Compton, Matter of, 89-1696

• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)
• Writing for the Court: Before REAVLEY, KING and JOHNSON; KING
• Citation: 891 F.2d 1180
• Parties: 22 Collier Bankr.Cas.2d 68, 20 Bankr.Ct.Dec. 41, Bankr. L. Rep. P 73,211 In the Matter of Paul R. COMPTON and Hannelore S.A. Compton d/b/a Compton Real Estate, Inc., d/b/a Era Realty, etc., Debtors. Alfonso SANCHEZ RAMOS and Guadalupe Saldivar De Sanchez, Appellants, v. Paul R. COMPTON, and Hannelore S.A. Compton, etc., Appellees. Summary Calendar.
• Docket Number: No. 89-1696,89-1696
• Decision Date: 16 January 1990

Page 1180

891 F.2d 1180 22 Collier Bankr.Cas.2d 68, 20 Bankr.Ct.Dec. 41,
Bankr. L. Rep. P 73,211 In the Matter of Paul R. COMPTON and Hannelore S.A. Compton
d/b/a Compton Real Estate, Inc., d/b/a Era Realty,
etc., Debtors.
Alfonso SANCHEZ RAMOS and Guadalupe Saldivar De Sanchez, Appellants,
v.
Paul R. COMPTON, and Hannelore S.A. Compton, etc., Appellees. No. 89-1696 Summary Calendar. United States Court of Appeals,
Fifth Circuit. Jan. 16, 1990.

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Albert Armendariz, Sr., El Paso, Tex., for appellants.

Nelson Smith, El Paso, Tex., for appellees.

Appeal from the United States District Court for the Western District of Texas.

Before REAVLEY, KING and JOHNSON, Circuit Judges.

KING, Circuit Judge:

Plaintiff-appellants, Alfonso Sanchez Ramos and Guadalupe Saldivar De Sanchez (Creditors), filed a complaint to determine the dischargeability of a debt against defendant-appellees, Paul R. and Hannelore S.A. Compton (Debtors). The Debtors moved for the dismissal of such complaint on the grounds that it was not timely filed under the governing bankruptcy code provisions. The bankruptcy court held, and the district court affirmed, that the complaint had to be dismissed as "untimely filed under the mandatory time frame imposed by [Bankruptcy] Rule 4007(c)." The Creditors appeal to this court.

I. FACTS AND PROCEDURAL BACKGROUND

Creditors approached Debtors in the course of the Debtors' activities as real estate agents and were shown, and ultimately made several payments toward, a condominium in El Paso, Texas.

On May 20, 1985, Debtors filed a bankruptcy petition under Chapter 7. The Debtors' schedules included the following listing:

Mr. and Mrs. Sanchez

c/o Victor Falvey

1155 Westmoreland Street

Suite 208A

El Paso, Texas

The Clerk's office relied on this listing and sent notice of the section 341(a) creditors' meeting. 11 U.S.C. § 341(a). Such notice included a statement that the 60 day period in which to file a complaint against dischargeability would expire on August 25, 1985. The notice was mailed June 3, 1985, but never received by the Creditors because Victor Falvey (Falvey) had no relationship with the Creditors. ¹

According to the bankruptcy court's findings

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and statement of facts, ² however, on May 23, 1985, Debtors' attorney, Donald S. Leslie (Leslie), contacted H. Tati Santiesteban (Santiesteban), then Creditors' attorney in relation to the real estate transaction at issue, by letter and informed Santiesteban that the Debtors had filed for bankruptcy and "advised Santiesteban to resolve the matters involving the real estate condominium transaction that is the subject matter of Creditors' complaint, through the Bankruptcy Court, and provided Debtors' bankruptcy case number." ³ Correspondence on this matter continued between Leslie and Santiesteban and on July 10, 1985, Leslie sent Santiesteban a letter stating that arrangements to clear title on the condominium the Creditors were in the process of purchasing would have to be made through the bankruptcy trustee. Leslie's letter also provided contact information for the bankruptcy trustee.

On August 2, 1985, Leslie wrote Albert Armendariz, Sr. (Armendariz), the Creditors' new lawyer, and informed him of the correspondence he had had with Santiesteban. ⁴ Leslie also enclosed a copy of a letter that he had sent Santiesteban regarding the situation. Armendariz responded with a letter to Leslie on August 21, 1985 in which he requested further information about the reports filed with the bankruptcy court about the Creditors' interest in the condominium.

On September 5, 1985, ten days following the August 26, 1985 deadline, Armendariz--acting on behalf of the Creditors--filed a "Complaint Against Dischargeability" under Bankruptcy Code sections 523(a)(2) and (4). 11 U.S.C. §§ 523(a)(2) and (4). The complaint was based on the Debtors' alleged conversion of funds of the Creditors held by the Debtors. Debtors responded by filing a motion to dismiss on September 13, 1985. The Debtors based their motion on the expiration of the time set for filing such complaints. An extension for filing was neither requested nor granted under Bankruptcy Rule 4007 prior to the running of the limitations period. Creditors opposed this motion and claimed that the complaint was filed ten days late because the Creditors had never received notice of the proceedings of deadlines from the bankruptcy court. They also pointed out that the Debtors' schedules failed to contain their complete names or address in Mexico. They alleged that their claim was not listed and, therefore, not dischargeable. Alternatively, the bankruptcy court noted that the Creditors contended that their claim was "exempt[ed] from discharge because the alleged conversion by the Debtors of the funds held in escrow does not constitute a debt contemplated by section 341(a)."

The motion to dismiss was heard by the bankruptcy court on January 13, 1986. The bankruptcy court, in an opinion rendered March 25, 1986, found that Creditors' claim was not exempted from discharge and that Santiesteban was made aware of the Debtors' bankruptcy by Leslie in a letter prior even to the mailing of the notice by the clerk. Though Creditors never received official notice of the bankruptcy from the bankruptcy court, based on the actual knowledge of Creditors' counsel--in adequate time for the filing of a response or a motion to extend the deadline--the bankruptcy court found the Creditors precluded from filing their complaint late.

The Creditors appealed and the district court--after stating that the sole issue appropriately before it was "whether the Creditors' late filing of a Complaint against dischargeability of a debt should have been considered on the merits by the Bankruptcy

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Court"--affirmed the judgment of the bankruptcy court. ⁵

II. STANDARD OF REVIEW

In accordance with the scheme of 28 U.S.C. § 158(a), the Creditors' appealed initially to the district court. However, at this point, we review the bankruptcy court's findings in the same manner as we would in an appeal coming initially from the district court. In re Commercial Western Finance Corp., 761 F.2d 1329, 1333 (9th Cir.1985) ("Because we are in as good a position as the district court to review the findings of the bankruptcy court, we independently review the bankruptcy court's decision."). Hence, we adhere to the rule that findings of fact will not be set aside unless clearly erroneous. In re Texas Research, Inc., 862 F.2d 1161, 1163 (5th Cir.1989). Legal issues, on the other hand, we decide de novo. Id.

As we are requested to review only issues of law in the case at hand, we engage in an independent review.

III. DISCUSSION

On appeal, Debtors ask us to consider the following two issues:

1. Whether the 60 day filing deadline for filing a complaint to dispute the discharge of a debt under Bankruptcy Rule 4007(c) "unlawfully enlarges, abridges or modifies a substantive right in violation of 28 U.S.C. § U.S.C. 2075."

2. Whether "[a] creditor's actual knowledge of Bankruptcy proceedings, without receiving formal notice of specific filing deadlines from the debtor excuses the untimely filing of a complaint objecting to the dischargeability of a debt pursuant to 11 U.S.C. § 523(a)(2) and (4)."

As the Debtors failed to raise the first of these issues below, we are constrained from considering it at this stage. Although the second issue was not raised in the same form as it is presented to us, we note that both the district court and the bankruptcy court addressed the issue of notice in their orders and conclude that the issue was raised in a manner sufficient to require us to consider it.

The Creditors ask us to find actual notice, without formal notice of filing deadlines, of a bankruptcy proceeding insufficient to bar the late filing of a complaint against dischargeability in cases arising under 11 U.S.C. §§ 523(a)(2) and (4). ⁶ We

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decline this invitation in relation to the case at hand.

As noted above, Debtors listed a Mr. and Mrs. Sanchez on their schedules. However, the notice sent did not reach the Creditors because the Debtors listed an incorrect address. The "deficient" listing left the Creditors in the same position as unscheduled creditors. "It is well settled that if a debtor lists incorrectly the name or address of a creditor in the required schedules, so as to cause the creditor not to receive notice, that creditor's debt has not been 'duly scheduled' ... and if the creditor has no actual knowledge of the bankruptcy proceeding, the creditor's debt is not dischargeable." In re Adams, 734 F.2d 1094, 1098 (5th Cir.1984).

The fact that a debt is improperly scheduled does not necessarily create a right to file a complaint against discharge late. As Adams, supra, implies, where a creditor has actual knowledge of the proceedings, the debt may still be dischargeable. See also In re Frankina, 29 B.R. 983, 985 (Bankr.E.D.Mich.1983) ("The [Plaintiffs'] contention that the mere failure of the debtor to list their proper address in the schedules gives them the right to file a late complaint is without merit."). Section 523(a)(3)(B) of the Bankruptcy Code codifies this result in relation to unscheduled debts of the type described in sections 523(a)(2) and (4) as follows:

(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt--

(3) neither listed nor...