Chris Bennett v. Kyle Lindsey ( 2018 )

Case: 17-50746 Document: 00514550829 Page: 1 Date Filed: 07/11/2018
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
No. 17-50746
Fifth Circuit
FILED
July 11, 2018
IN THE MATTER OF KYLE R. LINDSEY, Lyle W. Cayce
Clerk
Debtor
CHRIS BENNETT,
Appellant
v.
KYLE R LINDSEY,
Appellee.
Appeal from the United States District Court
for the Western District of Texas
USDC No. 5:16-CV-882
Before DAVIS, HAYNES, and DUNCAN, Circuit Judges.
PER CURIAM:*
Chris Bennett (“Bennett”) appeals the district court’s order affirming the
bankruptcy court’s dismissal of Bennett’s adversary proceeding against Kyle
Lindsey (“Lindsey”) for failure to state a claim. The bankruptcy court dismissed
Bennett’s complaint, which sought a determination that Lindsey’s debt to him
* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
Case: 17-50746 Document: 00514550829 Page: 2 Date Filed: 07/11/2018
No. 17-50746
was non-dischargeable under 11 U.S.C. § 523(a)(2)(A), because it found that
complaint to be conclusory. Because Bennett’s complaint did not state a
plausible claim for relief, and because the bankruptcy court did not abuse its
discretion by denying leave to amend the complaint, we AFFIRM.
I. FACTUAL AND PROCEDURAL BACKGROUND
In October 2014, KRL Custom Homes, LLC (“KRL”) entered into a
contract to build a home for Bennett. Lindsey, in his capacity as representative
and sole owner of KRL, signed the contract on behalf of KRL. On March 25,
2015, Bennett and KRL executed an Agreement for Termination of Contract
and Release (“Release”). Under the Release, KRL agreed to refund Bennett
$42,300 in exchange for a release of any claims Bennett might have against
KRL. The refund was to be divided into three distinct payments: (1) $15,000 in
the form of three postdated $5,000 checks to replace the contract deposit and
an earlier payment to KRL; (2) $7,300 to pay Benchmark Plumbing Co.
(“Benchmark”) for plumbing work; and (3) $20,000 to pay Daniel Lopez
(“Lopez”) for work performed on the home. 1 In the following months, KRL paid
a portion of the $27,300 due Lopez and Benchmark under the Release.
However, none of the postdated $5,000 checks cleared, leaving a $15,000
balance.
In February of 2016, Lindsey filed for “no asset” bankruptcy under
Chapter 7. 2 Lindsey listed 47 creditors and $776,469.99 in debt on his personal
schedule, including $15,000 owed to Bennett.
1 It appears that the $20,000.00 refund was conditional on Lopez not having been paid.
The fine print in the Release, which was attached to Bennett’s complaint, states that “[i]f the
total sum of payments to Daniel Lopez is less than $20,000, the difference between $20,000
and the actual amounts paid to Daniel Lopez will be refunded to [Bennett and Nicholson].”
From the record, it appears that Lindsey paid a portion this amount, but it is not clear whom
he paid or how much.
2 See 11 U.S.C. § 701 et seq. KRL filed a separate bankruptcy but the sole issue in this
case relates to the adversary proceeding filed in Lindsey’s bankruptcy.
2
Case: 17-50746 Document: 00514550829 Page: 3 Date Filed: 07/11/2018
No. 17-50746
On April 15, 2016, Bennett filed an adversary proceeding against
Lindsey alleging that the $15,000 debt was non-dischargeable under 11 U.S.C.
§ 523(a)(2)(A) because Lindsey fraudulently induced the Release by falsely
promising that all subcontractors, save Benchmark and Lopez, were paid in
full. Lindsey subsequently moved to dismiss Bennett’s complaint under
Federal Rule of Civil Procedure 12(b)(6), and the bankruptcy court set a
hearing for June 16, 2016. At the hearing, the court allowed extensive
argument from all counsel and repeatedly expressed concerns that Bennett’s
complaint was conclusory. In response, Bennett’s counsel expressed a desire to
re-plead if necessary, but he never formally moved for leave to amend. The
court ultimately took the matter under advisement and set a date to orally
announce its reasons for judgment. On July 6, 2016, the bankruptcy court
granted Lindsey’s 12(b)(6) motion to dismiss, finding Bennett’s allegations that
subcontractors were unpaid to be “mere statements without any supporting
facts.”
On July 31, 2017, the United States District Court issued a
memorandum opinion and order affirming the dismissal of Bennett’s
complaint. This appeal ensued.
II. DISCUSSION
A. Motion to Dismiss
Bennett first contends that the bankruptcy court improperly granted
Lindsey’s motion to dismiss. 3 To avoid dismissal, a plaintiff’s complaint
3 When this Court “review[s] the decision of a district court, sitting as an appellate
court, [it] appl[ies] the same standards of review to the bankruptcy court’s findings of fact
and conclusions of law as applied by the district court.” In re Entringer Bakeries, Inc., 548
F.3d 344, 348 (5th Cir. 2008) (quotation marks omitted). We review the bankruptcy court’s
findings of fact for clear error and its legal conclusions de novo. In re Gerhardt, 348 F.3d 89,
91 (5th Cir. 2003). A Rule 12(b)(6) dismissal of an adversary complaint in bankruptcy
presents an issue of law that we review de novo, In re Gauthier, 349 F. App’x 943, 944 (5th
3
Case: 17-50746 Document: 00514550829 Page: 4 Date Filed: 07/11/2018
No. 17-50746
ordinarily need only contain “sufficient factual matter, accepted as true, ‘to
state a claim to relief that is plausible on its face.’” 4 However, because
Bennett’s complaint seeks relief for fraud under 11 U.S.C. § 523(a)(2)(A), it is
subject to the heightened pleading requirements of Federal Rule of Civil
Procedure 9(b) and Federal Rule of Bankruptcy Procedure 7009. 5 At a
minimum, these rules require that a plaintiff allege “the nature of the fraud,
some details, a brief sketch of how the fraudulent scheme operated, when and
where it occurred, and the participants.” 6 In other words, a plaintiff must lay
out “the who, what, when, where, and how” of the alleged fraud. 7 In setting out
that framework, the plaintiff must allege “more than an unadorned, the
defendant-unlawfully-harmed-me accusation.” 8 “‘[N]aked assertion[s]’ devoid
of ‘further factual enhancement’” do not suffice. 9 Rather, the plaintiff’s well-
pleaded facts must permit the court to infer more than the mere possibility of
misconduct that harmed the plaintiff. 10
Bennett’s argument that his complaint meets these requirements rests
on a sole allegation, which states, in pertinent part:
Debtor knowingly, falsely swore in an affidavit relied upon by
Bennett that each person had been paid in full for all labor and
materials used in the residential construction except for expenses
Cir. 2009), accepting all of the plaintiff’s “well pleaded averments as true and viewing them
in the light most favorable to the plaintiff.” Eason v. Holt, 73 F.3d 600, 601 (5th Cir. 1996).
4 Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550
U.S. 544, 570 (2007)).
5 See Matter of Haber Oil Co., Inc., 12 F.3d 426, 439 (5th Cir. 1994) (noting that
bankruptcy courts “should and do insist that the stringent standard imposed by Bankruptcy
Rule 7009 be observed by parties claiming fraud, particularly if the party asserting fraud has
first hand knowledge of the fraudulent transaction”); see also In re Monteagudo, 536 F. App’x
456, 458 (5th Cir. 2013).
6 Matter of Haber, 12 F.3d at 439 (quoting Askanase v. Fatjo, 148 F.R.D. 570, 574 (S.D.
Tex. 1993)); see also Williams v. WMX Techs., 112 F.3d 175, 177 (5th Cir. 1997).
7 Williams, 112 F.3d at 179.
8 Ashcroft, 556 U.S. at 678.
9 Id. (quoting Twombly, 550 U.S. at 557).
10 Harold H. Huggins Realty, Inc. v FNC, Inc., 634 F.3d 787, 796 (5th Cir. 2011).
4
Case: 17-50746 Document: 00514550829 Page: 5 Date Filed: 07/11/2018
No. 17-50746
associated with Daniel Lopez and Benchmark Plumbing, when in
fact other persons were still owed for labor and materials used in
the residential construction at the time the affidavit and
termination agreement were executed. Debtor knew these sworn,
written representations were false at the time he made them, and
intended that Bennett rely on those representations.
From this statement, we can glean that Lindsey allegedly lied under oath via
an affidavit on March 25, 2015. However, Bennett’s averment that Lindsey
“falsely swore . . . that each [subcontractor] had been paid in full . . . when in
fact other persons were still owed . . .” does not adequately explain how
Lindsey’s fraudulent scheme operated to the detriment of Bennett. Bennett’s
barebones assertion, made without any explanation for his belief that certain
subcontractors were not paid, or, more importantly, any explanation of how
Lindsey’s actions harmed Bennett, is conclusory. 11 Bennett alleged only that
he “relied upon the false misrepresentations . . . and as a proximate result
ha[s] sustained injuries.” Bennett’s complaint does not meet the heightened
pleading requirements of Rule 9(b) and Bankruptcy Rule 7009; therefore,
dismissal under Rule 12(b)(6) was proper. 12
B. Motion for Leave to Amend
Bennett argues that even if he did not properly allege his § 523(a)(2)(A)
claim, the bankruptcy court should have allowed him to amend his complaint. 13
Although Federal Rule of Civil Procedure 15 generally applies to adversary
proceedings in bankruptcy court, 14 the parties dispute whether Federal Rule
of Bankruptcy Procedure 4007—which requires that certain challenges to
dischargeability be brought no later than 60 days after the first date set for the
11 Ashcroft, 556 U.S. at 678.
12 Id.
13 “We review the denial of a motion to amend for abuse of discretion.” Thomas v.
Chevron U.S.A., Inc., 832 F.3d 586, 590 (5th Cir. 2016).
14 See FED. R. BANKR. P. 7015.
5
Case: 17-50746 Document: 00514550829 Page: 6 Date Filed: 07/11/2018
No. 17-50746
meeting of creditors under 11 U.S.C. § 341(a)—supersedes Federal Rule of
Civil Procedure 15(c), which addresses relation back of amended complaints.
We need not decide this issue because, assuming arguendo that Rule 15 applies
in full in this context, Bennett still does not prevail.
Rule 15(a)(2) instructs federal trial courts to grant leave to amend
“freely . . . when justice so requires.” 15 Although Rule 15(a) “evinces a bias in
favor of granting leave to amend,” 16 a grant of leave “is not automatic.” 17
Nonetheless, to deny a motion for leave to amend, the lower court must have a
“substantial reason.” 18
As Lindsey points out, Bennett did not file a motion for leave to amend
his complaint. In Bennett’s penultimate paragraph of his opposition to
Lindsey’s motion to dismiss, he simply expressed his desire to “re-plead” in the
event that the bankruptcy court was persuaded by Lindsey’s motion. At the
motion to dismiss hearing, after expressing doubt regarding the sufficiency of
Bennett’s allegations, the bankruptcy court asked Bennett to describe the
substantive allegations he would add to the complaint if the court were to
permit amendment. Bennett replied in conclusory fashion that the complaint’s
“allegations, pled as-is, meet that [Rule 9(b)] standard, but if they don’t and in
the eyes of the Court they don’t, we would love to re-plead them so that they
do.” Despite several similar inquiries by the bankruptcy court, Bennett never
described any substantive allegations that he would add to the complaint if so
15 Thomas, 832 F.3d at 590 (quoting FED. R. CIV. P. 15(a)(2)).
16 Lyn–Lea Travel Corp. v. Am. Airlines, 283 F.3d 282, 286 (5th Cir. 2002) (quoting
Chitimacha Tribe of La. V. Harry L. Laws Co., Inc., 690 F.2d 1157, 1162 (5th Cir. 1982)).
17 Matter of Southmark Corp., 88 F.3d 311, 314 (5th Cir. 1996) (citing Wimm v. Jack
Eckerd Corp., 3 F.3d 137, 139 (5th Cir. 1993)).
18 Lyn–Lea Travel Corp., 283 F.3d at 286 (quoting Jamieson v. Shaw, 772 F.2d 1205,
1208 (5th Cir. 1985)).
6
Case: 17-50746 Document: 00514550829 Page: 7 Date Filed: 07/11/2018
No. 17-50746
permitted. Moreover, in this appeal, Bennett does not explain to us how the
alleged false statements that all subcontractors had been paid harmed him.
Even assuming that Bennett properly requested leave to amend, he did
not file a proposed amended complaint in accordance with Local Rule 7015 for
the Western District of Texas Bankruptcy Court. 19 Because federal trial courts
have “considerable latitude in applying their own rules,” 20 and because Local
Rule 7015 explicitly permits summary denial of relief when a movant fails to
file a proposed amended complaint, we cannot say that the bankruptcy court
abused its discretion in denying relief.
AFFIRMED.
19 Rule 7015 states that, “[a]ny motions to amend or to supplement pleadings must
attach a complete copy of the amended or supplemental pleading the movant proposes to file.”
If the movant fails to do so, the bankruptcy court may “den[y] . . . relief, without further
hearing.” W. DIST. OF TEX. BANKR. CT. LOCAL R. 7015.
20 McLeod, Alexander, Powel & Apffel, P.C. v. Quarles, 894 F.2d 1482, 1488 (5th Cir.
1990).
7