Xu v. Nasser

UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF MICHIGAN

SOUTHERN DIVISION

In re:

Case No. 25-44069

MARB (“MARK”) NASSER Chapter 13

Judge Paul R. Hage

Debtor.

________________________________/

CHONG XU, Adv. Proc. No. 25-04091

ROSEDALE REALTY, LLC and

GRANDMONT REALTY, LLC

Plaintiffs

v.

MARB (“MARK”) NASSER

Defendant.

________________________________/

OPINION GRANTING IN PART AND DENYING IN PART DEFENDANT’S

MOTION TO DISMISS ADVERSARY COMPLAINT FOR FAILURE TO

STATE A CLAIM PURSUANT TO F.R.C.P. 12(b)(6) OR IN THE

ALTERNATIVE FOR A MORE DEFINITIVE STATEMENT

PURSUANT TO F.R.C.P. 12(e)

I. Introduction

This matter is before the Court upon the Motion to Dismiss Adversary

Complaint For Failure to State a Claim Pursuant to F.R.C.P. 12(b)(6) Or In The

Alternative For A More Definitive Statement Pursuant to F.R.C.P. 12(e) [Doc. No.

8] (the “Motion”) filed by debtor Marb Nasser (the “Defendant”) seeking dismissal

of the Complaint [Doc No. 1] (the “Complaint”) filed by Chong Xu, Rosedale

Realty, LLC and Grandmont Realty, LLC (collectively, the “Plaintiffs”). The

Complaint seeks a determination that debts allegedly owed by Defendant are

nondischargeable under sections 523(a)(2)(A), (a)(4) and (a)(6) of title 11 of the

United States Code (the “Bankruptcy Code”).1

The Motion seeks dismissal of the Complaint in its entirety pursuant to Civil

Rule 12(b)(6), which is applicable in this adversary proceeding pursuant to

Bankruptcy Rule 7012. For the reasons detailed in this Opinion, the Court grants the

Motion in part, dismissing Plaintiffs’ claim under section 523(a)(4) (Count II), and

denies the Motion in part as it relates to Plaintiffs’ claim under section 523(a)(2)(A)

(Count I). Plaintiffs previously withdrew their claim under section 523(a)(6) (Count

III), acknowledging that section 523(a)(6) is not applicable where, as here, the

bankruptcy case is a case under chapter 13. 11 U.S.C. § 1328(a)(2) (excluding

section 523(a)(6) claims from the list of claims that are non-dischargeable in chapter

13 cases).

The Court denies Defendant’s request for a more definitive statement pursuant

to Civil Rule 12(e) as it concludes that Plaintiffs’ sole remaining claim, under section

523(a)(2)(A), is sufficiently pled.

1 The Bankruptcy Code is set forth in 11 U.S.C. § 101 et seq. Specific chapters of the Bankruptcy

Code are identified herein as “chapter __” and specific sections of the Bankruptcy Code are

identified herein as “section __.” Similarly, specific rules of the Federal Rules of Bankruptcy

Procedure are identified herein as “Bankruptcy Rule __” and specific rules of the Federal Rules of

Civil Procedure are identified herein as “Civil Rule __.”

II. Jurisdiction

This Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334 and

157(a). This is a core proceeding under 28 U.S.C. § 157(b)(2)(I) (determinations as

to the dischargeability of debts).

III. Factual Background

Plaintiff Chong Xu (“Xu”) alleges that he is the principal of both Grandmont

Realty, LLC and Rosedale Realty, LLC, entities which allegedly own and lease out

over two dozen residential properties located in the City of Detroit, Michigan. In

September 2022, Defendant, through his entity Goldstone Partners, LLC, was

engaged to serve as the property manager of such properties pursuant to two separate

agreements, copies of which were attached to the Complaint (collectively, the

“Property Management Agreements”). It appears that Defendant ceased managing

Plaintiffs’ properties in or around January 2025. The relationship ended poorly, with

Plaintiffs asserting substantial damages due to alleged mismanagement and fraud by

Defendant.

Defendant filed his chapter 13 bankruptcy petition on April 21, 2025. On May

21, 2025, Plaintiffs filed the Complaint alleging that Defendant’s conduct gives rise

to a nondischargeable claim in an unspecified amount pursuant to: (i) section

523(a)(2)(A) (Count I - fraud), (ii) section 523(a)(4) (Count II - defalcation while

acting in a fiduciary capacity), and (iii) section 523(a)(6) (Count III - willful and

malicious injury by conversion).

In support of their section 523(a)(2)(A) claim, Plaintiffs allege that, under

Article 25 of the Michigan Occupational Code, Mich. Comp. Laws § 339.2501 et

seq. (the “Michigan Occupational Code”), Defendant was required to possess a

license to provide property management services.2 Plaintiffs allege that Defendant

represented that he had such a license when, in fact, he did not. See Complaint at ¶

17. More specifically, Plaintiffs allege that: “Defendant offered to provide Plaintiffs

with property management services, expressly or implicitly representing that he and

Gold Stone were qualified, experienced, and properly licensed under Michigan law

to perform such duties,” and that they “relied on the representations and/or omissions

made by Defendant regarding Defendant’s qualifications, licensing, and fiduciary

responsibilities.” Id. at ¶¶ 19, 20.

Regarding the alleged misapplication of funds, Plaintiffs assert that:

“Defendant failed to provide legitimate invoices, receipts, or work orders to

substantiate these massive expenditures, indicating that a significant portion of these

billed expenses were fabricated or fraudulent.” Id. at ¶ 26. Plaintiffs also allege that

2 While not necessarily relevant to adjudication of the Motion, it is not clear to the Court exactly

what licensing requirements may have existed in this case. At the hearing on the Motion, the Court

asked Plaintiffs’ counsel to direct it to specific statutory authority requiring that a party be a

licensed broker in order to provide property management services. Plaintiffs’ counsel was unable

to provide such authority at that time.

Defendant paid certain nonexistent or dissolved vendors for services that were never

provided. Id. at ¶¶ 38, 54, 55, 60.

In support of their section 523(a)(4) claim, Plaintiffs allege that the Michigan

Occupational Code imposes specific legal duties on real estate brokers and their

agents who engage in property management services, and that Defendant failed to

comply with such duties. Specifically, Plaintiffs allege that Defendant failed to: (i)

maintain property management accounts separate from his personal accounts or the

accounts of other entities in violation of Mich. Comp. Laws § 339.2512c(2), and (ii)

maintain and provide accurate and complete records of all funds received and

disbursed in violation of Mich. Comp. Laws § 339.2512c(5). See Complaint at ¶ 75-

76. Plaintiffs allege that:

Defendant breached his fiduciary duties through defalcation, including

misappropriating entrusted funds, failing to account for property

management activities, commingling Plaintiffs’ funds with his own,

violating statutory obligations under Michigan law, mismanaging rental

collections, failing to properly handle security deposits, and using

dissolved or non-existent entities for billing purposes.

Id. at ¶ 77.

In the Motion, Defendant asserts that Counts I, II and III should be dismissed

for failure to state a claim on which relief can be granted pursuant to Civil Rule

12(b)(6). Plaintiffs filed their Response in Opposition to Defendant’s Motion To

Dismiss Pursuant to FRCP 12(b)(6) [Doc. No. 9] (the “Response”) on June 26,

2025.3 Defendant filed his Reply To Plaintiffs’ Response to Defendant’s Motion To

Dismiss [Doc. No. 15] (the “Reply”) on July 15, 2025. The Court held oral argument

on the Motion on July 21, 2025.

IV. Standard of Review

In deciding a Civil Rule 12(b)(6) motion, a court must (1) view a complaint

in the light most favorable to the plaintiff, and (2) take all well-pled factual

allegations as true. Gunasekera v. Irwin, 551 F.3d 461, 466 (6th Cir. 2009) (citations

omitted). A complaint must provide “more than labels and conclusions.... Factual

allegations must be enough to raise a right to relief above the speculative level.” Bell

Atlantic Corp. v. Twombly, 550 U.S. 544, 555–56, 127 S. Ct. 1955 (2007) (citations

omitted). “Threadbare recitals of the elements of a cause of action, supported by

mere conclusory statements, do not suffice.” Ashcroft v. Iqbal, 556 U.S. 662, 678,

129 S. Ct. 1937 (2009). “[O]nly a complaint that states a plausible claim for relief

3 On June 27, 2025, Plaintiffs filed a Notice of Errata Regarding Plaintiffs’ Response in Opposition

to Defendant’s Motion to Dismiss [Doc. No. 10] which purports to correct certain errors in the

Response. Specifically, the filing acknowledges that three of the cited statutory provisions in the

Response, including provisions presented in block quotations, do not contain the actual statutory

text but, rather, contain paraphrased language. Such language is materially different from the

statutory text. Additionally, in reviewing the Response, the Court identified other examples of

purportedly quoted language that appears to quote from the Complaint, but such language is not

actually in the Complaint. Collectively, these errors raise questions about the veracity of the

Response.

It is difficult for the Court to understand how such errors could be made. The Court is concerned

that Plaintiffs may have used generative artificial intelligence to assist in drafting the Response.

The Court discourages such a practice for reasons that should now be well known by all attorneys.

The Court will not take any action at this time other than to warn counsel that future errors of this

nature will not be tolerated.

survives a motion to dismiss.” Id. at 679. In short, “a complaint must contain (1)

‘enough facts to state a claim to relief that is plausible,’ (2) more than ‘a formulaic

recitation of a cause of action’s elements,’ and (3) allegations that suggest a ‘right to

relief above a speculative level.’” Tackett v. M&G Polymers, USA, LLC, 561 F.3d

478, 488 (6th Cir. 2009) (quoting Twombly, 550 U.S. at 545).

Where, as in Count I, fraud is alleged, a heightened pleading standard exists

pursuant to Civil Rule 9(b). See Fed. R. Civ. P. 9(b) (“In alleging fraud or mistake, a

party must state with particularity the circumstances constituting fraud or mistake.”).

For affirmative misrepresentations, Civil Rule 9(b) requires a plaintiff to allege “the

time, place, and content of the alleged misrepresentation on which he or she relied;

the fraudulent scheme; the fraudulent intent of the defendants; and the injury

resulting from the fraud.” McKee v. General Motors, LLC, 376 F.Supp.3d 751, 760

(E.D. Mich. 2019) (citing Cataldo v. U.S. Steel Corp., 676 F.3d 542, 551 (6th Cir.

2012)).

For claims involving fraudulent omissions, Civil Rule 9(b) requires a plaintiff

to plead “‘the who, what, when, where, and how’ of the alleged omission.” Id. at

760-61 (quoting Republic Bank & Tr. Co. v. Bear Stearns Co., 683 F.3d 239, 256

(6th Cir. 2012)). Specifically, a plaintiff pleading a fraudulent omission must allege

“(1) precisely what was omitted; (2) who should have made a representation; (3) the

content of the alleged omission and the manner in which the omission was

misleading; and (4) what [defendant] obtained as a consequence of the alleged

fraud.” Id.

V. Discussion

A. Plaintiffs’ Claims Under Section 523(a)(2)(A) Are Sufficiently Pled

Section 523(a)(2)(A) excepts from discharge debts for “money, property, [or]

services ... to the extent obtained, by ... false pretenses, a false representation, or

actual fraud.” 11 U.S.C. § 523(a)(2)(A). Such debts are nondischargeable in chapter

13 cases. See 11 U.S.C. § 1328(a)(2).

To except a debt from discharge under section 523(a)(2)(A), a plaintiff must

prove that:

(1) the debtor obtained money through a material misrepresentation

that, at the time, the debtor knew was false or made with gross

recklessness as to its truth; (2) the debtor intended to deceive the

creditor; (3) the creditor justifiably relied on the false representation;

and (4) its reliance was the proximate cause of loss.

Rembert v. AT&T Universal Card Services (In re Rembert), 141 F.3d 277, 280–81

(6th Cir. 1998). The standard of proof in an action under section 523(a)(2)(A) is a

preponderance of the evidence standard. Grogan v. Garner, 498 U.S. 279, 291, 111

S.Ct. 654 (1991).

As noted, in properly pleading a plausible fraud claim under § 523(a), a

plaintiff must, at a minimum, allege “the who, what, when, where, and how” of the

alleged misrepresentation or omission. Sanderson v. HCA-The Healthcare Co., 447

F.3d 873, 877 (6th Cir. 2006) (citing United States ex rel. Thompson v.

Columbia/HCA Healthcare Corp., 125 F.3d 899, 903 (5th Cir. 1997)).

In this case, the Complaint alleges that, over a period of several years,

Defendant made misrepresentations and omitted to disclose certain material

information “including misrepresenting his licensure, misrepresenting the

application of funds, billing for unsubstantiated or uncompleted work, concealing

material facts regarding the financial operations of Plaintiffs’ properties, and

providing false or misleading accountings.” See Complaint at ¶ 69. More

specifically, the Complaint alleges that:

17. Defendant personally misrepresented his qualifications

and licensing status, personally authorized the receipt and

misapplication of funds, personally engaged in concealment and self-

dealing, and personally withheld accounting and documentation

necessary to protect Plaintiffs’ interests.

19. Defendant offered to provide Plaintiffs with property

management services, expressly or implicitly representing that he and

Gold Stone were qualified, experienced, and properly licensed under

Michigan law to perform such duties.

20. Plaintiff Chong Xu personally relied on the

representations and/or omissions made by Defendant regarding

Defendant’s qualifications, licensing, and fiduciary responsibilities.

26. However, despite Plaintiffs’ repeated requests, Defendant

failed to provide legitimate invoices, receipts, or work orders to

substantiate these massive expenditures, indicating that a significant

portion of these billed expenses were fabricated or fraudulent.

38. Defendant deliberately failed to maintain separate

accounts, commingled Plaintiffs’ funds with his own, concealed

financial transactions, and made it impossible for Plaintiffs to trace how

entrusted monies were used.

54. Defendant routed payments for services allegedly

rendered by EJ’s Property Preservation LLC, an entity that had been

administratively dissolved on January 12, 2024, to a personal account

held by Alma Rodriguez, the wife of Jose Rodriguez, without providing

invoices or disclosing this arrangement.

55. Defendant also used a contractor operating under the name

“Wilson Carpentry” or “Wilson carpenter,” which appears to a be a non-

existent legal entity based on searches of Michigan’s corporate

database. Invoices from this purported entity contained suspicious

inconsistencies and could not be verified online, suggesting the use of

a fake company for billing purposes.

60. Defendant also made false statements regarding tenant

payment statuses to Plaintiffs’ attorney, contradicting his own records

and tenant communications.

67. To induce Plaintiffs to enter into the property management

agreements and to entrust Defendant with substantial funds, Defendant

falsely assured Plaintiffs, either expressly or through material omission,

that he and Gold Stone were qualified, experienced, and in full

compliance with all Michigan licensing laws applicable to property

management.

68. Plaintiffs reasonably relied upon Defendant’s false

assurances regarding his and Gold Stone Partners’ licensed status and

legal authority to act as property managers when deciding to engage

their services and transfer significant funds, resulting in direct financial

harm to Plaintiffs.

Complaint at ¶¶ 17, 19, 20, 26, 38, 54, 55, 60, 67, 68.

The detail contained in these allegations is less than fulsome. Nevertheless,

the Court concludes that the above-referenced paragraphs, in addition to the more

general fraud allegations such as those in paragraph 69, provide the requisite “who,

what, when, where, and how” to put Defendant on notice of the nature of the

fraudulent scheme that Plaintiffs allege existed over a period of multiple years and,

therefore, satisfy the heightened requirements of Civil Rule 9(b). See Williams v.

Duke Energy Int’l, Inc., 681 F.3d 788, 803 (6th Cir. 2012) (“Rule 9(b) does not

require omniscience; rather the Rule requires that the circumstances of the fraud be

pled with enough specificity to put defendants on notice as to the nature of the

claim.”).

Specifically, the Complaint alleges that Defendant misrepresented his

licensure status or omitted to disclose that he did not have a required license and that

Plaintiffs relied upon such misrepresentation or omission. Id. at ¶¶ 17, 19, 20, 67,

68. The Complaint also alleges that Defendant misrepresented and concealed

financial information, provided falsified financial records, and paid vendors (e.g., EJ

Property Preservation, LLC and Wilson Carpentry) who did not exist or who were

dissolved. Id. at ¶¶ 26, 38, 54, 55, 60. The Complaint alleges that Defendant’s

misconduct was “systematic, calculated, and sustained throughout the management

relationship.” Id. at ¶ 34. Plaintiffs allege that, because of this conduct, they were

harmed financially. Id. at ¶ 3, 5, 21, 65, 71.

Based on the foregoing, the Court finds that the Complaint’s allegations are

sufficient to state a claim for fraud that survives a motion under Civil Rule 12(b)(6).

As a result, the Motion is denied as to Count I.

B. Plaintiff Xu Has Standing To Bring A Section 523(a)(2)(A) Claim

Separately, Defendant argues that this Court should dismiss Plaintiff Xu

because “beyond the fact that he owns the plaintiff entities, there are no allegations

which would establish that he is personally damaged in his individual capacity.” See

Motion at p. 15.

Contrary to Defendant’s assertions, Plaintiffs specifically allege in the

Complaint that:

20. Plaintiff Chong Xu personally relied on the

representations and/or omissions made by Defendant regarding

Defendant’s qualifications, licensing, and fiduciary responsibilities.

21. In reliance on Defendant’s false pretenses, Plaintiff Xu

personally advanced substantial funds intended for the management,

maintenance, and repair of the properties owned by Plaintiffs, Rosedale

and Grandmont, and caused those entities to enter into the Property

Management Agreements. Defendant’s fraudulent conduct caused

direct financial harm to Plaintiff Xu individually, as well as to Rosedale

and Grandmont.

Complaint at ¶¶ 20, 21. These paragraphs allege personal harm to Xu in his

individual capacity, not merely in his capacity as an owner of Rosedale Realty, LLC

and Grandmont Realty, LLC.

This Court must view the Complaint in the light most favorable to the

Plaintiffs and take all well pled factual allegations as true. See, e.g., Gunasekera, 551

F.3d at 466. Plaintiffs have sufficiently alleged that Xu was personally harmed

because of Defendant’s alleged fraudulent conduct. Thus, the Court denies the

Motion as it relates to the dismissal of Xu.

C. Plaintiffs Have Failed To State A Claim Under Section 523(a)(4)

Section 523(a)(4) excepts debts from discharge “for fraud or defalcation

while acting in a fiduciary capacity, embezzlement or larceny....” 11 U.S.C. §

523(a)(4). Plaintiffs did not allege embezzlement or larceny, instead focusing solely

on fraud or defalcation in a fiduciary capacity.

The exception from discharge for defalcation while acting in a fiduciary

capacity “follows from Congress’s desire to protect trust relationships: when the

bankrupt is a trustee and the creditor a trust beneficiary, § 523(a)(4) points the needle

away from discharge; it is yet another example of the law’s imposition of high

standards of loyalty and care on trustees.” Patel v. Shamrock Floorcovering Services,

Inc. (In re Patel), 565 F.3d 963, 967 (6th Cir. 2009) (citing Commonwealth Land

Title Co. v. Blaszak (In re Blaszak), 397 F.3d 386, 391 (6th Cir. 2005)).

“A debt is non-dischargeable as the result of defalcation when a

preponderance of the evidence establishes: (1) a pre-existing fiduciary relationship,

(2) a breach of that relationship, and (3) resulting loss.” In re Patel, 565 F.3d at 968

(citing Bd. Of Trustees v. Bucci (In re Bucci), 493 F.3d 635, 642 (6th Cir. 2007)).

Relying on the United States Supreme Court’s holding in Davis v. Aetna Acceptance

Co., 293 U.S. 328, 331, 55 S.Ct. 151 (1934), the Sixth Circuit Court of Appeals “has

repeatedly construed the term ‘fiduciary capacity’ found in the defalcation provision

of § 523(a)(4) more narrowly than the term is used in other circumstances.” In re

Bucci, 493 F.3d at 642. The term “does not apply to someone who merely fails to

meet an obligation under a common law fiduciary relationship.” Id. at 639 (citing

R.E. America, Inc. v. Garver (In re Garver), 116 F.3d 176, 178 (6th Cir.1997)).

Rather, the defalcation provision applies to “only those situations involving an

express or technical trust relationship arising from placement of a specific res in the

hands of the debtor.” Id. at 640.4

Based on the foregoing, the law in the Sixth Circuit is clear that, to establish

the existence of an express or technical trust for purposes of section 523(a)(4), a

creditor must prove that a contract or statute contains or evidences: “(1) an intent to

create a trust; (2) a trustee; (3) a trust res; and (4) a definite beneficiary.” In re Patel,

565 F.3d at 968 (quoting In re Blazak, 397 F.3d at 391-92). Although the

determination of whether a fiduciary relationship for purposes of section 523(a)(4)

exists is a matter of federal law, the creation of a trust is a matter of state law. Digital

Commerce, Ltd. v. Sullivan (In re Sullivan), 305 B.R. 809, 825 (Bankr. W.D. Mich.

2004) (citing Capitol Indemnity Corp. v. Interstate Agency, Inc. (In re Interstate

4 The Sixth Circuit’s narrow construction of the defalcation provision is consistent with the general

rule that exceptions to discharge in section 523(a) must be narrowly construed. See Meyers v. IRS

(In re Meyers), 196 F.3d 622, 624 (6th Cir. 1999); XL Datacomp, Inc. v. Wilson (In re Omegas

Grp., Inc.), 16 F.3d 1443, 1452 (6th Cir. 1994).

Agency, Inc.), 760 F.2d 121, 124 (6th Cir. 1985)). “Without an existing, express or

technical trust recognized under state law, there can be no non-dischargeable debt

under § 523(a)(4).” Nullaballi v. Achanta (In re Achanta), 583 B.R. 123, 126 (Bankr.

E.D. Mich. 2018).

Under Michigan law, the creation of a trust does not require any particular

form of words. Nash v. Duncan Park Comm’n, 304 Mich. App. 599, 848 N.W.2d

435, 447 (Mich. Ct. App. 2014) (citing Brooks v. Gillow, 352 Mich. 189, 89 N.W.2d

457, 462 (1958)). However, it does require “‘an explicit declaration of trust,

accompanied by a transfer of property to one for the benefit of another.’” In re Young,

468 B.R. 818, 826 (Bankr. E.D. Mich. 2012) (quoting Osius v. Dingell, 375 Mich.

605, 134 N.W.2d 657, 660 (1965)).

As noted, Plaintiffs do not allege that a trust was created by virtue of a

contractual trust agreement. Rather, they allege that Defendant was subject to the

Michigan Occupational Code by virtue of his agreement to serve as a property

manager and that the following provisions of that statute impose a technical trust

with respect to funds held by a property manager:

(2) A real estate broker who engages in property management shall

maintain property management accounts separate from all other

accounts. Except as provided in this section, a property management

account shall be managed in accordance with the property management

employment contract.

***

(5) A person who engages in property management shall maintain

records of funds deposited and withdrawn from property management

accounts. Property management account records shall indicate the date

of the transaction, from whom the money was received or to whom it

was given, and other pertinent information concerning the transaction

the property management employment contract may require.

Mich. Comp. Laws § 339.2512(c). Plaintiffs argue that these provisions “create a

technical trust over every dollar collected as rent or provided for property expenses.”

Response at p. 20.

While the case law makes clear that a statute may create a trust for purposes

of section 523(a)(4), consistent with the Circuit’s narrow interpretation of that

section, Peoples Bank & Trust Co. of Hazard v. Penick (In re Penick), 149 F.3d 1184,

*3 (6th Cir. 1998) (“We have employed a narrow exception for defalcation while

acting in a fiduciary capacity”), courts have done so sparingly.

Courts have, for example, held that the Michigan Builders Trust Fund Act,

Mich. Comp. Laws § 570.151 et seq., creates a trust in favor of laborers,

subcontractors, or material suppliers who perform labor or furnish material for a

specific construction project that is sufficient to trigger the discharge exception in

section 523(a)(4). See, e.g., In re Patel, 565 F.3d at 968-969; Carlisle Cashway, Inc.,

v. Johnson (In re Johnson), 691 F.2d 249, 252 (6th Cir. 1982); Miller v. Safford (In

re Safford), 2021 WL 5509246 (Bankr. E.D. Mich. Nov. 23, 2021); Sangal v.

Strickfaden (In re Strickfaden), 421 B.R. 802 (Bankr. E.D. Mich. 2009), aff’d, 2010

WL 3583427 (E.D. Mich. Sept. 9, 2010). That statute provides, in pertinent part:

In the building construction industry, the building contract fund paid by

any person to a contractor, or by such person or contractor to a

subcontractor shall be considered by this act to be a trust fund, for the

benefit of the person making the payment, contractors, laborers,

subcontractors, or materialmen, and the contractor or subcontractor

shall be considered the trustee of all funds so paid to him for building

construction purposes.

Mich. Comp. Laws § 570.151 (emphasis added). The statute unambiguously

designates a building contract fund as “a trust fund,” identifies a specified set of

beneficiaries (“the person making the payment, contractors, laborers,

subcontractors, or materialman”) with respect to a trust res (“all funds so paid to

him”) and designates the contractor or subcontractor as a “trustee.”

Courts have also found an express or technical trust for purposes of section

523(a)(4) in the statutory text of:

(i) the Michigan Insurance Code of 1956, Mich. Comp. Laws §

500.1207(1) (“An agent shall be a fiduciary for all money

received or held by the agent in his or her capacity as an agent.

Failure by an agent in a timely manner to turn over the money

which he or she holds in a fiduciary capacity to the persons to

whom they are owed is prima facie evidence of violation of the

agent’s fiduciary responsibility.”), see In re Interstate Agency,

Inc., 760 F.2d at 124, and

(ii) the Michigan Estates and Protected Individuals Code, Mich.

Comp. Laws § 700.5419(1) (“Appointment of a conservator

vests in the conservator, title as trustee to all of the protected

individual’s property.”), see Knowlen v. Mapes (In re Mapes),

2009 WL 4723262 (Bankr. W.D. Mich. 2009).

As the foregoing examples demonstrate, the Michigan legislature knows how

to create an express or technical trust in a statute when it wants to. Contrast the

statutory language in the aforementioned statutes with the language utilized in the

Michigan Occupational Code. That statute imposes duties on a real estate broker5

who engages in property management, including:

(i) the duty to “maintain property management accounts separate

from all other accounts” and to manage such accounts “in

accordance with the property management employment

contract,” Mich. Comp. Laws § 339.2512c(2),

(ii) the duty to “maintain records of funds deposited and withdrawn

from property management accounts” as “the property

management employment contract may require.” Mich. Comp.

Laws § 339.2512c(5), and

(iii) the duty to “render an accounting to his or her property

management client and remit all money strictly in accordance

with the property management employment contract.” Mich.

Comp. Laws § 339.2512c(6).6

The Court concludes that these provisions do not establish an express or

technical trust with respect to funds held by a real estate broker who engages in

property management. To be sure, the referenced provisions impose duties. But they

do not evidence an intent to create a trust, much less contain an “explicit declaration

5 Of course, Count I of the Complaint is based, in part, on Plaintiffs’ assertion that Defendant is

not, in fact, a licensed real estate broker. To the extent that Defendant is not a licensed real estate

broker, Defendant arguably is not subject to Mich. Comp. Laws § 339.2512c at all. See, e.g., S-S,

LLC v. Merten Bldg. Ltd. P’ship, 2010 WL 2679524, *8 (Mich. App. Nov. 18, 2010) (MCL

339.2512c deemed inapplicable where property manager did not have a property management

employment contract, as contemplated in statute).

6 In Count II of the Complaint and in the Response, Plaintiffs focused solely on subsections (2)

and (5) of Mich. Comp. Laws § 339.2512c for purposes of establishing an express or technical

trust. However, subsection (6) of that statute was referenced earlier in the Complaint. Therefore,

the Court also considered the impact of that provision in reaching its conclusion.

of trust” like the declaration contained in the Michigan Builders Trust Fund Act. See

Osius v. Dingell, 375 Mich. at 613 (“It is a general principle of trust law that a trust

is created only if the settlor manifests an intention to create a trust, and it is essential

that there be an explicit declaration of trust accompanied by a transfer of property to

one for the benefit of another.”). The statute also does not identify a definite

beneficiary of the “funds deposited and withdrawn from property management

accounts.”

Rather, in all three of the aforementioned statutory provisions, the statute

expressly defers to a separate contractual agreement between parties, the “property

management employment contract,” that would delineate their respective, specific

rights and obligations. In this case, the Property Management Agreements could

easily have formalized a trust relationship. However, Plaintiffs have not suggested

in the Complaint or in their Response that any provisions of such agreements do so;

rather they have alleged that it is the statute alone that creates the trust. See Response

at p. 17, 19-21. In the absence of language in the statute clearly establishing an

express or technical trust,7 no such trust exists. See Siu Reis v. Terrell (In re Terrell),

2018 WL 2138260, at *3 (Bankr. E.D. Mich. May 8, 2018) (dismissing a section

7 Notably, the Property Management Agreements do not contain language evidencing an intent to

create a trust. Rather, the “RELATIONSHIP OF PARTIES” section of such agreements merely

provides that: “It is understood by the Parties that Manager is an independent contractor with

respect to the relationship between the Parties, and not an employee of the Owner.” See Property

Management Agreements, ¶ 1.6.

523(a)(4) claim against a licensed real estate broker who was serving as a property

manager, concluding: “Because a trust was not created, no fiduciary relationship can

exist for purposes of section 523(a)(4)….”).

The Court accepts that the Michigan Occupational Code and/or the common

law may well have created a fiduciary relationship between Defendant and Plaintiffs.

However, as noted, federal law dictates whether a fiduciary relationship exists for

the purposes of section 523(a)(4) and “[t]he mere fact that state law places two

parties in a relationship that may have some of the characteristics of a fiduciary

relationship does not necessarily mean that the relationship is a fiduciary relationship

under § 523(a)(4).” See Abdel–Hak v. Saad (In re Saad), 319 B.R. 147, 155 (Bankr.

E.D. Mich. 2004) (concluding that the debtor, a real estate agent, “may have

breached fiduciary obligations created by Michigan law…. However, those facts

alone do not create a non-dischargeable debt” under section 523(a)(4)); In re

Blaszak, 397 F.3d at 390 (“the mere failure to meet an obligation while acting in a

fiduciary capacity does not rise to the level of defalcation; an express or technical

trust must also be present”).

The Court concludes that the cited provisions of the Michigan Occupational

Code do not establish an express or technical trust. Because no such trust was

created, no fiduciary relationship can exist for purposes of section 523(a)(4). As a

result, Count II is appropriately dismissed pursuant to Civil Rule 12(b)(6).

D. Plaintiffs Have Withdrawn Their Claim Under Section 523(a)(6)

In the Response, Plaintiffs state that they “voluntarily withdraw [their claim

under Count III] without prejudice should the case be converted to Chapter 7.”

Response at p. 24. Plaintiffs’ counsel confirmed this withdrawal on the record at the

hearing on the Motion, conceding that section 523(a)(6) is inapplicable in cases

under chapter 13 because such claims are not included in the list of section 523

discharge exceptions set forth in section 1328. See 11 U.S.C. § 1328(a)(2). This

Court will therefore consider Count III withdrawn without prejudice to Plaintiffs’

rights in the event this case is converted to a case under chapter 7.

E. Relief Under Civil Rule 12(e) Is Not Warranted

As an alternative to dismissal, Defendant requests in the Motion that the Court

order Plaintiffs to provide a more definitive statement with respect to their fraud

claim (Claim I) under Civil Rule 12(e).

Civil Rule 12(e), which applies in this adversary proceeding through

Bankruptcy Rule 7012, states in pertinent part that:

A party may move for a more definite statement of a pleading to which

a responsive pleading is allowed but which is so vague or ambiguous

that the party cannot reasonably prepare a response. The motion must

be made before filing a responsive pleading and must point out the

defects complained of and the details desired.

Motions for a more definite statement under Civil Rule 12(e) are generally

disfavored in the federal courts. See, e.g., Gold v. Winget (In re NM Holdings Co.,

LLC), 407 B.R. 232, 242–43 (Bankr. E.D. Mich. 2009). In In re European Rail Pass

Antitrust Litigation, 166 F.Supp.2d 836, 844 (S.D.N.Y. 2001) (citations omitted), the

court explained:

[I]t is well settled that such motions “generally are disfavored because

of their dilatory effect.” It “is designed to strike at unintelligibility

rather than want of detail and ... allegations that are unclear due to a

lack of specificity are more appropriately clarified by discovery rather

than by an order for a more definite statement.” As this Court has

previously explained, “[a] motion pursuant to Rule 12(e) should not be

granted ‘unless the complaint is so excessively vague and ambiguous

as to be unintelligible and as to prejudice the defendant seriously in

attempting to answer it.’”

See also Cooper Ins. Agency Ctr. v. Mourer–Foster, Inc., 2005 WL 3289345, at *1

(W.D. Mich. Dec. 5, 2005) (“Rule 12(e) motions are disfavored by most courts and

are rarely granted”) (citations omitted); Green v. Begley Co., 2008 WL 4449065, at

*4 (S.D. Ohio Sept. 29, 2008) (same); In re Berkley, 2025 WL 1426617 (Bankr. N.D.

Ohio May 15, 2025) (“Rule 12(e) motions are generally disfavored because of their

dilatory nature.”) (citations omitted).

As set forth above, Plaintiffs in this case sufficiently pled their claim under

section 523(a)(2)(A). Defendant can reasonably be expected to respond to the

allegations in Count I. While the surviving claim is somewhat lacking in detail, it is

not unintelligible. The contours of such claim can and undoubtedly will be clarified

through discovery. Therefore, Defendant’s request for a more definite statement

pursuant to Civil Rule 12(e) is denied.

VI. Conclusion

For the reasons stated herein, the Court grants the Motion in part and denies

it in part. The Court concludes that Count I of the Complaint, alleging fraud under

section 523(a)(2)(A), was sufficiently pled to survive a motion under Civil Rule

12(b)(6). The remaining counts of the Complaint will be dismissed. The Court will

enter a separate order consistent with this Opinion.

Signed on August 15, 2025 Soe

§ ™ /s/ Paul R. Hage

a □□ 772 Paul Hage

□□ , Be United States Bankruptcy Judge

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