In re Glunk

• Decision Date: 12 June 2006
• Docket Number: Adversary No. 05-700.,Bankruptcy No. 05-31656.
• Citation: 343 B.R. 754
• Parties: In re Richard Paul GLUWK, Debtor. Daniel H. Fledderman and Colleen M. Fledderman, CoAdministrators of the Estate of Amy Marie Fledderman, Plaintiffs, v. Richard Paul Glunk, Defendant.
• Court: U.S. Bankruptcy Court — Eastern District of Pennsylvania

Page 754

343 B.R. 754

In re Richard Paul GLUWK, Debtor Daniel H. Fledderman and Colleen M. Fledderman, CoAdministrators of the Estate of Amy Marie Fledderman, Plaintiffs, v. Richard Paul Glunk, Defendant.

Bankruptcy No. 05-31656.

Adversary No. 05-700.

United States Bankruptcy Court, E.D. Pennsylvania.

June 12, 2006.

COPYRIGHT MATERIAL OMITTED

Jeffrey S. Cianciulli, Weir and Partners LLP, Philadelphia, PA, for Debtor.

MEMORANDUM OPINION

ERIC L. FRANK, Bankruptcy Judge.

I.

The facts surrounding this adversary complaint are sad and rather foreign to the bankruptcy court. Because I have already provided a detailed recitation of the facts surrounding this case in a separate opinion, see In re Glunk, Bky. No. 05-31656, slip op. (Bankr.E.D. Pa. June 12, 2006), I will provide only a brief overview of the background here.

In May 2001, the Debtor, Richard Paul Glunk, performed liposuction surgery on a young woman named Amy Fledderman. Tragically, the procedure resulted in Miss Fledderman's death on May 25, 2001.

Miss Fledderman's parents, Daniel and Colleen Fledderman, filed a lawsuit on behalf of their daughter's estate against the Debtor in the Court of Common Pleas of Philadelphia County on August 31, 2001 ("the CP Action"). Exactly four years later, on August 31, 2005, the Debtor filed a voluntary petition for relief under Chapter 7. On December 9, 2005, Mr. and Mrs. Fledderman, again on behalf of their daughter's estate (hereinafter "Plaintiffs"), initiated this adversary proceeding to determine the dischargeability of their claims against the Debtor.

In their Adversary Complaint, the Plaintiffs allege two (2) counts. In Count I, the Plaintiffs allege that their claim should be excepted from discharge under 11 U.S.C. § 523(a)(2)(A). In Count II, the Plaintiffs allege that their claim should be excepted from discharge under 11 U.S.C. § 523(a)(6).

On January 11, 2006, the Debtor filed a Motion to Dismiss Count I of the Plaintiffs' Adversary Complaint pursuant to Fed. R. Bankr.P. 7012 and Fed.R.Civ.P. 12(b)(1) and 12(b)(6). Oral argument on the Motion was held on March 2, 2006.

For the reasons stated herein, I will grant the Debtor's Motion to Dismiss, but also grant the Plaintiffs leave to amend their Adversary Complaint pursuant to Fed. R. Bankr.P. 7015 and Fed.R.Civ.P. 15(a).

II.

The Debtor's Motion makes the broad assertion that this court lacks subject matter jurisdiction. Yet, the Debtor's brief does not actively press the argument. In fact, the Debtor's brief only addresses what is required for dismissal under Rule 12(b)(6).

The Debtor advances three arguments as to why Count I is legally deficient under Rules 12(b)(1) and 12(b)(6). First, the Debtor claims that the Plaintiffs cannot state a claim that satisfies the necessary elements of § 523(a)(2)(A) because the Debtor did not obtain any money from the decedent and therefore, the decedent's estate does not have any claim against the Debtor. Second, the Debtor makes the alternative argument that if money was obtained, the Plaintiffs fail to establish a requisite element of fraud ` under § 523(a)(2)(A) because the Plaintiffs' Adversary Complaint contains no allegation that the Debtor fraudulently misrepresented the purpose of his intended use of the funds he received. Finally, the Debtor argues that Count I must fail because the Plaintiffs did not bring a claim for fraud in their underlying state lawsuit against the Debtor and the statute of limitations for a fraud action under nonbankruptcy law has since expired.

A.

Dismissal for lack of subject matter jurisdiction under Rule 12(b)(1) based on the legal insufficiency of a pleaded claim is proper "only when the claim `clearly appears to be immaterial and made solely for the purpose of obtaining jurisdiction ... or wholly insubstantial and frivolous.'" Kehr Packages, Inc. v. Fidelcor, Inc., 926 F.2d 1406, 1409 (3d. Cir.1991). The Plaintiffs' claim under § 523(a)(2) cannot be characterized as frivolous. See generally In re Santos, 304 B.R. 639 (Bankr. D.N.J.2004) (debt arising from medical malpractice held nondischargeable under § 523(a)(2) due to fraudulent misrepresentations that induced the creditor to undergo a medical procedure). Further, a Rule 12(b)(6) motion mischaracterized as a Rule 12(b)(1) motion, may actually prejudice a plaintiff because it will deprive the plaintiff of the procedural safeguards resulting from the heightened burden imposed upon a plaintiff under Rule 12(b)(1). Id.; Walnut Associates v. Saidel, 164 B.R. 487, 490 (E.D.Pa.1994) (the plaintiff bears the burden of persuasion when subject matter jurisdiction is challenged in a 12(b)(1) motion unlike a 12(b)(6) motion where the defendant bears the burden of showing no claim has been stated).

Once the merits of the case are distinguished from the issue of subject matter jurisdiction, it is clear that this court has subject matter jurisdiction of Count I pursuant to 28 U.S.C. § 1334(b). Section 1334(b) provides for district court jurisdiction (referred to the bankruptcy court pursuant to 28 U.S.C. § 157(a)) of all "civil proceedings arising under title 11, or arising in title 11 or related to cases under title 11." This adversary proceeding, which asserts claims under 11 U.S.C. § 523(a), arises under title 11. E.g., United States v. Rashid, 2000 WL 1622761 (E.D.Pa. October 30, 2000); In re Scott, 203 B.R. 590 (Bankr.E.D.Va.1996).

For these reasons, there is no merit in the Debtor's argument that the court lacks subject matter jurisdiction.

B.

In accordance with the notice pleading requirement practiced " in the federal courts, a pleading averring a claim for relief must set forth "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Bankr.P. 7008; Fed.R.Civ.P. 8(a). In reviewing a motion to dismiss for failure to state a claim, "all allegations in the complaint and all reasonable inferences that can be drawn therefrom must be accepted as true and viewed in the light most favorable to the non-moving party." Sturm v. Clark, 835 F.2d 1009, 1011 (1987); accord, Doug Grant, Inc. v. Greate Bay Casino Corp., 232 F.3d 173, 183 (3d Cir.2000), cert. denied, 532 U.S. 1038, 121 S.Ct. 2000, 149 L.Ed.2d 1003 (2001). A court may dismiss a complaint for failure to state a claim only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations. Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 81 L.Ed.2d 59 (1984); Jordan v. Fox, Rothschild, O'Brien & Frankel, 20 F.3d 1250, 1261 (3d Cir.1994).

Complaints for nondischargeability for fraud under § 523(a)(2)(A) are governed by the heightened pleading requirements of Fed. R. Bankr.P. 7009 and Fed. R.Civ.P. 9(b). In re Kroen, 280 B.R. 347, 350 n. 2 (Bankr.D.N.J.2002) (citing In re Kanaley, 241 B.R. 795, 803 (Bankr. S.D.N.Y.1999)). Thus, a complaint that merely asserts the legal elements of § 523(a)(2)(A) without making the required factual allegations will not survive a motion to dismiss. Id. (citing American Express Travel Related Services Co. v Henein, 257 B.R. 702, 707 (E.D.N.Y.2001)). However, if a complaint is well pleaded, "[a] motion to dismiss in the context of a challenge to the dischargeability of a certain indebtedness under § 523(a)(2) is generally viewed in a disfavored light, primarily because the fact-intensive nature of such complaints, especially those involving fraud and misrepresentation, render them poor candidates for summary pre-trial disposition." In re Price, 1994 WL 142373 at *2 (Bankr.E.D.Pa.1994).

The Plaintiffs' Complaint is quite detailed and specific with respect to the facts alleged giving rise to their claim of nondischargeability based on the alleged fraud. The crux of the Debtor's Rule 12(b)(6) argument is that the Complaint fails to state a claim under § 523(a)(2)(A) because it does not allege that the Debtor obtained money, property, services or credit from the decedent's estate, or from any source for that matter, as a result of the Debtor's alleged misrepresentations. For the reasons stated below, I conclude that the Debtor is correct that such an allegation is an essential element of a claim under § 523(a)(2)(A).

A debt may be held non-dischargeable under § 523(a)(2)(A) if it was "for money, property, services, or an extension, renewal, or refinancing of credit, to the extent it was obtained, by false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor's or an insider's financial condition." 11 U.S.C. § 523(a)(2)(A). The plain language of the statute unambiguously requires, as a threshold matter, that something of value — specifically, money, property, services or an extension, renewal, or refinancing of credit — be transferred to the debtor from the creditor to sustain a claim under § 523(a)(2)(A). Thus, frauds which do not involve the delivery of money, property, services or an extension, renewal, or refinancing of credit are not encompassed by this discharge exception. See In re Rountree, 330 B.R. 166, 171 (E.D.Va.2004). This principle was also alluded to by the Supreme Court in Cohen v. de la Cruz: "[o]nce it is established that specific money or property has been obtained by fraud, ... `any debt' arising therefrom is excepted from discharge." 523 U.S. 213, 218, 118 S.Ct. 1212, 140 L.Ed.2d 341 (1998) (emphasis added). See also 4 Collier on Bankruptcy, 523.08[1][a] (15^th rev. ed.2005) (before a debt may fall under the exception of § 523(a)(2)(A), "the debtor's fraud must result in a loss of property to the creditor").¹

The Plaintiffs' Adversary Complaint is devoid of any such allegation of specific money, property, services or credit fraudulently obtained by the Debtor as a result of his alleged misrepresentations.

Plaintiffs contend that the state court lawsuit they filed against the Debtor creates the debt in issue. However, this is a bootstrap argument. The existence of the...