In re Riggert

• Decision Date: 06 January 2009
• Docket Number: Adversary No. 08-3165.,Bankruptcy No. 08-30331-SGJ-7.
• Citation: 399 B.R. 453
• Parties: In re James Eugene RIGGERT, Debtor. The Cadle Company, Plaintiff, v. James Eugene Riggert, Defendant.
• Court: U.S. Bankruptcy Court — Northern District of Texas

Page 453

399 B.R. 453

In re James Eugene RIGGERT, Debtor The Cadle Company, Plaintiff, v. James Eugene Riggert, Defendant.

Bankruptcy No. 08-30331-SGJ-7.

Adversary No. 08-3165.

United States Bankruptcy Court, N.D. Texas, Dallas Division.

January 6, 2009.

Ernest A. Laun, Dallas, TX, for Plaintiff.

Molly W. Bartholow, Bartholow & Bartholow, Dallas, TX, for Defendant.

MEMORANDUM OPINION AND ORDER DENYING PLAINTIFF'S MOTION FOR LEAVE TO FILE AMENDED COMPLAINT

STACEY G. JERNIGAN, Bankruptcy Judge.

CAME ON FOR CONSIDERATION by this Court the Plaintiff's Motion for Leave to File Amended Complaint ("Motion for Leave") filed by The Cadle Company ("Cadle" or "Plaintiff").

PROCEDURAL POSTURE

1. The facts are that James Eugene Riggert (the "Debtor") filed a voluntary Chapter 7 petition on January 31, 2008.

2. On February 26, 2008, the Section 341 first meeting of creditors in the case was held and concluded [PACER doc. entry on March 3, 2008].¹

3. The original deadline for parties to file complaints objecting to discharge or dischargeability in the case was April 28, 2008 [doc. no. 4]. Fed. R. Bankr.P. 4004(a) and 4007(c).

4. On March 27, 2008, Cadle, a judgment creditor of the Debtor, who has been engaged in efforts to collect its claim against the Debtor for many years,² filed a motion to extend time to file complaints objecting to discharge, citing the need to depose the nondebtor spouse of the Debtor, so Cadle could investigate "a potential fraudulent transfer between the spouses which has resulted in nonexempt property being declared as exempt" [doc. no. 21].

5. The Debtor objected, disputing that Cadle needed more time, arguing that Cadle knew of the particulars of the transaction at issue (such transaction apparently being a June 2007 refinancing of the Debtor's homestead and related transfers and agreements). The Debtor asserted that Cadle knew about the transaction (hereinafter the "2007 Homestead Refinancing") because of, among other things, a 99-page deposition Cadle took of the Debtor prepetition (in July 2007; just one month after the transaction); prepetition document production; disclosure of such transaction in the Debtor's Schedules and Statement of Financial Affairs; and Cadle's attendance at the Section 341 meeting [doc. no. 28].

6. The court granted Cadle a 60-day extension of time to file a complaint objecting to discharge/dischargeability, through June 30, 2008, rather than the 90-day extension Cadle sought [doc. no. 30].

7. On June 19, 2008, Cadle filed an unusually short (3-page) Complaint to Object to Discharge ("Complaint"). Cadle asserted therein that the Debtor and his spouse, within one year of the Debtor's bankruptcy filing, refinanced a jointly owned homestead, extracting approximately $65,000 of cash equity out in the process, then segregated and treated the cash as the wife's sole and separate property, then entered into an agreement and note, pursuant to which the wife would owe the approximately $65,000 back to the Debtor upon the further refinancing or sale of the homestead. Counts 1 through 3 of the Complaint allege that these acts were undertaken with intent to hinder, delay and defraud creditors, as was the failure to reveal the existence of the transfer, the agreement, and the claim against the wife in the Debtor's schedules and statement of financial affairs. All of this, it is alleged, constitutes grounds for denial of discharge, pursuant to Section 727(a)(2), (a)(3), (a)(4), or (a)(5) of the Bankruptcy Code. Count 4 of the Complaint is a "catch all," alleging that the foregoing acts, and "such other acts and omissions under" Section 727(a)(2), (a)(3), (a)(4), or (a)(5) that occurred on or within one year of the date of the filing, are grounds for denial of discharge under Section 727(a)(7). Count 5 of the Complaint is a request for attorney's fees.

8. The Debtor answered the Complaint on July 25, 2008, admitting to the 2007 Homestead Refinancing transactions in pertinent part, but denying that the transactions had ever been concealed (asserting that Cadle—again, having engaged in prepetition discovery—knew about the transactions virtually instantaneously with their occurrence), and denying the transactions were undertaken with intent to hinder, delay, or defraud creditors.

9. Pursuant to the Scheduling Orders in this adversary proceeding, the Complaint is set for trial docket call on February 9, 2009.³

10. On October 29, 2008 (more than six months after the original deadline for objections to discharge and more than four months after the court-extended deadline), Cadle filed its Motion for Leave, seeking leave to file a First Amended Complaint "to add certain facts which provides [sic] a more definite statement of the Plaintiff's causes of action." Motion for Leave, ¶ 4. Cadle requested and obtained a hearing on the Motion for Leave on December 3, 2008.

11. The First Amended Complaint, which is attached to the Motion for Leave, indeed, adds slightly more description regarding the 2007 Homestead Refinancing transaction set forth in the original Complaint. See First Amended Complaint ¶¶ 6 & 9. However, the First Amended Complaint also adds wholly new acts or events, separate from the 2007 Homestead Refinancing transaction, such as: (a) a description of a January 7, 2004 refinancing of the Debtor's homestead wherein, this time, $68,000 of cash equity was extracted out and paid to the Debtor (see First Amended Complaint, ¶ 5); (b) an allegation that the Debtor redirected a $200,000 real estate commission to his nondebtor spouse in December 2005 (see First Amended Complaint, ¶ 5); (c) a reference to a July 2007 deposition of the Debtor that seems to imply that the Debtor was asked, but may not have produced, all responsive documents then sought (see First Amended Complaint, ¶ 7); (d) a reference to the Debtor making a $28,000 deposit into the nondebtor spouse's bank account, apparently postpetition (see First Amended Complaint, ¶ 8); (e) an assertion that the Debtor made four months' worth of house payments (totaling $18,764) four months before filing bankruptcy (see First Amended Complaint, ¶ 10); and (f) various misrepresentations or nondisclosures in which the Debtor allegedly engaged, pertaining to the 2007 Homestead Refinancing and the $200,000 real estate commission (see First Amended Complaint, ¶ 12). The causes of action in the proposed First Amended Complaint—Counts 1 through 5—are identical to those alleged in the original Complaint.⁴

12. The Debtor asserts that Cadle is, in fact, raising new causes of action and asserts that, to the extent the new facts go beyond what is alleged in the original Complaint, this should not be permitted.

13. Cadle argues that it is simply elaborating on the original facts set forth in the Complaint and showing a pattern of conduct relating thereto, that further establishes its Section 727 causes of action. Cadle is emphatic that it has added no new causes of action.

14. Cadle also argues that it only learned of the newly elaborated facts at some undefined point during post-bar date discovery. The court notes that it granted a motion of Cadle to take a Rule 2004 examination of the Debtor's spouse (with production of documents from her) in April 2008 (by order dated May 1, 2008). Apparently, the spouse's examination took place May 22, 2008. See First Amended Complaint, ¶ 8. The Debtor argues that all of the information Cadle wants to add in the draft First Amended Complaint was discussed in the spouse's deposition, if not sooner.

APPLICABLE LAW AND RULING

A. Bankruptcy Rule 7015(a) Evinces a Bias in Favor of Granting Leave to Amend, but it is not Automatic.

15. Rule 15(a) of the Federal Rules of Civil Procedure, which applies in adversary proceedings such as this one, by virtue of Rule 7015 of the Federal Rules of Bankruptcy Procedure, is the starting place for analyzing Cadle's Motion for Leave. It instructs that a party may amend its pleading (before trial, and after service of a responsive pleading), only with written consent from the opposing party or with leave of court, and the "court should freely give leave when justice so requires."

16. Rule 15(a) obviously evinces "a bias in favor of granting leave to amend." Dussouy v. Gulf Coast Inv. Corp., 660 F.2d 594, 598 (5th Cir.1981). However, it should not be considered as "automatic." Trial courts have discretion to deny amendments, if there is a substantial reason to do so. Southmark Corp. v. Schulte Roth & Zabel (In re Southmark Corp.), 88 F.3d 311, 314 (5th Cir.1996); Wimm v. Jack Eckerd Corp., 3 F.3d 137, 139 (5th Cir.1993); Louisiana v. Litton Mortgage Co., 50 F.3d 1298, 1302-03 (5th Cir.1995). "In deciding whether to grant such leave, the court may consider such factors as undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party, and futility of amendment." Southmark, 88 F.3d at 314-315 (citing Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 230, 9 L.Ed.2d 222 (1962) and Wimm, 3 F.3d at 139).

17. In the Southmark case, the Fifth Circuit affirmed a bankruptcy court's denial of plaintiff's motion for leave to amend its complaint. The complaint in Southmark involved a settlement agreement entered into shortly before the Southmark bankruptcy case, pursuant to which Southmark agreed, inter alia, to reimburse a group of dissatisfied, minority-interest shareholders for expenses they incurred in connection with a proxy contest and related lawsuits. The plaintiff, the Reorganized Southmark, alleged that a $3.3 million escrow payment made to fund the settlement, prior to the settlement agreement's actual execution and implementation, constituted a preferential transfer, pursuant to Section 547 of the Bankruptcy Code. Almost one year after the original complaint was filed, Reorganized Southmark moved for leave to amend its complaint to: (a)...