- Category: Judge Karlin
- Published: 08 January 2014
- Written by Judge Karlin
SIGNED this 19th day of December, 2013.
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS
Henry Anthony Eilert and Case No. 13-41298
Betty Lynne Eilert, Chapter 13
Farmway Credit Union,
vs. Adversary No. 13-7037
Henry Anthony Eilert and
Betty Lynne Eilert,
Memorandum Opinion and Order Granting Defendants’/ Debtors’
Motion to Dismiss, but Granting Plaintiff Fourteen Days to Amend
Farmway Credit Union (“Creditor”) filed a one and one-half page Rule
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7001(6) adversary complaint against Defendants Henry Anthony Eilert and
Betty Lynne Eilert (“Debtors”), claiming fraud and seeking a determination
that a $9,185.18 debt it claims Debtors owe it is nondischargeable under the
false pretenses, false representation, or actual fraud provisions in 11 U.S.C. §
523(a)(2)(A). Debtors filed a motion to dismiss, asserting that Creditor’s
complaint failed to state a claim as required by Fed. R. Civ. P. 12(b)(6).
Because the Court agrees that Creditor’s bare allegations do not state a
claim, let alone meet the heightened pleading standards required in cases
alleging fraud, under Fed. R. Civ. P. 9(b), the Court will grant Creditor 14
days to amend its complaint. If Creditor fails to do so, the Court will dismiss
I. Factual Allegations in the Complaint
The Court will consider the allegations in Creditor’s complaint together
with the additional allegations in the attachment to Creditor’s response to
Debtors’ motion to dismiss.1 Creditor alleges that, within ninety (90) days of
1 Carson v. Cudd Pressure Control, Inc, 299 F. App’x. 845, 848 (10th Cir.
2008) (considering the complaint in conjunction with the response to determinewhether a plaintiff successfully stated a claim). Facts subject to judicial notice maybe considered in a Rule 12(b)(6) motion without converting the motion to dismissinto a motion for summary judgment. Tal v. Hogan, 453 F.3d 1244, 1265 (10th Cir.
2006). This allows the court to “take judicial notice of its own files and records, aswell as facts which are a matter of public record;” id. In this case, the Court takes
judicial notice of the proof of claim Creditor filed in the Debtors’ main bankruptcycase and which it attached to its response to the motion to dismiss. This was the onlyattachment to the response.
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declaring bankruptcy, Debtors took out multiple loans from Creditor for
amounts in excess of $1000 on open and close ended loans. Creditor alleges
that Debtors stated the loans were to finance a wedding in October 2013. Due
to the time frames involved and the planning necessary to file a petition in
bankruptcy, Creditor alleges Debtors applied for the loans with the intent to
defraud the credit union. Creditor asserts Debtors were contemplating
bankruptcy when they obtained the advances or that Debtors obtained the
advances for purposes other than the stated purpose.
Creditor appears to argue that these facts raise a presumption that the
charges were fraudulent and nondischargeable under 11 U.S.C. §
523(a)(2)(C). Creditor may also be arguing that this debt is nondischargeable
more broadly under 11 U.S.C. § 523(a)(2)(A), but Creditor has not made this
clear from its pleadings.
II. Standard for a Motion to Dismiss
Rule 12(b)(6) provides a vehicle for a party to challenge the legal
sufficiency of a claim. The requirements for a legally sufficient claim stem
from Rule 8(a), which requires “a short and plain statement of the claim
showing that the pleader is entitled to relief.”2 To survive a motion to dismiss,
a complaint must present factual allegations, that when assumed to be true,
2 Fed. R. Civ. P. 8(a).
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“raise a right to relief above the speculative level,”3 and the complaint must
contain “enough facts to state a claim to relief that is plausible on its face.”4
“[T]he complaint must give the court reason to believe that this plaintiff has a
reasonable likelihood of mustering factual support for these claims.”5 The
plausibility standard does not require a showing of probability that a
defendant has acted unlawfully, but requires more than “a sheer possibility.”6
“[M]ere ‘labels and conclusions,’ and ‘a formulaic recitation of the elements of
a cause of action’ will not suffice; a plaintiff must offer specific factual
allegations to support each claim.”7 Finally, the Court must accept the
nonmoving party’s factual allegations as true and may not dismiss on the
ground that it appears unlikely the allegations can be proven.8
Where, as here, a party alleges fraud, Federal Rule of Civil Procedure
3 Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).
4 Id. at 570.
5 Ridge at Red Hawk, L.L.C. v. Schneider, 493 F.3d 1174, 1177 (10th Cir.
6 Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
7 Kan. Penn Gaming, LLC v. Collins, 656 F.3d 1210, 1214 (10th Cir. 2011)
(quoting Twombly, 550 U.S. at 555).
8 Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 556).
Case 13-07037 Doc# 12 Filed 12/19/13 Page 4 of 9
9(b)9 requires the party to “state with particularity the circumstances
constituting fraud,” with general allegations only allowed for “malice, intent,
knowledge, and other conditions of a person’s mind.” To survive a motion to
strike, the party alleging fraud must “‘set forth the time, place, and contents
of the false representation, the identity of the party making the false
statements and the consequences thereof.’”10 In other words, the alleging
party must specify the “‘who, what, where, and when of the alleged fraud.’”11
An adversary proceeding to determine the dischargeability of particular
debts is a core proceeding under 28 U.S.C. § 157(b)(2)(I), over which this
Court may exercise subject matter jurisdiction.12
Section 523(a)(2)(A) states, “A discharge . . . does not discharge any
individual debtor from any debt for money, property, services, or an
extension, renewal, or refinancing of credit, to the extent obtained by false
9 Rule 9(b) is applicable in bankruptcy pursuant to Federal Rule of BankruptcyProcedure 7009.
10 Schwartz v. Celestial Seasonings, Inc., 124 F.3d 1246, 1252 (10th Cir. 1997)
(quoting Lawrence Nat’l Bank v. Edmonds (In re Edmonds), 924 F.2d 982, 987 (10thCir. 1992)).
11 Jamieson v. Vatterott Educ. Ctr., Inc., 473 F. Supp. 2d 1153, 1156 (D. Kan.
2007) (quoting Plastic Packaging Corp. v. Sun Chem. Corp., 136 F. Supp. 2d 1201,1203 (D. Kan. 2001)).
12 28 U.S.C. § 157(b)(1) and § 1334(b).
Case 13-07037 Doc# 12 Filed 12/19/13 Page 5 of 9
pretenses, a false representation, or actual fraud, other than a statement
respecting the debtor’s or an insider’s financial condition.” Section
523(a)(2)(C)(I) offers creditors two avenues to raise a presumption of fraud in
the § 523(a)(2)(A) context:
[F]or purposes of subparagraph (A), (I) consumer debtsowed to a single creditor and aggregating more than$600 for luxury goods or services incurred by anindividual debtor on or within 90 days before the orderfor relief under this title are presumed to benondischargeable; and (II) cash advances aggregatingmore than $875 that are extensions of consumer credit
under an open end credit plan obtained by anindividual debtor on or within 70 days before the orderfor relief under this title, are presumed to benondischargeable.
In summary, a creditor can argue a debt is nondischargeable either directly
under § 523(a)(2)(A), in which case the creditor bears the burden of
establishing fraud, or through § 523(a)(2)(C)(I) (I) or (II), which raises a
rebuttable presumption of nondischargeability once the creditor shows that
the elements of either subsection are met.13
In this case, Creditor fails to make the short and plain statement of the
claim required by Rule 8(a). The Court—and these Debtors/Defendants—
cannot determine whether Creditor is arguing nondischargeability directly
13 Discover Bank v. Hankins (In re Hankins), No. 12-5114, 2012 WL 5409629,
at *3 (Bankr. D. Kan. Nov. 5 2012).
Case 13-07037 Doc# 12 Filed 12/19/13 Page 6 of 9
under § 523(a)(2)(A) or through either § 523(a)(2)(C)(i)(I) or (II), or even
through all three potential methods. Further, the Court cannot determine
which loans Creditor seeks to have declared nondischargeable.14 Although
Creditor has filed a proof of claim and attaches the claim to its response, the
response only refers to it generally and makes no effort to identify relevant
portions or even the particular loan(s) at issue. And it is not the Court’s role
to construct allegations out of inchoate facts. Because the nature of Creditor’s
claim is impossible to determine, Creditor fails to state a claim.
Even assuming that Creditor seeks to establish nondischargeability
through all three potential methods under § 523(a)(2)(A), Creditor still fails to
state a claim. First, under § 523(a)(2)(A), a creditor may only state a claim by
alleging facts that meet the following elements: (1) debtor used false
pretenses, false representations, or actual fraud; (2) which debtor knew at the
time to be false or fraudulent; (3) with the intent to deceive the creditor; (4)
the creditor justifiably relied on the representation; and 5) creditor sustained
damage as a proximate result of the debtor’s false pretenses, false
representations, or actual fraud.15 Here, even construing the complaint and
14 In paragraph 3 of its 6 paragraph complaint, Creditor references “multiple loans,”
but in the very next paragraph, suggests there was only one loan by using the singular:
“they took the loan out with the intent to defraud . . . .”
15 See In re Burton, 2010 WL 3422584, at *4.
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response generously, Creditor fails to allege facts supporting the fourth and
fifth elements. Considering the heightened pleading standards required by
Rule 9(b), the complaint also fails to allege the first element with the required
specificity. Thus, Creditor fails to state a claim directly under § 523(a)(2)(A).
Second, to state a claim under § 523(a)(2)(C)(i)(I), a creditor must allege
facts showing: “(1) a consumer debt; (2) owed to a single creditor; (3)
aggregating more than $600; (4) for luxury goods or services; (5) incurred by
an individual debtor; and (6) on or within 90 days before the filing of the
petition.”16 Here, because Creditor fails to indicate which loan or loans it
seeks to have declared nondischargeable, Creditor cannot establish any of the
Third and finally, to state a claim under § 523(a)(2)(C)(i)(II), a creditor
must allege facts showing: (1) a cash advance aggregating more than $825; (2)
obtained within seventy days of the date of the bankruptcy petition; (3) by an
individual debtor; (4) that was an extension of consumer credit under an open
end credit plan.17 Once again, because Creditor fails to indicate which loans it
seeks to have declared nondischargeable, Creditor cannot establish any of the
16 In re Hankins, 2012 WL 5409629, at *3.
17 Weiland v. Viles (In re Viles), Nos. 09-7006, 08-7077, 2010 WL 299246, at*12 (Bankr. D. Kan. Jan. 19, 2010).
Case 13-07037 Doc# 12 Filed 12/19/13 Page 8 of 9
Because Creditor fails to state a claim, the complaint could be
dismissed under Rule 12(b)(6). However, Creditor will be permitted an
additional period of 14 days from publication of this order to request leave to
amend the complaint, following D. Kan. Rule 15.1(a). If Plaintiff fails to
timely file a motion for leave to amend in strict conformance with that Rule,
including the requirement to attach a copy of the proposed amended pleading
that addresses the deficiencies identified by the Court in this Order,
Plaintiff’s complaint will be dismissed without further notice.
It is so ordered.
# # #
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