In re: Richard Stephen Kvassay ( 2014 )

FILED
MAY 30 2014
1 NO FO PUBL A IO
T R IC T N SUSAN M. SPRAUL, CLERK
U.S. BKCY. APP. PANEL
2 OF THE NINTH CIRCUIT
3 UNITED STATES BANKRUPTCY APPELLATE PANEL
4 OF THE NINTH CIRCUIT
5 In re: ) BAP No. CC-13-1418-KiLaPa
)
6 RICHARD STEPHEN KVASSAY, ) Bk No. 11-11698-PC
)
7 Debtor. ) Adv. No. 13-01553
)
8 )
RICHARD STEPHEN KVASSAY, )
9 )
Appellant, )
10 )
v. ) M E M O R A N D U M1
11 )
ROBERT V. KVASSAY, Trustee of )
12 the Kvassay Family Trust )
dated 02/26/1993; RUSSAKOW, )
13 GREENE & TAN LLP, )
)
14 Appellees. )
______________________________)
15
Argued and Submitted on May 15, 2014,
16 at Pasadena, California
17 Filed - May 30, 2014
18 Appeal from the United States Bankruptcy Court
for the Central District of California
19
Honorable Peter H. Carroll, Chief Bankruptcy Judge, Presiding
20
21 Appearances: Troy A. Stewart, Esq. argued for appellant, Richard
Stephen Kvassay; Richard R. Clements, Esq. argued
22 for appellees, Robert V. Kvassay and Russakow,
Greene & Tan LLP.
23
24
25
26
1
This disposition is not appropriate for publication.
27 Although it may be cited for whatever persuasive value it may have
(see Fed. R. App. P. 32.1), it has no precedential value. See 9th
28 Cir. BAP Rule 8013-1.
1 Before: KIRSCHER, LATHAM2 and PAPPAS, Bankruptcy Judges.
2 Chapter 73 debtor Richard Kvassay ("Debtor") appeals an order
3 granting appellees' motion to dismiss Debtor's adversary complaint
4 with prejudice under Civil Rule 12(b)(6). Appellees are Debtor's
5 brother, Robert Kvassay ("Robert"), trustee of the Kvassay Family
6 Trust dated 02/26/1993 ("Trust") and the law firm representing
7 Robert, Russakow, Greene & Tan LLP ("Law Firm")(collectively,
8 "Defendants"). We AFFIRM.4
9 I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY
10 A. Events leading to Debtor's adversary proceeding against
Defendants
11
Debtor and his two brothers, Robert and Peter Kvassay
12
("Peter"), were to have equal beneficial interests in the
13
principal of the Trust. The trustors, the brothers' parents, were
14
deceased by 2006. Until recently, Debtor had lived at his
15
parents' three and a half-acre estate and residence in Los Angeles
16
("Trust Property") since the 1960s; Peter had lived there since
17
the 1980s. Once under Debtor's and Peter's control, the Trust
18
19
2
Hon. Christopher Latham, Bankruptcy Judge for the Southern
20 District of California, sitting by designation.
21 3
Unless specified otherwise, all chapter, code and rule
references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and
22 the Federal Rules of Bankruptcy Procedure, Rules 1001-9037. The
Federal Rules of Civil Procedure are referred to as “Civil Rules.”
23
4
The parties have asked us to take judicial notice of
24 certain documents filed in the state court and a docket summary
from the California Court of Appeal. Neither party has objected
25 to the other's request. It is undisputed that these documents
were not presented to the bankruptcy court. Generally, we will
26 not consider evidence on appeal that was not before the trial
court when it made its decision. See Oyama v. Sheehan (In re
27 Sheehan), 253 F.3d 507, 512 n.5 (9th Cir. 2001). Because the
documents have no bearing on our decision, we DENY both requests
28 for judicial notice.
-2-
1 Property became uninhabitable, and Robert had to invest hundreds
2 of thousands of dollars of his own funds to repair it and make it
3 sellable. He also had to obtain a personal loan to save the Trust
4 Property from foreclosure after Peter stopped paying on a
5 $1.5 million loan he obtained against the Trust Property by
6 misrepresenting himself as the trustee of the Trust.
7 In May 2010, Robert, with the Law Firm's assistance, filed a
8 probate petition in the state court seeking to (1) evict Debtor
9 and Peter from the Trust Property and (2) offset Debtor's and
10 Peter's distributive share in the Trust ("Probate Action")(Case
11 No. BP122477).
12 On August 18, 2010, the probate court entered a minute order
13 evicting Debtor and Peter from the Trust Property (the "Eviction
14 Order"). Debtor and Peter appealed. On October 7, 2010, a third
15 party posted a cash deposit of $216,000 made in lieu of an appeal
16 bond to stay enforcement of the Eviction Order ("Appeal Bond").5
17 The $216,000 was based on a fair rental market value of the Trust
18 Property at $12,000 per month, multiplied by 18 months — the
19 anticipated length of time for Debtor and Peter's appeal to be
20 completed. Debtor and Peter were allowed to reside at the Trust
21 Property pending the appeal.
22 On January 13, 2011, while the appeal of the Eviction Order
23
5
Although the funds at issue were a cash deposit made in
24 lieu of an appeal bond, both the state court and the parties have
referred to it as an "appeal bond." Therefore, we do as well for
25 consistency. Under CAL. CIV. PROC. § 995.730, bonds and cash
deposits are treated in the same manner:
26
A deposit given instead of a bond has the same force and
27 effect, is treated the same, and is subject to the same
conditions, liability, and statutory provisions, including
28 provisions for increase and decrease of amount, as the bond.
-3-
1 was pending, Debtor filed a chapter 11 bankruptcy case, which was
2 later converted to chapter 7. In June 2011, the chapter 7 trustee
3 filed an application to employ counsel to assist him in, among
4 other things: (1) determining the nature and extent of Debtor's
5 beneficial interest in the Trust and the Appeal Bond; and
6 (2) liquidating Debtor's beneficial interest in the Trust and the
7 Appeal Bond by resolving the Probate Action.
8 In September 2011, Robert moved for relief from the automatic
9 stay to proceed with the Probate Action, Case No. BP122477 ("Stay
10 Relief Motion"). Robert requested an order allowing him to
11 proceed to a final judgment in the matter, "provided that the stay
12 remain[ed] in effect with respect to enforcement of any judgment
13 against Debtor(s) or estate property." Attached was a copy of the
14 complaint from the Probate Action. The chapter 7 trustee
15 initially opposed the Stay Relief Motion, contending that he
16 needed more time to investigate the pending Trust litigation. He
17 later withdrew his objection at the related hearing on October 6,
18 2011. Debtor did not oppose the Stay Relief Motion.
19 On October 21, 2011, the bankruptcy court entered an order
20 granting Robert's Stay Relief Motion under § 362(d)(1)("Stay
21 Relief Order"). It provided that Robert could "proceed in the
22 non-bankruptcy forum to final judgment (including any appeals) in
23 accordance with applicable non-bankruptcy law." In Paragraph 6 of
24 the order — Limitations on Enforcement of Judgment — neither box
25 is checked, indicating that no limitations were imposed
26 restricting Robert’s enforcement of any final judgment(s) he
27 received against Debtor. Litigation in the Probate Action
28 continued.
-4-
1 On February 3, 2012, the California Court of Appeal affirmed
2 the Eviction Order, Kvassay v. Kvassay, 2012 WL 336117 (Cal. Ct.
3 App. Feb. 3, 2012 (unpublished), review denied (Apr. 18, 2012),
4 and issued its remittitur on May 9, 2012. Debtor and Peter were
5 ultimately evicted from the Trust Property on May 21, 2012.
6 On April 23, 2012, Robert, represented by the Law Firm, moved
7 to release the full amount of the Appeal Bond to the Trust "now
8 that the appeal has been decided in favor of Petitioner." The
9 probate court denied Robert's first bond motion because it had
10 been filed before the remittitur was issued. Robert filed a
11 second motion to release the Appeal Bond to the Trust on June 26,
12 2012. He contended the Trust was entitled to the full amount
13 because the appeal process had taken more than 20 months. Debtor
14 and Peter opposed the release of the Appeal Bond.
15 In response to Robert's actions, the chapter 7 trustee filed
16 a motion for production of documents under Rule 2004, asserting
17 that because Robert was seeking to have the Appeal Bond released
18 to the Trust, he wanted access to Debtor's bank records to
19 evaluate whether the Appeal Bond was a potential asset of the
20 bankruptcy estate. The bankruptcy court granted the Rule 2004
21 motion.
22 After an evidentiary hearing on Robert's second motion to
23 release the Appeal Bond, the probate court entered a minute order
24 on December 12, 2012, which stated: "Judgment is entered in the
25 amount of $192,660.00, joint and severally against [Debtor and
26 Peter]. As to the balance of funds, there shall be no further
27 funds released pending the outcome of the Bankruptcy or further
28 court order."
-5-
1 On January 24, 2013, the probate court entered an "Amended
2 Order re. Release of Bond" in connection with its December 12
3 minute order, directing that $192,660 be paid from the Appeal Bond
4 on deposit with the court to Robert, trustee of the Trust
5 ("Amended Bond Order").
6 On January 29, 2013, Debtor and Peter filed a Petition for
7 Peremptory Writ of Prohibition and/or Writ of Mandate in the
8 California Court of Appeal, seeking to vacate the Amended Bond
9 Order, and on February 6, 2013, filed a notice of appeal. The
10 writ was denied. Defendants thereafter took possession of
11 $192,660 of the $216,000 Appeal Bond. The California Court of
12 Appeal affirmed the Amended Bond Order on May 14, 2014. Kvassay
13 v. Kvassay, 2014 WL 1913307 (Cal. Ct. App. May 14, 2014)
14 (unpublished).
15 On May 9, 2013, upon request of the chapter 7 trustee, the
16 bankruptcy court entered an order abandoning any potential
17 interest of the bankruptcy estate in the Probate Action and the
18 Appeal Bond due to their inconsequential value to the estate.
19 B. Debtor's adversary complaint and Defendants' motion to
dismiss
20
21 On May 22, 2013, Debtor filed an adversary complaint
22 ("Complaint"), contending that Defendants had violated the
23 automatic stay under § 362(a)(1) and (a)(6) by:
24 (1) filing state court motions to obtain a judgment
against Debtor to enforce against the Appeal Bond without
25 obtaining relief from stay to file the motions;
26 (2) obtaining the judgment against Debtor to enforce
against the Appeal Bond without obtaining relief from
27 stay to pursue the judgment against him;
28 (3) obtaining the first bond order and Amended Bond Order
-6-
1 without obtaining relief from the stay to enforce the
judgment against Debtor; and
2
(4) executing the Amended Bond Order and taking
3 possession of $192,660.00 of the Appeal Bond without
obtaining relief from the stay to enforce the judgment
4 against Debtor.
5 Specifically, Debtor asserted that the Stay Relief Order provided
6 only that Robert could proceed to final judgment in the Probate
7 Action as to the "causes of action pleaded in the non-bankruptcy
8 forum," and those causes of action did not include a claim for a
9 judgment against Debtor to enforce against the Appeal Bond and
10 that the claim underlying the judgment Robert obtained against
11 Debtor on December 12, 2012, was not pending in the state court.
12 Alternatively, Debtor argued that Defendants had violated the stay
13 by pursuing a judgment against him that was not "final" due to the
14 pending appeal. Debtor also alleged that Defendants should be
15 held in contempt under § 105(a) for their willful violation of the
16 Stay Relief Order. Debtor sought damages in excess of $70,000
17 under either § 362(k) or § 105(a).
18 On July 3, 2013, Defendants electronically filed their
19 Notice of Motion and Motion to Dismiss the Complaint under Civil
20 Rule 12(b)(6) ("Motion to Dismiss") under the event code "Notice
21 of Motion/Application."6 Defendants' Notice and Motion to Dismiss
22 were labeled accordingly but were combined into one document. The
23 attached proof of service stated that the Notice and Motion to
24 Dismiss were served electronically and by mail to Debtor's counsel
25
6
The entry in the bankruptcy court’s docket no. 9 states:
26 "Notice of motion/application Defendants' Notice of Motion and
Motion to Dismiss Complaint; Memorandum of Points and Authorities
27 Filed by Defendant Kvassay Robert V Trustee of the Kvassay Family
Trust dated February 26, 1993. (Clements, Richard)(Entered:
28 07/03/2013)[.]"
-7-
1 on July 3.
2 Defendants contended that Debtor was reading the Stay Relief
3 Order too narrowly. Contrary to Debtor's interpretation, Robert's
4 actions were not limited to just the causes of action existing at
5 the time it was entered on October 21, 2011; the order clearly
6 covered a judgment against Debtor that could be enforced against
7 the Appeal Bond. Defendants further argued the Complaint was
8 procedurally improper; damages and injunctive relief under
9 § 362(k) had to be sought by motion rather than through an
10 adversary proceeding. The same was true for contempt relief under
11 § 105(a); contempt actions had to be brought by motion per Rule
12 9020. Alternatively, argued Defendants, because Debtor had no
13 claim for a willful violation of the stay, they could not be found
14 in contempt under § 105 in any event. Defendants requested that
15 the Motion to Dismiss be granted without leave to amend and that
16 the adversary proceeding be dismissed with prejudice. The Notice
17 and Motion to Dismiss stated that a hearing was scheduled for
18 August 8, 2013.
19 On July 15, 2013, Defendants received a "Notice to Filer of
20 Error and/or Deficient Document" from the bankruptcy court clerk
21 advising Defendants that an incorrect event code was used to file
22 the Motion to Dismiss. Defendants were instructed "TO RE-FILE THE
23 DOCUMENT USING THE CORRECT EVENT. THIS DOCUMENT IS A MOTION THE
24 CORRECT EVENT CODE IS MOTION TO DISMISS." (Emphasis in original).
25 Defendants did as instructed, and on July 16, 2013, refiled the
26 same document under the correct event code. See docket no. 12.
27 The refiled Motion to Dismiss was identical to the original Motion
28 to Dismiss, including the attached proof of service showing
-8-
1 service on July 3, 2013.
2 Instead of filing a response to the Motion to Dismiss, Debtor
3 filed a first amended complaint ("FAC") on July 30, 2013. The FAC
4 alleged the same stay violation claims under § 362(a)(1) and
5 (a)(6), added a new claim under § 362(a)(5), and sought relief
6 under § 362(k)(1). The contempt claim under § 105(a) was omitted.
7 C. The bankruptcy court's ruling on the Motion to Dismiss
8 A hearing on Defendants' Motion to Dismiss was held on
9 August 8, 2013. At the start, counsel for Debtor informed the
10 bankruptcy court that the FAC had been filed on July 30, thereby
11 mooting the Motion to Dismiss. The court was aware of the FAC but
12 considered it untimely. When Debtor contended that an amended
13 complaint could be filed as a matter of course under Civil Rule
14 15(a), the court disagreed, noting that the time allowed in the
15 rule to file an amended complaint had already expired:
16 The defendant initially filed the [Motion to Dismiss] on
July 3, 2013 but . . . the defendant used an incorrect
17 event code. The clerk notified the defendant to correct
the error, which defendant did by re-filing the motion on
18 July 16, 2013. The proof of service attached to the
re-filed motion reflects that the motion was served by
19 first-class mail on July 3, 2013. The Court's added
three extra days for service by mail, so the Rule 15(a)
20 deadline to file the [FAC] based on service of the motion
was July 29, 2013 as July 27th fell on a Saturday. The
21 [FAC] was filed on July 30th, so it was one day late.
22 Hr'g Tr. (Aug. 8, 2013) 4:18-5:5.
23 After hearing briefly from the parties and noting that no
24 opposition had been filed, the bankruptcy court announced its
25 tentative ruling to strike the FAC as untimely and grant the
26 Motion to Dismiss without leave to amend, noting that its ruling
27 would not change even if it considered the FAC a proper
28 opposition. Debtor's use of an adversary proceeding, as opposed
-9-
1 to a motion, did not constitute grounds to dismiss the Complaint.
2 However, the Complaint failed to state a plausible claim for
3 relief under § 362(k)(1):
4 The Court's relief from stay order, which is the basis of
the complaint, included language . . . that all actions
5 . . . may be taken in the probate action to proceed to
final judgment including any appeals in accordance with
6 applicable non-bankruptcy law. And the Court's reading
of the complaint filed with the Court does not indicate
7 that there were any actions taken by the defendant that
was outside of or in violation of the Court's order
8 entered on October 21, 2011.
9 There's no facts [sic] in the complaint that would state
a plausible claim that the defendant took any separate
10 actions against the plaintiff outside the probate action
to enforce the Probate Court's order personally as to the
11 debtor. Estate funds were not used to post the appeals
bond of the – funds used to post the appeal bond were
12 provided by a third party.
13 Id. at 7:17-8:9. Likewise, the Complaint failed to state a
14 plausible claim for contempt of the Stay Relief Order under
15 § 105(a).
16 Unpersuaded by Debtor's further arguments, the bankruptcy
17 court adopted its tentative ruling in favor of Defendants as its
18 final ruling, and further stated:
19 When we get down to the rub of this complaint, it
involves a dispute concerning an appeal bond that was
20 posted in the state court action and steps taken in
conjunction with the appeal to adjudicate the parties'
21 right to that appeal bond. The appeal bond of $216,000
– it was a deposit in lieu of an appeal bond actually
22 posted by a third party. It's non-estate funds. The
fact that the trustee in the bankruptcy case investigated
23 whether any part of that $216,000 could possibly be
property of the estate is part of the trustee's duties
24 under Section 704 of the Bankruptcy Code . . . . The
trustee made a determination that those funds are not
25 property of the estate . . . .
26 The Court in reviewing the four corners of the original
complaint filed in this case and the facts stated in that
27 complaint cannot find sufficient facts that support or
state a plausible claim for relief for violation of this
28 Court's order granting relief from the automatic stay
-10-
1 either under Section 362(k) or for willful contempt of
the order under Section 105. For those reasons, the
2 motion to dismiss under Rule 12(b)(c) [sic] is granted.
It's granted without leave to amend, particularly in
3 light of the fact that no response in opposition to the
motion was filed specifically addressing the issues
4 raised in the motion.
5 And the amended complaint that was filed, evidently in
lieu of filing a proper response under our rules to the
6 motion, was filed without the consent of the defendant
prior to the filing of the motion and it was untimely
7 under Rule 15(a).
8 Id. at 15:18-16:3, 16:6-7, 16:12-17:2.
9 An order granting Defendants' Motion to Dismiss the Complaint
10 without leave to amend and dismissing Debtor's adversary
11 proceeding with prejudice was entered on August 13, 2013. Debtor
12 timely appealed.
13 II. JURISDICTION
14 The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334
15 and 157(b)(2)(A). We have jurisdiction under 28 U.S.C. § 158.
16 III. ISSUES
17 1. Did the bankruptcy court err in determining that the Motion
18 to Dismiss was filed and served on July 3 rather than on July 16,
19 and thus Debtor's FAC filed on July 30 was untimely?
20 2. Did the bankruptcy court err in dismissing the Complaint
21 under Civil Rule 12(b)(6)?
22 3. Did the bankruptcy court abuse its discretion in denying
23 Debtor leave to amend his Complaint?
24 IV. STANDARDS OF REVIEW
25 We review de novo the bankruptcy court's interpretation of
26 the Federal Rules of Bankruptcy Procedure. Am. Sports Radio
27 Network, Inc. v. Krause (In re Krause), 546 F.3d 1070, 1073 n.5
28 (9th Cir. 2008).
-11-
1 Whether property is property of the estate is a question of
2 law reviewed de novo. Mwangi v. Wells Fargo Bank, N.A.
3 (In re Mwangi), 432 B.R. 812, 818 (9th Cir. BAP 2010)(citing White
4 v. Brown (In re White), 389 B.R. 693, 698 (9th Cir. BAP 2008)).
5 The bankruptcy court's dismissal of an adversary proceeding
6 for failure to state a claim under Civil Rule 12(b)(6) is reviewed
7 de novo. N.M. State Inv. Council v. Ernst & Young LLP, 641 F.3d
8 1089, 1094 (9th Cir. 2011); Barnes v. Belice (In re Belice),
9 461 B.R. 564, 572 (9th Cir. BAP 2011). A denial of leave to amend
10 is reviewed for abuse of discretion. Ditto v. McCurdy, 510 F.3d
11 1070, 1079 (9th Cir. 2007). A bankruptcy court abuses its
12 discretion if it applies an incorrect legal standard or its
13 factual findings are illogical, implausible or without support
14 from evidence in the record. TrafficSchool.com v. Edriver Inc.,
15 653 F.3d 820, 832 (9th Cir. 2011). "Dismissal without leave to
16 amend is improper unless it is clear, upon de novo review, that
17 the complaint could not be saved by any amendment." Thinket Ink
18 Info. Res., Inc. v. Sun Microsystems, Inc., 368 F.3d 1053, 1061
19 (9th Cir. 2004)(citation omitted). However, it is not error for
20 the trial court to deny leave to amend where the amendment would
21 be futile. Id. (citing Saul v. United States, 928 F.2d 829, 843
22 (9th Cir. 1991)).
23 V. DISCUSSION
24 A. Defendants were not required to serve the refiled Motion to
Dismiss, and therefore the FAC was untimely.
25
26 Under Civil Rule 15(a)(1)(B), applicable here by Rule 7015,
27 "if [a] pleading is one to which a responsive pleading is
28 required," a "party may amend its pleading once as a matter of
-12-
1 course within . . . 21 days after service of a motion to dismiss
2 under [Civil] Rule 12(b) . . . ." Under Civil Rule 5(a)(1)(D) &
3 (E), applicable here by Rule 7005, a written motion and a written
4 notice must be served on every party that has appeared in the
5 action.
6 Virtually all of Debtor's arguments stem from his contention
7 that Defendants failed to serve the refiled Motion to Dismiss
8 filed on July 16, 2013, as required, which precluded him from
9 timely filing the FAC within 21 days of service of the refiled
10 motion. Thus, argues Debtor, the bankruptcy court could not have
11 found the FAC was untimely under Civil Rule 15(a)(1)(B).
12 Defendants argue that Debtor is raising this issue for the first
13 time on appeal, and therefore we should disregard it.
14 Generally, the Panel cannot consider arguments that were not
15 raised or briefed before the bankruptcy court. Katz v. Pike
16 (In re Pike), 243 B.R. 66, 69 (9th Cir. BAP 1999)(citing Whittaker
17 Corp. v. Execuair Corp., 953 F.2d 510, 515 (9th Cir. 1992)).
18 However, we have the discretion to consider an argument raised for
19 the first time on appeal if the "'issue presented is purely one of
20 law and either does not depend on the factual record developed
21 below, or the pertinent record has been fully developed.'" Id.
22 (quoting Boker v. C.I.R., 760 F.2d 1039, 1042 (9th Cir. 1985)).
23 We agree that this argument was not expressly raised before the
24 bankruptcy court. Nonetheless, in reviewing the transcript,
25 counsel for Debtor appeared surprised when the bankruptcy court
26 informed him that the FAC filed on July 30, 2013, was untimely
27 based on the July 3 service date of the Motion to Dismiss.
28 Implicit in the court's finding was that the refiled Motion to
-13-
1 Dismiss filed on July 16, 2013, which the court expressly
2 referenced, did not have to be served on Debtor, and so the 21-day
3 time period for Debtor's responsive pleading started to run on
4 July 3, 2013. See Rule 9006(f). Because of the court's implicit
5 finding, and because the question before us is purely one of law
6 and the record is fully developed, we exercise our discretion to
7 consider the issue.
8 If a pleading that requires service to other parties is
9 electronically filed and served by mail but was filed under the
10 wrong event code, does Civil Rule 5 require service when the same
11 pleading is refiled under the correct event code? We think not.
12 The bankruptcy court clerk instructed Defendants on July 15,
13 2013, to refile their Motion to Dismiss under the correct event
14 code, which they did on July 16, 2013. The clerk did not instruct
15 Defendants to also serve the refiled motion. Citing to no
16 authority other than Civil Rule 5(a)(1)(D) & (E), Debtor contends
17 that because of the refiling, Defendants were required to serve
18 the refiled Motion to Dismiss and Notice thereto. Section 3.5(h)
19 of the Court Manual,7 which addresses errors in electronic
20
7
21 Court Manual § 3.5(h) entitled "Correcting Documents Filed
in Error" provides:
22
(1) When a document has been filed electronically, the
23 official record is the electronic recording of the document
as stored by the court. Only the Clerk’s Office can make
24 changes to the docket entry.
25 (2) A document incorrectly filed in a case may be the result
of posting the wrong PDF file to a docket entry, selecting
26 the wrong document type from the menu, or entering the wrong
case number. If an error is detected after an item is on the
27 docket, DO NOT ATTEMPT TO RE-FILE THE DOCUMENT.
28 continue...
-14-
1 filings, is silent as to whether an incorrectly filed document
2 must be served again once refiled. Likewise, the "FAQ" for CM/ECF
3 does not address it.8 Local Rule 5005-4 — Electronic Filing — is
4 also silent on this matter. Therefore, we must turn to other
5 authority.
6 Neither party has cited, and we could not locate, a case
7 involving this exact issue. However, we found several cases
8 involving similar electronic filing errors. In Farzana K. v. Ind.
9 Dep't of Educ., 473 F.3d 703 (7th Cir. 2007), plaintiff's attorney
10 had thirty days from which to file a complaint after a final
11 administrative decision had been issued. On the 30th day, the
12 attorney electronically filed a complaint, but filed it in the
13 plaintiff's former case that had been dismissed two years prior.
14 The computer rejected the filing with the notation that the case
15 had been closed. Id. at 704. Two days later, plaintiff's
16
7
17 ...continue
(3) After an error is discovered, contact the CM/ECF Help
18 Desk at (213) 894-2365 as soon as possible. Be sure to have
the case number and document number for which the correction
19 is being requested. If appropriate, the court will make an
entry indicating that the document was filed in error. You
20 will be advised if you need to re-file the document. The
CM/ECF system will not permit you to make changes to a
21 document or docket entry once the transaction has been
accepted.
22
(4) If an error regarding a fee occurs, do not pay the fee
23 until after speaking with someone at the CM/ECF Help Desk.
24 8
Question no. 31 of the FAQ found at
www.cacb.uscourts.gov/cmecf-frequently-asked-questions (last
25 visited on May 29, 2014) states: "What happens if a document is
filed in error? Email the ECF Help Desk at
26 ECF_Support@cacb.uscourts.gov immediately after you discover an
error has occurred. Incorrect entries or PDFs will not be
27 deleted. Errors may be edited by court personnel only. A
corrective entry by the Court may be required. An e-mail is
28 generated whenever a corrective entry is made."
-15-
1 attorney filed a new complaint that was identical to the first
2 one, except that the space for the docket number was left blank
3 and the word "amended" had been deleted. The district court held
4 that the later-filed complaint was untimely and dismissed the
5 suit. Id. at 705. Relying on the mandate provided in Civil
6 Rule 5(e),9 now Civil Rule 5(d)(4), that court clerks must accept
7 filings despite formal defects, and equating the attorney's
8 mistake to filing paper copies with the wrong docket number
9 written in, the Seventh Circuit reversed, holding that the
10 complaint was timely filed despite the electronic filing error.10
11 Id. at 706-07.
12 Still, the fact remains that the complaint was tendered
to the clerk's office on the 30th day, and the computer's
13 reaction does more to show the limits of some
programmer's imagination than to render the suit
14 untimely. Had a paper copy of the complaint been handed
over the counter on July 6, a deputy clerk would have
15 crossed out the old docket number, stamped a new one, and
filed the document; there is no reason to throw this suit
16 out of court just because the e-filing system did not
know how to take an equivalent step.
17
18 Id. at 707.
19 In Weeks Landing, LLC v. RCMP Enters., LLC, 439 B.R. 897
20
21
9
Former Civil Rule 5(e) read, in relevant part: "The clerk
22 shall not refuse to accept for filing any paper presented for that
purpose solely because it is not presented in proper form as
23 required by these rules or any local rules of practices." That
rule has now been amended to Civil Rule 5(d)(4), which provides:
24 "The clerk must not refuse to file a paper solely because it is
not in the form prescribed by these rules or by a local rule or
25 practice."
26 10
The Farzana K court reasoned that the "software that
operates an e-filing system acts for 'the clerk' as far as Rule 5
27 is concerned; a step forbidden to a person standing at a counter
is equally forbidden to an automated agent that acts on the
28 court's behalf." 473 F.3d at 707.
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1 (M.D. Fla. 2010), plaintiff's attorney incorrectly filed an
2 adversary complaint in the debtor's main bankruptcy case. Two
3 days later, the clerk issued a form "Order of Conditional
4 Dismissal" instructing the attorney to refile the complaint in an
5 adversary proceeding. Id. at 906. The attorney did as
6 instructed, but not until several days past the filing deadline.
7 The second complaint was identical to the first. Id. Defendants
8 moved to dismiss the complaint with prejudice due to its
9 untimeliness, and the bankruptcy court granted the motion. Id. at
10 907-08. Relying on Civil Rule 5(d)(4) and Rule 5005(a)(1),11 the
11 district court reversed, holding that the adversary complaint was
12 timely filed despite the electronic filing error. Id. at 909.
13 Accord Shuler v. Garrett, 715 F.3d 185, 187 (6th Cir. 2013)
14 (relying on Civil Rule 5(d)(4) to hold that Civil Rule 59 motion
15 electronically filed under incorrect docket number was timely
16 filed notwithstanding counsel's filing mistake, particularly since
17 defendants were also served paper copies of the motion at the time
18 it was filed incorrectly).
19 Finally, in Vince v. Rock Cnty., Wis., 604 F.3d 391 (7th Cir.
20 2010), appellant's counsel electronically filed a notice of appeal
21 on the last day of the appeal period, but used the wrong event
22 code. The clerk's office discovered the error and notified
23 counsel of the mistake in an email three days later, directing him
24 to refile it with the correct event code. Counsel complied, and
25
26 11
Rule 5005(a)(1) provides, in relevant part: "The clerk
shall not refuse to accept for filing any petition or other paper
27 presented for the purpose of filing solely because it is not
presented in proper form as required by these rules or any local
28 rules or practices."
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1 the second transmission of the notice of appeal was sent six days
2 after the appeal time had expired, causing the court staff to
3 question the timeliness of the appeal. Relying on Civil
4 Rule 5(d)(4) and its prior holding in Farzana K, the Seventh
5 Circuit held that the notice of appeal was timely filed, even
6 though initially filed under the wrong event code. Id. at 393.
7 The Vince court observed that filing documents under the wrong
8 event code is the most common electronic filing error listed in
9 the manual for the Western District of Wisconsin. Id.
10 We are persuaded by Farzana K, Weeks Landing, Shuler and
11 Vince, and hold that Civil Rule 5 did not require Defendants to
12 serve the Motion to Dismiss when it was refiled under the correct
13 event code on July 16, 2013. Undisputedly, if it were not for
14 electronic case filing, we would not be here. The caption on
15 Defendants' Motion to Dismiss states that it is a "Notice of
16 Motion and Motion to Dismiss Complaint; Memorandum of Points and
17 Authorities." Thus, it is clear to anyone reading the caption
18 what Defendants filed. Further, if a paper filing had occurred,
19 the clerk had nothing to correct, which is unlike the
20 circumstances in Farzana K, Weeks Landing and Shuler.
21 Noticeably absent from these cases and particularly Vince,
22 which involved the use of a wrong event code, is the court's
23 instruction that the incorrectly filed document had to be served
24 again once it was properly filed. The error here was due strictly
25 to a nuance that exists only because of electronic filing. It is
26 an error of form rather than substance. Thus, we cannot conclude
27 that Defendants' refiling of the Motion to Dismiss under the
28 correct event code on July 16, 2013, triggered the service
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1 requirements under Civil Rule 5(a)(1)(D) & (E). Had the motion
2 been altered, however, the outcome would be different.
3 Debtor argues that the refiled Motion to Dismiss was the
4 operative motion that set the matter for hearing, not the original
5 filing, which he argues was rejected by the clerk and is wholly
6 irrelevant to the bankruptcy court's application of Civil
7 Rules 15(a)(1)(B) and 5(a)(1)(D). First, we disagree that the
8 Motion to Dismiss filed on July 3 was "rejected." Under Civil
9 Rule 5(d)(4) and Rule 5005(a)(1) the clerk was not allowed to
10 reject it. "An e-filing system likewise must accept every
11 document tendered for filing; it cannot reject any paper that the
12 clerk must accept." Farzana K, 473 F.3d at 708. In this case,
13 the clerk would never have rejected it in the first place because,
14 on the face of it, no error existed.
15 We also disagree with Debtor's contention that the hearing
16 would not have been set had Defendants not refiled the motion, so
17 therefore it must be the operative motion. Docket no. 11, which
18 immediately follows the July 15 error notice and was also entered
19 on July 15, is an entry by the clerk setting the Motion to Dismiss
20 for hearing on August 8. Thus, the refiling of the motion on
21 July 16 was not the prerequisite for the hearing to be set.12
22
12
23 Debtor raises for the first time in his reply brief that
the reason Defendants were instructed to refile the Motion to
24 Dismiss was because they failed to comply with Local Rule 9013-
1(c)(2) and (3) and file the "Notice of Motion"and "Motion" as
25 separate documents, and until they did so, the matter could not be
set for hearing. Local Bankruptcy Rules 9013-1(c)(2) and (3)
26 provide:
27 (c) Form and Content of Motion and Notice.
28 continue...
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1 Defendants were not required to serve the Motion to Dismiss
2 when it was refiled on July 16 due to being filed under a wrong
3 event code on July 3. Debtor does not dispute receiving notice of
4 the Motion to Dismiss by mail when it was filed on July 3.
5 Therefore, the FAC had to be filed by July 29. It was not filed
6 until July 30. As such, Debtor was not allowed to file an amended
7 complaint without consent from Defendants or leave of court,
8 neither of which he had. Civil Rule 15(a)(1)(B); 6 Wright, Miller
9 & Kane, Fed. Practice and Proc. § 1480 (3d 2010)(when the 21-day
10 time period has expired to file an amended complaint as a matter
11 of course, Civil Rule 15(a)(1) no longer applies and an amendment
12 falls under Civil Rule 15(a)(2), which requires leave of court or
13
14 12
...continue
(2) Notice of Motion. Every motion must be accompanied by
15 written notice of motion specifying briefly the relief
requested in the motion and, if applicable, the date, time,
16 and place of hearing. Except as set forth in LBR 7056-1 with
regard to motions for summary judgment or partial summary
17 adjudication, or as otherwise ordered, the notice of motion
must advise the opposing party that LBR 9013-1(f) requires a
18 written response to be filed and served at least 14 days
before the hearing. If the motion is being heard on shortened
19 notice pursuant to LBR 9075-1, the notice must specify the
deadline for responses set by the court in the order
20 approving the shortened notice.
21 (3) Motion. There must be served and filed with the motion
and as a part thereof:
22 (A) Duly authenticated copies of all photographs and
documentary evidence that the moving party intends to submit
23 in support of the motion, in addition to the declarations
required or permitted by FRBP 9006(d); and
24 (B) A written statement of all reasons in support thereof,
together with a memorandum of the points and authorities upon
25 which the moving party will rely.
26 Although we are not really sure how this argument helps Debtor,
nothing in the rules state that the Notice of Motion and Motion
27 must be filed separately, or that failure to do so will not set a
matter for hearing. As discussed above, the clerk set the Motion
28 to Dismiss for hearing before Defendants even refiled it.
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1 written consent of the opposing party). Accordingly, the
2 bankruptcy court did not err in striking the FAC as untimely.
3 B. The bankruptcy court did not err in granting the Motion to
Dismiss under Civil Rule 12(b)(6) and dismissing the
4 Complaint.
5 Under Civil Rule 12(b)(6), made applicable in adversary
6 proceedings through Rule 7012, a bankruptcy court may dismiss a
7 complaint if it fails to "state a claim upon which relief can be
8 granted." In reviewing a Civil Rule 12(b)(6) motion, the trial
9 court must accept as true all facts alleged in the complaint and
10 draw all reasonable inferences in favor of the plaintiff. Newcal
11 Indus., Inc. v. Ikon Office Solutions, 513 F.3d 1038, 1043 n.2
12 (9th Cir. 2008). To avoid dismissal under Civil Rule 12(b)(6), a
13 plaintiff must aver in the complaint "sufficient factual matter,
14 accepted as true, to 'state a claim to relief that is plausible on
15 its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)(quoting
16 Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). "A claim
17 has facial plausibility when the pleaded factual content allows
18 the court to draw a reasonable inference that the defendant is
19 liable for the misconduct alleged." Iqbal, 556 U.S. at 663
20 (citation omitted).
21 A debtor may request and obtain sanctions against a creditor
22 if it willfully violated the automatic stay. See § 362(k). A
23 creditor willfully violates the automatic stay if it knew of the
24 automatic stay and intentionally acted in violation of it.
25 Eskanos & Adler, P.C. v. Leetien, 309 F.3d 1210, 1215 (9th Cir.
26 2002)(analyzing automatic stay violation under former § 362(h)).
27 Debtor contends that the bankruptcy court erred in granting
28 the Motion to Dismiss and dismissing the Complaint for two
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1 reasons. First, the court erred by failing to consider whether or
2 not the Amended Bond Order was a final judgment. Debtor argues
3 that the Stay Relief Order authorized Robert to enforce only
4 "final" judgments and, therefore the Defendants violated the Stay
5 Relief Order by enforcing the Amended Bond Order, which was still
6 on appeal and not final.13 Second, Debtor argues Defendants' claim
7 to enforce the Appeal Bond, which Debtor characterizes as a
8 personal judgment against him, is a separate and distinct claim
9 for relief under California law that was not disclosed to the
10 bankruptcy court or authorized by the Stay Relief Order. Thus,
11 argues Debtor, the bankruptcy court erred in concluding that
12 Defendants’ pursuit of the Appeal Bond was merely part and parcel
13 of the Probate Action. Debtor also argues that no factual basis
14 existed for the bankruptcy court to determine that the $216,000
15 Appeal Bond was "non-estate funds," since any potential estate
16 interest in it was not abandoned until after Defendants took the
17 violative actions.
18 In reviewing the Stay Relief Order, the bankruptcy court
19 determined that Defendants' attempt to recover on the Appeal Bond
20 was not an action separate from the Probate Action, and therefore
21 did not violate the automatic stay or provide a basis for
22 contempt. "We accord substantial deference to the bankruptcy
23 court's interpretation of its own orders and will not overturn
24 that interpretation unless we are convinced it amounts to an abuse
25 of discretion." Rosales v. Wallace (In re Wallace), 490 B.R. 898,
26 906 (9th Cir. BAP 2013)(citing Marciano v. Fahs (In re Marciano),
27
13
As noted earlier, the California Court of Appeal affirmed
28 the Amended Bond Order on May 14, 2014.
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1 459 B.R. 27, 35 (9th Cir. BAP 2011)). We are not convinced the
2 bankruptcy court's interpretation of the Stay Relief Order was an
3 abuse of discretion. We agree that Defendants' pursuit of the
4 Appeal Bond was not an action taken outside of the authorized
5 Probate Action, Case No. BP122477.
6 Debtor is correct that the bankruptcy court did not expressly
7 address the finality of the Amended Bond Order, which was still on
8 appeal when Defendants sought to recover on the Appeal Bond, and
9 whether they violated the Stay Relief Order by pursuing the funds.
10 However, this is of no moment, because the Appeal Bond was never
11 estate property.
12 In its ruling, the bankruptcy court implied that it was
13 granting the Motion to Dismiss because the Appeal Bond was
14 non-estate funds, so, therefore, Defendants could not have
15 violated the automatic stay in any event. The Appeal Bond at
16 issue was actually a $216,000 cash deposit in lieu of an appeal
17 (or supersedeas) bond. It was posted to protect the Trust from
18 any further damages incurred during Debtor and Peter's appeal of
19 the Eviction Order issued in the Probate Action. Generally, when
20 a "debtor puts up his own money as a cash deposit[,] [t]he debtor
21 continues to have not only a legal interest, but also a residual
22 interest in the cash deposit. Therefore, the cash deposit is
23 property of the estate." Canzone v. Hammon (In re Hammon),
24 180 B.R. 220, 223 (9th Cir. BAP 1995)(prepetition cash deposit
25 made by general contractor-debtor with state licensing board, as
26 required by state law to insure payment of claims made against
27 him, was property of the estate because debtor retained legal and
28 residual equitable interest in the funds); In re S-Tran Holdings,
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1 Inc., 414 B.R. 28, 35 (Bankr. D. Del. 2009)(holding same and
2 citing In re Hammon). Here, however, the cash deposit was made by
3 a third party. As such, Debtor never had any interest in the
4 proceeds of it and neither did his bankruptcy estate. This
5 conclusion is consistent with him not listing it as an asset in
6 his Schedule B. (See docket no. 10). The beneficiary of the
7 Appeal Bond was either Robert if he prevailed, or the third party
8 who posted the funds should Debtor and Peter have prevailed.
9 Because the $216,000 cash deposit was never property of the
10 estate, it was never subject to the automatic stay. Therefore,
11 Defendants could not have violated the stay or the Stay Relief
12 Order in trying to recover it. Accordingly, because the Complaint
13 failed to establish a plausible claim for relief under § 362(k) or
14 § 105(a), the bankruptcy court did not err in granting the Motion
15 to Dismiss.
16 C. The bankruptcy court did not abuse its discretion in
dismissing the Complaint without leave to amend.
17
18 Under Civil Rule 15(a)(2), Debtor could amend his Complaint
19 only with Defendants' consent or with the bankruptcy court's
20 leave. Debtor contends that the bankruptcy court abused its
21 discretion in denying leave to amend because it did so on the
22 basis of a clearly erroneous factual finding — that the Motion to
23 Dismiss was served on July 3 as opposed to July 16. As we have
24 concluded above, the bankruptcy court did not err in finding that
25 the Motion to Dismiss was served on July 3. In any event,
26 amending the Complaint in this case would have been futile because
27 Debtor could never state a plausible claim for relief under
28 § 362(k) or § 105(a) on the basis of Defendants' actions to
-24-
1 recover on the Appeal Bond. Therefore, the bankruptcy court did
2 not err in denying leave to amend. Thinket Ink Info. Res., Inc.,
3 368 F.3d at 1061 (trial court does not err in denying leave to
4 amend where amendment would be futile).
5 VI. CONCLUSION
6 For the foregoing reasons, we AFFIRM.
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