Novak v. Salinas (In re Salinas)

• Decision Date: 05 July 2022
• Docket Number: 21-20541 JJT,Adv. Pro. Case 21-02011 (JJT)
• Parties: IN RE: MANUEL R. SALINAS, DEBTORS. v. MANUEL E. SALINAS and CYNTHIA E. SALINAS, DEFENDANTS. ANTHONY S. NOVAK, CHAPTER 7 TRUSTEE FOR THE ESTATE OF MANUEL R. SALINAS, PLAINTIFF,
• Court: U.S. Bankruptcy Court — District of Connecticut

IN RE: MANUEL R. SALINAS, DEBTORS.

ANTHONY S. NOVAK, CHAPTER 7 TRUSTEE FOR THE ESTATE OF MANUEL R. SALINAS, PLAINTIFF,
v.
MANUEL E. SALINAS and CYNTHIA E. SALINAS, DEFENDANTS.

No. 21-20541 JJT

Adv. Pro. Case No. 21-02011 (JJT)

United States Bankruptcy Court, D. Connecticut, Hartford Division

July 5, 2022

CHAPTER 7

MEMORANDUM OF DECISION AND RULING ON DEFENDANTS' MOTION TO DISMISS RE: ECF NO. 21

James J. Tancredi, Judge.

Before the Court is a Motion to Dismiss the Complaint (ECF No. 21, the "Motion") filed by Manuel E. Salinas and Cynthia E. Salinas ("Defendants"). Anthony S. Novak, the Chapter 7 Trustee ("Trustee" or "Plaintiff") commenced this action on behalf of Manuel R. Salinas (the Chapter 7 bankruptcy "Debtor") against the Defendants by way of Complaint (ECF No. 1) asserting a single count for unjust enrichment. The Defendants, who are also the Debtor's children, moved to dismiss the Complaint under Fed.R.Civ.P. 12(b)(6) for failure to state a claim upon which relief may be granted. For the following reasons, the Defendants' Motion is granted, but the Trustee is granted leave to amend his Complaint.

I. JURISDICTION

The United States District Court for the District of Connecticut has jurisdiction over the instant proceedings under 28 U.S.C. § 1334(b), and the Bankruptcy Court derives its authority to

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hear and determine this matter on reference from the District Court under 28 U.S.C. § 157(a) and (b)(1) and the General Order of Reference of the United States District Court for the District of Connecticut dated September 21, 1984. This is a core proceeding under 28 U.S.C. § 157(b)(2)(E) and (O).

II. STANDARD OF REVIEW

Federal Rule of Civil Procedure 12(b)(6), made applicable to this adversary proceeding by Federal Rule of Bankruptcy Procedure 7012(b), allows a party to move to dismiss a cause of action for "failure to state a claim upon which relief can be granted." Fed.R.Civ.P. 12(b)(6). To survive a motion to dismiss, a pleading must contain a "short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2).

"To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim for relief that is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). "As the Supreme Court has explained, this standard creates a 'two-pronged approach' based on '[t]wo working principles.'" Pension Ben. Guar. Corp. ex rel. St. Vincent Cath. Med. Centers Ret. Plan v. Morgan Stanley Inv. Mgmt. Inc., 712 F.3d 705, 717 (2d Cir. 2013) ("Pension Benefit") (alteration in original) (citations omitted) (quoting Iqbal, 556 U.S. at 678).

"First, although a complaint need not include detailed factual allegations, it must provide 'more than an unadorned, the-defendant-unlawfully-harmed-me accusation.'" Id. "A pleading that offers 'labels and conclusions' or 'a formulaic recitation of the elements of a cause of action will not do.'" Id. (quoting Iqbal, 556 U.S. at 678). "Nor does a complaint suffice if it tenders 'naked assertion[s]' devoid of 'further factual enhancement.'" Id. (alteration in original) (quoting Iqbal, 556 U.S. at 678). "Although for the purposes of a motion to dismiss we must take all of

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the factual allegations in the complaint as true, we 'are not bound to accept as true a legal conclusion couched as a factual allegation.'" Id. (quoting Iqbal, 556 U.S. at 678). "While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations." Id. (quoting Iqbal, 556 U.S. at 679).

"Second, '[w]hen there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief.'" Id. quoting Iqbal, 556 U.S. at 679). "This 'facial plausibility' prong requires the plaintiff to plead facts 'allow[ing] the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.'" Id. at 717-18 (alteration in original) (quoting Iqbal, 556 U.S. at 678). "Importantly, the complaint must demonstrate 'more than a sheer possibility that a defendant has acted unlawfully.'" Id. at 718 (quoting Iqbal, 556 U.S. at 678). "[W]here 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.'" Id. (alteration in original) (quoting Iqbal, 556 U.S. at 679). "Determining whether a complaint states a plausible claim for relief [is] . . . a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id. (alteration in original).

III. BACKGROUND

A. The Complaint

The background information is derived from the allegations in the Complaint. The Trustee's Complaint asserts a single claim for unjust enrichment arising from the Debtor's transfer of his residence to the Defendants. The Trustee alleges that he brings the action on behalf of the Debtor under 11 U.S.C. § 541(a) and that he "has all of the assets, rights and claims of the Debtor as of the Petition Date." Compl. ¶ 16. The Debtor resides with his wife, Rosa

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Salinas, at 12 Chasse Drive, East Windsor, Connecticut (the "Property"). Id. ¶ 7. The Trustee alleges that the Debtor and his wife "gifted" the Property to the Defendants for no consideration on November 3, 2016. Id. ¶ 13. At the time of the transfer, the Debtor and his wife owned the Property jointly. Id. ¶ 7. Despite the transfer of the Property to their children, the Debtor and his wife continue to reside at the Property and have paid all property tax bills, insurance, and maintenance expenses.^[1] Id. ¶ 14.

Based on these factual allegations, the Trustee alleges that the Defendants, as the Debtor's children, are in a confidential relationship with the Debtor. Id. ¶ 18. Because the Defendants did not pay for the Property or any of its expenses, the Trustee alleges they received a benefit for which they did not pay. Id. ¶¶ 18-19. Further, because the transfer of the Property left the Debtor unable to pay his creditors, the Trustee alleges that "it would be inequitable to allow Defendants to retain the benefit of title to the Property for which they had not paid." Id. ¶ 21. The Trustee concludes his allegations with the following: "[w]hen property has been acquired in such circumstances that the holder of legal title may not in good conscience retain the beneficial interest, the recipient is converted to a trustee for the benefit if [sic] the donor. Thus, the Court should impose a constructive trust on 50% interest in the Property that was conveyed to the Defendants." Id. ¶ 22. In his prayer for relief, the Trustee seeks damages as well as equitable relief in the form of a constructive trust imposed for the benefit of the Chapter 7 bankruptcy estate over the Debtor's one-half interest in the Property.

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B. Procedural History

On May 28, 2021 (the "Petition Date"), the Debtor, Manuel R. Salinas, filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code. The Trustee commenced this adversary proceeding by way of Complaint on December 8, 2021 (ECF No. 1) against the Debtor's children, Manuel E. Salinas and Cynthia E. Salinas. The Complaint states a single claim for unjust enrichment. The Defendants moved to dismiss the Complaint on March 10, 2022 under Fed.R.Civ.P. 12(b)(6) (ECF No. 21). The Trustee opposed the Motion on April 14, 2022 (ECF No. 27). The Defendants filed a reply brief on May 6, 2022 (ECF No. 28). The Court held a hearing on the Motion on June 15, 2022.

IV. DISCUSSION

A. The Trustee's Unjust Enrichment Claim is Not Subject to a Statute of Limitations

The Defendants argue that the Trustee's unjust enrichment claim is time-barred because the Trustee's Complaint "is an obvious attempt . . . to make an end run around the fraudulent transfer limitations period," which, they argue, has long since expired.^[2] Defs.' Reply at 4, ECF No. 28. At the hearing on this matter, the Trustee acknowledged that the alleged facts supported a fraudulent transfer claim, but that he intentionally refrained from asserting that claim because he knew it was already time-barred under both state and federal law.^[3] The Trustee argues that

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maintains that the state and federal statutes of limitations applicable to fraudulent transfer claims do not impact the timeliness of his unjust enrichment claim. The Court agrees.

The Connecticut Supreme Court recently explained the equitable nature of unjust enrichment claims:

[U]njust enrichment is not a legal claim sounding in either tort or contract-it is an equitable claim for relief. As an equitable claim, its timeliness is not subject to a statute of limitations but, rather, to the equitable doctrine of laches. In an action for equitable relief, a court is not bound to apply the statute of limitations that governs the underlying cause of action. In fact, in an equitable proceeding, a court may provide a remedy even though the governing statute of limitations has expired, just as it has discretion to dismiss for laches an action initiated within the period of the statute. Although courts in equitable proceedings often look by analogy to the statute of limitations to determine whether, in the interests of justice, a particular action should be heard, they are by no means obliged to adhere to those time limitations.

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