Dych v. Vanbrocklin (In re Vanbrocklin), BANKRUPTCY CASE NO. 15–11761–WHD

• Decision Date: 06 March 2017
• Docket Number: ADVERSARY PROCEEDING NO. 15–1059–WHD,BANKRUPTCY CASE NO. 15–11761–WHD
• Citation: 566 B.R. 90
• Parties: In the MATTER OF: James P. VANBROCKLIN, Debtor. Jennifer Dych, Ray Caron, Plaintiffs, v. James P. VanBrocklin, Defendant.
• Court: U.S. Bankruptcy Court — Northern District of Georgia

566 B.R. 90

In the MATTER OF: James P. VANBROCKLIN, Debtor.

Jennifer Dych, Ray Caron, Plaintiffs,

v.James P. VanBrocklin, Defendant.

BANKRUPTCY CASE NO. 15–11761–WHD

ADVERSARY PROCEEDING NO. 15–1059–WHD

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

Signed March 6, 2017

G. Frank Nason, IV, Christopher D. Phillips, Lamberth, Cifelli, Ellis & Nason, P.A., Atlanta, GA, for Plaintiffs.

Brandi J. Hillewaert, Hillewaert Law Firm, Atlanta, GA, for Defendant.

IN PROCEEDINGS UNDER CHAPTER 7 OF THE BANKRUPTCY CODE

ORDER

W. Homer Drake, U.S. Bankruptcy Court Judge

Before the Court are the Motion to Dismiss Plaintiff's Complaint for Failure to Prosecute and the Motion for Judgment on the Pleadings filed by James P. VanBrocklin (hereinafter the "Debtor") in the above-styled adversary proceeding. These motions arise in connection with the complaint of Jennifer Dych and Ray Caron (hereinafter the "Plaintiffs") objecting to the Debtor's receipt of a discharge. This is a core proceeding, see 28 U.S.C. § 157(b)(2)(J), over which this Court has subject matter jurisdiction, see 28 U.S.C. §§ 157(a), 1334.

Motion to Dismiss for Failure to Prosecute

The Debtor's first motion seeks dismissal of the Plaintiffs' complaint pursuant to Federal Rule of Civil Procedure 41, which allows a court to dismiss a proceeding due to a plaintiff's failure to prosecute. See Fed. R. Civ. P. 41(b) ; see also Fed. R. Bankr. P. 7041 (incorporating Rule 41 into adversary proceedings). In this District, there is also a local rule governing dismissal for failure to prosecute. See BLR 7041–1. The local rule allows dismissal if "[a] plaintiff or movant willfully fails or refuses to make an adversary proceeding or contested matter ready or refuses to cause same to be made ready for placement on the trial calendar." BLR 7041–1(a)(1). Dismissal for want of prosecution is an extreme sanction that should only be imposed in situations in which it is necessary. See Betty K Agencies, Ltd. v. M/V M ONADA , 432 F.3d 1333, 1337–39 (11th Cir. 2005) ; Justice v. United States , 6 F.3d 1474, 1482 n.15 (11th Cir. 1993).

The Debtor claims that dismissal for failure to prosecute is necessary because he believes that the Plaintiffs have engaged in "a pattern of inaction." The Debtor points to the fact that the Plaintiffs filed their complaint on November 16, 2015, and since that time have only filed one motion (a motion to strike, which this Court granted in part and denied in part on March 7, 2016). Additionally, the Debtor asserts that the Plaintiffs have not sought any discovery from him.

While the Court acknowledges that the docket in this proceeding is not teeming with activity, there is not sufficient cause to dismiss this proceeding for failure to prosecute. Though the docket does not indicate that the Plaintiffs have sought discovery from the Debtor, they have clearly engaged in discovery in this proceeding, as shown by the five subpoena notices they have filed. (See Doc. Nos. 15–19). In addition, the Plaintiffs complied with this Court's Order of December 20, 2016, directing them to file a status report after a long period of inactivity. (See Doc. No. 22; Status Report, Doc. No. 27). In light of these facts, the Court finds that dismissal for want of prosecution is not appropriate at this time.

Motion for Judgment on the Pleadings

A. Judgment on the Pleadings Standard

Federal Rule of Civil Procedure 12(c) allows a party to "move for judgment on the pleadings." Fed. R. Civ. P. 12(c) ; see also Fed. R. Bankr. P. 7012(b) (incorporating Rule 12(b)-(i) into adversary proceedings). "Judgment on the pleadings...is appropriate when there are no material facts in dispute, and judgment may be rendered by considering the substance of the pleadings and any judicially noticed facts." Horsley v. Rivera , 292 F.3d 695, 700 (11th Cir. 2002) ; accord Hawthorne v. Mac Adjustment, Inc. , 140 F.3d 1367, 1370 (11th Cir. 1998) ; Bank of Camilla v. St. Paul Mercury Ins. Co. , 939 F.Supp.2d 1299, 1303 (M.D. Ga. 2013). In reviewing a motion for judgment on the pleadings filed by a defendant, a court should treat the factual statements in the complaint as true and make all inferences in favor of the non-moving plaintiff. See Bankers Ins. Co. v. Fla. Residential Prop. & Cas. Joint Underwriting Ass'n , 137 F.3d 1293, 1295 (11th Cir. 1998).

"The standard of review for a motion for judgment on the pleadings ‘is almost identical to that used to decide motions to dismiss.’ " Bank of Camilla , 939 F.Supp.2d at 1303 (quoting Doe v. Bd. of Cnty. Comm'rs , 815 F.Supp. 1448, 1449 (S.D. Fla. 1992) ); see also Turbe v. Gov't of Virgin Islands , 938 F.2d 427, 428 (3rd Cir. 1991) (" Rule 12(h)(2) provides that a defense of failure to state a claim upon which relief can be granted may also be made by motion for judgment on the pleadings. In this situation, we apply the same standards as under Rule 12(b)(6)."). Consequently, the Court's analysis on this motion will focus on whether the Plaintiffs' complaint contains sufficient factual allegations "to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atlantic Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ); accord Chaparro v. Carnival Corp. , 693 F.3d 1333, 1337 (11th Cir. 2012) (per curiam). If the Court concludes that the Plaintiffs "would not be entitled to relief under any set of facts that could be proved consistent with the allegations," the Court will dismiss the complaint. See Horsley , 292 F.3d at 700.

With these guiding principles in mind, the Court turns to the allegations in the Plaintiffs' complaint.

B. Background

Accepting the allegations in the Plaintiff's complaint as true, the facts of this proceeding are as follows. The Debtor and Plaintiff Ray Caron were officers and co-owners of two companies: Axiom Laboratories, LLC (hereinafter "Laboratories"), and Axiom Nutraceuticals, LLC (hereinafter "Nutraceuticals"). In 2014, Laboratories acquired the assets of Metaugus, Inc. (hereinafter "Metaugus") by way of a sale conducted as part of Metaugus's Chapter 11 Bankruptcy case. As part of that sale, Laboratories assumed a debt that Metaugus owed to Bank of North Georgia in the approximate amount of $990,000. This debt was secured by substantially all of Laboratories's assets, and the Debtor and Caron both personally guaranteed the debt.

Late in 2014, the Debtor and Caron entered into a separation agreement whereby the Debtor obtained all of the outstanding interest in Laboratories and Nutraceuticals. The agreement provided that both Caron and the Debtor would be liable for certain debts of the two companies. Sometime after this agreement, the Debtor sold significant amounts of Laboratories's assets. Though these assets were subject to Bank of North Georgia's security interest, the proceeds of these sales (hereinafter the "Sale Proceeds") were not turned over to Bank of North Georgia or used to pay any other of Laboratories's debts. Instead, the Debtor converted the Sale Proceeds and other assets of Laboratories (hereinafter the "Converted Assets") to his own use and transferred them to a company called USA Labs Direct, LLC (hereinafter "USA Labs"). USA Labs was established on April 13, 2015, and one Jeffrey Hendricks, MD, is the member and manager.

The Plaintiffs filed their complaint initiating this adversary proceeding on November 16, 2015. The Plaintiffs assert that USA Labs was established for the sole purpose of enabling the Debtor to conceal the Sale Proceeds and the Converted Assets from the creditors of Laboratories and Nutraceuticals. The Plaintiffs maintain that the Debtor is in control of USA Labs, and that the Debtor has engaged in a scheme to conceal his interest in USA Labs and his conversion and transfer of the Sale Proceeds and the Converted Assets.

The complaint contains three counts: (I) the Debtor should be denied a discharge pursuant to § 727(a)(2)(A)¹ as the Debtor's transfer of the Sale Proceeds and other assets constituted a transfer of the Debtor's property within one year of the filing of the petition; (II) the Debtor should be denied a discharge pursuant to § 727(a)(4) as the Debtor's failure to disclose his personal receipt and use of the Sale Proceeds and the Converted Assets, his transfer of those assets to USA Labs, and his true interest in USA Labs constituted false oaths or accounts; and (III) the Debtor should be denied a discharge pursuant to § 727(a)(5) as he has failed to explain satisfactorily the loss or deficiency of the Sale Proceeds and the Converted Assets to meet the Debtor's liabilities.

C. Discussion

In the instant motion, the Debtor asserts that the Plaintiffs have failed to state claims upon which relief can be granted and that he is entitled to judgment on the pleadings as to each of the Plaintiffs' counts. The Court will address each count in turn.

Count I: § 727(a)(2)(A)

Section 727(a)(2)"is intended to prevent the discharge of a debtor who attempts to avoid payment to creditors by concealing or otherwise disposing of assets." Gebhardt v. McKeever (In re McKeever) , 550 B.R. 623, 635 (Bankr. N.D. Ga. 2016) (Hagenau, J.) (quoting 6 COLLIER ON BANKRUPTCY ¶ 727.02[1] (Alan N. Resnik & Henry J. Sommer, eds. 16th ed. Supp. 2013). The section prohibits a debtor from receiving a discharge if "the debtor, with intent to hinder, delay, or defraud a creditor or an officer of the estate... has transferred, removed, destroyed, mutilated, or concealed...(A) property of the debtor, within one year before the date of the filing of the petition." 11 U.S.C. § 727(a)(2). To deny a debtor his discharge under § 727(a)(2), a court must find actual intent, but that intent may be inferred from the circumstances and the debtor's conduct. See In re McKeever , 550 B.R. at 636 ("Actual intent, however, may be inferred from the circumstances surrounding the transfer or concealment."); Menotte v. Moore (In re...