In re Ota, BAP No. NC-95-1305-RAsMe. Bankruptcy No. 93-31447-TC. Adv. No. 93-3454.
| Citation | 192 BR 545 |
| Decision Date | 30 January 1996 |
| Docket Number | BAP No. NC-95-1305-RAsMe. Bankruptcy No. 93-31447-TC. Adv. No. 93-3454. |
| Parties | In re Kenneth M. OTA, Debtor. Kenneth M. OTA, Appellant, v. SAMSUNG ELECTRONICS CO., LTD., Appellee. |
| Court | Bankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, Ninth Circuit |
Cathleen Cooper Moran, Mountain View, CA, for Kenneth M. Ota.
Mark Fowler, Palo Alto, CA, for Samsung Electronics Co., Ltd.
Before: RUSSELL, ASHLAND, and MEYERS, Bankruptcy Judges.
An assignee of claims against the debtor filed a complaint objecting to the debtor's discharge. The bankruptcy court entered judgment in favor of the objecting party. The debtor appeals on the grounds that an assignee of claims lacks standing to object to discharge. We AFFIRM.
Peter Y. Lee ("Lee") and Kenneth M. Ota ("Ota") formed a general partnership ("partnership")1 for importing and selling semi-conductor products and microcomputer chips. The partnership purchased some of its inventory from OC & T Korea, Ltd. (OC & T) and Hyesong Electronics, Ltd. ("Hyesong"). Samsung Electronics Co., Ltd. ("Samsung"), a Korean semi-conductor manufacturer, sold OC & T and Hyesong chips which they in turn sold to the partnership.
In August 1991, the partnership experienced financial difficulties and defaulted on its payment to OC & T and Hyesong. Consequently, OC & T and Hyesong ceased deliveries to the partnership. Later that year, OC & T and Hyesong experienced their own financial problems and defaulted on their obligation to Samsung.
On May 23, 1992, OC & T and Hyesong assigned their right to payment from Lee, Ota and the partnership to Samsung, in partial consideration of their debt to Samsung. In July 1992, Samsung filed a claim in Santa Clara County Superior Court against the partnership and against Lee and Ota individually to collect on the assigned debt.2
On December 24, 1992, the partnership filed a chapter 73 petition. On January 7, 1993, Lee filed an individual chapter 7 petition. The next day, Ota also filed an individual chapter 7 petition.4
On October 15, 1993, Samsung filed a complaint to deny Ota's discharge pursuant to §§ 727(a)(3) and (a)(5).5 The complaint was based upon Ota's alleged failure to maintain adequate financial partnership records and personal financial records and on Ota's alleged failure to explain losses of over $17 million in partnership and individual assets.
On November 24, 1993, Ota filed an answer to the complaint in propria persona. Ota denied the allegations and requested dismissal of the complaint. The bankruptcy court denied the request to dismiss and set the matter for trial.
At the trial, Ota challenged Samsung's standing to object to his discharge on the ground that Samsung was merely an assignee of OC & T's and Hyesong's claims and, therefore, did not have standing to object. Over Samsung's objection, the bankruptcy court considered this argument even though Ota had not asserted this defense in his answer and his trial brief, in which he first raised the issue, was not timely filed.6
On February 24, 1995, the bankruptcy court entered its findings of fact and conclusions of law sustaining Samsung's objection and denying Ota's discharge. Ota appeals.
Whether an assignee of claims is a "creditor" with standing to object to a debtor's discharge pursuant to § 727.
Generally, a bankruptcy court's determination of whether a debtor has concealed records or has satisfactorily explained a loss of assets in an objection to discharge proceeding is a finding of fact, which is reviewed for clear error. In re Hawley, 51 F.3d 246, 248 (11th Cir.1995). However, the bankruptcy court's interpretation of the term "creditor" as defined in the Bankruptcy Code is reviewed de novo. In re Pacific Atl. Trading Co., 33 F.3d 1064, 1065-66 (9th Cir.1994).
Ota contends that the objecting creditor, Samsung, does not have standing to object to his discharge because Samsung is merely an assignee of OC & T's and Hyesong's claims. Samsung argues that even though it is not the original holder of its claims, it is a creditor as defined by the Bankruptcy Code and, therefore, has standing to object to the debtor's discharge. Both parties rely on In re Beugen, 99 B.R. 961 (9th Cir. BAP 1989), aff'd mem., 930 F.2d 26 (9th Cir.1991), in support of their contrary positions.
Section 727 provides that a creditor or a trustee may object to the granting of a discharge.7 The Code defines a creditor as a party holding a claim against the debtor which arose at the time of or before the order for relief was entered. § 101(10).8 A claim is simply defined as a right to payment or a right to an equitable remedy that gives rise to a right to payment. § 101(5)(A).9
Samsung obtained an assignment of claims against Ota from its customers, namely OC & T and Hyesong. The assignment occurred seven (7) months before Ota filed bankruptcy. OC & T and Hyesong assigned their claims as a means of satisfying part of an outstanding debt to Samsung which they were unable to pay because the Lee and Ota partnership had defaulted on its obligation to OC & T and Hyesong. As a result of the assignment, Samsung became a creditor of the partnership, as well as a creditor of Lee and Ota individually. Upon Ota's bankruptcy, Samsung obtained the right to object to Ota's discharge pursuant to § 727. This right does not depend on whether Samsung was an original holder of its claim or whether the claim was purchased or was assigned.
The debtor relies on the Bankruptcy Appellate Panel's ("BAP's") opinion in In re Beugen, 99 B.R. 961 (9th Cir. BAP 1989), aff'd mem., 930 F.2d 26 (9th Cir.1991) for his contention that a creditor who has purchased or has been assigned a claim cannot bring a § 727 action. We completely disagree with the debtor's application of Beugen to these facts and, similarly, we reject the debtor's broad interpretation of Beugen's holding.
In Beugen, the creditor was a vexatious litigant who had purchased his claims and initiated litigation solely to harass the debtor. The creditor purchased the claims in an attempt to control the litigation against the debtor through membership on the unsecured creditors' committee. The BAP affirmed the bankruptcy court's order dismissing the creditor's objection to Beugen's discharge and concluded, "the right to object to a debtor's discharge is not a marketable commodity which may be purchased by one party from another in order to inflict further punishment and discomfort upon the debtor." 99 B.R. at 965 (emphasis added).
The extenuating circumstances in Beugen produced a holding that is inapplicable to these facts. Both the bankruptcy court's ruling and the BAP's ruling that the claimant lacked standing to object to the debtor's discharge turned on the claimant's course of conduct, not on the fact that the claimant had purchased its claims. Beugen, 99 B.R. at 964-65 (). Unlike Beugen, there are no facts in the record before us to support even an inference that Samsung obtained the claims at issue for a purpose other than to satisfy OC & T's and Hyesong's debt to Samsung.
We conclude that absent an improper purpose or motive, an assignee or purchaser of claims has standing to object to a debtor's discharge. Accordingly, Samsung has standing and we AFFIRM.
1 The parties refer to Lee and Ota's arrangement as simply the "Lee and Ota general partnership". The record reflects the partnership was also informally known as Verticle Horizon Unlimited, PAL Enterprises, KMO Technology, Eurasia Cosmetics, Infinity Memory Products and Upgrade.
Further, it appears that Lee and Ota never actually formed a partnership. At trial, Ota testified that, "I don't believe that I signed any partnership paper." According to Ota, he understood that he and Lee had simply agreed to share the profits, have co-equal authority and jointly own the assets.
2 Although Ota and Lee questioned whether Samsung had a valid claim at the trial, they submitted no evidence and did not meaningfully litigate the question. At this time, Samsung's claims have not been disallowed.
3 Unless otherwise indicated, all Chapter, Section and Rule references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1330 and to the Federal Rules of Bankruptcy Procedure, Rules XXXX-XXXX.
4 Ota originally filed his petition in the San Jose division of the Northern District of California. The partnership and Lee filed petitions in the San Francisco division of the Northern District of California. On March 18, 1993, the bankruptcy court in San Jose transferred Ota's case to San Francisco.
5 On October 19, 1993, Samsung also filed an objection to Lee's discharge. On February 24, 1994, the bankruptcy...
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