Day v. Gentry (In re Gentry)
| Decision Date | 15 February 2023 |
| Docket Number | 22-21138,Adversary 22-02060 |
| Parties | In re: Chanel Ann Gentry Debtor. v. Chanel Ann Gentry, Defendant. Charles W. Day, Plaintiff, |
| Court | U.S. Bankruptcy Court — Eastern District of Wisconsin |
DECISION AND ORDER GRANTING MOTION TO DISMISS
On June 21, 2022, plaintiff Charles W. Day filed a complaint against debtor-defendant Chanel Ann Gentry seeking to deny Gentry's chapter 7 discharge under 11 U.S.C. § 727(a)(4)(A) on the grounds that she made false statements in her bankruptcy schedules. The Court granted Gentry's motion to dismiss on September 7, 2022 and granted Day leave to amend his complaint. Day filed an amended complaint on September 22, 2022. Gentry filed another motion to dismiss arguing that the complaint still fails to state a claim for relief. For the reasons explained below, the Court will dismiss the amended complaint and will not grant Day leave to further amend the complaint.
Gentry moves to dismiss the amended complaint under Federal Rule of Civil Procedure 12(b)(6), made applicable to this proceeding by Federal Rule of Bankruptcy Procedure 7012. To survive a Rule 12(b)(6) motion, a complaint must contain "sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662 678 (2009) (quoting Bell Atlantic Corp. v. Twombly 550 U.S. 544, 570 (2007)). Factual allegations in a complaint must "raise a right to relief above the speculative level," meaning that they are more than "merely consistent with" the defendant's liability. Twombly, 550 U.S. at 555-57. Exactly how specific a complaint must be varies with the complexity of a plaintiff's claim, but "the plaintiff must give enough details about the subject-matter of the case to present a story that holds together," McCauley v. City of Chicago, 671 F.3d 616-17 (7th Cir. 2011), and where "the allegations give rise to an 'obvious alternative explanation,' the complaint may 'stop[] short of the line between possibility and plausibility[.]'" Id. at 616 (quoting Twombly, 550 U.S. at 557, 567).
When ruling on a motion to dismiss, a court considers only factual allegations and disregards legal conclusions. Iqbal, 556 U.S. at 679. Factual allegations may come from the complaint itself, attachments to the complaint, documents "central to the complaint and . . . referred to in it," and information subject to judicial notice. O'Brien v. Village of Lincolnshire, 955 F.3d 616, 621 (7th Cir. 2020) (citations omitted). A court may also consider facts contained in a brief opposing dismissal that are consistent with the complaint. Phillips v. Prudential Ins. Co. of Am., 714 F.3d 1017, 1019-20 (7th Cir. 2013) (citations and quotes omitted). This includes attachments to briefs opposing dismissal. Heng v. Heavner, Beyers & Mihlar, LLC, 849 F.3d 348, 354 (7th Cir. 2017). The Seventh Circuit has explained that a plaintiff "has much more flexibility in opposing a Rule 12(b)(6) motion" than a defendant in bringing the motion. Geinosky v. City of Chicago, 675 F.3d 743, 745 n.1 (7th Cir. 2012). "If a moving party relies on additional materials, the motion must be converted to one for summary judgment under Rule 56," but a plaintiff opposing dismissal "may elaborate on his factual allegations so long as the new elaborations are consistent with the pleadings." Id.
Day's amended complaint centers on two allegedly false statements Gentry made in her bankruptcy schedules: (1) that Gentry does not own an interest in a business entity, and (2) that Gentry was not employed at the time she filed her petition. Day contends that these statements are "false oaths or accounts" made "knowingly and fraudulently," and that accordingly Gentry should be denied a discharge under 11 U.S.C. § 727(a)(4)(A).[1] To deny a debtor's discharge under § 727(a)(4)(A), a plaintiff must establish: "(1) the debtor made a statement under oath; (2) the statement was false; (3) the debtor knew the statement was false; (4) the debtor made the statement with fraudulent intent; and (5) the statement related materially to the bankruptcy case." In re Kempff, 847 F.3d 444, 449 (7th Cir. 2017) (citation omitted). In addition, a claim under § 727(a)(4)(A) is subject to the heightened pleading requirements of Federal Rule of Civil Procedure 9(b), made applicable to this proceeding by Federal Rule of Bankruptcy Procedure 7009, and the allegations of fraud must be pleaded with particularity. See In re Carmell, 424 B.R. 401, 418 (Bankr. N.D.Ill. 2010). Day does not allege enough facts to state a plausible claim for relief regarding either statement at issue.
Day first alleges that Gentry made false statements on her schedules regarding her interest in an LLC. In response to Question 19 on Schedule A/B regarding whether Gentry owns an interest in any "Non-publicly traded stock and interests in incorporated and unincorporated businesses, including an interest in an LLC, partnership, and joint venture," Gentry checked "No." Main Case ECF No. 1 at 12.[2] In response to Question 27 on the Statement of Financial Affairs asking whether the debtor owned a business or had connections to a business, including as a member of an LLC, in the four years before the petition date, Gentry answered "No." Main Case ECF No. 1 at 38. Gentry later amended Schedule A/B and the Statement of Financial Affairs to disclose an interest in Charlotte Cleaning Service, LLC. Main Case ECF Nos. 10, 11. The amended schedules indicate that the debtor earned no income from the LLC and that the LLC has no value. Id.[3]
The allegations in Day's complaint, if proven, could establish the first three elements of a claim under § 727(a)(4)(A). First, Gentry filed her initial schedules under oath. Second, the amended documents indicate that the answers to Question 19 on Schedule A/B and to Question 27 on the Statement of Financial Affairs on the initial schedules were false. Third, Day alleges that Gentry formed the LLC in January 2022. The short period of time between when the LLC was formed and when Gentry signed her schedules supports an inference that Gentry knew the statements in her schedules were false.
Day's amended complaint does not, however, include sufficient facts that could prove the fourth or fifth elements of his claim. To establish fraudulent intent, Day must plead facts that either (1) show directly that Gentry made a false statement for purposes of deception, or (2) show she made them with "reckless disregard for the truth." Stamat v. Neary, 635 F.3d 974, 982 (7th Cir. 2011); see also In re Yonikus, 974 F.2d 901, 905 (7th Cir. 1992). Day alleges that Gentry first registered the LLC in January 2022 and then failed to disclose her interest in the LLC just two months later when she filed her petition. This allegation on its own is not enough to plausibly suggest that Gentry's omission of the LLC on her bankruptcy schedules "[rose] above mere negligence to the level of reckless disregard for the truth." Stamat, 635 F.3d at 982. The allegation may well be "consistent with" a fraudulent intent, but to survive dismissal the allegations in the complaint must plausibly suggest an entitlement to relief. Twombly, 550 U.S. at 557. Without more, the amended complaint simply does not suggest that fraudulent intent is a more likely explanation for the omission of the LLC interest than the alternative. See McCauley, 671 F.3d at 616 . The LLC had no value on the petition date, which supports an inference that Gentry was negligent in failing to mention the LLC over an inference that Gentry had any intent to deceive, especially given that Day must plead his allegations of fraud with particularity.
Similarly, there is nothing in the amended complaint to support a conclusion that the omission of Charlotte Cleaning Services, LLC was material to Gentry's bankruptcy in the sense that it "[bore] a relationship to the debtor's business transactions or estate, or concern[ed] the discovery of assets, business dealings, or the existence and disposition of the debtor's property." Stamat, 635 F.3d at 982 ). The LLC was not transacting business, had no assets, and had no value on the petition date. Main Case ECF No. 10 at 3. Therefore, Gentry's interest in the LLC was not material to and did not affect the administration of Gentry's bankruptcy estate. Day did allege that Gentry made "a willful misrepresentation of a material fact," see Adv. ECF No. 18 at 4, but this mere recitation of the elements of the claim is not sufficient, see Iqbal, 556 U.S. at 680. Without an allegation that Gentry's failure to disclose the LLC had any impact on the bankruptcy proceeding, the Court cannot conclude that Day sufficiently alleged that the omission was material to support a § 727(a)(4)(A) claim.
On Schedule I, Gentry stated that she was not employed and listed her occupation as "Unemployed." Main Case ECF No. 1 at 27. On her Statement of Financial Affairs Gentry indicated that she received $0.00 in wage income from January 1, 2022 to the petition date. Id. at 32. These statements were made under oath and under penalty of perjury. Id. at 31, 38. Day alleges that the statements were false, and that Gentry was, in fact, employed on March 18, 2022, when she filed her...
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