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Marjorie Moss v. Gregory Leonard Gurbacki (In re Gurbacki), Ch. 7, BK20-81186-BSK, A21-8001-BSK (Mar. 30, 2021)

The bankruptcy court granted the defendant-debtor’s motion to dismiss the amended complaint as untimely, with no leave to further amend because the original complaint did not plausibly set forth a § 523(a)(6) claim or contain a § 727(a)(5) claim, so any additional amendment would not relate back.

The plaintiff obtained a judgment against the defendant’s company for willful retaliation after her employment was terminated. The company subsequently went out of business, and the judgment remained unpaid. The plaintiff sued the defendant and certain related entities to pierce the corporate veil and hold him personally liable for the judgment; she was awarded a judgment after she established that the defendant diverted corporate funds for improper uses, used the company for personal dealings, and committed fraud to contravene the plaintiff’s rights.

The defendant then filed a Chapter 7 bankruptcy petition, and the plaintiff filed an adversary proceeding seeking relief under § 523(a)(2) and (a)(6). The plaintiff amended the complaint, citing §§ 523(a)(6) and 727(a)(5), after the defendant moved to dismiss for failure to state a claim. The defendant again moved to dismiss.

The bankruptcy court granted the defendant’s motion to dismiss the amended complaint, finding that it was time-barred under Rules 4004(a) and 4007(c). The claims in the amended complaint did not “relate back” to the original complaint and therefore were not timely filed.

First, although both complaints referenced § 523(a)(6), the claims did not arise out of the same set of operative facts. The original complaint was based on allegations of fraudulent representations regarding the debtor’s assets, which were not sufficient to put the debtor on notice that the plaintiff was claiming a willful and malicious injury through retaliation for engaging in protected employment activity. One would need to interpret the original complaint broadly to conclude it was based on the plaintiff’s termination, discrimination, or retaliation, but Rules 4004 and 4007 require strict interpretation.

Moreover, the facts in the amended complaint establish that another employee of the company terminated the plaintiff’s employment, so the alleged “willful and malicious injury” was not caused by the debtor. Even though the state court found the debtor liable under an alter ego theory, the actions of another cannot be imputed to the debtor under § 523(a)(6).

Second, while a plaintiff may be allowed to amend a complaint that originally contained only a § 523 claim to include a § 727 claim, the amended pleading must arise out of the same conduct, transaction, or occurrence set forth in the original pleading. Here, the original complaint did not contain any allegations to support the plaintiff’s subsequent § 727(a)(5) claim that the debtor diverted or dissipated assets. As such, the newly pleaded facts were not tied to a common core of operative facts in the original complaint and could not justify relation back.

Accordingly, the amended complaint was dismissed, and the court found that any further amendment would be futile.

Tuesday, March 30, 2021
Judge Brian S. Kruse