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.
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