In re Lopez

• Decision Date: 26 August 2002
• Docket Number: Bankruptcy No. LA 99-17911-ER.,BAP No. CC-01-1216-MoHK.
• Citation: 283 B.R. 22
• Parties: In re Procopio LOPEZ and Yolanda Lopez, Debtors. Yolanda Lopez, Appellant, v. Specialty Restaurants Corporation, Appellee.
• Court: U.S. Bankruptcy Appellate Panel, Ninth Circuit

283 B.R. 22

In re Procopio LOPEZ and Yolanda Lopez, Debtors Yolanda Lopez, Appellant, v. Specialty Restaurants Corporation, Appellee.

BAP No. CC-01-1216-MoHK.

Bankruptcy No. LA 99-17911-ER.

United States Bankruptcy Appellate Panel of the Ninth Circuit.

Argued and Submitted May 23, 2002.

Filed August 26, 2002.

Andrew P. Altholz, Santa Monica, CA, for Yolanda Lopez.

Michael F. Wright, Case, Knowlson, Jordan & Wright, LLP, Los Angeles, CA, for Specialty Restaurants Corp.

Before MONTALI, HOLMAN¹ and KLEIN, Bankruptcy Judges.

OPINION

MONTALI, Bankruptcy Judge.

Former debtor Yolanda Lopez ("Lopez") appeals from the bankruptcy court's order denying her motion to reopen her chapter 7² case (the "Motion to Reopen") in an effort to bolster her ability to sue appellee Specialty Restaurants Corporation dba The Proud Bird ("Specialty") on a prepetition sexual harassment cause of action, and granting Specialty's motion to intervene (the "Motion to Intervene"). The bankruptcy court based its order, primarily, on the apparent expiration of the time for seeking to revoke Lopez' discharge under Section 727(e).

We rule that adding a potentially valuable asset to the schedules is a valid ground to reopen a chapter 7 case, that expiration of the time to revoke the discharge is not a sufficient basis to preclude reopening, and that a former debtor's alleged bad faith is never a sufficient basis by itself to deny a motion to reopen to schedule an asset that has the potential to benefit creditors. Accordingly, because the Motion to Reopen should have been granted, the bankruptcy court's order will be REVERSED with directions to order the appointment of a chapter 7 trustee. The appeal from that portion of the order granting the Motion to Intervene will be dismissed as MOOT.

I. FACTS

Before filing their joint, voluntary chapter 7 petition, Lopez and her husband Procopio Lopez met with a non-attorney petition preparer, Abad Cabrera ("Cabrera"). On September 3, 1998, they signed a petition, schedules and statements. The schedules did not list any claim against Specialty as an asset, and Lopez and her husband did not claim any property as exempt. The bankruptcy petition was not filed at this time.

In or about December of 1998, Lopez spoke to Cabrera about a legal action for sexual harassment and Cabrera referred Lopez to an attorney. On December 31, 1998, Lopez signed a form provided by the California Department of Fair Employment and Housing (the "Department") alleging sexual harassment by her employer, Specialty, and requesting authorization to file a lawsuit (the "Administrative Request"). The Administrative Request was filed with the Department on February 11, 1999, and on February 16, 1999, the Department authorized Lopez to bring a civil action under California Government Code Section 12965(b).

The Lopez' bankruptcy petition was filed on March 3, 1999 (the "Petition Date"). The schedules and statements had not been revised to include anything about Lopez' claims against Specialty. Lopez alleges that she was not aware of the Petition Date, and that she thought the bankruptcy papers had been filed around the time they had been prepared. She does not deny, however, that she never amended her schedules to include anything about her claims against Specialty.

Shortly after the Petition Date, on March 22, 1999, Lopez and others filed an action against Specialty and other defendants in the Superior Court of the State of California, County of Los Angeles (Case No. BC 207443), seeking an unspecified amount of damages for sexual harassment, requiring plaintiffs to work over 40 hours per week without overtime pay, and other alleged wrongs (the "Action"). The Action was later consolidated with other cases (Case Nos. BC 215608 and BC 223482).

Meanwhile, on April 15, 1999, Lopez' chapter 7 trustee (the "Trustee") filed a "no asset" report, and on June 14, 1999 the bankruptcy court entered an order discharging Lopez and her husband of their debts under Section 727. On June 23, 1999, their chapter 7 case was closed.

On or about January 19, 2001, Specialty wrote to Lopez' attorney in the Action stating its intention to file a motion for summary judgment on the basis that Lopez is judicially estopped from pursuing her claims because she intentionally failed to list any claim against Specialty in her bankruptcy schedules and statements. The parties stipulated to a stay of the Action pending determination in the bankruptcy court of Lopez' authorization to prosecute the Action.³ The parties filed their motions with the bankruptcy court, and on March 7, 2001, the bankruptcy court held a hearing on the Motion to Reopen and Specialty's Motion to Intervene.⁴

On May 3, 2001, the bankruptcy court entered an order (the "Order") granting the Motion to Intervene and denying the Motion to Reopen. As to the Motion to Reopen, the bankruptcy court reasoned that creditors could not benefit from reopening because it was too late to revoke the discharge⁵ and that it did not believe Lopez' assertion that she merely "forgot" to schedule the cause of action. The bankruptcy court cited In re Koch, 229 B.R. 78 (Bankr.E.D.N.Y.1999).⁶

Lopez filed a timely notice of appeal.

II. ISSUES⁷

1. Did the bankruptcy court abuse its discretion by denying Lopez' Motion to Reopen?

2. Is Specialty's Motion to Intervene moot?

III. STANDARDS OF REVIEW

A decision regarding reopening of a case based upon allegations of additional assets "is committed to the sound discretion of the bankruptcy court, and will not be set aside absent an abuse of discretion." Kozman v. Herzig (In re Herzig), 96 B.R. 264, 266 (9th Cir. BAP 1989). "A bankruptcy court necessarily abuses its discretion if it bases its ruling on an erroneous view of the law. The Panel also finds an abuse of discretion if it has a definite and firm conviction the court below committed a clear error of judgment in the conclusion it reached." Palm v. Klapperman (In re Cady), 266 B.R. 172, 178 (9th Cir. BAP 2001) (citations and quotation marks omitted). Mootness is a jurisdictional issue we consider sua sponte and review de novo. See Paulman v. Gateway Venture Partners III, L.P. (In re Filtercorp, Inc.), 163 F.3d 570, 576 (9th Cir.1998).

IV. DISCUSSION

We start with the Motion to Reopen. Section 350(b) provides that "[a] case may be reopened in the court in which such case was closed to administer assets, to accord relief to the debtor, or for other cause." 11 U.S.C. § 350(b). Rule 5010 provides:

A case may be reopened on motion of the debtor or other party in interest pursuant to § 350(b) of the Code. In a chapter 7, 12, or 13 case a trustee shall not be appointed by the United States trustee unless the court determines that a trustee is necessary to protect the interests of creditors and the debtor or to insure efficient administration of the case.

Fed.R.Bankr.P. 5010.

Under the above provisions, reopening a case is typically ministerial and "presents only a narrow range of issues: whether further administration appears to be warranted; whether a trustee should be appointed; and whether the circumstances of reopening necessitate payment of another filing fee." Menk v. LaPaglia (In re Menk), 241 B.R. 896, 916-17 (9th Cir. BAP 1999). Cf. Beezley v. California Land Title Co. (In re Beezley), 994 F.2d 1433, 1434 (9th Cir.1993) (denying reopening to schedule creditor in no-asset case, because "dischargeability is unaffected by scheduling; amendment of Beezley's schedules would thus have been a pointless exercise.").

Therefore, although a motion to reopen is addressed to the sound discretion of the bankruptcy court, "the court has the duty to reopen an estate whenever prima facie proof is made that it has not been fully administered." Herzig, 96 B.R. at 266. In particular, it is an abuse of discretion to deny a motion to reopen where "assets of such probability, administrability, and substance" appear to exist "as to make it unreasonable under all the circumstances for the court not to deal with them." Id. (quotation marks and citation omitted). A motion to reopen can be denied, however, where the chance of any substantial recovery for creditors appears "`too remote to make the effort worth the risk.'" Id. (citation omitted).

Specialty has argued before the bankruptcy court and on this appeal that further administration was not warranted because creditors could not benefit from reopening since the time to revoke Lopez' discharge has expired under Section 727(e). Assuming the time to revoke the discharge has indeed run,⁸ we disagree with Specialty's conclusion that creditors could not benefit from reopening.⁹

As Lopez points out, Specialty's argument is a non-sequitur. Lopez' discharge affects her personal liability, but if the Action has any value then creditors stand to benefit regardless whether her discharge can be revoked. That is true because the Action became property of the bankruptcy estate as of the Petition Date, even though the Action was not listed in the schedules, and property that is neither abandoned nor administered remains property of the estate even after the case is closed. See 11 U.S.C. § 541 (property of estate) and § 554(d) (property not abandoned or administered remains property of estate); Pace v. Battley (In re Pace), 146 B.R. 562, 564-66 (9th Cir. BAP 1992), aff'd, 17 F.3d 395, 1994 WL 55523 (9th Cir.1994) (table) (unscheduled property remains in estate after case is closed).

In other words, the Action belongs to the estate, not to Lopez. Lopez conceded this in her Motion to Reopen and at the hearing in the bankruptcy court, and specifically asked to reopen not just so she could amend her schedules but also so that a chapter 7 trustee could administer the Action.

Although we make no assumption about what actual value the Action might have, we note that it does not appear on its face be valueless or unworthy of consideration by a chapter 7 trustee. Unlike the situation in Herzig, it...