Neary v. Webb

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re No. 03-40883 TD
Chapter 7
MAXINE WEBB,
Debtor.
___________________________/
SARA L. KISTLER, Acting A.P. No. 04-4389 AT
United States Trustee,
Plaintiff,
vs.
MAXINE WEBB,
Defendant.
___________________________/
MEMORANDUM OF DECISION RE PLAINTIFF’S
THIRD MOTION FOR SUMMARY JUDGMENT
Plaintiff Sara L. Kistler (the “UST”), the Acting United
States Trustee for this Region, seeks summary judgment in the
above-captioned adversary proceeding, seeking denial of the
chapter 7 discharge of Defendant Maxine Webb (the “Debtor”). For
the reasons stated below and in the Court’s Memorandum of Decision
Signed: December 08, 2005
________________________________________
LESLIE TCHAIKOVSKY
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
December 09, 2005
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 04-04389 Doc# 49 Filed: 12/08/05 Entered: 12/09/05 15:51:00 Page 1 of 7

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with respect to the UST’s second motion for summary judgment (the
“Court’s Prior Memorandum”), the motion will be granted.
The relevant facts are summarized in the Court’s Prior
Memorandum and will not be repeated here. Two issues are
presented by the UST’s motion. First, whether the claim for
denial of the Debtor’s discharge is time barred. Second, whether
collateral estoppel and the Court’s prior determination with
respect to the UST’s motion to reconvert the Debtor’s bankruptcy
case from chapter 13 to chapter 7 entitles the UST to summary
judgment on her claim.
The first issue is a purely legal issue and appears to be one
of first impression. Rule 1019(2) of the Federal Rules of
Bankruptcy Procedure provides that, when the deadline for
objecting to a debtor’s discharge in a chapter 7 case has expired
before the debtor converts the case to chapter 13 and the case is
reconverted to chapter 7, no new deadline to object to the
discharge commences upon reconversion. The legal issue posed here
is whether Rule 1019(2) applies in a reconversion to chapter 7
when the debtor has actually been granted her chapter 7 discharge
but agrees to vacate it when the case is converted to chapter 13.
As the Court stated in the Court’s Prior Memorandum, the Court
concludes that Rule 1019(2) does not apply under those
circumstances and that a new deadline to object to the debtor’s
discharge commences to run. Therefore, it concludes that the
UST’s claim for denial of the Debtor’s discharge under 11 U.S.C.
§ 727(a)(4)(A) is not time barred.
Case: 04-04389 Doc# 49 Filed: 12/08/05 Entered: 12/09/05 15:51:00 Page 2 of 7

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1A good portion of the Debtor’s opposition to the motion
deals with equitable tolling. However, the Court did not and
does not rely on the doctrine of equitable tolling. As stated
in the Court’s Prior Memorandum, the Court concludes that, by
agreeing as part of her motion to convert the case to chapter 13
that her chapter 7 discharge could be vacated, the Debtor
implicitly agreed that a new deadline to object to her chapter 7
discharge would commence if the case were reconverted to chapter
7.
3
As discussed in the Court’s Prior Memorandum, to conclude that
Rule 1019(2) does apply under these circumstances would lead to an
absurd result. By vacating her discharge, the debtor extinguishes
a claimant’s right to seek revocation of the debtor’s discharge
based on a bankruptcy fraud discovered after the discharge was
entered. The rules cannot be sensibly read to give the debtor
the power to extinguish that remedy without substituting some
other remedy for it: i.e., a new deadline for objecting to the
discharge. Otherwise, as stated in the Court’s Prior Memorandum,
the agreement to vacate her discharge would be meaningless.
According to the Debtor’s rationale, by agreeing to vacate her
discharge, the Debtor guaranteed herself an absolute right to a
discharge on reconversion to chapter 7.1 This was clearly not the
result the rule was intended to effect.
The second issue is whether the UST is entitled to a
determination that the Debtor’s discharge should be denied based
on the doctrine of collateral estoppel based on the Court’s
findings and conclusions in connection with the motion to
reconvert the case from chapter 13 to chapter 7. The Court
concludes that she is.
Case: 04-04389 Doc# 49 Filed: 12/08/05 Entered: 12/09/05 15:51:00 Page 3 of 7

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2Although the defendant in the litigation contended that
claim was without merit, the Debtor obviously considered the
claim material. When the claim was discovered by the UST, the
Debtor amended her schedules, valuing the claim at $250,000 to
$750,000.
4
The UST’s amended complaint (the “Complaint”) seeks denial of
the Debtor’s discharge under 11 U.S.C. § 727(a)(4)(A). Section
727(a)(4)(A) provides that an individual chapter 7 debtor’s
discharge should be denied if “the debtor knowingly and
fraudulently, in or in connection with the case--(A) made a false
oath or account....” Case authority has added to these elements
the requirement that the omission be material. In re Searles, 317
B.R. 368, 376-77 (Bankr. 9th Cir. 2004).
As noted by UST, for collateral estoppel to apply: (1) the
issue at stake must be identical to the one involved in the prior
litigation; (2) the issue must have been actually litigated in the
prior litigation, and (3) the determination of the issue in the
prior litigation must have been a critical and necessary part of
the judgment in the prior litigation. In re Reynoso, 315 B.R.
544, 551 (Bankr. 9th Cir. 2004).
Although a motion to reconvert a case from chapter 13 to
chapter 7 may be made on a variety of grounds, in this case, the
sole basis for the motion was that the Debtor had intentionally
and fraudulently omitted her litigation claim from her bankruptcy
schedules and had lied under oath about having any such litigation
claim at her meeting of creditors. The claim was clearly
material. The case was otherwise a “no asset” case.2 Thus, the
Case: 04-04389 Doc# 49 Filed: 12/08/05 Entered: 12/09/05 15:51:00 Page 4 of 7

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issue presented in the Complaint is identical to the one that was
presented by the UST’s motion to reconvert the case.
The issue was actually litigated. The Court conducted an
evidentiary hearing with respect to the circumstances surrounding
the Debtor’s failure to schedule the claim and her denial of
having any such claim at the meeting of creditors. The Debtor
testified and thus the Court had an opportunity to judge her
credibility. Moreover, the activity going on in the litigation at
the time the Debtor filed her bankruptcy petition and attended her
meeting of creditors made it impossible to conclude that the
Debtor’s omission of the claim and her false testimony at the
meeting of creditors was inadvertent. In ruling on the motion,
the Court described the Debtor’s conduct as “purposeful.” By
“purposeful,” the Court meant not only intentional in a narrow
sense but also fraudulent: i.e., intended to deceive.
Finally, the determination of the issue was necessary to the
outcome of the prior litigation. As previously noted, this was
the sole ground upon which the motion to reconvert was based.
Moreover, the burden of proof was on the same party–-the UST–-in
both instances and the standard of proof required was the same:
i.e., a preponderance of the evidence. See Grogan v. Garner, 498
U.S. 279, 289 (1991).
CONCLUSION
The UST’s motion for summary judgment will be granted. The
UST’s claim for denial of the Debtor’s discharge under 11 U.S.C.
§ 727(a)(4)(A) is not time barred. By agreeing that her discharge
Case: 04-04389 Doc# 49 Filed: 12/08/05 Entered: 12/09/05 15:51:00 Page 5 of 7

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could be vacated on conversion of the case to chapter 13, the
Debtor implicitly agreed that, if the case were reconverted to
chapter 7, a new deadline for objecting to a new discharge would
commence. Moreover, the doctrine of collateral estoppel entitles
the UST to summary judgment on its claim. The Court’s prior
determination in connection with the UST’s motion to reconvert the
case involved identical issues, the issues were actually
litigated, and the issues were necessary to the determination of
the motion. Counsel for the UST is directed to submit a proposed
form of order and judgment in accordance with this decision. The
status conference currently scheduled for January 4, 2006 at 11:00
a.m. is hereby continued to February 9, 2006 at 11:00 a.m. and
will be vacated without further order upon entry of the order and
judgment.
END OF DOCUMENT
Case: 04-04389 Doc# 49 Filed: 12/08/05 Entered: 12/09/05 15:51:00 Page 6 of 7

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COURT SERVICE LIST
Margaret H. McGee
United States Department of Justice
Office of the United States Trustee
1301 Clay St., Ste. 690N
Oakland, CA 94612-5217
Maxine Webb
7618 Ney Ave.
Oakland, CA 94605
Case: 04-04389 Doc# 49 Filed: 12/08/05 Entered: 12/09/05 15:51:00 Page 7 of 7