Posen v. Ozier et al

Filing 21

ORDER ADOPTING FINDINGS AND RECOMMENDATIONS IN FULL; FURTHER ORDERED 6 Motion to Dismiss Posen's Amended Complaint is GRANTED without leave to amend. Signed by Judge Susan P. Watters on 9/26/2017. (AMC)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONTANA
BILLINGS DIVISION

SIMON POSEN,
CV 17-07-BLG-SPW
Plaintiff,
ORDER

vs.
J. MICHAEL OZIER and TOLLIVER
LAW FIRM, P.C.,
Defendants.

I.

Introduction
Defendants J. Michael Ozier and Tolliver Law Firm, P.C., have moved to

dismiss Simon Posen's Complaint under Federal Rule of Civil Procedure 12(b)(6),
for failure to state a claim upon which relief can be granted. (Doc. 6). 1 On August
8, 2017, Magistrate Judge Timothy Cavan issued his Findings and
Recommendations recommending that this Court grant Defendants' motion to
dismiss. (Doc. 18).

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The Court notes that Posen filed an Amended Complaint (Doc. 10) shortly after
Defendants' filed their motion. Defendants filed an amended brief (Doc. 15) in
support of their motion thereafter so the parties' arguments were made within the
context of the Amended Complaint.
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When a party timely objects to any portion of the magistrate judge's
Findings and Recommendations, the district court must conduct a de novo review
of the portions of the Findings and Recommendations to which objections are
made. 28 U.S.C. § 636(b )(1 )(C); McDonnell Douglas Corp. v. Commodore

Business Machines, 656 F.2d 1309, 1313 (9th Cir. 1981). The district court may
then "accept, reject, or modify the recommended decision, receive further
evidence, or recommit the matter to the magistrate with instructions." 28 U.S.C. §
636(b )(1 ). The district court is not required to review the factual and legal
conclusions of the magistrate judge to which the parties do not object. United

States v. Reyna-Tapia, 328 F.3d 1114, 1121 (9th Cir. 2003).
Posen filed timely objections to Judge Cavan's Findings and
Recommendations. (Docs. 19). After independently reviewing and considering
Posen's objections and Defendants' response, this Court adopts Judge Cavan's
findings and recommendations, as set forth below.

II.

Relevant Background
Posen does not object to the factual history contained in the Background

section of Judge Cavan's Findings and Recommendations, nor the fact that Judge
Cavan took judicial notice of his bankruptcy proceedings in the United States
Bankruptcy Court for the Southern District of New York, Case No. 15-12859-

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MEW-5. Judge Cavan's Background section is therefore adopted in full and this
Court also takes judicial notice of Posen's New York bankruptcy proceedings.

III.

Applicable Law
A.

Legal Standard

A defendant may move under F.R.Civ.P 12(b)(6) to dismiss an action for
failure to allege "enough facts to state a claim to relief that is plausible on its face."
Bell At!. Corp. v. Twombly, 550 U.S. 544, 570 (2007). "A claim has facial
plausibility when the plaintiff pleads factual content that allows the court to draw
the reasonable inference that the defendant is liable for the misconduct alleged.
The plausibility standard is not akin to a 'probability requirement,' but it asks for
more than a sheer possibility that a defendant has acted unlawfully." Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009) (internal citations omitted). This plausibility
inquiry is "a context-specific task that requires the reviewing court to draw on its
judicial experience and common sense." Id. at 679.
For purposes of ruling on a Rule 12(b)(6) motion, a court must "accept
factual allegations in the complaint as true and construe the pleadings in the light
most favorable to the nonmoving party." Manzarek v. St. Paul Fire & Marine Ins.
Co., 519 F.3d 1025, 1031 (9th Cir. 2008). A court is not required to "assume the
truth of legal conclusions merely because they are cast in the form of factual
allegations," however. Fayer v. Vaughn, 649 F.3d 1061, 1064 (9th Cir. 2011). A
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court may also reject factual allegations contradicted by judicially noticed material.
See Shwarz v. United States, 234 F.3d 428, 435 (9th Cir. 2000)(citation omitted).
Finally, "'a plaintiff may plead [him]self out of court' " if he "plead[s] facts which
establish that he cannot prevail on his ... claim." Weisbuch v. Cnty. ofL.A., 119
F.3d 778, 783 n.1 (9th Cir. 1997) (quoting Warzon v. Drew, 60 F.3d 1234, 1239
(7th Cir. 1995)).

IV.

Discussion
Posen objects to Judge Cavan's determination that he is judicially estopped

from pursing his legal malpractice claim against Defendants. Specifically, Posen
argues that Judge Cavan first applied the wrong standard of review and then failed
to properly apply controlling law on judicial estoppel. (Doc. 19 at 1-2). The Court
addresses these objections in order.

A.

Judge Cavan appropriately applied the standard of review.

Posen first argues that Judge Cavan failed to construe as true Paragraphs 4345 in the Amended Complaint as he was required to do under the motion to dismiss
standard. (Doc. 19 at 4). Defendants argue that Judge Cavan properly rejected the
allegations in paragraphs 43-45 because they were contradicted by judicially
noticed facts or false as a matter of law. (Doc. 20 at 22-23).
In Paragraph 43, 44 and 45 in his Amended Complaint, Posen alleges that
failing to include his claim against Defendants in his bankruptcy schedules had no
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effect on the bankruptcy settlement, he had sufficient assets to pay all the creditors
in full so the settlement was not premised on his assets or wherewithal to pay,
neither the Simonsen trustee nor the Bankruptcy Court relied on his bankruptcy
schedules, and his assets exceeded his liabilities at the time the bankruptcy case
was dismissed, so inclusion of his claim against defendants would have had no
impact on his creditors if it had not been dismissed. (Doc. 10 at 16). As
Defendants point out, these allegations are false or are legal conclusions.
In direct contrast to his allegations in Paragraph 43, Posen's Bankruptcy
Schedules and Statements Summary show that Posen's liabilities exceeded his
assets at the time of the bankruptcy. (Doc. 7-2, Ex. B). Similarly, Posen's
Operating Reports demonstrate that his asset to liability ratio only became positive

after the bankruptcy settlement was approved and after he filed his motion to
dismiss the bankruptcy proceeding, directly refuting his allegations in Paragraph
45. (Doc. 7-1, Ex. A at 19-20; Doc. 14-1, Ex. H; Doc. 14-2, Ex. I). Because the
allegations in Paragraphs 43 and 45 were contradicted by the bankruptcy filings,
Judge Cavan appropriately rejected them. Shwarz, 234 F.3d at 435.
In Paragraph 44, Posen concludes that the Simonsen trustee and Bankruptcy
Court did not rely on his asset schedules because the Bankruptcy Court never
issued an order adopting or accepting the schedules. (Doc. 10 at 16). This is not a
factual allegation, however. It is a legal conclusion; and an incorrect legal
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conclusion under the law. See Hamilton v. State Farm Fire & Cas. Co, 270 F.3d
778, 785 (9th Cir. 2000) (finding that the bankruptcy court relies on the schedules
to "determine what action, if any, [to] take in the matter."). There is no
requirement that the Bankruptcy Court issue an order formally adopting the asset
schedules in order for the Bankruptcy Court to rely on them. The Bankruptcy
Court's reliance on the schedules is inferred by the requirement that a debtor's duty
to disclose assets continues for the entirety of the bankruptcy proceedings, as well
as the Court's duty to apprise itself of acts. Id.; Reynolds v. C.I.R., 861 F .2d 469
(6th Cir. 1988). Because the allegation in Paragraph 44 was a legal conclusion cast
as a factual allegation, Judge Cavan appropriately ignored it. Fayer, 649 F.3d at
1064.
Posen next alleges that Judge Cavan failed to apply the proper standard
because he did not distinguish between conclusions that might be drawn from the
facts alleged and conclusions that must be drawn from the facts as alleged. (Doc.
19 at 6). This Court disagrees. As noted by Defendants, and discussed below,
Posen failed to plead factual content that allowed Judge Cavan to draw the
reasonable inference that Defendants are liable for the content alleged in Posen's
Complaint. In other words, Posen's Complaint fails the plausibility test so it was
unnecessary for Judge Cavan to distinguish between conclusions that might be
drawn versus conclusions that must be drawn from the facts alleged.
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B.

Judge Cavan appropriately concluded that judicial estoppel
precludes Posen's claim.

Posen's next objection is that Judge Cavan erred in finding that all of the
elements necessary for judicial estoppel exist to preclude his claim. (Doc. 19 at 6).
Judicial estopped precludes a party from gaining an advantage by asserting
one position, and then later seeking an advantage by taking a clearly inconsistent
position. Hamilton v. States Farm Fire & Cas. Co., 270 F.3d 778, 782 (9th Cir.
2001 ). The court must look to three factors to determine whether judicial estoppel
is warranted in the bankruptcy context: (1) a party takes clearly inconsistent
positions by failing to disclose a legal claim in bankruptcy and then subsequently
brings suit on the undisclosed claim; (2) there was judicial acceptance or reliance
on the party's prior position; and (3) the party receives an unfair advantage by
failing to disclose the claim. Id. at 783-85. The Court analyzes these factors in
order.

A.

Clearly Inconsistent Positions

Posen admits that he did not schedule his malpractice claim on his
bankruptcy schedule and thus concedes the first factor. (See Doc. 19 at 7).

B.

Judicial acceptance or reliance

As Defendants point out, the Ninth Circuit restricts judicial estoppel "to
cases where the court relied on, or 'accepted' the party's previous inconsistent
position." (Doc. 18 at 17, quoting Hamilton, 270 F.3d at 783). Posen argues that
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Judge Cavan erred in determining that the Bankruptcy Court accepted or relied on
his position because his case was dismissed without a discharge or plan
confirmation. (Doc. 18 at 18). Posen's argument ignores the fact that a
bankruptcy court does not have to permanently discharge debts or confirm a plan
in order to satisfy this factor, however. See Hamilton, 270 F.3d at 784 ("The
bankruptcy court may 'accept' the debtor's assertions by relying on the debtor's
nondisclosure of potential claims in many other ways.").
This Court agrees with Judge Cavan's determination that the Bankruptcy
Court's approval of the settlement constitutes judicial acceptance. Considering
that by law, the Bankruptcy Court is obligated to apprise itself of the facts, make
an independent determination of fairness, and protect the interest of all creditors
when approving payment from the bankruptcy estate on the basis of a party's
assertion, courts have routinely found this conclusion reasonable. See Risetto v.
Plumbers and Steamfitters Local 343, 94 F.3d 597, 605 (9th Cir. 1996) (noting that
obtaining a favorable settlement is equivalent to winning a judgment for purposes
of applying judicial estoppel); Hamilton, 270 F.3d at 785 (because the bankruptcy
court and the creditors rely on the schedules to determine what action to take in the
matter, the failure to list a claim in a bankruptcy schedule is an act of deception);
see also Reynolds v. C.I.R., 861 F.2d 469 (6th Cir. 1988) Qudicial acceptance of

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the bankruptcy schedules occurs because the court has to apprise itself of the facts
and determine that the settlement is fair and reasonable).
Moreover, it is undisputed that Posen had sufficient facts to know a potential
cause of action against Defendants existed, but nevertheless failed to amend his
schedules. This inaction alone is sufficient to trigger judicial estoppel. Hamilton,
270 F.3d at 784 ("Judicial estoppel will be imposed when the debtor has
knowledge of enough facts to know that a potential cause of action exists during
the pendency of the bankruptcy, but fails to amend his schedules or disclosure
statements to identify the cause of action as a contingent asset."). Posen provides
no legal authority providing otherwise.
Posen' s argument that nothing in the record shows the settlement would not
have been approved if he had listed the claim is irrelevant to whether judicial
acceptance or reliance occurred. Because he failed to list the claim, the
Bankruptcy Court never had the chance to consider it in the settlement. It is for
this very reason Hamilton holds that failure to list a claim constitutes deception
upon the bankruptcy court which must rely upon the schedules provided to it by
the debtor. Id. at 785. Judge Cavan correctly determined that the settlement in this
matter constituted judicial acceptance.

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3.

Posen Obtained an Unfair Advantage

Finally Posen argues that Judge Cavan erred in determining that Posen
obtained an unfair advantage by omitting his claim against Defendants from his
bankruptcy schedules. (Doc. 19 at 15). Specifically, Posen argues that Judge
Cavan failed to meet the proper standard for a motion to dismiss because he failed
to determine that Posen had definitely gained an unfair advantage. (Id.). Further,
Posen argues that there is no evidence of any advantage to him from the omission.
(Id. at 17). Again, Posen's argument ignores the basic facts that were before Judge

Cavan and are now before this Court, however.
Posen's failure to disclose his claim against Defendants deceived the
Bankruptcy Court and thus undermined the integrity of the bankruptcy process.
See Hamilton, 270 F.3d at 784-85. Because he failed to include in his bankruptcy
schedule his potential malpractice claim against Defendants, Posen gained the
advantage of being able to settle out with other creditors in bankruptcy and retain
the claim as an asset for his benefit later. This fact alone demonstrates that Posen
definitely obtained an unfair advantage. See Cavi ness v. England, 2007 WL
1302522, at* 10-11 (E. D. Cal. May 2, 2007) (a debtor who does not disclose a
potential claim to the bankruptcy court and then files a lawsuit on the same claim
gains a windfall by receiving the protection of the bankruptcy court without having
disclosed a potential asset while retaining the possibility of a settlement or verdict
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on the undisclosed claim). Additionally, the law is clear: because he received the
benefit of an automatic stay under 11 U.S.C. § 362(a) and a discharge of debt,
Posen received an unfair advantage. Hamilton, 270 F.3d at 785 (finding an unfair
advantage to a plaintiff who enjoyed "the benefit of both an automatic stay and a
discharge of debt").
Thus, in this case, as in Hamilton, "[t] he application of judicial estoppel ...
is necessary to protect the integrity of the bankruptcy process." 270 F.3d at 785.
Here, the Bankruptcy Court accepted Posen's clearly inconsistent earlier position
and Posen would derive an unfair advantage if this Court permits him to pursue the
undisclosed claim. Despite his Amended Complaint, Posen has pled facts which
establish that he cannot prevail on his claim, so his claim must be dismissed.

Weisbuch, 119 F.3d at 783 n.l.
V.

Conclusion
For the reasons set forth above, IT IS ORDERED that United States

Magistrate Judge Cavan's proposed Findings and Recommendations (Doc. 18) are
ADOPTED IN FULL.
IT IS FURTHER ORDERED that Defendants' Motion to Dismiss Posen's
Amended Complaint is GRANTED without leave to amend.
The Clerk is ORDERED to enter judgment and close this case.

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.

y-A--

DATED this ;(&day of September 2017.

~~tJ~
SUSANP.WATTERS
United States District Judge

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