Tomey v. Dizinno (In re Dizinno)

Citation: 532 B.R. 231Docket: Case No. 1:14-bk-05291-MDF; Adv. No: 1:15-ap-00012-MDF

Court: United States Bankruptcy Court, M.D. Pennsylvania; June 11, 2015; Us Bankruptcy; United States Bankruptcy Court

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Mark Steven Tomey, an unsecured creditor, filed a motion on January 22, 2015, seeking to either exclude the $4,400 debt owed to him by Paul Dizinno from discharge under 11 U.S.C. § 523(a)(2) or deny Dizinno's bankruptcy discharge under 11 U.S.C. § 727(a)(3), (4), and (5). The Court recognized Tomey's motion as initiating an adversary proceeding under Fed. R. Bankr. P. 7001. Dizinno subsequently moved to dismiss Tomey's complaint on two grounds: non-compliance with bankruptcy pleading rules (Fed. R. Bankr. P. 9010 and 9011) and failure to state a claim (Fed. R. Bankr. P. 7012(b)(6)). Dizinno also sought to strike Tomey’s jury trial demand, asserting that no right to a jury exists for the claims made.

The Court granted Dizinno’s motion to dismiss but allowed Tomey to file an amended complaint to rectify the noted deficiencies. The request to strike the jury trial demand was also granted, as Tomey’s claims did not entitle him to a jury trial. 

In terms of factual background, Dizinno had requested loans from Tomey to cover property taxes, but no formal loan agreements were documented. The total amount loaned was acknowledged by Dizinno. Tomey alleges he relied on Dizinno's promises to repay the loans and improve his financial situation, including finding higher-paying work and reducing expenses. However, after borrowing, Dizinno did not repay the loans or adjust his financial habits as promised, leading Tomey to believe that Dizinno acted imprudently with his finances.

The complaint filed by Tomey is challenged for non-compliance with the Federal Rules of Bankruptcy Procedure, specifically Rule 9010(b) and Rule 9011. Rule 9010(b) mandates claims be presented in numbered paragraphs, each focusing on a single set of circumstances. Tomey’s fourteen-page narrative lacks numbered paragraphs and includes irrelevant details about his personal financial issues and the Debtor’s family relationships, which do not pertain to the bankruptcy case. This disorganization makes it difficult for the Debtor to respond meaningfully. Consequently, the Court intends to dismiss the complaint unless Tomey submits a revised version within thirty days that adheres to the required format and clearly states facts relevant to the grounds for either excepting the loan from discharge or denying the discharge altogether. Additionally, Rule 9011 requires all papers to be signed by the party, and Tomey’s complaint was filed without a signature, despite a signature line being present. Debtor highlighted this deficiency on April 7, 2015, but Tomey has not rectified it. Therefore, the Court will strike the complaint due to the lack of a signature, emphasizing that any amended complaint must also be signed, or it will be dismissed without further notice.

A complaint may be dismissed under Fed. R. Bankr. P. 9012, which incorporates Rule 12 of the Federal Rules of Civil Procedure, if it fails to state a claim upon which relief can be granted. According to Fed. R. Civ. P. 12(b)(6), the court must assess the legal sufficiency of the complaint, accepting all well-pleaded allegations as true and interpreting them in a light favorable to the plaintiff. The standard does not require the plaintiff to demonstrate a likelihood of success at trial, but merely the possibility of entitlement to relief. 

Despite the court's liberal interpretation of allegations, particularly for pro se litigants, it must distinguish between mere conclusions and well-pleaded factual allegations that warrant a presumption of truth. Well-pleaded factual allegations must raise a reasonable expectation that discovery will uncover evidence supporting each element of the plaintiff's case. A complaint must present a plausible claim for relief. In this case, Tomey claims that the Debtor obtained loans through intentional misrepresentations regarding repayment intent.

A discharge under section 727 of the Bankruptcy Code does not relieve an individual debtor from debts incurred through fraud, particularly those obtained via false pretenses or misrepresentations, except for statements regarding financial condition (11 U.S.C. 523(a)(2)(A)). Tomey's allegations of intentional misrepresentation in securing loans constitute fraud, which must adhere to the heightened pleading standards of Federal Rule of Civil Procedure 9(b) as applied in bankruptcy proceedings (Fed. R. Bankr. P. 2377009). Rule 9(b) requires specific details about the fraud, similar to the foundational elements of a news story (who, what, when, where, how). The Third Circuit acknowledges that while specific allegations regarding date, time, and place are essential, other methods can also satisfy the particularity requirement (Seville Industrial Machinery Corp. v. Southmost Machinery Corp., 742 F.2d 786, 791 (3d Cir.1984)). To prevail on a claim under 523(a)(2)(A), a creditor must demonstrate five elements of common law fraud: (1) a false representation by the debtor; (2) the debtor's knowledge of the falsity; (3) intent to deceive; (4) justifiable reliance by the creditor; and (5) resultant loss to the creditor (The Bur-Cam Group, LLC v. Pearson, Bankr. No. 1:10-BK-00946-MDF, Adv. No. 1:10-AP-00184, 2010 WL 3956762). The misrepresentation must be material and made with the intent to deceive (Field v. Mans, 516 U.S. 59). If Tomey submits an amended complaint, he must convincingly allege all elements of fraud to demonstrate that he was fraudulently induced to extend loans to the Debtor.

Tomey alleges that the Debtor made misrepresentations regarding his intentions to repay a $4,400 loan, claiming the Debtor promised to catch up on his debts, seek supplemental work, and reduce living expenses to facilitate repayment. However, the timing of these representations and their connection to the loans remain unclear. Simply failing to repay a loan does not equate to fraud unless there is evidence that the Debtor intended to deceive Tomey at the time the loans were made. Tomey's assertion that the Debtor had no intention of repaying the loans is unsupported by sufficient evidence of fraudulent intent. For a claim under 11 U.S.C. § 523(a)(2)(A), the plaintiff must demonstrate that the debtor knowingly made false representations to deceive the creditor and that the creditor justifiably relied on those representations, suffering a loss as a result. Justifiable reliance requires that the creditor did not overlook obvious falsities and is assessed based on the specific circumstances of the case. Although Tomey claims to have relied on the Debtor's assurances due to their long-standing friendship, he must articulate how the Debtor's statements specifically induced him to lend the money rather than merely stating his reliance. If Tomey chooses to amend his complaint, he must detail the misrepresentations related to each loan and the timing of those statements.

The complaint fails to establish a plausible case for denying the Debtor's discharge under 11 U.S.C. § 727(a)(3), (4), or (5). Under § 727(a)(3), a debtor's discharge can be denied if they have concealed or failed to preserve financial records, making it impossible to ascertain their financial condition. The objecting party must demonstrate that the debtor did not maintain adequate records and that this failure obstructed understanding the debtor's financial status. Typically, this section does not apply to consumer debtors who do not operate a business, and unsophisticated debtors are held to a lower standard. In this case, the Debtor is employed as an Appliance Delivery Installer, and any repair activities mentioned appear to be hobbies rather than a business. Consequently, the complaint regarding § 727(a)(3) should be dismissed with prejudice.

For § 727(a)(4), which addresses false oaths, the court must find that the debtor made a false statement under oath that materially relates to the bankruptcy case, with knowledge of its falsity and fraudulent intent. The complaint lacks specificity in identifying any false statements made by the Debtor under oath. Thus, it will be dismissed under § 727(a)(4) but allows for an amended complaint that specifies the alleged false information.

Under 11 U.S.C. § 727(a)(5), a debtor's discharge may be denied if the debtor fails to satisfactorily explain any loss of assets before the court's determination. The creditor must initially prove which specific assets are missing, after which the burden shifts to the debtor to provide an adequate explanation. In this case, the complaint alleges that the Debtor transferred personal property, including bicycles and stereo equipment, and suggests potential undisclosed income from these activities. However, the complaint lacks valuation details for these assets, making it impossible to ascertain if their loss is significant enough to impair the debtor's ability to meet liabilities. If the creditor seeks to amend the complaint to deny the discharge, they must specify the values of the unaccounted assets and substantiate any claims of inadequate sales. 

Regarding the right to a jury trial, the Seventh Amendment preserves this right in common law suits with sufficient value. However, bankruptcy proceedings questioning debt discharge are deemed equitable, not legal, thus denying the right to a jury trial in such cases. Consequently, Tomey is not entitled to a jury trial for either his request to except loans from discharge or to deny the Debtor’s discharge, as these matters fall within the bankruptcy court's jurisdiction.

Tomey's complaint fails to comply with Federal Rules of Bankruptcy Procedure 9010 and 9011, leading to the granting of the Debtor's motion to dismiss. However, Tomey is allowed thirty days from the Order's date to file an amended complaint that adheres to procedural rules and presents a viable case to either except $4,400 in loans from discharge or deny the Debtor’s discharge under sections 727(a)(4) and (5). The claim under 727(a)(3) is dismissed with prejudice, and Tomey's request for a jury trial is denied. Additionally, Tomey raises claims under 42 U.S.C. § 1983, the Maryland Constitution, and the U.S. Constitution's Privileges and Immunities and Due Process Clauses, based on the belief that bankruptcy law cannot affect his debt collection rights. This belief is incorrect, as the Bankruptcy Clause and Code permit bankruptcy courts to discharge debts, which inherently limits creditors' repayment rights. The court identifies Tomey's filing as a complaint, asserting jurisdiction under 28 U.S.C. §§ 157 and 1334, categorizing the matter as core under 28 U.S.C. § 157(b)(2)(A), (I), and (O). This Opinion serves as findings of fact and conclusions of law under Federal Rule of Bankruptcy Procedure 7052.