In re Staffer

• Citation: 306 F.3d 967
• Decision Date: 27 September 2002
• Docket Number: No. 01-56093.,01-56093.
• Parties: In re Andrew STAFFER, Debtor, Andrew Staffer, Appellant, v. Robert Predovich, Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

306 F.3d 967

In re Andrew STAFFER, Debtor Andrew Staffer, Appellant, v. Robert Predovich, Appellee.

No. 01-56093.

United States Court of Appeals, Ninth Circuit.

Submitted June 6, 2002.^*

Filed September 27, 2002.

John W. Mills III, Feder & Mills, Los Angeles, California, for the appellant-debtor.

Thomas H. Casey, Rancho Santa Margarita, California, for the appellee.

Appeal from the Ninth Circuit Bankruptcy Appellate Panel Perris, Brandt and

Marlar, Bankruptcy Judges, Presiding, BAP No. CC-00-01507-PBMa.

Before FERNANDEZ, WARDLAW and W. FLETCHER, Circuit Judges.

Opinion by Judge WILLIAM A. FLETCHER; Partial Concurrence and Partial Dissent by Judge FERNANDEZ.

OPINION

WILLIAM A. FLETCHER, Circuit Judge:

Six years after Andrew Staffer's Chapter 7 bankruptcy proceeding was closed, Robert Predovich moved to reopen, seeking permission to file a complaint asserting a claim under 11 U.S.C. § 523(a)(3)(B) to determine whether a debt arising out of a Canadian civil fraud judgment against Staffer was nondischargeable. The bankruptcy court denied the motion, citing Bankruptcy Rule 4007(c), which provides that certain complaints to determine nondischargeability must be filed no later than sixty days after the date set for the meeting of the creditors. The court also held that, even if it was not time-barred by the Rule, the motion to reopen was barred by laches.

The Bankruptcy Appellate Panel ("BAP") reversed, holding that Rule 4007(b), which provides that a complaint to determine nondischargeability may be filed "at any time," was the applicable rule. It held that the question of whether the non-dischargeability complaint was barred by laches was not properly addressed at the motion-to-reopen stage and should instead be determined after the case was reopened.

For the reasons discussed below, we affirm the result reached by the BAP. We agree that the bankruptcy court incorrectly relied upon Rule 4007(c) to find the motion untimely and that Rule 4007(b) was the applicable rule. However, we clarify that a separate motion to reopen is not necessary when commencing an action for nondischargeability of a debt under Rule 4007(b); that is, Predovich could have opted simply to file a nondischargeability complaint. Finally, we agree with the BAP that the debtor may assert laches as a defense when Predovich's complaint is filed.

I. Background

In September 1991, Predovich commenced a civil fraud action against Staffer in a Canadian court. Two years later, in November 1993, Staffer filed for Chapter 7 bankruptcy in the United States. Staffer did not disclose the Predovich action, list Predovich as a creditor in his bankruptcy schedules, or list Predovich's counsel for notice purposes. Staffer argues — and Predovich does not appear to contest — that Predovich was not officially notified of the bankruptcy proceeding prior to the January 3, 1994 deadline for filing nondischargeability complaints, but became aware of the proceeding's pendency sometime soon after that deadline. As evidence of this actual knowledge, Staffer points to (1) a June 21, 1994 affidavit by Predovich in the Canadian action, in which he indicates that sometime after service of his Canadian claim on Staffer's counsel on January 7, 1994, it "came to [his] attention" that Staffer had declared bankruptcy and that Predovich had not been listed as a creditor; (2) a July 6, 1994 Motion to Proceed in the Canadian court that acknowledges Staffer's status as a bankrupt; and (3) a September 20, 1995 deposition of Staffer, in which Predovich's counsel in the Canadian action questioned Staffer regarding documents filed in Staffer's Chapter 7 proceeding.

On July 31, 1997, three years after Staffer's bankruptcy case was closed, the Canadian action against Staffer terminated in a default judgment. Two years after that, on August 20, 1999, Predovich filed an action to enforce the Canadian judgment in the Ventura County Superior Court. On May 10, 2000, the superior court stayed that proceeding in order for the parties "to seek the review and opinion" of the bankruptcy court regarding the enforceability of the Canadian judgment.

On June 13, 2000, six years after Predovich became aware of Staffer's bankruptcy proceeding, Predovich filed a motion to reopen in the United States Bankruptcy Court for the Central District of California. Predovich asserted that the case should be reopened: (1) to allow Predovich to file a nondischargeability complaint under 11 U.S.C. § 523(a)(3)(B); (2) to allow Predovich to file a complaint against Staffer revoking his discharge pursuant to 11 U.S.C. § 727; (3) to administer unscheduled assets that Predovich alleged Staffer had wilfully failed to disclose; and (4) to allow the court to order that the schedule and statement of affairs be amended. Of these bases for reopening, the first — the request to reopen to file a nondischargeability complaint under § 523(a)(3)(B) — was the primary focus of Predovich's argument to the bankruptcy court.

Staffer opposed the motion to reopen on the ground that, because Predovich had known about the bankruptcy case since at least 1994, it was barred by laches. In a supplemental opposition to the motion, Staffer argued that allowing Predovich to act after this delay would prejudice Staffer because he had sent relevant documents to storage, was required to retain new counsel unfamiliar with the earlier proceedings, and would be disadvantaged by the fading of memories.

At a hearing on the motion to reopen, the bankruptcy court indicated that it was clear "from the motion itself" that "four years ago at least, [Predovich] knew about this bankruptcy case and discussed that with people." Predovich argued that he was entitled to file a nondischargeability complaint "at any time" under Rule 4007(b). He argued that if Staffer wanted to present factual evidence as to laches, it would be appropriate to do so after the motion to reopen was granted. The court disagreed. It denied the motion to reopen, holding that

when it was discovered by the Movant that there was a bankruptcy case affecting Mr. Staffer, it became incumbent on the Movant immediately or promptly, and certainly within a reasonable time—and the case law suggests that within a reasonable time means about the same thing that Rule 4007(c) says, which is within 60 days after the first noticed 341(a) meeting, long time ago, but certainly within 60 days after discovery of the existence of the bankruptcy case, and we're several years beyond that 60 day period.

The BAP, in a published opinion, reversed, holding that the sixty-day time limit imposed by Rule 4007(c) did not apply to the filing of a complaint to determine the dischargeability of an unscheduled debt under § 523(a)(3)(B). Predovich v. Staffer (In re Staffer), 262 B.R. 80, 82-83 (9th Cir. BAP2001). Instead, it agreed with Predovich and held that the applicable rule is Rule 4007(b), which provides that "[a] complaint other than under § 523(c) may be filed at any time." Id. at 82 n. 4 (quoting Fed. R. Bankr.P. 4007(b)) (alteration in original). The BAP declined to decide whether Staffer had a good laches defense on the facts, holding that it was not proper to address that question prior to Predovich's filing of his nondischargeability complaint. Id. at 83, n. 6. One member of the BAP panel dissented, arguing that there is no requirement that a motion to reopen be filed as a prerequisite to a § 523(a)(3)(B) proceeding. See id. at 83-84 (Brandt, J., dissenting).

Staffer timely appealed.

II. Jurisdiction and Standard of Review

We have jurisdiction pursuant to 28 U.S.C. § 158(d). We review cases appealed from the BAP de novo. Scovis v. Henrichsen (In re Scovis), 249 F.3d 975, 980 (9th Cir.2001). "Because we are in as good a position as the BAP to review bankruptcy court rulings, we independently examine the bankruptcy court's decision, reviewing the bankruptcy court's interpretation of the Bankruptcy Code de novo and its factual findings for clear error." State Bar v. Taggart (In re Taggart), 249 F.3d 987, 990 (9th Cir.2001) (quoting United States v. Hatton (In re Hatton), 220 F.3d 1057, 1059 (9th Cir.2000)). The denial of a motion to reopen a bankruptcy case is reviewed for abuse of discretion. See Weiner v. Perry, Settles & Lawson, Inc. (In re Weiner), 161 F.3d 1216, 1217 (9th Cir.1998).

III. Discussion

The core question in this case — whether Predovich's motion to reopen to determine nondischargeability was time-barred — requires analysis of both the time limits established under the Federal Rules of Bankruptcy Procedure and the potential time limits imposed by the equitable doctrine of laches. We address each in turn.

A. Federal Rules of Bankruptcy Procedure

The Bankruptcy Court refused to reopen the case on the ground that the proposed actions for which Predovich sought a reopening were all time-barred under Federal Rule of Bankruptcy Procedure 4007(c). For the reasons that follow, we hold that the bankruptcy court erred in applying that rule.

Rule 4004(a) dictates that "[i]n a chapter 7 liquidation case a complaint objecting to the debtor's discharge under § 727(a) of the Code shall be filed no later than 60 days after the first date set for the meeting of creditors under § 341(a)." To the extent that Predovich sought to have Staffer's case reopened in order to challenge his discharge under § 727, the bankruptcy court was correct that the underlying action would be time-barred, but under Rule 4007(a) rather than Rule 4007(c).

However, Predovich also argued that reopening was appropriate in order to permit him to file a nondischargeability action under § 523(a)(3)(B). Indeed, this was the central focus of his argument for reopening. Section 523(a)(3)(B) permits nondischargeability complaints by creditors with certain kinds of debts (including fraud-based debts like the debt at issue here) who both were omitted from the debtor's schedules and did not have actual knowledge of the...