Clinica San Agustin, Inc. v. Astrid Guzman Abreu, et al.

Opinion

3 4 NRE: 5 CLINICA SAN AGUSTIN, INC. | CASE NUMBER 03-03343- ESL CHAPTER 7 6 DEBTOR 8 WIGBERTO LUGO MENDER, Trustee Plaintiff 10 ADVERSARY PROCEEDING NUMBER: v. ll | 06-0136 ASTRID GUZMAN ABREU, et al. 13 Defendants 14 SS 15

7 This adversary proceeding is before the court upon the motion for judgment on the pleadings 13 filed be the defendants pursuant to Rule 7012(c) of the Fed. R. Bankr. P., on the ground that the 19 complaint fails to plead with sufficient particularity the allegations of fraud, as is required by Rule 30 7009(b) of the Fed. R. Bankr. P. Plaintiff has opposed the motion for judgment on the pleadings alleging that the motion is premature since the pleadings have not closed, there is subject matter and 59 personal jurisdiction over the controversy, that the allegations do plead with sufficient particularity 93 the fraud claim for relief, and, in any event, the complaint may be amended. The Complaint 24 35 The trustee for the estate of Clinica San Agustin has filed an action praying that defendants be ordered to jointly pay to the estate an amount of no less than $513,894.85 as damages caused for 4 their tortious, fraudulent and negligent acts. Plaintiff further prays for the piercing of the corporate 38 veil and declare all defendants liable for the debts of debtor Clinica San Agustin. Plaintiff invokes the jurisdiction of this court under 28 U.S.C. 157 and 1334. The adversary

1 -2. 2 proceeding is brought under sections 704,362,542,543,544,547,548, 549 and 550 of the Bankruptcy 3 Code. The adversary proceeding is allegedly a core proceeding under 28 U.S.C. 157(b)(2). 4 The parties moving for judgment on the pleadings are officers and/or directors of the debtor 5 corporation. The parties are sued in their official and personal capacity, including their respective 6 spouses and their conjugal societies. 7 The complaint includes amongst the facts common to all causes of action (claims for relief) 8 ll the following!: 9 1. “Defendants performed their functions negligently, to the detriment of debtor, and 10 breached their fiduciary duty towards debtor, stripping it of any assets, draining the financial 11 resources, failing to respond to its obligations, and afterwards not performing their functions 12 regarding the management and economic well being of debtor in a diligent manner, not executing 13 documents regarding debtor properly, and leaving it with claims of no less than $513,894.85, and 14 leaving the trustee with little or no useful information regarding debtor, its assets, its accounting or 15 its operations.” 16 2. “The principal fraud consisted in draining the financial resources of Clinica San Agustin 17 to the detriment of its creditors.” 18 3, “Clinica San Agustin never had, as a matter of fact, an adequate capital structure. □ □ . Its 19 corporate files are null, nonexistent or inadequate.” 20 4, Defendants “never observed the corporate formalities of the corporation, such as holding 21 meetings of the board of directors and of the stockholders or partners. Clinica San Agustin was 22 funded inadequately in the sense of having the capacity to confront their ordinary and foreseeable 23 obligations. That was done on purpose to commit fraud against the creditors.” 24 5. “At all times there was a design and a plan on the part of defendants to fraudulently 25 dispose of the assets of Clinica San Agustin, without paying its creditors, availing themselves of the 26 fiction of the corporate veil.” 27

'The court has purposely not included allegations based on information and belief._ □□□□□ Investment, Inc. v. Gulf Oil Corp., 739 F.2d 11, 14 (1*. Cir. 1984),

] ~3- 2 Conclusions of Law 3 A, Jurisdiction 4 Plaintiff has properly invoked jurisdiction under 28 U.S.C. §1334 as the action affects 5 property of the estate. The claims for relief include matters concerning the administration of the 6 estate, turnover orders, and proceedings affecting the liquidation of the assets of the estate. These 7 are core matters under 28 U.S.C. § 157(b)(2){A, E, 0), The substantive bankruptcy code provisions 8 and the bankruptcy rules are not a jurisdictional basis. However, 28 U.S.C. § 1334 does confer 9 jurisdiction of bankruptcy proceedings. 10 B. Motion for Judgment on the Pleadings 11 The basic intent of a motion for judgment on the pleadings under Rule 12(c) of the Fed.R. 12 Civ. P., made applicable to Adversary Proceedings in bankruptcy by Rule 7012(b) of the Fed.R. 13 Bankr. P., is to provide a means for the rapid disposition of cases when the material facts are not in 14 controversy, and only issues of law are pending a decision by the court. Rule 12(c) specifically {5 || provides that a motion for judgment on the pleadings may be made at any time after the pleadings 16 ! are closed. Rule 7(a) of the Fed.R. Civ, P., made applicable to Adversary Proceedings by Rule 7007 17 of the Fed.R. Bankr. P., provides that there shall be a complaint and an answer. Thus, the pleadings 18 are closed after the answer is filed, and a party may not move for judgment on the pleadings until 19 ! after an answer is filed. Wright and Miller Federal Practice and Procedure: Civil 3d § 1367. 20 Since the defendants have not answered the complaint, a motion for judgment on the 21 pleadings is inappropriate at this time. 22 C._Motion to Dismiss 23 The moving codefendants pray the court to dismiss the complaint because the same fails to 24 plead with sufficient particularity the allegations of fraud. The court will construe the request as one 25 I! to dismiss under Rule 7012(b)(6) for failure to comply with Rule 7009. 26 When considering a motion to dismiss the court must accept as true the allegations of the 27 complaint. A “complaint should not be dismissed if a claim can plausibly be embraced by those 28 allegations.” Rodi v. S. New England School of Law, 389 F.3d 5,13 (1°, Cir. 2004). In addition to taking the allegations in the complaint as true, the court will also make all reasonable inferences in

I -4- 2 favor of plaintiff. Doran v. Mass Tpk. Auth., 348 F. 3d. 315, 318 (1%. Cir. 2003), 3 The court will take the allegations in the complaint as true and will make all reasonable 4 inferences in favor of the plaintiff when determining whether the complaint pleads with sufficient 5 particularity the fraud allegations, and, thus, states a claim upon which relief may be granted. 6 D._Particularity Allegations of Fraud 7 The Federal Rules of Civil Procedure allow a plaintiff to make general allegations in a 8 complaint pursuant to Rule 8 of the Fed.R. Civ. P., but require more specific pleading where a 9 plaintiff alleges fraud. See Rule 9(b) of the Fed.R. Civ. P, Ina general fraud case the plaintiff must 10 ) state the time, place and content of the false representation. “The major purpose of Rule 9 is to give 11 adequate notice of the plaintiff's claim of fraud.” New England Data Services, Inc. v, Becher, 829 12 F.2d 286, 288 □□□ Cir. 1987), Also, Rule 9 intends to preclude the use of groundless fraud claims 13 to discover a wrong, and “safeguard defendants from frivolous charges which might damage their 14 reputations.” Id. at 289. 15 It is often difficult to plead with specificity a fraud claim when the evidence is in the 16 possession of the defendant, and the court may allow “limited discovery to give a plaintiff an 17 opportunity to develop the claim and amend the complaint.” Cordero Hernandez v. Hernandez 18 Ballesteros, 449 F.3d 240, 244 (1*. Cir. 2006). In this adversary proceeding the defendants are the 19 officers of the debtor corporation. The corporate records are devoid of information regarding the 20 alleged fraudulent actions against the corporation. The one element which is not plead with 21 ! particularity is the time when the fraudulent action was committed. 22 The particularity requirement of Rule 9 to allege a fraud claim should be relaxed in the 23 bankruptcy context in an action brought by a Chapter 7 trustee claiming relief on behalf of a debtor 24 corporation for the alleged fraudulent actions of its principals. The trustee is a third party bringing 25 an action against the perpetrators who, according to the allegations of the complaint, failed to keep 26 records to conceal their actions. In re OODC, LLC, 321 B.R. 128 (Bankr. D. Del. 2005); Inre APF 27 CO., 274 B.R. 183 (Bankr. D, Del. 2004); In re Everfresh Beverages, Inc., 238 B.R. 558 (Bankr, 28 S.D.N.Y. 1999); Securities Investor Protection Corp. v. Stratton Oakmont, Inc., 234 B.R. 293 (Bankr. $.D.N.Y. 1999),

1 -5- 2 The facts of this case differ from the scenario in United States v. St. Luke’s Hospital, Inc., 3 441 F. 3d 552 (8" Cir. 2006), wherein an anesthesiologist brought a qui tam action against the 4 hospital and the chief of anesthesiology under the False Claim Act for submitting false claims. The 5 court declined to relax the particularity pleading requirements for fraud to allow the qui tam relator 6 to conduct discovery. The Eighth Circuit relied in part on the First Circuit decision in United States 7 exrel. Karvelas v. Melrose-Wakefield Hospital, 360 F.3d 220, 229 (1", Cir, 2004), In Karvelas the 8 qui tam plaintiff suffered no injury in fact, and the court found that the plaintiff likely filed suit as 9 a pretext to uncover unknown wrongs. In this case the plaintiff is a Chapter 7 trustee filing an action 10 on behalf of the estate and for the benefit of the estate alleging wrongful conducts by the principals 11 and officers of the debtor corporation. 12 The factual allegations in the complaint go beyond the mere technical aspects of fraud and 13 substantially comply with Official Form 13 as to fraud claims. □ 14 Afier considering the allegations of fact in the complaint as summarized above, that the 15 information needed to plead with more particularity the fraud claim is under the control of the 16 defendants, that the action is on within the bankruptcy context, and that the plaintiff is the Chapter 17 7 trustee of a debtor corporation, the court finds that the motion to dismiss should be denied. 18 Conclusion 19 In view of the foregoing, the motion for judgment on the pleadings is denied as the pleadings 20 have not closed because the complaint has not been answered. To the extent that the motion is one 21 } to dismiss under Rule 12(b)(6) for failure to state a claim upon which relief may be granted for 22 failure to plead with particularity the fraud claims, the same is hereby denied. 24 Dated this “EX ctr 2007, in San Juan, Puerto Rico. 25

QUE 8. LAMOUTTE 27 US. Bankruptcy Judge 28