Korte v. Brewer (In re Brewer)

Steven Rhodes

Chapter 7

On October 4, 2010, John Patrick Brewer filed for chapter 7 relief. He listed a state court judgment debt in the amount of $45,000 owed to Ronald Korte.

On January 3, 2011, Korte filed this adversary proceeding against Brewer seeking a determination of nondischargeability of debt under 11 U.S.C. § 523(a)(4). In the complaint, Korte alleges that Brewer negotiated a $25,000 check belonging to Korte, and, in partial repayment of that amount, Brewer issued $15,000 in checks to Korte written on an account that Brewer knew did not have sufficient funds. Korte alleges that Brewer's actions of knowingly issuing bad checks constitutes fraud under § 523(a)(4).

On August 9, 2011, Brewer filed a motion for judgment on the pleadings. Brewer contends that Korte failed to properly allege a fiduciary capacity, or facts sufficient to find a fiduciary capacity, as required by § 523(a)(4).

Brewer moves to dismiss the complaint for "failure to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6) (applicable in adversary proceedings by virtue of Rule 7012(b) of the Federal Rules of Bankruptcy Procedure). In deciding a Rule 12(b)(6) motion, the court must (1) view the complaint in the light most favorable to the plaintiff and (2) take all well-pleaded factual allegations as true. Gunasekera v. Irwin, 551 F.3d 461, 466 (6th Cir. 2009) (citations omitted). However, the court need not accept a "bare assertion of legal conclusions." Columbia Natural Res., Inc. v. Tatum, 58 F.3d 1101, 1109 (6th Cir. 1995).

In Tackett v. M & G Polymers, USA, LLC, 561 F.3d 478, 488-89 (6th Cir. 2009), the Sixth Circuit summarized the standard for evaluating a 12(b)(6) motion:

In Bell Atlantic Corp. v. Twombly, 550 U.S. 554, 127 S. Ct. 1955, 1974, 1965 (2007), the Supreme Court stated that to survive a motion to dismiss a complaint must contain (1) "enough facts to state a claim to relief that is plausible," (2) more than "a formulaic recitation of a cause of action's elements," and (3) allegations that suggest a "right to relief above a speculative level."
Just weeks after the Twombly decision, however, the Supreme Court cited Twombly to reaffirm the liberal pleading standard in Rule 8(a)(2): "Rule . . . 8(a)(2) requires only a 'short and plain statement of the claim showing that the pleader is entitled to relief.' Specific facts are not necessary; the statement need only 'give the defendant fair notice of what the . . . claim is and the grounds upon which it rests.'" Erickson v. Pardus, 551 U.S. 89, 127 S. Ct. 2197, 2200 (2007) (quoting Twombly, 127 S. Ct. at 1964). On several occasions, the Sixth Circuit has identified "uncertainty regarding the scope of Twombly," and noted that Twombly may be "limited to expensive, complicated litigation." Gunasekera, 551 F.3d at 466. In reviewing a motion to dismiss, "[w]e read Twombly and Erickson in conjunction with one another." Sensations, Inc. v. City of Grand Rapids, 526 F.3d 291, 295-96 (6th Cir. 2008).

Section 523(a)(4) provides that a chapter 7 discharge does not discharge an individual from any debt "for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny[.]" 11 U.S.C. § 523(a)(4). To satisfy the fiduciary capacity element of § 523(a)(4) in the context of fraud or defalcation, the fiduciary capacity must be based on "the existence of a pre-existing express or technical trust whose res encompasses the property at issue." Commonwealth Land Title Co. v. Blaszak (In re Blaszak), 397 F.3d 386, 391 (6th Cir. 2005).

To establish the existence of an express or technical trust, the creditor must demonstrate: "(1) an intent to create a trust; (2) a trustee; (3) a trust res; and (4) a definite beneficiary." In re Blaszak, 397 F.3d at 391-92.

Korte's complaint fails to identify a trust creating a fiduciary relationship. Further, there are no facts alleged that would support the finding of a fiduciary relationship. Korte merely alleges fraud. Accordingly, the complaint fails to state a claim under § 523(a)(4), and is therefore dismissed.

In the interests of justice, and because Korte is proceeding in pro per, the Court will grant Korte 14 days within which to file a motion for leave to file an amended complaint that states a proper claim for relief. Not for Publication

Steven Rhodes

United States Bankruptcy Judge