FILED JUN 5 2020 NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT
UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT
In re: BAP No. NV-19-1157-GLB
CHRISTOPHER SCOTT EMOND and Bk. No. 3:18-bk-51350-BTB JESSICA LYNN KLEINEDLER,
Debtors.
CHRISTOPHER SCOTT EMOND; JESSICA LYNN KLEINEDLER,
Appellants,
v. MEMORANDUM*
RYAN MCCARTHY INVESTMENTS, LLC,
Appellee.
Argued and Submitted on May 21, 2020
Filed – June 5, 2020
* This disposition is not appropriate for publication. 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 Cir. BAP Rule 8024-1. Appeal from the United States Bankruptcy Court for the District of Nevada
Honorable Bruce T. Beesley, Bankruptcy Judge, Presiding
Appearances: Holly E. Estes of Estes Law, P.C. argued for Appellants; Andrea M. Gandara of Holley Driggs Walch Fine Wray Puzey & Thompson argued for Appellee
Before: GAN, LAFFERTY, and BRAND, Bankruptcy Judges.
INTRODUCTION
Chapter 71 debtors Christopher Scott Emond and Jessica Lynn
Kleinedler (“Debtors”) appeal the bankruptcy court’s order granting
creditor Ryan McCarthy Investments, LLC’s (“McCarthy”) motion to
extend the deadline to file a nondischargeability complaint. Contrary to
Ninth Circuit precedent, the bankruptcy court extended the deadline
without a finding or showing of “cause” under Rule 4007(c). Without any
explanation why McCarthy could not file the complaint within the original
deadline, the facts in the record do not support a finding of cause.
Accordingly, we REVERSE.
1 Unless specified otherwise, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and all “Rule” references are to the Federal Rules of Bankruptcy Procedure.
2 FACTS
A. Prepetition Events
Prior to filing the bankruptcy case, Mr. Emond was the manager and
44.2% owner of Lovely Rita’s Brewing Company, LLC (“Lovely Rita’s”). In
March of 2018, Lovely Rita’s borrowed $80,000 from McCarthy. In May
2018, Mr. Emond borrowed an additional $270,000 in an individual
capacity from McCarthy, and executed a promissory note stating that
Lovely Rita’s previous $80,000 obligation would be assumed by
Mr. Emond. The note provides for payment of $394,838.20 on April 30,
2021.
On November 2, 2018, Lovely Rita’s filed a chapter 7 bankruptcy
case. The initial § 341 meeting of creditors was held on December 20, 2018,
and continued to February 5, 2019. McCarthy’s attorney attended both
§ 341 meetings and asked Mr. Emond, as representative of Lovely Rita’s,
questions about the circumstances surrounding the claim.
B. The Bankruptcy Case
On November 29, 2018, Debtors filed a chapter 7 bankruptcy case.
They scheduled assets of $44,237.69, all of which were claimed as exempt,
priority claims of $89,499.79, and nonpriority claims of $1,179,616.10.
Debtors scheduled an unsecured claim in favor of McCarthy in the amount
of $394,834.20. McCarthy received notice of the bankruptcy filing in
December 2018, which stated that the deadline to file a complaint to except
3 a debt from discharge was March 11, 2019. The § 341 meeting in the
Debtors’ case was held on January 10, 2019 and was continued to February
21, 2019.
On March 11, 2019, McCarthy filed a motion to extend the time to file
a nondischargeability complaint. McCarthy did not support the motion
with a declaration or other evidence. It stated that McCarthy was in the
process of evaluating testimony taken at the meetings of creditors as well
as its records to determine whether to file a nondischargeability complaint.
McCarthy also stated that its counsel was in the process of separating from
his current law firm and asserted that neither the Debtors nor other
creditors would be harmed by granting an extension.
McCarthy erroneously filed the notice of hearing on the motion in the
Lovely Rita’s case. On March 18, 2019, the bankruptcy clerk’s office filed a
notice of docketing error. On April 23, 2019, McCarthy filed the notice in
the Debtors’ case, setting the hearing for June 12, 2019.
Debtors filed an objection to the motion for extension and argued that
McCarthy’s motion failed to comply with Local Bankruptcy Rule 9014(c)(1)
and did not cite any cause to support an extension under Rule 4007(c).
Debtors also argued that the request should be barred by the doctrine of
laches because McCarthy delayed setting the motion for hearing and as of
the date of the objection, McCarthy had still not filed a complaint or sought
any discovery.
4 C. The Hearing and the Court’s Ruling
On June 12, 2019, the court held a hearing on McCarthy’s motion. At
the hearing, McCarthy argued that the major reason for the extension
request was that the Debtors’ § 341 hearing was continued from January 10,
2019 to February 21, 2019, and only 20 days remained after the conclusion
of the meeting and the March 11, 2019 deadline. McCarthy also argued that
the balance of equities favored granting the motion and because the loan
was made to Mr. Emond for use in Lovely Rita’s, McCarthy had to
integrate information from § 341 meetings in both cases.
Debtors argued that McCarthy’s counsel was permitted to ask
questions at the § 341 meetings in the Lovely Rita’s case as well as the
individuals’ case and McCarthy had plenty of time to review the facts and
circumstances of the loans. Debtors argued that McCarthy did not provide
any reason to warrant an extension of time.
The bankruptcy court granted the motion to extend but did not make
any factual findings. The court required McCarthy to file its complaint
withing ten days, set a deadline for Debtors to respond, and set a trial date
on the to-be-filed complaint for July 23, 2019.
The court entered an order granting the extension motion on June 18,
2019. Debtors timely appealed and we granted Debtor’s motion for leave to
appeal an interlocutory order.
5 JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and
157(b)(2)(I). We have jurisdiction under 28 U.S.C. § 158.
ISSUE
Did the bankruptcy court abuse its discretion in granting the motion
to extend the deadline to file a nondischargeability complaint?
STANDARD OF REVIEW
We review a bankruptcy court’s decision to extend time for filing a
nondischargeability complaint for abuse of discretion. Willms v. Sanderson
(In re Sanderson), 723 F.3d 1094, 1103 (9th Cir. 2013); Cont’l Cas. Co. v. Albert
(In re Albert), 113 B.R. 617, 619 (9th Cir. BAP 1990).
We apply a two-step test to determine whether the bankruptcy court
abused its discretion. Sullivan v. Harnisch (In re Sullivan), 522 B.R. 604, 611
(9th Cir. BAP 2014).
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FILED JUN 5 2020 NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT
UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT
In re: BAP No. NV-19-1157-GLB
CHRISTOPHER SCOTT EMOND and Bk. No. 3:18-bk-51350-BTB JESSICA LYNN KLEINEDLER,
Debtors.
CHRISTOPHER SCOTT EMOND; JESSICA LYNN KLEINEDLER,
Appellants,
v. MEMORANDUM*
RYAN MCCARTHY INVESTMENTS, LLC,
Appellee.
Argued and Submitted on May 21, 2020
Filed – June 5, 2020
* This disposition is not appropriate for publication. 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 Cir. BAP Rule 8024-1. Appeal from the United States Bankruptcy Court for the District of Nevada
Honorable Bruce T. Beesley, Bankruptcy Judge, Presiding
Appearances: Holly E. Estes of Estes Law, P.C. argued for Appellants; Andrea M. Gandara of Holley Driggs Walch Fine Wray Puzey & Thompson argued for Appellee
Before: GAN, LAFFERTY, and BRAND, Bankruptcy Judges.
INTRODUCTION
Chapter 71 debtors Christopher Scott Emond and Jessica Lynn
Kleinedler (“Debtors”) appeal the bankruptcy court’s order granting
creditor Ryan McCarthy Investments, LLC’s (“McCarthy”) motion to
extend the deadline to file a nondischargeability complaint. Contrary to
Ninth Circuit precedent, the bankruptcy court extended the deadline
without a finding or showing of “cause” under Rule 4007(c). Without any
explanation why McCarthy could not file the complaint within the original
deadline, the facts in the record do not support a finding of cause.
Accordingly, we REVERSE.
1 Unless specified otherwise, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and all “Rule” references are to the Federal Rules of Bankruptcy Procedure.
2 FACTS
A. Prepetition Events
Prior to filing the bankruptcy case, Mr. Emond was the manager and
44.2% owner of Lovely Rita’s Brewing Company, LLC (“Lovely Rita’s”). In
March of 2018, Lovely Rita’s borrowed $80,000 from McCarthy. In May
2018, Mr. Emond borrowed an additional $270,000 in an individual
capacity from McCarthy, and executed a promissory note stating that
Lovely Rita’s previous $80,000 obligation would be assumed by
Mr. Emond. The note provides for payment of $394,838.20 on April 30,
2021.
On November 2, 2018, Lovely Rita’s filed a chapter 7 bankruptcy
case. The initial § 341 meeting of creditors was held on December 20, 2018,
and continued to February 5, 2019. McCarthy’s attorney attended both
§ 341 meetings and asked Mr. Emond, as representative of Lovely Rita’s,
questions about the circumstances surrounding the claim.
B. The Bankruptcy Case
On November 29, 2018, Debtors filed a chapter 7 bankruptcy case.
They scheduled assets of $44,237.69, all of which were claimed as exempt,
priority claims of $89,499.79, and nonpriority claims of $1,179,616.10.
Debtors scheduled an unsecured claim in favor of McCarthy in the amount
of $394,834.20. McCarthy received notice of the bankruptcy filing in
December 2018, which stated that the deadline to file a complaint to except
3 a debt from discharge was March 11, 2019. The § 341 meeting in the
Debtors’ case was held on January 10, 2019 and was continued to February
21, 2019.
On March 11, 2019, McCarthy filed a motion to extend the time to file
a nondischargeability complaint. McCarthy did not support the motion
with a declaration or other evidence. It stated that McCarthy was in the
process of evaluating testimony taken at the meetings of creditors as well
as its records to determine whether to file a nondischargeability complaint.
McCarthy also stated that its counsel was in the process of separating from
his current law firm and asserted that neither the Debtors nor other
creditors would be harmed by granting an extension.
McCarthy erroneously filed the notice of hearing on the motion in the
Lovely Rita’s case. On March 18, 2019, the bankruptcy clerk’s office filed a
notice of docketing error. On April 23, 2019, McCarthy filed the notice in
the Debtors’ case, setting the hearing for June 12, 2019.
Debtors filed an objection to the motion for extension and argued that
McCarthy’s motion failed to comply with Local Bankruptcy Rule 9014(c)(1)
and did not cite any cause to support an extension under Rule 4007(c).
Debtors also argued that the request should be barred by the doctrine of
laches because McCarthy delayed setting the motion for hearing and as of
the date of the objection, McCarthy had still not filed a complaint or sought
any discovery.
4 C. The Hearing and the Court’s Ruling
On June 12, 2019, the court held a hearing on McCarthy’s motion. At
the hearing, McCarthy argued that the major reason for the extension
request was that the Debtors’ § 341 hearing was continued from January 10,
2019 to February 21, 2019, and only 20 days remained after the conclusion
of the meeting and the March 11, 2019 deadline. McCarthy also argued that
the balance of equities favored granting the motion and because the loan
was made to Mr. Emond for use in Lovely Rita’s, McCarthy had to
integrate information from § 341 meetings in both cases.
Debtors argued that McCarthy’s counsel was permitted to ask
questions at the § 341 meetings in the Lovely Rita’s case as well as the
individuals’ case and McCarthy had plenty of time to review the facts and
circumstances of the loans. Debtors argued that McCarthy did not provide
any reason to warrant an extension of time.
The bankruptcy court granted the motion to extend but did not make
any factual findings. The court required McCarthy to file its complaint
withing ten days, set a deadline for Debtors to respond, and set a trial date
on the to-be-filed complaint for July 23, 2019.
The court entered an order granting the extension motion on June 18,
2019. Debtors timely appealed and we granted Debtor’s motion for leave to
appeal an interlocutory order.
5 JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and
157(b)(2)(I). We have jurisdiction under 28 U.S.C. § 158.
ISSUE
Did the bankruptcy court abuse its discretion in granting the motion
to extend the deadline to file a nondischargeability complaint?
STANDARD OF REVIEW
We review a bankruptcy court’s decision to extend time for filing a
nondischargeability complaint for abuse of discretion. Willms v. Sanderson
(In re Sanderson), 723 F.3d 1094, 1103 (9th Cir. 2013); Cont’l Cas. Co. v. Albert
(In re Albert), 113 B.R. 617, 619 (9th Cir. BAP 1990).
We apply a two-step test to determine whether the bankruptcy court
abused its discretion. Sullivan v. Harnisch (In re Sullivan), 522 B.R. 604, 611
(9th Cir. BAP 2014). First, we consider de novo whether the bankruptcy
court applied the correct legal standard to the requested relief. Id. Then we
review the bankruptcy court’s factual findings for clear error. Id. Factual
findings are clearly erroneous if they are illogical, implausible, or without
support in the record. Retz v. Samson (In re Retz), 606 F.3d 1189, 1196 (9th
Cir. 2010).
DISCUSSION
Debtors argue that the bankruptcy court erred in granting the motion
because although McCarthy filed a motion within the sixty-day deadline, it
6 failed to establish any basis for “cause” under Rule 4007(c).
Rule 4007(c) requires that “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).” Pursuant
to Rule 9006(b)(3), the bankruptcy court can extend the deadline only to the
extent and under the conditions stated in Rule 4007(c), which permits an
extension for cause, on a motion from a party in interest filed within the
sixty-day deadline.
Under Ninth Circuit law, Rule 4007(c) is strictly construed. Allred v.
Kennerley (In re Kennerley), 995 F.2d 145, 147 (9th Cir. 1993). A creditor
seeking an extension of the deadline “must file a motion before the
deadline passes and show cause why the extension is necessary.” In re
Sanderson, 723 F.3d at 1100.
A bankruptcy court abuses its discretion by granting a motion to
extend the deadline “without either a showing or a finding of cause.” Id. at
1103. “Cause” is not defined in the Rules or the Bankruptcy Code, but it
“must be compelling and a creditor must show why it was not able to
comply with the deadline as originally set.” Id. at 1104 (citing 9 COLLIER ON
BANKRUPTCY ¶ 4007.04 [3] (Alan N. Resnick & Henry J. Sommer, eds. 16th
ed. rev. 2020)).
7 1. The Bankruptcy Court Abused Its Discretion By Granting The Motion Without A Showing Or Finding of Cause
The bankruptcy court did not make any factual findings to support
cause under Rule 4007(c). The order extending the deadline and the
transcript of the hearing are silent as to the court’s basis for extending the
deadline.
McCarthy also failed to show cause in its motion. The four-paragraph
motion to extend the deadline stated that McCarthy obtained information
which caused it to believe it had a nondischargeability claim. The motion
also stated that the circumstances surrounding the bankruptcy filing were
complex, McCarthy was in the process of evaluating testimony and
documents to determine whether to file a nondischargeability action, and
counsel was in the process of separating from his law firm.
However, just as the creditor in Sanderson, McCarthy provided no
explanation why it was unable to complete its investigation prior to the
deadline. See id. at 1104. (“Critically, they failed to explain why they did
not complete their investigation prior to the deadline.”). Allowing a
creditor to extend the deadline to determine “whether or not [it] even had a
viable argument for nondischargeability—without any explanation why
[it] could not have made this determination within the time set by Rule
4007—would render the standard toothless.” Id. (citing 9 COLLIER ON
BANKRUPTCY ¶ 4007.04).
8 Despite McCarthy’s failure to show cause and the court’s lack of
findings, we may affirm on any basis supported by the record. See Caviata
Attached Homes, LLC v. U.S. Bank Nat’l Assoc. (In re Caviata Attached Homes,
LLC), 481 B.R. 34, 44 (9th Cir. BAP 2012). But, we find nothing in the record
to establish cause under Rule 4007(c).
McCarthy merely cited circumstances which may, or may not, have
adversely impacted its ability to timely file a nondischargeability
complaint. Creditors routinely file nondischargeability complaints for
claims involving complicated factual situations and lawyers routinely
satisfy filing deadlines while changing firms. McCarthy did not explain
why these circumstances impacted its ability to file a nondischargeability
complaint within the Rule 4007(c) deadline.
At the hearing on the motion, McCarthy argued that “the biggest
cause for the extension of time request is that the original 341 hearing was
continued from January 10th, 2019 to February 21st.” Hr’g Tr. 2:15-18, June
12, 2019. But again, McCarthy did not explain why the continued hearing
adversely affected its ability to timely file a complaint.
McCarthy argues that we can infer that Debtors did not provide
adequate information at the initial meeting of creditors from the fact that
the meeting of creditors was continued, and this inference can support
cause under Rule 4007(c). The transcripts of the § 341 meetings are not in
the record and surrounding circumstances do not support such an
9 inference.
There is no indication in the record that Debtors delayed or frustrated
McCarthy’s discovery attempts, or even that McCarthy conducted any
discovery prior to the deadline. McCarthy stated in its motion that it had
obtained information at the meetings of creditors which caused it to believe
it had a nondischargeability claim. Yet, the record contains no evidence
that it did anything to further establish the factual basis of its claim. We
find no support in the record to indicate that McCarthy was unable to
discover relevant facts and determine whether to file a nondischargeability
complaint prior to the deadline.
McCarthy cites In re Rubin, No. 2:16-bk-12936-RK, 2016 WL 4442846
(Bankr. C.D. Cal. Aug. 22, 2016) for the proposition that “cause” can exist if
a creditor is waiting for the chapter 7 trustee to determine whether assets
will be administered. McCarthy did not assert this basis for cause in its
motion, and there is no reason to believe that McCarthy needed
confirmation that Debtors’ case was a no-asset case before deciding to file a
nondischargeability complaint. Debtors’ schedules indicated that in
addition to having no non-exempt assets, they had priority debts of
$89,499.79. The bankruptcy notice sent to McCarthy in December 2019
stated that no property appeared available to pay creditors and filing a
proof of claim was not necessary. Unlike the creditor in Rubin, McCarthy
was not waiting for the § 341 meeting to be conducted. It had already
10 attended the meetings of creditors in both cases and asked questions
related to its claim.
McCarthy did not show, and the bankruptcy court did not find, cause
to extend the Rule 4007(c) deadline. The record does not provide a basis to
affirm the order without some explanation as to why McCarthy was unable
to file the complaint within the sixty-day deadline. The bankruptcy court
abused its discretion by granting the motion without a finding or showing
of cause.
CONCLUSION
For the reasons set forth above, we REVERSE the bankruptcy court's
order extending the deadline to file a nondichargeability complaint.