Hadley v. Strader (In re Strader)
| Decision Date | 21 November 2013 |
| Docket Number | C/A No. 13-03652-HB,Adv. Pro. No. 13-80153-HB |
| Court | U.S. Bankruptcy Court — District of South Carolina |
| Parties | In re, Daniel Todd Strader and Sarah Moore Strader, Debtor(s). Brian E. Hadley, individually and on behalf of Hadley-Strader-Tano Associates, Inc., Plaintiff(s), v. Daniel Todd Strader Sarah Moore Strader, Defendant(s). |
THIS MATTER is before the Court pursuant to the Motions to Dismiss and request for reimbursement of attorney's fees and costs filed by Defendants, Daniel Todd Strader and Sarah Moore Strader. Brian E. Hadley, individually and on behalf of Hadley-Strader-Tano Associates, Inc. ("HSTA") objected.
Plaintiffs allege that before the filing of the bankruptcy case, Mr. Hadley, Mr. Strader, and Michael R. Tano (an individual not involved in this adversary proceeding) co-owned HSTA. The company worked with various factories that manufactured cleaning products and sold those products to customers in exchange for commissions. Mr. Strader and Mr. Tano dissolved HSTA and formed Strader-Tano Associates, LLC ("STA") without Mr. Hadley. Plaintiffs allege that the new company provided essentially the same business services as the dissolved HSTA. Plaintiffs filed an action in the North Carolina Superior Court alleging damages caused by theactions of Mr. Strader and Mr. Tano, resulting in a judgment against them in the amount of $220,133.00 plus interest.
Thereafter Defendants filed a voluntary joint chapter 7 petition and Plaintiffs initiated this adversary proceeding, objecting to Defendants' discharge under 11 U.S.C. § 727(a)(4)(A) and to determine the dischargeability of a debt pursuant to 11 U.S.C. §§ 523(a)(4) and (a)(6).1 Copies of the state court judgment and jury verdict are attached to the Complaint filed in this proceeding and all allegations and findings thereof are incorporated by reference.
Plaintiffs herein allege that by dissolving the co-owned company without Mr. Hadley's consent, Mr. Strader ended contracts held by HSTA as well as Mr. Hadley's interest in the company. The state court jury determined that Mr. Strader's actions resulted in financial harm to Plaintiffs sufficient to award a $220,133.00 judgment. Plaintiffs assert that Mr. Strader's position as an officer, director and majority shareholder of the company, to whom property had been entrusted, placed him in a fiduciary role and that he violated that role and acted with a degree of misconduct by "appropriating HSTA contracts with its factories and destroying . . . [Mr. Hadley's] ownership interest in HSTA."
The referenced document (Statement of Financial Affairs, question 13) reads as follows:
Type of Property
Description and Location of Property
Husband, Wife, Joint, or Community
13. Stock and interests in incorporated and unincorporated businesses. Itemize.
50% ownership in Strader-Tano Associates, LLC. Debtor believes the company has no assets, only debts. Debtor states the business is only profitable due to the relationships and skill of its owners. Owners are sales people who receive income solely through commissions for work performed.
H
0.00
Despite the use of the plural term "Defendants" in the allegations and the inclusion of Mrs. Strader herein as a Defendant, the Complaint does not allege that Mrs. Strader owes any debt to Plaintiffs.
Defendants' Motions challenge the sufficiency of Plaintiffs' allegations pursuant to Federal Rule of Civil Procedure 12(b)(6), made applicable to this proceeding by Rule 7012 of the Federal Rules of Bankruptcy Procedure. A motion made pursuant to Rule 12(b)(6) does not address any substance of the case, but merely tests the sufficiency of the complaint. Johnson v. Portfolio Recovery Assocs., LLC, 682 F. Supp.2d 560, 567 (E.D. Va. 2009) (quoting Republican Party of N.C. v. Martin, 980 F.2d 943, 952 (4th Cir. 1992)). In assessing a complaint, the Court should assume all facts alleged in the complaint are true. Id. (quoting E. Shore Mkts., Inc. v. J.D. Assocs. Ltd. P'ship, 213 F.3d 175, 180 (4th Cir. 2000)). However, "[a] pleading that offers 'labels and conclusions' or 'a formulaic recitation of the elements of a cause of action will not do.'" Ashcroft v. Iqbal, 556 U.S. 662, 129 S. Ct. 1937, 1949 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S. Ct. 1955).
It does not have to appear from the allegations of the complaint that a plaintiff is likely to succeed. Rather, all that is required is that the complaint states sufficient facts for the claim to be facially plausible and "'raise a right to relief above the speculative level on the assumption that all the allegations in the complaint are true (even if doubtful in fact).'" Johnson, 682 F. Supp.2d at 567 (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 570). "The plausibility standard is not akin to a 'probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949 (2009) (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 556).
Section 523(a)(4) of the Bankruptcy Code provides that "[a] discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt - . . . (4) for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny." Additionally, pursuant to § 523(a)(6) a debt "for willful and malicious injury by the debtor to another entity or to the property of another entity" is excepted from a debtor's discharge.
The Bankruptcy Code provides that a debtor seeking Chapter 7 relief shall be granted a discharge unless "the debtor knowingly and fraudulently, in or in connection with the case . . . made a false oath or account." § 727(a)(4)(A). Pursuant to § 727(c)(1) only "the trustee, a creditor, or the United States Trustee may object to the granting of a discharge under subsection (a) of this section."
Many of the facts alleged by Plaintiffs do not involve Mrs. Strader and as a result the Court must analyze each Defendant's Motion separately.
Mrs. Strader was incorrectly included as a Defendant in this lawsuit and all causes of action asserted against her must be dismissed. The § 523 causes of action must fail because Plaintiffs do not allege that Mrs. Strader owes a debt to Plaintiffs.
Further, an action under § 727(a)(4)(A) may be asserted only by those parties listed in § 727(c)(1)2 which does not include Plaintiffs. Section 101(10) of the Bankruptcy Code provides that a "creditor" is an "entity that has a claim against the debtor that arose at the time of or before the order for relief concerning the debtor." See 11 U.S.C. § 101(10). Section 101(5) further provides that a claim means a "right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured." 11 U.S.C. § 101(5).
This bankruptcy case was filed jointly by two individuals pursuant to § 302.3 Absent a substantive consolidation of the estates under § 302(b) the assets and liabilities of Mr. and Mrs. Strader remain separate as two different bankruptcy estates that are simply being jointly administered for administrative efficiency. See In re Sims, 421 B.R. 745, 748 (Bankr. D.S.C. 2010) (). "In joint administration, creditors of each debtor continue to look to that debtor for payment of their claims." In re Pack Enterprises, Inc., C/A No. 03-05020-jw, slip op. at 1 (Bankr. D.S.C. 2003). The allegations of the Complaint are void of any indication of a relationship between Plaintiffs and Mrs. Strader that would provide Plaintiffs with the right to challenge Mrs. Strader's discharge. See e.g. In re Barry, 451 B.R. 654, 661 (B.A.P.1st Cir. 2011) (); see also In re Charette, 148 B.R. 94, 96 (Bankr. D. Mass. 1992) (); In re Anderson, 1997 WL 1102027 (Bankr. E.D. Va. Aug. 29, 1997) ().
To maintain a claim pursuant to § 523(a)(4), Plaintiffs must allege that the debt to be excepted from discharge arose while Mr. Strader was acting in a fiduciary capacity and that such debt arose from fraud or defalcation. Defalcation "at a minimum . . . requires some degree of misconduct, negligence or ignorance." In re Ingram, Adv. P. No. 03-8047-jw, slip op. (Bankr. D.S.C. 2003). Alternatively, Plaintiffs must establish embezzlement or larceny.
In the Complaint, Plaintiffs allege that Mr. Strader's position as an officer, director and majority shareholder of the company, to whom property had been entrusted, placed him in a fiduciary role. The Complaint further articulates that Mr. Strader violated this position of...
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