Wehrle-Einhorn et al v. Shepherd et al

UNITED STATES BANKRUPTCY COURT
FOR THE SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION AT DAYTON
In re: 	DEAN S HEPHERD
DEBORAH L. SHEPHERD ,
Debtors
Case No. 	06-30924
Adv. No. 	06-3233
ROBERT J. W EHRLE-EINHORN
JUANITA L W EHRLE-EINHORN,
Plaintiffs
v.
DEAN S HEPHERD
DEBORAH L. SHEPHERD ,
Defendants
Judge Waldron
Chapter 13
DECISION GRANTING IN PART,
DENYING IN PART, MOTION OF
DEFENDANTS TO DISMISS
COMPLAINT
DATED AT DAYTON, OHIO this 30th Day of October, 2006:
Background
This document has been electronically entered in the records of the United
States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.
Dated: October 30, 2006
____________________________________________________________
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On July 31, 2006, the Plaintiffs, Robert J. Wehrle-Einhorn and Juanita L. Wehrle-
Einhorn, 	filed 	an 	adversary 	proceeding 	captioned 	Complaint 	Objecting 	to
Dischargeability of Debt. (Doc. 1) The complaint seeks relief under 11 U.S.C. §§ 523(a)
and 727. The complaint alleges Mr. Shepherd fraudulently misrepresented his intention
to complete a home construction contract for a garage and attached patio and the
Plaintiffs relied on these misrepresentations to their detriment. On September 14, 2006,
the 	Defendants, 	Dean 	Shepherd 	and 	Deborah 	L. 	Shepherd 	filed 	a 	Motion 	Of
Defendants To Dismiss Complaint and Memorandum in Support. (Doc. 7). 	After the
court granted additional time for a response to the motion (Doc. 10), the Plaintiffs filed a
response on October 24, 2006. (Doc. 12)
Jurisdiction
This court has jurisdiction pursuant to 28 U.S.C. § 1334 and the Standing Order
of Reference entered in this District. This is a core proceeding pursuant to 28 U.S.C. §
157(b)(2)(I).
Standard of Review
The Defendants’ Motion (Doc. 7) seeks to dismiss the Plaintiffs’ complaint for
failure to state a claim upon which relief can be granted. 	See Federal Rule of Civil
Procedure 12(b)(6), applicable by Bankruptcy Rule 7012. 	As this court has previously
noted, a movant seeking a dismissal based solely on the allegations in the complaint
must overcome an onerous standard, which is generally favorable to the non-moving
party, in this proceeding, the Plaintiffs:
The standard for determining a motion to dismiss imposes stringent
requirements on the movant. A motion to dismiss must not be granted
unless it appears beyond doubt that the movant is unable to prove any
set of well-pleaded facts in support of the claim which would entitle the
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movant to relief. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102,
2 L.Ed.2d 80 (1957); Eubanks v. CBSK Fin. Group, Inc., 385 F.3d 894,
897 (6th Cir.2004); Talbot v. Ohio Student Loan Comm'n (In re Stall), 125
B.R. 754, 756 (Bankr.S.D.Ohio 1991).
In re Strahm, 327 B.R. 319, 320 (Bankr. S.D. Ohio 2005). 	The court is required to
consider well-pleaded facts, but not unwarranted inferences or legal conclusions, as
true. Eubanks v. CBSK Financial Group, Inc., 385 F.3d 894, 897 (6th Cir. 2004).
Issue
Does the Plaintiffs’ complaint state well pled causes of action upon which relief
can be granted under 11 U.S.C. §§ 523 and 727 as to either, or both, of the named
Defendants?
11 U.S.C. § 727 Cause of Action
. 	The Defendants filed a chapter 13 and, therefore, are not seeking a chapter 7
discharge (§ 727). Moreover, the substance of the Plaintiffs’ complaint seeks to have a
particular debt allegedly owed to them found non-dischargeable and does not seek to
have the Debtors’ discharge denied. The cause of action under 11 U.S.C. § 727 will be
DISMISSED as to both Defendants.
11 U.S.C. § 523(a)(2(A) Cause of Action1
The Defendants argue the facts alleged in the complaint do not rise to the level of
fraud under § 523(a)(2)(A); however, the allegations in the complaint, which the court
must assume are true for purposes of ruling on Defendants’ Motion (Doc. 7), do state a
legally cognizable claim. 	The Sixth Circuit has stated the elements for a claim under §
523(a)(2)(A):
1 The complaint only refers to “523(a)”; however, the allegations in the Plaintiffs’ complaint (Doc. 1), as
discussed further in this section, refer to the elements of 11 U.S.C. § 523(a)(2)(A).
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In order to except a debt from discharge under § 523(a)(2)(A), a creditor
must 	prove 	the 	following 	elements: 	(1) 	the 	debtor 	obtained 	money
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.
In re Rembert, 141 F.3d 277, 280 -281 (6th Cir. 1998) (footnote and citations omitted).
In 	carefully 	reviewing 	the 	complaint, 	the 	Plaintiffs 	assert 	these 	elements. 	See
particularly, but not exclusively, Paragraphs 40 – 51 (Doc. 1).
The Defendants also argue that the contract was between the Plaintiffs and a
separate 	entity, 	Shepherd’s 	Building, 	Inc. 	The 	Plaintiffs’ 	complaint 	asserts 	the
agreement was with Mr. Shepherd individually. 	Again, at this stage of this adversary,
pursuant to the previous discussed standard of review, the court cannot dismiss the §
523(a)(2)(A) cause of action, as the court must consider these allegations as true for
purposes of ruling on the Defendants’ Motion (Doc. 7). The court cannot consider facts
which may be presented at the time of trial.
The Defendants also argue that, even assuming the debt is nondischargeable
under § 523(a)(2)(A), the debt would be discharged when the chapter 13 plan was
completed. 	This is no longer an accurate statement of the law. 	Under the Bankruptcy
Abuse Prevention and Consumer Protection Act of 2005, § 523(a)(2) debts can no
longer be discharged in chapter 13. See 11 U.S.C. § 1328(a)(2). 	This new provision
was effective as of October 17, 2005. 	Since the Defendants filed for chapter 13 relief
on April 20, 2006, this change applies to these Defendants. The motion (Doc. 7) will be
DENIED as to the defendant Dean Shepard.
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Deborah Shepherd
The Defendants asserts the complaint does not assert a cause of action against
Deborah Shepherd. 	A review of the complaint (Doc.1) establishes that the vague
recitations in the complaint (Doc. 1) concerning Deborah Shepard do not, even in
connection with the favorable standard employed in determining a motion to dismiss,
set forth a well pled cause of action under § 523(a)(2)(A) against Deborah Shepard. The
court also considered the plaintiffs’ arguments that “[i]t would be inappropriate to
dismiss Mrs. Shepard as a party to this proceeding while she is a party to the
bankruptcy proceeding”, that she was a corporate shareholder, officer and employee, of
the corporate entity, allegedly subject to having it corporate veil pierced, and that “[i]t is
inappropriate for plaintiffs to make preferences among Defendants.” 	The Defendants’
motion to dismiss (Doc. 7) is GRANTED as to Deborah Shepard.
The court notes that no part of this decision should be construed as an indication
of any final determination by the Court of this adversary proceeding, which presents
complicated issues of law and fact, upon which the Plaintiffs have the burden of proof.
Conclusion
The Defendants’ Motion of Defendants to Dismiss Complaint and Memorandum
in Support. (Doc. 7) is GRANTED IN PART AND DENIED IN PART. 	The court has
simultaneously entered an order consistent with this decision and a separate order
requiring filings and setting a pretrial conference.
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c:
Robert J. Wehrle-Einhorn and Juanita L. Wehrle-Einhorn, 1554 Benson Drive, Dayton,
Ohio 45406 (Plaintiffs)
Dean Shepherd and Deborah L. Shepherd, 1102 Patterson Road, Dayton, Ohio 45420
(Debtors/Defendants)
Jerry A. Meadows, Esq., 580 Lincoln Park Boulevard, Suite 244, Dayton, Ohio 45429
(Atty. for the Debtors/Defendants)
Jeffrey M. Kellner, Esq., (Chapter 13 Trustee), Scott G. Stout, Esq., (Staff Attorney for
the Chapter 13 Office), 131 North Ludlow Street, Suite 900, Dayton, Ohio 45402
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