Browne v. Lombard (In re Lombard)
Browne v. Lombard (In re Lombard)
Opinion of the Court
MEMORANDUM OPINION
I. INTRODUCTION
II. FACTS
The Court draws the following factual background from the amended complaint.
The Debtor filed this bankruptcy case on August 19, 2016. The Plaintiffs then filed the two count complaint that commenced this adversary proceeding on January 20, 2017.
The Court held an initial pretrial conference on June 21, 2017. At that time, the Debtor had not filed any timely responsive pleading to the Amended Complaint. The Court permitted the Debtor additional time to file a responsive pleading, without objection from the Plaintiffs. Again, the Court raised concerns about what debt the Plaintiffs alleged was nondischargeable under Count II and how the Plaintiffs proposed to recover that debt. The Plaintiffs elected to respond to this concern, in writing, after the pretrial conference. To this end, they filed a Notice in which they clarified that they were only claiming that the Transfer Amount was nondischargeable, not the $387,000 debt based on the oral loan agreement.
III. DISCUSSION
This dispute presents a narrow legal issue for the Court’s consideration, namely can the Court determine the dis-chargeability of a debt arising from an actually fraudulent transfer where a creditor has not asserted a claim upon which to recover such a debt from a debtor. Here, the Plaintiffs have made specific factual
In assessing a motion to dismiss pursuant to Bankruptcy Rule 7012 and Fed. R. Civ. P. 12(b)(6), the Court accepts all plausible, non-conclusory factual allegations as true—drawing all reasonable inferences in favor of the claimant—and determines whether those factual allegations are sufficient to state a claim for relief. Manning v. Boston Med. Ctr. Corp., 725 F.3d 34, 43 (1st Cir. 2013) (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). The “plausibility inquiry is a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” Rodriguez-Reyes v. Molina-Rodriguez, 711 F.3d 49, 53 (1st Cir. 2013) (quotations omitted).
The Plaintiffs seek to except the Transfer Amount from the discharge as actually fraudulent under § 523(a)(2)(A). Section 523(a)(2)(A) provides:
(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt—
(2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by—
(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition[.]
11 U.S.C. § 523(a)(2)(A). The recent decisions of the Supreme Court in Husky and the First Circuit in In re Lawson clarified that a debtor need not have made a misrepresentation for conduct to come within the definition of “actual fraud” for § 523(a)(2)(A) purposes. Husky, 136 S.Ct. 1581; Lawson, 791 F.3d at 219.
Neither Husky nor Lawson—either explicitly or by implication—turn § 523(a)(2)(A) into a cause of action by which a creditor may recover a fraudulent transfer from a debtor. In Husky, an unsecured creditor of the debtor’s corporation, Chrysalis Manufacturing, brought an action to recover sums that the debtor had caused Chrysalis to transfer to other corporate entities that he controlled. The unsecured creditor made this claim under a Texas statute that allows for shareholder liability for “actual fraud” of the corporation in certain instances.
Other bankruptcy courts have addressed similar claims based on Husky since the Supreme Court issued that decision. In Walter v. Vanwinkle, a creditor with a prepetition judgment for a breach of contract sued the debtor, claiming that the amount of the contract judgment should be deemed nondischargeable pursuant to § 523(a)(2)(A) and the Husky decision because the debtor had orchestrated a scheme to hamper them in collecting their judgment. Walker v. Vanwinkle (In re Vanwinkle), 562 B.R. 671, 674 (Bankr. E.D. Ky. 2016). The Vanwinkle court noted that the creditor’s complaint was deficient because it “did not assert a claim for, or sufficiently describe, a cause of action for losses caused by the post-judgment fraudulent scheme.” Id. at 677. It also pointed out that the “debts in Husky ... existed solely because of [a] veil-piercing statute! ] that provided for individual liability for certain corporate obligations.” Id The court concluded that “Mather than assert a specific claim for post-judgment damages, the [plaintiffs rely on the non-dis-chargeability statute itself as the source of the debt. Section 523(a)(2)(A) does not provide a cause of action that simultaneously creates a debt and renders it non-dis-chargeable.” Id. citing Zacharakis v. Melo (In re Melo), 558 B.R. 521, 561 (Bankr. D. Mass. 2016). In the Melo case that Vanwin-kle cites, Judge Feeney held that a creditor could not seek to impose liability on a debtor using just § 523(a)(2)(A) and the Husky decision without actually making out an affirmative claim to recover that liability. Melo, 558 B.R. at 561 (the plaintiff “has asserted no grounds, other than § 523(a)(2)(A), to hold the Debtor personally liable for the Loans, unlike the ease in Husky in which the plaintiff relied on a Texas statute which permits creditors to hold shareholders liable for corporate debt under certain circumstances.”). The Court finds the decisions in Vanwinkle and Melo to be persuasive. The Supreme Court’s decision in Husky does not provide the means for a creditor to impose liability for a fraudulent transfer scheme on a debtor; what it does is allow a creditor with a claim for recovery of such a fraudulent transfer, under a specific state or federal law, to make out a case that the fraudulent transfer amounts to actual fraud within the meaning of § 523(a)(2)(A).
Here, the Plaintiffs make no attempt to ground their factual claims regarding the transfers Mr. Brown made to the Debtor in any right to recover apart
IV. CONCLUSION
For the reasons set forth above, the Court will grant the Motion to Dismiss and deny the Motion to Amend. This opinion constitutes the Court’s findings of fact and conclusions of law in accordance with Federal Rule of Bankruptcy Procedure 7052. The Court will issue a separate order consistent with this opinion.
. The "Debtor" or “Defendant.”
. Doc. No, 27, the "Motion to Dismiss,"
. Doc. No. 32, the "Motion to Amend.”
. Together, the "Plaintiffs.”
. Doc. No. 22, the "Amended Complaint”.
. “Mr. Lombard.”
. The “Amex Loan.”
. Hereinafter the "Transfer Amount.” The Amended Complaint also alleges that Mr. Lombard transferred "in excess of $90,000” to the Debtor but does not explain how this relates to the $55,000 transfer. This detail is not relevant to the disposition of the motions before the Court,
.Count I of the complaint is a claim pursuant to 11 U.S.C. § 727(a)(4)(A) in which the Plaintiffs assert that the Defendant's discharge should be denied on account of false oaths she made in connection with this case. The Defendant does not seek dismissal of Count Tin the Motion to Dismiss, so the Court will not discuss the particulars of that Count in this opinion.
. Doc, No. 5.
. Doc. No. 9.
. The hearing occurred on April 26, 2017.
. Doc. No. 28.
. The Plaintiffs do not present a detailed argument under either of these cases, rather they simply conclude that such an approach is possible. See PI. Response to Motion to Dismiss ¶ 16, Doc. No. 31; Amended Complaint ¶ 49.
. The Texas statute provides, in pertinent part:
"Subsection (a)(2) does not prevent or limit the liability of a holder, beneficial owner, subscriber, or affiliate if the obligee demonstrates that the holder, beneficial owner, subscriber, or affiliate caused the corporation to be used for the purpose of perpetrating and did perpetrate an actual fraud on the obligee primarily for the direct personal benefit of the*5 holder, beneficial owner, subscriber, or affiliate.” Tex. Bus. Orgs. Code Ann. § 21.223(b) (West 2017).
. The Rhode Island Uniform Fraudulent Transfer Act, R.I. Gen. Laws § 6-16-1 et seq. See Lawson, 791 F.3d at 217.
Reference
- Full Case Name
- IN RE: Patricia D. LOMBARD, Debtor. Robert Browne, Aqua Gulf Transport, & JRL Properties, Inc. v. Patricia D. Lombard
- Status
- Published