DEBTOR CASE NO. 96-21729






VS. ADV. NO. 98-2029



LEONARD Z. EPPEL, in his capacity

as Trustee DEFENDANT




This matter is before the Court on a Motion to Dismiss Complaint filed by Intervening Defendant PNC Bank, National Association (APNC Bank@). The plaintiff has filed a Response, and PNC Bank has replied. This matter was submitted for decision by an Order of Submission entered herein on September 21, 1998. The Motion to Dismiss Complaint was brought pursuant to FRBP 7012 which makes FRCP 12(b) applicable in bankruptcy.

The plaintiff filed its Complaint herein on June 23, 1998, and made specific factual allegations including the following:

Plaintiff was surety on two Bid Guaranty and Contract Bonds for two HVAC projects dated January 10, 1996, and April 3, 1996, respectively. The debtor was principal on the Bonds. The obligee on the first Bond was the State of Ohio, and the obligee on the second Bond was Airstream Mechanical, an Ohio corporation. Pursuant to the contract between the debtor and the State of Ohio for the HVAC projects, the laws of the State of Ohio were to be applicable and govern any action or proceeding concerning the agreement and/or performance under it.

The debtor filed for Chapter 11 protection on December 2, 1996. The Chapter 11 trustee was appointed on March 31, 1997. The State of Ohio made final payment on both bond projects to the Chapter 11 trustee who now holds the funds as property of the bankruptcy estate. The plaintiff has been called upon to pay and has paid certain bond claims with respect to each of the two Bonds and has incurred expenses in connection with each.

A General Agreement of Indemnity (Athe Agreement@) was signed on January 10, 1996, by William D. Azbill, as President of the debtor, and as personal indemnitor, and by Mary Philpot, as Secretary of Jude Air Services, in favor of the plaintiff surety. William Azbill filed a Chapter 7 petition on January 5, 1998. There were claims of suppliers, subcontractors and materialmen on the projects in excess of $55,000.00, which were not paid by the debtor. Pursuant to the Bonds, the plaintiff paid to such suppliers, subcontractors and materialmen on the projects all amounts owed to them.

The plaintiff asserts in the Complaint that an indemnity agreement it entered into with the debtor in connection with a construction contract between the debtor and the State of Ohio creates a trustee-beneficiary relationship between it and the debtor. The Complaint seeks a judgment declaring that the funds paid to the trustee of the subject bonds are trust funds for the payment of suppliers, subcontractors, and materialmen, and that such funds are therefore not property of the estate and should be paid over to the plaintiff to the extent that the plaintiff has paid materialmen, laborers and suppliers. It further asks for a money judgment in the amount of $55,000.00.

PNC Bank=s Motion to Dismiss Complaint asserts that the subject funds are subject to its prior perfected security interest, and that, as a matter of law, the indemnity agreement did not create a trust for the benefit of the plaintiff. Therefore, PNC Bank contends that the plaintiff cannot prevail on its Complaint.

A motion to dismiss made pursuant to FRCP 12(b)(6) is for failure to state a claim upon which relief can be granted. As set out in In re Natale, 136 B.R. 344 (Bkrtcy.E.D.N.Y. 1992), the court, in determining such a motion

must presume that the factual allegations of the complaint are true and all reasonable inferences are to be made in favor of the nonmoving party. Jenkins v. McKeithen, 395 U.S. 411, 421-22, 89 S.Ct. 1843, 1848-49, 23 L.Ed.2d 404 (1969). The purpose of a motion to dismiss is to assess the legal sufficiency of a complaint, not to judge the weight of evidence which might be offered in its support. Geisler v. Petrocelli, 616 F.2d 636, 639 (2nd Cir. 1980).

However, on a motion to dismiss, it is clear that the court does not have to accept every allegation in the complaint as true in assessing its sufficiency. 5A Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure '1357, at 311-18 (2d ed. 1990). The allegations of a complaint must be "well-pleaded" and thus the court need not accept "sweeping and unwarranted averments of fact." Haynesworth v. Miller, 820 F.2d 1245, 1254 (D.C.Cir. 1987). Legal conclusions, deductions or opinions couched as factual allegations in a complaint are not given a presumption of truthfulness. 2A James Wm. Moore et al., Moore's Federal Practice &12.07[2.-5], at 12-63 to 12-64 (2d ed. 1991). A complaint is subject to dismissal if it fails to allege a required element which is necessary to obtain relief sought. Moore, supra, at 12-68; (cite omitted). A motion under Fed.R.Civ.P. 12(b)(6) should also be granted if a bar to relief is apparent from the face of the complaint. Moore, supra, at 12-68 to 12-69.

At page 348. The Court's task under Rule 12(b)(6) is then to determine the sufficiency, and not the merits, of the Complaint. See also In re Harvard Knitwear, Inc., 153 B.R. 617 (Bkrtcy.E.D.N.Y. 1993), and In re DeLorean Motor Co., 991 F.2d 1236 (6th Cir. 1993).

Further, in Columbia Natural Resources v. Tatum, 58 F.3d 1101 (6th Cir. 1995), the court, in determining whether a district court had correctly dismissed a suit pursuant to FRCP 12(b)(6), stated:

The district court must construe the complaint in a light most favorable to the plaintiff, accept all of the factual allegations as true, and determine whether the plaintiff undoubtedly can prove no set of facts in support of his claims that would entitle him to relief. .... When an allegation is capable of more than one inference, it must be construed in the plaintiff's favor. .... Hence, a judge may not grant a Rule 12(b)(6) motion based on a disbelief of a complaint's factual allegations. (Cites omitted.)

At page 1109. The court in In re Barr, 188 B.R. 565 (Bkrtcy. N.D. Ill. 1995), held similarly that

[f]or Defendants to prevail on their Motion to Dismiss, it must clearly appear from the pleadings that the Plaintiffs can prove no set of facts in support of their claims which would entitle them to relief. .... The Court must consider both pleaded facts and reasonable inferences drawn from pleaded facts in a light most favorable to Plaintiff when reviewing the Defendants' Motion to Dismiss. ....

Under federal 'notice' pleading requirements, pleadings need contain 'a short and plain statement of the claim showing that the pleader is entitled to relief.' Fed.R.Civ.P. 8(a) (as made applicable to this Adversary proceeding by Fed.R.Bankr.P. 7008); .... 'Notice' pleading merely requires that plaintiff give notice to defendant of the theory behind claims alleged and the basic facts supporting those allegations. .... Federal pleadings should therefore be liberally construed. .... So long as fair notice has been given and the court can glean an actionable claim from the complaint, the court must entertain the party's case. .... (Cites omitted.)

At page 570.

Applying the standards set out above to the facts pleaded in the Complaint filed herein, as well as the reasonable inferences to be drawn from those facts, it is clear that this Court must overrule PNC Bank=s Motion to Dismiss Complaint. An order in conformity with this opinion will be entered separately.


By the Court -





Copies to:


J. Randall Reinhardt, Esq.

Ronald E. Gold, Esq.

Alan J. Statman, Esq.

U.S. Trustee