In re: Steven D. Molasky ( 2014 )

FILED
1 NOT FOR PUBLICATION OCT 20 2014
SUSAN M. SPRAUL, CLERK
2 U.S. BKCY. APP. PANEL
OF THE NINTH CIRCUIT
3 UNITED STATES BANKRUPTCY APPELLATE PANEL
4 OF THE NINTH CIRCUIT
5 In re: ) BAP No. NV-14-1109-PaJuHl
)
6 STEVEN D. MOLASKY, ) Bankr. No. 08-14517
)
7 Debtor. ) Adv. No. 08-1246
______________________________)
8 )
AUGUSTINE C. BUSTOS, )
9 )
Appellant, )
10 )
v. ) M E M O R A N D U M1
11 )
STEVEN D. MOLASKY, )
12 )
Appellee. )
13 ______________________________)
14 Argued and Submitted on September 18, 2014
at Las Vegas, Nevada
15
Filed - October 20, 2014
16
Appeal from the United States Bankruptcy Court
17 for the District of Nevada
18 Honorable Mike K. Nakagawa, Chief Bankruptcy Judge, Presiding
19
Appearances: John Messinger Netzorg argued for appellant
20 Augustine C. Bustos; Jordan T. Smith argued for
appellee Steven D. Molasky.
21
22 Before: PAPPAS, JURY and HOULE,2 Bankruptcy Judges.
23
24
1
25 This disposition is not appropriate for publication.
Although it may be cited for whatever persuasive value it may have
26 (see Fed. R. App. P. 32.1), it has no precedential value. See 9th
Cir. BAP Rule 8013-1.
27
2
The Honorable Mark D. Houle, Bankruptcy Judge for the
28 Central District of California, sitting by designation.
1 Creditor Augustine C. Bustos (“Bustos”) appeals the order of
2 the bankruptcy court dismissing Bustos’ claim as intervenor in a
3 § 523(a) exception to discharge action against chapter 113 debtor
4 Steven D. Molasky (“Molasky”). We AFFIRM.
5 FACTS
6 The underlying facts in this appeal are generally undisputed.
7 In May of 2007 a promissory note (the “Ellington Note”) in
8 the amount of $17 million was executed by PPD 222 Broadway I, LLC
9 (the “Ellington Borrower”) in favor of OneCap Funding Corporation
10 (“OneCap”). Molasky was the controlling person of the Ellington
11 Borrower and signed the Ellington Note on its behalf. Molasky
12 also executed a Continuing Guarantee obligating him for all
13 “debts, obligations and liabilities” of the Ellington Borrower
14 under the Ellington Note.
15 Bustos was one of several investors in OneCap; he provided
16 $800,000 of the funds loaned via the Ellington Note.
17 Molasky filed a petition for relief under chapter 11 on
18 May 3, 2008. Creditors were notified that the § 341(a) creditors’
19 meeting would occur on June 12, 2008, and that the last day to
20 file a complaint objecting to the discharge of debt under § 523(c)
21 was August 11, 2008. See Rule 4007(c).4 A copy of this notice
22
3
23 Unless otherwise indicated, all chapter and section
references are to the Bankruptcy Code, 11 U.S.C. §§ 101 – 1532,
24 all Rule references are to the Federal Rules of Bankruptcy
Procedure, Rules 1001–9037, and all Civil Rule references are to
25 the Federal Rules of Civil Procedure 1–86.
4
26 Rule 4007. Determination of Dischargeability of a Debt
. . .
27 (c) Time for Filing Complaint Under § 523(c). . . . Except
as otherwise provided in subdivision (d), a complaint to
28 continue...
-2-
1 was sent to Bustos.
2 On August 11, 2008, OneCap filed an adversary complaint
3 against Molasky seeking exception to discharge for several claims
4 under § 523(a)(2)(A). The complaint alleged that, in connection
5 with obtaining several loans via OneCap, including the loan
6 represented by the Ellington Note, Molasky had executed documents
7 containing false representations on which OneCap had relied in
8 making the loans. The first claim for relief in OneCap’s
9 complaint sought an exception to discharge for amounts owed on the
10 Ellington Note. Bustos was not named as a plaintiff in the
11 adversary complaint filed by OneCap, nor did he file his own
12 § 523(c) adversary complaint against Molasky before the August 11
13 deadline.
14 A settlement agreement was reached in the main bankruptcy
15 case relating to a group of debts not directly related to the
16 Ellington Note, but indirectly involving Bustos.5 The parties to
17 that settlement apparently agreed to allow Bustos to intervene in
18
4
19 ...continue
determine the dischargeability of a debt under § 523(c)
20 shall be filed no later than 60 days after the first
date set for the meeting of creditors under § 341(a).
21 The court shall give all creditors no less than 30 days'
notice of the time so fixed in the manner provided in
22 Rule 2002. On motion of a party in interest, after
hearing on notice, the court may for cause extend the
23 time fixed under this subdivision. The motion shall be
filed before the time has expired.
24
Rule 4007(c).
25
5
The settlement agreement was a complex instrument whereby
26 Molasky and the entities he controlled transferred a certain
property (not related to the debt in this appeal) to a group of
27 entities known as the Lehman Parties. Although Bustos was
apparently involved in the discussions on the settlement
28 agreement, he was not a party to the agreement.
-3-
1 the OneCap adversary proceeding, and also that Molasky would waive
2 any timeliness or statute of limitations defenses.
3 Bustos filed a motion to intervene in the OneCap adversary
4 proceeding on September 8, 2008. Attached to the intervention
5 motion was Bustos’s proposed Complaint in Intervention. Molasky
6 filed a limited opposition to this motion, arguing that while he
7 did not object to allowing Bustos to intervene as a claimant, he
8 did object to permitting Bustos to file the attached complaint
9 because the deadline for filing a § 523(c) adversary complaint had
10 passed and, therefore, any claims of Bustos independent of those
11 asserted by OneCap were time-barred.
12 At a October 15, 2008 hearing, the bankruptcy court agreed
13 with Molasky that while Bustos should be allowed to intervene as
14 an “Intervenor/Claimant” in the OneCap action, he would not be
15 allowed to file the Complaint in Intervention. In an October 31,
16 2008 order (the “Intervention Order”), the court ordered in
17 relevant part that:
18 [Bustos] is afforded all the rights and remedies as
those granted to [OneCap] in this Adversary Proceeding,
19 insofar as they pertain to any and all of the claims of
[Bustos] against [Molasky]. That [Bustos] is not
20 permitted to file the separate Complaint in Intervention
but may participate in all aspects of this Adversary
21 Proceeding as an Intervenor/Claimant against Molasky.
22 Intervention Order at 2.
23 In May 2009, the bankruptcy court permitted counsel for
24 OneCap to withdraw without opposition. Then, when no attorney
25 representing OneCap appeared at a status conference, on June 4,
26 2009, the court issued an Order to Show Cause (“OSC”) directing
27 OneCap to appear and explain why OneCap should not be dismissed
28 for failure to prosecute the adversary proceeding. OneCap did not
-4-
1 appear at the show cause hearing on July 15, 2009. Bustos was
2 aware of the OSC, was represented at the hearing, and did not
3 object to OneCap’s dismissal. Notably, at the hearing, the court
4 decided it would not dismiss the adversary proceeding or Bustos.
5 However, the following colloquy took place between the bankruptcy
6 court and counsel at the OSC hearing:
7 THE COURT: There being no appearance [by OneCap] the
Court will issue an order dismissing OneCap from the
8 proceeding; however, that leaves Mr. Bustos I guess as
the lone party I guess to carry the flag in this matter;
9 am I right?
10 NETZORG: [Bustos’s counsel]: Yes, your Honor.
11 . . .
12 THE COURT: Well, the Court will issue an order
dismissing it as to OneCap, the Plaintiff, but we’ll go
13 forward with the scheduling conference at the end of the
month? All right?
14
. . .
15
PISANELLI: [Molasky’s attorney]: An issue exists . . .
16 whether the remaining claims [of Bustos] can continue in
light of the fact that they were just joining into the
17 OneCap complaint. . . . We’ll file a motion on that
point with you.
18
THE COURT: All right.
19
20 Hr’g Tr. 3:19—4:20, July 15, 2009. On July 21, 2009, the
21 bankruptcy court entered an order that the adversary proceeding be
22 “DISMISSED as to Plaintiff [OneCap].”
23 Molasky filed a motion to dismiss Bustos and the adversary
24 proceeding on July 20, 2009. Molasky argued that Bustos was not
25 entitled to an § 523(c) exception to discharge because he had
26 missed the Rule 4007(c) complaint filing deadline. Bustos opposed
27 the motion, arguing that it would be inequitable to dismiss the
28 action under the circumstances, and that Molasky had voluntarily
-5-
1 waived any statute of limitations defense.
2 The bankruptcy court heard the dismissal motion on
3 September 3, 2009. In a memorandum decision entered September 28,
4 2009, the court dismissed Bustos, concluding that Bustos had no
5 independent basis for an exception to discharge because Bustos
6 missed the § 523(c) deadline. The court entered an order (the
7 “Bustos Dismissal Order”) the same day.
8 Earlier, on August 14, 2009, the bankruptcy court had
9 approved a stipulation between Molasky and the W. Leslie Sully,
10 Jr. Chtd. Profit Sharing Plan (“Sully Plan”), a creditor in the
11 bankruptcy case, permitting Sully Plan to intervene in the
12 OneCap/Bustos adversary proceeding as a Plaintiff. There were no
13 restrictions placed on Sully Plan’s participation in the adversary
14 proceeding in the order approving the stipulation. Sully Plan did
15 not file a separate Complaint in Intervention. The bankruptcy
16 court thereafter dismissed Sully Plan from the adversary
17 proceeding by order entered May 13, 2010, for the same reasons it
18 dismissed Bustos.
19 Bustos and Sully Plan appealed the two dismissal orders to
20 the district court. It reversed both dismissal orders in
21 separate, although nearly identical, decisions, stating as
22 follows:
23 The adversary proceeding underlying this appeal and the
bankruptcy court’s subject matter jurisdiction survived
24 the dismissal of OneCap as plaintiff. At all times
until the dismissal of the Sully Plan, the bankruptcy
25 court and the parties treated the adversary proceeding
as an open case. Before the dismissal of Bustos, as an
26 intervenor, the bankruptcy court entered the August 14th
order allowing the Sully Plan to intervene as Plaintiff.
27 With the entry of the Sully Plan as plaintiff in the
adversary proceeding, there was no basis for the
28 dismissal of either Bustos as an intervenor, or the
-6-
1 Sully Plan as a plaintiff.
2 Bustos v. Molasky, case no. 10-00779-JCM-PAL, slip op. at 3
3 (D. Nev. Dec. 23, 2010); Sully v. Molasky, slip op. at 4 (D. Nev.
4 Dec. 23, 2010) (identical paragraphs in both decisions).
5 However, on further appeal, the Ninth Circuit vacated the
6 district court’s two orders, also entering nearly identical
7 decisions.6 Molasky v. Bustos (In re Molasky), 492 F. App'x 801,
8 803 (9th Cir. 2012); Molasky v. Sully (In re Molasky), 492 F.
9 App'x. 805, 807 (9th Cir. 2012). In both decisions, the Ninth
10 Circuit stated:
11 An intervenor can proceed after dismissal of the
original party if 1) there is an independent basis for
12 jurisdiction, and 2) unnecessary delay would otherwise
result. See Benavidez v. Eu, 34 F.3d 825, 830 (9th Cir.
13 1994). The bankruptcy court summarily found no
independent basis for jurisdiction for [Bustos/Sully]
14 because [Bustos/Sully] failed to file a timely § 523
complaint. The bankruptcy court erred as a matter of
15 law, however, in failing to recognize that the § 523
deadline is discretionary and may be extended with
16 cause. See [Rule] 4004(b).[7] The deadline can be
extended even after the deadline has already run. See
17 [Rule] 4004(b)(2). Failure to meet the § 523 deadline
is not a mandatory jurisdictional bar.
18
The bankruptcy court could have considered various
19 factors in determining whether "cause" existed for
extending the § 523 deadline: "(1) whether granting the
20 delay will prejudice the debtor, (2) the length of the
21
22 6
The only difference between the two circuit orders is that
the Sully decision included the following two sentences:
23
The district court reversed the bankruptcy court's
24 dismissal of Sully, finding Sully to be a party
plaintiff to the § 523 complaint. . . . We proceed
25 assuming that Sully was originally an intervenor and not
a party plaintiff to the § 523 complaint. . . .
26
Sully, 492 F. App’x at 806-07.
27
7
The Court of Appeals later amended the decision to read
28 § 4007(b) rather than § 4004(b).
-7-
1 delay and its impact on efficient court administration,
(3) whether the delay was beyond the reasonable control
2 of the person whose duty it was to perform, (4) whether
the creditor acted in good faith, and (5) whether
3 clients should be penalized for their counsel's mistake
or neglect." In re Magourik, 693 F.2d 948, 951 (9th
4 Cir. 1982) (citations omitted). Molasky does not appear
prejudiced by allowing jurisdiction, as he was already
5 on notice as to OneCap's complaint. If the bankruptcy
court limits [Bustos/Sully] to litigating OneCap's
6 original complaint, Molasky is not exposed to any new
complaints. The length of the delay is related
7 specifically to the time it took for OneCap to fail to
prosecute, so the delay should not be an undue burden to
8 the court's administrative process. OneCap's failure to
prosecute appears to be beyond the reasonable control of
9 Sully. These equitable arguments suggest that
[Bustos/Sully] should be allowed to continue the § 523
10 action, and "bankruptcy courts . . . are courts of
equity and appl[y] the principles and rules of equity
11 jurisprudence." Young v. U.S., 535 U.S. 43, 50, 122 S.
Ct. 1036, 152 L. Ed. 2d 79 (2002) (alteration in
12 original)(quoting Pepper v. Litton, 308 U.S. 295, 304,
60 S. Ct. 238, 84 L. Ed. 281 (1939))(internal quotation
13 marks omitted).
14 Bustos, 492 F. App'x at 803; Sully, 492 F. App'x. at 807.
15 On remand, the bankruptcy court directed the parties to brief
16 the five In re Magourik factors discussed in the Ninth Circuit’s
17 decisions. At a February 12, 2013 hearing, Molasky argued that
18 Magourik factors 2 and 4 clearly favored Molasky and factors 1, 3
19 and 5 tilted in favor of Molasky. Bustos argued that all five
20 factors favored Bustos.
21 The bankruptcy court entered a memorandum and order after
22 remand on March 3, 2014 (the “Memorandum on Remand”). In it, the
23 court concluded that “the deadline under FRBP 4007 should not be
24 extended for cause under the [Magourik] factors.” As to factors 1
25 and 3, the bankruptcy court ruled in the Memorandum on Remand
26 that:
27 [Molasky] is prejudiced because allowing Bustos to
proceed after dismissal of the complaint brought by
28 OneCap fundamentally changes the premise under which
-8-
1 [Molasky] consented to Bustos[’] intervention. . . .
Under the circumstances, OneCap’s failure to prosecute
2 the adversary proceeding simply was not beyond the
reasonable control of Bustos.
3
4 The bankruptcy court found that no evidence had been presented
5 regarding the other three Magourik factors: impact on court
6 administration, good faith, or possible error or neglect of
7 counsel.
8 The bankruptcy court concluded that, under the Magourik
9 factors, Bustos had not met the burden of establishing that relief
10 from the exception to discharge deadline should be granted on the
11 basis of excusable neglect. Significantly, the bankruptcy court
12 concluded its decision by observing that subsequent rulings by the
13 Ninth Circuit had likely changed the law on which the court’s
14 decision had been premised. In Anwar v. Johnson, 720 F.3d 118315 (9th Cir. 2013), the Ninth Circuit held that a bankruptcy court
16 does not have equitable authority to grant retroactive relief from
17 the deadline imposed by Rule 4007(c) to file complaints seeking
18 exception to discharge. Id. at 1187-88. Thus, the bankruptcy
19 court noted, “the legal premise for the remand directed by the
20 panel majority in the instant case is no longer viable.”
21 The bankruptcy court entered an order dismissing Bustos from
22 the adversary proceeding on March 3, 2014. Bustos filed a timely
23 appeal on March 13, 2014.
24 JURISDICTION
25 The bankruptcy court had jurisdiction under 28 U.S.C. §§ 133426 and 157(b)(2)(I). The Panel has jurisdiction under 28 U.S.C.
27 § 158.
28
-9-
1 ISSUE
2 Whether the bankruptcy court abused its discretion in
3 dismissing Bustos as intervenor.
4 STANDARD OF REVIEW
5 An order dismissing a permissive intervenor is reviewed for
6 abuse of discretion. Benavidez v. Eu, 34 F.3d 825, 830 (9th Cir.
7 1994). A bankruptcy court abuses its discretion if it applies an
8 incorrect legal standard, misapplies the correct legal standard,
9 or if its factual findings are illogical, implausible or without
10 support from evidence in the record. TrafficSchool.com v. Edriver
11 Inc., 653 F.3d 820, 832 (9th Cir. 2011) (citing United States v.
12 Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009)(en banc)).
13 DISCUSSION
14 I.
15 Bustos was a permissive intervenor, not an intervenor of right.
16 Resolution of the issues on appeal requires us first to
17 determine Bustos’s status as a party in the adversary proceeding.
18 Under Civil Rule 24,8 made applicable in adversary
19
8
20 Rule 24. Intervention
21 (a) Intervention of Right. On timely motion, the
court must permit anyone to intervene who: (1) is given
22 an unconditional right to intervene by a federal
statute; or (2) claims an interest relating to the
23 property or transaction that is the subject of the
action, and is so situated that disposing of the action
24 may as a practical matter impair or impede the movant's
ability to protect its interest, unless existing parties
25 adequately represent that interest.
26 (b) Permissive Intervention. (1) In General. On
timely motion, the court may permit anyone to intervene
27 who: (A) is given a conditional right to intervene by a
federal statute; or (B) has a claim or defense that
28 continue...
-10-
1 proceedings by Rule 7024, a bankruptcy court must allow a party to
2 intervene in an action where the requirements of Civil Rule 24(a)
3 are satisfied. Arakaki v. Cayetano, 324 F.33 1078, 1083 (9th Cir.
4 2003). It may, in its discretion, permit the intervention of a
5 party when the requirements of Civil Rule 24(b) are satisfied.
6 Montgomery v. Rumsfeld, 572 F.2d 250, 258 (9th Cir. 1978).
7 Bustos has steadfastly characterized his status in the
8 adversary proceeding as that of an intervenor of right. Although
9 his argument is far from a model of clarity, it appears that
10 Bustos did not qualify for intervention of right:
11 A party seeking to intervene as of right must meet four
requirements: (1) the applicant must timely move to
12 intervene; (2) the applicant must have a significantly
protectable interest relating to the property or
13 transaction that is the subject of the action; (3) the
applicant must be situated such that the disposition of
14 the action may impair or impede the party's ability to
protect that interest; and (4) the applicant's interest
15 must not be adequately represented by existing parties.
. . . . Each of these four requirements must be
16 satisfied to support a right to intervene. League of
United Latin Am. Citizens v. Wilson, 131 F.3d 1297, 1302
17 (9th Cir. 1997).
18 Arakaki, 324 F.3d at 1081.
19 While Bustos arguably meets three of the four criteria to
20 intervene of right in the adversary proceeding, Bustos concedes
21 that he may not meet the fourth requirement: “Bustos was entitled
22 to intervene under [Rule] 24(a) as he met all the requirements for
23 mandatory intervention (with the one possible exception that
24
25
8
...continue
26 shares with the main action a common question of law or
fact. . . . (3) In exercising its discretion, the court
27 must consider whether the intervention will unduly delay
or prejudice the adjudication of the original parties’
28 rights.
-11-
1 OneCap was prosecuting the case as his representative).” Bustos
2 Bankr. Op. Br. On Remand at 13. Bustos repeats this argument in
3 this appeal:
4 The only remedy recognized by the Rules, as non-parties,
to protect their interests would be to intervene under
5 Rule 7024 [here Bustos footnotes to Rule 7024(a) on
intervention as of right] since their Servicing Agent no
6 longer was representing their interests. Rule 7024 in
this scenario, does no violence to Rule 4007(c), it
7 simply serves to protect a represented party when their
fiduciary is guilty of nonfeasance.
8
9 Reply Br. at 13-14. By these statements, Bustos acknowledges that
10 OneCap was his legal representative, and that Bustos considered
11 OneCap to be a fiduciary. Further, Bustos had represented to the
12 bankruptcy court that OneCap was his legal representative under a
13 contract; the Loan Service Agreement between OneCap and Bustos
14 provides:
15 ¶ 24. Lender [Bustos] Acknowledgment. . . . b) Lender
agrees not to represent themselves in any courts unless
16 agreement is terminated . . . and agrees that OneCap
Mortgage and or its attorneys will represent Lender on
17 their behalf while any amounts are still outstanding
under the Note.
18
19 Loan Service Agreement at 7 ¶ 24.
20 A leading treatise on federal procedure notes that, when a
21 party is representing the creditor, that representation will be
22 presumed adequate and, consequently, the creditor may not assert
23 intervention as of right. Wright, Miller & Kane, FEDERAL PRACTICE &
24 PROCEDURE CIVIL § 1909, 410-11 (citing Jones v. Prince George’s Cnty.
25 Md., 348 F.3d 1014 (D.C. Cir. 2003); Meyer Goldberg, Inc. of
26 Lorain v. Goldberg, 717 F.2d 290, 293 (6th Cir. 1983); Bumgarner
27 v. Ute Indian Tribe, 417 F.2d 1305 (10th Cir. 1969)). This is
28 particularly the case when the creditor is represented by a
-12-
1 fiduciary. Id.2 Since at the time Bustos sought intervention in the adversary
3 proceeding,9 OneCap was, by contract, his legal representative for
4 purposes of pursuing collection from Molasky, and since that
5 representation was presumptively adequate, Bustos could not
6 satisfy the fourth criterion in Arakaki for intervention of right.
7 In addition, although the bankruptcy court did not clearly
8 specify whether it was granting Bustos’s intervention under
9 Rule 24(a) or (b), the intervention order implied that the
10 intervention was permissive in nature: “That pursuant to
11 Bankruptcy Rule 7024, Augustine C. Bustos [is] permitted to
12 intervene in the pending OneCap Adversary Proceeding Objecting to
13 Discharge. . . . That Augustine C. Bustos is not permitted to
14 file the separate Complaint in Intervention but may participate in
15 all aspects of this adversary proceeding as an Intervenor/Claimant
16 against the Defendant/Debtor.” Intervention Order at 2 (emphasis
17 added).
18 That the Ninth Circuit also considered Bustos a permissive
19 intervenor in the adversary proceeding is evidenced by its
20 direction to the bankruptcy court on remand to apply Benavidez, a
21 decision involving permissive intervention:
22 Permitting the intervenor to continue when 1) an
independent basis for jurisdiction exists, and
23 2) unnecessary delay would otherwise result, is sensible
and consistent with our existing precedent. As to the
24 first element of the test, we have previously held that
25
9
Our decision here relates to the nature of the
26 Intervention Order, that is, whether the bankruptcy court granted
intervention of right or permissive intervention. Whether there
27 was a later breakdown or failure to perform that representation is
not relevant to determination of whether the bankruptcy court
28 ordered permissive or mandatory intervention.
-13-
1 a permissive intervenor must establish an independent
basis for jurisdiction. E.E.O.C. v. Nev. Resort Ass'n,
2 792 F.2d 882, 886 (9th Cir. 1986). The second element
of the test asks whether refusing to allow the
3 intervenors to continue would lead to senseless delay,
because a new suit would inevitably bring the parties,
4 at a much later date, to the point where they are now.
The rule promotes judicial economy and preserves
5 litigant resources, and we adopt it.
6 34 F.3d at 830 (emphasis added). As can be seen, the first
7 condition in Benavidez, which the Ninth Circuit’s mandate directs
8 the bankruptcy court to apply, concerns permissive intervenors.
9 Although the Ninth Circuit has not ruled on the issue, the other
10 circuits to address the issue have uniformly held that
11 intervention of right under Civil Rule 24(a) falls within a
12 federal court’s ancillary jurisdiction and, consequently, there is
13 no need to find an independent basis for jurisdiction. Sweeney v.
14 Athens Reg'l Med. Ctr., 917 F.2d 1560, 1566 (11th Cir. 1990);
15 Int'l Paper Co. v. Inhabitants of Town of Jay, Me., 887 F.2d 338,
16 346 (1st Cir. 1989); Curtis v. Sears, Roebuck & Co., 754 F.2d 781,
17 783 (8th Cir. 1985); see also Zahn v. Int'l Paper Co., 414 U.S.
18 291, 306, 38 L. Ed. 2d 511, 94 S. Ct. 505 (1973) (Brennan, J.
19 dissenting) (Supreme Court sustains the exercise of ancillary
20 jurisdiction "where a party's intervention was held to be a matter
21 of right, as is now provided by Rule 24(a)").
22 We conclude that Bustos did not intervene in the adversary
23 proceeding of right, but instead was a permissive intervenor. As
24 a result, Bustos may not assert the equitable or jurisdictional
25 arguments of an intervenor of right. Further, as a permissive
26 intervenor, the bankruptcy court did not have presumptive
27 ancillary jurisdiction over Bustos that would allow him to
28 continue in the adversary proceeding after dismissal of OneCap
-14-
1 and, as the Ninth Circuit held, Bustos had to establish an
2 independent basis for the bankruptcy court’s jurisdiction over his
3 claim against Molasky. Bustos failed to do so.
4 II.
5 The bankruptcy court did not abuse its discretion
in dismissing Bustos.
6
7 A. The Court of Appeals remand order. The Ninth Circuit
8 concluded that the bankruptcy court erred as a matter of law when
9 it ruled that there was no independent basis of jurisdiction for
10 Bustos’s claim against Molasky because Bustos had never filed, nor
11 could he timely file, a separate § 523(c) complaint against
12 Molasky. According to the court, this was error because the
13 bankruptcy court failed to consider that the sixty-day deadline
14 for filing complaints under § 523(a) established by Rule 4007(c)
15 was discretionary and could be extended by the bankruptcy court
16 for cause. The court therefore remanded the matter to the
17 bankruptcy court with instructions that it consider whether, under
18 the Rule, “cause” existed to extend the time for Bustos to file a
19 complaint against Molasky and thereby establish an independent
20 basis for jurisdiction. To decide whether cause existed, the
21 court noted that the bankruptcy court “could have considered” the
22 five factors discussed in Fasson v. Magourik (In re Magourik),
23 693 F.2d 948 (9th Cir. 1982):
24 (1) whether granting the delay will prejudice the
debtor, (2) the length of the delay and its impact on
25 efficient court administration, (3) whether the delay
was beyond the reasonable control of the person whose
26 duty it was to perform, (4) whether the creditor acted
in good faith, and (5) whether clients should be
27 penalized for their counsel's mistake or neglect.
28
-15-
1 Id. at 951.10
2 B. The bankruptcy court’s decision on remand. After
3 briefing and oral argument, the bankruptcy court’s Memorandum on
4 Remand considered the Magourik factors. The court noted that
5 Molasky conceded that factors 2 and 4 favored granting Bustos
6 equitable relief from the Rule 4007(c) deadline, while the
7 remaining three favored Molasky's position. Memorandum on Remand
8 at 7. Bustos argued that all five factors suggested relief should
9 be granted. Id. In the bankruptcy court's analysis, factors 1, 2
10 and 3 favored Molasky, and insufficient evidence had been
11 presented for the court to weigh factors 4 and 5.11
12 In its decision, the bankruptcy court satisfied the
13 instructions of the Ninth Circuit’s Remand Order. It thoughtfully
14 considered whether Bustos had presented a proper basis for an
15 extension of the § 523(c) filing deadline and decided he had not,
16 based upon the factors in the case law identified by the Ninth
17 Circuit. In this respect, we conclude that the bankruptcy court
18 did not abuse its discretion in dismissing Bustos’s claim against
19 Molasky.
20
21 10
As discussed below, the scope of the bankruptcy court’s
discretion in determining cause under Rule 4007(c) has been
22 restricted by intervening Ninth Circuit case law.
23 11
The bankruptcy court did not examine the other
“non-Magourik” equitable arguments made by Bustos: i.e., that
24 where a plaintiff is improperly named in a timely filed action,
the correct plaintiff may be substituted under Civil Rules 15 and
25 17; permitting complaints to be amended even after the
Rule 4007(c) deadline has expired under the relation-back
26 doctrine; allowing an action to proceed where the intervening
party had adopted the original plaintiff's complaint. However,
27 none of these arguments represent circumstances where, under the
later Ninth Circuit cases we discuss below, the bankruptcy court
28 may extend the Rule 4007(c) deadline.
-16-
1 C. The Willms and Anwar cases. The bankruptcy court also
2 buttressed its decision to dismiss Bustos based on two Ninth
3 Circuit decisions entered after the Remand Order: Willms v.
4 Sanderson, 723 F.3d 1094 (9th Cir. 2013), and Anwar v. Johnson,
5 720 F.3d 1183 (9th Cir. 2013). The bankruptcy court reasoned,
6 correctly we believe, that these two decisions had effectively
7 restricted the discretion of the bankruptcy court to grant
8 extensions of the Rule 4007(c) complaint filing deadline for the
9 sort of equitable reasons identified in Magourik. Memorandum on
10 Remand at 10.12 In those decisions, the Ninth Circuit instructs:
11 [W]e have repeatedly held that the sixty-day time limit
for filing nondischargeability complaints under
12 11 U.S.C. § 523(c) is strict and, without qualification,
cannot be extended unless a motion is made before the
13 60-day limit expires." (internal quotation marks
omitted); Anwiler v. Patchett (In re Anwiler), 958 F.2d
14 925, 927 (9th Cir. 1992) ("[A] court no longer has the
discretion to set the deadline, nor can it sua sponte
15 extend the time to file . . . ."); cf. Kontrick v. Ryan,
540 U.S. 443, 448 n.3, 456, 124 S. Ct. 906, 157 L. Ed.
16 2d 867 (2004) (characterizing Rule 4004's time
prescription, which is "essentially the same" as that in
17 Rule 4007, as "an inflexible claim-processing rule" that
is "unalterable on a party's application"). Strict
18 construction of Rule 4007(c) is necessary due to "the
need for certainty in determining which claims are and
19 are not discharged."
20 Willms, 723 F.3d at 1100.
21 The humorist Douglas Adams was fond of saying, “I love
deadlines. I love the whooshing sound they make as they
22 fly by.” But the law more often follows Benjamin
Franklin's stern admonition: “You may delay, but time
23 will not.” To paraphrase Émile Zola, deadlines are
often the terrible anvil on which a legal result is
24 forged. . . . We decline Anwar's invitation to revise
25
12
The bankruptcy court also pointed out that the
26 Rule 4007(c) legal landscape had changed based upon two BAP
decisions: Johnson v. Safarian (In re Safarian), 2010 WL 625976327 at *6 and n.13 (9th Cir. BAP April 13, 2010); Herndon v. de la
Cruz (In re de la Cruz), 176 B.R. 19, 24 (9th Cir. BAP 1994).
28 Memorandum on Remand at 11.
-17-
1 the Federal Rules of Bankruptcy Procedure, which plainly
provide that a party may file a nondischargeability
2 complaint under 11 U.S.C. § 523 outside the sixty-day
window established by FRBP 4007(c) if, and only if, she
3 files a motion showing good cause for an extension
before the sixty-day period lapses. Fed. R. Bankr.
4 P. 4007(c), 9006(b)(3).
5 Anwar, 720 F.3d at 1183, 1188 (emphasis added).
6 In our view, the bankruptcy court correctly inferred from
7 these two decisions that the earlier case law in this Circuit
8 (including In re Magourik), which had adopted a more liberal
9 treatment of “cause” for extension of the sixty-day time limit
10 under Rule 4007(c), had been modified by the newer decisions.
11 Memorandum on Remand at 11. Admittedly, the Ninth Circuit’s
12 Remand Order had directed the bankruptcy court to determine if
13 there was cause for extension, something that is clearly
14 authorized in Rule 4007(c). However, as discussed in Willms and
15 Anwar, supra, the two Ninth Circuit cases decided after entry of
16 the Remand Order expressly limited the type of cause which could
17 justify an extension:
18 On occasion, we have suggested that "'unique' or
'extraordinary' circumstances" might allow an untimely
19 § 523(a)(2) complaint to stand. [Allred v. Kennerley,
995 F.2d 145, 47 (9th Cir. 1993)]; see also Anwar v.
20 Johnson, 720 F.3d 1183, 1187 (9th Cir. 2013)("[A]bsent
unique and exceptional circumstances . . . , we do not
21 inquire into the reason a party failed to file on time
in assessing whether she is entitled to an equitable
22 exception from [Bankruptcy Rule] 4007(c)'s filing
deadline . . . ."). But "the validity of the doctrine
23 remains doubtful" and "would appear to be limited to
situations where a court explicitly misleads a party."
24 Kennerley, 995 F.2d at 147-48.
25 Wilms, 723 F.3d at 1103.
26 The impact of the change in the relevant Ninth Circuit
27 authority is important in this case. While the instruction in the
28 Remand Order that the bankruptcy court examine whether Bustos
-18-
1 could show “cause” for an extension of time to assert a § 523(c)
2 claim against Molasky remained viable, based on the more recent
3 case law the showing required to justify an extension has been
4 significantly restricted, and satisfaction of the Magourik factors
5 may no longer be adequate. We conclude that none of the arguments
6 offered by Bustos would support an extension of the deadline for
7 filing a § 523(c) complaint under the more recent Ninth Circuit
8 case law. Therefore, the bankruptcy court’s decision to dismiss
9 Bustos from the adversary proceeding because there was no adequate
10 cause shown for an extension of Rule 4007(c)’s deadline was not an
11 abuse of discretion.
12 CONCLUSION
13 We AFFIRM the order of the bankruptcy court.
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
-19-