In re Douglass, Case No. 04-12499-CAG (Bankr. W.D. Tex. 7/25/2008)

• Decision Date: 25 July 2008
• Docket Number: Adv. No. 08-1007,Case No. 04-12499-CAG
• Parties: IN RE: JEFFREY CLARK DOUGLASS, Chapter 13 Debtor. DIANA BLEDSOE DOUGLASS, Plaintiff v. DEBORAH LANGEHENNIG, Chapter 13 Trustee, JEFFREY CLARK DOUGLASS, and CHASE MANHATTAN MORTGAGE CORPORATION, Defendants.
• Court: U.S. Bankruptcy Court — Western District of Texas

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IN RE: JEFFREY CLARK DOUGLASS, Chapter 13 Debtor DIANA BLEDSOE DOUGLASS, Plaintiff v. DEBORAH LANGEHENNIG, Chapter 13 Trustee, JEFFREY CLARK DOUGLASS, and CHASE MANHATTAN MORTGAGE CORPORATION, Defendants.

Case No. 04-12499-CAG

Adv. No. 08-1007

United States Bankruptcy Court, W.D. Texas, Austin Division.

July 25, 2008.

MEMORANDUM OPINION IN SUPPORT OF ORDER GRANTING IN PART AND DENYING IN PART MOTION OF DEFENDANT TRUSTEE TO DISMISS

CRAIG GARGOTTA, Bankruptcy Judge.

On April 2, 2008, came on to be heard the Motion to Dismiss this adversary proceeding, filed on behalf of Defendant Deborah Langehennig, the Chapter 13 Trustee (the "Trustee") appointed in the above-styled and numbered bankruptcy case of Defendant Jeffrey Clark Douglass (the "Debtor"). The Trustee, the Debtor, Defendant Chase Manhattan Mortgage Corporation ("Chase"), and the Plaintiff Diana Bledsoe Douglass ("Plaintiff") each appeared through counsel. After hearing the arguments of counsel, the Court took the matter under advisement. Having now carefully considered those arguments and the applicable law, the Court finds that the Motion should be granted in part and denied in part, for the reasons stated below.

THE APPLICABLE LEGAL STANDARD

The Fifth Circuit has stated the standard as:

When considering a motion to dismiss for failure to state a claim, the [trial] court must take the factual allegations of the complaint as true and resolve any ambiguities or doubts regarding the sufficiency of the claim in favor of the plaintiff. . . . However, conclusory allegations or legal conclusions masquerading as factual conclusions will not suffice to prevent a motion to dismiss.

Fernandez-Montes v. Allied Pilots Ass'n, 987 F.2d 278, 284 (5^th Cir. 1993).

Further, "[t]he determining issue is not whether the plaintiff will ultimately prevail on the merits, but whether he is entitled to offer evidence to support his claim." Priester v. Lowndes County, 354 F.3d 414, 418 (5^th Cir. 2004). Moreover, "[a] motion to dismiss under Rule 12(b)(6) is viewed with disfavor and is rarely granted." Lowrey v. Texas A&M Univ. Sys., 117 F.3d 242, 247 (5^th Cir. 1997); see also Priester v. Lowndes County, 354 F.3d 414, 418 (5th Cir.2004) (same).

In considering such a motion, generally the "court must limit itself to the contents of the pleadings, including attachments thereto." Collins v. Morgan Stanley Dean Witter, 224 F.3d 496, 498 (5^th Cir. 2000); see also In re Katrina Canal Breaches Litig., 495 F.3d 191, 205 (5^th Cir. 2007) (A court may consider a document attached to the motion to dismiss, if it is referred to in the complaint and is central to the plaintiff's claim.). However, "courts must consider the complaint in its entirety, as well as other sources [— ] in particular, documents incorporated into the complaint by reference, and matters of which a court may take judicial notice." Tellabs, Inc. v. Makor Issues & Rights, Ltd., 127 S.Ct. 2499, 2509 (2007).

Federal Rule of Civil Procedure 8(a)(2) requires only "a short and plain statement of the claim showing that the pleader is entitled to relief," in order to "give the defendant fair notice of what the . . . claim is and the grounds upon which it rests . . .." Bell Atl. Corp. v. Twombly, 127 S. Ct. 1955, 1964 (2007) (citing Conley v. Gibson, 355 U.S. 41, 47 (1957)). In Bell Atlantic, the Supreme Court recently restated the pleading standard, requiring in order to survive a Rule 12(b)(6) motion to dismiss, a plaintiff to plead "enough facts to state a claim to relief that is plausible on its face." Bell Atl., 127 S. Ct. at 1974.

The Trustee correctly points out that in Bell Atlantic, the Supreme Court rejected its longstanding articulation in Conley v. Gibson of the applicable standard under Rule 12(b)(6) that "[d]ismissal is warranted only if `it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.'" Conley, 355 U.S. at 45-46. The Trustee argues that Plaintiff's Complaint fails to meet the standard required by Bell Atlantic that "to survive a motion to dismiss, a plaintiff's allegations must set forth `more than labels and conclusion, and a formulaic recitation of the elements of the cause of action.'" Trustee's Motion to Dismiss at ¶ 2, quoting Bell Atl., 127 S. Ct. at 1965.

Specifically, the Trustee argues that for the Plaintiff to meet the standard articulated in Bell Atlantic and show she is "entitled to relief" under Rule 8, she must plead "[f]actual allegations [that are] enough to raise a right to relief above the speculative level" and that "`the pleading must contain something more . . . than . . . a statement of facts that merely creates a suspicion [of] a legally cognizable right of action' on the assumption that all the allegations in the complaint are true (even if doubtful in fact) . . .." Bell Atl., 127 S. Ct. at 1964-65 (citations and footnote omitted).

Since the Bell Atlantic decision, courts have struggled with how to apply the decision's more rigorous "plausibility" standard in place of the previous "no set of facts" standard articulated in Conley. See generally Allan Ides, "Bell Atlantic and the Principle of Substantive Sufficiency Under Federal Rule of Civil Procedure 8(a)(2): Toward a Structured Approach to Federal Pleading Practice," 243 F.R.D. 604 (2006) (hereinafter "Structured Approach"). Some commentators and courts have questioned whether the Supreme Court in Bell Atlantic intended its ruling to apply to any cause of action alleged or be limited to the particular cause of action (perhaps even the particular element of that cause of action) that it addressed in the case before it. Structured Approach at 31 ("the `better' reading of Bell Atlantic is that it did not change the law of pleading, but that it simply applied long-accepted pleading standards to a unique body of law under which the plaintiffs' complaint failed to include any facts or plausible inferences supportive of a material element of the claim specifically asserted by the plaintiffs."); Iqbal v. Hasty, 490 F.3d 143, 156 (2d Cir. 2007) ("some of the Court's linguistic signals point away from a heightened pleading standard and suggest that whatever the Court is requiring in Bell Atlantic might be limited to, or at least applied most rigorously in, the context of either all section 1 allegations or perhaps only those section 1 allegations relying on competitors' parallel conduct."). The confusion on how the new standard applies has arisen because the particular issue addressed by the Supreme Court in Bell Atlantic—whether a complaint was sufficient to allege an agreement under § 1 of the Sherman Act—is one where the established substantive law does not permit any inference of an agreement from facts that show only parallel conduct and nothing more. Structured Approach at 26-27. In other words, even when the facts alleged are viewed, as they must be when deciding a Rule 12(b)(6) motion, in the light most favorable to the pleader and with all reasonable inferences decided in the pleader's favor, the courts cannot infer a § 1 agreement from facts that show only parallel conduct. Bell Atl., 127 S. Ct. at 1966 ("A statement of parallel conduct, even conduct consciously undertaken, needs some setting suggesting the agreement necessary to make out a § 1 claim; without that further circumstance pointing toward a meeting of the minds, an account of a defendant's commercial efforts stays in neutral territory.").

Most courts have not so limited Bell Atlantic, but have applied it to a broad range of causes of action. See e.g., Iqbal, 490 F.3d at 157-58 (finding that the Supreme Court "is not requiring a universal standard of heightened fact pleading, but is instead requiring a flexible `plausibility standard,' which obliges a pleader to amplify a claim with some factual allegations in those contexts where such amplification is needed to render the claim plausible," and applying that standard to a civil rights action); E.E.O.C. v. Concentra Health Serv., Inc., 496 F.3d 773 (7^th Cir. 2007) (interpreting Bell Atlantic as imposing new fact-based pleading requirement and applying it to a Title VII retaliation action); Watts v. Florida Int'l Univ., 495 F.3d 1289, 1295-96 (11^th Cir. 2007) (applying Bell Atlantic, also in a civil rights action).

While the Fifth Circuit Court of Appeals has not expressly addressed the scope of Bell Atlantic in any detail, it has not limited its application either. See, e.g., Elsensohn v. St. Tamany Parish Sheriff's Office, 2008 WL 2315667 (5^th Cir.) (applying Bell Atlantic to a cause of action under the Family and Medical Leave Act); In re Katrina Canal Breaches Litig., 495 F.3d 191 (5th Cir. 2007) (applying Bell Atlantic to causes of action under Louisiana insurance contract law), cert. denied sub nom. Xavier Univ. of Louisiana v. Travelers Cas. Prop. Co. of America, 128 S.Ct. 1230 (2008) and cert. denied sub nom. Chehardy v. Allstate Indem. Co.,128 S.Ct. 1231 (2008); Lindquist v. City of Pasadena, Tex., 525 F.3d 383 (5^th Cir. 2008) (applying Bell Atlantic to federal constitutional equal protection and due process claims). In language reminiscent of Conley, however, the Fifth Circuit Court of Appeals recently added to the confusion when it paraphrased Bell Atlantic in admonishing that "[u]nder Rule 12(b)(6), a claim should not be dismissed unless the court determines that it is beyond doubt that the plaintiff cannot prove a plausible set of facts that support the claim and would justify relief." Lane v. Halliburton, 529 F.3d 548, 557 (5^th Cir. 2008).

Clearly, the standard established under Bell Atlantic applies to the Plaintiff's causes of action. The Court need not today decide with precision the standard to be applied under Bell Atlantic. In reviewing the facts that the Plaintiff alleges, the Court will not speculate as to whether there is "no set of facts" that might support the causes of action alleged in the...