Huber v. Talbott (In re Talbott)

• Decision Date: 19 January 2012
• Docket Number: Adversary Proceeding No. 11-10031,Case No. 11-00450
• Parties: In re BRYAN W. TALBOTT, Debtor. WILLIAM BICKFORD HUBER, et al. , Plaintiffs, v. BRYAN W. TALBOTT, Defendant.
• Court: United States Bankruptcy Courts. District of Columbia Circuit

In re BRYAN W. TALBOTT, Debtor WILLIAM BICKFORD HUBER, et al. , Plaintiffs, v. BRYAN W. TALBOTT, Defendant.

Case No. 11-00450

Adversary Proceeding No. 11-10031

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF COLUMBIA

Dated: January 19, 2012

_______________

S. Martin Teel, Jr.

U.S. Bankruptcy Judge

Not for Publication inWest's Bankruptcy Reporter

MEMORANDUM DECISION RE MOTION TO DISMISS

This addresses the motion to dismiss the adversary complaint pursuant to Fed. R. Civ. P. 12(b)(1) and 12(b)(6) filed by Bryan W. Talbott, the debtor and the defendant in this adversary proceeding. In the adversary complaint the plaintiffs, William Bickford Huber and W. Bickford Huber Company, request that the court determine that two alleged debts of Talbott be declared nondischargeable under 11 U.S.C. §§ 523(a)(2)(A), 523(a)(4),523(a)(6), and 523(a)(7).

The complaint and incorporated exhibits allege that the defendant, as property manager for the plaintiff, failed to pay rents and other funds to the plaintiffs.¹ Compl. ¶¶ 9, 10. The plaintiffs commenced a lawsuit against Talbott, Private Property, Inc., and Esquire LLC d/b/a Esquire Federal City Realtors, another company operated by Talbott, in the Superior Court of the District of Columbia, alleging breach of contract, breach of fiduciary duty, fraud, fraudulent and negligent misrepresentation, failure to account, and conversion of trust funds. Compl. ¶¶ 14, 15.

Talbott filed an answer to the complaint in Superior Court, but failed to comply with discovery requests and failed to respond to two pending motions as well as to the Superior Court's show cause order.² Compl. ¶ 18; Exh. 2. As a sanction for this conduct, the Superior Court ordered Talbott and his co-defendants defaulted. Compl. ¶ 18. Following an ex parte proof hearing, the Superior Court entered a judgment against Talbott and the companies, jointly and severally, for $72,132.92, as follows: (a) missing rents in the amount of $3,950; (b) security deposits forfour units totaling $4,752; (c) unexplained and improper withdrawal of $2,775; (d) maintenance deposit of $500; (e) attorney's fees of $30,385.08 as a sanction for noncompliance with the litigation; (f) unearned management fees of $4,770.84; (g) expert witness fees of $1,500; (h) fraudulent conduct of $10,000; and (i) interest from the date of judgment and costs.³Compl. ¶¶ 19, 21; Exh. 2.

Count I of the plaintiffs' complaint contends that this judgment is not dischargeable under 11 U.S.C. §§ 523(a)(2)(A), 523(a)(4), 523(a)(6), and 523(a)(7). Compl. ¶¶ 21, 28. In Count II, the plaintiffs allege that the $673,043.55 they owe their mortgage bank should also be declared a nondischargeable debt of the defendant. Compl. ¶ 32.

The defendant argues that Count I should be dismissed because the complaint does not set forth any facts to support the claims and because the Superior Court judgment was not on the merits. The defendant argues that Count II should be dismissed for lack of jurisdiction. He also alleges that Count II fails to state a claim and that the defendant is not a party to the contract with the bank and cannot be liable for the mortgage payments.

I.

The defendant argues that Count II of the complaint should be dismissed pursuant to Fed. R. Civ. P. 12(b)(1) for lack of subject matter jurisdiction. The defendant also contends that Count II is not a core proceeding and the court does not have jurisdiction to render a judgment for damages.

Determining whether a bankruptcy court has authority to both hear and decide an action is a two-part analysis. Dulworth v. U.S. Office Products Co. (In re U.S. Office Products Co. Sec. Litig.), 313 B.R. 73, 79 (D.D.C. 2004). First, there must be subject matter jurisdiction over the case or proceeding under 28 U.S.C. § 1334. Second, the bankruptcy court must have authority to adjudicate the matter under 28 U.S.C. § 157. Id.

Pursuant to 28 U.S.C. § 1334, the district courts have original and exclusive jurisdiction of all cases "under title 11" and original but not exclusive jurisdiction of "all civil proceedings arising under title 11, or arising in or related to cases under title 11." 28 U.S.C. § 1334. Section 157 of title 28 authorizes the district court to refer such cases "to the bankruptcy judges for the district." 28 U.S.C. § 157(a). Under § 157, a bankruptcy judge may "hear and determine all cases under title 11 and all core proceedings arising under title 11, or arising in a case under title 11." 28 U.S.C. § 157(b)(1). A bankruptcy judge may also hear a non-core proceeding "that isotherwise related to a case under title 11." 28 U.S.C. § 157(c)(1).

This court has subject matter jurisdiction to determine the dischargeability of a debt. A dischargeability proceeding is a core proceeding and "is, without question, a constitutional and statutory federal question claim 'arising under' the Bankruptcy Code, because the bankruptcy discharge is relief established by federal bankruptcy law and Section 523 expressly authorizes such a declaration regarding the effect of the federal bankruptcy discharge." Morrison v. Western Builders of Amarillo, Inc. (In re Morrison) , 555 F.3d 473, 478 (5th Cir. 2009) (quoting Ralph Brubaker, On the Nature of Federal Bankruptcy Jurisdiction: A General Statutory and Constitutional Theory, 41 Wm. & Mary L. Rev. 743, 911 (2000)) (internal quotation marks omitted).

This court also has subject matter jurisdiction over the request for a money judgment on the underlying debt. As noted above, this court's subject matter jurisdiction is governed by 28 U.S.C. § 1334, a statute that was intended to confer jurisdiction as expansive as the jurisdiction that existed under the Bankruptcy Act of 1898, which, as amended in 1970, provided in § 17(c)(3) that "if any debt is determined to be nondischargeable, [the court] shall determine the remaining issues, render judgment, and make all orders necessary for the enforcement thereof." See Ralph Brubaker, Bankruptcy CourtJurisdiction to Enter a Money Judgment on a Nondischargeable Debt: Exposing Pacor's Deficiencies and the True Supplemental Nature of Third-Party "Related To" Bankruptcy Jurisdiction, 29 No. 4 BANKR. L. LETTER 1, 4 (2009). "Congress, which intended bankruptcy courts to exercise far more expansive jurisdiction under the Code than under previous law, could not have intended to cut back on their ability to enter money judgments in the core proceedings encompassed by non-dischargeability complaints." Morrison, 555 F.3d at 479.

Accordingly, as there is subject matter jurisdiction in the district court over the plaintiffs' claims, and this jurisdiction has been referred to the bankruptcy judge, the defendant's motion to dismiss for lack of subject matter jurisdiction is denied.

Furthermore, the issue of whether entry of a judgment for the amount of the nondischargeable debt is a core or non-core proceeding need not be decided at this juncture. Though 28 U.S.C. § 157(b)(3) requires the bankruptcy judge to determine whether the proceeding is core or non-core, it does not mandate when the issue is to be decided, and even if the request for a monetary judgment is non-core, the bankruptcy judge can still hear the matter and issue proposed findings of fact and conclusions of law for the district court's consideration.

II.

The defendant-debtor has moved to dismiss the complaint on the ground that it fails to state a claim upon which relief can be granted under Federal Rule Civil Procedure 12(b)(6), made applicable through Federal Rule Bankruptcy Procedure 7012.

The purpose of a Rule 12(b)(6) motion is "to test the legal sufficiency of the complaint." Kingman Park Civic Ass'n v. Williams, 348 F.3d 1033, 1040 (D.C. Cir. 2003). In deciding a motion to dismiss, although the court "must construe the allegations and facts in the complaint in the light most favorable to the plaintiff ...," Gustave-Schmidt v. Chao, 226 F. Supp. 2d 191, 195 (D.D.C. 2002), the complaint must nevertheless plead "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007). A claim is plausible on its face "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1950, 173 L. Ed. 2d. 868 (2009). In deciding a Rule 12(b)(6) motion to dismiss, "the [c]ourt may only consider the facts alleged in the complaint, documents attached as exhibits or incorporated by reference in the complaint, and matters about which the [c]ourt may take judicial notice." Gustave-Schmidt, 226 F. Supp. 2d at 196.

The plaintiffs have filed a Memorandum of Points and Authorities in Opposition to Motion to Dismiss (Dkt. No. 26) raising additional allegations of fact not contained in the complaint. However, a motion to dismiss tests the legal sufficiency of the complaint. Browning v. Clinton, 292 F.3d 235, 242 (D.C. Cir. 2002). Thus, this court "will look only at the allegations made in [the plaintiffs'] actual complaint" and not at the allegations in the legal memorandum filed in opposition to the motion to dismiss. Henthorn v. Dep't of Navy, 29 F.3d 682, 688 (D.C. Cir. 1994); Cinel v. Connick, 15 F.3d 1338, 1341 (5th Cir. 1994) ("[w]e may not look beyond the pleadings."); Chung v. Lee, 852 F. Supp. 43, (D.D.C. 1994) (stating that in considering a Rule 12(b)(6) motion, "the court is restricted in its inquiry to the complaint itself, and may not consider matters outside the complaint.")

The defendant appears to address the issue of collateral estoppel by arguing that the Superior Court judgment is not entitled to preclusive effect because it was not on the merits. The plaintiffs have not filed a motion for summary judgment on the basis of collateral estoppel and that issue is not before the court.⁴

A.

Section 523(a)(2)(A) allows an exception from discharge for "money, property,...