In re Tague, Adv. No. 90-1539 PAC
| Decision Date | 26 September 1991 |
| Docket Number | Adv. No. 90-1539 PAC,Bankruptcy No. 90-15055 RJB. |
| Citation | 137 BR 495 |
| Parties | In re Janet Sue TAGUE, Social Security No. XXX-XX-XXXX, Debtor. TAGUE & BEEM, P.C., Plaintiff, v. Janet Sue TAGUE, Defendant. |
| Court | U.S. Bankruptcy Court — District of Colorado |
COPYRIGHT MATERIAL OMITTED
Nina A. Iwashko, Canges & Iwashko, Denver, Colo., for plaintiff.
Robert F. Carr, Denver, Colo., for defendant.
ORDER ON DEFENDANT'S MOTION TO DISMISS, OR, IN THE ALTERNATIVE, FOR SUMMARY JUDGMENT OR PARTIAL SUMMARY JUDGMENT
This matter comes before the Court on the motion of defendant Janet Tague, debtor in this Chapter 7 case, to dismiss the plaintiff's complaint, or in the alternative for summary judgment.
Plaintiff asserts claims pursuant to 11 U.S.C. §§ 523(a)(2), 523(a)(4) and 523(a)(6) challenging the dischargeability of a prepetition judgment debt. The complaint is based on a state law cause of action. The complaint in the parties' civil action alleged defendant's conversion of checks belonging to plaintiff as the cause of actual damages sustained. Allegations of "theft" were also raised, but pertained only to plaintiff's claim for treble damages, costs and fees pursuant to a statute which provides the victim of criminal conduct with a private right to pursue a claim for punitive damages. Judgment entered on both damage claims in plaintiff's favor after trial to the court (April 11 judgment). The judgment awarded damages as they were pled in the underlying complaint, which was as two elements of a single claim for relief. An amended order of judgment noted defendant's liability for actual damages without any findings supporting the court's conclusion and awarded punitive damages pursuant to Section 18-4-405.1 As to the punitive damages the court found specifically that defendant's conduct constituted "theft" as defined under Colorado law (June 8 Order). A subsequent order determined the amount of the attorneys' fees and costs awarded pursuant to Section 18-4-405 (July 17 Order). The court found that the various issues set forth in the claims for relief were "intertwined" with all the other issues in the case.2
The June 8 Order was the only "fact" alleged in plaintiff's initial complaint in this proceeding. Defendant's answer challenged the legal sufficiency of the complaint and moved for dismissal. At the hearing on the defendant's motion, counsel also addressed two additional arguments raised by defendant as alternative bases for summary disposition of plaintiff's claims: (1) the application of res judicata or collateral estoppel; and (2) the dischargeability of punitive damages as a matter of law. The Court directed counsel to brief their respective arguments and plaintiff was given leave to amend their complaint.
Plaintiff's amended complaint alleges in substance only that: (1) the state court found defendant's actions constituted "theft" as defined under Colorado Statute in a prepetition civil action in which the June 8 and July 17 Orders entered; (2) defendant was responsible for handling plaintiff's cash deposits while employed as plaintiff's bookkeeper and converted some of those deposits to her own use and benefit; and (3) defendant altered the payee or amount on certain checks, already signed by one of plaintiff's principals, to her own use and benefit.
Defendant's answer to the amended complaint maintains that dismissal of plaintiff's claims remains appropriate under Rule 12(b)(6). In the alternative, defendant requests summary judgment on the claims asserted or partial summary judgment as to the dischargeability of the treble damages, fees and costs at issue.
The parties' pleadings and arguments frame three legal issues for determination: (1) The threshold issue of whether the amended complaint states a claim for relief under Sections 523(a)(2), 523(a)(4) or 523(a)(6); (2) whether principles of res judicata or collateral estoppel support summary judgment on such claims; and, (3) whether the treble damages, attorneys' fees or costs awarded plaintiff are dischargeable as a matter of law.
In adjudicating defendant's motion to dismiss the Court is limited to consideration of only the pleadings, including the June 8 and July 17 Orders attached as Exhibit A to the amended complaint. Under Rule 12(b)(6), the Court is obligated to accept all well pled facts in the amended complaint as true for purposes of determining whether such facts state a cognizable claim for relief. See In re Edmonds, 924 F.2d 176, 180 (10th Cir.1991). Merely conclusory statements alleged or relied on as fact are not afforded the same consideration. See Cayman Exploration Corp. v. United Gas Line Pipe Co., 873 F.2d 1357, 1359 (10th Cir.1989). Furthermore, the Court is mindful of the presumption created by the Federal Rules against rejecting pleadings for failure to state a claim. Id.
Defendant challenges plaintiff's claim under Section 523(a)(2), a claim purportedly based on defendant's actual fraud, as lacking in facts sufficient to state a claim for relief. Defendant maintains that neither the amended complaint nor the state court's findings in the June 8 Order reflect facts sufficiently specific to satisfy the requirements of Bankruptcy Rule 7009(b) and must therefore be dismissed.3 Plaintiff responds that a finding of fraud is inherent in the state court's finding of "theft."
Plaintiff argues that because defendant was a party to the suit in which that order entered, she is already well apprised of the specific facts supporting plaintiff's claim and has been appropriately placed on "notice" of plaintiff's claim in compliance with Bankruptcy Rule 7008. Plaintiff contends that dismissal of their Section 523(a)(2) claim is therefore unwarranted.
The parties' arguments are equally pertinent to plaintiff's claim under Section 523(a)(4),4 a claim in which fraud is an essential element when premised on embezzlement or larceny. In re Wallace, 840 F.2d 762, 765 (10th Cir.1988), defines embezzlement under federal common law for purposes of Section 523(a)(4) as the fraudulent appropriation of property by a person to whom such property has been entrusted or into whose hands it has lawfully come. On the other hand, larceny is distinguished from embezzlement only as to the original taking and possession of property being unlawful rather than authorized. See In re Burgess, 106 B.R. 612, 622 (Bankr.D.Neb.1989).
Tenth Circuit law is clear that only fraud in fact, not merely fraud implied in law or a showing of wrongfulness or dishonesty, is sufficient to establish a claim under either Section 523(a)(2) or 523(a)(4). See In re Mullet, 817 F.2d 677, 682 (10th Cir.1987); In re Black, 787 F.2d 503 (10th Cir.1986). Accordingly, a complaint asserting a claim under either Code provision must reflect facts indicative of actual fraud in order to withstand a motion to dismiss pursuant to Rule 12(b)(6). Furthermore, all facts and circumstances constituting the fraud must be stated with particularity. Fed.R.Civ.P. 9(b); Rodriguez v. Bar-S Food Co., 539 F.Supp. 710, 720 (D.Colo. 1982). Failure to satisfy these requirements justifies dismissal where leave to amend a complaint is not warranted. See Cayman Exploration, supra.
The Court is persuaded that defendant's assessment of the legal insufficiency of plaintiff's claims premised on fraud is correct. Even when coupled with the other allegations in the amended complaint, the Court finds plaintiff's allegation of "theft" as the factual underpinning for actual fraud insufficient to support a claim for relief under either Section 523(a)(2) or (a)(4).
Plaintiff reasons that "theft" as defined under Colorado's criminal code necessarily encompasses the former common law crimes of embezzlement and larceny and therefore by definition includes fraud as an essential element.5 Plaintiff contends that merely alleging "theft" is therefore sufficient to allege fraud for purposes of this proceeding. Plaintiff's reasoning is attenuated at best, even as a basis for fraud implied in law, and certainly not as grounds for the fraud in fact essential to a claim under Sections 523(a)(2) and 523(a)(4) of the Bankruptcy Code. It is not supported by any findings in the June 8 order. It is not supported by any well-pled factual allegations within the amended complaint. Furthermore, it is not substantiated by Colorado law regarding theft.
Under Colorado case law, conversion is held sufficient for purposes of theft prosecution. See Hucal v. People, 176 Colo. 529, 534, 493 P.2d 23 (1971). See also McGuire v. People, 83 Colo. 154, 262 P. 1015 (1928) (). Where theft is premised on deception under Section 18-4-401, C.R.S., the requisite mental state, an intent to defraud, must be established by proof that intentional misrepresentations were made to the victim which caused him to part with something of value in reliance on those misrepresentations. See People v. Norman, 703 P.2d 1261 (Colo.1985); People v. Warner, 801 P.2d 1187 (Colo.1990). Similar standards apply to the pleading and proof of actual fraud under Section 523(a)(2) and (a)(4). See In re Mullet, supra; In re Black, supra.
Nothing on the face of the June 8 or July 17 Orders suggests that defendant misappropriated plaintiff's property by deception. More significantly, plaintiff raises no specific allegations in the amended complaint which state or infer that defendant deceived plaintiff through intentional misrepresentations on which plaintiff reasonably relied or otherwise in appropriating plaintiff's property to her own use.6
Merely alleging "theft" does not state a claim for fraud. Further, the statutory definition of theft is not sufficient to satisfy the proof of common law fraud, embezzlement and larceny. See Hucal v. People, supra; In re Lane, 115 B.R. 81, 83 (Bankr.E.D.Va.1990). Thus, such an allegation is clearly insufficient for pleading...
To continue reading
Request your trial