Michael Jay Goldstein v. Richard Allen Diamond

United States Bankruptcy Appellate Panel
For the Eighth Circuit
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No. 15-6002
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In re: Richard Allen Diamond
llDebtor
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Michael Jay Goldstein
lllllllllllllllllllllPlaintiff – Appellant
and
Michael Fitzgerald
Plaintiff
v.
Richard Allen Diamond
lllllllllllllllllllllDefendant - Appellee
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Appeal from United States Bankruptcy Court
for the Eastern District of Missouri - St. Louis
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Submitted: March 27, 2015
Filed: May 11, 2015
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Before FEDERMAN, Chief Judge, KRESSEL and SALADINO, Bankruptcy
Judges.
KRESSEL, Bankruptcy Judge
Michael Jay Goldstein appeals from an order of the bankruptcy court 1
determining that the debtor’s debt to him was not excepted from the debtor’s
discharge and dismissing his complaint to determine dischargeability of his debt.
For the reasons stated below, we affirm.
BACKGROUND
On November 29, 2011, Richard Allen Diamond filed a chapter 7 bankruptcy
petition in the Eastern District of Missouri. In accordance with Federal Rule of
Bankruptcy Procedure 4007, February 28, 2012 was the deadline for filing a
complaint to determine the dischargeability of certain debts under 11 U.S.C. §
523(c).
On February 15, 2012, Michael Jay Goldstein filed a motion in Diamond’s
bankruptcy requesting a sixty day “extension of proceedings” and “withholding of
the entry of the discharge order.” Goldstein claimed that he was a creditor but he
did not receive proper notice of the bankruptcy case. He intended to pursue an
adversary proceeding to determine the dischargeability of his claim.
The bankruptcy court did not interpret Goldstein’s motion to include a request
for an extension of the February 28, 2012 filing deadline. Instead, it found the
request to be one for “abatement of the case for sixty days.” Finding there was no
1
The Honorable Charles E. Rendlen, III, United States Bankruptcy Judge for the
Eastern District of Missouri.
cause for such relief, it denied the motion. The court also denied the request to
withhold the discharge. On February 29, 2012, the court entered the debtor’s
discharge. On March 15, 2012, the case was closed.
On March 14, 2013, Goldstein looked elsewhere for relief and filed a two-
count dischargeability complaint against the debtor in the Eastern District of
Pennsylvania. The counts made no mention of a particular statute but both were
captioned as “Fraud and Defalcation.”
After a hearing on an order to show cause, the bankruptcy court for the Eastern
District of Pennsylvania transferred the adversary proceeding to the United States
District Court for the Eastern District of Missouri. The complaint was then referred
by the district court to the bankruptcy court, but on instruction of the bankruptcy
judge, it was not docketed. Instead, the court issued an order instructing Goldstein
to file a motion to reopen the underlying bankruptcy case and pay the reopening fee.
Goldstein appealed.
On appeal, we reversed the bankruptcy court and determined that there is no
requirement that a bankruptcy case be reopened in order to file a dischargeability
complaint. Goldstein v. Diamond (In re Diamond), 509 B.R. 219 (B.A.P. 8th Cir.
2014). Subsequently, the bankruptcy court ordered the clerk to docket the complaint
and included an order to show cause why the complaint should not be dismissed.
Goldstein filed a verified response to the court’s order to show cause. The
court took no action on its order to show cause, but scheduled a trial for October 1,
2014. On September 2, 2014, the debtor filed an answer which included a request
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for dismissal of the complaint. The court set October 4, 2014, as a deadline for
Goldstein to respond to the debtor’s request for dismissal. Again, Goldstein filed a
verified response; the court struck the trial and on December 23, 2014, the
bankruptcy court entered an order dismissing the complaint. It is from this order
that Goldstein now appeals.2
DISCUSSION
Standing
To properly challenge the dischargeability of a debt based on fraud and
defalcation “the creditor to whom such debt is owed” must request the court to
except the debt from discharge. See 11 U.S.C. § 523(c). “Creditor” is defined by
the Bankruptcy Code as an entity that has a claim against the debtor or his estate. 11
U.S.C. § 101(10). In his complaint, Goldstein describes himself as a “limited partner
in three of the limited partnerships” and a “silent non-participating guarantor” of an
“integrated secured commercial loan transaction.” According to the bankruptcy
court, nothing in the record showed that Goldstein, in his individual capacity, was
owed a debt from the debtor. The court relied on the fact that the complaint stated
that the debt was based on breach of fiduciary fraud owed to the limited partnerships,
not to Goldstein himself.
2
As far as we can tell, plaintiff Michael Fitzgerald did not participate in this
adversary proceeding at all and clearly did not appeal. Subsequent to the
bankruptcy court’s order, Goldstein and Fitzgerald executed an assignment of
Fitzgerald’s claim to Goldstein. Goldstein has filed this assignment with the clerk,
however, it is not a proper part of the record.
4
In order to have standing to appeal the decision of the bankruptcy court, an
appellant must be a person aggrieved. Zahn v. Fink (In re Zahn), 367 B.R. 654, 657
(B.A.P. 8th Cir. 2007) (citing O’Brien v. Vermont (In re O’Brien), 184 F.3d 140,
142 (2nd Cir. 1999)). The person aggrieved doctrine limits standing to those who
were directly and adversely affected peculiarly by a court order. Sears v. U.S. Tr.
(In re AFY), 734 F.3d 810, 819 (8th Cir. 2013). We agree with the bankruptcy court.
Goldstein does not have standing as he does not purport to be personally aggrieved.
Both counts of the complaint allege that the defendant’s actions “led to the Limited
Partnership losing all of its assets….” Nowhere in the record did Goldstein contend
that he was personally affected by the defendant’s actions.
Furthermore, as a pro se party Goldstein may not litigate on behalf of the
limited partnerships. See Mo. Rev. Stat. § 347.069.1 (member, manager, employee,
or agent of LLC is not a proper party to proceeding by or against LLC, except where
object is to enforce such person’s right against duty or liability to LLC). Goldstein
merely seeks to enforce a claim that belongs to the limited partnerships. Goldstein
is not a licensed attorney, therefore, he cannot pursue claims on behalf of the limited
partnerships. LorCon LLC #1 v. Heyl (In re Heyl), 770 F.3d 729 (8th Cir. 2014).
Dischargeability
1. Section 523(a)(4)
There are nineteen exceptions to discharge listed in 11 U.S.C. § 523(a).
Though Goldstein’s complaint titled both counts as “Fraud and Defalcation,” he did
not specify which particular exception he claimed relief under. Each count rather
baldly alleged that Goldstein was entitled to relief because the debtor “carried out
fraud and defalcation against Plaintiff’s interests.”
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Due to the complaint’s silence as to any other allegation of wrong-doing, the
bankruptcy court determined that the cause of action was under § 523(a)(4). This
section states, “[a] discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b)
of this title does not discharge an individual debtor from any debt – for fraud or
defalcation while acting in a fiduciary capacity, embezzlement, or larceny.” The
creditor bears the burden of proof in a proceeding to determine the dischargeability
of a debt under § 523(a)(4). Rutanen v. Baylis (In re Baylis), 313 F.3d 9 (1st Cir.
2002); Fowler Bros. v. Young (In re Young), 91 F.3d 1367 (10th Cir. 1996); Coburn
Co. v. Nicholas (In re Nicholas), 956 F.2d 110 (5th Cir. 1992).
Unlike many other exceptions listed in § 523(a), the exception for fraud and
defalcation is not self-effectuating. Pursuant to Federal Rule of Bankruptcy
Procedure 4007(c), creditors holding § 523(a)(4) claims must file a complaint to
determine dischargeability no later than 60 days after the first date set for the meeting
of creditors. If the creditor fails to timely file a complaint the debt is discharged.
See 11 U.S.C. § 523(c)(1).
Here, the deadline for filing a dischargeability complaint under § 523(a)(4)
was February 28, 2012. Goldstein filed his complaint on March 14, 2013, long after
the deadline had passed. For this reason, we agree that Goldstein’s complaint for a
§ 523(a)(4) cause of action was untimely and must be dismissed as such.
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2. Section 523(a)(3)(B)
On appeal Goldstein argues that he did not file the complaint for fraud and
defalcation pursuant to § 523(a)(4), instead he filed it pursuant to § 523(a)(3)(B).3
This section contains an exception to discharge for debts specified in paragraphs (2),
(4), or (6) that are neither listed nor scheduled in time to permit --
timely filing of a proof of claim and timely request for a
determination of dischargeability of such debt under one
of such paragraphs, unless such creditor had notice or
actual knowledge of the case in time for such timely filing
and request.
11 U.S.C. § 523(a)(3)(B).
We have previously articulated four factors to be determined in a §
523(a)(3)(B) analysis:
1. Is the debt of a kind described in § 523(a)(2), (4), or
(6)? 4;
2. Was the debt listed or scheduled under § 521(1) of the
Bankruptcy Code with the name of the plaintiff;
3
The bankruptcy court addressed this exception to discharge in its opinion even
though it was not explicitly pled.
4
While this is not usually an issue, it goes without saying that an entity filing
any dischargeability complaint must have a claim. For the reasons stated in the
earlier section of our opinion, it does not appear that Goldstein has a claim at all,
dischargeable or otherwise. Certainly the record before the bankruptcy court did
not indicate that he did.
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3. Did the plaintiff have actual knowledge of the case in
time to file an adversary proceeding in the bankruptcy
court under § 523(a)(2), (4), or (6)?
4. Does the plaintiff’s case have merit?
Everly v. 4745 Second Avenue, Ltd. (In re Everly), 346 B.R. 791, 797 (B.A.P. 8th
Cir. 2006).
To prevail, Goldstein must demonstrate that he was not scheduled properly
and he did not have actual knowledge of the case in time to timely file a complaint
under § 523(a)(4). He has done the former but not the latter. The real question, then,
is whether Goldstein had actual knowledge of the bankruptcy case in time to file an
adversary proceeding. Several courts have held that the “mere knowledge of a
pending bankruptcy proceeding is sufficient to bar the claim of a creditor who took
no action, whether or not that creditor received official notice from the court of
various pertinent dates.” Ramos v. Compton, 891 F.2d 1180, 1184 (5th Cir. 1990);
Yukon Self Storage Fund v. Green (In re Green), 876 F.2d 854, 857 (10th Cir. 1989);
Lompa v. Price (In re Price), 871 F.2d 97, 99 (9th Cir. 1989).
In this case, while Goldstein did not receive notice from the court, he admitted
that he had notice of the bankruptcy case more than three weeks before the deadline
for filing a dischargeability complaint. In his complaint Goldstein disclosed that he
was informed of the filing “on or about February 6, 2012.” The deadline for filing
a dischargeability complaint was twenty-two days later, on February 28, 2012. After
receiving notice, Goldstein immediately began participating in the case. He had
sufficient time to file a proof of claim and a motion for “extension,” but never filed
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a complaint, even though he had all the information and the wherewithal to do so
timely.
The bankruptcy court relied on these details when it dismissed the complaint.
We too, think that twenty-two days was a sufficient amount of time to initiate an
adversary proceeding after learning of the bankruptcy case. See Grossie v. Sam, 894
F.2d 778 (5th Cir. 1990) (eighteen days’ notice sufficient); but see Manufacturers
Hanover v. Dewalt (In re Dewalt), 961 F.2d 848 (9th Cir. 1992) (at least thirty days’
notice, in most cases, required). The purpose of the deadline for filing
dischargeability complaints is to promote efficient and comprehensive
administration of bankruptcy cases. In this case, Goldstein had an adequate amount
of time to protect his rights as a creditor. He used that time to file a proof of claim
and a motion for extension. He cannot now, long after the fact, claim to have been
hindered by his lack of knowledge of the case.
CONCLUSION
For the foregoing reasons, we do not find any error in the bankruptcy court’s
decision and affirm.
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