Howell v. Bank of Am., N.A. (In re Dorsey)

• Decision Date: 18 June 2013
• Docket Number: Bankruptcy No. 11–13292–WHD.,Adversary No. 13–1005.
• Citation: 497 B.R. 374
• Parties: In the Matter of Beatrice Inglis DORSEY, Milton Steven Dorsey, Debtors. Griffin E. Howell, III, Chapter 7 Trustee for the Estate of Beatrice Inglis Dorsey and Milton Steven Dorsey, Plaintiff, v. Bank of America, N.A. as Trustee of the Edwin W. Inglis GST Exempt Trust for the Benefit of Beatrice Dorsey, Defendant.
• Court: U.S. Bankruptcy Court — Northern District of Georgia

497 B.R. 374

In the Matter of Beatrice Inglis DORSEY, Milton Steven Dorsey, Debtors.Griffin E. Howell, III, Chapter 7 Trustee for the Estate of Beatrice Inglis Dorsey and Milton Steven Dorsey, Plaintiff,

v.Bank of America, N.A. as Trustee of the Edwin W. Inglis GST Exempt Trust for the Benefit of Beatrice Dorsey, Defendant.

Bankruptcy No. 11–13292–WHD.

Adversary No. 13–1005.

United States Bankruptcy Court,

N.D. Georgia,

Newnan Division.

June 18, 2013.

John A. Christy, Kelly L. Walsh, Schreeder, Wheeler & Flint, LLP, Atlanta, GA, for Plaintiff.

Byron Crane Starcher, Nelson Mullins Riley & Scarborough, LLP, Atlanta, GA, for Defendant.

ORDER

W. HOMER DRAKE, Bankruptcy Judge.

The above styled adversary case comes before the Court on a Motion to Dismiss Amended Complaint (hereinafter the “Motion”) filed by Bank of America (hereinafter the “Defendant”), requesting the Court to dismiss, pursuant to Federal Rule of Civil Procedure 12(b)(6),¹ the Amended Complaint for Turnover of Property of the Estate Pursuant to 11 U.S.C. § 542 filed by Griffin E. Howell, III (hereinafter the “Plaintiff”), in his role as Chapter 7 Trustee of the bankruptcy estate of Beatrice and Milton Dorsey (hereinafter individually and jointly the “Debtor(s)”). This Court has subject matter jurisdiction over this matter pursuant to 28 U.S.C. §§ 157(b)(2)(A) & (E); § 1334.

Procedural History and Statement of Facts.

On October 3, 2011, the Debtors filed a voluntary petition for relief under Chapter 13 of the United States Bankruptcy Code ² (hereinafter the “Code”) in the Northern District of Georgia, Newnan Division. The case was subsequently converted to Chapter 7 on November 15, 2011, and Griffin Howell, III was appointed as the Chapter 7 Trustee.

On November 14, 2011, the Debtors filed their Statement of Financial Affairs and related schedules (hereinafter collectively the “Schedules”). The Schedules disclosed an interest in a trust, referred to as the Edwin W. Inglis Trust (hereinafter the “Trust”). See Debtors' Schedule B. (Bankr.Docket No. 13). The Trust interest was valued at $0.00 and no exemption was claimed in the property. See Debtors' Schedules B. & C. (Bankr.Docket No. 13). The Schedules were later amended to reflect the complete name ³ of the Trust and to indicate that the Trust was a spendthrift trust with an expected distribution of $15,800 to the Debtors within 180 days of the filing of the petition. See Debtors' Amended Schedules B. & C. (Bankr.Docket No. 37). No exemptions were claimed in the Trust's property by these amendments. See id.

On February 1, 2012, the Plaintiff filed an objection to Debtors' exemptions, objecting to, among other items, “any attempt to exempt Debtor Wife's interest in the Edwin W. Inglis Trust.” See Trustee's Objection to Debtors' Exemptions (Bankr.Docket No. 22). These objections were served only upon the Debtors, their attorney, and the United States Trustee.

Prior to a hearing on the matter, the Trustee and the Debtors reached a consent agreement, whereby, the Trustee's objection was sustained to the “extent necessary to pay all creditors and administrative expenses in the case and the exemption [was] disallowed to that extent.” This agreement was memorialized by consent order entered on August 23, 2012 (hereinafter the “Exemption Order”). See Ct.'s Order on Trustee's Objection to Debtors' Exemptions (Bankr.Docket No. 40). The Plaintiff estimates that the amount necessary to satisfy all creditors and administrative expenses is $68,193.00.

On January 28, 2013, the Plaintiff commenced the instant proceeding by filing a complaint (hereinafter the “Complaint”) pursuant to Section 542 of the Code against Merrill Lynch Trust Company and Matthew Fountain, an employee of the Merrill Lynch Trust Company, as trustee of the Trust. See Pl.'s Compl. (Adv. Docket No. 1). The Defendant answered the Complaint and subsequently filed a Motion to Dismiss Complaint. See Def.'s Answer to Pl.'s Compl. (Adv. Docket No. 5); See also Def.'s Mot. to Dismiss (Adv. Docket. No. 8). Before the Court could address the merits of the Defendant's Motion, the parties filed a joint motion requesting the Court's permission for the Plaintiff to amend the Complaint to reflect the proper parties. See Joint Motion to Amend (Adv. Docket No. 12). After the filing of the joint motion and upon leave of the Court, the Plaintiff's Complaint was amended (hereinafter the “Amended Complaint”) to drop the original defendants and insert Bank of America as the proper Defendant in this action. See Pl.'s Am. Compl. (Adv. Docket No. 14). The Amended Complaint, as did the initial Complaint before it, petitioned the Court for a judgment:

(i) affirming the interest of the Debtors in the funds in the Trust, (ii) ordering the immediate turnover to Plaintiff of the funds in the Trust to the extent necessary to pay all creditors and administrative expenses in this case, and (iii) for such other and further relief as is necessary and appropriate.

Pl.'s Am. Compl.(Adv. Docket No. 14); See also Pl.'s Compl. (Adv. Docket No. 1). The Amended Complaint also sought reimbursement of attorney's fees associated with this adversary proceeding pursuant to the Official Code of Georgia Annotated (hereinafter O.C.G.A.) § 13–6–11. See Pl.'s Am. Compl. (Adv. Docket No. 14).

The Defendant's original Motion to Dismiss Complaint was withdrawn and replaced by the Defendant's Motion to Dismiss Amended Complaint and Brief in Support on May 24, 2013. See Def.'s Mot. to Dismiss Am. Compl. (Adv. Docket No. 17); see also Def.'s Br. (Adv. Docket No. 18). Accompanying the Defendant's Brief was a copy of the Edwin W. Inglis Amended and Restated Revocable Trust Agreement, dated May 11, 1998, as amended February 21, 2006 (hereinafter the “Trust Agreement”). See Def.'s Br., Ex. A.

Threshold Questions.

A. Procedural Posture.

Before the Court may address the substance of the Defendant's Motion to Dismiss, it must first determine whether the procedural posture of the case is such that entertainment of the substantive issues is proper.

A motion to dismiss for failure to state a claim is governed by Federal Rule of Civil Procedure (hereinafter “Rule(s)”) 12, as incorporated into the Bankruptcy Code by Federal Rule of Bankruptcy Procedure 7012. SeeFed. R. Bankr.P. 7012; See alsoFed.R.Civ.P. 12. Rule 12(b) states that a “motion asserting” the defense of failure to state a claim upon which relief can be granted “must be made before” the first responsive pleading if one “is allowed.” SeeFed.R.Civ.P. 12(b).

Nevertheless, where “new matter” is pled giving rise to a Rule 12 defense, leave to file an amended complaint may “revive[ ] the defendant's right to interject a motion on those grounds.” See Overton v. Wyeth, Inc., 2011 WL 1343392, *3 (S.D.Ala.2011) (citations omitted). This “new matter” must give rise to a defense that did not exist prior to the amendment in order to revive a party's right to bring a Rule 12(b)(6) motion. Id. (citing In re Morrison, 421 B.R. 381, 386 (Bankr.S.D.Tex.2009); Artistic Stone Crafters, Inc. v. Safeco Ins. Co. of Am., 2010 WL 317472, *3 (S.D.Ga.2010) ( “[W]hen parties are granted leave to amend their pleadings ... and the amendment adds a new matter that gives rise to a new, previously inapplicable Rule 12 motion, the responding party may assert the new Rule 12 defense by motion or responsive pleading”); Limbright v. Hofmeister, 2010 WL 1740905, *2 (E.D.Ky.2010) (“The filing of an amended complaint will not revive the right to present by motion defenses that were available but were not asserted in a timely fashion prior to the amendment of the pleading.”)).

Defendant's first pleading to the original Complaint was an Answer on March 13, 2013, followed thereafter by the original Motion to Dismiss, dated May 14, 2013. The Complaint was amended to insert Bank of America as the proper party, and Defendant's first responsive pleading to the Amended Complaint was the instant motion before the Court. However, for all intents and purposes, the Amended Complaint accomplished nothing more than correcting the official parties ⁴ and created no “new matter” giving rise to a previously inapplicable Rule 12 motion. This is evident by the fact that the Defendant filed an identical Rule 12(b)(6) motion and brief prior to the Plaintiff's amending the Complaint. See Def.'s Mot. to Dismiss (Adv. Docket No. 8), filed May 14, 2013; see also, Pl.'s Amended Complaint (Adv. Docket No. 14), dated May 21, 2013. It appears, therefore, that the ability to move the Court pursuant to Rule 12(b)(6) was not revived.

However, a Rule 12(b)(6) “defense” cannot be waived by failing to make a proper motion under the Rules. SeeFed.R.Civ.P. 12(h)(1) (“A party waives any defense listed in Rule 12(b)(2)-(5) by: (B) failing to either (i) make it by motion under this rule; or include it in a responsive pleading....”); see alsoFed.R.Civ.P. 12(h)(2) (“Failure to state a claim upon which relief can be granted ... may be raised: (A) in any pleading allowed or ordered under Rule 7(a); (B) by a motion under Rule 12(c); or (C) at trial.”). Moreover, the Rule directs that it can be raised in a Rule 12(c) motion. Id.

Rule 12(c) states that “[a]fter the pleadings are closed—but early enough not to delay trial—a party may move for judgment on the pleadings.” Fed.R.Civ.P. 12(c). Additionally, “a motion under Rule 12(c) is substantively the same as a motion under 12(b)(6) ..., [except] Rule 12(c) motions may be made after[ ] [responsive pleadings are filed.]” Cochran v. Five Points Temporaries, LLC, 2012 WL 5492597, *1 n. 2 (N.D.Ala.2012).

Therefore, for the reasons stated above, the Court will address Defendant's Motion to Dismiss for failure to state a claim pursuant to Rule 12(c)⁵. However, though the distinction is procedurally material to this Court, it is substantively immaterial, as the standards of Rule 12(b)(6) likewise apply to Rule 12(c) motions to dismiss. See Vaughn v. Georgia, 2012 WL 2458538, *1 (N....