Bankr. M.D.N.C.: Livingstone College v. DeBerry- Failure to Specifically Cite Statutory Basis for Claim and Amendment of Complaint

Summary:

On remand from the district court, the issue was whether the complaint filed by Livingstone College, Inc. (“Livingstone”) properly states a claim for relief under 11 U.S.C. § 523 of the Bankruptcy Code for nondischargability of a debt owed by Joseph Maurice DeBerry (“DeBerry”) and Golden Student Housing, LLC (“GSH”) (together, the “Defendants”), and, if it does not, whether Livingstone’s complaint may be amended under the applicable rules.

The Complaint alleged that after Livingstone had entered into a lease, negotiated by DeBerry, with GSH, that DeBerry substituted pages from the executed lease before delivering it to GSH to sign. In the Complaint, Livingstone sought eight specific forms of relief, including a jury trial, a declaratory judgment, actual, punitive and treble damages, and “such other and further relief as to the Court may deem proper.” Livingstone did not, however, request that the debt be declared nondischargeable.

The court stated that “[o]rdinarily a failure to cite statutory authority would not be fatal to a complaint where it otherwise has provided sufficient notice of the allegations.” A more rigorous pleading standard than required even by Iqbal/Twombley is necessary, however, for allegations of fraud, which Rule 9(b) requires to be plead with particularity, which includes “the time, place, and contents of the false representations, as well as the identity of the person making the misrepresentation and what he obtained thereby.” Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 784 (4th Cir. 1999) Where a complaint seeks nondischargeability, the fresh start policy of the Bankruptcy Code mandates that exceptions to discharge be narrowly construed, with the plaintiff required to show that his or her “claim comes squarely within an exception enumerated in Bankruptcy Code § 523(a).” In re Sheehan, 243 B.R. 590, 595 (D. R.I. 1999).

Even assuming arguendo that the lack of specific reference to the statutory basis for nondischargeability was not fatal and then finding that the only possible relevant provisions were 11 U.S.C. §§ 523(a)(2) and (a)(4), the bankruptcy court looked to the factual allegations of the Complaint. In order to sufficiently state a claim for fraud in North Carolina, a creditor must allege with particularity:
(1) that defendant made a false representation or concealment of a material fact;
(2) that the representation or concealment was reasonably calculated to deceive him;
(3) that defendant intended to deceive him;
(4) that plaintiff was deceived; and
(5) that plaintiff suffered damage resulting from defendant’s misrepresentations or concealment.

The bankruptcy court then found that the allegations by Livingstone had fallen “fall short of noting with particularity any reliance, damages, or unjust enrichment to DeBerry as a result of the alleged fraud.”

Similarly, under 11 U.S.C. § 523(a)(4), Livingstone was required and failed to show either that a fiduciary relationship existed with DeBerry or that DeBerry was otherwise guilty of embezzlement or larceny.

In regard to whether Livingstone should be allowed to amend its Complaint, the bankruptcy court found that it lacked authority to extend the time to do so. 11 U.S.C. § 523(c) allows sixty days from the §341 Meeting of Creditors to file a Complaint and while Livingstone did timely file a Complaint, amendment to such Complaint is governed by Rules 4007 and 9006. If the creditor wants an enlargement of time, under Rule 4007(c) the creditor must request an extension through a motion, which “shall be filed before the time has expired.” Rule 9006(b)(3) explicitly excepts Rule 4007(c) from the “excusable neglect” standard.

An amendment to the original complaint, however, relates back to the original filing date of the complaint when “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 pleadings.” FED. R. CIV. P. 15(c). Again, as Living stone failed to plead fraud sufficiently in it original complaint, “any amendment to the original Complaint sufficient to cure such pleading deficiencies would require alleging a new set of operative facts” and would not be allowed under Rule 15.

For a copy of the opinion, please see:

Livingstone College v. DeBerry- Failure to Specifically Cite Statutory Basis for Claim and Amendment of Complaint.pdf

About

1. Bachelor of Arts degree in English Literature from Washington University, 1993. 2. Juris Doctor degree from George Washington University, 1996. Admissions to Practice of Law: North Carolina Bar, 1996. Federal District Courts for the Eastern and Middle Districts of North Carolina. Specialty Certification: North Carolina State Bar: Certified as a Specialist in Consumer Bankruptcy. Areas of Practice: Practice limited to consumer and business debtor bankruptcy law, 1998 to present. Memberships: National Association of Consumer Bankruptcy Attorneys (NACBA). North Carolina Academy of Trial Lawyers (NCATL). North Carolina Bar Association, Bankruptcy Section. Lectures prepared and presented: North Carolina Academy of Trial Lawyers seminar on bankruptcy; Topic: Counseling the Consumer Debtor Prior to Court - C.Y.A. Forms to Help 'Gird They Loins'; 2001. Middle District Bankruptcy Seminar; Topic: Preparing Chapter 13 Plans; 2002. NACBA National Convention; Topic: Efficient Office Practices; 2003. NACBA National Convention; Topic: Chapter 7 vs. Chapter 13 Debates; 2004. Middle District Bankruptcy Seminar; Topic: Chapter 7 & 13 Hot Issues; 2004. Positions held: NACBA National Convention; Convention Chair; 2008. NACBA National Convention; Panel Moderator: Topic: Basic Bankruptcy Issues; 2008. NACBA National Convention; Panel Moderator; Topic: Chapter 13-Disposable Income and Other Issues; 2007. NACBA National Convention; Panel Moderator; Topic: Representing Members of the Military and Their Families; 2007. NACBA, Member of National Board of Directors, 2006 to present. NCATL, Chair of the Bankruptcy Section, 2003 to 2007. NACBA, Chair of the North Carolina Section, 2003 to 2007. NC Bar Association, Bankruptcy Section, Bankruptcy Council Member, 2004 to present.

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