Oyama v. Sheehan

• Decision Date: 19 June 2001
• Docket Number: No. 99-56391,99-56391
• Citation: 253 F.3d 507
• Parties: (9th Cir. 2001) IN RE: MICHAEL W. SHEEHAN; WILHELMINA SHEEHAN, DEBTORS. YOJI OYAMA, APPELLANT, v. MICHAEL W. SHEEHAN; WILHELMINA SHEEHAN, APPELLEES
• Court: U.S. Court of Appeals — Ninth Circuit

Page 507

253 F.3d 507 (9th Cir. 2001)

IN RE: MICHAEL W. SHEEHAN; WILHELMINA SHEEHAN, DEBTORS YOJI OYAMA, APPELLANT, v. MICHAEL W. SHEEHAN; WILHELMINA SHEEHAN, APPELLEES.

No. 99-56391

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

Argued and Submitted February 14, 2001

Filed June 19, 2001

[Copyrighted Material Omitted]

[Copyrighted Material Omitted] John R. Fuchs and Gail S. Gilfillan, Fuchs & Associates, Inc., Los Angeles, California, for the appellant.

Todd C. Ringstad, Irvine, California, for the appellees.

Appeal from the Bankruptcy Appellate Panel of the Ninth Circuit Elizabeth L. Perris, Christopher M. Klein, and Terry L. Myers, Bankruptcy Judges, Presiding. BAP No. CC-98-1480 PKMy; Adv. No. SA 97-2210 LR

Before: Warren J. Ferguson, A. Wallace Tashima, and Raymond C. Fisher, Circuit Judges.

Opinion by Judge RASHIMA; Dissent by Judge FERGUSON

Tashima, Circuit Judge

I.

Appellant Yoji Oyama filed an adversary proceeding to determine the debt of Michael Sheehan non-dischargeable. Sheehan moved to dismiss for failure to serve the complaint on the debtor within the 120-day period provided in Rule 4(m) of the Federal Rules of Civil Procedure.

The bankruptcy court granted Sheehan's motion to dismiss, finding that there was no good cause under Rule 4(m) to extend the time period and that the excusable neglect provision of Bankruptcy Rule 9006(b) did not apply to a nondischargeability proceeding. The Ninth Circuit Bankruptcy Appellate Panel ("BAP") affirmed, finding that the required motion was not made under Rule 9006(b) and, alternatively, holding that the excusable neglect provision of Rule 9006(b) did not apply under Rule 4(m).

We have jurisdiction under 28 U.S.C. §§ 158(d), and we reverse. We hold that the bankruptcy court and the BAP erred in refusing to apply the excusable neglect provision of Rule 9006(b) in determining whether to enlarge the time for service.

II.

In 1987, Oyama purchased a 1950 Ferrari from European Auto Sales & Restoration, Inc. ("European Auto") for $375,000. Sheehan was the president of European Auto. Oyama claimed that the purchase price included restoration of the Ferrari to its original condition. However, Oyama subsequently paid Sheehan an additional $181,000 over the purchase price for the allegedly incomplete restoration.¹

In 1995, Oyama, attempting to pierce the corporate veil, sued Sheehan for his alleged failure to restore the car as promised. Oyama first filed a complaint in Orange County Superior Court. That case was removed to the United States Bankruptcy Court for the Central District of California, and is proceeding in the separate bankruptcy case of European Auto. In the instant proceeding, Oyama timely filed a nondischargeability complaint under 11 U.S.C. §§ 523 on November 3, 1997.

The original summons was issued on November 4, 1997. Oyama served the summons and complaint on Sheehan's attorney by mail on November 21, 1997. That service was defective, however, because it failed to comply with the requirement that service by mail must be made within 10 days following the issuance of the summons. See Bankr. R. 7004(e). Oyama then timely served a second summons and complaint on Sheehan's attorney, but failed to serve the debtor individually, as required by Rule 7004(b)(9), until six days after the expiration of the 120-day period prescribed by Rule 4(m). Sheehan filed a motion to dismiss for improper service under Rule 4(m). In opposition to that motion, Oyama argued that there was good cause for the failure, and that the court was therefore required to extend the time for service.²

At the hearing on the motion to dismiss, Oyama urged the bankruptcy court to consider the excusable neglect provision of Rule 9006(b), as articulated by the Supreme Court in Pioneer Inv. Serv. Co. v. Brunswick Assoc. Ltd. P'ship , 507 U.S. 380 (1993). The bankruptcy judge, stating that the excusable neglect provision was not applicable in the context of a nondischargeability proceeding, granted Sheehan's motion to dismiss. The BAP affirmed, agreeing that there was no good cause to extend, that Oyama did not bring a motion to enlarge, and that Pioneer did not apply to the Rule 4 service requirement. Oyama now appeals the BAP's decision.

III.

We independently review a bankruptcy court's rulings on appeal from the BAP. Wolkowitz v. Shearson Lehman Bros. (In re Weisberg), 136 F.3d 655, 657 (9th Cir. 1998). Legal conclusions of the BAP are reviewed de novo. McClellan Fed. Credit Union v. Parker (In re Parker), 139 F.3d 668, 670 (9th Cir. 1998). Dismissal of a complaint for failure timely to serve summons and complaint is reviewed for abuse of discretion. Walker v. Sumner, 14 F.3d 1415, 1422 (9th Cir. 1994).

IV.

The time for service in an adversary proceeding may be extended under two different rules: Rule 4(m) of the Federal Rules of Civil Procedure,³ and Bankruptcy Rule 9006(b).⁴ Bankruptcy Rule 7004(a) incorporates by reference Rule 4(m) into the Bankruptcy Rules.

Rule 4(m) requires a two-step analysis in deciding whether or not to extend the prescribed time period for the service of a complaint. See Fed. R. Civ. P. 4(m); Petrucelli v. Bohringer & Ratzinger, GmbH, 46 F.3d 1298, 1305 (3d Cir. 1995). First, upon a showing of good cause for the defective service, the court must extend the time period. Second, if there is no good cause, the court has the discretion to dismiss without prejudice or to extend the time period. Id.

Rule 9006(b) gives the court discretion to extend any time period stated in the rules upon a showing of excusable neglect. After the time period has expired, however, an extension can be granted only upon motion.

The issue in this case is whether the excusable neglect provision of Rule 9006(b) applies to the time period stated in Rule 4(m), despite the fact that Rule 4(m) contains its own good cause standard. Because established rules of statutory construction require us to read these rules as supplementing, rather than contradicting, each other, we hold that the excusable neglect provision of Rule 9006(b) applies to Rule 4(m).

A. Good Cause Under Rule 4(m)

Oyama argues that the bankruptcy court abused its discretion by failing to find good cause to extend the service period. Oyama asserted that his attorney's busy schedule and seriously ill secretary amounted to good cause. We conclude that the bankruptcy court did not abuse its discretion in holding that no good cause was shown under Rule 4(m).

When considering a motion to dismiss a complaint for untimely service, courts must determine whether good cause for the delay has been shown on a case by case basis. Cartage Pac., Inc. v. Waldner (In re Waldner), 183 B.R. 879, 882 (9th Cir. B.A.P. 1995). We have recognized that "[a]t a minimum, `good cause' means excusable neglect." Boudette v. Barnette, 923 F.2d 754, 756 (9th Cir. 1991). In Boudette , we stated that a plaintiff may be required to show the following factors in order to bring the excuse to the level of good cause: "(a) the party to be served received actual notice of the lawsuit; (b) the defendant would suffer no prejudice; and (c) plaintiff would be severely prejudiced if his complaint were dismissed." Id. (citing Hart v. United States, 817 F.2d 78, 80-81 (9th Cir. 1987)).

The record indicates that Oyama failed to show these factors. We therefore affirm the bankruptcy court's holding that there was no good cause shown to extend the service period.⁵

B. Discretion Under Rule 4(m)

Oyama further argues that the bankruptcy court abused its discretion by failing to extend the time period under the discretionary component of Rule 4(m). We hold that the bankruptcy court properly refused to exercise its discretion to extend the service period.

Courts have discretion under Rule 4(m), absent a showing of good cause, to extend the time for service or to dismiss the action without prejudice. Petrucelli, 46 F.3d at 1305. Although the rule does not contain the discretionary term "may," it requires that, absent good cause, the court "shall dismiss the action without prejudice as to that defendant or direct that service be effected within a specified time." Fed. R. Civ. P. 4(m) (West Supp. 2000). We have not addressed what factors a court should consider when deciding to exercise its discretion under Rule 4(m). See Barr v. Barr (In re Barr), 217 B.R. 626, 630 (Bankr. W.D. Wash. 1998).

We find it unnecessary, however, to articulate a specific test that a court must apply in exercising its discretion under Rule 4(m). We note only that, under the terms of the rule, the court's discretion is broad. Cf. Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 400 (1990) (adopting a deferential standard for reviewing Rule 11 sanctions based on factual determinations). The facts of this case clearly do not mandate the exercise of discretion to extend the service period under Rule 4(m).

C. Excusable Neglect Under Rule 9006(b)

In addition to Rule 4(m), the time for service may be extended under Bankruptcy Rule 9006(b) upon a showing of excusable neglect. Rule 9006(b) allows a court "on motion made after the expiration of the specified period[to] permit the act to be done where the failure to act was the result of excusable neglect." Bankr. R. 9006(b)(1) (West Supp. 2000). Subdivision (b) expressly excepts the time limits under certain rules from enlargement under this provision, and limits enlargement under other specific rules. Bankr. R. 9006(b)(2) & (3). Rule 4(m) ⁶ is not one of the provisions expressly excluded or limited by Rule 9006(b). Rule 9006(b) must therefore apply to Rule 4(m).

The Supreme Court articulated the excusable neglect standard of Rule 9006(b) in Pioneer. There, the Court held that, in determining the existence of excusable neglect, a court must examine four factors: "[1] the danger of prejudice to the debtor, [2] the length of delay and its potential impact on judicial proceedings, [3] the reason for the delay, including whether it...