268 B.R. 839 (9th Cir.BAP (Cal.) 2001), 98-90205, In re Beaty

Docket Nº:Adversary No. 98-90205-A7.
Citation:268 B.R. 839
Party Name:In re Thomas R. BEATY and Nancy Z. Beaty, Debtors. David Selinger, Appellant, v. Thomas R. Beaty, Appellee. BAP No. SC-00-1566-RyKR. Bankruptcy No. 91-10342-A7.
Case Date:July 23, 2001
Court:United States Bankruptcy Courts, Ninth Circuit
 
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Page 839

268 B.R. 839 (9th Cir.BAP (Cal.) 2001)

In re Thomas R. BEATY and Nancy Z. Beaty, Debtors.

David Selinger, Appellant,

v.

Thomas R. Beaty, Appellee.

BAP No. SC-00-1566-RyKR.

Bankruptcy No. 91-10342-A7.

Adversary No. 98-90205-A7.

United States Bankruptcy Appellate Panel of the Ninth Circuit

July 23, 2001

Submitted: March 22, 2001.

Filed: July 23, 2001.

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David Selinger, Oceanside, CA, pro se.

Thomas B. Gorrill, San Diego, CA, for Thomas R. Beaty and Nancy Z. Beaty.

Before RYAN, KLEIN, and RUSSELL, Bankruptcy Judges.

OPINION

RYAN, Bankruptcy Judge.

After Thomas and Nancy Beaty ("Debtors")

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received a chapter 7 1 discharge, David Selinger obtained a state court default judgment against Thomas (the "Default Judgment"). Selinger then filed an adversary proceeding seeking to revoke Debtors' discharge under § 727 (the " § 727 Action"). After a hearing, Debtors were granted summary judgment. Later, Selinger filed a second complaint (the "Complaint") against Thomas, alleging that the Default Judgment was nondischargeable under §§ 523(a)(2), (4), and (6). Both Selinger and Thomas filed cross-motions for summary judgment (collectively, the "Motions"). Selinger also filed a motion to strike portions of Thomas' answer. After a hearing, the bankruptcy court (1) denied the motion to strike; (2) denied Selinger's motion for summary judgment; and (3) granted Thomas' motion for summary judgment (the "Order"). Selinger then filed a motion to alter or amend, which the bankruptcy court denied. Selinger timely appealed.

We AFFIRM IN PART and REVERSE IN PART and REMAND.

I. FACTS

In January 1991, Selinger filed a complaint in California state court against Saraston Development Company and DOES 1-50. The complaint alleged four causes of action: (1) breach of duty to exercise reasonable care, (2) negligence, (3) assumption of premises liability, and (4) fraudulent concealment with malice. At the time, Selinger did not know Thomas' identity.

On September 12, 1991, Debtors filed a chapter 7 petition. Debtors did not list Selinger on their bankruptcy schedules as a creditor because Debtors did not know of Selinger's identity. On January 10, 1992, Debtors received their discharge.

In June 1993, the state court entered the Default Judgment finding that Thomas had been properly served with the summons, complaint, and order substituting him as a named defendant and that Thomas had failed to timely appear and answer. The Default Judgment stated that Thomas had injured Selinger by willfully suppressing a material fact and that his "conduct was fraudulent, willful, malicious, and in conscious disregard" of Selinger's rights. Default Judgment Against Thomas R. Beaty (June 10, 1993), at 1. Additionally, the Default Judgment awarded Selinger damages of $5,000 and provided that punitive damages would be determined later.

The state court also ordered Thomas to appear at a judgment debtor's exam and to produce certain documents. In response, Thomas filed a notice of injunction informing the state court of Debtors' bankruptcy and discharge. Nothing further happened in the state court.

On August 29, 1994, Selinger filed the § 727 Action. After a hearing, the bankruptcy court entered summary judgment in favor of Debtors, and Selinger filed a motion for reconsideration, which was denied. Selinger appealed to the district court, and the district court affirmed the bankruptcy court by an order entered on April 14, 1997.

Shortly thereafter, Selinger filed the Complaint. 2 Thomas then filed a motion to dismiss, and on September 1, 1998, the bankruptcy court dismissed the Complaint.

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Selinger appealed the dismissal to the BAP (the "Appeal").

Later, Thomas answered the Complaint, generally denying the allegations in the Complaint and affirmatively alleging laches. In his answer, Thomas stated that

Plaintiff had formal notice of the Defendant's [Thomas] Chapter 7 bankruptcy and discharge no later than June of 1993. Plaintiff filed a complaint objecting to the Debtors' discharge. Judgment was entered in Defendant's [Thomas] favor, Plaintiff appealed, and the judgment was affirmed. Only after learning of a published court opinion which might give the Plaintiff a basis to claim non-dischargeability for punitive damages, Plaintiff brought this action to determine the dischargeability of his claim. Plaintiff has brought this action without excuse or justification to explain the unreasonable delay of almost six years since he first learned of the bankruptcy. This delay has prejudiced the Defendant, and the Plaintiff's complaint should be dismissed.

Defendant's Answer to Plaintiff's Complaint to Determine Dischargeability of Debt (Feb. 24, 2000), at 4-5.

On March 9, 2000, we reversed the bankruptcy court's decision to dismiss the Complaint and remanded the matter to the bankruptcy court. 3 On April 20, 2000, a hearing was held on the motion to strike and the Motions, and on July 12, 2000, the Order was entered. Later, the bankruptcy court denied Selinger's motion to alter or amend and Selinger thereafter timely appealed both orders.

II. ISSUES 4

A. Whether the bankruptcy court violated Selinger's right to due process.

B. Whether the bankruptcy court erred in granting Thomas' motion for summary judgment.

C. Whether the bankruptcy court erred in denying Selinger's motion for summary judgment.

III. STANDARD OF REVIEW

We review whether the bankruptcy court violated an individual's right to due process de novo. See Duff v. United States Trustee ( In re California Fidelity, Inc.), 198 B.R. 567, 571 (9th Cir. BAP 1996). We also review the bankruptcy court's granting of summary judgment de novo. See Gertsch v. Johnson & Johnson Fin. Corp. (In re Gertsch), 237 B.R. 160, 165 (9th Cir. BAP 1999). Similarly, we review the bankruptcy court's interpretation of the Code and Rules de novo. See Olson-Ioane v. Derham-Burk (In re Olson), 253 B.R. 73, 74 (9th Cir. BAP 2000).

IV. DISCUSSION

A. The Bankruptcy Court Did Not Violate Selinger's Right to Due Process.

The bankruptcy court denied the motion to strike Thomas' laches defense. On appeal, Selinger contends that because the laches defense was inadequately pled, the bankruptcy court's denial of his motion to strike was a denial of his due process rights. Similarly, Selinger contends that the bankruptcy court's use of the laches doctrine violated his due process rights. We disagree.

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The Fourteenth Amendment of the United States Constitution provides in pertinent part that no state shall "deprive any person of life, liberty, or property, without due process of law." U.S. CONST. amend. XIV, § 1.

In Wade v. State Bar of Arizona (In re Wade), 948 F.2d 1122 (9th Cir.1991), the State Bar of Arizona brought a motion for relief from the automatic stay to pursue disciplinary action against the debtor. Id. at 1123. The bankruptcy court granted the motion before the debtor's response was due under the court's local rules, and the debtor claimed that this violated his due process rights. The Ninth Circuit disagreed, stating that if the debtor

had been deprived of any meaningful opportunity to respond to the Bar's position before the Bankruptcy Court, there could have been a denial of due process.... However, the Wades were not deprived of such an opportunity.... The Bankruptcy Court thoroughly considered the Wades' arguments and evidence when they were raised in the Wades' motion for reconsideration of its order.

Id. at 1125.

Here, Selinger claims that the bankruptcy court's ruling departed from the accepted and usual course of judicial proceedings. However, the Record shows that Selinger was provided ample opportunity to express his views. Selinger filed multiple documents 5 in connection with the matter. Selinger was also provided his day in court, and the bankruptcy court heard his arguments.

Selinger argues that the answer did not adequately establish the basis for a laches defense. We disagree. The answer provided ample reasons for the laches defense, and Selinger was adequately placed on notice for pleading purposes.

Accordingly, we see no basis for Selinger's assertion that the bankruptcy court violated his due process rights.

B. The Bankruptcy Court Erred in Granting Thomas' Motion for Summary Judgment.

The bankruptcy court held that laches was a valid defense and operated as a time bar to the Complaint. On appeal, Selinger contends that the bankruptcy court erred in allowing laches to serve as an affirmative defense. We agree.

Section 523(c)(1) provides that

[e]xcept as provided in...

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