W. Valley Med. Partners, LLC v. Menaker (In re Menaker), Case No.: 1:13-bk-13562-MB
| Citation | 603 B.R. 628 |
| Decision Date | 08 July 2019 |
| Docket Number | Adv. Proc. No. 1:17-ap-01047-MB,Case No.: 1:13-bk-13562-MB |
| Parties | IN RE: Stanley MENAKER and Marina Menaker, Debtors. West Valley Medical Partners, LLC, Plaintiff, v. Stanley Menaker and Marina Menaker, Defendants. |
| Court | United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — Central District of California |
Michael Jay Berger, Beverly Hills, CA, for Defendants.
Ian Landsberg, Sklar Kirsh, LLP, Los Angeles, CA
Martin R. Barash, United States Bankruptcy Judge The principal question presented by this adversary proceeding is whether a chapter 13 debtor's failure to list and schedule a debt in time for the creditor to timely file a proof of claim renders the debt nondischargeable under Bankruptcy Code section 523(a)(3)(A), irrespective of the reason for that failure, the election of the creditor not to seek leave to file an untimely proof of claim, or other equitable considerations. Where the creditor does not otherwise have notice or actual knowledge of the chapter 13 case before the claims bar date, the Court answers this question in the affirmative.
In so doing, the Court limits its reading of section 523(a)(3)(A) to the plain language of the statute, relying on the reasoning of Mahakian v. William Maxwell Invs., LLC (In re Mahakian), 529 B.R. 268 (9th Cir. BAP 2015), a chapter 7 case in which the estate held assets and a bar date was established, and the scholarly concurrence of Judge O'Scannlain in Beezley v. Cal. Land Title Co. (In re Beezley) , 994 F.2d 1433, 1433 (9th Cir. 1993) (O'Scannlain, J., concurring). Conversely, the Court rejects as inapplicable those Ninth Circuit bankruptcy cases that apply an equitable test to the construction of section 523(a)(3)(A).
The Court also considers the whether this adversary proceeding is barred by the doctrine of laches, but ultimately concludes that the debtors have not met their burden to demonstrate that the requirements of that doctrine are satisfied.
The Court conducted a trial in this adversary proceeding on October 15, 2018. Plaintiff West Valley Medical Partners, LLC ("West Valley" or "Plaintiff") was represented by Ian Landsberg of Landsberg Law, APC. Defendants Stanley Menaker and Marina Menaker (the "Defendants" or the "Debtors") were represented by Michael Jay Berger of the Law Offices of Michael Jay Berger. The Court has received post-trial briefing from the parties, heard and considered the oral arguments of counsel, and reviewed the trial record. The matter is now ripe for decision. This Memorandum of Decision constitutes the Court's findings of fact and conclusions of law pursuant to Rule 7052 of the Federal Rules of Bankruptcy Procedure.
The Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. § 1334(b). Venue in this Court is proper pursuant to 28 U.S.C. § 1409(a). This adversary proceeding is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A), (B) and (I), and this Court has the constitutional authority to enter a final judgment. Wellness Int'l Network, Ltd. v. Sharif, ––– U.S. ––––, 135 S. Ct. 1932, 191 L.Ed.2d 911 (2015).
In October 2009, the Plaintiff leased commercial office space located at 5363 Balboa Blvd., Ste. 121, Encino, California to the Defendants, who used the premises to operate a medical sleep study clinic. The lease was for a seven-year term commencing on October 22, 2009, expiring on September 30, 2016. By April of 2013, the Defendants had vacated the premises.
On May 24, 2013, the Defendants filed a joint voluntary chapter 13 petition. On June 7, 2013, the Defendants filed their schedules of assets and liabilities and statement of financial affairs. The Defendants did not schedule the Plaintiff as the holder of a claim. The Defendants likewise did not list Plaintiff on their master mailing list of creditors. Plaintiff did not receive written notice of the commencement of the case, the 341(a) meeting of creditors, or the bar date established in the case for filing proofs of claim. The bar date (except as to governmental units) was October 8, 2013.
On December 16, 2013, the Defendants' chapter 13 plan was confirmed. Thereafter, the chapter 13 trustee filed her Notice of Intent to Pay Claims (the "Notice,"). Case Dkt. 35. Because the Defendants did not schedule the Plaintiff as the holder of a claim, the Plaintiff was not listed on the Notice.
On December 3, 2014, unaware of the filing of the bankruptcy case, Plaintiff filed a complaint for breach of the lease against the Defendants in the Los Angeles Superior Court. Defendants did not respond to the state court action.
On January 26, 2015, the Defendants filed an amended schedule F in this case to include the Plaintiff as an unsecured creditor in the amount of $47,000. The amended schedule lists Dan Persoff, the Plaintiff's state court counsel, as the contact, as well as his law firm's address.1
On April 15, 2015, the Defendants' bankruptcy counsel, Elena Steers, served on Persoff a Notice of Stay of Proceedings (the "Notice of Stay") in the state court action. Thereafter, Persoff also filed a Notice of Stay in the state court action.
On January 17, 2017, the Defendants obtained their discharge in the bankruptcy case. On January 25, 2017, the bankruptcy case was closed. On March 27, 2017, the Plaintiff filed a motion to reopen the case for the purpose of determining the nondischargeability of a debt under Bankruptcy Code section 523(a)(3). On April 6, 2017, the Court entered an order reopening the case.
On May 5, 2017, the Plaintiff filed its Complaint to Determine Dischargeability of Debt Pursuant to 11 U.S.C. § 523(a)(3) (the "Complaint,"). Adv. Dkt. 1. The matter was assigned to mediation but did not settle. The parties thereafter entered a pre-trial stipulation (the "Joint Pre-Trial Stipulation"). Adv. Dkt. 22. Paragraph III of the Joint Pre-Trial Stipulation notes that just one issue of law remains to be litigated:
i. "Should the obligation to Plaintiff be deemed nondischargeable pursuant to 11 U.S.C. § 523(a)(3) ?"
On June 8, 2018, the Court entered its Order Approving Joint Pre-Trial Stipulation . Adv. Dkt. 26.
On October 1, 2018, the parties stipulated to the joint use of Defendants' exhibit register at trial. Adv. Dkt. 37. On October 12, 2018—just one Court day before trial—the Plaintiff then filed an Emergency Motion to Amend Joint Exhibit Register to Replace Exhibit B (the "Emergency Motion"). Adv. Dkt. 42. By way of the Emergency Motion, the Plaintiff sought to replace the tenant ledger identified as Exhibit B in the Joint Exhibit Register with an updated version that previously had not been shared with the Defendants. The Court denied the Emergency Motion.
At trial, the Court received live testimony from (1) Gary Grabel, the principal of the Plaintiff, (2) Dan Persoff, former counsel to the Plaintiff, (3) Ian Landsberg, current counsel to the Plaintiff, (4) Elena Steers, bankruptcy counsel to the Defendants, (5) Defendant Marina Menaker, and (6) Defendant Stanley Menaker. At the end of the trial, the Court continued the proceeding for legal argument and invited post-trial briefing. Following a stipulated continuance and the filing of post-trial briefs, the Court heard closing arguments on January 10, 2019.
The Complaint alleges one cause of action under section 523(a)(3)(A). The creditor-plaintiff bears the burden of proof by a preponderance of the evidence. Grogan v. Garner , 498 U.S. 279, 287, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991). Subject to certain other exceptions not applicable here, a chapter 13 debtor is entitled to a discharge of "all debts provided for by the plan or disallowed under section 502 of this title" except any debt of the kind specified in Bankruptcy Code section 523(a)(3). See 11 U.S.C. § 1328(a). In section 523(a)(3) provides:
11 U.S.C. § 523(a)(3)(A).
Plaintiff contends that it has met its burden of proof under the plain language of the statute by showing that its debt was not listed or scheduled by the Defendants prior to the deadline for filing claims in this case, and that Plaintiff did not have notice or actual knowledge in time to file a timely proof of claim. The Defendants do not deny that they failed to timely schedule the Plaintiff's debt, but argue that the debt nevertheless should be subject to the discharge in this case. First, as a matter of equity, they contend that the omission was justified and should not result in the exclusion of the Plaintiff's claim from the discharge. Second, even though the Plaintiff did not receive a case commencement notice or claims bar date notice, the Defendants contend that Plaintiff effectively had knowledge of the case prior to the claims bar date. Additionally, the Defendants assert the equitable defense of laches, arguing that the Plaintiff's delay in bringing this suit was prejudicial and should preclude a determination that the debt is nondischargeable. The Court explains below why each of the Defendants' arguments fails.
The Bankruptcy Appellate Panel for the Ninth Circuit ("BAP") has held that the language of section 523(a)(3)(A) should be construed in accordance with its plain language—which does not provide for any equitable exception. ...
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