Opinion
Case No. 19-33143 Adv. No. 20-3006
06-29-2020
In re: ROBERT BRUCE LEWIS, Debtor VICTER CRENSHAW AND VICTORY INDUSTRIAL CLEANING LLC, Plaintiffs v. ROBERT BRUCE LEWIS AND GREEN STATE RECYCLING, LLC, Defendants
Copies to: Thomas G. Eagle (Counsel for the Plaintiffs) Eric W. Goering (Counsel for the Defendants)
Chapter 7
Decision Granting in Part and Denying in Part Defendants' Motion to Dismiss (Doc. 9)
I. Introduction
Robert Bruce Lewis ("Lewis") filed a Chapter 7 petition and has received his discharge. Victer Crenshaw ("Crenshaw") and Victory Industrial Cleaning, LLC ("Victory", and collectively with Crenshaw, the "Plaintiffs") filed a complaint against Lewis and Green State Recycling, LLC ("Green State", and collectively with Lewis, the "Defendants"). doc. 1 (the "Complaint"). The Complaint has three counts: 1) a dischargeability count for embezzlement, defalcation, or larceny pursuant to 11 U.S.C. § 523(a)(4); 2) a dischargeability count for a willful and malicious injury pursuant to 11 U.S.C. § 523(a)(6) and 3) seeking declaratory judgment as to the parties' rights to a certain piece of commercial equipment and a constructive trust imposed or, alternatively, a remand to state court for such determinations.
The Defendants' motion to dismiss (doc. 9) presents the following arguments: 1) Victory lacks the corporate authority to be a plaintiff in this action and therefore must be dismissed as a plaintiff; 2) Green State must be dismissed as a party because the court may not make a dischargeability finding against a non-debtor; 3) the Complaint is insufficiently plead under Rule 8(a) of the Federal Rules of Civil Procedure; 4) the Complaint fails to plead fraud with particularity as required by Federal Rule of Civil Procedure 9(b); and 5) Crenshaw failed to plead a compulsory counterclaim in state court, and therefore is precluded from pursuing this Complaint.
II. Jurisdiction
This court has jurisdiction over the dischargeability action against the Debtor pursuant to 28 U.S.C. § 1334 and a dischargeability action is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(I). This court has constitutional authority to enter a final monetary judgment in a dischargeability action. Hart v. S. Heritage Bank (In re Hart), 564 Fed. Appx. 773, 776 (6th Cir. 2014). As the court will explain, this bankruptcy court lacks subject matter jurisdiction over Count 3 of the Complaint because it has no effect on the bankruptcy estate or Lewis' discharge.
III. Factual Allegations
The allegations in the Complaint, which for purposes of a dismissal motion the court accepts as true, are as follows. Crenshaw and Lewis, in January 2017, formed Victory. Complaint ¶ 7. The Complaint describes Victory as a "joint venture, partnership, and/or limited liability company" and that the parties intended to own this business equally. Id. However, Lewis "embezzled, misappropriated, stole, converted, or otherwise wrongfully took for use own use, money, funds, and income" from Victory, specifically taking these funds without the consent or knowledge of Crenshaw. Id. ¶ 8.
In June 2018, the parties to this litigation entered into an apparent separate agreement, described as "partially oral and partially in writing" which is embodied "in multiple and varying documents." Id. ¶9. This agreement is described as "in the nature of a venture or other unincorporated association, and/or a common law or statutory partnership[.]" Id. Under this agreement, the written portion of which has not been provided to the court, the parties jointly financed a particular piece of commercial equipment, referred to only as the "Presvac." Id. The Complaint states that "the terms of said agreement also included the acquisition of, financing of, investment in, and operation of the Presvac by Plaintiffs, and upon payment of same to be transferred to Plaintiff(s); and which has since been in the possession and use and control of Plaintiffs, and paid for and maintained by Plaintiff(s), although titled to one or more of the Defendants and/or some other entity under his/their control." Id. The exact particulars of the contractual responsibilities of the parties and the specific nature of this arrangement are not provided.
In any event, the Presvac requires licensing, which expires annually in April. Id. ¶10. The Defendants have not cooperated in the licensing process, requiring the Plaintiffs to pursue the matter in state court prior to this bankruptcy. Id. Pursuant to the express and implied terms of this contractual arrangement, the Defendants were required to not interfere with the use, possession, and operation of the Presvac and the Plaintiffs' "eventual ownership of it" and were required to act reasonably and in good faith. Id. ¶11. The Plaintiffs have performed all conditions precedent to performance. Id. ¶ 12.
This dispute was unresolved extrajudicially, and the Plaintiffs filed suit against the Defendants in the Court of Common Pleas in Warren County, Ohio. Id. ¶ 21. The state court case was set for trial at the time the bankruptcy petition was filed in this case. Id.
IV. Motion to Dismiss Standard
A motion to dismiss an adversary proceeding for "failure to state a claim upon which relief can be granted" is governed by Federal Rule of Civil Procedure 12(b)(6) (applicable by Federal Rule of Bankruptcy Procedure 7012(b)). The factual allegations must put the defendant on notice as to the claims being alleged and provide a sufficient factual predicate to make the allegations plausible, and not merely possible. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Federal courts are not obligated to accept as true legal conclusions couched as factual allegations. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). While detailed factual allegations are not necessary, the allegations must be sufficiently detailed to create more than speculation of a cause of action. Id. A claim is plausible if the factual allegations are sufficient to allow "the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." HDC, LLC v. City of Ann Arbor, 675 F.3d 608, 611 (6th Cir. 2012) (citations and internal quotation marks omitted). See Fed. R. Civ. P. 8(a)(2) (applicable by Fed. R. Bankr. P. 7008, which requires "a short and plain statement of the claim showing that the pleader is entitled to relief[.]").
V. Analysis
A. Corporate Authority
The Defendants assert that Crenshaw does not have the corporate authority to pursue the Complaint on behalf of Victory. The court cannot determine from the pleadings that Crenshaw lacked such authority and the court declines to convert this issue to summary judgment at this time. Instead, the court is deciding this matter as a motion to dismiss based upon the pleadings. See Fed. R. Civ. P. 12(d) (court must convert Rule 12(b)(6) motion if it does not exclude matters outside the pleadings). The court does so in part because the evidentiary record would need supplementation and it is unclear at this stage if the state court may be in a better position to resolve this and other significant state law questions.
Specifically, the dismissal motion refers to "Paragraph 6" of Victory's operating agreement that would require each member to unanimously agree on "all major decisions affecting the Company." doc. 9 at 2. The Defendants attach the State of Ohio Certificate showing Victory was created, but nothing else relevant to this question. Id. at Exhibit 1. The Plaintiffs' response (doc. 10) gives a detailed description of their view of the state court proceedings, provides links to such proceedings, but, in the end, asserts that due to a preliminary injunction determination in the state court, Crenshaw is now Victory's only member. The Plaintiffs suggest these preliminary injunction findings may have preclusive effect, but the court is not considering any of this material at this time. In short, this court has no basis as a matter of law to conclude from the pleadings that Crenshaw lacked the legal authority to pursue the Complaint on Victory's behalf.
B. Subject Matter Jurisdiction Over Green State as to Count 3
The next issue is whether the court has subject matter jurisdiction to adjudicate any dispute as to Green State. The only count of possible relevance to Green State as a party is Count 3. Count 3 requests the court to enter declaratory judgment as to the parties' rights to the Presvac, dissolve any "ventures" between the parties, "and/or remand to State Court for those determinations." Complaint ¶13.
The first and fundamental question presented by every case brought to the federal courts is whether the court has subject matter jurisdiction to hear the case before it, even when the parties concede or do not raise the issue. Bender v. Williamsport Area School Dist., 475 U.S. 534, 541 (1986); Harker v. Wells Fargo (In re Krause), 414 B.R. 243, 252 (Bankr. S.D. Ohio 2009). Regardless of whether the parties raise jurisdictional issues themselves - or even attempt to consent to federal jurisdiction - federal courts have an independent obligation to investigate and police the constitutional and statutory limits of their own jurisdiction and counsel, as officers of the court, have an obligation to aid the courts with that duty. Douglas v. E.G. Baldwin & Ass'n, Inc., 150 F.3d 604, 607 (6th Cir. 1998) (overruled in part on other grounds); Minority Police Officers Ass'n v. City of S. Bend, Ind., 721 F.2d 197, 199 (7th Cir. 1983). The party alleging federal court jurisdiction bears the burden of proof. Nuveen Mun. Trust v. Withumsmith Brown, P.C., 692 F.3d 283, 293 (3d Cir. 2012); Perry v. EMC Mortgage Corp. (In re Perry), 388 B.R. 330, 337 (Bankr. E.D. Tenn. 2008); Kmart Creditor Trust v. Conaway (In re Kmart Corp.), 307 B.R. 586, 590 (Bankr. E.D. Mich. 2004).
Federal courts are courts of limited jurisdiction. Michigan Employment Sec. Comm'n v. Wolverine Radio Co. (In re Wolverine Radio Co.), 930 F.2d 1132, 1137 (6th Cir. 1991); Robinson v. Michigan Consol. Gas Co. Inc., 918 F.2d 579, 582 (6th Cir. 1990); Uber v. Nelnet, Inc. (In re Uber), 443 B.R. 500, 504 (Bankr. S.D. Ohio 2011). Bankruptcy courts have specific statutory limits on the cases, proceedings and matters which they may hear. Bankruptcy courts do not have broad general jurisdiction over cases or controversies, but only jurisdiction over a particular matter if Congress has provided such jurisdiction. As stated by the Supreme Court in Celotex Corp. v. Edwards: "The jurisdiction of the bankruptcy courts, like that of other federal courts, is grounded in, and limited by, statute." 514 U.S. 300, 307 (1995).
Jurisdiction involving a non-debtor "must be determined solely by 28 U.S.C. § 1334(b)." Michigan Emp't Sec. Comm'n v. Wolverine Radio Co., Inc. (In re Wolverine Radio Co.), 930 F.2d 1132, 1140 (6th Cir. 1991). Section 1334(b) states that "the district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11." 28 U.S.C. § 1334(b). Each district court may provide for the referral of all bankruptcy cases to the bankruptcy judges for that district. 28 U.S.C. § 157(a). The United States District Court for the Southern District of Ohio has done so through its General Order No. 05--02. In determining jurisdiction under § 1334(b), the Sixth Circuit has adopted the Pacor test:
The usual articulation of the test for determining whether a civil proceeding is related to bankruptcy is whether the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy. Thus, the proceeding need not necessarily be against the debtor or the debtor's property. An action is related to bankruptcy if the outcome could alter the debtor's rights, liabilities, options, or freedom of action (either positively or negatively) and which in any way impacts upon the handling and administration of the bankrupt estate.Wolverine Radio Co., 930 F.2d at 1142 (quoting Pacor, Inc. v. Higgins (In re Pacor), 743 F.2d 984. 994 (3d Cir. 1984).
In this instance, as a non-debtor, Green State is not subject to a non-dischargeability action. The Chapter 7 Trustee has abandoned all assets in the Lewis' bankruptcy estate (January 9, 2020 estate docket entry), and the determination of the parties' rights in Count 3 has no impact on the estate's creditors. Similarly, any disentanglement or dissolution of the parties' business relationship has no impact on this bankruptcy estate and the request for a constructive trust is a bridge too far. While the court has the constitutional authority under § 28 U.S.C. 1334(b) to liquidate the debt between the parties as part of determining the dischargeability of a debt, the court cannot determine non-debtor party rights in a corporate dispute over property which the trustee has abandoned. Common issues of fact do not by themselves justify this court's jurisdiction. In re Rhiel v. Central Mortgage Co. (In re Kebe), 444 B.R. 871, 876 (Bankr. S.D. Ohio 2011). As the Third Circuit stated in the Pacor decision: "Judicial economy itself does not justify federal jurisdiction." Pacor, 743 F.2d at 994.
Hart v. S. Heritage Bank (In re Hart), 564 Fed. Appx. 773, 776 (2014).
The Plaintiffs suggest a broader view of bankruptcy court jurisdiction, relying on the supplemental jurisdiction statute, 28 U.S.C. § 1367. The Seventh Circuit has suggested that supplemental jurisdiction under § 1367 is not applicable in bankruptcy court. See Chapman v. Currie Motors, Inc., 65 F.3d 78, 81-82 (7th Cir. 1995). See also Dawson v. J & B Detail, L.L.C. (In re Dawson), Case No. 05-22369, Adv. No. 05-1463, 2006 WL 2372821, at *6 n. 2 (N.D. Ohio Aug. 15, 2016), aff'd No. 106CV1949, 2006 WL 3827459 (N.D. Ohio Dec. 27, 2006) (section 1367 not a separate jurisdictional basis in bankruptcy courts). As an Article I court governed by a completely separate jurisdictional statute, using § 1367 as a basis for jurisdiction is problematic. See also Kebe, 444 B.R. 871 (providing the split in the case law as to whether bankruptcy courts may exercise jurisdiction under § 1367). Even assuming for argument this court could exercise such jurisdiction, the claims in Count 3 are not "so related to claims in the action within such original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution." 28 U.S.C. § 1367(a). Again, the court cannot exercise jurisdiction to determine the property rights of non-debtors in a no-asset case as an add-on to a dischargeability proceeding.
Section 1367 provides that: (a) Except as provided in subsections (b) and (c) or as expressly provided otherwise by Federal statute, in any civil action of which the district courts have original jurisdiction, the district courts shall have supplemental jurisdiction over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution. Such supplemental jurisdiction shall include claims that involve the joinder or intervention of additional parties. (b) In any civil action of which the district courts have original jurisdiction founded solely on section 1332 of this title, the district courts shall not have supplemental jurisdiction under subsection (a) over claims by plaintiffs against persons made parties under Rule 14, 19, 20, or 24 of the Federal Rules of Civil Procedure, or over claims by persons proposed to be joined as plaintiffs under Rule 19 of such rules, or seeking to intervene as plaintiffs under Rule 24 of such rules, when exercising supplemental jurisdiction over such claims would be inconsistent with the jurisdictional requirements of section 1332. (c) The district courts may decline to exercise supplemental jurisdiction over a claim under subsection (a) if
(1) the claim raises a novel or complex issue of State law,(d) The period of limitations for any claim asserted under subsection (a), and for any other claim in the same action that is voluntarily dismissed at the same time as or after the dismissal of the claim under subsection (a), shall be tolled while the claim is pending and for a period of 30 days after it is dismissed unless State law provides for a longer tolling period. (e) As used in this section, the term "State" includes the District of Columbia, the Commonwealth of Puerto Rico, and any territory or possession of the United States. 28 U.S.C. § 1367.
(2) the claim substantially predominates over the claim or claims over which the district court has original jurisdiction,
(3) the district court has dismissed all claims over which it has original jurisdiction, or
(4) in exceptional circumstances, there are other compelling reasons for declining jurisdiction.
The court also may not exercise such jurisdiction pursuant to the Declaratory Judgment Act of 1934, 28 U.S.C. § 2201. Although this court can certainly hear cases seeking declaratory judgment, the Declaratory Judgment Act is not an independent basis for jurisdiction. Toledo v. Jackson, 485 F.3d 836, 839 (6th Cir. 2007).
Finally, the Plaintiffs alternatively suggest this court "remand" these issues to the state court for determination. Complaint ¶33. While it is possible that a bankruptcy court may remand a proceeding to a state court after that proceeding has been removed to the bankruptcy court from the state court, the subject adversary proceeding was not removed from the state court and, therefore, this court cannot "remand" any part of this adversary proceeding to the state court. See 28 U.S.C. §§ 1447 and 1452; Fed. R. Bankr. P. 9027; McVey v. Johnson (In re SBMC Healthcare, LLC), 547 B.R. 661 (S.D. Tex. 2016). Perhaps the intention is to have the court abstain pursuant to 28 U.S.C. § 1334(c). But the point is moot anyway as the court cannot abstain from legal matters over which it lacks subject matter jurisdiction in the first instance.
While there were related actions filed in the state court, this adversary proceeding was commenced in the bankruptcy court by filing an adversary complaint in the bankruptcy case and was not removed from the state court.
A return to state court may be in order, but that question is for another day. The state court could not only liquidate any debt but could also address any other issue involving Green State and the parties' business relationships that are beyond this court's limited federal jurisdiction. The state court could also resolve the corporate authority question. Moreover, it appears this litigation is ready for trial in the state court.
C. Compulsory Counterclaim
Lewis argues that Crenshaw's failure to pursue a compulsory counterclaim in the state court precludes him from pursuing a dischargeability action. Lewis cites Ohio Rule of Civil Procedure 13(A) concerning compulsory counterclaims. First, since the state court proceeding did not reach a final judgment, it appears preclusion does not apply. Yust v. Henkel (In re Henkel), 490 B.R. 759, 771 (Bankr. S.D. Ohio 2013) (claim preclusion under Ohio law requires, among other things, "a prior final, valid decision"). Second, while certain state law claims may have been compulsory counterclaims in the state court, the dischargeability claim under § 523 could not have been a compulsory counterclaim in the state court because that claim did not arise until Lewis filed his bankruptcy case. Applying Brown v. Felsen, 442 U.S. 127 (1979), the 9th Circuit rejected Lewis' compulsory counterclaim argument as relates to a § 523 claim:
A pleading shall state as a counterclaim any claim which at the time of serving the pleading the pleader has against any opposing party, if it arises out of the transaction or occurrence that is the subject matter of the opposing party's claim and does not require for its adjudication the presence of third parties of whom the court cannot acquire jurisdiction. But the pleader need not state the claim if (1) at the time the action was commenced the claim was the subject of another pending action, or (2) the opposing party brought suit upon his claim by attachment or other process by which the court did not acquire jurisdiction to render a personal judgment on that claim, and the pleader is not stating any counterclaim under this Rule 13. Ohio R. Civ. P. 13(A).
Therefore, under Brown, Armstrong's claim that the issue of fraudulent inducement is barred by res judicata, because it could have and should have been raised below, cannot stand. It is within the Bankruptcy Court's jurisdiction to consider the issue of fraud anew as it relates to a nondischargeability claim under § 523. Likewise, although the Statens' fraud claim may have been a compulsory counterclaim which cannot now be asserted in state court, the failure to assert such a counterclaim does not prevent a bankruptcy court from making a nondischargeability determination under federal law.Staten v. Armstrong (In re Armstrong), 95 F.3d 1156, 1996 U.S. App. LEXIS 21996, at *16 (9th Cir. Aug. 23, 1996) (table decision).
In addition, Crenshaw argues that he filed two separate lawsuits against the Defendants in the state court. In essence, Crenshaw states those lawsuits were effectively counterclaims and were consolidated in the state court. Again, the court cannot resolve this potential legal question on a motion to dismiss. Nor does the court intend to refer to state court internet links or snippets from documents it cannot review on a motion to dismiss. The parties may obtain verified copies of state court pleadings or filings if such issues are to be pursued upon summary judgment or trial. Or, it may be this issue can be determined in the state court, which appears to be the court most familiar with the state law issues which are raised. In any event, those issues cannot be resolved upon the pleadings. See infra n.4.
D. Insufficiency of Complaint Under Federal Rules of Civil Procedure 8(a) and 9(b)
Finally, the Defendants argue that the Complaint should be dismissed because the Complaint is deficiently pled pursuant to Rule 8(a) of the Federal Rules of Civil Procedure. See Fed. R. Civ. P. 8(a)(2) (requiring a "short and plain statement of the claim showing that the pleader is entitled to relief[.]"). A cause of action must "state a claim that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). A cause of action is plausible "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 556).
As the court finds Count 3 beyond this court's jurisdiction, the court need only address the nondischargeability counts pursuant to 11 U.S.C. § 523(a)(4) and (a)(6). In addition to the basic pleading requirements of Rule 8(a), the Defendants argue that the Plaintiffs failed to plead fraud with particularity. Fed. R. Civ. P. 9(b). Rule 9(b) requires that "a party must state with particularity the circumstances constituting fraud or mistake." Id. However, "[m]alice, intent, knowledge, and other conditions of a person's mind may be alleged generally." Id. The requirement to plead with particularity only applies to the claim under 523(a)(4) because it concerns actual fraud. Trell v. Dunlevy (In re Dunlevy), 75 B.R. 914, 915-18 (Bankr. S.D. Ohio 1987); Burton Food Svcs., Inc. v. Aseireh (In re Aseireh), 526 B.R. 246 (Bankr. N.D. Ohio 2015).
Section 523(a)(4) contains three separate bases for non-dischargeability. DeWine v. Dudley (In re Dudley), 582 B.R. 708, 727 (Bankr. S.D. Ohio 2017). Fraud in a fiduciary capacity is defined narrowly in the Sixth Circuit, limiting it to situations in which an express or technical trust exists. Bd. of Trustees of the Ohio Carpenters' Pension Fund v. Bucci (In re Bucci), 493 F.3d 635 (6th Cir. 2007). Accord Cash Amer. Fin. Svcs., Inc. v. Fox (In re Fox), 370 B.R. 104, 114 (B.A.P. 6th Cir. 2007). To establish such a trust, a creditor must prove "(1) an intent to create a trust; (2) a trustee; (3) a trust res; and (4) a definite beneficiary." Bucci, 493 F.3d at 640. Further, the trustee must have duties that pre-exist the act which created the debt. Id. at 643. For purposes of § 523(a)(4), embezzlement is defined by federal common law as "the fraudulent appropriation of property by a person to whom such property has been entrusted or into whose hands it has lawfully come." Brady v. McAllister (In re Brady), 101 F.3d 1165, 1172-73 (6th Cir. 1996) (quoting Gribble v. Carlton (In re Carlton), 26 B.R. 202, 205 (Bankr. M.D. Tenn. 1982)). Embezzlement is proven "by showing that [the creditor] entrusted his property to the debtor, the debtor appropriated the property for a use other than that for which it was entrusted, and the circumstances indicate fraud." Id. at 1173 (citation omitted). Larceny refers to a situation in which the debtor never had lawful possession of the property. See Chapman v. Pomainville (In re Pomainville), 254 B.R. 699, 705 (Bankr. S.D. Ohio 2000) ("Embezzlement differs from larceny in that the debtor's original acquisition of possession of the property was lawful.") (citation omitted).
"A discharge under section 727 . . . of this title does not discharge an individual debtor from any debt . . . for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny[.]" 11 U.S.C. § 523(a)(4).
Although the Complaint could be less cryptic in its descriptions of the parties' business dealings, the Complaint is sufficient for purposes of notice pleading under Rule 8(a). It does not simply plead legal conclusions without factual support and states plausible claims. The Complaint states that Lewis "embezzled, misappropriated, stole, converted, or otherwise wrongfully took for his own use, money, funds, and income from the enterprise, without Plaintiffs' knowledge or consent and in violation of Plaintiffs' rights to the money so taken by Lewis." Complaint ¶8. The Complaint alleges that the Defendants failed to cooperate to maintain a license needed for the business venture. Complaint ¶10. The Complaint also alleges such actions were in violation of the contractual obligation of the parties and constituted breaches of fiduciary duties by Lewis. Complaint ¶25. The Complaint further alleges the "Contracts and transactions" between the parties constituted an express or technical trust. Complaint ¶23. All these allegations place Lewis on notice of facts that could constitute embezzlement or larceny. And, while proving fraud or defalcation while acting in a fiduciary capacity is a difficult mountain to climb in the Sixth Circuit due to the specific trust requirement, the allegations are sufficient to avoid dismissal at this early stage. Even under the heightened requirements to plead fraud with particularity, the court finds that the Complaint is sufficient.
The Complaint also includes sufficient factual allegations to survive dismissal on the willful and malicious injury claim under § 523(a)(6). Establishing a willful and malicious injury involves application of a two-part test. MarketGraphics Rsch. Group, Inc. v. Berge (In re Berge), 953 F.3d 907, 914-16 (6th Cir. 2020). Willful is defined as the "actual intent to cause injury," and "not merely a deliberate or intentional act that leads to injury." Id. at 915 (quoting Kawaauhau v. Geiger, 523 U.S. 57, 61 (1998)). The standard in the Sixth Circuit is a subjective one, asking the question of whether the debtor "desire[d] to cause the consequences of his act, or believe[d] that the consequences are substantially certain to result from it." Markowitz v. Campbell (In re Markowitz), 190 F.3d 455, 464 (6th Cir. 1999). "Malicious means in conscious disregard of one's duties and without just cause or excuse[.]" Wheeler v. Laudani, 783 F.2d 610 (6th Cir. 1986) (internal quotations omitted). Although establishing a claim under § 523(a)(6) requires meeting a high standard, the Complaint alleges that Lewis "appropriated [] property for a use other than that for which it is entrusted . . . by keeping it and not paying it to Plaintiffs, and the circumstances indicate fraudulent intent." Complaint ¶22. The Complaint describes the business relationships between the parties and the obligations that were breached. For purposes of pleading, the Complaint is sufficient. Complaint ¶¶ 7-16. Those allegations place Lewis on notice that the allegations involve not only an intentional act, but an "actual intent to cause injury." Kawaauhau, 523 U.S. at 61.
VI. Conclusion
The motion to dismiss is granted in part and denied in part. Count 3 of the Complaint is dismissed for lack of subject matter jurisdiction. Green State Recycling, LLC is dismissed as a defendant in this adversary proceeding. The court will enter a separate order consistent with this decision.
The Plaintiffs' alternative motion to amend the complaint (doc. 10) is determined moot.
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/ _________
Guy R. Humphrey
United States Bankruptcy Judge
Dated: June 29, 2020
Copies to:
Thomas G. Eagle (Counsel for the Plaintiffs) Eric W. Goering (Counsel for the Defendants)