In re Magno, BAP No. CC-97-1389-OMeH
| Decision Date | 17 December 1997 |
| Docket Number | Adversary No. LA 97-01284-KM.,BAP No. CC-97-1389-OMeH,Bankruptcy No. LA 96-46967-KM |
| Citation | 216 BR 34 |
| Parties | In re Philip L. MAGNO, Debtor. Philip L. MAGNO, v. Dennis Ray RIGSBY, Jr., a minor; Crystal Cathleen Raine Rigsby, a minor; Brent William Rigsby, a minor; Trisha Rae Rigsby, by their Guardian ad Litem, George Moore; George Moore, as Special Administrator of the Estate of Dennis Ray Rigsby; Richard Halderman, Chapter 7 Trustee, Appellees. |
| Court | U.S. Bankruptcy Appellate Panel, Ninth Circuit |
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Mufthiha Sabaratnam, Sabaratnam & Associates, Los Angeles, CA, for Philip L. Mango, appellant.
Mark W. Waterman, Breidenbach, Buckley, Huchting, Halm & Hamblet, Los Angeles, CA, for Dennis Ray Rigsby, Jr., Crystal Cathleen Raine Rigsby, Brent William Rigsby, Trisha Rae Rigsby, and the estate of Dennis Ray Rigsby, appellee.
Before: OLLASON, MEYERS and HAGAN, Bankruptcy Judges.
The debtor, Philip Magno ("Debtor"), has appealed the bankruptcy court's order allowing the plaintiffs/appellees, consisting of the minor Rigsby children by Guardian ad Litem, George Moore, and the Estate of Dennis Ray Rigsby by its Special Administrator, George Moore (together "Rigsby"), to file an amended complaint for nondischargeability. Debtor contends that the bankruptcy court erred by allowing the amended complaint, which added a count for nondischargeability of a debt pursuant to § 523(a)(6)2, to relate back to the original complaint, which stated a cause of action for denial of Debtor's discharge pursuant to § 727(a). We REVERSE.
Debtor filed a voluntary Chapter 7 bankruptcy petition on November 6, 1996. In February, 1997, Rigsby filed a timely complaint for denial of Debtor's discharge pursuant to § 727(a)(2)(A) and (a)(4)(A).3 The complaint alleged that Debtor fraudulently concealed particular assets by omitting them from his schedules and concealing their existence at the 341 meeting, and that he did so with intent to hinder, delay or defraud a creditor. The complaint stated that Rigsby had a $120,040 claim against Debtor's estate, but did not specify the facts underlying the claim.
The bar date for filing an action to determine the dischargeability of a debt under § 523 was February 11, 1997. Rigsby did not move for an extension of that deadline. On April 8, 1997, Rigsby filed a motion for leave to amend the § 727 complaint to add an alternate cause of action under § 523(a)(6), which excepts a debt from discharge if it is the result of the Debtor's "willful and malicious injury."4
The amended complaint explained the basis for Rigsby's claim, as follows. In 1991, Rigsby obtained general verdicts in Los Angeles County Superior Court against Debtor for the shooting death of Dennis Rigsby consisting of $120,000 for wrongful death damages and $40,000 for property damages. The wrongful death verdict expressly found that under the clear and convincing standard Debtor had not acted with malice towards Dennis Rigsby. Copies of the general verdicts were attached. Rigsby's attorney filed an affidavit which explained why the § 523 count was not pleaded in the original complaint, as follows:
8. When I filed the operative Complaint against defendant, I did not believe that my clients had any viable recourse under 11 U.S.C. Section 523(a)(6). However, I have recently come to learn that a line of cases hold sic that an intentional tort judgment in state court may not be dischargeable under Bankruptcy law, even if malice was not found in the state court proceeding.
In addition, the affidavit alleged that Rigsby "had never been able to recover any proceeds from the defendant in satisfaction of the judgment" because Debtor had been "hiding various assets since 1991."
Debtor opposed the motion on the grounds that it was time barred under Fed. R.Bankr.P. 4007(c) and could not relate back to an action for discharge under § 727(a).
A hearing was held on the matter on April 30, 1997. Debtor argued to the court that a complaint pursuant to § 727 did not give him notice of issues involved in a § 523(a)(6) action. Therefore, he argued that the amended complaint should not relate back to the timely filed original complaint. Rigsby argued that both complaints involved the same debt.
The bankruptcy court ruled in favor of Rigsby, holding that a § 523 count was a "lesser-included" claim of a § 727 action because the former seeks to prevent discharge of a particular debt, whereas the latter seeks to prevent discharge of all debts. The court stated:
523 is kind of a lesser-included of 727 as far as the effect. That\'s why I think it relates back. I think the counsel for the Debtor has a point that . . . the particular facts of the 523(a)(6), willful and malicious, there are some different factual elements. . . . But I think he was on notice.
On May 9, 1997, the bankruptcy court entered its order granting leave to amend. Debtor filed a timely notice of appeal on May 14, 1997.
The sole issue raised in this appeal is whether an amended complaint which adds a § 523(a)(6) claim for nondischargeability of a judgment debt resulting from prepetition conduct, which allegedly was willful and malicious, can relate back to a § 727(a) complaint which alleged only fraudulent concealment of assets, and false oath by Debtor in the bankruptcy case.
Leave to amend a complaint is generally within the discretion of the bankruptcy court and is reviewed under the abuse of discretion standard. In re Daisy Systems Corp., 97 F.3d 1171, 1175 (9th Cir.1996). Even under the abuse of discretion standard, the bankruptcy court's decision is reversible if it is based upon an incorrect legal conclusion. In re Dominguez, 51 F.3d 1502, 1508 n. 5 (9th Cir.1995). Whether an amendment relates back to the date of the original pleading under Fed.R.Civ.P. 15(c)(2) is a legal question which we review de novo. Id. at 1509; Martell v. Trilogy Ltd., 872 F.2d 322, 325 (9th Cir.1989).
The Panel agrees with Rigsby's contention on appeal that the order granting leave to amend was an unappealable, interlocutory order. See In re Travers, 202 B.R. 624, 625 (9th Cir. BAP 1996) (). An interlocutory order is one "which does not finally determine a cause of action, but instead decides only an intervening matter." In re Kashani, 190 B.R. 875, 882 (9th Cir. BAP 1995). To become final, the order must end the litigation or dispose of a complete claim for relief, leaving nothing for the court to do but execute the judgment. Id. Here, the order granting leave to amend the complaint set the dischargeability dispute into motion but did not resolve it.
28 U.S.C. § 158(a) authorizes the Panel to grant leave to appeal an interlocutory order. Travers, 202 B.R. at 626. Furthermore, under Fed.R.Bankr.P. 8003(c), the Panel may deem a notice of appeal a motion for leave to appeal where the latter motion has not been filed. Id. "Granting leave is appropriate if the order involves a controlling question of law where there is substantial ground for difference of opinion and when the appeal is in the interest of judicial economy because an immediate appeal may materially advance the ultimate termination of the litigation." Kashani, 190 B.R. at 882.
This appeal concerns a legal issue as to which there is no Ninth Circuit case law precisely on point. Review now may limit the scope of litigation and thus advance its ultimate termination. Therefore, we grant leave to appeal.
Leave to amend pleadings "shall be freely given when justice so requires." See Fed.R.Bankr.P. 7015/Fed.R.Civ.P. 15(a). The Ninth Circuit applies this rule with "extreme liberality." Forsyth v. Humana, Inc., 114 F.3d 1467, 1482 (9th Cir.1997) (citing Morongo Band of Mission Indians v. Rose, 893 F.2d 1074, 1079 (9th Cir.1990)), cert. denied, ___ U.S. ____, 118 S.Ct. 559, 139 L.Ed.2d 401 (1997). In discharge cases, the opportunity to amend is especially important because of the short time frame under which such a complaint must be filed. In re Gunn, 111 B.R. 291, 293 (9th Cir. BAP 1990).
In exercising its discretion, a bankruptcy court "must be guided by the underlying purpose of Rule 15 to facilitate decision on the merits, rather than on the pleadings or technicalities." United States v. Webb, 655 F.2d 977, 979 (9th Cir.1981); see also Conley v. Gibson, 355 U.S. 41, 47-48, 78 S.Ct. 99, 102-03, 2 L.Ed.2d 80 (1957). A bankruptcy court considers the following factors to determine whether a motion to amend should be granted: "(1) undue delay; (2) bad faith; (3) futility of amendment; and (4) prejudice to the opposing party." Forsyth, 114 F.3d at 1482.
Only the futility issue is relevant in this case. It was undisputed that Rigsby's amended complaint was filed after the deadline expired for the filing of a § 523 complaint. See Fed.R.Bankr.P. 4007(c). Fed. R.Bankr.P. 4004(d) and 4007(e) state that the adversary rules apply to nondischargeability proceedings. Adversary rule Fed. R.Bankr.P. 7015/Fed.R.Civ.P. 15(c) provides that an amended pleading "relates back" to the date of the original pleading under certain conditions. Therefore, if Rigsby's amended complaint did not relate back to the original complaint, it would have been a futile gesture for the bankruptcy court to grant leave to amend. Under these circumstances, unless the bankruptcy court reasonably concluded that amendment would not be futile, it abused its discretion by granting leave to amend. See Allwaste, Inc. v. Hecht, 65 F.3d 1523, 1530 (9th Cir.1995).
A claim will relate back if:
(2) the claim or defense asserted in the amended pleading arose out of the conduct, transaction, or occurrence set forth or attempted to be set forth in the original pleading;. . . .
Such...
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