Summary:
Federal Insurance Company, together with other plaintiffs, sought to amend its complaint, which already asserted that the debt owed by Mr. Sorge was nondischargable under 11 U.S.C. § 523(a)(2), to add a claim of embezzlement and to revive a previously dismissed claim of breach of fiduciary duty, both nondischargable under § 523(a)(4). As “[l]eave to amend should be freely given when justice so requires, but may be denied if undue prejudice would result or if the amendment is futile,” Kozohorsky v. Harmon, 332 F.3d 1141, 1144 (8th Cir. 2003), the bankruptcy court previously held that, given the lack of surprise and sufficient remaining time for discovery, there was no undue prejudice.
As to the inherent futility of the amendment, Mr. Sorge asserted that the allegations in the proposed amendments did not satisfy the pleading sufficiency requirements required under Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S. Ct. 1955 (2007), and Ashcroft v. Iqbal, 556 U.S. 662, 129 S. Ct. 1937 (2009), as a claim of embezzlement must show, among other criteria, “the deposit of the resulting funds in an account accessible only to the debtor.” In re Bryant, 147 B.R. 507 (Bankr. W.D. Mo. 1992).
Reiterating its earlier decision in this case, the bankruptcy court found that Bryant had misconstrued findings of fact in previous cases as additional criteria for establishing embezzlement, and that the actual criteria were instead:
(1) the creditor entrusted money or property to the debtor;
(2) the debtor appropriated the money or property for a use other than that for which it was entrusted; and
(3) the circumstances indicate a fraudulent intent.
Under those, Federal Insurance Company had made detailed allegation, sufficient to satify the Iqbal/Twombly pleading requirements.
For a copy of the opinion, please see:
Sorge- Amendment to Complaint; Embezzlement
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