Judge Karlin

13-07037 Farmway Credit Union v. Eilert et al (Doc. # 23)

Farmway Credit Union v. Eilert et al, 13-07037 (Bankr. D. Kan. Jan. 22, 2014) Doc. # 23

PDFClick here for the pdf document.

SIGNED this 22nd day of January, 2014.



In re:
Henry Anthony Eilert and Case No. 13-41298-13
Betty Lynne Eilert,


Farmway Credit Union,


vs. Adversary No. 13-7037

Henry Anthony Eilert and
Betty Lynne Eilert,


Memorandum Opinion and Order Denying Plaintiff’s/Creditor’s
Motion to File an Amended Complaint and Dismissing Creditor’s
Original Complaint

Case 13-07037 Doc# 23 Filed 01/22/14 Page 1 of 10

Farmway Credit Union (“Creditor”) filed an adversary complaint1
against Defendants Henry Anthony Eilert and Betty Lynne Eilert (“Debtors”)
in October 2013. It consisted of 10 substantive lines of text generically
claiming Debtors had obtained $9,185.18 in loans that should not be
discharged under 11 U.S.C. § 523(a)(2) [no further subsection provided].
Debtors filed a motion to dismiss,2 asserting that the complaint failed to state
a claim as required by Fed. R. Civ. P. 12(b)(6), and this Court agreed that
Creditor’s bare allegations did not state a claim.3

Rather than dismissing the complaint, this Court opted to grant
Creditor 14 days to file a motion to amend its complaint, requiring it to
attach the proposed Amended Complaint to its motion as required by D. Kan.
Rule 15.1(a), so that Debtors, and ultimately this Court, could determine
whether the amended complaint now stated a claim. Creditor filed that
motion to amend,4 but Debtors oppose it.5 Creditor has not filed any pleading
in further support of its motion, and the time to do so has expired. Because
the Court finds that the proposed amended complaint still fails to state a

1 Doc. 1.

2 Doc. 9.

3 Doc. 11.

4 Doc. 14.

5 Doc. 19.


Case 13-07037 Doc# 23 Filed 01/22/14 Page 2 of 10

claim, the Court denies Creditor’s motion to amend and dismisses the original

I. Standard for a Motion to Amend
Leave to amend a complaint is freely given when justice so requires.6 A
party is granted leave to amend unless there is “a showing of undue delay,
undue prejudice to the opposing party, bad faith or dilatory motive, failure to
cure deficiencies by amendment previously allowed, or futility of
amendment.”7 A proposed amendment is futile if the amended complaint
would be subject to dismissal.8

Debtors argue the proposed amended complaint would likewise be
subject to dismissal under Rule 12(b)(6), and therefore the Court should deny
the motion to amend. In its order granting the motion to dismiss, subject to
Creditor timely amending its complaint, this Court articulated, in great
detail, the requirements for a legally sufficient claim for the non-discharge of
a debt under 11 U.S.C. § 523(a)(2). In brief, the order stated the complaint
must contain “a short and plain statement of the claim showing that the

6 Fed. R. Civ. P. 15(a)(2).
7 Duncan v. Manager, Dep't of Safety, City & Cnty. of Denver, 397 F.3d 1300, 1315
(10th Cir. 2005) (citation and quotation marks omitted).
8 Anderson v. Merrill Lynch Pierce Fenner & Smith, Inc., 521 F.3d 1278, 1288 (10thCir. 2008).

Case 13-07037 Doc# 23 Filed 01/22/14 Page 3 of 10

pleader is entitled to relief.”9 The complaint must present factual allegations,
that when assumed to be true, “raise a right to relief above the speculative
level,”10 and the complaint must contain “enough facts to state a claim to
relief that is plausible on its face.”11 “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. This
contextual approach means comparing the pleading with the elements of the
cause(s) of action.”12 A plaintiff must include in the complaint “either direct or
inferential allegations respecting all the material elements necessary to
sustain a recovery under some viable legal theory.”13 “[T]he complaint must
give the court reason to believe that this plaintiff has a reasonable likelihood
of mustering factual support for these claims.”14

9 Fed. R. Civ. P. 8(a).

10 Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).

11 Id. at 570.

12 Burnet v. Mortg. Elec. Registration Sys., 706 F.3d 1231, 1236 (10th Cir. 2013)

(internal citations and quotation marks omitted).
13 Bryson v. Gonzales, 534 F.3d 1282, 1286 (10th Cir. 2008). See also Commonwealth
Prop. Advoc., v. Mortg. Elec., 680 F.3d 1194, 1201–02 (10th Cir. 2011) (holding that acomplaint must “sufficiently allege[] facts supporting all the elements necessary toestablish an entitlement to relief under the legal theory proposed”).
14 Ridge at Red Hawk, L.L.C. v. Schneider, 493 F.3d 1174, 1177 (10th Cir. 2007).

Case 13-07037 Doc# 23 Filed 01/22/14 Page 4 of 10

II. Analysis
Creditor’s proposed amended complaint does provide some additional
factual detail and more precise citations to the bankruptcy code, clarifying the
exact subsections of § 523(a)(2) upon which it relies to argue that
[significantly smaller] portions of Debtors’ debt to it should not be
discharged.15 Creditor now argues that a loan Debtors originally sought on
July 16, 2013, in the amount of $2,495.00, is nondischargeable under 11

U.S.C. § 523(a)(2)(C); Creditor’s factual focus on luxury goods and the 90-day
period preceding the bankruptcy further clarifies that Creditor seeks a
determination that this debt is nondischargeable under § 523(a)(2)(C)(i) (I).
That subsection creates a presumption of nondischargeability for “consumer
debts owed to a single creditor and aggregating more than $600 for luxury
goods or services incurred by an individual debtor on or within 90 days” of
bankruptcy. Creditor also argues that a loan Debtors earlier sought— on May
14, 2013 in the amount of $973.91—is nondischargeable under § 523(a)(2)(A),
admitting that because this debt was incurred more than 90 days before the
bankruptcy petition, it cannot rely on the presumption of nondischargeability
contained in § 523(a)(2)(C)(i) (I) for the $973.91 debt.
15 The original complaint sought the non-discharge of $9,185.18. The proposedamended complaint seeks the non-discharge of only $2,495.


Case 13-07037 Doc# 23 Filed 01/22/14 Page 5 of 10

Taking the second argument first, Creditor fails to state a claim under
§ 523(a)(2)(A). As the Court stated in its previous opinion, a successful
§ 523(a)(2)(A) claim requires either direct or inferential allegations respecting
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.16 Here, as
in the first complaint, Creditor fails to allege facts supporting the fourth and
fifth elements; the amended complaint remains silent on whether Creditor
relied on whatever representations Debtors are alleged to have made (and
which representations were purportedly false) and that its damages were
proximately caused by those representations or other fraud. Finally,
considering the heightened pleading standards required by Rule 9(b) when
pleading fraud, the complaint also fails to allege the first element with the
required specificity.17 Thus, Creditor fails to state a claim directly under
16 See Barenburg v. Burton (In re Burton), No. CO-10-022, 2010 WL 3422584, at *4
(10th Cir. BAP Aug. 31, 2010) and Memorandum Opinion and Order GrantingDefendants’/ Debtors’ Motion to Dismiss, but Granting Plaintiff Fourteen Days toAmend (Doc. 11).

17 Perhaps Creditor hoped that attaching an exhibit (Exhibit A referenced inparagraph 8 of the proposed amended complaint) might provide the required specificity, butif so, it didn’t assist because the Exhibit was not, in fact, attached. Debtors noted this


Case 13-07037 Doc# 23 Filed 01/22/14 Page 6 of 10

§ 523(a)(2)(A).

Creditor also fails to state a claim with respect to the July 16, 2013.
loan, which Creditor seeks to have declared nondischargeable pursuant to
§ 523(a)(2)(C)(i)(I). To state a claim under § 523(a)(2)(C)(i)(I), a creditor must
allege facts supporting the following elements: the debt is “(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.”18 The fourth element, that the
debt be for luxury goods or services, refers to a vendor's right to payment for
luxury goods or services sold directly to a debtor, not to a lender's right to
repayment of a cash loan that was eventually used to purchase a luxury good
or service.19 As a result, § 523(a)(2)(C)(i)(I) is inapplicable to the cash loan at
issue here. Thus, the proposed amended complaint also fails to state a claim
under § 523(a)(2)(C)(i)(I).

problem in their reply filed two weeks ago, but notwithstanding that notice, Creditor hasnever elected to provide that document or to respond to the Debtors’ reply. The "intent"
element is also not strongly plead, but the word “intent” is at least mentioned twice in theproposed amended complaint.

18 Discover Bank v. Hankins (In re Hankins), No. 12-5114, 2012 WL 5409629, at *3(Bankr. D. Kan. Nov. 5, 2012).

19 Aetna Fin. Co. v. Neal (In re Neal), 113 B.R. 607, 610 (9th Cir. 1990). See also
Beneficial of Mo., Inc. v. Shurbier (In re Shurbier), 134 B.R. 922, 927 (Bankr. W.D. Mo.
1991); Brewer Fed. Credit Union v. D’Amboise (In re D’Amboise), 232 B.R. 540, 542 (Bankr.

D. Me. 1999).

Case 13-07037 Doc# 23 Filed 01/22/14 Page 7 of 10

The Court is aware, as Creditor states, that the facts in this case have
not been fully elucidated because discovery has not been completed.
Certainly, this limits the specificity with which any creditor can make
allegations in a complaint. Nevertheless, a plaintiff must at least allege facts
that directly or indirectly support the elements underlying any given claim.
These facts may change through discovery and additional investigation, but
at a minimum, a complaint should mention each element and in good faith
suggest some way that the plaintiff can eventually muster factual support for
those elements.

For example, in this case, Creditor could have alleged that it would not
have made a loan to Debtors absent whatever fraud it contends allegedly
occurred, and that Creditor examined the loan application and Debtors’ credit
history and found no reason to doubt Debtors’ fraudulent representation
(whatever that representation might have been here). Bare though it may be,
such allegation would at least minimally allege the required justifiable
reliance element of § 523(a)(2)(A). Failing to mention reliance at all, however,
does not meet this element. Similarly, by failing to mention reliance, this
Creditor also fails to allege its damages were proximately caused by whatever
fraud Debtors allegedly engaged in or misrepresentations they allegedly


Case 13-07037 Doc# 23 Filed 01/22/14 Page 8 of 10

As the Tenth Circuit has clearly noted, “[t]he burden is on the plaintiff
to frame a ‘complaint with enough factual matter (taken as true) to suggest’
that he or she is entitled to relief” and these “[f]actual allegations must be
enough to raise a right to relief above the speculative level.”20 If Creditor’s
allegations in its proposed amended complaint are taken as true, all Creditor
has demonstrated is that Debtors borrowed money to help finance a wedding
within 90 or more days of filing bankruptcy, and thus they must have
intended to defraud Creditor because they did not repay the loan. That is not


One of the principal purposes of the bankruptcy code is to grant honest
debtors a "fresh start." To further this purpose, Congress warns creditors that
if they bring a complaint seeking the non-discharge of a consumer debt and
the debtor ultimately obtains a discharge of that debt, they might well be

20 Robbins v. Oklahoma, 519 F.3d 1242, 1247 (10th Cir.2008), quoting Twombly, 550

U.S. at 570.
21 As Judge Nugent recently noted in In re Hankins), 2012 WL 409629 at *4,
“[t]here are several possible inferences that can be drawn from this bare allegation.
Twombly requires a plaintiff to plead ‘factual content that allows the court to draw thereasonable inference that the defendant is liable for the misconduct alleged.’ Plausibilityrequires more than a “sheer possibility” that the defendant is liable under the claimalleged.” In Hankins, the Court noted that at least that creditor alleged debtor’s schedulesshowed no ability to pay for the charges she made to her Discover credit card account.


Case 13-07037 Doc# 23 Filed 01/22/14 Page 9 of 10

liable for payment of the reasonable attorney's fee and other costs associated
with debtors having to defend such actions.22 For that reason, and because of
its desire to hear disputes on the merits, the Court gave this Creditor a
second opportunity to meet its pleading burden, even providing a roadmap
how to meet that burden in its first order, including citations to prevailing
authority. But because Creditor’s proposed amended complaint still fails to
state a claim, the motion to amend the complaint must be denied and the
original complaint is now dismissed.

It is so ordered.

# # #

22 11 U.S.C. § 523(d).
13-07037 Doc# 23 Filed 01/22/14 Page 10 of 10

You are here: Home Opinions Judge Karlin 13-07037 Farmway Credit Union v. Eilert et al (Doc. # 23)