Dominguez, In re, 93-56020

CourtUnited States Courts of Appeals. United States Court of Appeals (9th Circuit)
Citation51 F.3d 1502
Docket NumberNo. 93-56020,93-56020
Parties, 33 Collier Bankr.Cas.2d 568, 27 Bankr.Ct.Dec. 116, Bankr. L. Rep. P 76,462 In re H. Frank DOMINGUEZ, Debtor. H. Frank DOMINGUEZ, Appellant, v. David D. MILLER; Denyse M. Miller, Appellees.
Decision Date18 April 1995

Norman L. Hanover, Hanover & Schnitzer, and J. Raymond Kelley, San Bernardino, CA, for debtor-appellant.

David Gould, McDermott, Will & Emery, Los Angeles, CA, David M. Stern, Stern, Neubauer, Greenwald & Pauly, Santa Monica, CA, for appellees.

Appeal from the Ninth Circuit Bankruptcy Appellate Panel.

Before: BROWNING, D.W. NELSON, and HAWKINS, Circuit Judges.

D.W. NELSON, Circuit Judge:

Debtor/Appellant Frank H. Dominguez appeals a bankruptcy appellate panel's reversal of a bankruptcy court's dismissal, for failure to meet the limitation requirement of Fed.R.Bankr.P. 4004(a), 1 of Creditors/Appellees David and Denyse Millers' complaint objecting to discharge of Dominguez' debt. We affirm the bankruptcy appellate panel's decision.

FACTUAL AND PROCEDURAL BACKGROUND

Dominguez filed a Chapter 11 bankruptcy petition on January 22, 1988. The Millers, who held claims in excess of $5 million against the estate, were active in the bankruptcy proceedings from the beginning. The court initially confirmed a non-liquidating Debtor's Plan and disclosure statement on February 7, 1990; but the trustee filed a liquidating Trustee's Plan, before the Debtor's Plan had become effective, that proposed to discharge all debts not explicitly excepted under the plan.

On September 10, 1991, two days prior to the scheduled confirmation hearing on the Trustee's Plan, the Millers filed a "Memorandum Re: Relationship between Order Confirming Trustee's Plan and Debtor's Discharge" (the "Discharge Memorandum"), in which they contended that section 1141(d)(3) prohibited the confirmation of the Trustee's Plan from discharging the debt to the Millers because the situation satisfied the three statutory conditions for nondischargeability--liquidation, suspension of business, and applicability of section 727(a). The Millers chose not to file a formal complaint objecting to the discharge of the debt, because their attorney took the position that satisfaction of the statutory requirements of section 1141(d)(3) prohibited discharge of the debts as a matter of law, whether or not a complaint objecting to discharge had been filed within the procedural requirements of Rule 4004.

At the confirmation hearing, the court confirmed the Trustee's Plan and voided the confirmation of the Debtor's Plan. The court deferred decision on the Millers' memorandum on the legal effect of the confirmation order by requiring the Millers to submit their argument as a declaratory judgment action. The court noted that the contemplated process would not waive Dominguez' rights or defenses. In particular, the court suggested that Rule 4004(a) established a procedural bar to the Millers' objection to discharge because they had not filed a complaint to commence an adversary action prior to the confirmation hearing.

In a declaratory judgment action, the Millers claimed that 1) the Code section is self-executing, or 2) the confirmation order allowing a declaratory judgment complaint to be filed was, in effect, an extension of the Rule 4004(a) limitation period for filing a complaint objecting to discharge, or 3) the declaratory judgment complaint was an amendment that related back, under Rule 7015, to the Discharge Memorandum, which was itself an informal complaint timely filed before the bar date. In defense, Dominguez argued that there was no extension of the bar date and that the Discharge Memorandum did not constitute a pleading to initiate an adversary proceeding; therefore, failure to dismiss the claim would allow the Millers to circumvent a procedural default that resulted from their chosen litigation strategy. The bankruptcy court found against the Millers on each claim and dismissed their complaint for failure to state a claim upon which relief could be granted.

On appeal, the bankruptcy appellate panel (the "BAP") affirmed the bankruptcy court's rulings that a timely complaint was necessary to effectuate section 1141(d)(3)'s prohibition of discharge and that the court's permission of a declaratory judgment complaint was not an extension of the time to initiate an

adversary proceeding objecting to discharge. However, the BAP reversed the bankruptcy court's ruling that the Discharge Memorandum was insufficient to satisfy the requirement of a complaint to which the declaratory judgment complaint related back. The BAP found the Discharge Memorandum sufficient because it challenged Dominguez' right to a discharge and provided appropriate allegations and at least some substantive evidence to support the challenge. Because the Discharge Memorandum was filed prior to the September 12, 1991 confirmation hearing, the BAP found no lack of notice to Dominguez. The BAP also determined that there was an equitable basis for allowing the claim to go forward because the October 1, 1991 confirmation order was "not entirely clear."

STANDARD OF REVIEW

We review de novo the dismissal of a complaint under Fed.R.Civ.P. 12(b)(6). Alonzo v. ACF Property Management, Inc., 643 F.2d 578, 579 (9th Cir.1981). "Because this court is in as good a position as the [BAP] to review the decision of the bankruptcy court, this court reviews the bankruptcy court's decision independently." Allred v. Kennerley (In re Kennerley), 995 F.2d 145, 146 (9th Cir.1993). The bankruptcy court's conclusions of law are reviewed de novo, and its findings of fact are reviewed under the clearly erroneous standard. Id.

DISCUSSION
I. Jurisdiction

As a threshold issue, this court must consider sua sponte whether it has jurisdiction over this appeal. Under 28 U.S.C. Sec. 158(d), 2 jurisdiction exists when the bankruptcy court order and the lower appellate decision are both final orders. See, e.g., Ernst & Young v. Matsumoto (In re United Insurance Management, Inc.), 14 F.3d 1380, 1383 (9th Cir.1994); 28 U.S.C. Sec. 158(d). "In bankruptcy proceedings, the rules of finality developed under the general grant of appellate jurisdiction provided in 28 U.S.C. Sec. 1291 (1982) are given a flexible reading." Turgeon v. Victoria Station, Inc. (In re Victoria Station, Inc.), 840 F.2d 682, 683 (9th Cir.1988). This more liberal standard and "pragmatic approach" stem from the "unique nature" of bankruptcy proceedings. Bonner Mall Partnership v. U.S. Bancorp Mortgage Co. (In re Bonner Mall Partnership), 2 F.3d 899, 903 (9th Cir.1993), cert. dismissed, --- U.S. ----, 114 S.Ct. 681, 126 L.Ed.2d 648 (1994).

The bankruptcy court's dismissal of the Millers' declaratory judgment action is final and appealable: it terminated all possibility of litigation on the merits of the Millers' objection to discharge. E.g., Zolg v. Kelly (In re Kelly), 841 F.2d 908, 911 (9th Cir.1988). The question then is whether a BAP's order reversing the bankruptcy court's dismissal is final and appealable under 28 U.S.C. Sec. 158(d).

The effect of the BAP's decision is to remand to reopen proceedings in the bankruptcy court for a determination on the merits of the Millers' claim that the debt is nondischargeable. When a lower appellate decision reverses a final order and remands, we consider the "systemic interest in preserving the bankruptcy court's role as the finder of fact," avoidance of piecemeal litigation, and overall enhancement of judicial efficiency. Bonner, 2 F.3d at 904; see also Vylene Enterprises, Inc. v. Naugles, Inc. (In re Vylene Enterprises, Inc.), 968 F.2d 887, 895 (9th Cir.1992). Although we ordinarily lack jurisdiction when the lower appellate decision remands for further factual findings related to a central issue raised on appeal, we may assert jurisdiction if the appellate "issue is legal in nature and its resolution either 1) could dispose of the case or proceeding The Bonner provision for review of legal questions that may obviate the need for further factual proceedings is applicable in this case. If we uphold the bankruptcy court's ruling that a complaint is necessary within the time period established by Rule 4004 and reinstate its legal conclusion that the memorandum asserting the self-executing character of 11 U.S.C. Sec. 1141(d)(3) cannot be interpreted as an informal complaint objecting to the discharge of Dominguez' debt, then no further factual proceedings will be necessary, and the Millers will have no relief from the confirmation of the Trustee's Plan. Therefore, we have jurisdiction to review this appeal pursuant to 28 U.S.C. Sec. 158(d).

and obviate the need for factfinding; or 2) would materially aid the bankruptcy court in reaching its disposition on remand." Bonner, 2 F.3d at 904 (citing King v. Stanton (In re Stanton), 766 F.2d 1283, 1288 n. 8 (9th Cir.1985) and Farm Credit Bank v. Fowler (In re Fowler), 903 F.2d 694, 696 (9th Cir.1990)).

II. Applicability of Rule 4004(a)

Section 1141(d)(3) establishes the criteria for an exception to the usual rule that confirmation of a reorganization plan discharges a chapter 11 debtor's obligations, incorporating by reference the requirements of section 727(a). Sec. 1141(d)(3). 3 The BAP affirmed the bankruptcy court's decision that the procedural rules validly implement this provision by providing for an adversary proceeding, Rule 7001(4), which must be commenced by the filing of a complaint objecting to the individual chapter 11 debtor's discharge, Rule 7003, "not later than the first date set for the hearing on confirmation," Rule 4004(a). Extensions require a noticed motion filed prior to the expiration of the time for filing the complaint. Rule 4004(b).

Persuasive arguments support applicability of the complaint requirement and the associated limitation period. First, the bankruptcy rules are properly promulgated...

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