Romano v. Defusco (In re Defusco)

• Decision Date: 29 October 2013
• Docket Number: Adversary No. 13–4020.,Bankruptcy No. 11–43740–MSH.
• Citation: 500 B.R. 664
• Parties: In re Albert J. DEFUSCO, Debtor. Dominick Romano, Plaintiff v. Albert J. Defusco, Defendant.
• Court: U.S. Bankruptcy Court — District of Massachusetts

500 B.R. 664

In re Albert J. DEFUSCO, Debtor.Dominick Romano, Plaintiff

v.Albert J. Defusco, Defendant.

Bankruptcy No. 11–43740–MSH.

Adversary No. 13–4020.

United States Bankruptcy Court,

D. Massachusetts,

Central Division.

Oct. 29, 2013.

Lauren A. Solar, Esq., Bartlett Hackett Feinberg, P.C., Boston, MA, for Plaintiff, Dominick Romano.

Daniel A. DeBruyckere, Esq., David E. Haughton, Esq., DeBruyckere Law Offices, P.C., North Andover, MA, for Defendant, Albert J. Defusco.

MEMORANDUM OF DECISION AND ORDER ON DEFENDANT'S MOTION TO DISMISS

MELVIN S. HOFFMAN, Bankruptcy Judge.

The defendant, Albert J. Defusco, the debtor in the main case, moves pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6), made applicable to this adversary proceeding by Rule 7012(b) of the Federal Rules of Bankruptcy Procedure, to dismiss the complaint filed by the plaintiff, Dominick Romano. In the complaint Mr. Romano seeks judgment denying Mr. Defusco's discharge pursuant to Bankruptcy Code § 727 and the dischargeability of Mr. Defusco's debt to Mr. Romano pursuant to Bankruptcy Code § 523(a)(6). Mr. Defusco seeks dismissal of the complaint on the grounds that he has already received his discharge and any attempt to revoke or limit it is time-barred and that in any event Mr. Romano failed to plead sufficient facts which establish the non-dischargeability of his claim.

Facts

In ruling on a motion to dismiss, the facts alleged in the complaint are accepted as true. Warth v. Seldin, 422 U.S. 490, 501, 95 S.Ct. 2197, 2206, 45 L.Ed.2d 343 (1975). The relevant facts are as follows. Mr. Defusco is the sole shareholder and president of Defusco & Son Italian Bakery of Beverly Farms, Inc. where Mr. Romano worked as a baker from 2009 through October 2010. As the sole shareholder and president of Defusco & Son, Mr. Defusco made all of the personnel and compensation decisions for the company. Mr. Romano often worked at least sixty hours a week at the bakery. He was compensated at his regular hourly rate for the overtime hours he worked and paid in cash for those overtime hours with no withholding for taxes taken from that pay.

In August 2010, Mr. Romano suffered a hernia while lifting a mixing bowl filled with dough. He was required to lift it because the bakery mixer had broken. Mr. Romano went on sick leave and applied for worker's compensation insurance. Subsequently he filed a complaint with the Occupational Safety and Health Administration (“OSHA”) about the unsafe conditions that led to his injury. On September 30, 2010, OSHA inspected the bakery and cited Defusco & Son for unsafe workplace conditions. In October 2010, when Mr. Romano notified Mr. Defusco that he was able to return to work, Mr. Defusco terminated Mr. Romano's employment.

On September 1, 2011, Mr. Defusco filed a voluntary petition for relief under chapter 7 of the Bankruptcy Code (11 U.S.C. § 101 et seq.) commencing the main case. He did not list Mr. Romano as a creditor in the schedules or creditor matrix accompanying his petition. Mr. Defusco's discharge entered on December 5, 2011. As there were no assets available for distribution to Mr. Defusco's creditors, the main case was closed on December 15, 2011.

On February 7, 2012, Mr. Romano, who was unaware of Mr. Defusco's bankruptcy, ¹ brought an action against Mr. Defusco and Defusco & Son in Essex Superior Court (C.A. No. 2012–0237) for violations of state and federal employment laws by underpaying overtime wages, failing to withhold taxes, and retaliating against him for filing a complaint with OSHA. On March 29, 2013, Mr. Defusco moved to reopen the main bankruptcy case and served Mr. Romano's attorney with a copy of that motion. The motion to reopen was allowed and on May 4, 2012, Mr. Defusco moved to amend schedule F (creditors holding unsecured claims) to add Mr. Romano as a creditor. The motion to amend was allowed without objection. This triggered the court's issuing a Notice to Added Creditors which was sent to Mr. Romano notifying him that July 3, 2012, was the deadline to object to Mr. Defusco's discharge or to the dischargeability of any debts. Mr. Romano filed three motions to extend the deadline, the first two of which were allowed without objection. Mr. Defusco objected to the request for the third extension but then withdrew his objection and the deadline was extended a final time to April 6, 2013. On April 5, 2013, Mr. Romano filed his complaint initiating this adversary proceeding.

Positions of the Parties

Mr. Defusco seeks dismissal of count II of the complaint on the grounds that his discharge entered more than one year prior to the commencement of this adversary proceeding. He argues that the court lacks subject matter jurisdiction to hear this count. He seeks dismissal of count I on similar grounds of lack of jurisdiction as well as on the basis that Mr. Romano has failed to state a claim for willful and malicious injury under the test articulated by the U.S. Supreme Court in Grogan v. Garner, 498 U.S. 279, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991).

Mr. Romano disagrees claiming, with respect to both counts, the right to rely upon the Court's Notice to Added Creditors setting a deadline to object to discharge or dischargeability which, after the three court-approved extensions, he met. As to count II, Mr. Romano argues that he will be able to adduce evidence of Mr. Defusco's knowing and willful violation of state and federal employment laws that will satisfy the test under § 523(a)(6). He cites Judge Joan N. Feeney's recent decision in Chaves v. Ruhland (In re Ruhland), No. 11–1322, 2013 WL 1088737 (Bankr.D.Mass. March 13, 2013), where she held that § 523(a)(6) excepted from discharge a debt arising from the non-payment of wages.

Discussion

Revocation of Discharge

Bankruptcy Code § 727(d)(1) permits the revocation of a debtor's discharge upon the request of a creditor in, among other, situations where the discharge was obtained through fraud and the creditor did not know of the fraud until after the discharge was granted. Section 727(e)(1), however, limits the time within which a party may seek revocation of a discharge under § 727(d)(1) to “within one year after such discharge is granted.” Mr. Romano's adversary proceeding was not brought within the one year period and so runs afoul of § 727(e)(1).

In The Cadle Co. v. Andersen (In re Andersen), 476 B.R. 668 (1st Cir. BAP 2012), the Bankruptcy Appellate Panel for the First Circuit considered the nature of § 727(e)(1). In adopting the clear majority view, the BAP concluded that “§ 727(e)(1) is jurisdictional, and as such, its deadline is firm and not subject to equitable tolling.... Section 727(e)(1)'s time requirement is not a mere statute of limitations, but an essential prerequisite to the [discharge revocation] proceeding.” Id. at 673 (internal citations and quotation marks omitted).²See also id. at n. 8.

Mr. Romano argues that he was entitled to and did rely upon the orders of this court which set the deadline for him to object to Mr. Defusco's discharge as April 6, 2013. As the BAP noted in Andersen, this is a plea for “equitable tolling in masquerade.” Id. at 674. The orders setting the deadline for Mr. Romano to object to Mr. Defusco's discharge, and by inference extending the time to seek revocation of the discharge, to a date after the expiration of the jurisdictional limit under § 727(e)(1) were entered in error. Unlike errors in setting bar dates for filing proofs of claim or filing dischargeability actions, both of which are deadlines set not by statute but by the Federal Rules of Bankruptcy Procedure, the discharge deadline is statutory insofar as § 727(e)(1) establishes an outside limit on actions to revoke discharges. While courts have used their equitable power to prevent harm to parties who have complied with incorrect non-statutory deadlines, Nicholson v. Isaacman (In re Isaacman), 26 F.3d 629 (6th Cir.1994), courts have no such power with respect to the jurisdictional bar imposed by § 727(e)(1).

While seemingly a harsh result, I note that Mr. Romano, who was represented by counsel, knew of Mr. Defusco's bankruptcy discharge well within the year after Mr. Defusco received it and could have commenced a timely action under § 727(d). Further, one of the bedrock principles of the Bankruptcy Code is to endow the order granting discharge with a high degree of finality. Id. at 675. In any event as discussed below, this does not leave Mr. Romano without a remedy.

Dischargeability under Section 523(a)(6)

To survive a motion to dismiss under Rule 12(b)(6), the complaint must contain sufficient facts, accepted as true, to state a claim to relief that is plausible on its face. Bell Atlantic v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 1966, 167 L.Ed.2d 929 (2007); Rederford v. U.S. Airways, Inc., 589 F.3d 30, 35 (1st Cir.2009). A court must accept as true the factual allegations of the complaint but not the legal conclusions, even if couched as facts. Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). Recitations of the elements of a cause of action supported only by legal conclusions are insufficient to withstand a motion to dismiss. Id.;Thomas v. CitiMortgage, Inc. (In re Thomas), 447 B.R. 402, 406 (Bankr.D.Mass.2011). A court does not decide “whether a plaintiff will ultimately prevail[,] but whether the claimant is entitled to offer evidence to support [his] claims.” Gilbert v. Essex Group, Inc., 930 F.Supp. 683, 686 (D.N.H.1993) (quoting Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974)).

There is no dispute that Mr. Romano's claim arose prepetition and that unless specifically excepted, it has been discharged. Mr. Defusco argues that the court lacks subject matter jurisdiction to hear Mr. Romano's dischargeability count and that in any event Mr. Romano's complaint fails to state a claim under § 523(a)(6).

Bankruptcy Code § 727(b) declares that: “[e]xcept as provided in...