Glaspell v. United States (In re Glaspell)
| Decision Date | 20 January 2021 |
| Docket Number | AP No.: 5:19-ap-36,Case No.: 5:17-bk-00301 |
| Citation | 626 B.R. 272 |
| Court | U.S. Bankruptcy Court — Northern District of West Virginia |
| Parties | IN RE: Sheila K. GLASPELL, Debtor. Sheila K. Glaspell, Plaintiff, v. The United States of America on Behalf of Its Agency the Internal Revenue Service, Defendant. |
Sheila K. Cline, Weirton, WV, Martin P. Sheehan, Sheehan & Associates PLLC, Wheeling, WV, for Debtor.
The United States of America on behalf of its agency the Internal Revenue Service (the "Defendant") seeks dismissal of the second amended adversary complaint filed against it by Sheila K. Glaspell (the "Debtor"). In the alternative, it asks for summary judgment. In its motion, the Defendant contends that the court should dismiss this adversary proceeding because the Debtor failed to state a claim upon which the court can grant relief. In the alternative, the Defendant contends that this proceeding warrants summary judgment, because there are no genuine issues of material fact and it is entitled to judgment as a matter of law. The Debtor seeks subrogation of the Defendant's claim if she can pay the claim in full under the doctrine of equitable subrogation.
For the reasons stated herein, the court will grant the Defendant's motion to dismiss.
On August 16, 2019, the Debtor filed its complaint, initiating this adversary proceeding. She filed her first amended complaint on December 9, 2019. On August 7, 2020, the court issued a memorandum opinion regarding the Debtor's first amended complaint and the Defendant's motion to dismiss, or in the alternative, motion for summary judgment. Glaspell v. United States (In re Glaspell) , Adv. No. 5:19-ap-36, 2020 WL 4577479, at *1, 2020 Bankr. LEXIS 2127, at *1 (Bankr. N.D.W. Va. Aug. 7, 2020). The court incorporates the factual background of its prior opinion herein. Except for denying the Defendant's motion for lack of subject matter jurisdiction, the court granted the Defendant's motion to dismiss for failure to state a claim upon which relief can be granted. Id. at *4, 2020 Bankr. LEXIS 2127 at *21. Notably, however, the court dismissed the Debtor's amended complaint without prejudice. Id . It indicated that it "would entertain a different, equitable request for relief stemming from the bankruptcy case such as a request for an interim distribution." Id. at *8 n.3, 2020 Bankr. LEXIS 21273 at *21 n.3.
On August 12, 2020, the Debtor filed her second amended complaint and a motion for interim distribution in the bankruptcy case. The court granted the motion for interim distribution on September 10, 2020. On September 3, 2020, the Defendant filed its second motion to dismiss, or in the alternative, motion for summary judgment. The court took the matter under advisement on September 15, 2020.
The Defendant invokes subparagraphs (1) and (6) of Fed. R. Civ. P. ("Rule") 12(b) in seeking dismissal of the Debtor's complaint. Additionally, it implicates Rule 56 in seeking summary judgment. However, the court only will address the Rule 12(b) motion.
Under Rule 12(b)(6), a complaint should be dismissed for "failure to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6) ; Fed. R. Bankr. P. 7012(b) (incorporating Rule 12(b)(6) ). To survive a Rule 12(b)(6) motion, the complaint must contain "enough facts to state a claim to relief that is plausible on its face." Bonds v. Leavitt , 629 F.3d 369, 385 (4th Cir. 2011) (quoting Bell Atlantic Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). "[T]he 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, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Twombly , 550 U.S. at 570, 127 S.Ct. 1955 ). As the Fourth Circuit has explained, the plausibility standard requires a plaintiff "to articulate facts, when accepted as true, that ‘show’ that the plaintiff has stated a claim entitling him to relief, i.e., the ‘plausibility’ of ‘entitlement to relief.’ " Francis v. Giacomelli , 588 F.3d 186, 193 (4th Cir. 2009) (quoting Twombly , 550 U.S. at 557, 127 S.Ct. 1955 ). Finally, when courts evaluate a motion to dismiss, they are to (1) construe the complaint in a light favorable to the plaintiff, (2) take factual allegations as true, and (3) draw all reasonable inferences in favor of the plaintiff. 5C Charles Wright & Arthur Miller, Federal Practice and Procedure § 1357 (3d. ed. 2012) (). The court's role in ruling on a motion to dismiss is not to weigh the evidence, but to analyze the legal feasibility of the complaint. See Cooper v. Parsky , 140 F.3d 433, 440 (2d Cir. 1998). In fact, the court is "limited to considering the sufficiency of allegations set forth in the complaint and the ‘documents attached or incorporated into the complaint.’ " Zak v. Chelsea Therapeutics Int'l Ltd. , 780 F.3d 597, 607 (4th Cir. 2015) (citing E.I. du Pont de Nemours & Co. v. Kolon Indus. Inc. , 637 F.3d 435, 448 (4th Cir. 2011) ).
The Defendant seeks to dismiss the Debtor's second amended complaint for a failure to state a claim upon which relief can be granted. Specifically, it argues that Rule 15 barred the Debtor from filing her second amended complaint. Moreover, it contends that the doctrine of res judicata bars the Debtor from litigating her second amended complaint, nor can she support any viable claim to equitable subrogation.
The Debtor argues that she stated a claim upon which relief can by granted. Specifically, she claims that the case was not entirely dismissed and that amending her pleading appeared to be permissible. Moreover, she claims her amended pleading states a viable claim under the doctrine of equitable subrogation. Under this doctrine, the Debtor contends that the Defendant's claim can be assigned to her on proof of satisfaction of the claim. In support her claim, the Debtor cites to United States v. Noland , 517 U.S. 535, 116 S.Ct. 1524, 134 L.Ed.2d 748 (1996)1 ; Mort v. United States , 86 F.3d 890, 894 (9th Cir. 1996) ; and Ray v. Donohew , 177 W.Va. 441, 352 S.E.2d 729 (1986). Under Donohew , she claims that West Virginia courts describe the right of subrogation as fact dependent, but generally one person or entity, who pay the bills of another, can begiven the rights of the payee.
Rule 15 permits parties to amend their pleadings under certain circumstances. A party may amend its pleading once as a matter of course within twenty-one days after serving it or twenty-one days after service of a responsive pleading or twenty-one days after service of a motion under Rule 12(b), (e), or (f), if the pleading is one to which a responsive pleading is required. Fed. R. Civ. P. 15(a)(1)(a), (b). Notably, in other cases, a party may amend its pleading only with the opposing party's written consent or the court's leave. Fed. R. Civ. P. 15(2). "The court should freely give leave when justice so requires." Id .
Under res judicata principles, a prior judgment between the same parties can preclude subsequent litigation on those matters actually and necessarily resolved in the first adjudication. First Union Commer. Corp. v. Nelson, Mullins, Riley, & Scarborough (In re Varat Enters.) , 81 F.3d 1310, 1314-15 (4th Cir. 1996). As applied by the Fourth Circuit, the doctrine of res judicata encompasses two concepts: claim preclusion, which bars later litigation of all claims that were actually adjudicated or that could have been adjudicated in an earlier action; and issue preclusion, which bars later litigation of legal and factual issues that were "actually and necessarily determined" in an earlier action. Id . at 1315. The doctrine of res judicata applies in the bankruptcy context. Brown v. Felsen , 442 U.S. 127, 132, 99 S.Ct. 2205, 60 L.Ed.2d 767 (1979) ; Turshen v. Chapman , 823 F.2d 836, 839 (4th Cir. 1987). Res judicata bars not only those claims that were actually raised during prior litigation, but also those claims that could have been raised. Covert v. LVNV Funding, LLC , 779 F.3d 242, 247 (4th Cir. 2015). A prior bankruptcy judgment has res judicata effect when the following three conditions are met:
(1) [T]he prior judgment was final and on the merits, and rendered by a court of competent jurisdiction in accordance with the requirements of due process; (2) the parties are identical, or in privity, in the two actions; and, (3) the claims in the second matter are based upon the same cause of action involved in the earlier proceeding.
In re Varat Enters. , 81 F.3d at 1315. Notably, however, "[d]ismissals without prejudice do not bar subsequent suits by res judicata." Choice Hotels Int'l, Inc. v. Goodwin & Boone , 11 F.3d 469, 473 (4th Cir. 1993). "[I]f the court specifies that a dismissal is without prejudice, there is no claim preclusion." Redden v. Sandy , No. 1:18cv187, 2020 WL 3121195, 2020 U.S. Dist. LEXIS 51174 (N.D.W. Va. Feb. 5, 2020).
Both subrogation under § 509 of the Bankruptcy Code and equitable subrogation under state law are available in bankruptcy proceedings. In re Houston , 409 B.R. 799, 808 (Bankr. D.S.C. 2009). Equitable subrogation is a state-law doctrine which allows a person who pays off an encumbrance to assume the same priority position as the holder of the previous encumbrance. Mort , 86 F.3d at 893. In West Virginia, "[t]he doctrine of subrogation is that one who has the right to pay, and does pay, a debt which ought to have been paid by another is entitled to exercise all the remedies which the creditor possessed against that other." Donohew , 177 W. Va. at 449, 352 S.E.2d 729. "[S]ubrogation is a derivative right founded upon principles of justice and equity." Id . The right of subrogation depends upon the facts and circumstances of each case. See id . Specifically, the doctrine applies "where a relationship of principal and surety or a...
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