In re Scott

• Decision Date: 10 April 2009
• Docket Number: Bankruptcy No. 07-30643.,Adversary No. 07-3110.
• Citation: 403 B.R. 25
• Parties: In re Jason J. SCOTT and Clichelle C. Scott, Debtors. John J. Murrin and DeVonna K. Murrin, Plaintiffs, v. Clichelle C. Scott, CFO of Accredited Financial Services, and Jason J. Scott, Defendants.
• Court: U.S. Bankruptcy Court — District of Minnesota

403 B.R. 25

In re Jason J. SCOTT and Clichelle C. Scott, Debtors.

John J. Murrin and DeVonna K. Murrin, Plaintiffs, v. Clichelle C. Scott, CFO of Accredited Financial Services, and Jason J. Scott, Defendants.

Bankruptcy No. 07-30643.

Adversary No. 07-3110.

United States Bankruptcy Court, D. Minnesota.

April 10, 2009.

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Chris LaNave, John O. Murrin, Madison, MN, for Plaintiffs.

William G. Selman III, William G. Selman III Attorney at Law, Minneapolis, MN, for Defendants.

ORDER RE: DEFENDANTS' MOTION FOR DISMISSAL

GREGORY F. KISHEL, Bankruptcy Judge.

This adversary proceeding for determination of dischargeability of debt came on before the Court on the Defendants' motion for dismissal. The Defendants ("the Debtors") appeared by their attorney, William G. Selman, III. Plaintiff John O. Murrin appeared for himself and for DeVonna K. Murrin. Upon the moving and responsive documents, the content of the Plaintiffs' second amended complaint, and the arguments of counsel, the Court memorializes the following order.

PARTIES

The Debtors¹ filed a voluntary petition under Chapter 7 on February 27, 2007. On their Schedule F, they listed a claim in favor of the Plaintiffs, noting it as "2007 CONTIGENT [sic] CLAIM."

The Plaintiffs are a married couple. They timely commenced this adversary proceeding for a determination of the dischargeability of their claim against the Debtors.² Before the Debtors filed for bankruptcy, the Plaintiffs had commenced a lawsuit in the Hennepin County, Minnesota District Court, in which the Debtors were among multiple named defendants. In that action the Plaintiffs complained that they had been induced by certain persons to "invest" $600,000.00 into Avidigm Capital Group, Inc. ("Avidigm").³ They alleged that the inducements had been fraudulent; that "security" for their "investment" had never been furnished as promised; and that other, later actions by certain of the defendants deprived their "investment" of all economic value.

The Debtors' bankruptcy filing stayed the Plaintiffs' further prosecution of this lawsuit, as against the Debtors. The pleaded fundaments of this adversary proceeding are nearly identical to those of the state court litigation: an asserted right to damages in a large amount, the imposition of a constructive trust or equitable lien, an accounting, and various other equitable relief. In the state court these demands for relief are framed under common law, statute, and equity. They are reprised here, with an overlaid request for an exception from discharge in the Debtors' bankruptcy case.⁴ All of this sounds in tort, or under principles analogous to the law of torts; nowhere do the Plaintiffs allege that the Debtors are indebted to them on a commercial basis, i.e., via a loan or other extension of credit.

PROCEDURAL BACKGROUND IN ADVERSARY PROCEEDING

The text of the Plaintiffs' original complaint was 45 unnumbered pages in length, plus a three-page documentary attachment. It is an understatement to note that the wording of the text was dense, repetitious, fervid, and hyperbolic.

The Debtors responded by timely filing an answer. It is fair to say that their attorney labored to answer all of the complaint's lengthy, overlapping fact averments and accusations, over the answer's 21 pages. He specifically raised inadequacy of pleading as a defense, citing several procedural rules.

At a scheduling conference conducted on September 12, 2007, the Debtors' counsel expressed his concerns over the length and prolixity of the complaint, and its relative lack of direct references to acts by the Debtors that could be linked to any harm that had been inflicted on the Plaintiffs by or through Avidigm. The Court concurred on the matter of the complaint's length and complexity; anyone would have difficulty separating out any allegations of fact that went to the Plaintiffs' specific claims against the Debtors from the lengthy tirades about an alleged "scheme" and "conspiracy" centered around Avidigm.

On behalf of the Plaintiffs, John Murrin. offered to amend the complaint he had drafted. This resulted in two successive motions for leave to amend. The Court denied the first on the ground that the proposed amendments neither simplified the text of the complaint nor shortened it at all, and certainly did not clarify the basis for a dischargeability claim against the Debtors. The Plaintiffs presented a second repleading via a renewed motion. That effort reduced the length of the complaint, but just barely—to 39 pages. The Court granted the Plaintiffs leave to interpose that version of their complaint, over the Debtors' objection. This was done on an explicit recognition: the field was left clear for a dispositive motion from the defense, for dismissal or judgment on the pleadings. A deadline for the filing of an answer to the second amended complaint was then set.

The Debtors' motion for dismissal followed, as an alternate form of response. It is now at bar.

NATURE OF MOTION

The Debtors have moved for a final disposition of this adversary proceeding in their favor, on the ground that the content of the Plaintiffs' second amended complaint simply does not plead sustainable causes of action against them.⁵ Their attorney framed the motion in the alternative. He first asserted that the Plaintiffs had failed throughout the complaint to "state with particularity the circumstances constituting fraud" on the Debtors' part, as required by Rule 9(b); then he argued that the complaint was subject to dismissal under Rule 12(b)(6), for its "failure to state a claim upon which relief can be granted."⁶

DISCUSSION

I. Standard to be Applied on Motion for Dismissal

In Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), the Supreme Court reformulated its guidance for the judging of motions for dismissal under Rule 12(b)(6). First, it rejected the long-standing shibboleth from the text of Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957), that "a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." 550 U.S. at 561, 127 S.Ct. at 1968.

Despite that holding, much of the analysis under Rule 12(b)(6) is the same in the wake of Twombly. A complaint's fact allegations as actually pleaded are still to be assumed as true. 550 U.S. at 555, 127 S.Ct. at 1965. See also Data Mfg., Inc. v. United Parcel Serv., Inc., 557 F.3d 849, 851 (8th Cir.2009). And as a continuing, general rule, though plaintiffs "need not provide specific facts in support of their allegations ..., they must include sufficient factual information to provide the `grounds' on which [their] claim rests ..." Schaaf v. Residential Funding Corp., 517 F.3d 544, 549 (8th Cir.2008), cert. denied, ___ U.S. ___, 129 S.Ct. 222, 172 L.Ed.2d 142 (2008) (citing Twombly, 550 U.S. at 553-556 & n. 3, 127 S.Ct. at 1964-1965 & n. 3). See also Benton v. Merrill Lynch & Co., Inc., 524 F.3d 866, 870 (8th Cir.2008). But though the Twombly court cited many of its previous opinions under Rule 12(b)(6), the decision's phraseology implied a more skeptical scrutiny: "[A] plaintiffs obligation to provide the `grounds' of his `entitlement] to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 553-555, 127 S.Ct. at 1964-1965 (citing and quoting Papasan v. Allain, 478 U.S. 265, 286, 106 S.Ct. 2932, 92 L.Ed.2d 209 (1986)).

In a nutshell, establishing a new touchstone modifier, to withstand a challenge under Rule 12(b)(6) a complaint must state "enough facts to state a claim to relief that is plausible on its face." Twombly, 550 U.S. at 570, 127 S.Ct. at 1974. In a comparative sense, for a complaint to "state a claim," its recitation of facts must "raise a right to relief above the speculative level," 550 U.S. at 555, 127 S.Ct. at 1965; they must go beyond a "possibility ... of entitlement to relief," to a "plausibility," 550 U.S. at 557, 127 S.Ct. at 1966 (emphasis added).

This is the guidance for the analysis of this motion, which the Debtors' counsel framed under Rule 12(b)(6). The Court contemplated just this sort of presentation, when the Plaintiffs' renewed motion for leave to amend was granted.⁷

II. Dismissal: Its Position and Consequences in the Context of Bankruptcy

The Plaintiffs pleaded their requests for determination of dischargeability in a disjointed and scattered fashion. Count I is a 15-page repository of rambling, non-sequential fact allegations and rhetorical assertions, offered to support these requests. Throughout Count I, the Plaintiffs cite 11 U.S.C. §§ 523(a)(2)(A), 523(a)(4), and 523(a)(6). Later, in Count LX the Plaintiffs plead various facts to support a prayer for damages for "FRAUD WHILE ACTING IN A FIDUCIARY CAPACITY EMBEZZLEMENT OR LARCENY." They add a one-line request "[t]hat this be declared a debt that is non-dischargeable." In Count X, they recategorize "the conduct alleged above," attributed to Clichelle Scott and others named and unnamed, as constituting "willful and malicious by the debtor as to Avidigm['s] ... money adversely affecting the rights of creditors and investors of which the [Plaintiffs] were one." They reprise previously-described events and acts; and on that basis they request another award of damages, that "[n]o discharge should be issued," and "[t]hat this be declared a debt that is nondischargeable." It is not clear why the asserted factual bases for these legal theories were spread so far over a complaint that was already cumbersome enough. But they were.

The starting point for the treatment of the Debtors' motion comes back to the nature of the relief requested, as to the bankruptcy process initiated by the Debtors: through these three...