In re: Jack Klein

FILED
OCT 3 2013
1
SUSAN M. SPRAUL, CLERK
2 U.S. BKCY. APP. PANEL
OF THE NINTH CIRCUIT
3 UNITED STATES BANKRUPTCY APPELLATE PANEL
4 OF THE NINTH CIRCUIT
5 In re: ) BAP No. NC-12-1263-JuPaD
)
6 JACK KLEIN, ) Bk. No. NC-11-31873-TEC
)
7 Debtor. ) Adv. No. NC-11-3171-TEC
______________________________)
8 DOUGLAS CARAWAY, )
)
9 Appellant, )
)
10 v. ) M E M O R A N D U M*
)
11 JACK KLEIN, )
)
12 Appellee. )
______________________________)
13
Argued and Submitted on September 20, 2013
14 at San Francisco, California
15 Filed - October 3, 2013
16 Appeal from the United States Bankruptcy Court
for the Northern District of California
17
Honorable Thomas E. Carlson, Bankruptcy Judge, Presiding
18 _______________________
19 Appearances: Joseph Bochner, Esq. argued for appellant Douglas
Caraway; Howard L. Hibbard, Esq., argued for
20 appellee Jack Klein
_________________________
21
22 Before: JURY, PAPPAS, and DUNN, Bankruptcy Judges.
23
24
25
26 *
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.
28 See 9th Cir. BAP Rule 8013-1.
-1-
1 Appellant, Douglas Caraway, appeals from the bankruptcy
2 court’s judgment in an adversary proceeding in favor of
3 chapter 71 debtor, Jack Klein.
4 In granting judgment on the pleadings for debtor, the
5 bankruptcy court found that Caraway’s state court judgment debt
6 against debtor was dischargeable on the grounds that (1) Caraway
7 had assigned his judgment debt to Sandra Williams dba Capital
8 Judgment Recovery (Williams) prepetition and thus Williams was
9 the real party in interest under Civil Rule 17(a); and
10 (2) Caraway’s complaint failed to state a claim against debtor
11 as a matter of law due to Williams’ postpetition filing of an
12 acknowledgment of satisfaction of judgment (SOJ) in the state
13 court. The court also found that Williams did not violate the
14 automatic stay by filing the SOJ postpetition and dismissed
15 Caraway’s claims against Williams without prejudice for lack of
16 subject matter jurisdiction. We AFFIRM.
17 I. FACTS
18 A. The State Court Judgment
19 In March 1993, Caraway, dba as Caraway Audio, entered into
20 an agreement with George Silva, Prompt Rewire and debtor to
21 supply and install a public address system in and around the San
22 Mateo County Exposition Center. Caraway was not paid and in
23 September 1993, Caraway filed a complaint in the Superior Court
24 of California, San Mateo County, against Silva, Prompt Rewire,
25
1
26 Unless otherwise indicated, all chapter and section
references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532.
27 “Rule” references are to the Federal Rules of Bankruptcy
Procedure and “Civil Rule” references are to the Federal Rules of
28 Civil Procedure.
-2-
1 debtor and the County of San Mateo alleging causes of action for
2 breach of contract and fraud.
3 Debtor answered the complaint, asserting as an affirmative
4 defense, among others, that he was not a party to the contract.
5 Debtor also filed a cross-complaint against Silva, Prompt Rewire
6 and the County of San Mateo seeking indemnification and
7 apportionment of fault.
8 At some point, Caraway settled with Silva, Prompt Rewire
9 and the County of San Mateo.
10 On December 1, 1997, the state court held a bench trial.
11 Debtor did not appear. After hearing testimony, the state court
12 found for Caraway, awarding him $23,259 in damages, which
13 included principal of $18,125 and interest, $5,000 in punitive
14 damages and $9,960 in attorneys’ fees.
15 On April 14, 1998, the state court entered a default
16 judgment against debtor. The judgment was renewed.2
17 B. The Assignment of the State Court Judgment
18 On January 11, 2010, Caraway entered into an Assignment and
19 Acceptance Agreement with Williams. The assignment shows, among
20 other things, that it was an “absolute assignment” of the full
21 amount of the judgment which at that time was $75,308.33, and
22 that Williams was to pay fifty percent of the net revenue
23 collected to Caraway after paying costs for collection. In
24 addition, Caraway as the assignor acknowledged that as of the
25 date the assignment was executed, “[a]ssignee has the exclusive
26
2
27 Under California law, the judgment is enforceable for a
period of 10 years, and longer if renewed. See Cal. Code Civ.
28 Proc. §§ 683.020, 683.120(b).
-3-
1 right to satisfy, settle, compromise and collect the judgment at
2 [a]ssignee’s sole discretion.”
3 C. The Bankruptcy Proceedings
4 On May 13, 2011, debtor filed a chapter 13 petition.3
5 On August 22, 2011, Caraway filed the instant adversary
6 proceeding against debtor seeking to have the state court
7 judgment debt declared nondischargeable under § 523(a)(2).
8 On October 22, 2011, debtor filed a motion for summary
9 judgment (MSJ) on the ground that Caraway had assigned all
10 right, title and interest in the underlying judgment to Williams
11 and, as a result, Caraway lacked standing to assert the action.
12 On December 8, 2011, Caraway filed an opposition to
13 debtor’s motion, asserting that he retained a beneficial
14 interest in the judgment because Williams was required to pay
15 him fifty percent of the net recovery if, and only if, she
16 collected on the judgment. Caraway further maintained that the
17 sole purpose of the assignment was to permit a third-party,
18 non-lawyer — Williams — to collect the judgment for Caraway’s
19 benefit in return for a contingency fee, which arrangement was
20 illegal.
21 On the same date, Caraway filed a declaration attaching the
22 pleadings from the state court lawsuit and an unsigned copy of
23 the assignment. Caraway declared Williams never gave him any
24
25 3
On February 13, 2012, on the motion of the chapter 13
26 trustee, the bankruptcy court converted debtor’s case to one
under chapter 7 because his unsecured debt, which included the
27 state court judgment debt at issue in this appeal, exceeded the
statutory limit under § 109(e). Therefore, he did not qualify
28 for relief under chapter 13.
-4-
1 monies in return for the assignment.
2 On December 22, 2011, the bankruptcy court entered a
3 Tentative Ruling on the MSJ. The court ruled that at most
4 debtor’s motion would determine that Caraway was not the
5 plaintiff real party in interest. Relying on Civil
6 Rule 17(a)(3),4 incorporated by Rule 7017, the bankruptcy court
7 gave Caraway time to obtain Williams’ ratification, joinder, or
8 substitution.
9 On January 6, 2012, the bankruptcy court entered an order
10 denying debtor’s MSJ and giving Caraway forty-five days to
11 obtain Williams’ ratification, joinder or substitution. The
12 court’s order further stated that, if Caraway failed to comply
13 fully and timely with the court’s order, the court may dismiss
14 the proceeding without further notice or hearing. The record
15 shows that Caraway never obtained Williams’ ratification,
16 joinder or substitution in the adversary proceeding.
17 On January 14, 2012, debtor filed a Notice of Filing of
18 Satisfaction of Judgment. Attached as Exhibit “A” was a
19 certified copy of the SOJ signed by Williams and filed in the
20 San Mateo County Superior Court on January 13, 2012.
21
22 4
Civil Rule 17(a)(3) entitled Joinder of the Real Party in
23 Interest provides:
24 The court may not dismiss an action for failure to
prosecute in the name of the real party in interest
25 until, after an objection, a reasonable time has been
26 allowed for the real party in interest to ratify, join,
or be substituted into the action. After ratification,
27 joinder, or substitution, the action proceeds as if it
had been originally commenced by the real party in
28 interest.
-5-
1 On February 15, 2012, Caraway filed his first amended
2 complaint joining Williams not as a plaintiff, but as a
3 defendant. Caraway alleged generally that Williams took a
4 contingency fee in return for her collection efforts under the
5 assignment, but that she was not a member of the California
6 State Bar. Caraway then alleged claims for relief against
7 Williams for fraud and deceit, constructive fraud, and unfair
8 business practices. He also sought injunctive relief against
9 her under the Consumer Legal Remedies Act based on consumer
10 fraud. Finally, in his prayer for relief, Caraway requested the
11 imposition of a constructive trust upon Williams and an order
12 commanding Williams to relinquish her purported interest in his
13 judgment.
14 On February 22, 2012, debtor filed an answer to Caraway’s
15 FAC. Debtor asserted Caraway filed the FAC without leave from
16 the bankruptcy court and also sought to join Williams, a third
17 party, which was unnecessary when the judgment debt had been
18 satisfied.
19 On March 5, 2012, the bankruptcy court held a hearing, the
20 transcript of which is not included in the record. At that
21 hearing, Caraway evidently acknowledged that he had executed an
22 assignment of the state court judgment to Williams.
23 On March 9, 2012, the bankruptcy court entered an Order to
24 Show Cause re Judgment on the Pleadings for Defendant (OSC).
25 Based on Caraway’s admission regarding the assignment and the
26 SOJ signed by Williams and filed in the state court, the court
27 required Caraway to file a brief by April 2, 2012, showing cause
28 why the court should not enter judgment on the pleadings for
-6-
1 debtor. The court stated that if Caraway did not timely comply,
2 it may, without further notice or hearing, enter judgment for
3 debtor.
4 On April 2, 2012, Caraway’s counsel filed a request for a
5 seventy-two-hour extension to respond.
6 On April 13, 2012, Caraway filed his response to the OSC
7 seeking to have the bankruptcy court issue an order commanding
8 Williams to appear. Caraway argued that he retained an
9 equitable interest in the judgment because the assignment was
10 merely one for collection, that the filing of the purported SOJ
11 in the underlying action violated the automatic stay, and that
12 Williams had engaged in the unauthorized practice of law.
13 On April 16, 2012, the bankruptcy court entered its
14 Memorandum Decision and Order. The court denied Caraway’s
15 request for an extension of time to respond to the OSC. The
16 court found that upon its review of the assignment, Caraway had
17 assigned all rights, title, and interest in the state court
18 judgment to Williams and that Williams had full authority to
19 recover, compromise, settle, and enforce the state court
20 judgment. The bankruptcy court further found that although
21 Caraway was given the opportunity to present evidence
22 controverting the absolute assignment or SOJ, he did not do so.
23 Finally, the court decided that the filing of the SOJ by
24 Williams was not an action taken against debtor in violation of
25 § 362.
26 On April 18, 2012, the bankruptcy court entered judgment
27 for debtor and dismissed all claims against Williams without
28 prejudice for lack of subject matter jurisdiction or in the
-7-
1 alternative, permissive abstention under 28 U.S.C. § 1334(c)(1).
2 On April 27, 2012, Caraway filed a timely notice of appeal.
3 II. JURISDICTION
4 The bankruptcy court had jurisdiction over this proceeding
5 under 28 U.S.C. §§ 1334 and 157(b)(2)(I). We have jurisdiction
6 under 28 U.S.C. § 158.
7 III. ISSUES
8 A. Whether the bankruptcy court erred in granting
9 judgment on the pleadings in favor of debtor based on the
10 assignment and SOJ;
11 B. Whether the bankruptcy court erred in finding that
12 Williams’ filing of the SOJ in the state court did not violate
13 the automatic stay under § 362; and
14 C. Whether the bankruptcy court erred in dismissing
15 Caraway’s claims against Williams for lack of subject matter
16 jurisdiction.
17 IV. STANDARDS OF REVIEW
18 We review de novo (1) judgments on the pleadings granted
19 under Civil Rule 12(c); (2) the bankruptcy court’s decision on
20 the applicability of the automatic stay under § 362; and (3) the
21 bankruptcy court’s subject matter jurisdiction. Lyon v. Chase
22 Bank USA, N.A., 656 F.3d 877 (9th Cir. 2011) (judgments on the
23 pleadings); McCarthy, Johnson & Miller v. N. Bay Plumbing, Inc.
24 (In re Pettit), 217 F.3d 1072, 1077 (9th Cir. 2000) (scope or
25 applicability of the automatic stay under § 362 is a question of
26 law); Battle Ground Plaza, LLC v. Ray (In re Ray), 624 F.3d
27 1124, 1130 (9th Cir. 2010) (subject matter jurisdiction).
28 De novo review is independent, with no deference given to
-8-
1 the trial court’s conclusion. See First Ave. W. Bldg., LLC v.
2 James (In re Onecast Media, Inc.), 439 F.3d 558, 561 (9th Cir.
3 2006).
4 V. DISCUSSION
5 A. The Bankruptcy Court Did Not Err in Granting Judgment on
the Pleadings for Debtor
6
7 A bankruptcy court may sua sponte dismiss claims by
8 granting judgment on the pleadings. See Jackson v. E. Bay
9 Hosp., 980 F.Supp. 1341, 1358 (N.D. Cal. 1997). The court must
10 give notice of its sua sponte intention to dismiss the claims
11 and afford plaintiffs “an opportunity to at least submit a
12 written memorandum in opposition to such motion.” Wong v. Bell,
13 642 F.2d 359, 361-62 (9th Cir. 1981). Here, the bankruptcy
14 court complied with this procedure. Caraway had notice and was
15 given the opportunity to file a brief in response to the
16 bankruptcy court’s OSC re judgment on the pleadings. Indeed,
17 Caraway submitted a brief in response to the OSC, albeit an
18 untimely one.5
19 “Judgment on the pleadings is proper when, taking all
20 allegations in the pleadings as true and construed in the light
21 most favorable to the nonmoving party, the moving party is
22 entitled to judgment as a matter of law.” Living Designs, Inc.
23 v. E.I. Dupont de Nemours & Co., 431 F.3d 353, 360 (9th Cir.
24 2005). In other words, a motion for judgment on the pleadings
25 is evaluated under the same standards as a motion to dismiss for
26
27
5
Although Caraway’s brief was late, the record shows that
28 the bankruptcy court did not dismiss his claims on this ground.
-9-
1 failure to state a claim under Civil Rule 12(b)(6), and
2 dismissal pursuant to Civil Rule 12(c) is inappropriate if the
3 facts as pled would entitle the plaintiff to a remedy. Merchs.
4 Home Delivery Serv., Inc. v. Hall & Co., 50 F.3d 1486, 1488 (9th
5 Cir. 1995).
6 In ruling on a motion for a judgment on the pleadings, the
7 bankruptcy court need not accept as true unreasonable inferences
8 or conclusory legal allegations cast in the form of factual
9 allegations. See W. Mining Council v. Watt, 643 F.2d 618, 624
10 (9th Cir. 1981). In addition, the court does not have to accept
11 as true conclusory allegations that contradict facts that may be
12 judicially noticed or that are contradicted by documents
13 referred to in the complaint. See, e.g., Steckman v. Hart
14 Brewing Inc., 143 F.3d 1293, 1295–96 (9th Cir. 1998).
15 The bankruptcy court may dispose of a case under Civil
16 Rule 12 by reference to documents “whose contents are alleged in
17 a complaint and whose authenticity no party questions” without
18 treating the motion as one for summary judgment. Parrino v.
19 FHP, Inc., 146 F.3d 699, 705-06 (9th Cir. 1998). Caraway
20 referenced the assignment in his FAC and no party has questioned
21 its authenticity. Accordingly, the bankruptcy court properly
22 considered the content of the assignment when ruling.
23 Finally, when considering a motion for judgment on the
24 pleadings, the bankruptcy court “may consider facts that ‘are
25 contained in materials of which the court may take judicial
26 notice.’” Heliotrope Gen., Inc. v. Ford Motor Co., 189 F.3d
27 971, 981 n.18 (9th Cir. 1999); see also MGIC Indem. Corp. v.
28 Weisman, 803 F.2d 500, 504 (9th Cir. 1986) (court may take
-10-
1 judicial notice of “matters of public record” without converting
2 a motion to dismiss into a motion for summary judgment).
3 Accordingly, the bankruptcy court could take judicial notice of
4 the SOJ because it was a matter of public record. Mack v.
5 S. Bay Beer Distrib., 798 F.2d 1279, 1282 (9th Cir. 1986).
6 We apply these legal standards to the facts of this case.
7 Analysis
8 Civil Rule 17(a)(1) provides, in relevant part, that “[a]n
9 action must be prosecuted in the name of the real party in
10 interest.” “‘This rule requires that the party who brings an
11 action actually possess, under the substantive law, the right
12 sought to be enforced. Such a requirement is in place ‘to
13 protect the defendant against a subsequent action by the party
14 actually entitled to recover, and to insure generally that the
15 judgment will have its proper effect as res judicata.’” Sung Ho
16 Cha v. Rappaport (In re Sung Ho Cha), 483 B.R. 547, 551 (9th
17 Cir. BAP 2012).
18 In Carter v. Brooms (In re Brooms), 447 B.R. 258 (9th Cir.
19 BAP 2011), the Panel considered the application of the real
20 party in interest rule to assignments. Unlike here, in Brooms,
21 the assignee of the judgment sought to have the prepetition
22 judgment debt declared nondischargeable. Concerned that the
23 assignee was not the real party in interest, the bankruptcy
24 court required the assignee to produce evidence regarding the
25 assignment. After assignee failed to produce the evidence, the
26 bankruptcy court entered judgment in favor of debtor.
27 “‘In an action involving an assignment, a court must ensure
28 that the plaintiff-[assignor] is the real party in interest with
-11-
1 regard to the particular claim involved by determining: (1) what
2 has been assigned; and (2) whether a valid assignment has been
3 made.’” Id. at 265 (quoting 6A Charles Alan Wright, Arthur R.
4 Miller, Mary Kay Kane & Richard L. Marcus, Fed. Practice and
5 Proc. § 1545 (3d ed. 2010)). The Panel noted:
6 Under California law,6 a judgment creditor may assign
a judgment to a third person. Cal. Civ. Code § 954.
7 ‘In doing so, the judgment creditor assigns the debt
upon which the judgment is based. . . . Through such
8 an assignment, the assignee ordinarily acquires all
the rights and remedies possessed by the assignor for
9 the enforcement of the debt, subject, however, to the
defenses that the judgment debtor had against the
10 assignor.’ Great W. Bank v. Kong, 90 Cal.App.4th 28,
108 Cal.Rptr.2d 266, 268 (2001) (internal citations
11 omitted). An assignment carries the legal title to
the judgment; ‘the transfer of the title does not
12 depend upon the fact of there being a valuable
consideration.’ Curtin v. Kowalsky, 145 Cal. 431,
13 78 P. 962, 963 (1904).
14 Furthermore, under federal law, assignees of claims
generally have standing to prosecute objections to the
15 dischargeability of particular debts. Boyajian v. New
Falls Corp. (In re Boyajian), 564 F.3d 1088, 1091 (9th
16 Cir.2009). And for collection purposes, the assignee
who holds legal title to the debt according to
17 substantive law is the real party in interest, even
though the assignee must account to the assignor for
18 whatever is recovered in the action. Sprint Commc’ns
Co., L.P. v. APCC Servs., Inc., 554 U.S. 269, 284–85
19 (2008).
20 In re Brooms, 447 B.R. at 265.
21 Furthermore, under California law, “[i]n determining what
22 rights or interests pass under an assignment, the intention of
23 the parties as manifested in the instrument is controlling.”
24 Nat’l Reserve Co. of Am. v. Metro. Trust Co. of Cal., 17 Cal.2d
25 827, 832 (Cal. 1941); Cambridge Co. v. City of Elsinore,
26
27
6
The assignment states that it is governed and construed in
28 accordance with California law.
-12-
1 57 Cal.App. 245, 249 (Cal. 1922) (“As with contracts generally,
2 the nature of an assignment is determined by ascertaining the
3 intent of the parties.”).
4 On appeal, Caraway asserts that the bankruptcy court erred
5 in entering judgment for debtor because the assignment was
6 partial, not absolute. According to Caraway, the assignment was
7 only for collection, and since he was entitled to fifty percent
8 of any recovery, he retained an equitable interest in the
9 judgment and thus qualified as a real party in interest. There
10 is authority for the proposition that where there has been only
11 a partial assignment, as in an assignment for collection, both
12 the assignor and the assignee have an interest in the claim and
13 both are real parties in interest. In re Hooker Inves., Inc.,
14 116 B.R. 375, 382 (Bankr. S.D.N.Y. 1990) (“[I]n the case of a
15 partial assignment, the assignee owns the part assigned to him,
16 the assignor the balance; each is a real party in interest as to
17 his part of the claim.”) (citing 3 Williston on Contracts § 443
18 n.14 (3d ed. 1960)); see also 6A Charles Alan Wright, Arthur R.
19 Miller, Mary Kay Kane & Richard L. Marcus, Fed. Practice and
20 Proc. § 1545 (3d ed. 2013) (“[W]hen there has been only a
21 partial assignment the assignor and the assignee each retain an
22 interest in the claim and are both real parties in interest. . .
23 in an action involving an assignment for collection, . . . the
24 assignor retains a sufficient interest in the property to be a
25 real party in interest, and under Rule 17(a) either party may
26 sue to protect those rights.”).
27 However, the plain terms of the assignment show that
28 Caraway gave up his right to enforce the judgment when he
-13-
1 acknowledged that Williams held the exclusive right to satisfy,
2 settle, compromise and collect the judgment at her sole
3 discretion. Such an assignment of rights is valid under
4 California law. Cal. Civ. Code § 954. Additionally,
5 In re Brooms holds that under California and federal law,
6 Williams became a real party in interest whether or not Caraway
7 retained an interest in any potential recovery. 447 B.R. at
8 265. That Williams agreed to split with Caraway any recovery
9 she obtained does not undermine the assignment’s effect to
10 vesting legal title of the judgment in Williams. See Nat’l
11 Reserve Co., 17 Cal.2d at 831. For these reasons, Williams was
12 the real party in interest under Civil Rule 17(a).
13 Unable to obtain Williams’ joinder or ratification under
14 Civil Rule 17(a)(3), Caraway sought her involuntary joinder in
15 the FAC and requested the bankruptcy court to compel her
16 appearance. While Civil Rule 17(a) governs only the right of
17 Caraway to bring the suit, Civil Rule 19 tells us whether the
18 appropriate parties are before the court. U-Haul Int’l v.
19 Jartran, Inc., 793 F.2d 1034, 1038 (9th Cir. 1986). Civil
20 Rule 19 provides in relevant part:
21 (a) Persons Required to Be Joined if Feasible.
22 (1) Required Party. A person who is subject to
service of process and whose joinder will not deprive
23 the court of subject-matter jurisdiction must be
joined as a party if:
24
(A) in that person’s absence, the court
25 cannot accord complete relief among existing
parties; or
26
(B) that person claims an interest relating
27 to the subject of the action and is so
situated that disposing of the action in the
28 person’s absence may:
-14-
1 (i) as a practical matter impair
or impede the person’s ability to
2 protect the interest; or
3 (ii) leave an existing party
subject to a substantial risk of
4 incurring double, multiple, or
otherwise inconsistent obligations
5 because of the interest.
6 (2) Joinder by Court Order. If a person has not been
joined as required, the court must order that the
7 person be made a party. A person who refuses to join
as a plaintiff may be made either a defendant or, in a
8 proper case, an involuntary plaintiff.
9 By its terms, Civil Rule 19 limits the power of plaintiffs
10 to determine who shall be parties in lawsuits they institute.
11 U-Haul, 793 F.2d at 1039. It does so in order to serve three
12 sets of interests: “‘(1) the interests of the present
13 defendant; (2) the interests of the potential but absent
14 plaintiffs and defendants; and (3) the social interest in the
15 orderly, expeditious administration of judgment.’ In keeping
16 with these ends, both [Civil] Rules 17(a) and 19 have been
17 construed so as to further the fair and prompt disposition of
18 litigation.” Id.19 In this case, the assignment shows that Williams possessed
20 the sole right to enforce the judgment against debtor and she
21 exercised that right postpetition by filing the SOJ in the state
22 court. By doing so, Williams no longer claimed an interest in
23 the action. As a result, any concern that debtor would face the
24 risk of incurring double or otherwise inconsistent obligations
25 was alleviated. Accordingly, as debtor argued in the bankruptcy
26 court, it was unnecessary to join Williams in the adversary
27 proceeding after she filed the SOJ.
28 In sum, taken together, the assignment and the filing of
-15-
1 the SOJ effectively determined that under the facts alleged in
2 his FAC, Caraway failed to state a claim against debtor for
3 which relief could be granted. Caraway had the opportunity to
4 present controverting evidence regarding the assignment and SOJ
5 but did not do so. As a result, the bankruptcy court properly
6 granted judgment on the pleadings for debtor.
7 B. The Bankruptcy Court Properly Found That Williams’
Filing of the SOJ Did Not Violate the Automatic Stay
8
9 Caraway contends that the bankruptcy court erred when it
10 found that Williams’ filing of the SOJ did not violate
11 § 362(a)(1). Generally, actions taken in violation of the
12 automatic stay are void. Schwartz v. United States
13 (In re Schwartz), 954 F.2d 569, 571–72 (9th Cir. 1992).
14 In support of his argument that a stay violation occurred,
15 Caraway relies heavily on Dean v. Trans World Airlines, 72 F.3d
16 754 (9th Cir. 1995). Dean addressed the issue of whether the
17 postpetition dismissal of a lawsuit filed prepetition by an
18 airline pilot (Dean) against the debtor/defendant (TWA) violated
19 the automatic stay. 72 F.3d at 755. The court held that
20 “post-filing dismissal in favor of the bankrupt of an action
21 that falls within the purview of the automatic stay violates the
22 stay where the decision to dismiss first requires the court to
23 consider other issues presented by or related to the underlying
24 case.” Id. at 756. Because the dismissal of Dean’s action
25 against TWA required the court to decide whether the
26 law-of-the-case precluded finding TWA liable to Dean, the court
27 found that the dismissal violated the automatic stay.
28 Dean does not provide support for Caraway’s assertion that
-16-
1 Williams’ conduct violated the automatic stay in this case.
2 While the scope of the automatic stay is broad, Williams’ filing
3 of the SOJ did not require the court to consider issues
4 presented by or related to the underlying bankruptcy case.
5 Rather, the issues Caraway raised regarding the validity of the
6 assignment and SOJ were between Williams and Caraway — two
7 nondebtor parties.
8 Moreover, the plain terms of § 362(a)(1) do not apply to
9 these facts. Under § 362(a)(1), the filing of debtor’s petition
10 operated as a stay of the “continuation . . . of a judicial
11 . . . or other action or proceeding against the debtor . . . .”
12 The filing of the SOJ did not constitute a “continuation” of a
13 judicial or other action or proceeding against the debtor. It
14 officially recognized the conclusion of the state court
15 proceeding based on satisfaction of the judgment against the
16 debtor. See In re Pettit, 217 F.3d at 1080.
17 Further, the filing of the SOJ conceivably falls under the
18 Ministerial Act exception to the automatic bankruptcy stay which
19 has been recognized by the Ninth Circuit. Id. at 1076
20 (adopting the Ministerial Act exception to the automatic stay).
21 “Ministerial acts or automatic occurrences that entail no
22 deliberation, discretion, or judicial involvement do not
23 constitute continuations of such a proceeding.” Id. Williams’
24 filing of the SOJ is similar to the entry of judgment by a court
25 clerk. See Rexnord Holdings, Inc. v. Bidermann, 21 F.3d 522,
26 527 (2nd Cir. 1994) (finding an act of entry of judgment by
27 court clerk was ministerial act that did not violate the stay).
28 Neither act entails deliberation, discretion, or judicial
-17-
1 involvement. Therefore, the bankruptcy court properly found
2 that Williams’ filing of the SOJ was not a violation of the
3 automatic stay.
4 C. The Bankruptcy Court Did Not Err By Dismissing Caraway’s
Claims Against Williams
5
6 Finally, Caraway makes vague assertions regarding the
7 prejudice he will suffer if Williams is not joined in the
8 adversary proceeding and he is not allowed to proceed in the
9 bankruptcy court. Caraway attacks the validity of the
10 assignment itself, alleging that it was illegal. In this
11 regard, Caraway contends that Williams’ business is collecting
12 judgments in return for a contingency fee which is a sham or
13 which constitutes the unauthorized practice of law. Caraway
14 fills an entire page of his opening brief with citations to
15 cases from across the country to support his position that he
16 has been the victim of a species of fraud that is widespread.
17 However, these arguments have little relevance to Civil
18 Rules 17(a) and 19 which apply to the joinder of parties. Here,
19 the bankruptcy court dismissed Caraway’s claims against Williams
20 for lack of subject matter jurisdiction, or in the alternative
21 permissive abstention, but nowhere does Caraway argue on appeal
22 why the bankruptcy court’s dismissal of Caraway’s claims against
23 Williams was in error for either of these reasons. Accordingly,
24 Caraway has waived those arguments on appeal. Wake v. Sedona
25 Inst. (In re Sedona Inst.), 220 B.R. 74, 76 (9th Cir. BAP 1998).
26 Even if we were to consider the bankruptcy court’s decision
27 to dismiss Caraway’s claims against Williams for lack of subject
28 matter jurisdiction, we summarily conclude that such dismissal
-18-
1 was proper. Caraway’s claims for breach of fiduciary duty,
2 fraud and the unauthorized practice of law against Williams all
3 arose under California state law, independent of and prior to
4 debtor’s bankruptcy filing.7 These state law claims between two
5 nondebtor parties could have existed entirely apart from
6 debtor’s bankruptcy proceeding and did not depend upon
7 resolution of a substantial question of bankruptcy law.8 See
8 generally In re Ray, 624 F.3d at 1124. Therefore, the
9 bankruptcy court properly dismissed these claims and was
10 compelled to do so under Ray for lack of jurisdiction.9 As the
11 dismissal was without prejudice, Caraway may proceed against
12
13 7
Although bankruptcy courts “enjoy broad discretion to
determine who shall practice before them and to monitor the
14
conduct of those who do,” In re Brooms, 447 B.R. at 267, Williams
15 never appeared in the bankruptcy court.
8
16 Contrary to Caraway’s assertion at oral argument, the
bankruptcy court was not called upon to decide which creditor had
17 the right to assert a competing claim against a bankruptcy
estate. No bankruptcy estate issues, such as allowance of
18
claims, were presented in the nondischargeability action against
19 debtor.
9
20 In the alternative, the bankruptcy court relied upon the
doctrine of permissive abstention under 28 U.S.C. § 1334(c)(1) to
21 dismiss the claims. Abstention can exist only where there is a
parallel proceeding in state court. Christensen v. Tucson
22
Estates, Inc. (In re Tucson Estates), 912 F.2d 1162, 1167 (9th
23 Cir. 1990) (recognizing as a factor for permissive abstention the
presence of a related proceeding commenced in state court or
24 other nonbankruptcy court). The abstention provision is
inapplicable to this case because there was no parallel state
25 court proceeding. However, since this was an alternative ground
26 for dismissal, the court’s reliance on permissive abstention was
harmless error. See Rule 9005 (“Harmless Error”) (Civil Rule 61
27 provides: “At every stage of the proceeding, the court must
disregard all errors and defects that do not affect any party's
28 substantial rights.”).
-19-
1 Williams in the state court.
2 VI. CONCLUSION
3 For the reasons stated, we AFFIRM.
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
-20-