Opinion
NOT FOR PUBLICATION
Argued and Submitted at San Jose, California November 17, 2006
Appeal from the United States Bankruptcy Court for the Northern District of California. Honorable Dennis Montali, Bankruptcy Judge, Presiding. Bk. No. 05-35269. Adv. No. 06-03047.
Before: PAPPAS, DUNN and BRANDT, Bankruptcy Judges.
MEMORANDUM
Creditor William B. Rooz appeals the bankruptcy court's order dismissing his complaint in a § 523(a)(2)(A) adversary proceeding pursuant to Fed.R.Civ.P. 9(b) and 12(b) without leave to amend. We AFFIRM.
FACTS
David Kimmel and William B. Rooz were engaged in a real estate venture concerning properties in Northern California. Disputes had arisen between the parties as early as 1991. Rooz alleges that he was damaged by the actions of Kimmel and his wife (" Mrs. Kimmel"). Rooz filed an action against the Kimmels in Superior Court, San Mateo County, entitled Rooz v. Kimmel, No. 368482. Mrs. Kimmel thereafter filed a bankruptcy petition under chapter 7 and the action against her was stayed pursuant to § 362(a). Case No. NC-93-33089. However, a judgment was entered on May 30, 1995, against Kimmel for $114,834.99, which on remitter was increased to $515,000. Rooz alleges that the amount of the judgment debt had increased to $1,081,500 by May 30, 2006.
Unless otherwise indicated, all chapter, section and rule references are to the Bankruptcy Code, 11 U.S.C. § § 101-1330, and to the Federal Rules of Bankruptcy Procedure, Rules 1001-9036, as enacted and promulgated prior to the effective date (October 17, 2005) of most of the provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. 109-8, April 20, 2005, 119 Stat. 23.
On July 7, 2005, the San Mateo Superior Court issued a writ of execution on the Rooz judgment against Kimmel directing that his wages be seized. On August 22, 2005, Kimmel filed a Claim of Exemption in San Mateo Superior Court, seeking to reduce the amount being garnished from his wages under the writ. On September 29, 2005, the superior court conducted a hearing at which it granted Kimmel's claim of exemption in part, and denied it in part. The court's order provided that Kimmel pay Rooz $400 per month, which Kimmel had suggested at the hearing, until the judgment debt was paid. The order was filed on September 30, 2005.
Rooz filed a Request for Judicial Notice with this Panel on August 28, 2006, asking that, pursuant to Fed.R.Evid. 201, we take judicial notice of two documents from the state court action relating to the wage garnishment and exemption claim: the " Order Determining Claim Exemption", filed on September 30, 2005; and a " Register of Actions" in William B. Rooz v. David Kim[mel], Case no. Civ368482. Kimmel did not object to the Request for Judicial Notice. Since the contents of the documents are material to the issues we consider, the request for judicial notice is GRANTED.
Kimmel filed a petition under chapter 7 of the Bankruptcy Code on October 16, 2005. On Kimmel's Schedule F, he listed a debt to Rooz for $982,366.30, " for a judgment against the debtor that arises out of a real estate sales transaction that occurred more than ten years ago." Kimmel was granted a discharge by the bankruptcy court on February 13, 2006.
Kimmel submitted an amended Schedule F on November 21, 2005, but did not change the entry for the Rooz debt.
On February 6, 2006, one week before the entry of the discharge, Rooz, acting pro se, filed an adversary complaint in the bankruptcy court seeking a determination that his judgment against Kimmel be excepted from discharge under § 523(a)(2)(A)(the " Complaint"). Specifically, Rooz alleged in the Complaint that:
Defendant made representations to plaintiff which were false. Plaintiff believed defendant's representations to be true and relied upon them to his detriment. Plaintiff's reliance upon defendant's representations were reasonable since defendant was Plaintiff's business partner. Plaintiff sustained damages in excess of $500,000 as a proximate result of defendant's fraudulent conduct.
On February 17, 2006, Rooz amended the complaint by striking the words " business partner" and inserting the word " leasee" (the " First Amended Complaint").
On March 6, 2006, Kimmel filed a motion to dismiss Rooz's complaint because the fraud allegations in the First Amended Complaint were not pleaded with particularity as required by Fed.R.Civ.P. 9(b). A hearing in the bankruptcy court was held to consider Kimmel's motion on April 28, 2006, at which Rooz appeared and Kimmel was represented by counsel. The bankruptcy court granted Kimmel's motion to dismiss, but it also granted leave to Rooz to further amend the complaint within 20 days to plead with particularity the factual allegations supporting the claim of fraud.
On May 16, 2006, Rooz filed an " Amendment to Complaint, " drawing the court's attention to three documents: (1) Letter Agreement to Settle Disputes Between Rooz and Kimmel, dated April 5, 1991; (2) Ms. Weckerle's Statement; and (3) the State Court Judgment. Accompanying the documents was Rooz's written statement that " The documents above contain the required specifics demanded by council [sic] Mr. John G. Warner." (collectively, the " Second Amended Complaint").
The Panel has reviewed the copy of the Second Amended Complaint provided in the Excerpts of Record and compared it with the copy in the adversary proceeding docket. Both copies are identical. Only the first of the three alleged documents, the Letter Agreement to Settle Disputes between Rooz and Kimmel, was filed by Rooz on May 16, 2006. This was confirmed by the bankruptcy court at the hearing on July 7, 2006, when the court stated, " Mr. Rooz on May 16th on his own filed something called 'Amendment to Complaint' that makes references to three documents, only one of which was provided, and even that was almost illegible because of the way it was photocopied." Tr. Hr'g 5:9-13.
On May 25, 2006, Kimmel filed a Motion to Dismiss Adversary Proceeding Without Leave to Amend.
On or about June 6, 2006, Rooz submitted to the bankruptcy judge and opposing counsel, but did not file with the clerk, another document entitled " Complaint to Determine Nondischargeability under the Provisions of 11 U.S.C. § 523(a)(2)(A)" (the " Third Amended Complaint"). Unlike the earlier pleadings, which asserted a single claim for fraud, the Third Amended Complaint asserted three claims (1) fraud and false representation, (2) active concealment of assets and (3) fraudulent concealment. Kimmel submitted a Reply Memorandum which protested the late addition of the new claims yet addressed them seriatim.
On June 28, 2006, Maxwell Keith filed a notice of his appearance as attorney for Rooz. On July 5, 2006, Rooz through Keith filed an " Amended Complaint for Judgment Upon Frauds to Evade Payment of Debt Under 11 U.S.C. 523(a)(2)(A)" (the " Fourth Amended Complaint"). The Fourth Amended Complaint significantly expanded the allegations against Kimmel. Among other things, it accused Kimmel of fraudulently promising to pay the Rooz judgment in full in $400 monthly payments and of hiding assets and conspiring with insiders to transfer assets; and it attempted to add Mrs. Kimmel as a defendant.
On July 7, 2006, the bankruptcy court conducted a hearing on Kimmel's May 25th motion to dismiss. After argument, the bankruptcy court determined that Rooz's new claims set forth in the Third and Fourth Amended Complaints, that Kimmel failed to pay $400 per month, hid assets, failed to disclose assets and provide information about earnings, constituted objections to discharge under § 727(a), and were not properly raised in a § 523(a)(2)(A) complaint. Tr. Hr'g 9:1-7 (July 7, 2006). Further, the bankruptcy court concluded that the state court order requiring Kimmel to pay Rooz $400 a month was entered in violation of § 524 and therefore void. Tr. Hr'g 15:5-6. The court also determined that it had no jurisdiction over any potential claims by Rooz against Mrs. Kimmel. Tr. Hr'g 12:19 - 13:4.
Because it concluded Rooz had not stated with particularity any grounds to establish fraud under § 523(a)(2)(A), the bankruptcy court granted Kimmel's motion to dismiss without leave to amend in an order entered on July 11, 2006. Rooz filed a timely appeal on July 17, 2006.
As the Supreme Court observed in Foman v. Davis, leave to amend should be freely granted unless one of several factors is present. 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962); accord Johnson v. Buckley, 356 F.3d 1067, 1077 (9th Cir. 2004); Carroll v. Ft. James Corp., 470 F.3d 1171, 2006 WL 3399286 *4 (5th Cir., 2006). Two of those factors are implicated here: undue delay and a repeated failure by Rooz to cure deficiencies in his various complaints. Rooz has not raised the bankruptcy court's decision to deny him leave to further amend the complaint as an issue on appeal.
JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. § § 1334 and 157(b)(2)(A) and (K). We have jurisdiction pursuant to 28 U.S.C. § 158(b).
ISSUES
1. Whether Rooz's allegations that Kimmel fraudulently promised to pay $400 per month on the judgment debt states a claim for relief for fraud under § 523(a)(2)(A).
2. Whether Rooz's allegations that the Kimmels fraudulently concealed information or transferred assets states a claim for relief for fraud under § 523(a)(2)(A).
3. Whether Mrs. Kimmel was a proper party-defendant.
STANDARD OF REVIEW
We review de novo dismissals for failure to state a claim under Fed.R.Civ.P. 12(b)(6), made applicable in bankruptcy proceedings by Fed.R.Bankr.P. 7012. Marder v. Lopez, 450 F.3d 445, 448 (9th Cir. 2006); Decker v. Advantage Fund, Ltd., 362 F.3d 593, 595-96 (9th Cir. 2004). All allegations of material fact and inferences are viewed in the light most favorable to the nonmoving party. Marder, 450 F.3d at 448. A complaint should not be dismissed unless " it appears beyond doubt that the plaintiff can prove no set of facts that would entitle her to relief." O'Loghlin v. City of Orange, 229 F.3d 871, 874 (9th Cir. 2000). The scope of review on a motion to dismiss for failure to state a claim is limited to the contents of the complaint. Marder, 450 F.3d at 448.
The bankruptcy court's interpretation of the Bankruptcy Code is reviewed de novo. In re Deville, 361 F.3d 539, 547 (9th Cir. 2004).
DISCUSSION
I.
Analysis of the issues in this appeal is complicated by the fact that, at various times, Rooz has relied upon five different pleadings to allege his claims against the Kimmels: a complaint and four amended complaints. The hearing on July 7, 2006, at which the bankruptcy court reached its decision dismissing the adversary proceeding without leave to amend, was intended to consider Kimmel's motion to dismiss filed on May 25, 2006. That motion was presumably filed to test the allegations of Rooz's Second Amended Complaint. However, by the time of the hearing, Rooz had offered up two more versions of a complaint to Kimmel and the bankruptcy court. The court expressed its frustration in dealing with all these pleadings:
Mr. Rooz on May 16th on his own filed something called " Amendment to Complaint" [Second Amended Complaint] that makes references to three documents, only one of which was provided, and even that was almost illegible because of the way it was photocopied. Then after that, in June, Mr. Rooz signs a document called " Complaint to Determine . . . Non-Dischargeability, " [Third Amended Complaint] but doesn't file it and then Mr. Warner files his second motion to dismiss [the current motion before the court] and then you [referring to Rooz's counsel, Keith] apparently file without leave of court and don't provide a chambers copy, a document called " Amended Complaint for Judgment Upon Fraud[s]" [Fourth Amended Complaint] and proceed to allege matters that have nothing to do with Section 523 of the Bankruptcy Code.
Tr. Hr'g 5:9-23.
The bankruptcy court attempted to bring some order to the proceeding by treating the Fourth Amended Complaint as a reply to Kimmel's motion to dismiss without leave to amend. Tr. Hr'g 7:2-3. We have no quarrel with this approach. However, in the interests of justice, we believe the issues on appeal should be resolved by allowing Rooz to rely on the allegations in his Fourth Amended Complaint, filed by his attorney, to test the adequacy of his claims against the Kimmels.
But even allowing Rooz to rely upon the latest version of his complaint, filed without leave of the court, we still conclude, as did the bankruptcy court, that the action was properly dismissed for failure to state a claim. While the reasons for our conclusion in some respects differ from those relied upon by the bankruptcy court, if support exists in the record, a dismissal may be affirmed on any proper ground, even if the trial court did not reach the issue or relied on different grounds or reasoning. Adams v. Johnson, 355 F.3d 1179, 1183 (9th Cir. 2004).
II.
In the first three complaints, Rooz argues that Kimmel's 1995 judgment debt to him should be excepted from discharge under § 523(a)(2)(A) because that debt arose from fraudulent misrepresentations made by Kimmel to Rooz. This allegation disappears in the Third and Fourth Amended Complaints. Instead, Rooz now argues that Kimmel's post-judgment statements and acts are part of a plan and scheme to fraudulently deprive Rooz of his ability to collect the judgment.
Rooz's argument is made in two parts. First, Rooz alleges that Kimmel represented at the September 29, 2005, state court hearing on the wage garnishment and exemption claim, that " he was willing to pay [Rooz] $400 per month in payment of the judgment." Rooz alleges that this " promise was made to obtain a settlement of the execution lien." Rooz then alleges that while he thereafter received $1,005 in payments from Kimmel, " [Kimmels] have now refused to make any payment" and that " [Kimmel] had no intention to perform his commitment to pay [Rooz] $400 per month." In other words, fairly construing these allegations, Rooz claims Kimmel made a fraudulent representation to him and the state court that he would pay off the judgment in $400 monthly payments.
Rooz's second theory is that the Kimmels have jointly engaged in a " continuous scheme to fraudulently and intentionally hide substantial assets from Rooz over the past four years." In this regard, Rooz alleges, based upon unspecified information and belief, that Kimmels failed to disclose to the state court and the bankruptcy court their " substantial earnings; " " the true extent of the true holdings of the community in real estate properties; " and that the Kimmels had " arranged with insiders to hold title to real estate properties with the purpose and intent of preventing [Rooz] from obtaining payment on his judgment." Rooz concedes, however, that " [t]he full details of the scheme, plan and artifice [are] unknown to [Rooz]."
As discussed below, neither of Rooz's theories supports relief under § 523(a)(2)(A).
A.
Under these facts, Rooz's allegations that Kimmel fraudulently promised to pay Rooz $400 a month, without any intent of doing so, fails to state a claim for relief for fraud under § 523(a)(2)(A).
In essence, Rooz alleges that Kimmel committed promissory fraud. Promissory fraud is a subspecies of the action for fraud and deceit. Downey Venture v. LMI Ins. Co., 66 Cal.App.4th 478, 510, 78 Cal.Rptr.2d 142 (Cal.Ct.App. 1998). Under California law, the elements of promissory fraud are identical to the elements of common law fraud, when the misrepresentation at issue is a promise made without intent to perform. See Service by Medallion, Inc. v. Clorox Co., 44 Cal.App.4th 1807, 1816, 52 Cal.Rptr.2d 650 (Cal.Ct.App. 1996).
" The elements of § 523(a)(2)(A) 'mirror the elements of common law fraud' and match those for actual fraud under California law, which requires that the plaintiff show: (1) misrepresentation; (2) knowledge of the falsity of the representation; (3) intent to induce reliance; (4) justifiable reliance; and (5) damages. Younie v. Gonya (In re Younie), 211 B.R. 367, 373-74 (9th Cir. BAP 1997), aff'd, 163 F.3d 609 (9th Cir. 1998)(table decision)." Tobin v. Sans Souci Ltd. Pshp. (In re Tobin), 258 B.R. 199, 205 (9th Cir. BAP 2001).
The bankruptcy court described the Fourth Amended Complaint as a " defective pleading." Tr. Hr'g 7:22. We agree with this conclusion, in the sense that the allegations of the complaint fail to state a claim for relief for fraud. Even if the allegations are presumed to be true, the complaint does not allege that Rooz extended any credit to Kimmel, nor is it alleged that Rooz otherwise justifiably relied upon Kimmel's representation to his detriment. Tr. Hr'g 7:11-13.
Kimmel had been indebted to Rooz since entry of the state court judgment in 1995. Rooz had caused Kimmel's wages to be garnished. In response to that garnishment, Kimmel claimed his wages exempt. It was at the state court hearing concerning that exemption claim on September 29, 2005, that Kimmel offered to make $400 monthly payments to Rooz. The state court incorporated this payment arrangement in its order to resolve the issues raised by Kimmel's exemption claim. The Fourth Amended Complaint does not allege that Rooz agreed to forego further execution on judgment if Kimmel made these payments, or that he was precluded from doing so. It is also not alleged that Kimmel promised not to file for bankruptcy relief as a means of dealing with Rooz's debt. And the complaint does not allege what Rooz gave up in consideration of the monthly payment order. In fact, Rooz acknowledges that Kimmel paid him $1,005 " thereafter."
Even assuming that Rooz could prove that Kimmel's representation in state court that he would pay Rooz monthly payments was intentionally false, Rooz does not allege how he thereafter justifiably relied on that statement to his detriment for purposes of a claim under § 523(a)(2)(A). Justifiable reliance is one of the necessary elements of actual, nondischargeable fraud under § 523(a)(2)(A). Further, although the Ninth Circuit has never specifically ruled on this issue, the three circuits that have are unanimous in holding that justifiable reliance must be pleaded with particularity, alleging specific facts and actions taken by the victim of the fraud in reliance on the misrepresentation. Roberts v. Francis, 128 F.3d 647, 651 (8th Cir. 1997); Williams v. WMX Technologies, 112 F.3d 175, 177 (5th Cir. 1997); S.Q.K.F.C., Inc. v. Bell Atlantic Tricon Leasing Corp., 84 F.3d 629, 633 (2d Cir. 1996).
Here, Rooz has provided no particularized examples of how he justifiably relied and suffered damages as a result of Kimmel's September 29 " promise" to pay his judgment debt. As a result, Rooz's Fourth Amended Complaint fails to satisfy the legal requirements for a claim under § 523(a)(2)(A).
The bankruptcy court committed a harmless error in determining that the state court's payment order was void because it was entered in violation of the § 524 discharge injunction. The bankruptcy court relied on an error in the Fourth Amended Complaint that alleges that the order was entered on December 2, 2005, some three months after the bankruptcy petition was filed. Rooz has provided the Panel with the actual order entered by the state court on September 29, 2005, and filed on September 30, about two weeks before Kimmel's bankruptcy filing.
There is also an obvious contradiction in the Fourth Amended Complaint which is highlighted by subsequent events. Rooz alleges that Kimmel " had no intention to perform his commitment to pay [Rooz] $400 per month." However, he acknowledges that Rooz " thereafter" received $1,005 in payments from Kimmel on the debt. These payments, apparently made both before and after Kimmel's bankruptcy petition was filed, discredit Rooz's argument that Kimmel never intended to pay the $400 per month.
Moreover, the complaint fails to adequately allege how Rooz was damaged by Kimmel's allegedly fraudulent statements. Indeed, it appears Rooz may have received more than $400 per month. Rooz does not allege Kimmel promised not to seek bankruptcy relief, and since Kimmel's bankruptcy filing excused his obligation to continue to pay Rooz according to the terms of the September 30 order, Rooz can not show that he was damaged by Kimmel's alleged fraud.
B.
While his argument is somewhat difficult to follow, Rooz also apparently contends that, prior to and after the filing of Kimmel's bankruptcy, the Kimmels engaged in a continuing fraudulent scheme to frustrate Rooz's collection efforts. Specifically, Rooz alleges that Kimmel hid substantial assets from Rooz over the four years preceding his bankruptcy filing. Rooz insists these allegations state a claim to except his debt from discharge under § 523(a)(2)(A). Like the bankruptcy court, we disagree with Rooz.
Rooz uses the terms " scheme" and " fraudulent scheme" to argue that there were not only fraudulent acts committed by Kimmel to avoid payment of his debt to Rooz but that the acts together " were part of a plan and scheme to fraudulently deprive [Rooz] of full payment of his judgment." [Fourth Amended Complaint at ¶ 8.] The existence of a scheme or plan tying various frauds together is not necessary for nondischargability under § 523(a)(2)(A); proof of any one fraud would be sufficient. However, as we discuss below, Rooz has not alleged with sufficient particularity in the Fourth Amended Complaint that any particular fraud took place.
The specific allegations made by Rooz of fraudulent acts are stated in paragraph 10 of his Fourth Amended Complaint:
The Plaintiff is informed and believes and based upon such information and belief alleges that pursuant to said scheme and plan defendants have: (1) failed to disclose in the answers to the questionnaires required by the state court and this Court the substantial earnings of the Community; (2) failed to disclose to the state court and this court the extent of the true holdings of the community in real estate properties; namely, their home at 1007 15th Avenue, San Francisco, CA; the real estate at 1155 Ellis Street, San Francisco, CA, other real estate properties and bank accounts; (3) arranged with insiders to hold title to real estate properties with the purpose and intent of preventing plaintiff from obtaining payment on his judgment.
Later in the Fourth Amended Complaint, Rooz admits that the full details of the scheme, plan and artifice in which the Kimmels allegedly engaged were unknown to Rooz.
Rooz has failed to satisfy an elementary rule of pleading. Under Fed.R.Civ.P. 9(b), " In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." According to the Ninth Circuit, to properly plead fraud with particularity, the complaint must allege the time, place, and content of the allegedly fraudulent representation, act or omission, as well as the identity of the person allegedly perpetrating fraud. In re GlenFed, Inc. Sec. Litig., 42 F.3d 1541, 1547 (9th Cir. 1994). " [M]ere conclusory allegations of fraud are insufficient." Moore v. Kaypro Package Express, 885 F.2d 531, 540 (9th Cir. 1989). A failure to plead fraud with the requisite particularity constitutes sufficient grounds to dismiss a complaint. Wool v. Tandem Computers, Inc., 818 F.2d 1433, 1439 (9th Cir. 1987).
The elements of particularity of a fraud that must be pleaded under Rule 9(b) were very recently visited and affirmed by the Fifth Circuit in Ft. James Corp., 470 F.3d 1171, 2006 WL 3399286 at * 3 (Rule 9(b) requires that plaintiffs plead enough facts to illustrate " the who, what, when, where, and how of the alleged fraud" [citations omitted]).
We doubt the three allegations offered by Rooz to describe the Kimmels' supposed " fraudulent scheme" show when or where the alleged fraud occurred. The allegations are ambiguous as to the substantive facts constituting fraud. Like the bankruptcy court, we think Rooz's Fourth Amended Complaint is deficient in necessary detail to show Kimmel engaged in the sort of fraud required by § 523(a)(2)(A).
For example, the allegations of the complaint are ambiguous concerning the alleged perpetrators of the frauds. Rooz argues that " defendants" were responsible for these actions. However, we can not tell from the complaint if Rooz alleges that the Kimmels jointly committed the alleged frauds, or if one or the other engaged in the conduct described in the complaint. In particular, we are left to wonder how Mrs. Kimmel may have been involved in making false statements to either the bankruptcy court or state court, because she was not a participant (at least to this point) in Kimmel's bankruptcy or wage garnishment proceedings.
But even assuming Rooz's complaint is not technically defective, we believe the bankruptcy court was correct in construing its allegations to embody what are more properly objections to Kimmel's discharge under § 727(a), rather than grounds for an exception to discharge of Rooz's claim under § 523(a)(2)(A).
Rooz alleges that the Kimmels concealed assets and information so their creditors could not collect. This is precisely the sort of conduct the various provisions of § 727(a) are intended to punish by denying the offending debtor a discharge. Such a severe remedy is justified because concealment or destruction of assets harms all creditors. As the bankruptcy court explained to Rooz's counsel,
Section 727(a)(2) denies a discharge to a debtor who, with intent to hinder, delay or defraud a creditor or an officer of the estate, transfers or conceals property within one year before the date of filing of the petition, or property of the estate after the date of filing of the petition. Section 727(a)(3) sanctions a debtor who conceals, falsifies or destroys financial books and records. Section 727(a)(4) prohibits discharge of a debtor who lies to the court. And § 727(a)(5) denies a discharge to a debtor who fails to satisfactorily explain any loss or deficiency of assets.
If a debtor hides assets, a timely objection to the debtor's discharge under Section 727 is the remedy and it benefits all creditors. It is not specific to individual creditors. There's no individual harm; it's harm generally and the consequence of general harm of hiding assets is to deny a discharge.
Tr. Hr'g 9:16-21.
But as the bankruptcy court correctly noted, an adversary proceeding seeking denial of discharge under § 727(a) must be commenced within 60 days of the meeting of creditors. FED. R. BANKR. P. 4004(a). Since the meeting of creditors in Kimmel's bankruptcy case occurred on December 7, 2005, the 60-day period for filing objections to discharge expired on or about February 7, 2006. As a result, Rooz can not ask that Kimmel be denied a discharge under § 727(a) in an amendment to a complaint filed after this deadline. As a result, Rooz is now barred from raising an objection to discharge.
In addition, since Rooz by his own admission was aware of Kimmels' alleged fraud before the granting of discharge, Rooz can not seek revocation of discharge. § 727(d)(1)(providing that revocation of a discharge obtained by fraud is allowed only if " the requesting party did not know of such fraud until after the granting of such discharge . . . .")
Rooz argued in both the bankruptcy court and in his appeal briefs that, as explained in a decision of the Seventh Circuit, an intentional fraudulent scheme is actionable under § 523(a)(2)(A). McClellan v. Cantrell, 217 F.3d 890 (7th Cir. 2000). In that case, Cantrell filed a chapter 7 bankruptcy case in 1996. McClellan had years earlier sold machinery to her brother on credit. McClellan retained, but did not perfect, a security interest in the equipment to secure payment of the purchase price. When the balance owed to McClellan for the purchase price was around $100,000, the brother defaulted, and McClellan sued the brother, and asked the court to enjoin him from transferring the equipment. With the suit pending, the brother " sold" the machinery to Cantrell, who knew about the suit, for $10. Before she filed her bankruptcy petition, Cantrell resold the machinery for $160,000 to another party, and in the words of the court, " she's not telling anyone what has happened to the money." McClellan, 217 F.3d at 892.
McClellan filed an adversary complaint against Cantrell seeking a determination that his claim against her for her role in this scheme was nondischargeable under § 523(a)(2)(A). The bankruptcy court, and later the district court, rejected McClellan's argument because he had not alleged that Cantrell made any fraudulent representations upon which he had relied. The court of appeals reversed, holding that § 523(a)(2)(A) fraud actions are not limited to misrepresentations or misleading omissions, but may include wider applications, such as participation in a fraudulent transfer. McClellan, 217 F.3d at 893. In its opinion, the Seventh Circuit expresses concern that the bankruptcy court should use its equitable powers to rectify an obvious fraudulent transfer. Id.
Based upon McClellan, Rooz argues that § 523(a)(2)(A) should encompass all types of potential fraudulent conduct, as opposed to the " false pretenses, false representation, or actual fraud" specified in the statute. Rooz argues that:
The courts are to be wary of a plan or scheme which has been hatched to attempt to escape just obligations. McClellan v. Cantrell (7th Cir. 2000) 217 F.3d 890. The Ninth Circuit has recently followed these precedents. Muegler v. Bening (9th Cir. 2005) 413 F.3d 980.
We think Rooz reads too much into McClellan. The creditor there suffered a particularized harm from the conduct of the debtor and her brother. They conspired to place the equipment, subject to McClellan's security interest, beyond his reach. Here, the harm alleged by Rooz against the Kimmels (that he was prevented from collecting) is much more general in nature. Indeed, the Seventh Circuit's opinion acknowledged that its interpretation was not a perfect fit with the statute, and that the facts could also be shoe-horned to fit an exception to discharge under § 523(a)(6). McClellan, 217 F.3d at 896.
We have examined the Ninth Circuit's Muegler decision, and contrary to Rooz's suggestion, there is no reference to McClellan in that opinion. Based upon the Supreme Court's ruling in Cohen v. de la Cruz, 523 U.S. 213, 118 S.Ct. 1212, 140 L.Ed.2d 341 (1998), Muegler interprets § 523(a)(2)(A) to allow an exception to discharge for any debt arising out of a debtor's fraud, without regard to whether the debtor received any benefit from that fraud. In re Muegler, 413 F.3d at 984. Again, given the vague allegations of Rooz's Fourth Amended Complaint, it is unclear what " debt" arose out of the Kimmels' fraud, even assuming the general kind of acts referenced therein can amount to fraud.
Based upon our research, neither the Ninth Circuit nor this Panel has endorsed the approach taken to interpretation of § 523(a)(2)(A) in McClellan in any reported decision. On the other hand, there is ample authority in this Circuit instructing that the provisions of the § 523(a) exceptions to discharge should be construed narrowly. See, e.g., Cal. Franchise Tax Bd. v. Jackson (In re Jackson), 184 F.3d 1046, 1051 (9th Cir. 1999); Bowen v. Francks (In re Bowen), 102 B.R. 752, 756 (9th Cir. BAP 2001).
Rooz does not allege how Kimmel's activities impaired his particular efforts to collect his debt, nor otherwise caused him any damage. Given our charge to construe § 523(a) exceptions narrowly, the availability of § 727(a) to deny a scheming debtor a discharge upon a timely request, and the absence of authority in our Circuit supporting the use of the bankruptcy court's equitable powers to expansively interpret the Code, we decline to hold that Rooz's generalized allegations that one or both of the Kimmels engaged in a scheme to prevent Rooz from collecting his judgment states a claim for relief against Kimmel under § 523(a)(2)(A).
C.
Based on the above analysis of the Fourth Amended Complaint, the Panel concludes that it appears that Rooz can prove no set of facts that would entitle him to relief. O'Loghlin, 229 F.3d at 874. Consequently, the bankruptcy court did not err in dismissing the adversary proceeding.
III.
Rooz admits that a spouse is not ordinarily made a party to an adversary proceeding seeking an exception to discharge where she is not a debtor. This Panel has consistently endorsed that position. Beltran v. Beltran (In re Beltran), 182 B.R. 820, 825 (9th Cir. BAP 1995); In re Maready, 122 B.R. 378, 381-82 (9th Cir. BAP 1991). However, Rooz suggests that where a spouse engages in an attempt to hide community assets, she is a proper defendant in a § 523(a)(2)(A) complaint. To support this statement, Rooz cites several decisions from the California state courts.
State case law is generally not helpful in determining the extent of federal court jurisdiction. As the bankruptcy court noted, the action before it was to determine the extent of Kimmel's discharge. As such, the court's jurisdiction was founded upon 28 U.S.C. § 1334(b), authorizing the court to entertain the action as a " civil proceeding[Ballot box] arising under title 11 . . . ." Even if Rooz held a valid claim against Kimmel under § 523(a)(2)(A), we agree that the bankruptcy court lacked jurisdiction to entertain Rooz's claims against Mrs. Kimmel for common law fraud in connection with her husband's bankruptcy case. Any attempt to join her as a party-defendant in the Fourth Amended Complaint was therefore inappropriate.
In any event, since the bankruptcy court properly dismissed Rooz's complaint against Kimmel, at that point, the bankruptcy court clearly lacked jurisdiction over Mrs. Kimmel.
CONCLUSION
For the above reasons, we AFFIRM the bankruptcy court.