Crenshaw v. Lewis (In re Lewis)
| Decision Date | 29 June 2020 |
| Docket Number | Adv. No. 20-3006,Case No. 19-33143 |
| Parties | In re: ROBERT BRUCE LEWIS, Debtor VICTER CRENSHAW AND VICTORY INDUSTRIAL CLEANING LLC, Plaintiffs v. ROBERT BRUCE LEWIS AND GREEN STATE RECYCLING, LLC, Defendants |
| Court | U.S. Bankruptcy Court — Southern District of Ohio |
Decision Granting in Part and Denying in Part Defendants' Motion to Dismiss (Doc. 9)
Robert Bruce Lewis ("Lewis") filed a Chapter 7 petition and has received his discharge. Victer Crenshaw ("Crenshaw") and Victory Industrial Cleaning, LLC ("Victory", and collectively with Crenshaw, the "Plaintiffs") filed a complaint against Lewis and Green State Recycling, LLC ("Green State", and collectively with Lewis, the "Defendants"). doc. 1 (the "Complaint"). The Complaint has three counts: 1) a dischargeability count for embezzlement, defalcation, or larceny pursuant to 11 U.S.C. § 523(a)(4); 2) a dischargeability count for a willful and malicious injury pursuant to 11 U.S.C. § 523(a)(6) and 3) seeking declaratory judgment as to the parties' rights to a certain piece of commercial equipment and a constructive trust imposed or, alternatively, a remand to state court for such determinations.
The Defendants' motion to dismiss (doc. 9) presents the following arguments: 1) Victory lacks the corporate authority to be a plaintiff in this action and therefore must be dismissed as a plaintiff; 2) Green State must be dismissed as a party because the court may not make a dischargeability finding against a non-debtor; 3) the Complaint is insufficiently plead under Rule 8(a) of the Federal Rules of Civil Procedure; 4) the Complaint fails to plead fraud with particularity as required by Federal Rule of Civil Procedure 9(b); and 5) Crenshaw failed to plead a compulsory counterclaim in state court, and therefore is precluded from pursuing this Complaint.
This court has jurisdiction over the dischargeability action against the Debtor pursuant to 28 U.S.C. § 1334 and a dischargeability action is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(I). This court has constitutional authority to enter a final monetary judgment in a dischargeability action. Hart v. S. Heritage Bank (In re Hart), 564 Fed. Appx. 773, 776 (6th Cir. 2014). As the court will explain, this bankruptcy court lacks subject matter jurisdiction over Count 3 of the Complaint because it has no effect on the bankruptcy estate or Lewis' discharge.
The allegations in the Complaint, which for purposes of a dismissal motion the court accepts as true, are as follows. Crenshaw and Lewis, in January 2017, formed Victory.Complaint ¶ 7. The Complaint describes Victory as a "joint venture, partnership, and/or limited liability company" and that the parties intended to own this business equally. Id. However, Lewis "embezzled, misappropriated, stole, converted, or otherwise wrongfully took for use own use, money, funds, and income" from Victory, specifically taking these funds without the consent or knowledge of Crenshaw. Id. ¶ 8.
In June 2018, the parties to this litigation entered into an apparent separate agreement, described as "partially oral and partially in writing" which is embodied "in multiple and varying documents." Id. ¶9. This agreement is described as "in the nature of a venture or other unincorporated association, and/or a common law or statutory partnership[.]" Id. Under this agreement, the written portion of which has not been provided to the court, the parties jointly financed a particular piece of commercial equipment, referred to only as the "Presvac." Id. The Complaint states that "the terms of said agreement also included the acquisition of, financing of, investment in, and operation of the Presvac by Plaintiffs, and upon payment of same to be transferred to Plaintiff(s); and which has since been in the possession and use and control of Plaintiffs, and paid for and maintained by Plaintiff(s), although titled to one or more of the Defendants and/or some other entity under his/their control." Id. The exact particulars of the contractual responsibilities of the parties and the specific nature of this arrangement are not provided.
In any event, the Presvac requires licensing, which expires annually in April. Id. ¶10. The Defendants have not cooperated in the licensing process, requiring the Plaintiffs to pursue the matter in state court prior to this bankruptcy. Id. Pursuant to the express and implied terms of this contractual arrangement, the Defendants were required to not interfere with the use, possession, and operation of the Presvac and the Plaintiffs' "eventual ownership of it" and were required to act reasonably and in good faith. Id. ¶11. The Plaintiffs have performed all conditions precedent to performance. Id. ¶ 12.
This dispute was unresolved extrajudicially, and the Plaintiffs filed suit against the Defendants in the Court of Common Pleas in Warren County, Ohio. Id. ¶ 21. The state court case was set for trial at the time the bankruptcy petition was filed in this case. Id.
A motion to dismiss an adversary proceeding for "failure to state a claim upon which relief can be granted" is governed by Federal Rule of Civil Procedure 12(b)(6) (applicable by Federal Rule of Bankruptcy Procedure 7012(b)). The factual allegations must put the defendant on notice as to the claims being alleged and provide a sufficient factual predicate to make the allegations plausible, and not merely possible. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Federal courts are not obligated to accept as true legal conclusions couched as factual allegations. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). While detailed factual allegations are not necessary, the allegations must be sufficiently detailed to create more than speculation of a cause of action. Id. A claim is plausible if the factual allegations are sufficient to allow "the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." HDC, LLC v. City of Ann Arbor, 675 F.3d 608, 611 (6th Cir. 2012) (citations and internal quotation marks omitted). See Fed. R. Civ. P. 8(a)(2) ().
The Defendants assert that Crenshaw does not have the corporate authority to pursue the Complaint on behalf of Victory. The court cannot determine from the pleadings that Crenshaw lacked such authority and the court declines to convert this issue to summary judgment at this time. Instead, the court is deciding this matter as a motion to dismiss based upon the pleadings. See Fed. R. Civ. P. 12(d) (). The court does so in part because the evidentiary record would need supplementation and it is unclear at this stage if the state court may be in a better position to resolve this and other significant state law questions.
Specifically, the dismissal motion refers to "Paragraph 6" of Victory's operating agreement that would require each member to unanimously agree on "all major decisions affecting the Company." doc. 9 at 2. The Defendants attach the State of Ohio Certificate showing Victory was created, but nothing else relevant to this question. Id. at Exhibit 1. ThePlaintiffs' response (doc. 10) gives a detailed description of their view of the state court proceedings, provides links to such proceedings, but, in the end, asserts that due to a preliminary injunction determination in the state court, Crenshaw is now Victory's only member. The Plaintiffs suggest these preliminary injunction findings may have preclusive effect, but the court is not considering any of this material at this time. In short, this court has no basis as a matter of law to conclude from the pleadings that Crenshaw lacked the legal authority to pursue the Complaint on Victory's behalf.
The next issue is whether the court has subject matter jurisdiction to adjudicate any dispute as to Green State. The only count of possible relevance to Green State as a party is Count 3. Count 3 requests the court to enter declaratory judgment as to the parties' rights to the Presvac, dissolve any "ventures" between the parties, "and/or remand to State Court for those determinations." Complaint ¶13.
The first and fundamental question presented by every case brought to the federal courts is whether the court has subject matter jurisdiction to hear the case before it, even when the parties concede or do not raise the issue. Bender v. Williamsport Area School Dist., 475 U.S. 534, 541 (1986); Harker v. Wells Fargo (In re Krause), 414 B.R. 243, 252 (Bankr. S.D. Ohio 2009). Regardless of whether the parties raise jurisdictional issues themselves - or even attempt to consent to federal jurisdiction - federal courts have an independent obligation to investigate and police the constitutional and statutory limits of their own jurisdiction and counsel, as officers of the court, have an obligation to aid the courts with that duty. Douglas v. E.G. Baldwin & Ass'n, Inc., 150 F.3d 604, 607 (6th Cir. 1998) (overruled in part on other grounds); Minority Police Officers Ass'n v. City of S. Bend, Ind., 721 F.2d 197, 199 (7th Cir. 1983). The party alleging federal court jurisdiction bears the burden of proof. Nuveen Mun. Trust v. Withumsmith Brown, P.C., 692 F.3d 283, 293 (3d Cir. 2012); Perry v. EMC Mortgage Corp. (In re Perry), 388 B.R. 330, 337 (Bankr. E.D. Tenn. 2008); Kmart Creditor Trust v. Conaway (In re Kmart Corp.), 307 B.R. 586, 590 (Bankr. E.D. Mich. 2004).
Federal courts are courts of limited jurisdiction. Michigan Employment Sec. Comm'n v. Wolverine Radio Co. (In re Wolverine Radio Co.), 930 F.2d 1132,...
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