Foltyn v. Richardson

UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
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06/10/06
Martha T. Foltyn v. Fred W. Richardson
04-01179
Memorandum Opinion re: [4-1] Motion To Dismiss Adversary Proceeding by Fred W.
Richardson .
Received on: 2005-04-08 08:45:49.000
2005-04-08 00:00:00.000
2005-04-11 00:00:00.000
James Burke
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UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF NEW MEXICO
In re:
FRED W. RICHARDSON and
EILEEN M. RICHARDSON,
Debtors. No. 7-04-12085 SS
MARTHA T. FOLTYN, et al.
Plaintiffs,
v. Adv. No. 04-1179 S
FRED W. RICHARDSON,
Defendant.
MEMORANDUM OPINION ON DEFENDANT’S
MOTION TO DISMISS COMPLAINT AND
ORDER GRANTING MOTION TO DISMISS IN PART
AND DENYING MOTION TO DISMISS IN PART
This matter is before the Court on Defendant’s Motion to
Dismiss and Plaintiffs’ Response and Supplemental Authority.
Plaintiffs appear through their attorney Rodey, Dickason,
Sloan, Akin & Robb, PA (William J. Arland, III and Michelle
Henrie). Defendant appears through his attorney Clifford C.
Gramer, Jr. This is a core proceeding. 28 U.S.C. §
157(b)(2)(I).
Under Bankruptcy Rule 7012(b)(6), which incorporates
Fed.R.Civ.P. 12(b)(6), a motion to dismiss for failure to
state a claim upon which relief can be granted should be
granted only if it appears beyond doubt that plaintiff can
prove no set of facts in support of plaintiff’s claim which
would entitle plaintiff to relief. Swanson v. Bixler, 750
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F.2d 810, 813 (10th Cir. 1984). In considering a motion to
dismiss, all well pleaded facts, as opposed to conclusory
allegations, are presumed true and all reasonable inferences
are to be drawn in favor of the plaintiff. Id. The pleadings
must be liberally construed. Id. A dismissal under Rule
12(b)(6) is a “harsh remedy which must be cautiously studied,
not only to effectuate the spirit of the liberal rules of
pleading but also to protect the interests of justice.” Morse
v. Regents of the Univ. of Colo., 154 F.3d 1124, 1127 (10th
Cir. 1998)(quoting Cayman Exploration Corp. v. United Gas Pipe
Line Co., 873 F.2d 1357, 1359 (10th Cir. 1989).)
Defendant’s Motion has both procedural and substantive
aspects. To place the procedural aspect in context, the Court
will briefly review Debtor’s Chapter 7 case. Debtor and his
spouse filed for Chapter 7 relief on March 23, 2004. The
first meeting of creditors was set for May 12, 2004, and the
Notice of Chapter 7 Bankruptcy Case set deadlines for
complaints to determine dischargeability of debts as July 12,
2004. On July 12, 2004 Martha T. Foltyn filed an unopposed
motion to extend time in which to object to discharge to
August 26, 2004. On August 6, 2004, the Court entered an
order granting Martha T. Foltyn’s motion for extension. On
August 26, 2004, “Martha T. Foltyn, Individually, and Martha
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T. Foltyn on behalf of Navstor, Inc., and creditors of
NavStor, Inc., that are similarly situated” filed the current
adversary proceeding to determine dischargeability of debt
under 11 U.S.C. §§ 523(a)(2), (a)(4), and (a)(6). Defendant’s
procedural motion to dismiss asserts that only Martha T.
Foltyn obtained an extension of time to object to
dischargeability and the other parties are time barred under
Fed.R.Bankr.P. 4007(c). Defendant’s substantive motion to
dismiss is that his debt to Ms. Foltyn is based on a
settlement agreement for prior activities and the complaint
fails to allege the settlement agreement was fraudulently
obtained or his subsequent breach of the settlement agreement
was willful and malicious.
The Court finds that Defendant’s Motion should be granted
in part. If Ms. Foltyn is attempting to establish a class
action dischargeability complaint, which she denies in her
response, she has not met the requirements. Santa v. Lebner
(In re Lebner), 197 B.R. 180, 189 (Bankr. D. Mass. 1996). If
she is attempting to add additional creditors to her
dischargeability complaint, she is too late. State of
Minnesota v. Pierson (In re Pierson), 17 B.R. 822, 823 (Bankr.
D. Minn. 1982). Therefore, Defendant’s motion to dismiss
“Martha T. Foltyn on behalf of Navstor, Inc., and creditors of
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1 The Archer court specifically rejected the “novation
theory” applied by the Fourth Circuit below. 538 U.S. at 320.
Under this theory, a settlement converts a potentially
nondischargeable tort claim into a dischargeable contract
claim. Archer v. Warner (In re Warner), 283 F.3d 230, 236
(4th Cir. 2002).
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NavStor, Inc., that are similarly situated” on procedural
grounds should be granted.
As to Defendant’s substantive motion, under Archer v.
Warner, 538 U.S. 314 (2003)1 and Brown v. Felsen, 442 U.S. 127
(1979), it does not matter if a state court lawsuit fails to
allege the elements of a dischargeability complaint. Instead,
after settlement or judgment, if a bankruptcy is filed, the
bankruptcy court is free to look behind the settlement or
judgment to see if the underlying debt was one that would be
nondischargeable. Therefore, Defendant is not correct in
stating that Ms. Folstyn needed to allege that the settlement
was obtained by fraud or breached willfully and maliciously.
Rather, she had to allege that the initial debt was one that
was nondischargeable. This portion of Defendant’s Motion will
be denied.
ORDER
IT IS ORDERED that Defendant’s Motion to Dismiss Complaint is
granted in part, and that plaintiffs “Martha T. Foltyn on
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behalf of Navstor, Inc., and creditors of NavStor, Inc., that
are similarly situated” claims are dismissed with prejudice.
IT IS ORDERED that Defendant’s Motion to Dismiss Complaint on
other grounds is denied.
Honorable James S. Starzynski
United States Bankruptcy Judge
I hereby certify that on April 8, 2005, a true and correct
copy of the foregoing was electronically transmitted, faxed,
delivered, or mailed to the listed counsel and/or parties.
William J Arland
PO Box 1888
Albuquerque, NM 87103-1888
Clifford C Gramer, Jr
3733 Eubank Blvd NE
Albuquerque, NM 87111-3536
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