Bustos et al v. Muller

UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
In re:
JENNIFER PATRICIA MULLER, 	No. 15-10055 ta7
Debtor.
RON G. BUSTOS and
BUSTOS, LLC.,
Plaintiffs,
v. 	Adv. No. 15-01031 t
JENNIFER PATRICIA MULLER,
Defendant.
MEMORANDUM OPINION
Before the Court is Defendant’s motion for judgment on the pleadings on Counts I and II
of Plaintiffs’ complaint. For the reasons set forth below, the Court will deny the motion.
I. 	RULE 12(c) STANDARDS
The Motion is brought under Fed. R. Bankr. P. 7012 and Fed. R. Civ. P. 12(c). 	Rule
12(c) provides: 	“After the pleadings are closed-but early enough not to delay trial-a party may
move for judgment on the pleadings.”
Rule 12(c) is designed to provide a means of disposing of cases when the material facts
are not in dispute. 	See Kruzits v. Okuma Mach. Tool, Inc., 40 F.3d 52, 54 (3rd Cir. 1994)
(“Under Rule 12(c), we will not grant judgment on the pleadings unless the movant clearly
establishes that no material issue of fact remains to be resolved and that he is entitled to
judgment as a matter of law.”) (internal quotation marks omitted); Park Univ. Enters., Inc. v. Am.
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Cas. Co. of Reading, Pa.., 442 F.3d 1239, 1244 (10th Cir. 2006) abrogated on other grounds by
Magnus, Inc. v. Diamond State Ins. Co., 545 Fed. Appx. 750, 753 (10th Cir. 2013) (a
“[j]udgment on the pleadings should not be granted ‘unless the moving party has clearly
established that no material issue of fact remains to be resolved and the party is entitled to
judgment as a matter of law.’”); Ramirez v. Wal-Mart Stores, Inc., 192 F.R.D. 303, 304 (D.N.M.
2000) (“Any party may move for judgment on the pleadings if no material facts are in dispute
and the dispute can be resolved on both the pleadings and any facts of which the Court can take
judicial notice.”). See generally Selman v. Delta Airlines, No. CIV 07-1059 JB/WDS 2008 WL
6022017, at *7 (D.N.M. 2008) (thorough discussion of general Rule 12(c) principles).
The same standards that govern a motion to dismiss under Rule 12(b)(6) also govern a
motion for judgment on the pleadings under Rule 12(c). 	See Atl. Richfield Co. v. Farm Credit
Bank of Witchita, 226 F.3d 1138, 1160 (10th Cir. 2000). “The nature of a Rule 12(b)(6) motion
tests the sufficiency of the allegations within the four corners of the complaint after taking those
allegations as true.” Mobley v. McCormick, 40 F.3d 337, 340 (10th Cir. 1994). The sufficiency
of a complaint is a question of law, and when considering and addressing a Rule 12(b)(6)
motion, a court must accept as true all well-pleaded factual allegations in the complaint, view
those allegations in the light most favorable to the non-moving party, and draw all reasonable
inferences in the plaintiff's favor. See Moore v. Guthrie, 438 F.3d 1036, 1039 (10th Cir. 2006);
Hous. Auth. of Kaw Tribe v. City of Ponca City, 952 F.2d 1183, 1187 (10th Cir. 1991), cert
denied, 504 U.S. 912 (1992).
Courts ruling on Rule 12(c) motions should “accept all facts pleaded by the non-moving
party as true and grant all reasonable inferences from the pleadings in favor of the same.” Park
Univ. Enters., Inc., 442 F.3d at 1244. The court must view the facts presented in the pleadings,
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and draw the inferences therefrom, in the light most favorable to the nonmoving party. 	See
Ramirez, 192 F.R.D. at 304; Ramirez v. Dep’t of Corr., 222 F.3d 1238, 1240 (10th Cir. 2000);
Freeman v. Dep’t of Corr., 949 F.2d 360, 361 (10th Cir. 1991).
II. 	COUNT I - § 523(a)(2)(A)1
A. Relevant Allegations.
For the purposes of ruling on the motion to dismiss Count I, the Court will assume the
following allegations in the complaint are true:
Plaintiffs are judgment creditors of the Defendant pursuant to summary judgment entered
in Case No. D-202-CV-201307657, Second Judicial District Court, Bernalillo County, New
Mexico.
Summary judgment was entered concerning a Settlement Agreement and General
Release, dated September 15, 2011 (the “Settlement Agreement”) executed in part by Defendant
and Plaintiffs. 	The Settlement Agreement resolved a prior lawsuit between the parties, Ron G.
Bustos v. Jennifer P. Muller, Case No. CV-2207-00313, Second Judicial District Court,
Bernalillo County, New Mexico.
Under the Settlement Agreement, Defendant was to pay Plaintiffs $50,000 in two
installments. The first installment payment of $30,000 was due within 30 days of the execution
of the Settlement Agreement. The second installment of $20,000 was due within six months of
the execution of the Settlement Agreement. 	If the second installment payment was not made
within six months, Defendant was to pay Plaintiffs an additional $5,000 no later than seven
months after the execution of the Settlement Agreement.
1 Unless otherwise noted, all statutory references are to Title 11 of the United States Code.
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Defendant did not make any payments under the Settlement Agreement. 	This failure
resulted in the entry of summary judgment against her.
At her deposition, Defendant testified that when she signed the Settlement Agreement she
did not have the money to make the first installment payment. 	Defendant’s plan to raise the
money for the first installment payment was to buy one or more houses in the Albuquerque area,
remodel them, and then re-sell them at a profit. Debtor also testified that if she was successful in
finding and acquiring an investment property, she would consider applying for a construction
loan and use the loan proceeds to make the first installment payment.
B. 	Discussion.
Section 523(a)(2)(A) excepts from a debtor’s general discharge 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.”
To establish a claim for false representation, false pretenses, or actual fraud under
§ 523(a)(2)(A) “the claimant must prove by a preponderance of the evidence that: 1) the debtor
made a false representation [or in the case of a false pretense, an implied misrepresentation
meant to create or foster a false impression]; 2) with the intent to deceive the creditor; 3) the
creditor relied on the false representation; 4) the creditor's reliance was [justifiable]; and 5) the
creditor was damaged as a result.” Bank of Cordell v. Sturgeon (In re Sturgeon), 496 B.R. 215,
222 (10th Cir. BAP 2013). See also Sierra Chems., L.C. v. Mosley (In re Mosley), No. 12-1166-J
2012 WL5193956 at *5 (Bankr. D.N.M. 2012).
Like any fraud complaint, a complaint under § 523(a)(2)(A) must “‘set forth the time,
place and contents of the false representation, the identity of the party making the false
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statements and the consequences thereof.’” Koch v. Koch Indus., 203 F.3d 1202, 1236 (10th Cir.
2000) quoting Lawrence Nat’l Bank v. Edmonds (In re Edmonds), 924 F.2d 176, 180 (10th Cir.
1991). 	See also Fed. R. Civ. P. 9(b) (“In all averments of fraud or mistake, the circumstances
constituting fraud or mistake shall be stated with particularity. Malice, intent, knowledge, and
other conditions of mind of a person may be averred generally.”).
“Unlike false representations, which are express misrepresentations, false pretenses
include conduct and material omissions.” In re Sturgeon, 496 B.R. at 223. False pretenses can
be defined as “‘any series of events, when considered collectively, that create a contrived and
misleading understanding of a transaction, in which a creditor is wrongfully induced to extend
money or property to the debtor.’” Id., quoting Stevens v. Antonious (In re Antonious), 358 B.R.
172, 182 (Bankr. E.D. Pa. 2006).2
1. 	False representation. Defendant argues that she never made any
representations of fact to Plaintiffs, and in particular that signing the Settlement Agreement did
not constitute a representation of fact. That is not correct; signing the Settlement Agreement was
an implied representation that she had the ability and intent to pay as agreed. 	See, e.g., AT&T
Universal Card Servs. v. Mercer (In re Mercer), 246 F.3d 391, 415-16 (5th Cir. 2001) (use of
credit card may establish implied promise to pay); In re Cai, 2012 WL 1588834, at *3 (9th Cir.
BAP 2012) (placing an order for goods constitutes an implied representation of intent to pay for
the goods). Plaintiffs’ allegations, which include a reference to the signed Settlement Agreement
(attached 	to 	the 	Complaint) 	are 	sufficient 	to 	meet 	the 	false 	representation 	element 	of
2 Tenth Circuit case law recognizes “actual fraud” as a cognizable claim under § 523(a)(2)(A),
which is “when a debtor intentionally engages in a scheme to deprive or cheat another of
property or a legal right.” Diamond v. Vickery (In re Vickery), 488 B.R. 680, 690 (10th Cir. BAP
2013) (internal citations omitted). 	A claim for actual fraud must be pleaded with specificity
under Rule 9(b), Fed. R. Civ. P. See In re Mosley, 2012 WL 5193956, at *6.
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§ 523(a)(2)(A).
2. 	Intent to deceive. 	“Intent to deceive under [§ 523(a)(2)(A) ] may
be inferred from the totality of the circumstances, and includes reckless disregard of the truth.
Moreover, the scienter requirement may be established by material omissions.” Columbia State
Bank v. Daviscourt (In re Daviscourt), 353 B.R. 674, 685 (10th Cir. BAP 2006). 	See also
Copper v. Lemke (In re Lemke), 423 B.R. 917, 922 (10th Cir. BAP 2010) (intent to deceive may
be inferred from the totality of the circumstances). Plaintiffs argue Defendant never intended to
pay when she signed the Settlement Agreement. 	Plaintiffs’ Complaint describes Defendant’s
deposition testimony that she did not have the funds to pay at the time she signed, and her
alleged plan to “flip” a house or take out a construction loan to get the funds. Defendant’s lack
of funds and the speculative nature of her plan to obtain funds may not in themselves
demonstrate an intent to deceive, but based on the totality of the circumstances standard, the
Plaintiffs’ allegations plausibly plead this element and raise issues of fact that remain in dispute.
3. 	Reliance. To be actionable, the false representation, false pretense,
or actual fraud must have been relied upon. 	In assessing the creditor’s reliance, “[t]he
appropriate standard is not ‘reasonableness’ in the sense of whether an objectively reasonable
person would have relied upon the debtor’s false representation.” 	Johnson v. Riebesell (In re
Riebesell), 586 F.3d 782, 791 (10th Cir. 2009) (citing Field v. Mans, 516 U.S. 59, 74–75 (1995)).
Instead, the Court must inquire into “whether the actual creditor’s reliance was ‘justifiable’ from
a subjective standpoint.” Id. Plaintiffs allege that in reliance on Defendant’s promise to pay in
the Settlement Agreement, they dismissed claims against two other defendants. 	Reliance on a
representation is justifiable if no “red flags” arise demonstrating further investigation is
necessary. See Colorado East Bank & Trust v. McCarthy (In re McCarthy), 421 B.R. 550, 562
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(Bankr. D. Colo. 2009). 	Plaintiffs have pled facts supporting their reliance on the Defendant’s
promise and that such reliance was justifiable.
4. 	Damages. To proceed under § 523(a)(2)(A), Plaintiffs must allege
that they suffered damages. 	Here, Plaintiffs allege that by entering the Settlement Agreement
they lost out on the opportunity to recover from other defendants, all claims against whom were
dismissed with prejudice. 	The allegations in the Complaint sufficiently plead the element of
damages.
III. 	COUNT II - § 727(a)(6)
A. 	Allegations.
For the purposes of ruling on the motion to dismiss Count II, the Court will assume the
following allegations in the Complaint are true:
On February 24, 2015, Defendant was ordered by this Court to appear for a Rule 2004
examination by Plaintiffs and to produce certain documents.
Defendant’s initial production of documents was incomplete. 	She did not produce all
paychecks for her employment with Atencion Family Services.
At her deposition, Defendant testified she would produce all paycheck stubs as requested.
Defendant produced only two pages of her 2012 federal income tax return and only three
pages of her 2013 federal income tax return. She did not produce any state income tax returns.
At her deposition, Defendant testified that she had complete sets of tax returns for 2012 and
2013.
Defendant did not produce all monthly bank statements issued during the two years prior
to the filing of her bankruptcy petition, and the statements that were produced had missing pages.
Defendant testified she only produced bank statements that were in her physical possession. She
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took the position that her duty to produce documents was limited to documents in her possession.
Plaintiffs assert that her duty extended to asking the bank for any missing statements.
B. 	Discussion.
To prevail on a claim under § 727(a)(6), a plaintiff “must prove . . . that ‘1) the Court
issued an order directed at the debtor; 2) the order was lawful; 3) the order was not one requiring
a response to a material question or to testify; and 4) the debtor refused to obey the order.’”
United States Trustee v. Standiferd (In re Standiferd), No. 07-1076 2008 WL 5273690 at *9
(Bankr. D.N.M. 2008) (quoting Gillman v. Green (In re Green), 335 B.R. 181, 183 (Bankr. D.
Utah 2005)).
Refusal to obey under 11 U.S.C. § 727(a)(6) requires “more than a mere failure to
obey a lawful court order.” Green, 335 B.R. at 184. Some degree of willfulness
or volition on the part of the debtor not to obey the order must be present. Id. For
this reason, inability to comply with the terms of an order can negate a claim
under 11 U.S.C. § 727(a)(6). See Morris v. Wright (In re Wright), 371 B.R. 472,
480 (Bankr. D. Kan. 2007) (“A debtor’s inability to comply with the order,
inadvertence, mistake, or impossibility will ordinarily be insufficient to revoke a
debtor’s discharge.”). 	The party seeking a denial of discharge under 11 U.S .C.
§ 727(a)(6) must first demonstrate that the debtor received the order and failed to
comply with its terms. 	Jordan, 521 F.3d at 433 (citations omitted). 	The debtor
must then explain his or her reason for noncompliance. Id.
Plaintiffs’ complaint alleges that the Defendant was ordered to appear for a Rule 2004
examination and produce certain documents. 	There is no question that an order for a debtor to
appear for a Rule 2004 examination is a lawful order when entered by a bankruptcy court. 	As
Plaintiffs allege, the order required the Defendant to appear and to produce documents, not to
testify or respond to a material question. Whether or not the Defendant refused to obey the order
is a question of fact. 	Plaintiffs also argue that Defendant is required to produce documents not
just in her physical possession, but which she has the authority to obtain. The Court may have to
take evidence on this issue.
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Overall, Count II appears to be a weak claim,3 but strong enough to survive a Rule 12(c)
motion
IV. 	CONCLUSION
Counts I and II state claims upon which relief may be granted. 	Defendant has not
succeeded in demonstrating that there are no issues of material fact remaining to be resolved.
Defendant is not entitled to judgment as a matter of law. 	The Court will enter a separate order
denying the motion.
________
Honorable David T. Thuma
United States Bankruptcy Judge
Entered: July 13, 2015
Copies to:
Jason Michael Wexler
1212 Pennsylvania NE
Albuquerque, NM 87110
Michael K. Daniels
P.O. Box 1640
Albuquerque, NM 87103
3 Denial of a discharge is a severe sanction for failing to produce documents such as the ones at
issue here. Plaintiffs will have to carry a heavy burden to show that such a sanction is warranted
in this case. They should be given that chance, however.
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