Mahakian v. William Maxwell Invs., LLC (In re Mahakian)
| Decision Date | 13 April 2015 |
| Docket Number | Adversary No. 2:11–ap–01207–MKN.,Bankruptcy No. 2:10–bk–17568–MKN.,BAP No. NV–14–1115–JuKuD. |
| Parties | In re Charles G. MAHAKIAN, Debtor. Charles G. Mahakian, Appellant, v. William Maxwell Investments, LLC, Appellee. |
| Court | Bankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, Ninth Circuit |
Mark Bruce Segal, Las Vegas, NV, argued for appellant Charles G. Mahakian; David V. Wadsworth, of Sender, Wasserman, Wadsworth, P.C., argued for appellee William Maxwell Investments, LLC.
Before: JURY, KURTZ, and DUNN, Bankruptcy Judges.
Chapter 71 debtor, Charles G. Mahakian (Debtor), omitted appellee-creditor William Maxwell Investments, LLC (WMI) from his schedules in what was originally noticed as a no asset case. After Debtor received his § 727 discharge, the chapter 7 trustee (Trustee) filed a notice of assets, a claims bar date was set, and notice was sent to creditors. WMI did not receive notice of the claims bar date and never filed a proof of claim (POC) in this case. WMI foreclosed on the real property which secured the debt guaranteed by Debtor and then filed a lawsuit against Debtor in the state court to collect the deficiency.
In the bankruptcy case, Debtor amended his Schedule F to include WMI as a creditor. Debtor also filed a POC on WMI's behalf well past the claims bar date and the additional thirty days allowed under Rule 3004. Debtor then commenced this adversary proceeding requesting a determination that his obligation to WMI had been discharged, and filed a motion seeking to have the POC filed on WMI's behalf deemed as timely filed under § 523(a)(3)(A) based on excusable neglect (Retroactive POC Motion).
On the parties' cross-motions for summary judgment in the adversary proceeding, the bankruptcy court entered a judgment in favor of WMI and against Debtor, finding that the prepetition debt of WMI had not been discharged because it had never been scheduled (MSJ Judgment). The bankruptcy court denied Debtor's Retroactive POC Motion in a separate order (Retroactive POC Order). Debtor appeals from the SMJ Judgment and Retroactive POC Order. For the reasons stated, we AFFIRM.
Debtor and his brother were members in Fountain View Center, LLC (FVC). In May 2006, Union Bank loaned $1,735,000 to FVC which was evidenced by a promissory note secured by a deed of trust against real property located in Maricopa County, Arizona. Debtor and his brother personally guaranteed the FVC loan.
On April 27, 2010, Debtor filed a skeletal chapter 7. Debtor did not include Union Bank in the creditor mailing matrix attached to the petition.
The bankruptcy clerk sent out the standard § 341 notice setting June 2, 2010, as the date for the first meeting of creditors and August 2, 2010, as the last day for filing complaints under §§ 523 or 727. The court noticed the case as a no asset case, advising creditors not to file a POC. Union Bank did not receive this notice.
In June 2010, Union Bank assigned the promissory note and deed of trust to WMI.
In mid-July 2010, Debtor filed his schedules and statement of financial affairs (SOFA).3 Debtor did not list the debt owed to Union Bank, which had been assigned to WMI, in his schedules.
On October 19, 2010, Debtor was granted his § 727 discharge.
The next day, Trustee filed a notice that assets would be administered for the payment of creditors claims. The clerk then sent notice to all matrix-identified creditors which set a deadline of January 24, 2011, for the filing of proofs of claim. Neither Union Bank nor WMI received this notice.
The Internal Revenue Service (IRS) timely filed a POC in the secured amount of $109,205.90, priority unsecured amount of $38,002.40, and nonpriority unsecured amount of $1,046.65.
In early December 2010, FVC had defaulted on the FVC loan. A notice of sale under the deed of trust was recorded and on April 2, 2011, WMI purchased the property for $1,350,000 at a non-judicial foreclosure sale. At some point, WMI's counsel informed Debtor's counsel that WMI was owed a prepetition debt based on a deficiency due to Debtor's personal guarantee.
On May 24, 2011, Debtor filed an amended Schedule F that added Union Bank and WMI as unsecured creditors having a disputed claim in an “unknown” amount based on the loan to FVC. Two days later, Debtor served Union Bank and WMI with a copy of the § 341 notice by mail.
On June 28, 2011, WMI commenced a lawsuit against Debtor, his brother, and others in the Superior Court for Maricopa County, Arizona (Case No. CV–2011–053051). Based upon their personal guarantees of the FVC loan, WMI sought to recover from Debtor and his brother the balance of the FVC loan in the amount of $446,516.14. Debtor filed an answer to WMI's complaint, but it is unclear whether he asserted his discharge as a defense.
On August 2, 2011, Debtor filed a POC on WMI's behalf in his bankruptcy case in the nonpriority amount of $446,516.14. Since the claims bar date was January 24, 2011, Debtor had thirty days under Rule 3004, or until February 23, 2011, to file a POC on WMI's behalf.
Debtor then commenced this adversary proceeding against WMI, seeking a determination that any debt owed to WMI was discharged under § 727 and requesting injunctive relief to prevent WMI from collecting the debt in the state court action. Debtor amended the complaint to include a claim for attorney's fees and costs allegedly based on a violation of the discharge injunction arising under § 524.
On August 17, 2011, Debtor filed the Retroactive POC Motion in the bankruptcy case asking the court to “retroactively” approve his filing of a POC on WMI's behalf under Rule 3004 based on Rule 9006(b)(1) and the excusable neglect standard applied in Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd. P'ship, 507 U.S. 380, 113 S.Ct. 1489, 123 L.Ed.2d 74 (1993). The Pioneer court set forth four factors for determining whether a party's neglect of a bar date was excusable: “the danger of prejudice to the [non-moving party], the length of the delay and its potential impact on judicial proceedings, the reason for the delay, including whether it was within the reasonable control of the movant, and whether the movant acted in good faith.” Id. at 395, 113 S.Ct. 1489.
Debtor argued that all four factors weighed in favor of the bankruptcy court finding excusable neglect. First, Debtor asserted that he would be prejudiced if WMI's claim passed through the bankruptcy without being discharged. Debtor argued that he filed a POC on WMI's behalf in time to permit payment of the claim under § 726(a)(2)(C)(ii). Second, Debtor maintained that the length of delay in filing the POC was only thirty-five days after WMI sued debtor in Arizona. According to Debtor, it was not clear until that time that WMI would disagree with his position that the debt had been discharged. Third, Debtor contended that there was no sinister motive on his part and he was under the mistaken impression that, based on an agreement with his brother, he was no longer obligated under the personal guaranty to Union Bank. Finally, Debtor argued that he acted in good faith by filing the POC soon after WMI sued him in Arizona.
WMI opposed Debtor's motion, contending that under the plain language of §§ 523(a)(3) and 727(b) the debt was excepted from discharge because it was neither listed nor scheduled and WMI had no notice or actual knowledge of the bankruptcy case in time to timely file a POC. WMI also argued that the excusable neglect standard under the Pioneer factors was not met in this case.
At the initial hearing on the Retroactive POC Motion, the bankruptcy court continued the matter to allow Debtor to file an additional response to WMI's opposition. On October 5, 2011, Debtor filed a supplemental reply. There, Debtor asserted that § 726(a)(2)(C) makes timely an otherwise “tardy” claim for purposes of deeming a claim to have been filed in time to permit its payment. In other words, § 523(a)(3)(A)'s timely-filed requirement includes “tardily” filed claims under § 726(a)(2)(C). Debtor also stated that he was not seeking to have the POC allowed nunc pro tunc as of February 23, 2011, which was the deadline to file the POC under Rule 3004.
In November 2011, WMI filed a motion to dismiss the amended complaint for lack of subject matter jurisdiction or, alternatively, based on a request for abstention. The bankruptcy court heard WMI's motion on January 17, 2012, and took the matter under submission. Pending the outcome of the dismissal and abstention motion, the Retroactive POC Motion, which was scheduled to be heard on the same day, was vacated from the court's calendar. In July 2012, the bankruptcy court denied WMI's dismissal and abstention motion in a memorandum decision and order. The Retroactive POC Motion was not re-calendared.
On June 8, 2012, Trustee filed a notice of final report and proposed distribution. The final report indicated that the IRS would receive a payment on a portion of its secured claim, but that no distribution would be made to nonpriority unsecured claims in the case. No one filed an objection to Trustee's proposed distribution.
On September 24, 2012, Trustee filed his final distribution report setting forth the payments he had made to creditors in the case.
In mid-November 2012, the bankruptcy court entered an order setting a trial in this adversary proceeding. Thereafter, the parties filed a joint stipulation of facts and cross motions for summary judgment. After a hearing on January 16, 2013, the bankruptcy court took the matter under submission.
On February 28, 2014, the bankruptcy court issued a memorandum decision denying Debtor's motion for summary judgment (MSJ) and granting WMI's MSJ. In its ruling, the court adopted the reasoning in Purcell v. Khan (In re Purcell), 362 B.R. 465 (Bankr.E.D.Cal.2007), a case factually similar to this case. The court in In re Purcell cited to Laczko v. Gentran, Inc. (In re Laczko), 37 B.R. 676, 678–79 (9th Cir. BAP 19...
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