Invest Atlanta Reg'l Ctr., LLC v. Smith (In re Smith)
| Decision Date | 01 December 2017 |
| Docket Number | CASE NO. 17–57882–PMB,ADVERSARY PROCEEDING NO. 17–5206 |
| Parties | IN RE: Portia Regina SMITH, Debtor. Invest Atlanta Regional Center, LLC, Plaintiff, v. Portia Regina Smith, Defendant. |
| Court | United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Northern District of Georgia |
Rory K. Starkey, Mableton, GA, for Plaintiff.
Karen King, Atlanta, GA, for Defendant.
This matter is before the Court on the Defendant's Response to Complaint and Motion to Dismiss filed by Defendant–Debtor (the "Debtor") on September 5, 2017 (Docket No. 8)(the "Motion"). In the Motion, the Debtor seeks a dismissal of the Complaint filed by the Plaintiff named above (the "Plaintiff") on August 4, 2017, and entitled Objection to Discharge (Docket No. 1)(the "Complaint"), arguing that Plaintiff has failed to state a claim with sufficient particularity. Plaintiff has not filed a response to the Motion. Upon review of the record, the Court will grant the Motion but permit the Plaintiff an opportunity to amend the Complaint.
Under Rule 12(b)(6) of the Federal Rules of Civil Procedure, applicable herein through Federal Rule of Bankruptcy Procedure 7012(b), a dismissal is appropriate if a complaint fails "to state a claim upon which relief can be granted." This Rule is construed with Federal Rule of Civil Procedure 8(a), which requires that a pleading contain a "short and plain statement of the claim showing that the pleader is entitled to relief." See Fed.R.Civ.P. 8(a)(2), and Fed.R.Bankr.P. 7008. Under this standard, "to survive a motion to dismiss, a complaint must now contain factual allegations that are ‘enough to raise a right to relief above the speculative level.’ "1 In considering a motion to dismiss, the Court restricts its inquiry to the legal feasibility of the allegations in the complaint and whether they set forth facts as opposed to labels or mere conclusory statements. Further, under Fed.R.Civ.P. 9(b), fraud must be pled with particularity and, although malice and intent may be alleged generally, facts regarding the time, place, and content of any alleged misrepresentations must be offered. United States v. Baxter Intern., Inc. , 345 F.3d 866, 883 (11th Cir. 2003) ; Brooks v. Blue Cross and Blue Shield of Florida, Inc., 116 F.3d 1364, 1370–71 (11th Cir. 1997).
In the Complaint, the Plaintiff appears to assert that the Debtor should be denied a discharge pursuant to 11 U.S.C. § 727(a)(2) through (5) based on allegations that the Debtor "intentionally failed to fully disclose funds and assets by making false oaths and omissions." See Complaint, p. 1 & pp. 5–6, ¶ 10. In addition, the Plaintiff seeks a determination that the indebtedness of the Debtor to the Plaintiff should be excepted from discharge under 11 U.S.C. §§ 523(a)(4) and/or 523(a)(6), and perhaps, 11 U.S.C. § 523(a)(2). The objection is based on the fact that the Debtor is the "Guarantor and sole owner/member of Hair She Is Salon, LLC" (the "LLC") and owes a fiduciary responsibility for assets and record keeping...." Complaint, pp. 3–4.2
Allegations Under 11 U.S.C. § 727(a)
With regard to the allegations under Section 727, the Plaintiff asserts that the Debtor has concealed assets by representing that the LLC was dissolved, although the Debtor has in fact "continually been in business" and reinstated the LLC ten (10) months prior to the filing of the Complaint without revealing this status to the Plaintiff. Based on the Debtor's claimed exemption in Schedule C, the Plaintiff maintains that the Debtor is denying the existence of any assets or funds related to this business except for the sum of $1,500.00. In addition, according to the Plaintiff, the Debtor has failed to explain any loss of assets to meet her obligations. The Debtor has also allegedly failed to disclose her one hundred percent (100%) ownership interest in the LLC in her bankruptcy schedules or account for the remaining balance of the loan proceeds.
Under Section 727(a)(2), the Plaintiff must prove the following by a preponderance of the evidence to support a denial of discharge: "(1) that the act complained of was engaged in within one (1) year prior to the date the petition was filed, (2) that the act was engaged in with actual intent to hinder, delay, or defraud a creditor, (3) that the act was that of the debtor, and (4) that the act consisted of transferring, removing, destroying, or concealing any of the debtor's property." Jennings v. Maxfield , 533 F.3d 1333, 1339 (11th Cir. 2008).3 Because a debtor is not likely to "admit that [s]he intended to hinder, delay, or defraud h[er] creditors, the debtor's intent may be established by circumstantial evidence or inferred from the debtor's course of conduct," based on certain indicia of fraud. Id. This subsection is designed to preclude issuance of a discharge to debtors who conceal, transfer, or remove assets in an effort to evade having to use them to pay the claims of their creditors. See Gebhardt v. McKeever (In re McKeever) , 550 B.R. 623, 635 (Bankr. N.D.Ga. 2016).
The Debtor maintains that at least two (2) of the needed elements under this provision are wanting. The LLC was dissolved in May of 2015, which is beyond one (1) year prior to the filing of this case.4 Further, there are no allegations of an intent to hinder, delay, or defraud the Plaintiff. On review, the Court finds that the Plaintiff has not alleged sufficient facts to support a denial of discharge on these grounds.
Section 727(a)(3) provides that a discharge shall not be granted if "the debtor has concealed, destroyed, mutilated, falsified, or failed to keep or preserve any recorded information, including books, documents, records, and papers, from which the debtor's financial condition or business transactions might be ascertained, unless such act or failure to act was justified under all of the circumstances of the case[.]" 11 U.S.C. § 727(a)(3). This subsection does not require a showing of fraudulent intent. See Protos v. Silver (In re Protos) , 322 Fed.Appx. 930, 935 (11th Cir. 2009) (per curiam). A debtor has "an affirmative duty to maintain comprehensible records from which [her] financial condition or business transactions can be ascertained with a fair degree of accuracy." Lioce v. Heinz (In re Heinz) , 501 B.R. 746, 767 (Bankr. N.D.Ala. 2013), citing Goldberg v. Lawrence (In re Lawrence) , 227 B.R. 907 (Bankr. S.D.Fla. 1998). The Court finds that the Plaintiff has presented conclusory statements instead of allegations of specific facts that could lead to the conclusion that the Debtor did not keep adequate records or otherwise rendered them unavailable for review by creditors. Consequently, the Plaintiff has not alleged sufficient facts to support a denial of discharge on these grounds.
Next, although the Bankruptcy Code offers honest debtors the opportunity of a "fresh start" through the discharge of certain debts; in return, debtors must present themselves and their circumstances in a truthful and accurate manner. To this end, Section 727(a)(4)(A) provides that "[t]he court shall grant the debtor a discharge, unless...the debtor knowingly and fraudulently, in or in connection with the case—made a false oath or account." The purpose of this provision is to make certain sufficient facts are available to all persons asserting an interest in the administration of a bankruptcy estate without having to undertake investigations or examinations to ascertain whether the information provided is true. Thus, " ‘[t]he entire thrust of an objection to discharge because of a false oath or account is to prevent knowing fraud or perjury in the bankruptcy case.’ " Fogal Legware of Switzerland, Inc. v. Wills (In re Wills) , 243 B.R. 58, 63 (9th Cir. BAP 1999), citing William L. Norton, Jr., NORTON BANKRUPTCY LAW AND PRACTICE 2D § 74.11 (1997). To insure veracity, intentional omissions from a debtor's schedules are also actionable under this provision. See Patriot Fire Protection, Inc. v. Fuller (In re Fuller) , 560 B.R. 881, 890–91 (Bankr. N.D.Ga. 2016). A plaintiff objecting to discharge under this subsection bears the burden of proof and must make out his case by a preponderance of the evidence. See The Cadle Co. v. Taras (In re Taras) , 2005 WL 6487202, *3 (Bankr. N.D.Ga. Aug. 19, 2005).
Two (2) elements must be established to deny a debtor's discharge under Section 727(a)(4)(A) : first, a debtor's oath or account must have been knowingly and fraudulently made; and second, it must concern a material fact. Swicegood v. Ginn , 924 F.2d 230, 232 (11th Cir. 1991). Typically, omissions from a debtor's schedules constitute a false oath, and actual fraudulent intent in such a case may be inferred from the totality of the circumstances surrounding the debtor's case. See Ingersoll v. Kriseman (In re Ingersoll) , 124 B.R. 116, 123 (M.D.Fla. 1991). Further, reckless indifference to the truth is sufficient to prove fraudulent intent, and a cumulative effect may arise supporting an inference of such intent to deceive from a demonstrated pattern of omissions. Taras,supra, at *4. Courts analyze whether the alleged omissions are part of a scheme to retain assets through nondisclosure for a debtor's benefit at the expense of creditors.5 The Court finds that the Plaintiff has failed in the Complaint to offer sufficient allegations with respect to its claim under this subsection. Although the Plaintiff contends that the Debtor failed to disclose the true status of the LLC or account for the proceeds from the Loan, these allegations, without more, do not support the assertion that the omissions at issue were part of a fraudulent scheme to retain property to the detriment of creditors.
Finally, under Section 727(a)(5), a debtor's discharge may be denied when a debtor fails to offer a...
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