In re Weichman, Bankruptcy No. 08-23482 JPK.

• Decision Date: 21 January 2010
• Docket Number: Adversary No. 09-2095.,Bankruptcy No. 08-23482 JPK.
• Citation: 422 B.R. 143
• Parties: In re Jack WEICHMAN, Debtor. Domenico Lazzaro, MD, Joseph Pabon M.D. and Associated Pathologists of Munster Indiana, P.C., Plaintiffs, v. Jack Weichman, Defendant.
• Court: U.S. Bankruptcy Court — Northern District of Indiana

Page 143

422 B.R. 143

In re Jack WEICHMAN, Debtor Domenico Lazzaro, MD, Joseph Pabon M.D. and Associated Pathologists of Munster Indiana, P.C., Plaintiffs, v. Jack Weichman, Defendant.

Bankruptcy No. 08-23482 JPK.

Adversary No. 09-2095.

United States Bankruptcy Court, N.D. Indiana, Hammond Division.

January 21, 2010.

COPYRIGHT MATERIAL OMITTED

Richard M. Davis, Esq., Valparaiso, IN, for Plaintiffs, Domenico Lazzaro, M.D., Joseph

Pabon, M.D. and Associated Pathologists of Munster Indiana, P.C.

Miriam R. Stein, Esq., Chicago, IL, for the Defendant, Jack Weichman.

ORDER ON DEFENDANT'S MOTION TO DISMISS

J. PHILIP KLINGEBERGER, Bankruptcy Judge.

This adversary proceeding was commenced by a complaint filed on April 20, 2009 by the plaintiffs Domenico Lazzaro, MD; Joseph Pabon M.D.; and Associated Pathologists of Munster Indiana, P.C. ("plaintiffs") against Jack Weichman ("defendant"). The complaint generally seeks to except from discharge certain claims alleged against the defendant by the plaintiffs, pursuant to provisions of 11 U.S.C. § 523(a)(2), 11 U.S.C. § 523(a)(4) and 11 U.S.C. § 523(a)(6). On May 19, 2009, the defendant filed a motion to dismiss, based exclusively on Fed.R.Bankr.P. 7012(b)/Fed.R.Civ.P. 12(b)(6). The matters relating to this motion have been fully briefed by the parties.

There has been no objection to the court's exercise of jurisdiction. The court has jurisdiction of this adversary proceeding pursuant to 28 U.S.C. § 1334(b), 28 U.S.C. § 157(a) and (b), and N.D.Ind.L.R. 200.1. This adversary proceeding is a core proceeding under 28 U.S.C. § 157(b)(2)(I).

The court notes at the outset that both parties have approached and briefed matters relating to the defendant's motion to dismiss as if the matter before the court is in the nature of a summary judgment action. The motion to dismiss is premised solely on the face of the pleadings, and no matters outside of the pleadings have been presented to the court. Much of the discussion and analysis presented by the parties in their respective memoranda argue facts and contentions, rather than focus on the pleading requirements applicable to Rule 12(b)(6). Those pleading requirements are relatively straightforward, and the court will address the motion to dismiss in terms of those straightforward rules rather than dissecting and analyzing the arguments made by each of the parties in their respective memoranda.

Rule 12(b)(6), made applicable to adversary proceedings by Fed.R.Bankr.P. 7012(b), provides for the defense of "failure to state a claim upon which relief can be granted".

The decision of the United States Supreme Court in Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), now provides the definitive standard for allegations which must be provided in a complaint pursuant to Fed.R.Civ.P. 8(a) and the standards by which a complaint is measured under that rule in the face of a Rule 12(b)(6) motion. Bell Atlantic Corp. eschewed the long-standing formulation of Conley v. Gibson, 355 U.S. 41, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957)—that a complaint does not state a claim only if "no set of facts" could be postulated which would provide a ground for relief. The new standard is stated as follows:

This case presents the antecedent question of what a plaintiff must plead in order to state a claim under § 1 of the Sherman Act. 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," Conley v. Gibson, 355 U.S. 41, 47, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, ibid.; Sanjuan v. American Bd. of Psychiatry and Neurology, Inc., 40 F.3d 247, 251 (C.A.7 1994), a plaintiff's obligation to provide the "grounds" of his "entitle[ment] to relief" requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do, see Papasan v. Allain, 478 U.S. 265, 286, 106 S.Ct. 2932, 92 L.Ed.2d 209 (1986) (on a motion to dismiss, courts "are not bound to accept as true a legal conclusion couched as a factual allegation"). Factual allegations must be enough to raise a right to relief above the speculative level, see 5 C. Wright & A. Miller, Federal Practice and Procedure § 1216, pp. 235-236 (3d ed. 2004) (hereinafter Wright & Miller) ("[T]he 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), see, e.g., Swierkiewicz v. Sorema N.A., 534 U.S. 506, 508, n. 1, 122 S.Ct. 992, 152 L.Ed.2d 1 (2002); Neitzke v. Williams, 490 U.S. 319, 327, 109 S.Ct. 1827, 104 L.Ed.2d 338 (1989) ("Rule 12(b)(6) does not countenance ... dismissals based on a judge's disbelief of a complaint's factual allegations"); Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974) (a well-pleaded complaint may proceed even if it appears "that a recovery is very remote and unlikely"). (footnote omitted)

127 S.Ct. 1955, 1964-1965.

As the court stated in Ashcroft v. Iqbal, ___ U.S. ___, 129 S.Ct. 1937, 1949-50, 173 L.Ed.2d 868 (2009), citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555-57, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007):

To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to "state a claim to relief that is plausible on its face." [citation omitted] A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. [citation omitted] The plausibility standard is not akin to a "probability requirement," but it asks for more than a sheer possibility that a defendant has acted unlawfully. [citation omitted] Where a complaint pleads facts that are "merely consistent with" a defendant's liability, it "stops short of the line between possibility and plausibility of `entitlement to relief.'" [citation omitted]

. . .

[T]he tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice. [citation omitted] . . . [O]nly a complaint that states a plausible claim for relief survives a motion to dismiss. [citation omitted] Determining whether a complaint states a plausible claim for relief will . . . be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense. [citation omitted] But where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged—but it has not "show[n]"—"that the pleader is entitled to relief." [citation omitted]

The foregoing are the basic standards by which the sufficiency of a complaint is judged against a challenge pursuant to Rule 12(b)(6). In addition, when allegation are fraud are made, or are necessary to be made to sustain a claim, Fed.R.Civ.P. 9(b) [made applicable to adversary proceedings by Fed.R.Bankr.P. 7009] comes into play. The rule states (b) Fraud or Mistake; Conditions of Mind. In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally.

Application of the requirements of Rule 9(b) is also straightforward. The manner in which compliance is to be had with the rule has been well-defined by the United States Court of Appeals for the Seventh Circuit. In Graue Mill Development Corp. v. Colonial Bank & Trust Company of Chicago, 927 F.2d 988, 992-93 (7th Cir. 1991), the following was stated:

Graue Mill's second argument on appeal is that the district court erred in dismissing the RICO counts in its complaint for failure to allege predicate acts of fraud with sufficient specificity. The starting point for pleading fraud claims under RICO is Rule 9(b) of the Federal Rules of Civil Procedure. That rule states that "[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." (emphasis added). Rule 9(b) effectively carves out an exception to the otherwise generally liberal pleading requirements under the Federal Rules. We read 9(b) to mean that RICO plaintiffs, like all other parties pleading fraud in federal court, must "`state the time, place and content'" of the alleged communications perpetrating the fraud. U.S. Textiles Inc. v. Anheuser-Busch Cos., 911 F.2d 1261, 1268 n. 6 (7th Cir.1990) (quoting New England Data Servs. Inc. v. Becher, 829 F.2d 286, 291 (1st Cir.1987)); see also Moore v. Kayport Package Express, 885 F.2d 531, 540 (9th Cir.1989). Most importantly, complaints charging fraud must sufficiently allege the defendant's fraudulent intent. See Haroco v. American Nat'l Bank & Trust Co., 747 F.2d 384, 403 (7th Cir.1984), aff'd on other grounds, 473 U.S. 606, 105 S.Ct. 3291, 87 L.Ed.2d 437 (1985). "Cryptic statements" suggesting fraud are not enough; "`[m]ere allegations of fraud ..., averments to conditions of mind, or references to plans and schemes are too conclusional to satisfy the particularity requirements.'" Flynn v. Merrick, 881 F.2d 446, 449 (7th Cir.1989) (quoting Hayduk v. Lanna, 775 F.2d 441, 444 (1st Cir. 1985)). Rather, pleadings must state the "specific content of the false representations as well as the identities of the parties to the misrepresentation." Moore, 885 F.2d at 540; see also Skycom Corp. v. Telstar Corp., 813 F.2d 810, 818 (7th Cir.1987) (complaint which "[did] not identify a single [fraudulent]...