motion to dismiss. Because leave to amend was denied, the first amended complaint remained the operative pleading in the proceeding. Given the serious deficiencies of that pleading, the court held that it "failed to state a claim for which relief may be granted."

Baker later appealed the court's decision citing multiple grounds for why the bankruptcy court erred both in denying the motion for leave and in granting the motion to dismiss.

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II. Analysis

A. Standard of Review on Bankruptcy Appeals

District courts have jurisdiction to hear appeals from "final judgments, orders, and decrees" and, with leave of the court, "other interlocutory orders and decrees" of bankruptcy judges. 28 U.S.C. § 158(a). Pursuant to 28 U.S.C. § 158(c)(2), an appeal from the bankruptcy court to the district court "shall be taken in the same manner as appeals in civil proceedings generally are taken to the courts of appeals from the district courts . . . ." Id. Therefore, "when reviewing a bankruptcy court's decision in a 'core proceeding,' a district court functions as a[n] appellate court." Webb v. Reserve Life Ins. Co. (In re Webb), 954 F.2d 1102, 1103-04 (5th Cir. 1992); accord Perry v. Dearing (In re Perry), 345 F.3d 303, 308-09 (5th Cir. 2003); In re S. White Transp., Inc., 473 B.R. 695, 698 (S.D. Miss. 2012). In reviewing a decision of the bankruptcy court, Rule 8013 of the Federal Rules of Bankruptcy Procedure requires the court to accept the bankruptcy court's findings of fact unless clearly erroneous and to examine de novo the conclusions of law. See In re Halo Wireless, Inc., 684 F.3d 581, 586 (5th Cir. 2012); Drive Fin. Servs., L.P. v. Jordan, 521 F.3d 343, 346 (5th Cir. 2008); Texas v. Soileau (In re Soileau), 488 F.3d 302, 305 (5th Cir. 2007). A finding of fact is clearly erroneous when although there is evidence to support it, the reviewing court is left with a firm and definite conviction that a mistake has been committed. See Bertucci Contracting Corp. v. M/V ANTWERPEN, 465 F.3d 254, 258-59 (5th Cir. 2006); see In re Perry, 345 F.3d at 309 (quoting Robertson v. Dennis (In re Dennis), 330 F.3d 696, 701 (5th Cir. 2003)).

A bankruptcy court's denial of a motion for leave to amend a complaint is reviewed for abuse of discretion. Waldron v. Adams & Reese, L.L.P. (In re Am. Int'l Refinery, Inc.), 676 F.3d

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455, 466-67 (5th Cir. 2012). The bankruptcy court's grant of a Rule 12(b)(6) motion to dismiss for failure to state a claim, however, is reviewed de novo. Carroll v. Fort James, 470 F.3d 1171, 1173 (5th Cir. 2006).

B. Denial of the Motion for Leave to Amend

The court below gave three reasons for denying Baker's motion for leave to file an amended complaint: (1) Baker had already been given an opportunity to cure the deficiencies in her complaint and "failed to do so"; (2) amendment would be futile because the allegations in the second amended complaint would not "relate back" to the timely-filed original complaint; and (3) allowing Baker to amend would prejudice Carter by undermining the "salutary result of bringing finality to the bankruptcy proceeding that the strict deadlines...