Motions to dismiss an adversary complaint for fraud

Filing a motion to dismiss an adversary complaint for fraud filed in United States Bankruptcy Court on the grounds that the adversary complaint fails to state a claim is the topic of this blog post.

This type of motion to dismiss is often called a 12(b)(6) motion as it is based on Federal Rule of Civil Procedure § 12(b)(6) (FRCP), or Federal Rule of Bankruptcy Procedure § 7012(b)(6) (FRBP. A party may also request in the alternative, that the party be required to provide a more definite statement under FRCP § 12(e) or FRBP § 7012(e).

The motion for a more definite statement may be joined with the motion to dismiss pursuant to FRCP and FRBP §§ 12(g).

Many adversary complaints filed in bankruptcy courts are made under 11 U.S.C. § 523(a)(2) on the grounds of fraudulent representations.

Note that FRCP 9(b) states in pertinent part that, “In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake”.

“It is established law, in this circuit and elsewhere, that Rule 9(b)’s particularity requirement applies to state-law causes of action.“ While a federal court will examine state law to determine whether the elements of fraud have been pled sufficiently to state a cause of action, the Rule 9(b) requirement that the circumstances of the fraud must be stated with particularity is a federally imposed rule.” Vess v. Ciba-Geigy Corp. 317 F. 3d 1097, 1103 (9th Cir. 2003) (internal citations omitted).

As the author works on cases from Southern California, the great majority of the cases he works on are in the Central District of California and any fraud claims would most likely be a California cause of action.

California law requires that four (4) elements be specifically pleaded in any cause of action for fraud. “A complaint for fraud must allege the following elements: (1) a knowingly false representation by the defendant; (2) an intent to deceive or induce reliance; (3) justifiable reliance by the plaintiff; and (4) resulting damages. Every element must be specifically pleaded.” Service by Medallion, Inc. v. Clorox Co. 44 Cal.App.4th 1807, 1816 (1996).

And in California, pursuant to Code of Civil Procedure § 338(d) there is a three-year statute of limitations for an action for relief on the ground of fraud or mistake. The cause of action is not deemed to have accrued until the discovery, by the aggrieved party, of the facts constituting the fraud or mistake.

An action based on fraud may be brought more than three years after the fraud occurred if the plaintiff shows not only that he did not discover the facts but he could not with reasonable diligence have discovered them within that time. The complaint must set forth specifically (1) the facts of the time and manner of discovery; and (2) the circumstances which excuse the failure to have made an earlier discovery. Olson v. County of Sacramento 274 Cal.App 2d 316, 327 (1969) (internal citations omitted).

While leave to amend is usually granted if a motion to dismiss is successful, the Ninth Circuit has ruled that leave to amend does not need to be granted where amending the complaint would be futile, and that any discretion to deny leave to amend is particularly broad where plaintiff has previously amended their complaint.

“Leave need not be granted where the amendment of the complaint . . . constitutes an exercise in futility,” and “the district court’s discretion to deny leave to amend is particularly broad where plaintiff has previously amended the complaint.” Ascon Properties v. Mobil Oil Co. 866 F.2d 1149, 1160 (9th Cir. 1989).

A motion to dismiss and/or a motion for a more definite statement are very useful when used in the right situation as many adversary complaints for fraud are filed but fail to allege the fraud with particularity, or they are so vague and ambiguous that the defendant cannot reasonably prepare a proper response.

In the author’s experience filing a motion to dismiss can be particularly useful when it is obvious that plaintiff has a weak case. This will force plaintiff to seek leave to amend. Once plaintiff has previously amended their adversary complaint once or twice, some judges will deny leave to amend where the moving party can show that amendment would be futile as plaintiff cannot state a cause of action for fraud.

Attorneys or parties in California who would like to view a sample motion to dismiss an adversary complaint for fraud sold by the author can see below.

The author of this blog post, Stan Burman, is a freelance paralegal who has worked in California and Federal litigation since 1995. Visit the author’s website at: http://www.legaldocspro.net

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Copyright 2012 Stan Burman. All rights reserved.

DISCLAIMER:

Please note that the author of this blog post, Stan Burman is NOT an attorney and as such is unable to provide any specific legal advice. The author is NOT engaged in providing any legal, financial, or other professional services, and any information contained in this blog post is NOT intended to constitute legal advice.

These materials and information contained in this blog post have been prepared by Stan Burman for informational purposes only and are not legal advice. Transmission of the information contained in this blog post is not intended to create, and receipt does not constitute, any business relationship between the author and any readers. Readers should not act upon this information without seeking professional counsel.

About Stan Burman

Freelance paralegal working in California and Federal litigation since 1995.
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