TotalFacility, Inc. v. Brown (In re Brown)
| Citation | 557 B.R. 363 |
| Decision Date | 30 August 2016 |
| Docket Number | ADVERSARY NO. 15-00517-MDC,BANKRUPTCY NO. 15-16854-MDC |
| Parties | In re: Michael D. Brown and Tracy M. Brown, Debtors. TotalFacility, Inc., Plaintiff, v. Michael D. Brown and Tracy M. Brown, Defendants. |
| Court | United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Eastern District of Pennsylvania |
John C. Kilgannon, Stevens & Lee, P.C., Philadelphia, PA, for Plaintiff.
Jay G. Fischer, Downingtown, PA, for Defendants.
Before this Court for consideration is the Motion to Dismiss (the “Motion”) filed by Michael D. Brown and Tracey M. Brown (the “Debtors”). The Debtors seek the Court's dismissal of the First Amended Complaint (the “Amended Complaint”) filed by TotalFacility, Inc. (the “Plaintiff” or “TotalFacility”) requesting that the Court (1) find TotalFacility's alleged claims against the Debtors nondischargeable pursuant to §§ 523(a)(2)(A), 523(a)(4) or 523(a)(6); and (2) adjudicate and liquidate TotalFacility's state law causes of action against the Debtors.1
Pursuant to an Order dated March 3, 2016, this Court denied the Debtors request to dismiss Count I (nondischargeability of debt under § 523(a)(2)(A)) of the Amended Complaint and took under advisement (1) the Debtors' request to dismiss Counts II through IX for failure to state a claim, and (2) the Debtors' request to dismiss Counts IV through IX as barred by the gist of the action doctrine. The Court furthered ordered the parties to submit briefs on the issue of its jurisdiction to address TotalFacility's state law based claims.
After a hearing on the Motion and having fully considered the parties' pleadings, the various arguments made before this Court at the hearing and the parties' post-hearing briefs, the Court will:
1. With regard to Count II (nondischargeability pursuant to § 523(a)(4)), GRANT the Motion with prejudice due to the failure of TotalFacility to allege that Mr. Brown was a fiduciary within the meaning of § 523(a)(4).
2. With regard to Count III (nondischargeability pursuant to § 523(a)(6)), GRANT the Motion without prejudice because TotalFacility has not included sufficient factual allegations to establish that the Debtors acted with actual malice. TotalFacility may further amend its complaint to address this deficiency.
3. With regard to Counts IV through IX (state law based claims), DENY the Motion because the Court has the authority to adjudicate in nondischargeability proceedings any state law causes of action that form the basis of TotalFacility's claims.
As alleged by TotalFacility, it is a Pennsylvania corporation that provides managed facility services to retail, commercial and industrial enterprises. To service its clients, TotalFacility hires contractors to provide services at its clients' buildings. From sometime in 2008 to June 20, 2014, TotalFacility employed Michael D. Brown (“Mr. Brown”) as TotalFacility's Executive Vice President. In this capacity, Mr. Brown was responsible for assigning projects to TotalFacility's various contractors. Rather than assigning projects based on merit, Mr. Brown is alleged to have assigned projects to contractors who paid bribes to him and his wife. TotalFacility estimates that as a result of the alleged scheme, the Debtors were paid at least $750,000.00 in money, goods and services by TotalFacility's contractors. After the alleged scheme was discovered by TotalFacility's owners, Mr. Brown tendered his resignation. Shortly thereafter, TotalFacility filed on August 8, 2014, an action against the Debtors in the Court of Common Pleas of Chester County, Case No. 14–07665 (the “State Court Action”).3 As a result of the Debtors' filing of a petition dated September 22, 2015, for Chapter 7 bankruptcy relief, the State Court Action was stayed and remains pending.
On May 11, 2012, TotalFacility initiated this adversary proceeding seeking to have its claim, premised on various state law causes of action, declared nondischargeable. TotalFacility's alleged claim consists of potential damages resulting from the Debtors' unlawful receipt of at least $750,000.00 in money, goods and services provided to the Debtors in connection with an alleged commercial bribery scheme (the “Claim”).
In response, the Debtors filed a Motion to Dismiss dated December 15, 2015. In response to the Debtors' original motion to dismiss, on December 20, 2015, TotalFacility filed the Amended Complaint. Thereafter, the Debtors filed the Motion.
On January 29, 2016, TotalFacility responded to the Motion by filing an Objection dated January 29, 2016 (the “Objection”)4 , and a Memorandum in Opposition dated January 29, 2016 (the “TotalFacility's Memorandum”)5 . On February 9, 2016, this Court held a hearing to address the Motion (the “Hearing”). After considering the arguments of both parties, this Court issued an Order dated March 3, 20166 ], denying the Debtors' request to dismiss Count I of the Amended Complaint. In addition, this Court took under advisement the Debtors' request to dismiss Counts II and III of the Amended Complaint and requested the parties submit briefs addressing this Court's jurisdiction to adjudicate TotalFacility's state law causes of action that form the basis of its Claim against the Debtors. Consistent with this Court's instruction, both parties filed their post-hearing briefs on March 11, 2016.
As an initial matter, this Court must first consider whether TotalFacility's causes of action are within the Court's subject matter jurisdiction as defined by 28 U.S.C. §§ 157 and 1334. This Court has exclusive jurisdiction over all property of the debtor as of the commencement of the case, as well as property of the estate, regardless of where the property is located. 28 U.S.C. § 1334(e). Pursuant to § 157, this Court's jurisdiction is further divided between core and noncore matters. 28 U.S.C. § 157(a) ; In re Winstar Communications, Inc. , 554 F.3d 382, 405 (3d Cir.2009). In core proceedings, this Court is authorized to issue final judgments. In noncore proceedings and if the parties do not consent to the entry of a final judgment, a bankruptcy court must submit proposed findings of facts and conclusions of law to the district court for its review and issuance of a final judgment. 28 U.S.C. § 157(c)(1) ; Winstar , 554 F.3d at 405. Traditionally, a proceeding was core if “it invokes a substantive right provided by title 11 or if it is a proceeding that, by its nature, could arise only in the context of a bankruptcy case.” Torkelsen v. Maggio (In re Guild and Gallery Plus, Inc.) , 72 F.3d 1171, 1178 (3d Cir.1996) ; see also Stoe v. Flaherty , 436 F.3d 209, 211 (3d Cir.2006) ; Allen v. J.K. Harris & Co., LLC , 331 B.R. 634, 640–41 (E.D.Pa.2005). A proceeding seeking the nondischargeability of a creditor's claim is indubitably among those proceedings that can only arise in the context of a bankruptcy case. In re Aslansan , 490 B.R. 675, 680 (Bankr.E.D.Pa.2013). For this reason, this Court has the authority to enter a final judgment adjudicating whether the Debtors are entitled to a discharge of TotalFacility's claim. However, this Court must still address whether it retains the authority to adjudicate the state law causes of action that underlie TotalFacility's Claim and that were previously asserted in the State Court Action.
As this Court has previously observed, this Court retains the authority to adjudicate in nondischargeability proceedings any state law causes of action that form the basis of a creditor's claim. In re Skinner , 519 B.R. 613, 618 (Bankr.E.D.Pa.2014) ; In re Wezner , 470 B.R. 344, 350 n. 6 (Bankr.E.D.Pa.2012). However, this Court's authority to adjudicate TotalFacility's underlying causes of action is predicated upon TotalFacility's capacity to assert a nondischargeability cause of action against the Debtors. In re Reinford , Bky. No. 08–15120, 2011 WL 139207, *3 (Bankr.E.D.Pa.2011) (). As this Court has determined that TotalFacility's allegations are sufficient to support a finding of nondischargeability pursuant to § 523(a)(2)(A), this Court may conclude that it may adjudicate TotalFacility's state law causes of action that form the basis of its Claim. Because TotalFacility's standing to assert its Claim is nondischargeable is dependent upon the merits of TotalFacility's underlying causes of action against the Debtors, this Court concludes that it has the authority to fully adjudicate whether TotalFacility is entitled to payment from the Debtors and in what amount.8
As acknowledged by this Court at the February 9th hearing on the Motion and its subsequent Order, this Court has determined that the Amended Complaint is sufficient with regard to Count I. Therefore, this Court is left with the task of addressing the sufficiency of TotalFacility's §§ 523(4) and 523(a)(6) causes of action. Applying the standard enunciated by Iqbal, the Third Circuit explained that its courts should conduct a two-part analysis to determine whether a claim survives a Rule 12(b)(6) motion. Fowler v. UPMC Shadyside , 578 F.3d 203, 210 (3d Cir.2009). First, this Court must distinguish between the factual and legal elements of the claim. Second, this Court must determine whether based upon the facts alleged the plaintiff has a plausible claim for relief. Fowler , 578 F.3d at 210 (quoting Ashcroft v. Iqbal , 556 U.S. 662, 129 S.Ct. 1937, 1950, 173 L.Ed.2d 868 (2009) ).
To prevent dismissal for reasons of factual insufficiency, “all civil complaints must now set out sufficient factual matter to show that the claim is facially plausible.” Fowler , 578 F.3d at 210. As required by Rule 8(a)(2), a valid complaint must contain “a short and plain statement of the claim showing that the pleader is...
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