Castillo-Gonzales v. Bey, Jr.

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UNITED STATES BANKRUPTCY COURT
CENTRAL DISTRICT OF CALIFORNIA
SAN FERNANDO VALLEY DIVISION
In re:
Yusuf Bey, Jr.
Debtor(s).
CHAPTER 7
Case No.: 1:13-bk-14661-MT
Adv No: 1:14-ap-01027-MT
Pedro Castillo-Gonzales
Plaintiff(s),
v.
Yusuf Bey
Defendant(s).
MEMORANDUM OF DECISION RE
DEFENDANT’S MOTION TO DISMISS
ADVERSARY COMPLAINT
Date: August 20, 2014
Time: 1:00 PM
Courtroom: 302
Debtor Yusuf Bey Jr. (“Defendant”) filed a chapter 7 petition on July 12, 2013.
Defendant’s 341(a) meeting was scheduled for August 12, 2013. Notice of the 341(a) was
given to Plaintiff, Pedro Castillo-Gonzales (a scheduled creditor) on July 17, 2013. The
deadline for objection to discharge was set for October 11, 2013. On that date, Plaintiff filed a
Third Party Complaint in the main bankruptcy case (the “Third Party Complaint”). This was an
incorrect filing, objecting to discharge. A filing fee was not paid, a summons was not issued,
and a hearing date was not set. Plaintiff did not contend that Defendant received notice of this
filing. The court record and standard noticing procedures, however, show that Defendant’s
bankruptcy counsel received notice of electronic filing via NEF.
FILED & ENTERED
AUG 14 2014
CLERK U.S. BANKRUPTCY COURT
Central District of California
BY DEPUTY CLERK	Remy
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Defendant received a discharge on October 21, 2013. Notice of the discharge was sent
to Plaintiff on October 23, 2013. On October 28, 2013, Plaintiff was notified by the clerk that he
incorrectly filed an objection to discharge, without a filing fee; he was instructed that a motion to
vacate or set aside discharge and a complaint objection to discharge needed to be filed.
Plaintiff then filed an adversary complaint on January 30, 2014.
On February 12, 2014, Defendant filed a Motion to Dismiss under FRCP 12(b)(6) (the
“MTD”). Defendant argued in the MTD that the deadline for objections to discharge had passed
when Plaintiff properly filed its adversary complaint on January 30, 2014. Defendant contended
that the Third Party Complaint was an improper filing and did not constitute a valid adversary
complaint.
In opposition, Plaintiff claimed the failure to timely file his adversary complaint was due
to mistake, inadvertence, surprise or excusable neglect of the filing attorney, who selected the
incorrect event code during electronic filing. Opposition to MTD, 6:10-14. As a result of
selecting the incorrect event code, Plaintiff was not prompted to make a payment for the
required filing fee. Id. at 6:13-17. This caused the failure of the adversary complaint to be
properly filed. Id.
Plaintiff argued in the Opposition to the MTD that the discharge should be vacated, but
he has made no such motion. While Plaintiff urged the Court to vacate the discharge under 11
U.S.C. § 105, given that Plaintiff had notice of the entry of discharge on October 21, 2013 and
has not himself brought such a motion over four months later, it is not appropriate to take sua
sponte action. This action is also not necessary if the adversary proceeding is prosecuted
properly from here forward.
In the Opposition, Plaintiff did not address the requirements of Fed. R. Bankr. P. 4007
and Fed. R. Civ. P. 7015, or any law applicable to this issue. Defendant however, did address
Fed. R. Bankr. P. 4007, but not whether the relation back applies here under
Fed. R. Civ. P. 15(c).
Plaintiff argued that the MTD had procedural defects. Plaintiff referred, however, to the
local rules for the district courts in the Central District of California, as opposed to the local
bankruptcy rules. Bankr. C.D. Cal. R. 9013-1(d)(2) requires the notice of motion and motion be
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filed and served not later than 21 days before the hearing date (as opposed to the 31 day
requirement in district court). Plaintiff stated that the MTD was filed "21 days before the hearing
[was] scheduled." Opposition to MTD, 3:14. Plaintiff also incorrectly cites to the local district
court rules in arguing that Defendant failed to confer with counsel prior to filing the motion; there
is no such requirement in Local Bankruptcy Rules. These objections were overruled and
counsel was ordered to review the local bankruptcy rules in full before proceeding further with
this case.
A hearing on the MTD was held on March 26, 2014, wherein counsel for Plaintiff and
Defendant appeared. It was the Court’s belief that Plaintiff’s adversary complaint “related back”
to the Third Party Complaint that was timely-yet-incorrectly filed in the bankruptcy case.
Defendant argued at the hearing that the relation back doctrine under Fed. R. Civ. P. 15(c)
affects only “amendments” to pleadings, and does not apply in situations such as this, where a
party timely files a pleading and then files an untimely complaint. The Court ordered
supplemental briefing on the question raised by Defendant of whether the “relation back”
doctrine under Fed. R. Civ. P. 15(c) applies only to amendments.
Defendant’s supplemental brief on the question was not illuminating. On the issue of
whether Fed. R. Civ. P. 15(c) applies, Defendant argued that the plain language of the statute,
“when an amendment relates back…” made clear that the rule applies only to amendments and
not here, where Plaintiff filed the nearly the exact same pleading. Defendant states that he is
“aware of no case law supporting a more expansive interpretation of this Rule.” It is
Defendant’s position that because there was no amendment (i.e., a change in the pleading),
Rule 15(c) simply does not apply.
Plaintiff argued in his supplemental brief that, in the bankruptcy context, the Ninth Circuit
construes deficient pleadings liberally if the pleading substantially complies with the
requirements of a complaint by giving the debtor fair notice of what the plaintiff’s claim is and the
grounds upon which it rests. Dominguez v. Miller (In re Dominguez), 51 F.3d 1502, 1508 (9th
Cir. 1995) (internal citations omitted). Plaintiff also cited cases from the Sixth Circuit, S.D. Ohio,
N.D. Alabama and New Jersey to support his position. Plaintiff also explained that the nearly
three-month delay between when he filed the non-conforming pleading and the adversary
complaint was due his counsel having to care for counsel’s mother who was recovering from
surgery prompted by breast cancer and complications therefrom.
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Discharge Time Requirement
11 U.S.C. § 523. Exceptions to discharge
(c) (1) Except as provided in subsection (a)(3)(B) of this section, the debtor shall be
discharged from a debt of a kind specified in paragraph (2), (4), or (6) of subsection (a)
of this section, unless, on request of the creditor to whom such debt is owed, and after
notice and a hearing, the court determines such debt to be excepted from discharge
under paragraph (2), (4), or (6), as the case may be, of subsection (a) of this section.
Federal Rule of Bankruptcy Procedure 4007. Determination of Dischargeability of a Debt:
(c) Time for filing complaint under § 523(c) in a chapter 7 liquidation, chapter 11
reorganization, chapter 12 family farmer's debt adjustment case, or chapter 13
individual's debt adjustment case; notice of time fixed
Except as otherwise provided in subdivision (d) [applicable only in Chapter 13], a
complaint to determine the dischargeability of a debt under § 523(c) shall be filed no
later than 60 days after the first date set for the meeting of creditors under § 341(a). The
court shall give all creditors no less than 30 days' notice of the time so fixed in the
manner provided in Rule 2002. On motion of a party in interest, after hearing on notice,
the court may for cause extend the time fixed under this subdivision. The motion shall be
filed before the time has expired.
Rule 4007(c) and 9006(b)
Rule 9006(b)(1) states, "the court for cause shown may at any time in its discretion … on
motion made after the expiration of the specified period permit the act to be done where the
failure to act was the result of excusable neglect." The Rule specifically states that the court
may enlarge the time for taking action under Rule 4007(c) "only to the extent and under the
conditions stated in [that] rule[]." Rule 9006(b)(3). Rule 4007(c) and Rule 9006(b)(3) combine
to prohibit retroactive extensions of the deadline based on excusable neglect. See In re Hill,
811 F.2d 484 (9th Cir. 1987). Thus, Plaintiff’s request to extend the deadline based on Rule
9006(b) is without basis.
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Substantial Compliance & Relation Back
Plaintiff’s filing of the Third Party Complaint on the bankruptcy case docket may still be
evaluated under the relation back doctrine. Fed. R. Civ. P. 15(c) provides that:
(1) When an Amendment Relates Back. An amendment to a pleading relates
back to the date of the original pleading when:
(A) the law that provides the applicable statute of limitations allows relation
back;
(B) the amendment asserts a claim or defense that arose out of the conduct,
transaction, or occurrence set out—or attempted to be set out—in the original
pleading; or
(C) the amendment changes the party or the naming of the party against
whom a claim is asserted…
The rationale "of allowing an amendment to relate back is that once a party is notified of
litigation involving a specific factual occurrence, the party has received all the notice and
protection that the statute of limitations requires." 10 Collier on Bankruptcy P 7015.06 (Alan N.
Resnick & Henry J. Sommer eds., 16th Ed. 2014), (citing 3 Moore’s Federal Practice, § 15.19[1]
(Matthew Bender 3d ed.)).
Fed. R. Bankr. P. 4007(e) states: "A proceeding commenced by a complaint filed under
this rule is governed by Part VII of the rules." Fed. R. Civ. P. 3, 7, 8 and 15, addressing
pleading requirements and effect, apply to adversary proceedings in bankruptcy. See
Fed. R. Bankr. P. 7003, 7007, 7008 and 7015. Rule 3 provides that an action is commenced by
the filing of a complaint with the court. To preserve its claim, Plaintiff was required to
commence an action by filing a complaint on or before the October 11, 2013 bar date. The
adversary complaint filed on January 30, 2014 can only relate back to the original filing date of a
pleading. Fed. R. Civ. P. 15. Of the types of pleadings allowable under Rule 7(a), the only one
applicable is a complaint. Plaintiff’s Third Party Complaint meets the Rule 8(a) requirements of
a complaint. It contains a short and plain statement of the claim for relief, which includes a
demand for judgment for the relief Plaintiff seeks.
The purpose of notice pleading is to "give the defendant fair notice of what the plaintiff's
claim is and the grounds upon which it rests." Classic Auto Refinishing v. Marino (In re Marino),
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37 F.3d 1354, 1357 (9th Cir. 1994) (citing Conley v. Gibson, 355 U.S. 41, 47 (1957)).
Consequently, "all pleadings shall be construed so as to do substantial justice." Id. (citing,
Conley v. Gibson, 355 U.S. at 48 (quoting Fed. R. Civ. P. 8(f))). Under the view of flexible
construction, the rules governing the form of pleading should be liberally construed, and motions
to dismiss complaints based on pleading errors are to be disfavored. In re Jagitsch, 201 B.R.
961, 963 (Bankr. E.D. Ark. 1996). Courts adopting this view ignore the deficient format of the
pleadings and instead focus on the substance of the document in determining whether the
pleading substantially complies with the required elements of Fed. R. Civ. P. 8 – the most
important element being the adequacy of notice. See In re Marino, 37 F.3d at 1357-58 (holding
that notice of the nature of the relief claimed is the primary criterion in determining whether a
deficient pleading constitutes a complaint under Rule 7008).
The reasoning of the Bankruptcy Appellate Panel of the Ninth Circuit (the “BAP”) in a
recently decided, unpublished opinion helps to define the focus of the inquiry on the issue of
when application of the relation back doctrine is appropriate. In Miyasaki v. Lui (In re Lui), the
issue before the BAP was whether the bankruptcy court erred by deciding that the substantial
compliance and relation back doctrines did not make the appellant’s complaint timely. Miyasaki
v. Lui (In re Lui), 2014 WL 904587 (B.A.P. 9th Cir., March 7, 2014).
The BAP stated that, although untimely, a bankruptcy court may consider a
nondischargeability complaint timely based on the doctrines of substantial compliance and
relation back of amended pleadings. Classic Auto Refinishing, Inc. v. Marino (In re Marino), 37
F.3d 1354 (9th Cir. 1994) (finding no substantial compliance); In re Dominguez, 51 F.3d 1502
(9th Cir. 1995) (finding substantial compliance and relation back); Markus v. Gschwend (In re
Markus), 313 F.3d 1146 (9th Cir.2002) (finding no substantial compliance).
The BAP's application of these doctrines to the underlying facts in each of the foregoing
cases is instructive. In Marino, the pleading to which the plaintiff wanted the untimely complaint
to relate back was an “Opposition to Sale” filed in the bankruptcy case before the bar date.
Marino, 37 F.3d at 1357. In Dominguez, the pleading at issue was a “Memorandum re
Relationship between Order Confirming Trustee’s Plan and Debtor Discharge.” Dominguez, 51
F.3d at 1510. In Markus, the pleadings was a “Motion to Object to Debtors [sic] Discharge and
Convert the Chapter 7 Case to Chapter 13.” Markus, 313 F.3d at 1150-51. Thus, from the
review of the applicable case law in the Ninth Circuit, Plaintiff’s argument that the relation back
doctrine under FRCP 15(c) affects only “amendments” to pleadings, and does not apply in
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situations such as this where a party timely files a pleading and then files an untimely complaint
is without merit.
Plaintiff’s Third Party Complaint is liberally construed and found sufficient to be a
complaint, despite the technical defects surrounding the improper filing. Defendant’s
bankruptcy counsel was given notice of the filing through NEF and was put on notice of the
objection to discharge. See Estate of Hildreth v. Dunaway (In re Dunaway), 346 B.R. 449, 455-
56 (Bankr. N.D. Ohio 2006) (denying motion to dismiss complaint although objection was filed in
main bankruptcy case rather than as separate adversary proceeding, finding no prejudice to
defendants as the complaint, having been initially filed in the main case, afforded them notice of
the action).
A complaint that was filed on time, even where there are technical errors or the filing fee
must still be paid, can suffice where there is essential compliance with the filing deadline. See
In re Rutherford, 427 B.R. 656 (Bankr. S.D. Ohio 2010) (complaint filed before bar date is
timely, even where filing fee not paid); In re Bryan, 261 B.R. 240 (9th Cir. 2001) (timely placing a
copy of complaint in clerk’s drop box sufficient); Bank of Winona v. Butler (In re Butler), 237 B.R.
611 (Bankr. N.D. Miss. 1999) (complaint mistakenly filed with District Court clerk within bar date
could be deemed timely pursuant to Fed. R. Bankr. P. 5005(c) even though not delivered to
bankruptcy court clerk until after bar date). Here, the Third Party Complaint was on file and
notice was given by the bar date, although it was filed on the wrong docket due to a coding
error.
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The pleading that was filed on October 11, 2013 was titled “Complaint to Determine
Dischargeability and In Objection to Discharge” and contained enough detail to clearly put
Defendant on notice that Plaintiff was objecting to discharge under § 523(a)(6) of a debt he
alleges is owed to him. Plaintiff also made allegations as to the ineligibility of Defendant’s
related dba entities under § 727(a)(1). There is no doubt as to what was Plaintiff’s purpose in
filing the Third Party Complaint, and the timely pleading in this case is closer to the documents
in Dominguez than in Markus and Marino. Under FRCP 15(c), the January 30, 2014 adversary
complaint relates back to the October 11, 2013 Third Party Complaint, and thus was timely filed.
Defendant’s Motion to Dismiss is DENIED. The continued hearing on the MTD, set for August
20, 2014, is VACATED. Plaintiff to lodge order within 7 days.
###
Date: August 14, 2014
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