M2Multihull, LLC v. West et al

Filing 34

OPINION AND ORDER AFFIRMING the Order of the Bankruptcy Court re: 2 Bankruptcy Appeal. So Ordered by Judge William E. Smith on 7/15/13. (Jackson, Ryan)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND
___________________________________
)
M2MULTIHULL, LLC,
)
)
Appellant,
)
)
v.
)
C.A. No. 12-617 S
)
JOCK WEST,
)
)
Appellee.
)
___________________________________)
OPINION AND ORDER
WILLIAM E. SMITH, United States District Judge.
This case comes before the Court on Appellant M2Multihull,
LLC’s (“M2M”) appeal from the Bankruptcy Court’s August 16, 2012
order granting Appellee Jock West’s (“West”) motion to dismiss.
The sole issue raised on appeal is whether M2M alleged facts
sufficient

to

state

a

claim

that

West’s

debt

is

non-

West

made

dischargeable pursuant to 11 U.S.C. § 523(a)(2)(A).
I.

Facts
The

complaint

alleges

that,

in

July

2008,

statements to M2M, and forwarded documents to M2M containing
statements,

which

represented

the

contemporaneous

value

of

a

boat called Showtime as being between $950,000 and $4,250,000.
(App. Part 1 to Appellant’s Br. (Second Am. Compl.) ¶ 7, ECF No.
32-2.)

In

support

of

this

allegation,

M2M

cites

certain

documents, attached as an exhibit to the complaint, which it

1

claims were provided to it by West.

M2M further alleges that,

when West made these statements and forwarded these documents,
he was aware that Showtime had an actual value of only $350,000.
(Id. at ¶ 9.)
to him.

Based upon West’s representations, M2M lent funds

(Id. at ¶ 10.)

promissory notes.

These debts were memorialized by two

(Id. at ¶¶ 11, 19.)

On September 18, 2009,

M2M issued a demand to West for repayment of the sums owed under
both notes.

(Id. at ¶¶ 15, 21.)

tender payment.

West has, however, failed to

(Id. at ¶¶ 32, 38.)

After West petitioned for Chapter 7 Bankruptcy, M2M filed a
complaint alleging that his debts are non-dischargeable on the
grounds that they were obtained by fraud.

The Bankruptcy Court

subsequently granted West’s motion to dismiss the complaint for
failure to state a claim.
II.

Discussion
A.
“A

Merits of the Motion to Dismiss
bankruptcy

court’s

determination

that

a

proceeding

should be dismissed is a legal conclusion subject to de novo
review.”
1st

Cir.

In re Burrell-Richardson, 356 B.R. 797, 800 (B.A.P.
2006).

jurisdiction,

a

However,

district

in

court

“is

exercising
normally

its

appellate

limited

evidentiary record compiled in the bankruptcy court.”

to

the

In re

Colonial Mortg. Bankers Corp., 186 F.3d 46, 49 (1st Cir. 1999).

2

The bankruptcy title of the United States Code provides
that a debt is non-dischargeable to the extent it is obtained by
“false pretenses, a false representation, or actual fraud.”

11

U.S.C. § 523(a)(2)(A).

Here, M2M argues that West’s debt falls

within this provision.

In order to be successful on this claim,

M2M

show

would

have

representation”
‘scienter,’”

(3)

to
(2)

“with

intending

misrepresentation,”

and

(1)

fraudulent
“to

(4)

that

induce

that

the

West

made

intent,
[M2M]

to

“a

false

i.e.,
rely

with

on

the

misrepresentation

did

“induce reliance,” (5) which was “justifiable” and (6) caused
damage or pecuniary loss.
786 (1st Cir. 1997). 1

Palmacci v. Umpierrez, 121 F.3d 781,

The parties agree that the heightened

pleading standard set out in Rule 9(b) of the Federal Rules of
Civil Procedure, made applicable to bankruptcy proceedings by
Fed. R. Bankr. P. 7009, applies to M2M’s allegations.

See In re

Zutrau, 482 B.R. 704, 710 (Bankr. D. Mass. 2012) (“This basis of

1

In its memorandum, M2M relies heavily on decisions
applying Rhode Island state fraud law.
This reliance on state
law is misplaced.
The First Circuit has instructed that 11
U.S.C. § 523(a)(2)(A) “incorporate[s] the ‘general common law of
torts,’
i.e.,
the
‘dominant
consensus
of
common-law
jurisdictions, rather than the law of any particular State.’”
Palmacci v. Umpierrez, 121 F.3d 781, 786 n.2 (1st Cir. 1997)
(quoting Field v. Mans, 516 U.S. 59, 69 & n.9 (1995)); see also
In re Woodford, 403 B.R. 177, 188 (Bankr. D. Mass. 2009) (“[T]he
determination of nondischargeability under § 523(a)(2)(A) is a
question of federal, not state law.”), aff’d, 418 B.R. 644
(B.A.P. 1st Cir. 2009).
3

nondischargeability

sounds

in

fraud

and

therefore

must

be

pleaded with particularity.”).
A close reading of the complaint reveals that M2M’s claim
is predicated upon two sets of allegedly false statements:
statements

made

directly

by

West

to

M2M

and

(2)

(1)

statements

contained in certain documents that West forwarded to M2M. 2

In

ruling on the motion to dismiss, however, the Bankruptcy Court
only addressed the latter group of statements.
1.

Direct Statements

West argues that, to the extent M2M’s complaint refers to
representations

other

than

those

contained

in

the

documents

attached thereto, it has failed to plead those statements with
sufficient particularity to satisfy Rule 9(b).

That provision

requires a party alleging fraud to “state with particularity the
circumstances
knowledge,
alleged

constituting

and

other

generally.”

fraud

conditions
Fed.

.

.

.

.

Malice,

a

person’s

Civ.

R.

of

P.

9(b).

intent,

mind
Rule

may

be

9(b)

is

satisfied “by an averment of the who, what, where, and when of
the allegedly false or fraudulent representation.”

Rodi v. S.

New

Cir.

England

Sch.

of

Law,

389

F.3d

5,

15

(1st

2004)

(internal quotation marks omitted); see also Garcia-Monagas v.
De Arellano, 674 F.3d 45, 54 n.11 (1st Cir. 2012) (holding that,

2

At oral argument, M2M confirmed that it is not pressing
the fraudulent conveyance claim it raised below.
4

in order to meet the requirements of Rule 9(b), “the pleader
must

set

out

the

misrepresentation

time,
with

place,

and

specificity”

content

(internal

of

the

alleged

quotation

marks

omitted)).
In the present case, the complaint provides few details
about the allegedly fraudulent statements made directly by West
to M2M.

Those statements were made “[o]n or about July 2008,”

and they represented the contemporaneous value of Showtime as
being between $950,000 and $4,250,000.

Additionally, reading

paragraph seven in conjunction with paragraph ten, it appears
that the statements were made by West to Paul Mihailides, the
manager of M2M.

No more specifics regarding the timeframe or

the content of the statements can be gleaned from the complaint.
Moreover, absolutely no information is provided concerning where
the

alleged

statements

occurred

or

even

how

they

were

communicated, i.e., in person, over the phone, by letter, or by
email. 3

Courts have found similar pleadings insufficient under

Rule 9(b).

See Centennial Bank v. Noah Grp., LLC, 445 F. App’x

277, 278 (11th Cir. 2011) (“While [the claimants] are correct in
stating that the amended cross-complaint did include the content
of the allegedly fraudulent statements and who made them, it
still did not include where the fraudulent statements were made

3

In its memorandum, M2M suggests that the statements were

oral.
5

or how they were communicated (orally or in which documents).”);
Warner v. Atkinson Freight Lines Corp., 350 F. Supp. 2d 108, 126
(D.

Me.

2004)

(“Plaintiffs’

vague

averment

as

to

the

circumstances surrounding the alleged misrepresentation, which
does not specify a place or any specific circumstances under
which the statement was made beyond the general time frame, does
not give [the defendant] sufficient notice of the substance of
Plaintiffs’ claim.”).
“The major purpose of Rule 9 is to give adequate notice of
the plaintiff’s claim of fraud.”

New England Data Servs., Inc.

v. Becher, 829 F.2d 286, 288 (1st Cir. 1987).

Without more

specifics, it would be exceedingly difficult for West to provide
“meaningful responses” to the complaint’s allegations.
at

292.

Moreover,

is

no

lack

complaint’s

there
detail

in

the

of

evident
present

excuse
case.

See id.
for

the

West’s

statements were allegedly made to Mihailides, who, as an M2M
employee, was presumably available to defense counsel.
2.

Forwarded Documents

The second group of allegedly false statements is contained
in a set of documents attached to the complaint as Exhibit A.
M2M alleges that these statements, like the ones made directly
by West to M2M, falsely represented the contemporaneous value of
Showtime.
that

the

The Bankruptcy Court rejected this claim, holding
attached

documents

did
6

not,

in

fact,

make

any

representations regarding the boat’s contemporaneous value.
court’s analysis on this point is persuasive.

The

See 5A Charles

Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice
and

Procedure

§

1327

(3d

ed.

1998)

(“The

district

court

obviously is not bound to accept the pleader’s allegations as to
the effect of the exhibit [to a pleading], but can independently
examine the document and form its own conclusions as to the
proper

construction

and

meaning

to

be

given

the

attached

material.”).
The

first

document

states

that

“[t]he

replacement

cost

estimate for new build in the USA should be $4.25 million.”
(App. Part 1 to Appellant’s Br. (Ex. A to Second Am. Compl.)
21.)

Clearly, a boat’s replacement cost is not the equivalent

of its current market value.
The next document represents that, when Showtime is retired
in

2010,

similar”

it

will

yachts

be

currently

$950,000 to $1,400,000.
potential

offered

returns

on

for

have

sale,
asking

(Id. at 22.)
an

investment

and

that

prices

four

ranging

from

It proceeds to calculate
in

Showtime

using

reasonable resale value of $950,000 . . . in 2010.”
23.)

“very

“the

(Id. at

The first problem with M2M’s reliance on this document is

that it speaks to Showtime’s value in 2010 as opposed to its
present value.

Additionally, asking prices of similar boats are

not necessarily equivalent to market value.
7

The third document is an agency agreement to manage the
sale

of

Showtime

(Id. at 24.)

at

the

initial

asking

price

$1,395,000.

This agreement suffers from the same deficiencies

as the second of M2M’s proffered documents:
future

of

rather

than

the

present

and

it speaks to the

concerns

an

asking

price

rather than market value.
Finally, M2M cites an email from West listing Showtime’s
“worst case” value as $950,000.
the

others,

constitutes

a

(Id. at 25.)

future

This figure, like

projection.

This

fact

is

especially clear when the email is read in conjunction with the
preceding
attachment

attachments

to

expressly

the

complaint.

indicates

that

Indeed,

second

was

Showtime

the

being

reconditioned and that it would be offered for sale in 2010.
The forward-looking nature of the $950,000 figure is further
reinforced

by

the

email

itself

which

projects

both

a

“worst

case” value and a “best case” value for the boat.
It is true that “[a] statement that, in form, is one of
opinion, in some circumstances may reasonably be interpreted by
the recipient to imply that the maker of the statement knows
facts that justify the opinion.”

Briggs v. Carol Cars, Inc.,

407 Mass. 391, 396 (1990) (citing Restatement (Second) of Torts
§ 539 (1977)).
allegation
value

of

that

In the present case, however, there is simply no
West’s

Showtime

representations

lacked

a

sufficient
8

concerning
basis.

the

Indeed,

future
these

representations are supported by the various documents attached
to the complaint.
Even overlooking this defect, at least one district court
has suggested that Briggs does not apply to statements regarding
the future value of property.

In Flaherty v. Baybank Merrimack

Valley, N.A., 808 F. Supp. 55, 62 (D. Mass. 1992), the court
rejected the plaintiffs’ fraud claim predicated on a real estate
broker’s representation that certain condominium units “were in
great demand in the rental and sales market and could be sold at
a

profit

after

one

to

two

years

of

ownership.”

The

court

reasoned that predictions of possible future returns “are not
susceptible of actual knowledge by anyone, even an experienced
real estate broker, and therefore constitute mere opinion which
cannot support a cause of action.”

Id.

In a footnote, the

court expressly distinguished Briggs, stating that “[a]bsent a
showing that [the broker] possessed a crystal ball, plaintiffs
could not have reasonably interpreted [her] statements to imply
that she had a factual basis from which to predict future return
on investment in the real estate market.”
B.

Matters Outside the Pleadings

M2M

urges

Id. at 62 n.16.

this

Court

to

consider

documents

pleadings in ruling on West’s motion to dismiss.

outside

the

The Federal

Rules of Civil Procedure provide that when “matters outside the
pleadings are presented to and not excluded by the court, the
9

motion shall be treated as one for summary judgment and disposed
of as provided in Rule 56.”
R. Civ. P. 12(b)).

Rodi, 389 F.3d at 12 (quoting Fed.

However, the mere filing of matters outside

the pleadings does not automatically convert a motion to dismiss
into

a

motion

for

summary

judgment.

See

Garita

Hotel

Ltd.

P’ship v. Ponce Fed. Bank, F.S.B., 958 F.2d 15, 18 (1st Cir.
1992).

Rather, whether to make such a conversion “is a matter

quintessentially

within

sound discretion.”

the

purview

of

the

district

court’s

Beddall v. State St. Bank & Trust Co., 137

F.3d 12, 17 (1st Cir. 1998).

Accordingly, the Court reviews the

Bankruptcy Judge’s ruling on this issue for abuse of discretion.
See

United

States

v.

Harchar,

371

B.R.

254,

259

(N.D.

Ohio

outside

the

2007).
Here,

the

parties

both

referenced

pleadings before the Bankruptcy Court.

matters

Nonetheless, the court

expressly declined M2M’s invitation to treat the instant matter
as a motion for summary judgment.

In its oral decision granting

the motion, the court relied exclusively on the complaint and
its exhibits.

These materials are properly considered in the

context of a motion to dismiss.

See Trans-Spec Truck Serv.,

Inc. v. Caterpillar Inc., 524 F.3d 315, 321 (1st Cir. 2008)
(“Exhibits
part

of

attached
the

to

pleading

the

complaint

‘for

all

are

purposes,’

12(b)(6).” (quoting Fed. R. Civ. P. 10(c))).
10

properly

considered

including

Rule

There is, thus, no

indication

that

the

Bankruptcy

Court

converted

West’s

motion

into a motion for summary judgment.
Moreover,

M2M

presents

no

developed

argument

that

the

Bankruptcy Court’s failure to convert the motion constituted an
abuse

of

discretion.

Indeed,

M2M’s

proffered

affidavit

was

executed in November 2010, and there is no apparent reason why
that document could not have been attached to the complaint,
which was filed in February 2012.
Beyond

the

materials

filed

and/or

discussed

below,

M2M

urges the Court to consider West’s deposition testimony in a
related case taken in February 2013, months after the Bankruptcy
Court ruled on the instant motion.

This testimony was not part

of the record below and, thus, is not properly before the Court.
See

Colonial,

186

F.3d

at

49.

Moreover,

West’s

statements

constitute matters outside the pleadings which generally may not
be considered in ruling on a motion to dismiss.

See Trans-Spec

Truck Serv., 524 F.3d at 321. 4

4

At oral argument, M2M suggested that it unsuccessfully
sought to take West’s deposition in this matter.
M2M has,
however, failed to develop, and thus waived, any argument that
the Bankruptcy Court’s rulings on this issue were improper.
11

III. Conclusion
For

the

foregoing

reasons,

Court is AFFIRMED.

IT IS SO ORDERED.

/s/ William E. Smith
William E. Smith
United States District Judge
Date: July 15, 2013

12

the

order

of

the

Bankruptcy