FILED
JUN 08 2012
SUSAN M SPRAUL, CLERK
1 U.S. BKCY. APP. PANEL
OF THE NINTH CIRCUIT
2
3 UNITED STATES BANKRUPTCY APPELLATE PANEL
4 OF THE NINTH CIRCUIT
5 In re: ) BAP Nos. SC-11-1052-PaMkCa
)
6 EUGENE DUGGER, JR.; MARIANNE ) Bankr. No. 05-00024-LA7
FRANCIS DUGGER, )
7 ) Adv. No. 08-90002
Debtors. )
8 ___________________________________)
)
9 GREGORY A. AKERS, Chapter 7 )
Trustee, )
10 )
Appellant, )
11 )
v. ) M E M O R A N D U M1
12 )
MARY ANN MATTEI; EUGENE DUGGER, )
13 SR., )
)
14 Appellees. )
___________________________________)
15
Argued and Submitted on January 19, 2012
16 at Pasadena, California
17 Filed - June 8, 2012
18 Appeal from the United States Bankruptcy Court
for the Southern District of California
19
Honorable Louise DeCarl Adler, Bankruptcy Judge, Presiding
20
Appearances: Nannette Farina argued for appellant Gregory A.
21 Akers; Ajay Gupta argued for appellee Eugene
Dugger, Sr.
22
23 Before: PAPPAS, MARKELL and CASE,2 Bankruptcy Judges.
24
25 1
This disposition is not appropriate for publication.
26 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
27 Cir. BAP Rule 8013-1
2
28 The Honorable Charles G. Case, II, Bankruptcy Judge for the
District of Arizona, sitting by designation.
-1-
1 Chapter 73 trustee Gregory A. Akers (“Trustee”) appeals from
2 an order of the bankruptcy court entered in this adversary
3 proceeding granting a summary judgment dismissing Trustee’s claims
4 against Mary Ann Mattei (“Mattei”), and an order denying Trustee’s
5 motion for a default judgment as to his claims against Eugene
6 Dugger, Sr. (“Senior”)4 and, instead, entering a judgment against
7 Trustee dismissing all claims against Senior. We AFFIRM the
8 bankruptcy court’s order granting summary judgment to Mattei.
9 However, we VACATE the judgment in favor of Senior and we REMAND
10 this matter to the bankruptcy court for further proceedings
11 consistent with this decision.
12 FACTS
13 Eugene Dugger, Jr. (“Junior”) and Marianne Francis Dugger
14 (together, “Debtors”) filed a petition under chapter 13 on
15 January 4, 2005. David L. Skelton was appointed chapter 13
16 trustee (“Skelton”).
17 In declarations subsequently submitted to the bankruptcy
18 court in the adversary proceeding giving rise to this appeal,
19 Skelton explains that he acted diligently in performing his duties
20 as chapter 13 trustee. In particular, Skelton states that he
21
22
3
Unless otherwise indicated, all chapter, section and rule
23 references are to the Bankruptcy Code,
11 U.S.C. §§ 101-1330, as
enacted and promulgated prior to the effective date (October 17,
24 2005) of the relevant provisions of the Bankruptcy Abuse
Prevention and Consumer Protection Act of 2005, Pub. L. 109-8,
25 April 20, 2005,
119 Stat. 23, and to the Federal Rules of
Bankruptcy Procedure, Rules 1001-9037. The Federal Rules of Civil
26 Procedure are referred to as “Civil Rules.”
27 4
Like the bankruptcy court and parties, in this decision,
for clarity, we refer to Mr. Duggar, Sr. as “Senior,” and to his
28 son as “Junior.” No disrespect is intended.
-2-
1 carefully reviewed the Debtors’ petition, schedules and statement
2 of financial affairs (“SOFA”), and verified their income by
3 reference to tax returns, profit and loss statements, and Debtors’
4 responses in a business questionnaire. Skelton also questioned
5 Debtors at the § 341(a) meeting of creditors, and he attached his
6 notes from that meeting to his declaration. Those notes show that
7 Skelton inquired about Debtors’ purchase of any real property
8 within one year of the petition date.
9 Skelton also expressed in his declaration his opinion that
10 Debtors’ counsel had done a “horrible job” in preparing their
11 bankruptcy papers. In his view, the errors and omissions Skelton
12 perceived in these papers were the result of carelessness and
13 incomplete examination of the papers by Debtors’ counsel. Nothing
14 in the bankruptcy papers suggested to Skelton that Debtors had
15 made any transfers of real property more than two years before the
16 petition.5
17 Debtors’ chapter 13 plan was confirmed by the bankruptcy
18 court on May 25, 2005. After two years, Debtors were unable to
19 make their payments under the plan and, on August 22, 2007,
20 Debtors voluntarily converted the case to chapter 7. Trustee was
21 appointed to serve as chapter 7 trustee.
22 A § 341(a) meeting of creditors in the chapter 7 case was
23 held on May 24, 2007. During that meeting, a creditor,
24
5
On May 6, 2011, the National Association of Chapter 13
25 Trustees (“NACTT”) submitted an amicus curiae letter to the Panel
for this appeal. The letter discussed the ordinary business
26 practices of chapter 13 trustees, noting that “Chapter 13 trustees
rarely conduct intensive investigations of debtor’s prepetition
27 assets or transfers.” NACTT Letter at 1. The letter did not
address the specific facts of this case. The amicus letter of
28 NACTT is hereby ACCEPTED. See Fed. R. App. P. 29.
-3-
1 Mrs. Greeniaus, and her daughter, Mrs. McKee, informed Trustee
2 that Junior had told them that he owned real property in Seguin,
3 Texas (the “Guadalupe Property”) that was not listed in Debtors’
4 bankruptcy schedules. In response, Junior indicated that he had
5 transferred his ownership interest in the Guadalupe property to
6 his father, Senior, “about ten years ago.” Trustee continued the
7 meeting to obtain additional information about the property and
8 other assets.
9 In a declaration submitted later, Deb Brodie, a real estate
10 agent in Texas, stated that she had been contacted by a San Diego
11 real estate agent in approximately Summer 2006. Brodie was
12 informed that a “Pete” Dugger6 and his wife, Marianne, wanted to
13 sell a 21-acre property in Texas. Ms. Brodie declared that she
14 had several telephone conversations with Junior in which he
15 discussed the terms of sale. It was her understanding that while
16 Senior was the owner of the Guadalupe Property, Junior was making
17 the payments on the Contract for Deed by which the land had been
18 acquired. As it turned out, on October 15, 2007, Senior sold the
19 Guadalupe Property, deeding it to Rodger and Joseph Wein.
20 At the continued § 341(a) meeting in Debtors’ chapter 7 case
21 held on November 20, 2007, Debtors presented what Trustee
22 described as “partial and disorganized paperwork” regarding the
23 Guadalupe Property. The information they supplied included copies
24 of a Contract for Deed executed by Junior and Cynthia7 Dugger on
25
26
6
It is undisputed that Junior also goes by the name “Pete.”
27
7
Cynthia is Junior’s former wife. It appears that Junior
28 married Marianne, his current wife and co-debtor, in 2000.
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1 July 13, 1994;8 an assignment of Junior’s rights in the contract
2 to Senior dated October 9, 2001; and a deed conveying the
3 Guadalupe Property from Junior to Senior dated October 15, 2007.
4 There is nothing in these documents to show if any of them had
5 been recorded. The paperwork also provided no information
6 concerning whether there were debts owed on the Guadalupe Property
7 at the time of the transfers. Debtors did not inform Trustee that
8 the Guadalupe Property had been sold by Senior during the pendency
9 of Debtors’ bankruptcy case.
10 Trustee ordered a title search on the Guadalupe Property in
11 December 2007. The search ultimately disclosed the October 15,
12 2007 sale of the Property by Senior. Trustee’s investigations
13 also uncovered the existence of another property that had been
14 allegedly owned by Junior, a one-acre tract in Cibolo, Texas (the
15 “Bexar Property”). Apparently, a warranty deed had been issued to
16 Junior for the Bexar property on October 1, 1995. On April 12,
17 2002, Junior executed a quitclaim deed to the Bexar Property to
18 Senior, for the alleged consideration of $3,000. Then, on
19 July 24, 2003, Senior signed a quitclaim deed conveying the
20 property to Mattei, who is Senior’s daughter and Junior’s sister.
21 It is undisputed that Mattei paid no consideration for the 2003
22 transfer, which Senior later described as a “Christmas gift.”
23 Based on what he had learned, on January 2, 2008, Trustee
24 commenced this adversary proceeding against Senior and Mattei; he
25 filed an amended complaint on April 8, 2008. In the amended
26
8
The Contract for Deed provided for monthly installment
27 payments of $153.12, until the purchase price of $22,000 (at 8
percent interest) was paid, at which time the seller agreed to
28 issue a deed to the property to the buyer.
-5-
1 complaint, Trustee asserted claims seeking the following relief:
2 (1) First Claim, avoidance of transfer of the Guadalupe Property
3 against Senior pursuant to §§ 544(a) and (b) and 550; (2) Second
4 Claim, for declaratory relief against Senior and GHK Enterprises,
5 LP,9 finding that GHK holds bare legal title to the Guadalupe
6 Property, and that it is property of the estate within the meaning
7 of § 541(a);10 (3) Third Claim, to avoid the 2007 post-petition
8 transfer of the Guadalupe Property against Senior under § 549;
9 (4) Fourth Claim, to sell the Guadalupe Property under §363(b) and
10 (h) against Senior; (5) Fifth Claim, to avoid various transfers of
11 the Bexar Property under § 544(b) against Mattei and Senior; and
12 (6) Sixth Claim, to sell the Bexar Property under §363(b) and (h)
13 against Mattei and Senior. Implicitly recognizing that the
14 applicable statute of limitations for avoidance actions may have
15 expired, Trustee alleged in the amended complaint that the
16 doctrine of equitable tolling should be applied in this case to
17 excuse any tardy filing of the action.11
18
9
19 GHK was the original owner of the Guadalupe Property, and
the seller under the Contract for Deed with Junior. GHK is not a
20 party to this appeal.
10
21 Within the Second Claim, Trustee asserted that Senior
"knowingly receiv[ed] title into his name of the debtor(s)'
22 ownership interest in the Guadalupe County Property and Bexar
County Property," and that Mattei knowingly received "title into
23 her name of the debtor(s) ownership interest in the Bexar County
Property." This assertion would form the basis for Trustee' later
24 argument that a "resulting trust" arose such that the properties
were property of the bankruptcy estate on the petition date.
25
11
Debtors were granted a discharge on November 27, 2007.
26 However, as the result of his investigations, Trustee discovered
that Debtors had concealed other bankruptcy estate property,
27 including equipment and vehicles, a business bank account, and a
Palm Springs timeshare. Trustee commenced another adversary
28 (continued...)
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1 On January 16, 2009, Mattei filed a motion for summary
2 judgment concerning the two claims targeting her in Trustee’s
3 amended complaint. The foundation for Mattei’s summary judgment
4 motion was that, (1) Trustee’s claims against her were barred by
5 the § 546(a) statute of limitations; (2) the statute was not
6 equitably tolled; and (3) Trustee was not a successor to any
7 unsecured creditor in existence at the time of commencement of the
8 case, as required for application of § 544(b) and state law.
9 Trustee opposed the motion for summary judgment on
10 February 17, 2009. He asserted that: (1) Trustee had standing to
11 prosecute the action because there was at least one qualifying
12 creditor with a claim on the date of transfer; (2) under the
13 facts, the § 546(a) statute of limitations should be equitably
14 tolled; and (3) reasonably equivalent value was not given in
15 exchange for the transfers.
16 The summary judgment hearing took place on March 5, 2009.
17 The bankruptcy court first struck seven of the affidavits
18 submitted by Trustee12 because they only related to the Guadalupe
19 Property (while only the transfers of the Bexar Property were at
20 issue on Mattei’s summary judgment motion) and were irrelevant, or
21
22
11
(...continued)
23 proceeding seeking revocation of the Duggers’ discharge under
§727(d)(1), (2) and (3) on November 25, 2008. On December 24,
24 2008, Trustee filed a motion for summary judgment. Debtors filed
an answer and opposition to the summary judgment motion, generally
25 arguing that the property that they had allegedly concealed was
worthless. After a January 29, 2009 hearing, the bankruptcy court
26 granted Trustee’s motion, and on February 9, 2009, entered a
summary judgment revoking Debtors’ discharge under § 727(d)(1).
27 That judgment was not appealed.
28 12
Greeniaus, McKee, Brodie, Myers, Wein, Kane, and DeLuca.
-7-
1 that they merely tended to establish that Junior was a braggart
2 and liar.13 After hearing the parties’ arguments, the bankruptcy
3 court granted summary judgment to Mattei because:
4 - The § 546(a) statute of limitations for avoidance actions
5 in this case expired on January 4, 2007, and Trustee’s complaint
6 was time-barred as a matter of law.
7 - There was no basis for equitably tolling the limitations
8 statute, in that there was no evidence showing wrongful conduct or
9 fraud by the Debtors, or any other extraordinary circumstances
10 that would justify equitable tolling.
11 - Trustee had not established he had standing to pursue the
12 § 544(b) claims, since he could not show that there was an
13 existing creditor with some amount owing on the date of transfer.
14 The bankruptcy court entered an order granting summary
15 judgment on March 11, 2009. Trustee appealed, but this Panel
16 dismissed the appeal as interlocutory. Akers v. Mattei (In re
17 Dugger), Case no. SC-09-1095 (9th Cir. BAP, June 18, 2009).
18 Trustee then turned his attention to the claims against
19 Senior. After several unsuccessful attempts to obtain responses
20 to written discovery, Trustee filed a motion on October 1, 2009,
21 for an order deeming his requests for admission admitted, to
22 compel interrogatory responses and production of documents, and
23 for attorney’s fees (“Motion to Compel”). After a hearing on
24 Trustee’ Motion to Compel, the bankruptcy court determined that
25
26 13
The bankruptcy court indicated it needed no additional
proof concerning Junior’s credibility: “THE COURT: The Court
27 doesn’t really have to be convinced of that. Mr. Dugger Jr. is a
liar and braggart, no question about it.” Hr’g Tr. 32:6-9,
28 March 5, 2009.
-8-
1 Senior’s discovery answers were insufficient in fifteen areas and
2 directed him to respond and to provide additional responses and
3 copies of documents no later than November 16, 2009. The court
4 entered an order memorializing these directions on November 18,
5 2009.
6 Because he determined that Senior’s responses were still
7 inadequate, on January 21, 2010, Trustee filed a motion for
8 terminating sanctions against Senior (the “Terminating Sanctions
9 Motion”). He sought an order striking Senior’s answer to the
10 complaint, and entering a default judgment against him for willful
11 and bad faith violation of the bankruptcy court’s November 18
12 order and continued discovery abuses. The hearing on the
13 Terminating Sanctions Motion was held on February 18, 2010.
14 Trustee was represented by counsel and Senior appeared pro se.
15 After hearing from the parties, the court took the motion under
16 submission.
17 On May 4, 2010, the bankruptcy court entered a detailed
18 seventeen-page Memorandum of Decision concerning the Terminating
19 Sanctions Motion. The court detailed the history of the disputes
20 between Trustee and Senior, noting Senior’s numerous failures to
21 comply with discovery requests and orders of the court, and
22 frequent self-contradictory statements. The court was
23 particularly concerned about the declaration Senior had submitted
24 in opposition to the Terminating Sanctions Motion, in which he
25 proclaimed:
26 [“]I asked my son Eugene Dugger, Jr. and he told me it
was none of my business. That is why I answer I DO NOT
27 KNOW. . . .[”] Dugger Senior still did not state what
it is he asked the Debtor; when he made the inquiry; or
28 which of the RFA or ROG questions he was referring to.
-9-
1 Memorandum Decision at 11. The court applied the five-part test
2 for imposing terminating sanctions under Civil Rule 37(b)(2).
3 Conn. Gen. Life Ins. Co. v. New Images of Beverly Hills,
482 F.3d
4 1091, 1096 (9th Cir. 2007). While finding most of the factors for
5 terminating sanctions were satisfied, the bankruptcy court noted
6 that Senior had appeared pro se, and therefore, the court should
7 treat him more leniently than a party represented by counsel.
8 Instead of entering a default judgment against him at that time,
9 the court directed Trustee to schedule a hearing to prove up his
10 entitlement to default judgment. Specifically, the court
11 indicated that, at hearing,
12 Trustee must identify an actual creditor of Debtor with
a debt owed at the time of the transfers to Dugger
13 Senior, and he must explain why he is continuing to
prosecute this action against Dugger Senior given the
14 Court’s summary adjudication that the § 546(a) statute
of limitations has expired. Dugger Senior shall be
15 permitted to present arguments on the statute of
limitations issue, but nothing further shall be
16 considered.
17 Memorandum Decision at 10.14
18 The default judgment prove-up hearing took place on
19 January 6, 2011. Senior appeared through newly-retained counsel.
20 Before the hearing, the bankruptcy court provided a detailed
21 tentative ruling indicating its intent to deny entry of default
22 judgment and enter judgment in favor of Senior on all counts.
23 Among the points emphasized in the tentative ruling were:
24 - Contrary to his assertion, Trustee was not entitled to a
25 judgment simply because the court had stricken his answer and
26
14
Trustee sought reconsideration of the bankruptcy court’s
27 decision, requesting that the requirement of a prove-up hearing be
deleted. On July 1, 2010, the court denied the reconsideration
28 motion.
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1 entered a default against Senior; entry of default judgment is
2 within the broad discretion of the bankruptcy court.
3 - The amended complaint was not well pled, in that the
4 allegations were in some respects contradictory, and in conflict
5 with the evidence, which was also contradictory; and that the
6 § 546 statute of limitations had expired on January 4, 2007.
7 - Trustee had not addressed the First Claim for relief
8 against Senior. Because it was an avoidance claim, Trustee had
9 not met his burden to show that the complaint was timely-filed,
10 nor had he shown he was in fact a BFP with no constructive or
11 inquiry notice of Senior’s competing ownership rights in the
12 Guadalupe Property.
13 - The statute of limitations was not equitably tolled.
14 - The Second Claim asserted that the Guadalupe property was
15 property of the estate on the petition date, but the claim was not
16 well pled. The complaint recognizes that Kothman/GHK was record
17 holder on the petition date and that Junior transferred his
18 equitable interest to Senior many years prior to the petition
19 date.
20 - The Third and Fourth Claims are premised on Junior’s
21 equitable ownership of the Guadalupe Property on the petition
22 date. Trustee has not established that it was property of the
23 estate on the petition date.
24 - The Fifth and Sixth Claims relate only to the Bexar
25 Property. These claims against Senior are subject to the same
26 statute of limitations defense as were the claims against Mattei.
27 There was no evidence to support equitable tolling.
28 After hearing lengthy arguments from the parties, the
-11-
1 bankruptcy court adopted its tentative ruling. It denied entry of
2 default judgment against Senior, and instead, ordered the entry of
3 judgment in favor of Senior. Trustee’s request to again amend the
4 complaint was denied.
5 The bankruptcy court entered an Order Denying Trustee’s
6 Request for Default Judgment on April 11, 2011. In that order,
7 the court also entered judgment against Trustee on all claims
8 against Senior.
9 Trustee filed this timely appeal of the grant of summary
10 judgment to Mattei and denial of default judgment on April 12,
11 2011.
12 JURISDICTION
13 The bankruptcy court had jurisdiction under
28 U.S.C. §§ 1334
14 and 157(b)(2)(A), (E), (H), (N) and (O). The Panel has
15 jurisdiction under
28 U.S.C. § 158.
16 ISSUES
17 Whether the bankruptcy court erred in granting summary
18 judgment to Mattei.
19 Whether the bankruptcy court abused its discretion in denying
20 default judgment in favor of Trustee against Senior, and in
21 entering judgment in favor of Senior against Trustee.
22 Whether the bankruptcy court abused its discretion in failing
23 to grant Trustee’s request to amend the complaint.
24 STANDARDS OF REVIEW
25 We review the bankruptcy court's decision to grant summary
26 judgment de novo. Viewing the evidence in the light most
27 favorable to the nonmoving party, we must determine whether there
28 are any genuine issues of material fact and whether the court
-12-
1 correctly applied the relevant substantive law. Fichman v. Media
2 Ctr.,
512 F.3d 1157, 1159 (9th Cir. 2008).
3 The denial of a motion for a default judgment is reviewed for
4 an abuse of discretion. Quarre v. Saylor (In re Saylor),
178 B.R.
5 209, 211 (9th Cir. BAP 1995). Likewise, the denial of a motion to
6 amend the pleadings is reviewed for abuse of discretion.
7 AmerisourceBergen Corp. v. Dialysist W., Inc.,
465 F.3d 946, 949
8 (9th Cir. 2005).
9 In applying an abuse of discretion test, we first "determine
10 de novo whether the [bankruptcy] court identified the correct
11 legal rule to apply to the relief requested." United States v.
12 Hinkson,
585 F.3d 1247, 1262 (9th Cir. 2009) (en banc). If the
13 bankruptcy court identified the correct legal rule, we then
14 determine whether its "application of the correct legal standard
15 [to the facts] was (1) illogical, (2)implausible, or (3) without
16 support in inferences that may be drawn from the facts in the
17 record."
Id. (internal quotation marks omitted). If the
18 bankruptcy court did not identify the correct legal rule, or its
19 application of the correct legal standard to the facts was
20 illogical, implausible, or without support in inferences that may
21 be drawn from the facts in the record, then the bankruptcy court
22 has abused its discretion.
Id.
23 DISCUSSION
24 I.
The bankruptcy court did not err in
25 granting summary judgment to Mattei.
26 Summary judgment may be granted "if the pleadings, the
27 discovery and disclosure materials on file, and any affidavits
28 show that there is no genuine issue as to any material fact and
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1 that the movant is entitled to judgment as a matter of law."
2 Civil Rule 56(c)(2), incorporated by Rule 7056. Barboza v. New
3 Form, Inc. (In re Barboza),
545 F.3d 702, 707 (9th Cir. 2008).
4 The trial court does not weigh evidence in resolving such motions,
5 but rather determines only whether a material factual dispute
6 remains for trial. Covey v. Hollydale Mobilehome Estates,
7
116 F.3d 830,ext 834 (9th Cir. 1997).
8 A dispute is genuine if there is sufficient evidence for a
9 reasonable fact finder to hold in favor of the non-moving party
10 and a fact is "material" if it might affect the outcome of the
11 case. Far Out Prods., Inc. v. Oskar,
247 F.3d 986, 992 (9th Cir.
12 2001) (citing Anderson v. Liberty Lobby, Inc.,
477 U.S. 242,
13 248-49 (1986)). The initial burden of showing there is no genuine
14 issue of material fact rests on the moving party. Margolis v.
15 Ryan,
140 F.3d 850, 852 (9th Cir. 1998). If the non-moving party
16 bears the ultimate burden of proof on an element at trial, that
17 party must make a showing sufficient to establish the existence of
18 that element in order to survive a motion for summary judgment.
19 Celotex Corp. v. Catrett,
477 U.S. 317, 322-23 (1986).
20 Summary judgment dismissing a claim is appropriate where the
21 claim is barred by an applicable statute of limitations and
22 equitable tolling cannot be applied. Congrejo Invs., LLC v. Mann
23 (In re Bender),
586 F.3d 1159, 1165 (9th Cir. 2009) (“If we were
24 to agree . . . that the trustee's complaint is untimely and not
25 entitled to equitable tolling, the litigation would indeed end;
26 this, however, is essentially always true of statute of
27 limitations defenses.”).
28 Mattei sought entry of a summary judgment on Trustee’s Fifth
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1 and Sixth15 Claims for relief against her. The Fifth Claim asserts
2 that Junior transferred his ownership interest in the Bexar
3 Property to Senior on July 17, 2002, and Senior transferred his
4 ownership interest to Mattei on July 24, 2003. Trustee alleges
5 that both transfers are avoidable under § 544(b).16 Mattei posed
6 two affirmative defenses to this claim: that the statute of
7 limitations applicable to avoidance actions in § 546(a) bars any
8 action or proceeding under § 544 commenced after the earlier of
9 “two years after entry of the order for relief; or one year after
10 the appointment or election of the first trustee under . . .
11 section 1302 of this Title”17; and that Trustee lacked standing to
12 assert the claims because Trustee could not show there was an
13 existing creditor on the petition date that was also a creditor at
14 the time of the transfers. The bankruptcy court agreed with
15
16
15
The Sixth Claim, for sale of the Bexar Property, assumes
17 that the Fifth Claim is granted. We affirm the bankruptcy court’s
decision to dismiss both claims.
18
16
§ 544. Trustee as lien creditor and as successor to
19 certain creditors and purchasers . . . (b)(1) Except as provided
in paragraph (2), the trustee may avoid any transfer of an
20 interest of the debtor in property or any obligation incurred by
the debtor that is voidable under applicable law by a creditor
21 holding an unsecured claim that is allowable under section 502 of
this title or that is not allowable only under section 502(e) of
22 this title.
23 17
§ 546. Limitations on avoiding powers
(a) An action or proceeding under section 544 . . . may not be
24 commenced after the earlier of--
(1) the later of--
25 (A) 2 years after the entry of the order for relief; or
(B) 1 year after the appointment or election of the first
26 trustee under section 702, 1104, 1163, 1202, or 1302 of this
title if such appointment or such election occurs before the
27 expiration of the period specified in subparagraph (A); or
28 (2) the time the case is closed or dismissed.
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1 Mattei on these points, and we affirm the bankruptcy court’s
2 decision.
3 The Statute of Limitations Defense. This adversary
4 proceeding was commenced on January 2, 2008. Because § 301(b)
5 instructs that an “order for relief” is deemed entered when
6 Debtors’ voluntary bankruptcy petition was filed on January 4,
7 2005, there can be no dispute in this appeal that the
8 § 546(a)(1)(A) two-year limitations period concerning avoiding
9 action expired on January 4, 2007.18 Therefore, Trustee’s action
10 against Mattei was not timely filed, and unless the limitations
11 statute was equitably tolled, summary judgment on the claim is
12 required. In re Bender,
586 F.3d at 1165.
13 The two-year limitations period in § 546(a)(1) is subject to
14 equitable tolling. Ernst & Young v. Matsumoto (In re United Ins.
15 Mgmt., Inc. v. Ernst & Young),
14 F.3d 1380, 1384 (9th Cir. 1994).
16 However, the case law of this circuit instructs that equitable
17 tolling is rarely applied and disfavored. “The threshold for
18 obtaining equitable tolling is very high," Townsend v. Knowles,
19
562 F.3d 1200, 1205 (9th Cir. 2009). Equitable tolling is
20 "unavailable in most cases." Miles v. Prunty,
187 F.3d 1104, 1107
21 (9th Cir. 1999). See Cal. Franchise Tax Bd. v Kendall (In re
22 Jones),
657 F.3d 921, 926 (9th Cir. 2011) (holding that equitable
23 tolling is applied “only sparingly” because “Congress must be
24 presumed to draft limitations periods in light of equitable
25 tolling principles which generally apply to statutes of
26
27 18
Indeed, the “earlier” alternative limitations period
provided in §546(a)(1)(B), i.e., one year from the appointment of
28 the first trustee, Skelton, expired on January 4, 2006.
-16-
1 limitations.”). Indeed, in cautioning against unjustified tolling
2 of statutes of limitation, the Ninth Circuit has warned, “We
3 should not trivialize the statute of limitations by promiscuous
4 application of tolling doctrines.” Santa Maria v. P. Bell,
5
202 F.3d 1170, 1179 (9th Cir. 2000) (quoting Cada v. Baxter
6 Healthcare Corp.,
920 F.2d 446, 453 (7th Cir. 1990)).
7 The equitable tolling doctrine held in its original
8 formulation that the limitations period does not run while a party
9 is unaware of a wrong without any fault or lack of diligence on
10 his part.
Id. As the doctrine of equitable tolling evolved, the
11 additional requirement that some extraordinary circumstance stood
12 in its way and prevented timely filing took on equal and in some
13 ways greater significance. Holland v. Fla.,
130 S.Ct. 2549, 2553
14 (2010); Pace v. DiGuglielmo,
544 U.S. 408, 418 (2005).
15 Trustee, as proponent of equitable tolling, bears the burden
16 of proving its should be applied. Hinton v. Pac. Enters.,
5 F.3d
17 391, 395 (9th Cir. 1993) ("the burden to plead facts which would
18 give rise to equitable tolling falls upon the plaintiff"); Roberts
19 v. Marshall, 627 F.3d 768, 772 (9th Cir. 2010)(“A litigant seeking
20 equitable tolling bears the burden of establishing two elements:
21 (1) that he has been pursuing his rights diligently, and (2) that
22 some extraordinary circumstance stood in his way.”). Trustee has
23 not carried that burden in this case because he failed to
24 adequately address the second prong of the required elements for
25 equitable tolling, whether there were extraordinary circumstances
26 that stood in the way of his filing a timely complaint.
27 In fact, the only clear reference to the extraordinary
28 circumstances prong appears in Trustee’s Reply Brief at 3:
-17-
1 Because [Trustee] did not know the basis of claims upon
which to sue, and particularly under the facts and
2 circumstances of this case, these also constitute
"extraordinary circumstances," additionally supporting
3 equitable tolling.
4 That Trustee did not “know the basis of claims upon which to sue,”
5 is not grounds for applying equitable tolling. Equitable tolling
6 does not apply simply because a party was unaware of the claim;
7 it must be shown that some obstacle to the timely commencement of
8 an action stood in the party’s way. Irwin, 498 U.S. at 96.19
9 Trustee explicitly downplayed the importance of the second
10 prong and the need to prove extraordinary circumstances that stood
11 in the way of timely filing. He argues that extraordinary
12 circumstances "merely provide[] an alternative basis for finding
13 equitable tolling." Reply Br. at 3 n.4.
14 By neglecting his responsibility to prove the existence of
15 extraordinary circumstances, Trustee failed in his burden of proof
16 and his equitable tolling argument must fail.
17 Trustee argued in the bankruptcy court, and in this appeal,
18 that all he needed show to warrant application of the equitable
19 tolling doctrine to these facts was that the chapter 13 trustee
20 had acted diligently:
21 Where the party has been injured by fraud, and “remains
22
19
Trustee never makes clear what he means by the “facts and
23 circumstances of the case” that would support equitable tolling or
specifically what extraordinary circumstances “stood in the way”
24 of Trustee’s filing a timely complaint. What “facts” we are able
to glean from Trustee’s argument include the affidavits concerning
25 property details or Junior’s character. The court properly
rejected those affidavits as either irrelevant, or probative of a
26 character with which the court was well aware. The other facts
related to Junior’s ex-wife, which the bankruptcy court dismissed
27 as too remote. And as discussed below, none of those facts were
probative of extraordinary circumstances that stood in the way of
28 Trustee’s timely filing.
-18-
1 in ignorance of it without any fault or want of
diligence or care on his part, the bar of the statute
2 does not begin to run until the fraud is discovered,
though there be no special circumstances or efforts on
3 the part of the party committing the fraud to conceal it
from the knowledge of the other party. Bailey v.
4 Glover, 88 U.S. (21 Wall) 342, 348 (1875).
5 Holmberg v. Armbrecht,
327 U.S. 392, 396 (1949). Tr. Op. Br. at
6 24. Trustee then quotes the bankruptcy court’s statement, “It’s
7 not the fault, if you will, necessarily of the Chapter 13
8 Trustee.” Tr. Op. Br. at 31. Trustee concludes that, based on
9 the bankruptcy court’s statement, “the statute of limitations was
10 equitably tolled as a matter of law.” Tr. Reply Br. at 3
11 (emphasis in original).
12 Trustee’s argument that due diligence of a trustee is the
13 only requirement for applying equitable tolling is simply not
14 current law. He relies on outdated and superseded case law.
15 While he cites it in passing, Trustee does not address the Supreme
16 Court’s decision in Pace v. DiGuglielmo,
544 U.S. 408 (2005).
17 Pace clarified prior case law that due diligence alone was
18 insufficient to require equitable tolling, and makes clear that
19 “extraordinary circumstances” are also necessary to invoke the
20 doctrine:
21 Generally, a litigant seeking equitable tolling bears
the burden of establishing two elements: (1) that he has
22 been pursuing his rights diligently, and (2) that some
extraordinary circumstance stood in his way. See, e.g.,
23 Irwin v. Department of Veterans Affairs,
498 U.S. 89,
96,
112 L. Ed. 2d 435,
111 S. Ct. 453 (1990).
24
25
Id. at 418. In short, the modern burden of proof to invoke
26 equitable tolling requires that Trustee show both due diligence
27 and the presence of extraordinary circumstances. Contrary to
28 Trustee’s position, extraordinary circumstances are not an
-19-
1 “alternative” ground for relief; their existence is a mandatory
2 element:
3 A “petitioner” is “entitled to equitable tolling” if he
shows “(1) that he has been pursuing his rights
4 diligently, and (2) that some extraordinary circumstance
stood in his way” and prevented timely filing. Pace v.
5 DiGuglielmo,
544 U.S. 408, 418,
125 S.Ct. 1807,
161
L.Ed.2d 669.
6
7 Holland,
130 S.Ct. at 2553 (emphasis added).
8 The Holland decision also indicates a slight shift in the
9 balance to be accorded these factors. Holland envisions that a
10 fairly modest showing of diligence is required to satisfy the
11 first requirement for invoking equitable tolling: “The diligence
12 required for equitable tolling purposes is ‘reasonable diligence’
13 not ‘maximum feasible diligence.’”
130 S.Ct. at 2565. In
14 contrast, the second factor requiring a showing of “extraordinary
15 circumstances” is of heightened emphasis.
Id.
16 The amicus brief advocates that a chapter 13 trustee’s
17 failure to inquire of the debtors about property transfers made up
18 to four years before bankruptcy does not reflect a lack of
19 reasonable diligence. While there is evidence to show that
20 Skelton was diligent in his examination of the Debtors during the
21 chapter 13 case, even though he did not uncover the target
22 transfers, the bankruptcy court was not particularly interested in
23 this aspect of Trustee’s equitable tolling argument:
24 TRUSTEE’S COUNSEL: Are you finding that Skelton . . .
did not act with reasonable diligence because —
25
THE COURT: Why would I have to find that? Why would I
26 have to find that?
27 COUNSEL: What other basis is there?
28 THE COURT: Even if there weren’t a trustee, the
-20-
1 statute’s run. What I’m saying is it makes no
difference. It makes no difference. I don’t have to
2 find that Skelton is negligent. All I can find is that
he didn’t ask the question.
3
4 Hr’g Tr. 27:22–28:920 As can be seen from this colloquy, and
5 contrary to Trustee’s argument in his briefs, the bankruptcy court
6 did not rule against Trustee on the first prong of the equitable
7 tolling argument. However, the bankruptcy court did specifically
8 conclude that there was no evidence of extraordinary
9 circumstances:
10 There is no evidence of wrongful conduct or fraud by the
debtor or any other extraordinary circumstances during
11 the relevant time period which justify equitable
tolling. Debtor did not schedule the [Bexar or
12 Guadalupe] property because he was not the record owner.
The property was transferred by deed recorded 7/12/02;
13 the SOFA question was answered accurately as there were
no transfers within the 1 year of filing his Ch. 13.
14
15 Minute Order, March 5, 2009 at ¶1(B).
16
20
Although the bankruptcy court did not consider the
17 chapter 13 trustee’s diligence in its analysis, much of the
information in the NACTT amicus brief actually supports the
18 bankruptcy court’s decision that the chapter 13 trustee’s actions
were not relevant. The chapter 13 system is focused on the
19 debtor’s repayment of debts through future income, not from assets
of the bankruptcy estate. Olick v. Parker & Parsley Petroleum
20 Co.,
145 F.3d 513, 516 (2d Cir. 1998). Although chapter 13
trustees have authority to investigate the prepetition estate, §§
21 1302 (b)(1), 704(a)(4) (investigate the financial affairs of the
debtor) and §§ 544, 547, 548 (avoidance of certain prepetition
22 transfers), it is very rare for the chapter 13 trustee to conduct
independent searches for undisclosed assets. And although the
23 Bankruptcy Code technically requires surrender of the records
related to property of the estate, § 521(a)(4), this duty is not
24 usually enforced in a typical chapter 13 case. As a leading
treatise observes, “It is doubtful that much purpose is served by
25 the turnover of more financial information than is specifically
required to answer the questions in Official Forms Nos. 6 and
26 7.”). 7 William L. Norton, Jr., NORTON BANKRUPTCY LAW & PRACTICE
§ 145:2 (West Publishing Co., 3d ed., 2011). The Official Forms
27 do not require disclosure of transfers of assets more than two
years (one year at the time of filing this bankruptcy case) before
28 the petition date.
-21-
1 Like the bankruptcy court, we conclude that Trustee failed to
2 sustain his burden of proof to establish both that there was due
3 diligence and existence of extraordinary circumstances that would
4 equitably toll the statute of limitations in § 546(a)(1)(A). The
5 bankruptcy court decided that the second prong was absent in that
6 there were no extraordinary circumstances present in this case.
7 Therefore, the bankruptcy court correctly ruled that § 546(a)
8 barred the Fifth Claim against Mattei in the amended complaint for
9 avoidance of the transfer to her of the Bexar Property. As a
10 result, summary judgment was also appropriate as to the Sixth
11 Claim, wherein Trustee sought the right to sell that property.
12 In re Bender,
586 F.3d at 1165.
13 Trustee’s standing to assert the § 544(b) avoidance claims.
14 That Trustee’s avoidance claims are barred by the applicable
15 statute of limitations is alone sufficient to support entry of a
16 summary judgment against Trustee. Nevertheless, as an alternative
17 ground to support summary judgment in favor of Mattei, the
18 bankruptcy court determined that Trustee did not have standing to
19 assert avoidance claims under § 544(b) because he did not
20 establish the existence of a creditor owed a debt on both the
21 transfer date and the petition date. Based on our review of the
22 facts, law and procedural posture in this case, we conclude that
23 the bankruptcy court erred in this alternative ruling. Instead,
24 in our view, where, as here, a trustee seeks to avoid a transfer
25 under § 544(b)(1) by applying a state law implementation of the
26 Uniform Fraudulent Transfer Act (“UFTA”), Section 4, the trustee
27 need not establish the existence of an actual creditor on the
28 transfer date.
-22-
1 A trustee must allege the existence of an unsecured creditor
2 as of the petition date. That is always the case under
3 § 544(b)(1) ("trustee may avoid any transfer of an interest of the
4 debtor in property or any obligation incurred by the debtor that
5 is voidable under applicable law by a creditor holding an
6 unsecured claim that is allowable under section 502 of this title
7 . . . ."). But nonbankruptcy state law determines whether the
8 creditor must also have held a claim as of the time of the
9 transfer attacked. Here, under the theory pled by Trustee, there
10 was no need for him to allege that there was a creditor as of the
11 petition date who also held a claim as of the transfer date.
12 Trustee sought relief under the Texas version of the UFTA,
13 Tex. Bus. & Com. Code § 24.001 et seq. (“TUFTA”), but did not
14 specify which provision of TUFTA. We presume Trustee relies on
15 either TUFTA § 24.005(a)21 or § 24.006(a).22 The correct source of
16
21
17 § 24.005. Transfers Fraudulent As to Present and Future
Creditors
18 (a) A transfer made or obligation incurred by a debtor
is fraudulent as to a creditor, whether the creditor's
19 claim arose before or within a reasonable time after the
transfer was made or the obligation was incurred, if the
20 debtor made the transfer or incurred the obligation:
(1) with actual intent to hinder, delay, or defraud any
21 creditor of the debtor; or (2) without receiving a
reasonably equivalent value in exchange for the transfer
22 or obligation, and the debtor: (A) was engaged or was
about to engage in a business or a transaction for which
23 the remaining assets of the debtor were unreasonably
small in relation to the business or transaction; or (B)
24 intended to incur, or believed or reasonably should have
believed that the debtor would incur, debts beyond the
25 debtor's ability to pay as they became due.
22
26 § 24.006. Transfers Fraudulent As to Present Creditors
(a) A transfer made or obligation incurred by a debtor is
27 fraudulent as to a creditor whose claim arose before the
transfer was made or the obligation was incurred if the
28 (continued...)
-23-
1 Trustee’s state law rights matters, however. If it is TUFTA
2 § 24.006, then Trustee failed to plead and prove the claim for
3 relief. Section 24.006 mirrors Section 5 of the UFTA, which
4 allows creditors of an insolvent debtor to avoid transactions made
5 by an insolvent debtor for less than a reasonably equivalent
6 value. Under UFTA § 5, and TUFTA § 24.006, the creditor must have
7 held creditor status as of the time of the transfer.
8 But Trustee did not allege Junior was insolvent at the time
9 of either of the challenged transactions. His complaint thus must
10 have encompassed relief under TUFTA § 24.005, which in turn
11 mirrors § 4 of the UFTA.23 UFTA § 4 preserves centuries of
12 fraudulent transfer law by extending standing to future creditors
13 for three types of fraudulent transfers. These are: (1) transfers
14 made with the actual intent to hinder, delay, or defraud — UFTA
15 § 4(a)(1); (2) transfers made by a debtor in business which were
16 for less than a reasonably equivalent value and which left the
17 debtor with unreasonably small assets — UFTA § 4(a)(2)(I); and
18 (3) transfers made which were for less than a reasonably
19 equivalent value and after which the debtor actually or reasonably
20 believed he or she would incur debts beyond the debtor's ability
21 to pay as they became due — UFTA § 4(a)(2)(ii). Section 4 states
22 that, "A transfer made or obligation incurred by a debtor is
23
22
24 (...continued)
debtor made the transfer or incurred the obligation without
25 receiving a reasonably equivalent value in exchange for the
transfer or obligation and the debtor was insolvent at that
26 time or the debtor became insolvent as a result of the
transfer or obligation.
27
23
With minor modifications not relevant here, TUFTA
28 § 25.006 mirrors UFTA § 5, and TUFTA § 25.005 mirrors UFTA § 4.
-24-
1 fraudulent as to a creditor, whether the creditor's claim arose
2 before or after the transfer was made or the obligation was
3 incurred, if the debtor made the transfer or incurred the
4 obligation . . . ." UFTA § 4 (emphasis added). As a consequence,
5 for transfers that otherwise fit within § 4, Trustee only needed
6 to identify a creditor that, as of the petition date, could have
7 pursued the UFTA action. And since neither UFTA § 4 nor TUFTA
8 § 24.005 require such a creditor to also have been a creditor at
9 the time of the transfer, neither does § 544(b).
10 Professor Alan Resnick, co-editor-in-chief of Collier on
11 Bankruptcy, recently summarized the relevant law:
12 Under both the UFTA and the UFCA, a transfer made with
actual intent to hinder, delay, or defraud any creditor
13 of the debtor is a fraud on both present and future
creditors. Therefore, if a debtor makes a transfer with
14 the intent of putting assets out of the reach of
creditors, a future creditor whose claim did not exist
15 when the transfer was made would have standing to bring
a fraudulent conveyance action to avoid the transfer and
16 recover the assets from the transferee.
17 The UFTA and UFCA also give future creditors
standing to avoid a constructive fraudulent conveyance,
18 but only if the action is based on the debtor's receipt
of less than reasonably equivalent value for the
19 transferred property when the debtor was left with
unreasonably small capital or when the debtor intended
20 or believed it would incur debts beyond its ability to
pay as they mature. If the claim of constructive
21 fraudulent conveyance is based on the insolvency of the
debtor, it is a fraud only against existing creditors.
22 A future creditor does not have the right to bring a
fraudulent conveyance claim based on the allegation that
23 the debtor received less than reasonably equivalent
value in connection with the transfer and was insolvent
24 or rendered insolvent by the transfer.
25 Alan N. Resnick, Finding the Shoes That Fit: How Derivative Is the
26 Trustee's Power to Avoid Fraudulent Conveyances under Section
27 544(b) of the Bankruptcy Code?, 31 CARDOZO L. REV. 205, 209-10
28 (2009)(footnotes omitted).
-25-
1 For these reasons, we conclude that the bankruptcy court
2 erred in holding that Trustee lacked standing to prosecute the
3 § 544(b) avoidance claims under TUFTA, and consequently, that
4 summary judgment should be entered in favor of Mattei and against
5 Trustee. Again, however, because Trustee’s claims were time-
6 barred under § 546(a), the court’s error was harmless.24
7 II.
The bankruptcy court abused its discretion in denying
8 Trustee’s request to amend the complaint and in granting
judgment dismissing Trustee’s claims against Senior.
9
10 At the prove-up hearing, the bankruptcy court declined to
11 enter a default judgment against Senior and, without warning to
12 Trustee, granted judgment to Senior on all claims asserted against
13 him. This approach to concluding this action is problematic. The
14 Panel has held that, under most circumstances, a bankruptcy court
15 may not enter a dispositive judgment against the non-defaulting
16 party in connection with a Civil Rule 55 prove-up hearing:
17 While a trial court has great discretion in considering
issues and evidence in a hearing pursuant to
18 Rule 55(b)(2), we find no authority that would allow a
trial court to enter judgment in favor of the defaulting
19 party following such a hearing. To enter such a
judgment against the non-defaulting party because of the
20 failure of that party to sustain its burden of proof
would make the hearing under Rule 55(b)(2) the same as a
21
22 24
Trustee also argues that the bankruptcy court erred by
entering a summary judgment when Trustee had requested time for
23 additional discovery pursuant to Civil Rule 56(f). Although
Trustee’s counsel discussed the need to do more discovery at the
24 motion hearing, Trustee never filed a motion under Rule 56(f) or
the required affidavit that he could not present facts essential
25 to justify its opposition. Trustee also did not clearly
demonstrate that the additional evidence he sought to discover
26 existed, and that it would prevent summary judgment. Because
Trustee did not comply with the rules, the bankruptcy court
27 therefore did not abuse its discretion in declining to grant
Trustee an opportunity for additional discovery. Chance v. Pac-
28 Tel Teletrac, Inc., 242 F.3d 1151, 1161 n.6 (9th Cir. 2001).
-26-
1 trial on the merits.
2 Valley Oak Credit Union v. Villegas (In re Villegas),
132 B.R.
3 742, 746-47 (9th Cir. BAP 1991); see also Franchise Tax Bd. v
4 Rowley (In re Rowley),
208 B.R. 942, 944 (9th Cir. BAP 1997)
5 (holding that this Panel is bound by its published decisions).
6 The stated purpose for the Villegas rule is to avoid forcing
7 the non-defaulting party “to trial without having the benefit of
8 the procedural protections offered by the Federal Rules of Civil
9 Procedure, including the opportunity to conduct discovery . . . .”
10 In re Villegas, 132 B.R. at 746-47. At a minimum, though,
11 Villegas clearly signals that a bankruptcy court should proceed
12 cautiously before dismissing actions in the context of default
13 proceedings. Here, the impact of the bankruptcy court’s decision
14 immediately to enter judgment in favor of Senior was particularly
15 severe, since Senior had been sanctioned by the bankruptcy court
16 for his repeated, willful failures to cooperate with Trustee’s
17 discovery efforts. Dismissal of Trustee’s claims for lack of
18 proof in connection with the prove-up hearing was therefore
19 inappropriate, and that aspect of the bankruptcy court’s judgment
20 must be vacated.
21 We also believe that the bankruptcy court abused its
22 discretion in denying Trustee’s request to amend the pleadings
23 and, in particular, the amended complaint, to conform to the proof
24 that was submitted in connection with Trustee’s request for entry
25 of a default judgment against Senior as to Claims Two and Three.25
26
25
27 Claim Two asserted that the Guadalupe Property was property
of the estate within the meaning of § 541(a). Claim Three sought
28 (continued...)
-27-
1 In particular, at the prove-up hearing, Trustee requested
2 permission from the bankruptcy court to amend the complaint to
3 conform to the proof Trustee had submitted regarding the existence
4 of a so-called “resulting trust.” Hr’g Tr. 33:21-24, January 6,
5 2011. The bankruptcy court responded:
6 And the court’s not entertaining the Trustee’s request
to do yet another amended complaint. A default’s
7 already been entered on this amended complaint, and this
amended complaint is the platform on which the trustee’s
8 action against Dugger Sr. stands or falls. And so
there’s not going to be a second bite or third bite at
9 the apple. This amended complaint was filed in 2008.
It’s time.
10
11 Hr’g Tr. 37:3-10, January 6, 2011.
12 We understand the bankruptcy court’s statement to mean that
13 it was denying Trustee’s request to amend the pleadings based upon
14 undue delay for which Trustee was responsible. However, in our
15 view, the facts do not support an inference that Trustee was to
16 blame for any delay in properly pleading a resulting trust claim.
17 Senior, not Trustee, was principally responsible for the undue
18 delay in the prosecution of this action. Indeed, the bankruptcy
19 court had recently imposed drastic sanctions for the long delays
20 in these proceedings caused by the antics of Senior. Under these
21 circumstances, it was not appropriate to penalize Trustee for any
22 delay occasioned by Senior's bad conduct. Instead, the facts of
23 this case clearly favor allowing Trustee an opportunity to amend
24 the complaint. Given the strong public policy in the Ninth
25 Circuit favoring amendment, the bankruptcy court's denial of
26
27 25
(...continued)
avoidance under § 549 of the alleged post-petition transfer of the
28 Guadalupe Property.
-28-
1 Trustee’s request to further amend the complaint was an abuse of
2 discretion. C.F. v. Capistrano Unified Sch. Dist.,
654 F.3d 975,
3 986 (9th Cir. 2011) ("Absent prejudice, or a strong showing of any
4 of the remaining Foman [v. Davis, 371 U.S. 178 (1962)] factors,
5 there exists a presumption under Rule 15(a) in favor of granting
6 leave to amend.") (emphasis in original);26 Chudacoff v. Univ. Med.
7 Ctr.,
649 F.3d 1143, 1152 (9th Cir. 2011) (leave to amend a
8 party's pleadings under Civil Rule 15(a) "should [be] freely
9 give[n] . . . when justice so requires," and “generally shall be
10 denied only upon showing of bad faith, undue delay, futility, or
11 undue prejudice to the opposing party.”).
12 The Second Claim asserts that GHK Enterprises, LP holds only
13 legal title to the Guadalupe Property; this claim sought to avoid
14 the various transfers of that property among the Dugger family
15 members. Of course, these allegations were shown to be incorrect
16 as of the time of the prove-up hearing, because the Guadalupe
17 Property had been sold to the Weins27 during the bankruptcy case,
18 and Senior had received the proceeds of that sale. The bankruptcy
19 court ruled that Trustee failed to adequately plead this claim.
20
21 26
The “Foman” factors are “undue delay, bad faith or dilatory
motive on the part of the movant.” Foman,
371 U.S. at 182
22 (emphasis added). We note that the Foman factors relate to the
dilatory conduct of the movant as grounds for denial of amendment.
23 Here clearly the dilatory conduct was Senior’s, not the movant
Trustee’s. In commenting on those factors, the Supreme Court made
24 it very clear that failure to allow amendment without one of those
factors present and “outright refusal to grant the leave without
25 any justifying reason appearing for the denial is not an exercise
of discretion; it is merely abuse of that discretion and
26 inconsistent with the spirit of the Federal Rules.”
Id.
27 27
The parties apparently agree that the Weins were bona fide
purchasers for value without knowledge of the adversary proceeding
28 disputes over entitlements to this property.
-29-
1 While, as of the prove-up hearing, there was no longer an
2 avoidance question, Trustee could assert a claim for turnover of
3 the funds received from the post-bankruptcy sale of the property
4 from Senior. To do so would of course require a change to the
5 allegations in the complaint.
6 The Trustee’s Third Claim against Senior asserted his right
7 to avoid the post-petition transfer from Senior to the Weins in
8 2007. But as noted above, at the time the complaint was filed,
9 Trustee was not aware that the property had been transferred to
10 BFPs for value and without knowledge of the disputes. The Third
11 Claim was premised on Debtor's equitable ownership of the
12 Guadalupe Property on the petition date, and the court ruled that
13 Trustee had not established that it was property of the estate on
14 the petition date. The Third Claim would need to be amended to
15 reflect that Trustee was not seeking avoidance of a post-petition
16 transfer and recovery of the proceeds, but rather some sort of
17 action directly against Senior for turnover of alleged estate
18 funds.
19 It is fairly clear that Trustee was seeking to modify Claims
20 Two and Three because the court had ruled against it on the
21 avoidance issues. Trustee argued that it had not relied
22 exclusively on the avoidance claims, but he was also attempting to
23 recover the proceeds from the sale of the Guadalupe Property from
24 Senior because the Guadalupe Property was property of the estate
25 under § 541(a). It is also clear that Trustee wanted to conform
26 the pleadings to the proof to allow Trustee to develop the
27 resulting trust theory. Although this argument was obliquely made
28 in the briefs, Trustee’s counsel raised it at both the summary
-30-
1 judgment hearing and the prove-up hearing. Hr’g Tr. 6:18–7:4,
2 March 5, 2009; Hr’g Tr. 11:22–12:19, January 6, 2011. Counsel for
3 Mattei and Senior also addressed it. Hr’g Tr. 28:21-25,
4 January 6, 2011.
5 According to Trustee, a resulting trust arises in equity, and
6 is implied by operation of state common law. Morrison v. Farmer,
7
210 S.W. 245 (Tex. Ct. App. 1949). In determining whether such a
8 trust exists, courts look primarily to who paid the consideration
9 for the acquisition of the property; this is also known as the
10 “equitable doctrine of consideration.” In re Torres,
827 F.2d
11 1299, 1300 (9th Cir. 1987). If Trustee’s arguments are correct
12 that Junior paid for the Guadalupe Property, but that Senior
13 received all benefit from that transaction, then, arguably, a
14 resulting trust may have existed whereby Senior held the property
15 in trust for Junior. Even if the property was later transferred
16 by Senior, the proceeds of that transaction representing the value
17 of the Guadalupe Property may constitute property of Junior’s
18 bankruptcy estate under § 541(a), without regard to any avoidance
19 issues.
20 We make no assumptions concerning the ability of Trustee to
21 prevail on a resulting trust theory. Nevertheless, the seeds of
22 such a theory are sufficiently embodied in the Second and Third
23 Claims in the amended complaint such that, under the
24 circumstances, Trustee’s request to amend the complaint — to
25 conform to the facts as shown by his proof submitted to the
26 bankruptcy court — was appropriate.
27 CONCLUSION
28 We AFFIRM the bankruptcy court’s grant of summary judgment to
-31-
1 Mattei as to Trustee’s claims against her. However, we VACATE the
2 bankruptcy court’s entry of judgment in favor of Senior dismissing
3 this action, and REMAND this action to the bankruptcy court with
4 instructions to allow Trustee to amend the complaint.
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
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