Balles v . Sturgill 08-CV-502-JD 03/31/09
UNITED STATES DISTRICT COURT FOR THE
DISTRICT OF NEW HAMPSHIRE
Doris Balles
v. Civil N o . 08-cv-502-JD
Opinion N o . 2009 DNH 039
Richard Culton Sturgill and
Lisa B . Sturgill
O R D E R
The appellant, Doris Balles, appeals a decision of the
bankruptcy court dismissing her complaint that challenged the
discharge of a debt which she alleged is owed to her by the
debtors, Richard and Lisa Sturgill (“the Sturgills”). Balles
claims that the Sturgills owe her approximately $85,000 for real
property which she conveyed to them and that this unsecured debt
is excepted from discharge in bankruptcy pursuant to 11 U.S.C. §
523(a). The bankruptcy court held that Balles’s complaint failed
to state a claim for nondischargeability under § 523(a).
I. Standard of Review
This court has jurisdiction to hear appeals from final
judgments, orders, and decrees of the bankruptcy court under 28
U.S.C. § 158(a) (2006). See also L.R. 77.4(c) (2009). The court
will affirm the allowance of a motion to dismiss only if the
factual averments in the complaint hold out no hope of recovery
under any theory set forth in the complaint. In re Colonial
Mortgage Bankers Corp.,
324 F.3d 1 2 , 15 (1st Cir. 2003).
II. Background
Balles is Lisa Sturgill’s mother and Richard Sturgill’s
mother-in-law. In 1977, Balles, her husband, Charles Balles
(“Charles”), and her son, John Balles (“John”), purchased a home
in Manchester, New Hampshire (“Manchester property”), which
Balles and Charles resided i n . In April of 2001, Charles
conveyed his interest in the Manchester property to John, leaving
Balles and John as co-owners of the property. In October of
2004, Balles, John, and the Sturgills executed a purchase and
sales agreement to sell the Manchester property to the Sturgills.
On November 4 , 2004, Balles and John conveyed their entire
interest in the Manchester property to the Sturgills by a
warranty deed, and the Sturgills moved into the home.
Balles alleges that the parties also entered into an oral
agreement, whereby the parties agreed that the property was
valued at $210,000 and the Sturgills would pay John $110,000 and
pay Balles between $25,000 and $35,000 for their interests in the
Manchester property. In addition, Balles claims, in lieu of
paying the remainder of the value of the property to Balles, the
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Sturgills agreed that they would care for Balles and Charles,
including paying their bills and providing transportation, and
live with them at the Manchester property for as long as Balles
and Charles chose to live there.
Sometime after the conveyance, the Sturgills paid Balles
$25,000 in two installments. In November of 2005, Charles moved
into a nursing home. The Sturgills lived with Balles and cared
for her until sometime in 2006. In September of 2006, the
Sturgills served Balles with a “Notice to Quit,” see New
Hampshire Revised Statutes Annotated (“RSA”) 540-B, requiring her
to vacate the premises by October 3 0 , 2006. Balles brought suit
against the Sturgills in state superior court, seeking damages
based upon a breach of contract and a temporary restraining order
and preliminary injunction, prohibiting the Sturgills from
evicting her. The superior court issued a temporary restraining
order, extending it indefinitely until Balles found suitable
housing, and scheduled a final hearing on Balles’s damages claim.
Balles moved out of the Manchester property sometime in late
2006.
The Sturgills filed a voluntary chapter 13 petition with the
bankruptcy court on August 2 7 , 2007. 1 On December 3 , 2007,
1
The Sturgills’ filing of a bankruptcy petition
automatically stayed Balles’s breach of contract suit in state
3
Balles initiated an adversary proceeding by filing a complaint
seeking to except her claim for $83,000 from discharge, pursuant
to 11 U.S.C. §§ 523(a). 2 Balles argued that her claim
represented the remaining value of the house which she was not
paid, and that her claim was excepted from discharge because: (1)
the debt was incurred by false pretenses, a false representation,
or actual fraud (Count I ) , (2) the fraud was perpetrated while
the Sturgills were acting in a fiduciary capacity to her (Count
I I ) , and (3) the Sturgills willfully and maliciously injured her
(Count III). 3 See
11 U.S.C. § 523(a)(2)(A), § 523(a)(4), and §
523(a)(6).
The Sturgills filed a motion to dismiss her complaint.
Balles filed an objection, and attached a personal affidavit and
several exhibits. On October 8 , 2008, the bankruptcy court
granted the Sturgills’ motion to dismiss for failure to state a
claim of nondischargeability.
In its decision, the bankruptcy court noted that it
considered Balles’s affidavit and exhibits as part of her
superior court.
2
Balles later filed a proof of her claim asserting $85,000
in damages. The Sturgills did not object.
3
Balles’s claim that the Sturgills willfully and maliciously
injured her, see § 523(a)(6), was dismissed without prejudice by
the bankruptcy court and by agreement of the parties.
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complaint. The bankruptcy court dismissed Count I of Balles’s
complaint based upon a failure to allege that the Sturgills had
the requisite intent required to support a fraud claim, see §
523(a)(2)(A), and dismissed Count II based upon a failure to
allege that an express or technical trust existed among the
parties, which the bankruptcy court concluded was required to
establish a fiduciary relationship under § 523(a)(4). Balles
appealed to the Bankruptcy Appellate Panel (BAP), which
transferred the appeal to this court in November of 2008, at the
Sturgills’ request. See Bankruptcy Appellate Panel of the First
Circuit Rule 8001-1(d)(2)(ii).
III. Analysis
Balles argues that the bankruptcy court erred in dismissing
Count I based upon a failure to sufficiently allege that the
Sturgills acted with the requisite intent and in dismissing Count
II based upon a failure to sufficiently allege that the parties
created an express or technical trust.
A. Fraud, § 523(a)(2)(A)
Balles argues that the bankruptcy court erred in dismissing
Count I for failure to allege that the Sturgills intended to
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deceive her because she pointed to evidence of the Sturgills’
fraudulent intent in her objection to their motion to dismiss.
“The provisions [within the bankruptcy code] for discharge
of a bankrupt’s debts . . . are subject to exception under 11
U.S.C. § 523(a), which carries 16 subsections setting out
categories of nondischargeable debts.” Field v . Mans,
516 U.S.
5 9 , 64 (1995). Section 523(a)(2)(A) excepts from discharge,
debts “for money [or] property . . . to the extent obtained by .
. . false pretenses, a false representation, or actual fraud,
other than a statement respecting the debtor’s . . . financial
condition . . . .” In In re Spigel,
260 F.3d 27 (1st Cir. 2001),
the court held that in order to establish that a debt is
nondischargeable under § 523(a)(2)(A),
a creditor must show that 1 ) the debtor made
a knowingly false representation or one made
in reckless disregard of the truth, 2 ) the
debtor intended to deceive, 3 ) the debtor
intended to induce the creditor to rely upon
the false statement, 4 ) the creditor actually
relied upon the misrepresentation, 5 ) the
creditor’s reliance was justifiable, and 6 )
the reliance upon the false statement caused
damage.
In re Spigel, 260 F.3d at 32 (“[T]he statutory language [in
Section 523(a)(2)(A)] does not remotely suggest that
nondischargeability attaches to any claim other than one which
arises as a direct result of the debtor’s misrepresentations or
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malice.” (internal quotation marks omitted)); see also In re
Lane, 937 F.2d 6 9 4 , 698 (1st Cir. 1991) (“At most, an actionable
§ 523(a)(2)(A) claim must state that the debt was incurred as a
proximate result of the claimant’s reasonable reliance on a
material misrepresentation of fact knowingly made by the debtor
with intent to deceive.”). Further, pursuant to Federal Rule of
Civil Procedure 9 ( b ) , “[i]n alleging fraud or mistake, a party
must state with particularity the circumstances constituting
fraud or mistake. Malice, intent, knowledge, and other
conditions of a person’s mind may be alleged generally.” See
Fed. R. Bankr. P. 7009 (applying Rule 9(b) to adversary
proceedings).
For her fraud claim to survive a motion to dismiss, it was
necessary for Balles to allege facts sufficient to show that the
Sturgills obtained the Manchester property by false pretenses, a
false representation, or actual fraud. The bankruptcy court
focused upon Balles’s failure to sufficiently allege the
Sturgills’ intent, given her averment that they performed the
alleged agreement to care for her and pay the bills for nearly
two years. On appeal, Balles does not directly dispute the
bankruptcy court’s finding that her complaint failed to
adequately allege intent. Rather, she argues that she submitted
evidence outside of the complaint to support an inference of
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intent and that the bankruptcy court was required to consider
this evidence and treat the motion as a motion for summary
judgment.
In determining whether to grant a motion to dismiss, courts
generally may not consider documents outside of the complaint.
Alternative Energy, Inc. v . S t . Paul Fire and Marine Ins. Co.,
267 F.3d 3 0 , 33 (1st Cir. 2001). When the court accepts material
submitted by the parties which is beyond the pleadings, the
motion is converted into a motion for summary judgment, and the
parties must be given an opportunity to present additional
pertinent material. Giragosian v . Ryan,
547 F.3d 5 9 , 65 (1st
Cir. 2008). However, not all additional material accepted by the
court will convert a motion to dismiss into a motion for summary
judgment. Where “‘a complaint’s factual allegations are
expressly linked to - and admittedly dependent upon - a document
(the authenticity of which is not challenged), that document
effectively merges into the pleadings and the trial court can
review it in deciding a motion to dismiss under Rule 12(b)(6).’”
Perry v . New England Business Serv., Inc.,
347 F.3d 343, 345 n.2
(1st Cir. 2003) (quoting Beddall v . State S t . Bank & Trust Co.,
137 F.3d 1 2 , 17 (1st Cir. 1998)).
The bankruptcy court treated the motion as a motion to
dismiss but considered Balles’s affidavit and exhibits. Balles
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complains that the bankruptcy court erred by failing to treat the
motion as a motion for summary judgment. Any error, however, was
harmless. Balles was not prejudiced because the bankruptcy court
considered her affidavit and exhibits in its decision.
The court agrees that Balles’s complaint, including her
affidavit and exhibits, is insufficient to support her fraud
claim because it fails to allege, or create an inference o f , the
requisite intent. Balles’s complaint merely alleges that the
parties had an oral agreement, and that the Sturgills performed
that agreement for two years until sometime in 2006 when they
ceased performance. See In re Balzano, 127 B.R. 5 2 4 , 531 (Bankr.
E.D.N.Y. 1991) (“An unfulfilled promise to perform in the future
is actionable only in contract. It is insufficient under §
523(a)(2)(A) simply to show that debtor left unfulfilled a prior
oral representation or promise.”).
Balles argues that the following submitted documents show
the Sturgills’ intent to deceive her at the time of the
conveyance: the HUD-1 Settlement Statement for the Manchester
property, which labeled the property transfer as a gift of
equity, the Purchase and Sale Agreement, which makes no mention
of a gift, and the Sturgills’ answer in an interrogatory, where
they stated that the property was conveyed to them in exchange
for their care of Charles. She further points to her affidavit,
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which was also submitted with her objection, where she stated:
“I believe that [the Sturgills] deceived both me and my husband
concerning their intentions to allow us to live on the property,
and to provide care for us.” Affidavit of Doris Balles, document
n o . 2 , attachment # 3 .
Balles’s affidavit merely states her belief that the
Sturgills intended to defraud her. Her conclusory statement is
insufficient to allege fraud. See Murphy v . United States, 45
F.3d 5 2 0 , 522 (1st Cir. 1995) (“Subjective characterizations or
conclusory descriptions of a general scenario which could be
dominated by unpleaded facts will not defeat a motion to
dismiss.” (internal quotation marks and brackets omitted)). The
HUD statement, Purchase and Sale Agreement, and interrogatory
answers likewise fail to demonstrate, or create an inference o f ,
an intent to deceive.4 Her complaint is insufficient to sustain
a claim of fraud and the alleged debt is not excepted from
discharge pursuant to § 523(a)(2)(A). The bankruptcy court’s
dismissal of Count I is therefore affirmed.
4
Balles argues only that a “discrepancy” within these
materials demonstrates an intent to deceive but fails to explain
why this is s o .
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B. Fiduciary Relationship, § 523(a)(4)
Balles argues that the bankruptcy court erred in dismissing
Count II for failure to allege a fiduciary relationship because
the court improperly applied a narrow interpretation of
fiduciary. Section 523(a)(4) excepts from discharge debts “for
fraud . . . while acting in a fiduciary capacity.” To show
nondischargeability under § 523(a)(4), therefore, a creditor must
establish both a fiduciary relationship and fraud. See In re
Baylis, 313 F.3d 9, 17-19 (1st Cir. 2002) (discussing dual
requirement under § 523(a)(4)). Because Balles’s complaint
failed to allege facts sufficient to sustain a claim of fraud,
the existence of a fiduciary relationship is not material and the
alleged debt is not excepted from discharge pursuant to
§ 523(a)(4). The bankruptcy court’s dismissal of Count II is
therefore affirmed.
Conclusion
For the foregoing reasons, the bankruptcy court did not err
in dismissing Balles’s complaint for failure to state a claim of
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dischargability pursuant to § 523(a). Accordingly, the order of
the bankruptcy court granting the Sturgills’ motion to dismiss is
affirmed.
SO ORDERED.
^OJoseph
JJoseph A. DiClerico, Jr.
United States District Judge
March 3 1 , 2009
cc: Michael S . Askenaizer, Esquire
Darlene M . Daniels, Esquire
Geraldine L . Karonis, Esquire
Lawrence P. Sumski, Esquire
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