Opinion
Case No. 19-10309 Adv. No. 20-1009
09-18-2020
In re: TONYA GAIL CHAMBERS Debtor E. HANLIN BAVELY, TRUSTEE Plaintiff v. BARBARA CROUCHER Defendant
Chapter 7
MEMORANDUM OPINION GRANTING , IN PART, AND DENYING, IN PART DEFENDANT'S MOTION TO DISMISS [Docket Number 8] [This opinion is not intended for publication.]
This matter is before this Court on Defendant's Motion to Dismiss the Plaintiff's Complaint [Docket Number 8] ("Motion"); Plaintiff's Motion in Response to: "Debtor's Motion to Dismiss the Plaintiff's Complaint" [Docket Number 10] ("Response"); and Defendant's Reply to Plaintiff's Response to Defendant's Motion to Dismiss the Plaintiff's Complaint and Motion to Partially Strike Response [Docket Number 11] ("Reply").
In the Motion, Defendant Barbara Croucher ("Ms. Croucher") requests dismissal of the adversary complaint filed by Plaintiff-Chapter 7 Trustee E. Hanlin Bavely ("Trustee") pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted. In his Response, the Trustee submits new evidence not referenced in the adversary complaint and asks that it be treated as a motion for summary judgment. However, the Trustee's Response fails to address many of the adversary complaint's infirmities raised by Ms. Croucher in her Motion. Although this Court finds that the Trustee's complaint is generally sufficient to meet notice pleading standards, this Court concludes that one of the Trustee's claims under a specific provision of the Ohio Uniform Fraudulent Transfer Act is appropriate for dismissal because it is clear from the face of the complaint that the applicable statute of limitations has expired.
This Court further exercises its discretion and declines to treat the Trustee's Response as a motion for summary judgment. If the parties determine that the issues may be resolved through dispositive motions, they may be filed after discovery is completed.
I. JURISDICTION
This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157(a) and 1334, and the standing General Order of Reference in this District.
II. BACKGROUND
A. Complaint's Factual Allegations
On February 26, 2020, the Trustee filed his Complaint: 1) to Avoid a Fraudulent Transfer of Real Property[; and for] 2) Declaratory Judgment [Docket Number 1] ("Complaint") against Ms. Croucher. Solely for purposes of assessing Ms. Croucher's Motion, the facts of the Complaint are considered true.
According to the Complaint, on November 26, 2014, Ms. Croucher, along with Debtor Tonya Gail Chambers ("Debtor") and Gary M. Mitchell Jr. ("Mr. Mitchell") received title in a joint and survivorship deed to the real property at 1581 Hamilton-Richmond Road in Butler County, Ohio ("Real Property") [Docket Number 1, ¶ 2]. All three of the people on the deed resided in two houses on the Real Property along with a minor daughter born to the Debtor and Mr. Mitchell [Id., ¶ 4].
Around the time of October 2016, the Debtor and her minor daughter were forced to leave the Real Property and find somewhere else to live [Id., ¶ 7]. Ms. Croucher and Mr. Mitchell remained on the Real Property [Id.].
The Trustee alleges that on October 11, 2016, Debtor was coerced by Ms. Croucher and Mr. Mitchell to execute a Quit Claim Deed in which she conveyed her then one-third interest in the Real Property to Ms. Croucher without receiving reasonably equivalent value in exchange [Id., ¶¶ 3 and 8]. The Quit Claim Deed was recorded on October 16, 2016 in Butler County [Id., ¶ 3].
At the time of the transfer, the Debtor was insolvent, received no income in support of her minor child and had minimal or nominal income such that she was unable to provide daily support for herself and her minor daughter [Id., ¶ 9]. In addition, the Debtor was unable to pay her debts as they fell due [Id.]. According to the Complaint, both prior to and after the date of the transfer, the Debtor accumulated significant credit card debt as set forth in the Debtor's bankruptcy schedule relating to general unsecured creditors and, in addition, as described in at least fourteen proofs of claim filed in Debtor's bankruptcy case with a balance due of approximately $31,700 [Id., ¶ 5]. The Trustee claims that several of the proofs of claim may involve debts that were originally incurred in the period of 2014-2016 but have since been "factored" and reflect a new "opening" date in the year 2017 or 2018 [Id., ¶ 6]. Beginning in 2017, the Debtor defaulted on her credit card debt, she became unable to make payments as they became due, and her bankruptcy filing followed [Id., ¶ 10]. B. Complaint's Causes of Action
The Debtor filed her Chapter 7 bankruptcy petition on January 31, 2019.
The Complaint includes one count for avoidance of a fraudulent transfer but cites to several statutory provisions as the basis for the claim, including Bankruptcy Code Sections 544(b) and 548, Ohio Revised Code Sections 1336.01, et. seq., and specifically Ohio Revised Code Sections 1336.05, 1336.04, and 1336.04(A)(2)(b) [Id., ¶ 13]. The elements or requirements for these various statutory provisions are not separately identified nor are the facts meeting the elements separately set forth. Instead, the Trustee includes one paragraph stating:
Unless otherwise indicated, the terms "Bankruptcy Code," "Section" and "§" refer to 11 U.S.C. §§ 101-1532.
The transfer described herein was made and incurred fraudulent as to debtor's creditors, without reasonable equivalent value in exchange for the transfer and it can be determined that the debtor intended to incur, or it could be believed or reasonably should have been believed that the debtor would incur, debts beyond the debtor's ability to pay as they came due. In fact, at the time of the transfer and as alleged above, debtor had significant debts otherwise described in her schedules and statement of affairs and specifically her listing of creditors including general unsecured creditors, and as well set out in proofs of claim filed by her creditors with this Court; all of which is set out herein as if fully reiterated in this Complaint.[Id., ¶ 14]. Based on these allegations, the Trustee requests avoidance of the October 11, 2016 transfer and that title to the Real Property be returned to the Debtor and, ultimately, to the bankruptcy estate for liquidation for the benefit of unsecured creditors [Id.].
The Trustee includes a second cause of action for declaratory judgment seeking adjudication:
of his rights under the foregoing provisions of the Bankruptcy Code and the Ohio Revised Code, and the deeds further alleged herein as well as the listing of creditors in the debtor's unsecured creditors schedule filed as part of her petition for relief and as well the proofs of claim of creditors filed herein and that by reason thereof the Trustee can be found to have a right to avoid the transfer described in the allegations of this complaint.[Id., ¶ 15]. Because the second cause of action requests nothing more than a determination of the Trustee's avoidance rights, this Court does not consider it as separate cause of action.
III. LEGAL ANALSYIS
A. Standard of Review
Ms. Croucher requests that this Court dismiss the Trustee's Complaint pursuant to Federal Rule of Civil Procedure ("Rule") 12(b)(6), incorporated into bankruptcy adversary proceedings by Federal Rule of Bankruptcy Procedure ("Bankruptcy Rule") 7012(b). Under Rule 12(b)(6), a defendant may move to dismiss a claim for "failure to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). In addressing a Rule 12(b)(6) motion, courts assess the sufficiency of a complaint in light of the pleading requirements in Rule 8. Under Rule 8(a)(2), made applicable in bankruptcy adversary proceedings pursuant to Bankruptcy Rule 7008, a complaint need only contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). Accordingly, "[t]o survive a [Rule 12(b)(6)] motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678, (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). "A pleading that offers 'labels and conclusions' or 'a formulaic recitation of the elements of a cause of action will not do.' Nor does a complaint suffice if it tenders 'naked assertion[s]' devoid of 'further factual enhancement.'" Id. (quoting Twombly, 550 U.S. at 555, 557).
Nevertheless, detailed factual allegations are not necessary. Twombly, 550 U.S. at 555. "Plausibility" exists so long as "the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678 (citations omitted). "The plausibility standard is not akin to a 'probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Id. "Determining whether a complaint states a plausible claim for relief will . . . be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id. at 679.
Because a motion to dismiss assesses the facial sufficiency of a complaint, materials outside the pleadings are ordinarily not considered. Rondigo, L.L.C. v. Twp. of Richmond, 641 F.3d 673, 680 (6th Cir. 2011). Outside of a few limited circumstances, if extraneous materials are presented to the court, the materials must be excluded or the motion to dismiss must be treated as one for summary judgment and the parties must be provided additional notice and an opportunity to supplement the record. Fed. R. Civ. P. 12(d); Rondigo, 641 F.3d at 680-81.
There are some materials that may be considered without converting the motion to one for summary judgment, including: "'exhibits attached [to the complaint], public records, items appearing in the record of the case and exhibits attached to defendant's motion to dismiss so long as they are referred to in the complaint and are central to the claims contained therein[.]'" Rondigo, 641 F.3d at 681 (citations omitted).
B. Vague Nature of the Trustee's Complaint
This Court begins with Ms. Croucher's general argument regarding the vague nature of the Trustee's Complaint and its failure to set forth the specific elements and facts required to be proven under each statutory provision listed in paragraph 13 of the Complaint. Essentially, Ms. Croucher argues that the Complaint unfairly forces Ms. Croucher to guess at what facts support each of the Trustee's statutory legal theories and what affirmative defenses might be applicable.
Applying Rule 8(a) to preferential and fraudulent transfer claims, bankruptcy courts have required the plaintiff's complaint to provide more than a mere recitation of the statutory elements for avoidance. State Bank and Trust Co. v. Spaeth (In re Motorwerks, Inc.), 371 B.R. 281, 292 (Bankr. S.D. Ohio 2007). Instead, the plaintiff must include enough facts to sufficiently identify the transfer being avoided. Id. This generally requires the complaint to set forth the nature of the transfer, date of the transfer and amount of the transfer (if monetary in nature), together with the names of the transferor and transferee. Id. at 293; see also In re NM Holdings, Co., LLC, 407 B.R. 232, 256 (Bankr. E.D. Mich. 2009) (noting that a complaint to avoid a preferential transfer that identifies the transfer in this manner provided ample notice to the defendants of what the plaintiff's claim is and the grounds upon which it rests).
While the Trustee could have provided more clarity by separately setting forth his legal theories under each statutory provision listed, the Complaint is sufficient to meet the liberal notice pleading requirements of Rule 8. The Complaint lists the statutory bases for avoidance and specifically identifies the transfer to be avoided as the Debtor's conveyance to Ms. Croucher of the Debtor's one-third interest in the real property at 1581 Hamilton-Richmond Road in Butler County, Ohio by quit-claim deed executed on October 11, 2016 and recorded on October 16, 2016. Accordingly, Ms. Croucher's general argument about the vague nature of the Complaint is insufficient to support dismissal.
C. Trustee's Claims Under the Ohio Uniform Fraudulent Transfer Act
Ms. Croucher asserts specific deficiencies in the Trustee's claims under three statutory provisions falling within the Ohio Uniform Fraudulent Transfer Act ("Ohio UFTA"), Ohio Revised Code Sections 1336.01, et seq. This Court will address Ms. Croucher's specific grounds for dismissal of the Ohio UFTA claims in the order raised in her Motion.
Bankruptcy trustees can use state laws, such as the Ohio UFTA, to seek avoidance of fraudulent transfers using the "strong arm" powers afforded to trustees under Bankruptcy Code Section 544. See Belfance v. Bushey (In re Bushey), 210 B.R. 95, 100 (B.A.P. 6th Cir. 1997) (noting that "Section 544(b) of the Bankruptcy Code confers on a trustee the powers of a "creditor" with an allowable unsecured claim to 'avoid any transfer of an interest of the debtor in property . . . that is voidable under applicable law . . . .'" in addressing standing issues involving fraudulent conveyance claims brought by a chapter 7 trustee under Ohio Rev. Code §§ 1336.04, 1336.06 and 1336.07).
1. Section 1336.05(B): Expiration of the Statute of Limitations
The Trustee lists Ohio Revised Code Section 1336.05 as one basis for avoidance of the transfer of the Real Property to Ms. Croucher. To the extent that the Trustee seeks avoidance under Ohio Revised Code Section 1336.05(B), Ms. Croucher argues that it should be dismissed because the applicable statute of limitations has expired.
Ms. Croucher further argues that the Trustee's claim under Ohio Revised Code Section 1336.05(B) is deficient because the Trustee does not identify Ms. Croucher as an "insider" as defined under Ohio Revised Code Section 1336.01(G). Because this Court concludes that the statute of limitation has expired, it need not reach this issue.
Ohio Revised Code Section 1336.05(B) provides that:
(B) A transfer made or an obligation incurred by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made or the obligation was incurred if the transfer was made to or the obligation was incurred with respect to an insider for an antecedent debt, the debtor was insolvent at that time, and the insider had reasonable cause to believe that the debtor was insolvent.Ohio Rev. Code § 1336.05(B). The statute of limitations for the Ohio UFTA is set forth in Ohio Revised Code Section 1336.09. For an action brought under Section 1336.05(B), Ohio Revised Code Section 1336.09(C) provides that the action must be filed within one year of the transfer. Ohio Rev. Code § 1336.09(C); James v. McCoy, 56 F.Supp.2d 919, 929 (S.D. Ohio 1998) aff'd 181 F.3d 101 (Table) (6th Cir. May 11, 1999); Slone v. Lorenz (In re Lorenz), 2011 Bankr. LEXIS 738, at *50 n.13, 2011 WL 13281776, at *15 n.13 (Bankr. S.D. Ohio March 8, 2011).
The statute of limitations is an affirmative defense and a plaintiff is generally not required to plead the lack of an affirmative defense in order to state a valid claim. Cataldo v. U.S. Steel Corp., 676 F.3d 542, 547 (6th Cir. 2012). For this reason, it is generally inappropriate to dismiss a plaintiff's claim under Rule 12(b)(6) based on an affirmative defense. Id. However, there are exceptions when the applicability of the affirmative defense, such as the expiration of the statute of limitations, is clear from the face of the complaint. Cataldo, 676 F.3d at 547 (noting that dismissal of a claim under Rule 12(b)(6) is appropriate when the complaint affirmatively shows that the claim is time barred); Degirolamo v. McIntosh Oil Co. (In re Laurel Valley Oil Co.), 2012 Bankr. LEXIS 3062, at *17-18; 2012 WL 2603429, at *6 (Bankr. N.D. Ohio July 5, 2012).
In the Trustee's Complaint, he identifies the transfer to be avoided as occurring in October of 2016. The Trustee did not file the Complaint until February 26, 2020, exceeding the one-year statute of limitations. In response to Ms. Croucher's Motion, the Trustee does not dispute the expiration of the statute of limitations. Accordingly, the Trustee's fraudulent transfer claim under Ohio Revised Code Section 1336.05(B) is dismissed.
2. Section 1336.05(A): Creditor Existing at the Time of the Transfer
Ms. Croucher next takes issue with the Trustee's claim under Ohio Revised Code Section 1336.05(A) asserting that the Trustee fails to plead a necessary element—specifically, the existence of a creditor at the time of the transfer. This provision of the Ohio UFTA provides:
In her Motion, Ms. Croucher only specifically challenges the sufficiency of the Complaint as relates to the existence of a creditor at the time of the transfer. Docket Number 8, p. 5 ("The complaint must be dismissed because it insufficiently pleads the second element. It fails to specifically identify what creditor existed at the time of the transfer in 2016.").
Ms. Croucher makes a passing reference in her Motion regarding whether the Complaint adequately alleges that the Debtor was insolvent at the time of the transfer or became insolvent as a result of the transfer. Id. at 6. Singling out one allegation in the Complaint stating that the Debtor defaulted on all of her credit card debt beginning in 2017, Ms. Croucher states this Court "could easily conclude" that the Debtor was paying her debts as they came due when the transfer was made in 2016. Id. But the Trustee also alleges in the Complaint that, at the time of the transfer, the Debtor had nominal income, received no child support and was unable to pay her credit card debts, as well as other debts, as they came due. Docket Number 1, ¶9. In addition, the Trustee alleges that the Real Property was the Debtor's only asset at the time of the transfer. Id. ¶11.
Under the Ohio UFTA, "[a] debtor is insolvent if the sum of the debts of the debtor is greater than all of the assets of the debtor at a fair valuation." Ohio R. Code § 1336.02(A)(1). In addition, "[a] debtor who generally is not paying his debts as they become due is presumed to be insolvent" for purposes of the Ohio UFTA. Ohio R. Code § 1336.02(A)(2). It is plausible, for purposes of this Motion, to reasonably infer that the Debtor was insolvent under either or both of the Ohio UFTA insolvency tests based on the allegations in the Complaint. Accordingly, Ms. Croucher's questioning of the adequacy of the Complaint as relates to the element of insolvency is not sufficiently developed to warrant dismissal of this count in the Complaint. See Schramm v. TMS Mortgage, Inc. (In re Schramm), 2006 Bankr. LEXIS 4470, at *15-16, 2006 WL 7354895, at *6 (Bankr. N.D. Ohio 2006) (denying motion to dismiss as to certain counts where the argument relating to such counts was not fully developed in the motion to dismiss); cf. Dillery v. City of Sandusky, 398 F.3d 562, 569 (6th Cir. 2005).
A transfer made or an obligation incurred by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made or the obligation was incurred ifOhio Rev. Code § 1336.05(A). To prove a fraudulent transfer under this provision, the Trustee must identify, among other things, that a creditor existed at the time of the transfer. Id.; Laurel Valley Oil, 2012 Bankr. LEXIS, at *14-16, 2012 WL 2603429, at *5-6.
the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation.
Relying solely on Laurel Valley Oil in support of her position, Ms. Croucher asserts that the Trustee failed to sufficiently identify a pre-existing creditor in the Complaint. In Laurel Valley Oil, the bankruptcy court found the plaintiff-trustee's Section 1336.05(A) claim to be insufficiently pleaded because the trustee failed to allege a pre-existing creditor in the complaint. 2012 Bankr. LEXIS, at *15-16, 2012 WL 2603429 at *6. The bankruptcy court further noted that in the trustee's response to the defendant's motion to dismiss, the trustee could only identify a supplier that had business dealings with the debtor and not that the entity was an actual creditor of the debtor at the time of the transfer. Id.
While the bankruptcy court determined that the trustee did not sufficiently plead the identity of a pre-existing creditor, the bankruptcy court did not dismiss the trustee's claim outright, but, instead, allowed the trustee to amend the complaint. Laurel Valley Oil, 2012 Bankr. LEXIS, at *15-16, 2012 WL 2603429 at *6.
This Court notes that the test at this initial stage of the litigation is not one of ultimate success or even probable success on the merits. Iqbal, 556 U.S. at 678 ("The plausibility standard is not akin to a 'probability requirement' . . ."); Twombly, 550 U.S. at 556 (holding that plaintiffs can "proceed even if it strikes a savvy judge that actual proof of those facts is improbable, and that a recovery is very remote and unlikely" (internal quotation marks omitted)). Rather, the Complaint must include "enough fact to raise a reasonable expectation that discovery will reveal evidence" that will support the Trustee's allegations. Twombly, 550 U.S. at 556. This Court concludes that the Complaint's allegations sufficiently plead the existence of a creditor at the time of the transfer.
In contrast to Laurel Valley Oil, the Trustee in this case alleges in the Complaint that the Debtor accumulated significant credit card debt prior to and through the date of the transfer as reflected by the Debtor's bankruptcy schedules and the proofs of claim filed with the court [Bankruptcy Case Number 19-10309, Docket Number 1, ¶¶ 5-6]. Ms. Croucher concedes that because the Complaint references the claims register and the proofs of claim filed therein and because the Debtor's schedules are part of the record in this case, this Court may consider those documents in ruling on the Motion [Adversary Case Number 20-1009, Docket Number 11, p. 6]. The claims register reflects at least four of the fourteen proofs of claim have an account opening date that is prior to the date of the transfer and a last transaction date that is after the date of the transfer[See Bankruptcy Case Number 19-10309, Proof of Claim Numbers 1-1, 2-1, 5-1, and 6-1]. As such, it is plausible that at least one of these unsecured creditors qualifies as an existing creditor at the time of the transfer. See Belfance v. Bushey (In re Bushey), 210 B.R. 95, 101-02 (B.A.P. 6th Cir. 1997) (concluding that, with respect to Ohio Revised Code Section 1336.04, a creditor with a continuous credit relationship with the debtor since the time of the transfer establishes the existence of a pre-existing creditor for fraudulent transfer purposes); Silagy v. Gagnon (In re Gabor), 280 B.R. 149, 161 (Bankr. N.D. Ohio 2002) (same). Accordingly, the Trustee's claim under Ohio Revised Code Section 1336.05(A) survives dismissal with the understanding that the Trustee carries the burden of proving the elements of this claim at trial.
3. Section 1336.04(A)(2)(b): Pleading Fraud with Particularity
To the extent that the Trustee pleads a claim under Ohio Revised Code Section 1336.04(A)(2)(b), Ms. Croucher asserts that the claim fails to plead fraud with particularity as required by Rule 9(b) incorporated into bankruptcy adversary proceedings by Bankruptcy Rule 7009. Rule 9(b) provides that in alleging fraud or mistake "a party must state with particularity the circumstances constituting fraud or mistake." Fed. R. Civ. P. 9(b). However, "[m]alice, intent, knowledge, and other conditions of a person's mind may be alleged generally." Id.
Ms. Croucher argues that the heightened pleading requirements of Rule 9(b) apply to the Trustee's claim under Ohio Revised Code Section 1336.04(A)(2)(b). Section 1336.04(A) provides that:
(A) A transfer made or an obligation incurred by a debtor is fraudulent as to a creditor, whether the claim of the creditor arose before, or within a reasonable time not to exceed four years after, the transfer was made or the obligation was incurred,
if the debtor made the transfer or incurred the obligation in either of the following ways:
(1) With actual intent to hinder, delay, or defraud any creditor of the debtor;
2) Without receiving a reasonably equivalent value in exchange for the transfer or obligation, and if either of the following applies:
Ohio Rev. Code § 1336.04(A).(a) The debtor was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction;
(b) The debtor intended to incur, or believed or reasonably should have believed that the debtor would incur, debts beyond the debtor's ability to pay as they became due.
The application of Rule 9(b) specificity requirements to fraudulent transfer claims can be tricky because some fraudulent transfer claims do not require proof that the defendant engaged in fraudulent activity. Motorwerks, 371 B.R. at 295. "In fact, a fraudulent transfer claim based on constructive fraud need only allege that the transfer was made without reasonably equivalent value." Id. In such circumstances where fraud or misconduct is not a required element of a trustee's fraudulent transfer claim, the more stringent requirements of Rule 9(b) do not apply. Id. (citing Guiliano v. U.S. Nursing Corp. (In re Lexington Healthcare Group, Inc.), 339 B.R. 570, 574-75 (Bankr. D. Del. 2006)).
Significantly, while a cause of action brought under Section 1336.04(A)(1) requires actual intent on the part of the debtor to hinder, delay or defraud a creditor, a cause of action brought under Section 1336.04(A)(2) does not require such intent. Instead, Section 1336.04(A)(2)(b) is a constructive fraud provision requiring proof that the transfer was made without receipt of reasonably equivalent value when the debtor intended to incur, or believed or reasonably should have believed that the debtor would incur, debts beyond the debtor's ability to pay as they became due. Id. Because Section 1336.04(A)(2) does not require proof of actual fraud, the heightened Rule 9(b) pleading requirements do not apply. See Van-American Ins. Co. v. Schiappa, 191 F.R.D. 537, 542-43 (S.D. Ohio 2000) (concluding that the heightened Rule 9(b) requirements do not apply to a constructive fraud claim under Ohio Revised Code Section 1336.04(A)(2) and, as further support, noting that the Ohio Supreme Court has reached the same conclusion in applying Ohio's identical version of Rule 9(b)); Motorwerks, 371 B.R. at 295 (concluding that the more stringent requirements of Rule 9(b) do not apply to fraudulent transfer claims except to the extent they rest on allegations of fraudulent activity, misrepresentation, or other misconduct). Accordingly, this Court determines that the Trustee's claim under Ohio Revised Code Section 1336.04(A)(2)(b) survives dismissal.
To support the application of the heightened Rule 9(b) pleading requirements to causes of action under Ohio Revised Code Section 1336.04(A)(2)(b), Ms. Croucher cites Morris v. Zelch (In re Regional Diagnostics, LLC), 372 B.R. 3 (Bankr. N.D. Ohio 2007). In Regional Diagnostics, the bankruptcy court concluded that the Rule 9(b) pleadings requirements apply to a fraudulent transfer claim asserting actual fraud under Ohio Revised Code Section 1336.04. Id. at 17. In this case, the Trustee's claim under Ohio Revised Code Section 1336.04(A)(2)(b) is a constructive fraud claim, and, thus, the Regional Diagnostics holding is inapplicable.
D. Trustee's Request to Convert Response to Motion for Summary Judgment
The Trustee requests that this Court consider converting his Response into a motion for summary judgment under Rule 56 [Docket Number 10, p. 7]. To support the conversion of his Response and the granting of summary judgment in his favor, the Trustee attaches various exhibits [Id., Exs. A-G]. However, the Trustee also notes that some information necessary to support such a motion "is not quite ready to be included" and the Trustee would need additional time to obtain certain supporting documents [Id., pp. 7-8].
While under Rule 12(d), a court has discretion to convert a motion to dismiss relying on extraneous evidentiary materials into a motion for summary judgment if all parties are given reasonable opportunity to respond and supplement, this Court declines the Trustee's request in this instance. As noted in the Response, the Trustee needs additional time for discovery to obtain supporting documents, which indicates to this Court that the matter is not ready for determination. Furthermore, the Response does not meet Rule 56 requirements for summary judgment, including properly supporting all factual assertions with citations to the record. Fed. R. Civ. P. 56(c)(1) (incorporated into bankruptcy adversary proceedings by Fed. R. Bankr. P. 7056). While declining to treat the Trustee's Response as a motion for summary judgment, this Court invites the parties to file dispositive motions, if appropriate, when discovery is completed.
In her Reply, Ms. Croucher requests that the extraneous evidentiary materials attached to the Trustee's Response be stricken. This Court agrees that the materials attached to the Response are inappropriate for consideration on a Rule 12(b)(6) motion to dismiss and has excluded the materials from its consideration pursuant to Rule 12(d).
IV. CONCLUSION
For the reasons set forth, Defendant's Motion to Dismiss the Plaintiff's Complaint [Docket Number 8] is granted, in part. Specifically, this Court dismisses the Trustee's claim to avoid a fraudulent transfer pursuant to Ohio Revised Code Section 1336.05(B). In all other respects, the Defendant's Motion to Dismiss the Plaintiff's Complaint [Docket Number 8] is denied.
SO ORDERED.
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.
/s/ _________
Beth A. Buchanan
United States Bankruptcy Judge
Dated: September 18, 2020
Distribution List:
E. Hanlin Bavely, Esq.
Paul J. Minnillo, Esq.