In re Damrill
| Decision Date | 02 April 1999 |
| Docket Number | Bankruptcy No. 96-30810-SW,Adversary No. 98-3036. |
| Citation | 232 BR 767 |
| Parties | In re Chester E. DAMRILL and Andre' M. Damrill, Debtors. Shawn Boan, individually and Allstate Optical, Inc., A Nevada Corporation and, Clean Credit Corporation of America, Inc., a Nevada Corporation, Both Corporations are authorized to do Business in the State of Missouri, Plaintiffs, v. Chester E. Damrill and Andre' M. Damrill, Defendants. |
| Court | U.S. Bankruptcy Court — Western District of Missouri |
Jack L. Eisen, Terrence D. Prigmore, for plaintiff.
Norman E. Rouse, for defendant.
This matter comes before the Court on the Objection to Discharge filed by Shawn Boan, Allstate Optical, Inc., and Clean Credit Corporation of America, Inc., ("Plaintiffs") and the Plaintiffs' Application for Leave to File an Amended Objection to Discharge, which is opposed by the Debtors. The issues are whether the Plaintiffs should be allowed (1) to amend their original Objection to Discharge to bring in replevin and other claims filed pre-petition in state court and (2) to expand their § 727 objections to discharge after the deadline for the filing of dischargeability complaints in these Chapter 7 proceedings. For the reasons stated herein, the Court will deny the Plaintiffs' Application for Leave to File an Amended Objection to Discharge, will grant the Plaintiffs 15 days leave to amend their original Objection to Discharge to clarify the statutory grounds on which they are proceeding, and will grant Plaintiffs leave to file another lift stay motion if they desire to pursue their claims for non-monetary relief against the Debtors in the state court.
The following constitutes my Findings of Fact and Conclusions of Law in accordance with Rule 52 of the Federal Rules of Civil Procedure as made applicable to this proceeding by Rule 7052 of the Federal Rules of Bankruptcy Procedure.
Chester Damrill and his wife, Andre' Damrill, ("Damrills" or "Debtors") filed for relief under Chapter 13 of the Bankruptcy Code on December 24, 1996. In their bankruptcy schedules and statement of financial affairs, the Debtors failed to list the Plaintiffs as creditors and failed to disclose a lawsuit that had been filed against them by the Plaintiffs on September 3, 1996, in the Circuit Court of Newton County, Missouri. A Chapter 13 Plan was filed on January 7, 1997, but it made no mention of any debt owed to the Plaintiffs. On February 25, 1997, the Court, without objection, confirmed the Chapter 13 Plan. On June 26, 1998, the Court dismissed the Damrills' Chapter 13 case because of a default in the Plan payments. However, at the request of the Debtors, the Court set aside its Order of Dismissal and then, on August 7, 1998, the Debtors filed a Motion to convert the Chapter 13 to a proceeding under Chapter 7, which they had a right to do under 11 U.S.C. § 706(a). The Court entered its Order converting the case to Chapter 7 on August 10, 1998. In their conversion schedules and statement of financial affairs, the Debtors again failed to list the Plaintiffs as creditors and again failed to disclose the Newton County lawsuit.1
As a result of the conversion to Chapter 7, a new deadline of December 14, 1998, was set for the filing of dischargeability complaints. On December 11, 1998, the Plaintiffs filed a Motion to Lift Automatic Stay, asking the Court to lift the automatic stay of 11 U.S.C. § 362(d) so that the Plaintiffs could pursue the state court litigation. At the same time, the Plaintiffs filed their Objection to Discharge, in which they sought denial of the Debtors' discharge in bankruptcy pursuant to 11 U.S.C. § 727. It is unquestioned that this Objection to Discharge was timely filed before the December 14, 1998, deadline. The sole basis asserted for denial of the Debtors' discharge was the following allegation:
The Plaintiffs alleged that they would be "adversely affected" if the debt allegedly owed to them by the Debtors was discharged, but cited no substantive provision of the Bankruptcy Code in support of their objection to discharge. Their only references to the Bankruptcy Code pointed to non-existent Code sections, "§ 727(1)" and "§ 727(2)."
The Debtors filed a Response to the Motion to Lift Automatic Stay in which they stated that the state court litigation "has now been discharged." The Court2 held a conference with the attorneys for the parties on January 8, 1999, at which time both the Motion to Lift Automatic Stay and Objection to Discharge were discussed. In that conference, Judge Federman suggested that perhaps the state court action could be heard by the Bankruptcy Court along with the Objection to Discharge, thereby conserving the time and resources of the parties, the attorneys and the Court. Accordingly, Judge Federman entered an Order denying the Motion to Lift Automatic Stay, in which he stated that the subject matter of the motion for relief could be taken up in the pending dischargeability action. Taking a cue from the Court's comments, counsel for the Plaintiffs then filed their Application for Leave to File an Amended Objection to Discharge, and attached thereto their proposed Amended Objections to Discharge.
The proposed Amended Objections to Discharge set out five Counts, the first four of which appear to be a duplication of the Newton County lawsuit in all particulars. The Counts are: Count I — Replevin; Count II — Equitable Relief; Count III — Injunction; and Count IV — Accounting. Summarized, the four Counts allege that the Damrills have refused to return the personal and business property of the Plaintiffs, request that the Damrills be enjoined from destroying, concealing or transferring the Plaintiffs' property, request that the Damrills be enjoined from using and/or disclosing the confidential trade secrets and confidential business records of the Plaintiffs, and request an accounting with respect to the business operations which Chester Damrill previously managed for the Plaintiffs. In Counts I through IV of their Amended Objections to Discharge, Plaintiffs once again failed to specify in any way — by reference to a specific provision of the Bankruptcy Code, namely any subsection of § 523 that might constitute grounds for a denial of discharge, or even by general reference to the Bankruptcy Code — how the Debtors' conduct violated the Bankruptcy Code or why the Debtors should be denied a discharge.
The final Count, Count V, is a vastly expanded version of the original Objection to Discharge. In their proposed Count V, the Plaintiffs now allege that the Debtors made false statements or omitted information on their bankruptcy schedules and statement of affairs by (a) failing to list their stock or interest in the business formerly owned and/or operated by the Plaintiffs and Chester Damrill; (b) failing to list the Debtors' Counterclaim in the Newton County lawsuit as an asset; (c) failing to list an alleged bank account; (d) failing to disclose that the Debtors were in possession of the property which was the subject of the Plaintiffs' lawsuit in Newton County; and (e) failing to disclose their partnership interest in the business formerly owned and/or operated with the Plaintiffs.
The proposed Amended Objections to Discharge were not submitted to the Court until February 1, 1999, well beyond the December 14, 1998, deadline for filing objections to discharge.3
The issues before the Court, whether the Plaintiffs should be allowed to amend their original Objection to Discharge to include state law claims filed pre-petition and to add a host of § 727 objections to discharge after the deadline for the filing of dischargeability complaints has passed, bring to the forefront the complex relationship between Federal Rule of Civil Procedure 15(a), which provides for the liberal treatment of amendments to pleadings; Federal Rule of Civil Procedure 15(c), which allows untimely amendments to "relate back" to the date of the original complaint; and Federal Rule of Bankruptcy Procedure 4004, which restricts the filing of objections to discharge to sixty (60) days following the first date set for the meeting of creditors. The issue is a complex one because the policy behind and general application of each rule is different and must be balanced against the others. The matter is further complicated in this case by the inartful pleadings of the Plaintiffs. As a result of the Plaintiffs' failure to adequately plead their original Objections and later amendments, Plaintiffs have lost the opportunity to have their state court claims and additional § 727 objections heard in this Court.
Our discussion begins with a consideration of the general rule for amending a pleading-Federal Rule of Civil Procedure 15(a). Rule 15 applies to adversary proceedings in bankruptcy via Bankruptcy Rule 7015. Fed.R.Bankr.P. 7015. Rule 15 provides in pertinent part:
(a) Amendments. A party may amend the party\'s pleading once as a matter of course at any time before a responsive pleading is served . . . Otherwise a party may amend the party\'s pleading only by leave of court or by written consent of the adverse party; and leave shall be freely given when justice so requires.
In this case, Plaintiffs have lost their privilege to amend their complaint as a matter of course because the Debtors filed an answer to Plaintiffs' original Objection to Discharge. The Debtors have also objected to Plaintiffs' proposed Amended Objections. Thus, Plaintiffs may only amend by leave of court.
The Court should and will grant leave to amend where justice requires. Fed.R.Civ.P. 15(a). Whether or not leave should be granted, however, is entirely within the...
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