In re Roberts

• Decision Date: 29 September 2005
• Docket Number: Bankruptcy No. 02-00252.,BAP No. ID-04-1566-BuBMo.,Adversary No. 02-06089.
• Citation: 331 B.R. 876
• Parties: In re Kenneth and Laura ROBERTS, Debtors. Kenneth R. Roberts, Appellant, v. James F. Erhard, Appellee.
• Court: U.S. Bankruptcy Appellate Panel, Ninth Circuit

331 B.R. 876

In re Kenneth and Laura ROBERTS, Debtors.

Kenneth R. Roberts, Appellant, v. James F. Erhard, Appellee.

BAP No. ID-04-1566-BuBMo.

Bankruptcy No. 02-00252.

Adversary No. 02-06089.

United States Bankruptcy Appellate Panel of the Ninth Circuit.

Argued by Videoconference on July 29, 2005.

Submitted on August 5, 2005.

Filed — September 29, 2005.

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Randal J. French, Bauer & French, Boise, ID, for Kenneth R. Roberts.

Howard R. Foley, Foley, Freeman, Borton & Stern, Meridian, ID, for James F. Erhard.

Before: BUFFORD,¹ BRANDT and MONTALI, Bankruptcy Judges.

OPINION

BUFFORD, Bankruptcy Judge.

I. Introduction

Appellant Kenneth R. Roberts ("Roberts") raises two issues on appeal. First, he argues that the bankruptcy court should have dismissed the complaint filed by James F. Erhard ("Erhard") objecting to his discharge for failure to serve it timely, even though he never raised this issue in the trial court. Second, Roberts asks us to find that the bankruptcy court erred in holding that Roberts is not entitled to a chapter 7 discharge under § 727(a)(4)(A).² We AFFIRM in part and REVERSE in part.

II. Relevant Facts

Roberts filed his chapter 7 petition on January 30, 2002, and filed his Schedules and Statement of Financial Affairs ("the Statement") on February 11, 2002. In the Statement, Roberts stated that his 2001 income was "$0.00". The Statement also indicated that Roberts had not finished preparing his income taxes for 2001 and that the "income figures [were] being done."

Roberts failed to make certain other financial disclosures on his Statement. He failed to disclose $9,964 in rent received from a rental property and $2,800 received from the sale of a registered quarter horse within the year prior to the filing of the petition. He also failed to disclose his ownership of a television set valued at $400, an oak entertainment center valued at $500, and horse tack valued at $40. On October 17, 2003, nearly two years after he filed his Statement, Roberts amended his Statement to disclose the missing information, including that in 2001 he received income of $19,798 from his business.

Erhard filed a complaint on April 30, 2002 objecting to Roberts' discharge based on these errors and omissions, and charged that the Statement contained false oaths that required the denial of a discharge under § 727(a)(4)(A). However, Erhard did not serve this complaint or a summons thereon.

The bankruptcy court issued a notice of conditional dismissal on September 30, 2002, for lack of prosecution of the complaint. In response, on October 10, 2002, Erhard filed a "motion to retain," requesting that the court give him additional time for service of the summons and complaint on Roberts. In December 2002, the bankruptcy court granted the motion of Jerry Korn, Erhard's counsel, to withdraw on the grounds that he had been suspended from the practice of law.

On March 5, 2003, the bankruptcy court issued a second notice of conditional dismissal because a return of summons had still not been filed. However, the court served the notice only on Mr. Korn, who was no longer representing Erhard. On July 5, 2003, the court served the motion on Erhard directly. Thereafter, Erhard obtained new counsel and filed an amended complaint on or about September 3, 2003 (more than sixteen months after the filing of the original complaint), which asserted claims for denial of discharge under § 727(a)(2), § 727(a)(3), § 727(a)(4)(A), and § 727(a)(5). Roberts answered the complaint, but failed to raise any timeliness issues. The adversary proceeding then was litigated, and tried by the bankruptcy court on July 15, 2004.

Following the trial on the merits, the bankruptcy court found that Roberts did not cogently explain why his business account showed total deposits of $54,530.10 when the 2001 tax returns showed gross business 2001 receipts of $59,703.00. The trial court also determined that Roberts received $12,764 in proceeds from the horse sale and rentals in the year prior to bankruptcy that he failed to disclose in his Statement.

In its decision, the court specifically found that Roberts' conduct indicated, "a careless and reckless approach to the important duty of disclosure in sworn bankruptcy filings." The bankruptcy court further stated, "case law places a serious duty of care and candor" on debtors and "Defendant's conduct herein was insufficient to meet that duty." The bankruptcy court denied Roberts' discharge based solely on the § 727(a)(4)(A) cause of action and dismissed the other causes of action.

III. JURISDICTION

The bankruptcy court had jurisdiction pursuant to 28 U.S.C. §§ 1334 and 157(b)(1). The Panel has jurisdiction under 28 U.S.C. § 158(b)(1).

IV. STANDARD OF REVIEW

In reviewing decisions of the bankruptcy court, the Panel reviews legal conclusions de novo, factual findings for clear error, and mixed questions of law and fact de novo. Murray v. Bammer (In re Bammer), 131 F.3d 788, 791-92 (9th Cir.1997). The Panel also reviews de novo a bankruptcy court's selection of the applicable legal rules under § 727. Searles v. Riley (In re Searles), 317 B.R. 368, 373 (9th Cir. BAP 2004).

V. DISCUSSION

Roberts challenges the denial of his discharge on two grounds. First, he argues that the bankruptcy court had an obligation to dismiss the adversary proceeding sua sponte because of Erhard's delay in prosecuting it. Second, he challenges the court's application of § 727(a)(4)(A) in this case. We reject Roberts' challenge on the first ground, but sustain it on the second.

A. Dismissal for Untimely Service of Complaint

Roberts argues for reversal on the grounds that the bankruptcy court had an independent duty under FRCP 4(m), incorporated by reference in Rule 7004(a), to dismiss the adversary proceeding sua sponte for Erhard's failure to serve the summons and complaint within 120 days of filing. We disagree for two distinct reasons. First, Roberts raises this argument for the first time on appeal, and did not raise it in the bankruptcy court below. Second, the bankruptcy court was not obligated to dismiss where Roberts subsequently appeared and litigated the adversary proceeding to judgment on the merits.

I. Failure to Raise Issue Below

We need not reach the question of whether Erhard's complaint should have been dismissed for untimeliness. Roberts did not make this argument in the bankruptcy court, and he raises this issue for the first time on appeal.

We normally decline to consider on appeal an argument that is not raised in the bankruptcy court. See, e.g., S. Cal. Permanente Med. Group v. Ehrenberg (In re Moses), 215 B.R. 27, 35 n. 11 (9th Cir. BAP 1997); Consolidated Marketing Inc. v. Marvin Props. Inc. (In re Marvin Props., Inc.), 76 B.R. 150, 153 (9th Cir. BAP 1987); Credit Alliance v. Dunning-Ray Agency (In re Blumer), 66 B.R. 109, 111 (9th Cir. BAP 1986). Although we have discretion to consider issues not first raised at trial, we have no obligation to do so. See Blumer, 66 B.R. at 111. Because this argument was not presented to the bankruptcy court, we will not review it here.

Our decision against consideration of this argument first raised on appeal is supported by Kontrick v. Ryan, 540 U.S. 443, 446, 124 S.Ct. 906, 157 L.Ed.2d 867 (2004). Kontrick involved Rule 4004, which requires that a § 727 complaint be filed no later than 60 days after the first date set for the meeting of creditors. The debtor argued in that case that a debtor may challenge the timeliness of a creditor's filing of an objection to discharge under Rules 4004 and 9006(b)(3) at any point in the proceedings (even on appeal), just as a litigant generally may raise a court's lack of subject matter jurisdiction at any point in the same civil action. See id. at 446-47, 124 S.Ct. 906. The Supreme Court rejected this analogy, and found that Rules 4004 and 9006(b)(3) are not rules governing subject-matter jurisdiction, but simply claims-processing rules under which a claim may be forfeited if the party invoking the rule waits too long to claim its benefit. Id. The Court stated that a defense ordinarily is lost if it is not included in the answer or amended answer. Id. at 459, 124 S.Ct. 906 (citing Rule 7012(b)). "Only lack of subject-matter jurisdiction is preserved post-trial." Id.

2. FRCP 4(m)

Even if we were to reach Roberts' argument that FRCP 4(m) required the bankruptcy court to dismiss the case because Erhard failed to serve the summons and complaint before the 120-day deadline, we would reject Roberts' argument.

Roberts argues on appeal that FRCP 4(m) required the bankruptcy court to dismiss the complaint for lack of prosecution sua sponte. FRCP 4(m) provides in relevant part:

If service of the summons and complaint is not made upon a defendant within 120 days after the filing of the complaint, the court, upon motion or its own initiative after notice to the plaintiff, shall dismiss the action without prejudice as to that defendant or direct that service be effected within a specific time; provided that if the plaintiff shows good cause for failure, the court shall extend the time for service for an appropriate period.

Roberts relies on the language in this rule that provides, "the court, upon ... its own initiative ... shall dismiss the action" if service is not accomplished within 120 days of filing and an extension is not sought on a showing of good cause. The original complaint clearly was not served on Roberts within 120 days of its filing. Indeed, it appears that Erhard never served any version of the complaint at all on Roberts. Roberts eventually appeared voluntarily to answer and defend the adversary proceeding. In addition, Erhard never sought an extension of the 120-day period, and made no showing of good cause for an extension.

Roberts' argument fails to take account of FRCP 12(h)(1)(B), incorporated by reference in Rule 7012(b), which provides:

A defense of lack of...