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Fabian v. Goss (In re Goss)

United States Bankruptcy Court, S.D. Ohio, Eastern Division.
Sep 27, 2019
605 B.R. 189 (Bankr. S.D. Ohio 2019)

Opinion

Case No. 18-55853 Adv. Pro. No. 18-2154

2019-09-27

IN RE: Jason P. GOSS, Debtor. James Fabian, Plaintiff, v. Jason P. Goss, Defendant.

Damion Clifford, Gerhardt A Gosnell, II, James E. Arnold & Associates, LPA, Columbus, OH, for Plaintiff. Mina Nami Khorrami, Mina Nami Khorrami, LLC, Columbus, OH, for Defendant. William B Logan, Jr., Columbus, OH, pro se.


Damion Clifford, Gerhardt A Gosnell, II, James E. Arnold & Associates, LPA, Columbus, OH, for Plaintiff.

Mina Nami Khorrami, Mina Nami Khorrami, LLC, Columbus, OH, for Defendant.

William B Logan, Jr., Columbus, OH, pro se.

OPINION AND ORDER (A) DENYING DEFENDANT'S MOTION TO DISMISS AMENDED COMPLAINT (DOC. 13) AND (B) DIRECTING THE PLAINTIFF TO FILE A FURTHER AMENDED COMPLAINT

John E. Hoffman, Jr., United States Bankruptcy Judge

I. Introduction

The plaintiff in this adversary proceeding, James Fabian, seeks a determination that the debts allegedly owed to him by the defendant, Jason P. Goss, are nondischargeable under §§ 523(a)(2), (4) and (6) of the Bankruptcy Code. After Goss moved to dismiss Fabian's original complaint (Doc. 1) (the "Original Complaint"), Fabian filed an amended complaint (Doc. 12) (the "Amended Complaint"). Goss then filed a motion to dismiss the Amended Complaint (the "Dismissal Motion") (Doc. 13) on the grounds that the amendments do not relate back to the Original Complaint and that the Amended Complaint fails to state a claim upon which relief can be granted. The Court concludes that the amendments do relate back to the Original Complaint, that the Dismissal Motion must be denied, and that, if Fabian intends to pursue his fraud claims under § 523(a)(2), he must file a further amended complaint setting forth those claims with more particularity.

II. Jurisdiction and Constitutional Authority

The Court has jurisdiction to hear and determine this adversary proceeding under 28 U.S.C. §§ 157 and 1334 and the general order of reference entered in this district. This is a core proceeding. 28 U.S.C. § 157(b)(2)(I). The Court also has the constitutional authority to enter this order for two reasons. First, an order denying a motion to dismiss for failure to state a claim is not final, and bankruptcy courts have the constitutional authority to enter such orders. Am. Media, Inc. v. Anderson Mgmt. Servs., Inc. (In re Anderson News, LLC) , No. 15-mc-199-LPS, 2015 WL 4966236, at *2 (D. Del. Aug. 19, 2015) ; O'Toole v. McTaggart (In re Trinsum Grp., Inc.) , 467 B.R. 734, 739–40 (Bankr. S.D.N.Y. 2012). Second, even if this order were final, bankruptcy courts have the constitutional authority to enter final orders adjudicating the dischargeability of debts. Hart v. S. Heritage Bank (In re Hart) , 564 F. App'x 773, 777 (6th Cir. 2014).

III. Background

Goss devotes much space to disputing the allegations of the Amended Complaint. Dismissal Mot. at 1–10. But when deciding a defendant's motion to dismiss for failure to state a claim under Rule 12(b)(6) of the Federal Rules of Civil Procedure (the "Civil Rule(s)"), courts must construe the allegations of the complaint in the light most favorable to the plaintiff.

In the Amended Complaint, Fabian sets forth the following allegations, which the Court accepts as true in order to determine whether they state a claim upon which relief can be granted. The parties' dispute revolves around Auto Direct of Columbus OH, Inc. ("Auto Direct"), which Goss formed for the purpose of selling new and used automobiles. Am. Compl. ¶ 11. Fabian first became involved with Auto Direct when he began supplying it with used vehicles under an arrangement whereby he would be reimbursed for their cost while receiving a portion of the profits from their sale. Id. ¶ 12. After nearly three years of operating under this arrangement, Fabian asserted that Auto Direct owed him approximately $300,000 based on both the value of vehicles he had supplied it and the profits he already should have received but had not yet been paid. Id. ¶ 13. In response, Goss, who at that time was the sole shareholder of Auto Direct, represented to Fabian that he could become a 40% owner of the company and that, if he did, he would receive 40% of its net income going forward in exchange for the $300,000 that Auto Direct owed him. Id. ¶¶ 11, 13. Fabian justifiably relied upon these representations, and the parties entered into various agreements documenting their respective interests in Auto Direct. Id. ¶¶ 15–16. Goss, however, never intended to honor the parties' agreements, and Fabian never received 40% of Auto Direct's net income; instead, Goss took more than his 60% share of Auto Direct's net income, and he used income that rightfully belonged to Fabian for his own personal benefit. Id. ¶¶ 14, 18–22.

Goss then surprised Fabian with the news that he intended to "shut down" Auto Direct. Id. ¶ 23. But he also promised Fabian that he would pay him approximately $700,000 as compensation for his ownership interest in Auto Direct as well as for the value of certain vehicles in its inventory and the profits he should have received after he became a part owner of the company. Id. Fabian reasonably relied upon this promise. Id. ¶ 28. At the time Goss made the promise, however, he did not intend to pay Fabian $700,000, and Goss in fact later sold all of Auto Direct's inventory to another dealer without paying Fabian the amount he was owed. Id. ¶¶ 24–27. Goss's misrepresentations caused Fabian financial harm. Id. ¶¶ 28, 52.

Fabian commenced a lawsuit against Goss in the Court of Common Pleas of Franklin County, Ohio (the "State Court"), asserting causes of action for breach of contract, conversion, and fraud. Id. ¶ 29. In order to resolve the lawsuit, Goss represented that he was ready, willing, and able to make weekly settlement payments, and Fabian justifiably and reasonably relied on this representation. Id. ¶ 32–33. Goss made this representation in order to induce the execution of a settlement agreement under which Goss was required to pay Fabian a total of $450,000 in weekly installments (the "Settlement Agreement"). Id. ¶¶ 30–31. Goss, however, never intended to fully comply with the Settlement Agreement, and he in fact knew that he would not be able to pay the entire amount that it required him to pay. Id. ¶ 32. In the end, Goss paid Fabian only $38,082. Id. ¶ 34. Fabian then filed a second lawsuit against Goss in the State Court for breach of the Settlement Agreement and for fraudulently inducing him to enter into it. Id. ¶ 35. The State Court granted summary judgment in favor of Fabian on his claim for breach of the Settlement Agreement. Id. ¶ 36. It also set a trial date on Fabian's fraud claim, but before the trial commenced, Goss filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code.

Because creditors have 60 days after the first date set for the meeting of creditors in which to file a complaint under §§ 523(a)(2), (4) and (6), and because the first date set for Goss's meeting of creditors was October 19, 2018, Fabian had until December 18, 2018 to file the Original Complaint, which he timely filed on that date. After Goss moved to dismiss the Original Complaint for failure to state a claim, Fabian filed the Amended Complaint on March 8, 2019, which was well after the December 18, 2018 deadline for filing a nondischargeability complaint. Goss then filed the Dismissal Motion, Fabian filed a response (Doc. 16), and Goss filed a reply (the "Reply") (Doc. 17). In addition to arguing that the Amended Complaint fails to state a claim upon which relief can be granted, Goss contends that certain of its amendments do not relate back to the Original Complaint and thus must be dismissed as time-barred.

IV. Legal Analysis

A. The Amended Complaint's New Allegations Relate Back to the Date of the Original Complaint.

A debt is nondischargeable under §§ 523(a)(2), (4) and (6) only if the bankruptcy court determines it to be excepted from discharge upon the creditor's request. 11 U.S.C. § 523(c)(1). Such a request must be made no later than 60 days after the first date set for the meeting of creditors. Fed. R. Bankr. P. 4007(c). Because the Amended Complaint was filed after the deadline, its new allegations are time-barred unless they relate back to the date of the Original Complaint under Civil Rule 15(c), which "governs whether newly asserted claims or allegations in an amended pleading relate back to the date of the original pleading with the effect that the new pleading is ‘timely even though it was filed outside of an applicable statute of limitations.’ " Durand v. Hanover Ins. Grp., Inc. , 806 F.3d 367, 374–75 (6th Cir. 2015) (quoting Krupski v. Costa Crociere S.p.A. , 560 U.S. 538, 541, 130 S.Ct. 2485, 177 L.Ed.2d 48 (2010) ).

Civil Rule 15(c) is made applicable to this proceeding by Rule 7015 of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rule(s)").

Fabian alleged for the first time in the Amended Complaint that Goss: (1) did not intend Fabian to receive 40% of Auto Direct's net income; (2) did not intend to pay Fabian $700,000, but instead intended to transfer Auto Direct's assets to another dealership for Goss's sole benefit; and (3) did not intend to make all of the payments under the Settlement Agreement. According to Goss, these new allegations do not relate back to the date of the Original Complaint. Dismissal Mot. at 14–15; Reply at 16. If Goss were correct, then the Dismissal Motion would necessarily be granted, because a finding of nondischargeability under each of the subsections on which Fabian relies "requires the common element of scienter, ‘whether it is an intent to defraud/deceive under § 523(a)(2), a[ ] [fraudulent] intent to misappropriate another's property ... under § 523(a)(4) [,] or the intentional injury to another's property under § 523(a)(6)." Duley v. Thompson (In re Thompson) , 528 B.R. 721, 740 (Bankr. S.D. Ohio 2015) (quoting Hoffman v. Anstead (In re Anstead) , 436 B.R. 497, 500 (Bankr. N.D. Ohio 2010) ). Goss contends that the amendments do not relate back to the date of the Original Complaint because, instead of merely being "accused of" the actions described in the Original Complaint, he is now facing the allegation "that he did these actions with deceitful intent." Reply at 17.

Goss's position is inconsistent with Civil Rule 15(c) and the controlling case law, which requires the rule to be "interpreted in light of the ‘fundamental tenor of the [Civil] Rules,’ which ‘is one of liberality rather than technicality.’ " Hall v. Spencer Cty., Ky. , 583 F.3d 930, 934 (6th Cir. 2009) (quoting Miller v. Am. Heavy Lift Shipping , 231 F.3d 242, 248 (6th Cir. 2000) ). Under Civil Rule 15(c), an amendment to a complaint relates back to the original if "the amendment asserts a claim or defense that arose out of the conduct, transaction, or occurrence set out—or attempted to be set out—in the original pleading." Fed. R. Civ. P. 15(c)(1)(B). The Sixth Circuit has held that "this standard is met if the original and amended complaints allege the same ‘general conduct’ and ‘general wrong.’ " Norfolk Cty. Ret. Sys. v. Cmty. Health Sys., Inc. , 877 F.3d 687, 694 (6th Cir. 2017). The Amended Complaint's allegations that the events described in the Original Complaint occurred because Goss intended them fit the bill. See Johnson v. Rush , No. CIV. 1:CV-06-0627, 2010 WL 500445, at *4 (M.D. Pa. Feb. 5, 2010) (holding that an allegation of retaliatory intent in the amended complaint related back to the original complaint that addressed the same conduct but made no allegation regarding intent); In re Grube , 500 B.R. 764, 775–76 (Bankr. C.D. Ill. 2013) (holding that an allegation of actual fraud in the amended complaint related back to the original complaint that asserted a constructive fraudulent transfer claim based on the same facts). So too do the new allegations that Goss does not address in the Dismissal Motion—that Fabian relied on Goss's alleged misrepresentations and that those misrepresentations were the cause of Fabian's losses. Am. Compl. ¶¶ 15, 28, 33 & 52. Allegations that Fabian relied on the representations described in the Original Complaint and that those representations were the source of his harm clearly arise out of the same transactions set forth in the Original Complaint. In sum, all of the new allegations set forth in the Amended Complaint involve the same conduct and harm described in the Original Complaint and therefore relate back to the date of the Original Complaint.

This result is consistent with the Sixth Circuit's guidance that, when deciding relation-back questions, courts should "ask[ ] whether the party asserting the statute of limitations defense had been placed on notice that he could be called to answer for the allegations in the amended pleading." United States ex rel. Bledsoe v. Cmty. Health Sys., Inc. , 501 F.3d 493, 516 (6th Cir. 2007). The Sixth Circuit held in another case that the allegations of the amended complaint related back to the original because the "new allegations ... merely buil[t] on th[e] [original] claim" and therefore "should come as no surprise." Norfolk Cty. , 877 F.3d at 694. Just so here. Intent, reliance, and proximate cause are elements of the claims detailed in the Original Complaint with much of the required factual predicate, so Goss could hardly have been surprised when Fabian included allegations relating to those elements in the Amended Complaint.

B. The Amended Complaint Is Not Subject to Dismissal.

When deciding a motion to dismiss for failure to state a claim upon which relief can be granted under Civil Rule 12(b)(6), "[c]ourts must accept as true the factual allegations pleaded in the complaint." DBI Invs., LLC v. Blavin , 617 F. App'x 374, 380 (6th Cir. 2015). That said, "the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions," and "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). Rather, "[t]o survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ " Id. (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). For the reasons explained below, none of Goss's arguments supports dismissal of the Amended Complaint.

1. Goss's General Arguments

In seeking to dismiss the Amended Complaint, Goss makes two arguments that apply generally to §§ 523(a)(2), (4) and (6). He first contends that the Amended Complaint contains no allegation that he intended to defraud Fabian or that his actions were the proximate cause of Fabian's injury. Dismissal Mot. at 12–13. That is simply wrong. As recounted above, Fabian alleges in the Amended Complaint that Goss had no intention of keeping his promises that Fabian would receive 40% of Auto Direct's net income, $700,000 in connection with the shutdown of Auto Direct, and weekly payments under the Settlement Agreement. Fabian also alleges that Goss's fraudulent conduct injured him by causing him not to receive the funds to which he was entitled. In short, Fabian has sufficiently alleged intent and proximate cause.

Goss's second general argument is that Fabian is seeking to have a claim for the misuse of corporate assets declared nondischargeable and that such claim belongs only to Auto Direct, not to Fabian as a shareholder of Auto Direct. Dismissal Mot. at 13–14; Reply at 5. To the contrary, it is not a claim for misuse of corporate assets that Fabian is seeking to have declared nondischargeable. Rather, Fabian is seeking a judgment of nondischargeability with respect to his claims that Goss fraudulently induced him to become an owner of Auto Direct, to accept $700,000 as compensation for his ownership interest in Auto Direct, and to enter into the Settlement Agreement. Any fraudulent inducement that occurred was directed at and harmed Fabian personally, and the fraud claims belong to him, not to Auto Direct. See Cumberland Oil Corp. v. Thropp , 791 F.2d 1037, 1042–43 (2d Cir. 1986) (holding that claim belonged to the plaintiff because the plaintiff did not assert the "right ... to recover misappropriated assets" of the corporation, but instead alleged "that misrepresentations ... were made by [defendant] in furtherance of a conspiracy to defraud").

2. Arguments Specific to §§ 523(a)(2)(A), (4) and (6)

In addition to his generally applicable reasons for opposing the Dismissal Motion, Goss also makes arguments specific to each of the subsections on which Fabian relies. The Court will address each in turn.

a. Section 523(a)(2)(A)

Section 523(a)(2)(A) provides that a "discharge ... does not discharge an individual from any debt ... for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained, by ... 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). A debt arising from a false representation is nondischargeable under § 523(a)(2)(A) if the creditor establishes four elements:

Although Fabian does not specify the subsection of § 523(a)(2) on which he relies, he presumably is relying on § 523(a)(2)(A), because there is no allegation in the Amended Complaint concerning the use of a statement in writing respecting Goss's financial condition, which is a necessary element of a claim under § 523(a)(2)(B).

(1) the debtor obtained money [or property or services] through a material misrepresentation that, at the time, the debtor knew was false or made with gross recklessness as to its truth; (2) the debtor intended to deceive the creditor; (3) the creditor justifiably relied on the false representation; and (4) its reliance was the proximate cause of loss.

Rembert v. AT & T Universal Card Servs., Inc. (In re Rembert) , 141 F.3d 277, 280–81 (6th Cir. 1998) (footnote omitted).

Starting with the first of these elements, Goss contends that the Amended Complaint "does not specify what ‘money, property, or services’ [he] obtained." Dismissal Mot. at 15. To satisfy this element, "[i]t is sufficient to show that the debtor ... indirectly obtained some tangible or intangible financial benefit as a result of his misrepresentation." Leonard v. RDLG, LLC (In re Leonard) , 644 F. App'x 612, 619 (6th Cir. 2016) (internal quotation marks omitted). The Amended Complaint meets this requirement with its allegation that Fabian provided vehicles to Auto Direct for resale and that Goss used sale profits that belonged to Fabian for his own benefit rather than passing them on to Fabian.

Goss next asserts that the Amended Complaint fails to satisfy Civil Rule 9(b), which provides that "[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake." Dismissal Mot. at 15; Reply at 10–11. Civil Rule 9(b) indeed applies to § 523(a)(2)(A) complaints. See Bennett v. Lindsey (In re Lindsey) , 733 F. App'x 190, 192 (5th Cir. 2018) ; Guardian Fin. Co. v. Metzger (In re Metzger) , No. 17-11585, 2018 WL 6985674, at *3 (Bankr. S.D. Ohio Sept. 4, 2018). Under Civil Rule 9(b), "a plaintiff must generally (1) specify the time, place, and content of the alleged misrepresentation; (2) identify the fraudulent scheme and the fraudulent intent of the defendant; and (3) describe the injury resulting from the fraud." SFS Check, LLC v. First Bank of Del. , 774 F.3d 351, 358 (6th Cir. 2014). These requirements "should be understood in terms of Rule 9(b)'s broad purpose of ensuring that a defendant is provided with at least the minimum degree of detail necessary to begin a competent defense," and the rule "should not be read to defeat the general policy of ‘simplicity and flexibility’ in pleadings contemplated by the Federal Rules." U.S. ex rel. SNAPP, Inc. v. Ford Motor Co. , 532 F.3d 496, 503 (6th Cir. 2008). Thus, a "complaint sufficiently pleads the time, place, and content of the alleged misrepresentation so long as it ‘ensure[s] that [the] defendant possesses sufficient information to respond to an allegation of fraud.’ " U.S. ex rel. Sheldon v. Kettering Health Network , 816 F.3d 399, 408 (6th Cir. 2016) (quoting SNAPP , 532 F.3d at 504 ).

Goss maintains that Fabian "has failed to allege which [of his] specific acts ... constituted false pretenses, false representation or actual fraud, or when these specific acts were committed." Dismissal Mot. at 15. To the contrary, the Amended Complaint contains sufficient specificity regarding Goss's alleged misrepresentations and the time frame in which they occurred. According to the Amended Complaint, it was around August 2013 that Goss represented that Fabian would be paid 40% of the net proceeds of Auto Direct, in early 2015 that he represented that Fabian would be paid $700,000, and at the time the Settlement Agreement was signed in August 2016 that he represented that he was ready, willing, and able to make the payments under the Settlement Agreement. Those allegations are sufficiently detailed with respect to the timing of the representations because "a complaint need only apprise a defendant of the ‘general time period’ of any alleged misstatements to meet the requirements of Rule 9(b)." Harris v. Wells , 757 F. Supp. 171, 173–74 (D. Conn. 1991). "Indeed, dates, times and places need not be pleaded with absolute precision, so long as the allegations sufficiently put the defendant on notice as to the circumstances of the charged misrepresentations." Id. ; see also Kukuk v. Fredal , No. 99-74014, 2001 WL 1218557, at *5 (E.D. Mich. Aug. 1, 2001) (holding that alleging the general time period in which the representations were made was sufficient under Civil Rule 9(b) ); Trak Microcomputer Corp. v. Wearne Bros. , 628 F. Supp. 1089, 1092 (N.D. Ill. 1985) (same).

Goss, however, rightly points out that the Amended Complaint "does not state ... where the representations were made ... [or] whether they were written or verbal, express or implied." Reply at 10. And he is correct that the Amended Complaint therefore fails to fully comply with Civil Rule 9(b). See Ram Int'l, Inc. v. ADT Sec. Servs., Inc. , 555 F. App'x 493, 499 (6th Cir. 2014) (holding that a complaint that "fail[ed] to explain when and where [the] representations were made—whether in an agreement exchanged between the parties, orally, or by some other means," did not comply with Civil Rule 9(b) ). "Nonetheless, despite the plaintiffs' failure to satisfy the requirements of Rule 9(b), in the absence of ... [a] motion for [a] more definite statement under Rule 12(e), dismissal on this basis alone would not be appropriate." Coffey v. Foamex L.P. , 2 F.3d 157, 162 (6th Cir. 1993). The Court therefore will order Fabian to further amend the Amended Complaint within 14 days from the date of this opinion and order so as to bring his fraud claims into compliance with Civil Rule 9(b).

Courts have the authority to sua sponte order the plaintiff to fully comply with Civil Rule 9(b). See McFarlin v. Douglas Cty. , 587 F. App'x 593, 595 (11th Cir. 2014) ; Streets v. Putnam, Inc. , No. 2:13-CV-0803, 2013 WL 6258559, at *2 (S.D. Ohio Dec. 4, 2013) ; Equal Justice Found. v. Deutsche Bank Tr. Co. Americas , 412 F. Supp. 2d 790, 798 (S.D. Ohio 2005).

b. Section 523(a)(4)

Debts "for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny" are nondischargeable, 11 U.S.C. § 523(a)(4), and Fabian claims that Goss committed embezzlement. "Federal law defines ‘embezzlement’ under section 523(a)(4) as the fraudulent appropriation of property by a person to whom such property has been entrusted or into whose hands it has lawfully come." Brady v. McAllister (In re Brady) , 101 F.3d 1165, 1172–73 (6th Cir. 1996) (internal quotation marks omitted). The Amended Complaint's allegation that Goss misappropriated proceeds that Fabian should have been paid fits the bill, as do the allegations that Goss misled Fabian about the future operations of Auto Direct and then conveyed vehicles to another dealership rather than selling them through Auto Direct in the manner that Goss and Fabian had agreed. See In re Cook , 141 B.R. 777, 784 (Bankr. M.D. Ga. 1992) (holding that embezzlement occurred when the defendant lied to the plaintiff about the fact that property had been sold and then converted proceeds from the sale of property for his own use in violation of his agreement with the plaintiff).

Goss's argument that any debt he owes Fabian cannot be for embezzlement because Fabian provided vehicles to Auto Direct rather than to Goss, Reply at 12, is not well-taken. See Sohio Chem. Co. v. Berkemeier (In re Berkemeier) , 51 B.R. 5 (Bankr. S.D. Ind. 1983). In Berkemeier , the debtor argued that, because the plaintiff entrusted property to a corporation of which the debtor was the president and not to the debtor directly, the debtor could not be liable for embezzlement. The bankruptcy court rejected this argument on the basis that "[t]he act of embezzlement is committed by an individual." Id. at 6 ; see also C & B Farms, Inc. v. Barnhart (In re Barnhart) , No. 11-9059, 2013 WL 3779908, at *6 (Bankr. M.D.N.C. July 18, 2013) (holding that "[a] defense asserting that the property was entrusted to a corporation will not shield an individual debtor from liability under 11 U.S.C. § 523(a)(4) [.]"); OSB Mfg., Inc. v. Hathaway (In re Hathaway) , 364 B.R. 220, 240 (Bankr. E.D. Va. 2007) (same).

Goss's assertion that he acted with Fabian's full knowledge, Dismissal Mot. at 16 & Reply at 13, also is unavailing because it is a factual allegation made to controvert those contained in the Amended Complaint and therefore may not be considered for purposes of deciding the Dismissal Motion. The Court finds that the Amended Complaint states a claim for embezzlement under § 523(a)(4).

c. Section 523(a)(6)

Goss also contends that Fabian has failed to state a claim under § 523(a)(6), which provides that an individual debtor is not discharged from any debt "for willful and malicious injury by the debtor to another entity or the property of another entity." 11 U.S.C. § 523(a)(6). For an injury to be "willful," the debtor must have desired to cause the consequences of his conduct or believed that the consequences were substantially certain to result from it. See Markowitz v. Campbell (In re Markowitz) , 190 F.3d 455, 464 (6th Cir. 1999) (citing Kawaauhau v. Geiger , 523 U.S. 57, 118 S.Ct. 974, 140 L.Ed.2d 90 (1998) ). "[A] malicious [injury] occurs in ‘conscious disregard of one's duties or without just cause or excuse.’ " Trost v. Trost (In re Trost) , 735 F. App'x 875, 878 (6th Cir. 2018) (quoting Wheeler v. Laudani , 783 F.2d 610, 615 (6th Cir. 1986) ), cert. denied , ––– U.S. ––––, 139 S. Ct. 458, 202 L.Ed.2d 348 (2018).

According to Goss, the Amended Complaint contains no facts suggesting that he intended to injure Fabian or that he believed that his actions were substantially certain to injure him. Reply at 14–15. To the contrary, the Amended Complaint paints a picture of Goss as someone who made promise after promise he had no intention of keeping in order to enrich himself by persuading Fabian to give up his rights, culminating in the fraudulent inducement to enter into the Settlement Agreement. If that picture is accurate, then Fabian's "allegations of fraudulent inducements made with knowledge of falsity are entirely consistent with an intent to injure"—or, at a minimum, with substantial certainty that injury would occur—and Fabian therefore has stated a claim upon which relief can be granted. Alliguie v. Boward (In re Boward) , No. 03-1520, 2005 WL 3263924, at *2 (Bankr. D. Mass. June 27, 2005) ; see also Ford v. Deitz (In re Deitz) , No. 08-1217, 2011 WL 10637551, at *21 (Bankr. E.D. Cal. July 28, 2011) (holding that a fraudulent inducement claim supported a finding of willful and malicious injury for purposes of § 523(a)(6) ), aff'd , 469 B.R. 11 (9th Cir. BAP 2012), aff'd , 760 F.3d 1038 (9th Cir. 2014). Moreover, Fabian's alleged fraudulent activities clearly would be without just cause or excuse and therefore would satisfy the elements of maliciousness.

Finally, Goss contends that Fabian "may have" failed to join indispensable parties to this adversary proceeding and that he is asserting this defense in case such parties were to be identified during discovery. Dismissal Mot. at 17. Goss's speculation provides no basis to grant the Dismissal Motion.

V. Conclusion

For all these reasons, the Court DENIES the Dismissal Motion. If Fabian intends to pursue his fraud claims under § 523(a)(2), he must file a further amended complaint setting forth those claims with more particularity. Given that leave to amend should be granted freely "when justice so requires," Fed. R. Civ. P. 15(a), Fabian is hereby granted leave to file a second amended complaint within 14 days from the entry of this opinion and order so as to bring his fraud claims into compliance with Civil Rule 9(b).

Fabian also seeks relief from the automatic stay imposed by § 362 of the Bankruptcy Code to pursue all available rights and remedies against Goss. The Court will by separate order or notice schedule a status conference for the purpose of addressing the question of whether relief from stay should be granted so that the State Court may adjudicate the issue of Goss's liability to Fabian.

IT IS SO ORDERED.


Summaries of

Fabian v. Goss (In re Goss)

United States Bankruptcy Court, S.D. Ohio, Eastern Division.
Sep 27, 2019
605 B.R. 189 (Bankr. S.D. Ohio 2019)
Case details for

Fabian v. Goss (In re Goss)

Case Details

Full title:IN RE: Jason P. GOSS, Debtor. James Fabian, Plaintiff, v. Jason P. Goss…

Court:United States Bankruptcy Court, S.D. Ohio, Eastern Division.

Date published: Sep 27, 2019

Citations

605 B.R. 189 (Bankr. S.D. Ohio 2019)

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