In re Beugen, BAP No. NC-88-1926-RAsV
| Decision Date | 16 May 1989 |
| Docket Number | BAP No. NC-88-1926-RAsV,Adv. No. 3-88-0351 LK.,Bankruptcy No. 3-86-00686 ETC |
| Parties | In re David Earl BEUGEN, Debtor. Robert A. YOUNG, Appellant, v. David Earl BEUGEN, Appellee. |
| Court | Bankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, Ninth Circuit |
Robert A. Young, San Francisco, for appellant.
Henry Cohen, Cohen & Jacobson, Burlingame, for appellee.
Before RUSSELL, ASHLAND and VOLINN, Bankruptcy Judges.
This appeal arises out of a dispute involving the sale of two hairdressing salons to Robert A. Young ("Young") ("appellant"), Hyon T. Mun, and Khang Un Mun, Inc., by a corporation owned by the debtor David Earl Beugen ("appellee") and his wife Susan. The dispute over the sale spawned at least 18 separate lawsuits, both in federal and state courts in Nevada and California. Most of these suits were brought by Young, who is a vexatious litigant.
Soon after the salons were sold in 1983, Young claimed that the debtor had committed fraud in the sale and had misrepresented the salons' income. Young and the other purchasers refused to pay the monthly installments owed and attempted to have the contract rescinded. They ultimately filed an action in Nevada state court on June 27, 1983, seeking damages and rescission of the sale. However, the purchasers failed to post a bond which was required as security for costs for out-of-state plaintiffs, pursuant to Nevada Revised Statutes Section 18.130(1). Upon motion by the defendants (including the debtor), the court entered an order of dismissal on May 23, 1984. No appeal was taken.
On March 12, 1986, the debtor filed his individual Chapter 11 petition. On June 20, 1986, Young filed an adversary action in the bankruptcy court against the debtor, pursuant to 11 U.S.C. § 523(a)(2), to determine the dischargeability of the contingent and unliquidated claims previously dismissed in the prior Nevada and California state court actions. Based upon the doctrines of res judicata and collateral estoppel, the bankruptcy court dismissed the complaint on October 26, 1987. The U.S. District Court for the Northern District of California affirmed the bankruptcy court's decision on September 1, 1988.
On the same day that the debtor filed his Chapter 11 petition, the debtor's business entity, Aviva Gelato, Inc., an ice cream enterprise, also filed a Chapter 11 petition. On May 21, 1986, Young was appointed a member of the Official Creditors' Committee in the debtor's bankruptcy case. After purchasing an unsecured claim against both the corporate and individual debtors (see infra the "Leung claim"), Young subsequently was appointed to the Official Creditors' Committee in the corporate case, thus becoming the only common member of the two creditors' committees. Thereafter, upon Young's motion, the bankruptcy court entered an order on December 29, 1986, transferring the purchased and assigned claims to Young in the Official Creditors' Register.
On April 13, 1987, Young filed motions to dismiss both bankruptcy petitions pursuant to 11 U.S.C. § 1112(b) for cause, bad faith in filing and maintaining the petitions, and for debtor's misconduct. None of the other creditors were a party to either of these motions. The bankruptcy court granted Young's motion to dismiss as to Aviva Gelato, Inc., on June 24, 1987. However, the motion to dismiss the individual debtor's case was denied on the condition that the debtor file his disclosure statement and proposed plan of reorganization within thirty days. The debtor complied with this order, but Young nevertheless moved to strike the disclosure statement and to dismiss the case. Rather than dismissing the case, the court instead converted the debtor's case to Chapter 7 on December 4, 1987. An order to that effect was entered on March 8, 1988.
On June 27, 1988, the last date for filing objections to discharge, Young filed a complaint objecting to the debtor's discharge under virtually every subdivision of 11 U.S.C. § 727(a) and seeking to determine both the liability and dischargeability under 11 U.S.C. § 523(a)(6) of an unliquidated, contingent state-law claim for malicious prosecution.1 On August 17, 1988, the debtor moved to dismiss the entire adversary proceeding on the grounds of Young's lack of standing to sue, his bad faith in filing the complaint, and his failure to state a claim upon which relief could be granted. On August 31, 1988, Young filed a motion for sanctions under Bankruptcy Rule 9011 against the debtor and thereafter wrote a letter to the debtor's counsel informing him that the motion to dismiss, in Young's view, was unsupportable and thus the reason for Young's motion for sanctions. The letter indicated that the motion for sanctions would be withdrawn if the debtor would withdraw his motion to dismiss.
A hearing was held on both motions on September 30, 1988, at which time the bankruptcy court granted the debtor's motion to dismiss the entire adversary complaint with prejudice and denied Young's motion for sanctions. The court's order and judgment were entered on that same day. Young timely filed his Notice of Appeal on October 7, 1988.
Whether the bankruptcy court erred when it determined that Young did not have standing to object to the debtor's discharge.
A bankruptcy court's findings of fact are reviewed under the clearly erroneous standard and its conclusions of law are reviewed de novo. Wien Air Alaska, Inc. v. Bachner, 865 F.2d 1106, 1108 (9th Cir. 1989); Bankr.R. 8013. A motion to dismiss should not be granted unless it appears that the plaintiff can prove no set of facts in support of his claim that would entitle him to relief. Mack v. South Bay Beer Distributors, Inc., 798 F.2d 1279, 1282 (9th Cir.1986).
Bankruptcy Code Section 101(9)(A) defines a "creditor" as any "entity that has a claim against the debtor at the time of or before the order for relief." A "claim" is a "right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, secured, or unsecured." 11 U.S.C. § 101(4)(A). A "claim" also can be a "right to an equitable remedy for breach of performance if such breach gives rise to a right to payment." 11 U.S.C. § 101(4)(B).
Pursuant to Section 727(c)(1), a creditor "may object to the granting of a discharge under subsection (a) of this section." It is obvious that a creditor who has a claim which will be affected by discharge can object to the discharge. The question we must resolve, however, is whether a party who was not the original holder of claims is nevertheless a "creditor," within the meaning of the Code, who is entitled to object to a debtor's discharge. Young contends that he is a legitimate creditor because he purchased and was assigned two existing claims against the debtor.2 Thus, he contends that he has a right to object to the debtor's discharge.
The first claim Young purchased originally belonged to Louise Spottswood ("Spottswood claim"). Ms. Spottswood leased a rental property unit from the debtor and paid him a $1,200 security deposit. Because a window leaked and her dog was incompatible with a dog owned by another tenant, she vacated the premises and brought a small claims suit against the debtor to recover the security deposit. A judgment was rendered on May 10, 1983, and Ms. Spottswood was awarded $753.38.
On November 14, 1985, Young solicited and obtained an assignment of the Spottswood claim. Although a balance of only $374.47 remained, Young paid $500 for this claim against the debtor. Thereafter, Young undertook numerous, extensive and extreme acts to enforce his claim, including subpoenaing bank records and TRW reports, and examining the debtor and his wife. On January 16, 1986, at the City Hall in San Francisco, California, before Judge McCabe, counsel for the debtor tendered to Young $400 cash as payment in full satisfaction of the Spottswood claim. Young refused the tender, claiming that he had already spent more in his efforts to collect the judgment than what he paid for it. Young currently asserts that the debtor owes him $1,100 on the Spottswood claim.
The other claim Young acquired by assignment originally belonged to Galen Leung ("Leung claim"). After the debtor filed his Chapter 11 petition, Young solicited Mr Leung and paid him $500 for a note of $5,000, plus interest, that the debtor and Aviva Gelato gave to Leung on July 9, 1986. In a declaration on July 23, 1986, Young stated that the assignment was in consideration of assistance rendered to Mr. Leung. He did not mention that he had paid $500 for the note. However, during a hearing on that same date in the then existing Aviva Gelato bankruptcy case, Young admitted to the court that he in fact paid $500 for the note. Nevertheless, in the instant case, the bankruptcy court entered an order on December 29, 1986, substituting Young as transferee of record of the Leung claim in the debtor's Official Creditors' Register.
At the hearing on the motion to dismiss and motion for sanctions, the debtor argued, and the court agreed, that since Young was not the original holder of his two claims, he was not entitled to object to the debtor's discharge. In its oral decision, the bankruptcy court stated that:
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