Johnstone Supply Detroit v. Rooks (In re Rooks)
| Decision Date | 28 September 2017 |
| Docket Number | Adv. Pro. No. 17-03007,Case No. 16-33151 |
| Parties | In Re: Harold Leroy Rooks Jill Rooks, Debtor(s). Johnstone Supply of Detroit, Plaintiff(s), v. Harold Leroy Rooks Jill Rooks, Defendant(s). |
| Court | United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Northern District of Ohio |
The court incorporates by reference in this paragraph and adopts as the findings and analysis of this court the document set forth below. This document has been entered electronically in the record of the United States Bankruptcy Court for the Northern District of Ohio.
MEMORANDUM OPINION AND ORDER RE: DEFENDANTS' MOTION TO DISMISS PURSUANT TO FEDERAL RULE OF CIVIL PROCEDURE 12(b)(6)
This adversary proceeding is before the Court on Defendants Harold Leroy Rooks and Jill Rooks' ("Defendants") Motion to Dismiss Complaint ("Motion") pursuant to Rule 12(b)(6), made applicable to bankruptcy proceedings by Federal Rule of Bankruptcy Procedure 7012.1 [Doc. #34]. Plaintiff Johnstone Supply of Detroit ("Plaintiff" or "Johnstone") filed a "Response in Opposition to Defendants' Motion to Dismiss" ("Response"). [Doc. #35]. A "Reply in Further Support of Defendants' Motion to Dismiss Complaint" was submitted ("Reply"). [Doc. #36]. This was followed by Plaintiff's "Supplement to Its Opposition to Defendants' Motion to Dismiss" ("Supplement"). [Doc. #37].
In its "2nd Amended Adversary Complaint" ("Complaint") [Doc. # 25], Plaintiff alleges that Defendants/Debtors, who "have been in business as contractors operating under the name 'Indoor Comfort Systems LLC. . . applied for a credit account" with Plaintiff. [Doc. # 25, ¶ 1]. The Complaint further alleges that Defendants "fail[ed]. . . to give any notice of any kind to [Plaintiff] that they were insolvent when they first applied for [a credit account]. . . ." [Id., ¶ 4]. Plaintiff asserts that the debt owed to it arose "out of the frauds and defalcation committed by [Defendants]" [Id., ¶ 8A], and as such, Defendants' debt owed to Plaintiff "in the total sum of $7,812.39, plus late charges" [Id., ¶8B] should be excepted from Defendants/Debtors' discharge pursuant to 11 U.S.C. § "523 (a)(2)(4) and (c)."2 [Id., ¶ 6].
The district court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. §1334(b) as a civil proceeding arising in or related to a case under Title 11. This proceeding has been referred to this court by the district court under its general order of reference. 28 U.S.C. §157(a); General Order 2012-7 of the United States District Court for the Northern District of Ohio. Proceedings to determine the dischargeability of debts are core proceedings that the court may hear and decide. 28 U.S.C. §157(b)(1) and (b)(2)(I).
For the reasons that follow, the court will grant Defendants' Motion to Dismiss in part and deny Defendants' Motion to Dismiss in part.
Defendants filed their chapter 7 petition on October 5, 2016. [Case No. 16-33151, Doc. # 1].Their petition reflects that Harold Leroy Rooks ("Mr. Rooks") is self-employed and doing business as Indoor Comfort Systems, LLC. [Id., p. 2, 29] and that Jill Rooks ("Mrs. Rooks") is retired. [Id.]. Defendants' Statement of Financial Affairs shows that Mrs. Rooks had no earned income in 2013, 2014, and 2015, [Case No. 16-33151, Doc. # 1, p. 34-35], and her income has been limited to social security benefits. [Id.]. Defendants' address is on Whiteacre Rd. in Toledo, OH.
Indoor Comfort Systems, LLC ("Indoor Comfort") filed a chapter 7 petition on October 7, 2016, in case number 16-33192. [Case No. 16-33192, Doc. # 1]. According to Defendants' SOFA, the nature of the business Mr. Rooks conducted as Indoor Comfort was "[i]nstalling A/C units & [f]urnaces". [Case No. 16-33151, Doc. # 1, p. 39]. Indoor Comfort's principal place of business was located at 3359 Silica Rd., Sylvania, Ohio. [Case No. 16-33192, Doc. # 1, p. 1]. Mr. Rooks is the 100% owner and sole member of Indoor Comfort. [Id., p. 4-5, 29]. Indoor Comfort's only bank account was with Waterford Bank, which is located in Ohio. [Id., p. 7, 17].
The Complaint states that Plaintiff is "a corporate assumed name of Chester Limited, Inc. a Michigan Corporation." The Complaint does not allege where its primary place of business is located nor where it did business with Defendants. The credit application attached to the Complaint reflects that Indoor Comfort, when asked "[w]hich store(s) have/will you be doing most of your business with?", checked the box indicating that it would be doing business at Plaintiff's "Toledo, OH" location. [Doc. # 25, Pl. Ex. 1, p. 5]. On page 3 of the credit application, Mr. and Mrs. Rooks each signed the section of the application that stated Plaintiff could "enforce this agreement in any venue in the state of Michigan." [Id., Pl. Ex. 1, p. 7].
The Complaint alleges that Defendants prepared an application form for credit on June 6, 2016, by which the Defendant/Debtors, as opposed to Indoor Comfort, "applied for a credit account under which they would be permitted to charge purchases and pay for them . . . ." [Id., ¶ 1]. The credit application reflects an applicant with a "Business Name" of Indoor Comfort System LLC, owned by Harold L. Rooks, with Harold L. Rooks listed as an authorized buyer. [Doc. # 25, Pl. Ex. 1, p. 5-7]. The Complaint further alleges that after Plaintiff granted Defendants' request for a credit account, Defendants purchased certain items through said account, and that Defendant/Debtors failed to provide notice to Plaintiff, either at the time the application was signed or when items were purchased through the account, that they were insolvent. [Id., ¶¶ 2-4].
Aside from a "Bank Reference", which required Defendants to provide Plaintiff with a bankname, account number, phone number, and address, it does not appear that the credit application requested any financial information from Defendant/Debtors, and it does not appear that Defendant/Debtors made any representations in the application regarding their financial condition. [Id., Pl. Ex. 1, p. 5-8]. The "Individual Personal Guarantee" section of the credit application was signed only by Mr. Rooks. [Id., Pl. Ex. 1, p. 8].
The Complaint asserts that "on information and belief"3 Defendants "executed contractors' sworn statements and/or waivers of lien knowing that they were false and failed to indicated [sic] Johnstone as supplier or . . .did claim that Johnstone had been paid." [Doc. # 1, ¶ 5].
Plaintiff did not provide any details in the Complaint regarding which representations made by Defendant/Debtors, if any, were false at they time they were made. Nor did Plaintiff's Complaint provide any specifics regarding the alleged sworn statements and/or waivers of liens.
A motion brought by a defendant to dismiss an adversary proceeding is governed by Civil Rule 12(b), made applicable to this proceeding by Bankruptcy Rule 7012(b). Civil Rule 12(b) enumerates seven separate grounds upon which a motion to dismiss may be based.
Defendants' Motion to Dismiss is based upon their assertion that Plaintiff's Complaint fails to state a claim upon which relief could be granted under Sections 523(a)(2) and (a)(4) of the Bankruptcy Code. [Doc. # 34, p. 4-6].
Civil Rule 12(b)(6) provides that a court may dismiss a pleading for a "failure to state a claim upon which relief can be granted[.]" In considering a motion to dismiss under Rule 12(b)(6), the court must assume as true all the well-pleaded facts in the complaint and view them in a light mostfavorable to the plaintiff, with any ambiguities being resolved in the plaintiff's favor. Paige v. Coyner, 614 F.3d 273, 277 (6th Cir. 2010); Bower v. Fed. Express Corp., 96 F.3d 200, 203 (6th Cir. 1996); Jones v. City of Cincinnati, 521 F.3d 555, 559 (6th Cir. 2008); Directv, Inc. v. Treesh, 487 F.3d 471, 476 (6th Cir. 2007).
However, "a legal conclusion couched as a factual allegation" need not be accepted as true, Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). See also, Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009)("the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions."). Nor is the court required to "accept as true . . . unwarranted factual inferences." Jones v. City of Cincinnati, 521 F.3d at 559; Directv, Inc. v. Treesh, 487 F.3d at 476.
"The purpose of a Rule 12(b)(6) motion is to test whether, as a matter of law, the plaintiff is entitled to legal relief even if everything alleged in the complaint is true." Campbell v. Nationstar Mortgage, 611 Fed.Appx. 288, 291 (6th Cir.2015)(internal quotations omitted). As the Sixth Circuit Court of Appeals has noted:
Civil Rule 8(a)(2) says that a complaint must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." A pair of Supreme Court decisions—Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), and Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009)—confirms that this rule imposes legal and factual demands on the authors of complaints.
16630 Southfield Ltd. Partnership v. Flagstar Bank, 727 F.3d 502, 506 (6th Cir.2013)(emphasis in original).
The issue in a 12(b)(6) motion is, therefore, not whether the plaintiff is entitled to prevail, but whether the plaintiff is entitled to offer evidence in support of the claims. Scheuer v. Rhodes, 416 U.S. 232, 236 (1974), overruled on other grounds by Davis v. Scherer, 468 U.S. 183 (1984).
A plaintiff must make "a showing, rather than a blanket assertion of entitlement to relief" and "[f]actual allegations must be enough to raise a right to relief above the speculative level" so that the claim is "plausible on its face." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 547, 127 S.Ct.1955, 1960, 167 L.Ed.2d 929 (2007).4 "A claim has facial plausibility...
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