Bankers Healthcare Grp., LLC v. Moss (In re Moss)

• Decision Date: 25 March 2019
• Docket Number: ADVERSARY PROCEEDING NO. 18-4032-BEM,CASE NO. 18-41373-BEM
• Citation: 598 B.R. 508
• Parties: IN RE: Michael Glenn MOSS and Rachel Lee Peterson, Debtors. Bankers Healthcare Group, LLC, Plaintiff, v. Michael Glenn Moss, Defendant.
• Court: U.S. Bankruptcy Court — Northern District of Georgia

598 B.R. 508

IN RE: Michael Glenn MOSS and Rachel Lee Peterson, Debtors.Bankers Healthcare Group, LLC, Plaintiff,

v.Michael Glenn Moss, Defendant.

CASE NO. 18-41373-BEM

ADVERSARY PROCEEDING NO. 18-4032-BEM

United States Bankruptcy Court, N.D. Georgia, Rome Division.

Signed March 25, 2019

Roberto Bazzani, Weener & Nathan, LLP, Atlanta, GA, for Plaintiff.

David V. Levy, Levy & Zeewy, LLC, Atlanta, GA, for Defendant.

ORDER ON MOTION TO DISMISS

Barbara Ellis-Monro, U.S. Bankruptcy Court Judge

This matter comes before the Court on Defendant Michael Glenn Moss's Second Motion to Dismiss for Failure to State a Claim Upon Which Relief Can Be Granted (the "Motion") [Doc. 14].¹ For reasons stated below, the Court denies the Motion as to the 11 U.S.C. § 523(a)(2) claims and grants the Motion as to the 11 U.S.C. § 523(a)(6) claim.

I. PROCEDURAL BACKGROUND

On June 13, 2018, Defendant Michael Glenn Moss ("Dr. Moss") and his wife (collectively, the "Debtors") filed a voluntary petition for relief under chapter 7, thereby commencing case number 18-41373 (the "Bankruptcy Case") in this Court. The last day for creditors to object to the dischargeability of their debt in the Bankruptcy Case was September 17, 2018, on which day Bankers Healthcare Group, LLC ("Plaintiff") filed its Original Complaint to Determine the Dischargeability of a Debt Under 11 U.S.C. § 523 (the "Original Complaint") [Doc. 1] objecting to the dischargeability of its alleged debt. This is a core matter pursuant to 28 U.S.C. § 157(b)(2)(I).

Prior to filing its Original Complaint, Plaintiff submitted a proof of claim for $ 107,429.99 (the "POC"). [Doc. 13 at 7 ¶ 43].

Dr. Moss asserts in the Motion that Plaintiff's First Amended Complaint to Determine the Dischargeability of a Debt Under 11 U.S.C. § 523 (the "Amended Complaint") [Doc. 13] fails to cure deficiencies in the Original Complaint and that Plaintiff has failed to state a claim upon which relief can be granted. Dr. Moss seeks dismissal of the action with prejudice pursuant to Federal Rule of Civil Procedure ("Rule") 12(b)(6) and Federal Rule of Bankruptcy Procedure ("Bankruptcy Rule") 7012.

In the Amended Complaint, Plaintiff seeks to have its alleged debt declared nondischargeable pursuant to 11 U.S.C. §§ 523(a)(2)(A), (a)(2)(B) and (a)(6). Plaintiff also seeks to recover its attorney's fees and costs in pursuing this adversary proceeding.

II. STANDARD ON A MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM

"To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ A claim has facial plausibility when the plaintiff pleads factual content that allows 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) (citation omitted) (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). "In ruling on a 12(b)(6) motion, the court accepts the factual allegations in the complaint as true and construes them in the light most favorable to the plaintiff." Lubin v. Markowitz (In re Markowitz) , No. 14-68061-BEM, 2017 WL 1088273, at *3 (Bankr. N.D. Ga. Mar. 22, 2017) (Ellis-Monro, J.) (quoting Speaker v. U.S. Dep't of Health & Human Servs. , 623 F.3d 1371, 1379 (11th Cir. 2010) ). Legal conclusions, however, need not be accepted as true. Iqbal , 556 U.S. at 678, 129 S.Ct. 1937 ("Two working principles underlie our decision in Twombly. First, the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.") (citing Twombly , 550 U.S. at 555, 127 S.Ct. 1955 ).

In addition to the Twombly / Iqbal pleading standards that apply to all complaints, complaints that allege fraud are subject to a heightened pleading standard. Bankruptcy Rule 7009 and Rule 9(b) require the plaintiff to "state with particularity the circumstances constituting fraud or mistake." In re Eden , 584 B.R. 795, 803 (Bankr. N.D. Ga. 2018) (Diehl, J.) (quoting Fed. R. Civ. P. 9(b) and Fed. R. Bankr. P. 7009 ). The intent element of fraud may be alleged generally. Id. Nondischargeability claims under 11 U.S.C. § 523(a)(2) are subject to the heightened pleading standard enumerated in Bankruptcy Rule 7009 and Rule 9(b). Lamar, Archer & Cofrin, LLP v. Appling , ––– U.S. ––––, 138 S.Ct. 1752, 1758-59, 201 L.Ed.2d 102 (2018).

III. FACTS

Because the Court must accept all well-pleaded facts as true at this stage, the Court reproduces the facts from the Amended Complaint below, omitting legal conclusions and general statements of the law.

Dr. Moss is an employed physician at 24 On Physicians, P.C. [Doc. 13 at 2 ¶ 6]. He also operates a sole proprietorship d/b/a Michael Moss, M.D. ("Borrower"). Dr. Moss is also a member and the registered agent for Southern Chic Medical Aesthetics, LLC ("SCMA"). [Doc. 13 at 2 ¶ 7]. SCMA was in operation from June 2017 to May 2018. [Id. at 3 ¶ 10]. On or about November 11, 2017, Plaintiff and Borrower entered into a Financing Agreement (Sole Proprietorship) Promissory Note/Security Agreement/Personal Guaranty (the "Loan Documents") whereby Plaintiff agreed to make a loan (the "Loan") of $ 112,245.00 (the "Loan Proceeds") to Borrower in exchange for Borrower's agreement to repay Plaintiff principal and interest payments over 84 months. The Loan was secured by a blanket lien on all of Borrower's assets. [Id. at 3 ¶ 13]. As further consideration for the Loan, Dr. Moss executed an absolute and unconditional personal guaranty of his obligations under the Loan Documents. [Id. at 3 ¶ 14]. Dr. Moss submitted the written loan application documents (collectively, the "Loan Application") to Plaintiff in an effort to obtain the Loan. [Id. at 3 ¶ 15]. In connection with the Loan Application, Dr. Moss made the following written representations to Plaintiff:

(a) Dr. Moss had no business/practice liabilities;

(b) Dr. Moss had no equipment loans;

(c) Dr. Moss owned Stocks/Bonds/IRA/401k totaling $ 100,000;

(d) Dr. Moss had no equipment;

(e) The Debtors' primary residence was worth $ 525,000;

(f) The Debtors' investment property was worth $ 200,000;

(g) Dr. Moss had no personal property;

(h) Dr. Moss had no student loans;

(i) Dr. Moss had no other loans; and

(j) Dr. Moss' annual personal income was $ 257,224.74.

[Doc. 13 at 3-4 ¶ 15]. Additionally, in applying for the Loan, Dr. Moss executed a Statement of Intended Primary Purpose of the Loan dated November 3, 2017 (the "Statement of Intended Purpose") stating that: (i) the Loan was a "commercial loan," (ii) the Loan Proceeds were to be used "primarily for other than personal, family, or household purposes," and (iii) the specific business reason for the Loan and intended use of the Loan Proceeds was "business development." [Id. at 4 ¶ 16].

The last payment on the Loan was made May 15, 2018, and the Loan is currently in default and due for the June 2018 payment and thereafter. [Id. at 4 ¶¶ 16, 18]. On February 28, 2018, Dr. Moss personally guaranteed an SBA loan to SCMA (the "SBA Loan"). [Id. at 6 ¶ 32]. Regarding the SBA Loan, the following facts are alleged:

i) "According to the Debtors' Schedule D, Dr. Moss is a personal guarantor on a SBA loan to SCMA (the "SBA Loan") to the sum of $ 423,725.00." [Id. at 5 ¶ 31].

ii) "Dr. Moss filed this Bankruptcy Case only two months after personally guaranteeing $ 428,500.00 from the SBA Loan." [Id. at 6 ¶ 33].

iii) "Furthermore, according to the SBA Loan, a majority of the $ 428,500.00 received went to refinance three other six-figure business loans of SCMA." [Id. at 6 ¶ 35].

iv) "It is unknown as to when these other business loans were acquired or if Dr. Moss personally guaranteed them as well, because they were paid off by the SBA Loan and therefore not listed on Dr. Moss' schedules." [Id. at 6 ¶ 36].

IV. PLAINTIFF HAS ALLEGED A PLAUSIBLE CLAIM FOR NONDISCHARGEABILITY UNDER 11 U.S.C. § 523(a)(2)(A).

Plaintiff has alleged nondischargeability of the Loan pursuant to 11 U.S.C. § 523(a)(2)(A), which provides that a debt "for money, property, services, or an extension, renewal, or refinancing of credit" that was obtained by "false pretenses, a false representation, or actual fraud" in a statement that does not concern the debtor or an insider's financial condition is nondischargeable. 11 U.S.C. § 523(a)(2)(A) ; see also Appling v. Lamar, Archer & Cofrin, LLP (In re Appling) , 848 F.3d 953, 957 (11th Cir. 2017), aff'd sub nom Lamar, Archer & Cofrin, LLP v. Appling , ––– U.S. ––––, 138 S.Ct. 1752, 201 L.Ed.2d 102 (2018) (stating that §§ 523(a)(2)(A) and (a)(2)(B) are mutually exclusive; "But if a statement is made ‘respecting the debtor's ... financial condition,’ then subsection (B) governs."). To prevail on a § 523(a)(2)(A) claim, the creditor must show justifiable reliance on the debtor's false pretenses, false representation, or actual fraud. Field v. Mans , 516 U.S. 59, 74, 116 S.Ct. 437, 446, 133 L.Ed.2d 351 (1995) ; accord In re Appling , 848 F.3d at 957 ("A creditor ... need prove only justifiable reliance.... [In contrast, t]o avoid discharge of a debt induced by a statement respecting the debtor's financial condition, a creditor must show reasonable reliance....")

Plaintiff bases its § 523(a)(2)(A) claim on the Statement of Intended Purpose Dr. Moss signed as part of the Loan Application. The Statement of Intended Purpose reads, in its entirety:

Statement of Intended Primary Purpose of the Loan

I, Michael G. Moss, have applied for a commercial loan with Bankers Healthcare Group, LLC ("BHG"). I understand and acknowledge that a "Commercial Loan" is a loan, the proceeds of which are intended by the borrower for use primarily for other than personal, family, or household purposes.

I understand that I will be responsible to use the proceeds of the

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