FILED JUN 2 2020 NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK U.S. BKCY.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. CC-19-1183-STaF
SEUNGHWAN JEONG aka Seung Hwan Bk. No. 8:18-bk-12033-ES Jeong and AMY PARK JEONG aka Hyekyung Park, Adv. No. 8:18-ap-01169-ES
Debtors.
JIN REE,
Appellant,
v. MEMORANDUM*
SEUNGHWAN JEONG,
Appellee.
Submitted Without Oral Argument on May 20, 2020
Filed – June 2, 2020
Appeal from the United States Bankruptcy Court for the Central District of California
* 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. Honorable Erithe A. Smith, Bankruptcy Judge, Presiding
Appearances: Appellant Jin Ree, on brief, pro se; appellee Seunghwan Jeong, on brief, pro se.
Before: SPRAKER, TAYLOR, and FARIS, Bankruptcy Judges.
INTRODUCTION
Creditor Jin Ree appeals from an order dismissing his adversary
proceeding against chapter 71 debtor Seunghwan Jeong under §§ 523 and
727. The bankruptcy court dismissed the action because Ree never filed a
second amended complaint after the court set a deadline for him to do so.
Ree contends that the bankruptcy court erred by not giving him
additional time to file the second amended complaint. But the court did not
abuse its discretion when it dismissed the adversary proceeding during a
status conference held two months after the deadline had expired.
Ree also appeals from the bankruptcy court’s order imposing Rule
9011 sanctions against him. He has argued that Rule 9011 does not apply in
adversary proceedings and that Jeong should not have been awarded any
sanctions because he did not prevail on the merits of Ree’s lawsuit. Neither
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. All “Civil Rule” references are to the Federal Rules of Civil Procedure.
2 of these arguments has any merit.
Consequently, we AFFIRM both orders.
FACTS
A. The state court action.
In January 2013, Ree commenced a collection action against Jeong in
the Los Angeles County Superior Court. Ree was the assignee of a contract
under which Jeong agreed to buy certain goods from Ree’s predecessor in
interest. Jeong never responded to Ree’s complaint. In June 2013, the state
court entered in Ree’s favor a default judgment against Jeong for
$164,755.13.
B. Jeong’s bankruptcy case and schedules.
Jeong did not commence his bankruptcy until five years after entry of
the default judgment. In June 2018, he and his wife filed a joint chapter 7
petition. Their schedules indicated that they owned no real property and
little personal property of any significant value. Among other things, they
listed 100% ownership of a garment import company known as S&H
Global, Inc., which they valued at $4,310.41. They listed no secured claims,
no priority unsecured claims, and general unsecured debt totaling
$394.306.00. They accurately scheduled Ree’s claim as a judgment debt for
$164,755.00. The balance of their debt consisted of credit card debt,
accounts in collection, judgment debts, personal loans, and lease payments
in arrears.
3 As for income, debtors listed on their Schedule I current monthly
income of $2,907.17. Most of that amount was derived from Mr. Jeong’s
employment as president of S&H Global. On their Schedule J, debtors
listed total monthly expenses of $5,142.00, the largest of which was
monthly rent of $2,550.00. Their monthly expenses also included $500.00
for utilities, roughly $800.00 in car lease payments, and $800.00 for food
and housekeeping supplies for their family of four.
C. Ree’s adversary proceeding.
Ree commenced an adversary proceeding against Mr. Jeong seeking
to except his judgment debt from discharge under §§ 523(a)(2)(A) and (6).
Ree’s complaint also objected to Jeong receiving a discharge of any of his
debts under §§ 727(a)(3) and (4). Ree claimed that when Jeong originally
purchased the goods, he already intended that he would not pay for those
goods but instead secretly harbored an intent to file bankruptcy as soon as
“collection actions [were] acted against him.” According to Ree, in
furtherance of Jeong’s efforts to avoid paying for the goods, he lied on his
income tax returns and his bankruptcy schedules, thereby committing tax
fraud and bankruptcy fraud.
Ree further claimed that Jeong’s monthly income and expense
numbers set forth in his bankruptcy schedules were particularly
suspicious. But it is not clear why Ree considered them suspicious. Later in
his complaint, Ree alleged that the extent of Jeong’s scheduled and hidden
4 assets suggested that his total household monthly income must be greater
than the scheduled amount. Otherwise, Ree speculated, Jeong could not
have “built up” the amount of assets he actually has. Ree’s complaint offers
no indication why he thinks Jeong has hidden assets or what those hidden
assets might be.
1. The dismissal motions.
In October 2018, Jeong filed a motion to dismiss Ree’s original
complaint. Shortly thereafter, Ree filed his first amended complaint, so
Jeong withdrew his motion to dismiss.2 Jeong then filed a motion to dismiss
the first amended complaint. Jeong asserted that the complaint was
conclusory and failed to allege facts from which the court reasonably could
infer that Ree was entitled to any relief. After holding a hearing on the
motion to dismiss, the bankruptcy court granted the dismissal motion but
gave Ree leave to amend. The court’s order set a deadline of April 12, 2019
for Ree to file and serve his second amended complaint.
The certificate of notice for the dismissal order reflected that it was
served on Ree by mail at his address of record on March 30, 2019. But the
same day that the court entered the dismissal order, Ree filed a motion for
extension of time to file his second amended complaint. Ree claimed that
2 Ree’s original complaint alleged that he held a judgment debt against Jeong for $395,183.00. His first amended complaint changed the amount of the judgment debt to $164,755.13. That is the only significant difference between the two complaints.
5 he was having trouble finding on the court’s website the court’s written
tentative ruling, which the court apparently adopted as a written version of
its final ruling. Ree requested an extension of the due date for his second
amended complaint until 30 days from the date of the uploading of the
written ruling.
On April 16, 2019, the court entered an order denying the extension
motion. This order also was served on Ree. According to the court’s denial
order, it told Ree at the hearing that it would post “the written basis for its
ruling” on its tentative ruling webpage. The court noted that the written
ruling was, in fact, posted on its tentative ruling webpage the day after the
hearing on the motion to dismiss.
2. The sanctions motion.
After filing the motion to dismiss the first amended complaint, Jeong
filed a motion for sanctions under Civil Rule 11. Jeong argued that Ree had
filed a factually and legally baseless discharge complaint in an attempt to
coerce Jeong into paying the prepetition debt. As Jeong explained, the prior
state court action was nothing more than a garden variety collection action
on a contract. Jeong recounted how his counsel met and conferred with Ree
and requested that he provide some basis for the allegations of fraud and
other misconduct alleged in his original complaint. Jeong’s counsel also
demanded amendment or dismissal of the original complaint. Jeong
further recounted how, after he filed his motion to dismiss the original
6 complaint, Ree filed his first amended complaint, which merely reduced
the alleged amount Jeong owed Ree from $395,183.00 to $164,755.13.
According to Jeong, after the filing of the first amended complaint, his
counsel again met and conferred with Ree, again requested the factual
basis for Ree’s allegations of fraud and other misconduct, and again
requested dismissal. As Jeong put it, Ree responded that he only would
dismiss the first amended complaint if Jeong paid him a portion of the
amount Jeong owed him.
Ree filed his opposition to the sanctions motion. Ree detailed his
experience as a certified court interpreter and as a licensed paralegal. He
further indicated that he had extensive personal experience as a litigant,
mostly in state court but also partly in federal court. The rest of his
opposition is rambling and difficult to understand. In essence, however, he
asserted that Civil Rule 11 was inapplicable to bankruptcy court adversary
complaints and there was no other law or legal authority permitting Jeong
to move for sanctions based on the filing of Ree’s adversary complaint.
Ree’s opposition also included a request for sanctions against Jeong
and his attorney. Ree reasoned that sanctions were appropriate because
there was no legal basis for Jeong’s sanctions motion and because of the
unreasonable and unlawful demands Jeong’s counsel made during the
meet and confer process. Ree’s declaration in support of his opposition
indicated that he had expected that he would obtain information regarding
7 Jeong’s fraud at his meeting of creditors, but he missed the opportunity to
ask questions at the meeting because he got caught in traffic. Nonetheless,
he stated that, even without discovery, the fact Jeong and his family live in
a “luxury apartment,” pay monthly rent of $2,400, and can afford to pay an
attorney to represent him in his bankruptcy case and in the adversary
proceeding are evidence that Jeong’s bankruptcy filing is fraudulent.
The court continued the sanctions motion hearing to permit Jeong to
file a declaration demonstrating that he complied with Rule 9011's safe
harbor provisions by serving the sanctions motion at least 21 days before it
was filed. Jeong filed the required declaration of his counsel. Jeong’s
counsel additionally detailed his most-recent meet and confer activities,
still trying to persuade Ree to dismiss the adversary proceeding. According
to Jeong’s counsel, Ree responded as follows:
he simply mentioned that 1) he would not dismiss the action unless Defendants pay him, that 2) he has handled hundreds of cases but he has never seen any court dismiss actions without giving him chances to amend complaint multiple times, that 3) he believes that he would get another leave to amend even if Rule 12 motion is granted again, that 4) he had already started amending his complaint (even before the tentative ruling was posted on the Court's website, suggesting that he did not care much about the court’s kind suggestion to review the tentative ruling once posted), and that 5) he would file an appeal immediately after this Court orders the dismissal without leave to amend.
8 Lee Decl. (Mar. 14, 2019) at ¶ 6.3
The court held the final hearing on the sanctions motion on April 4,
2019, after it dismissed the first amended complaint but before the deadline
to file the second amended complaint. Still, Ree did not appear for the
hearing. The parties did not provide us with a copy of the transcript from
this hearing. But the court issued a lengthy and detailed tentative ruling
indicating that it was prepared to grant the sanctions motion and award
sanctions against Ree. On April 16, 2019, the court entered its order
imposing $3,000.00 in sanctions against Ree, payable within 60 days.
D. Dismissal of the adversary proceeding.
At the hearing on the motion to dismiss the first amended complaint,
the court scheduled a continued status conference for June 20, 2019, well
after the deadline for the second amended complaint and the hearing on
the sanctions motion. Still, Ree never attempted to belatedly file the
required second amended complaint. Nor did he attempt to seek relief
from the order denying his continuance motion or otherwise advise the
court that he still needed more time.
Additionally, Ree did not cooperate in the preparation of a joint
status report. The court had directed the parties to file a joint status report
3 Jeong’s counsel also attached to his declaration the results of his online litigation search for cases in the Los Angeles County Superior Court in which Jin Ree is named as a party. His search returned results for 165 cases since January of 2000.
9 by June 6, 2019. Jeong’s counsel attempted to comply with the court’s
instruction, but according to him Ree refused. On June 6, 2019, Jeong filed a
unilateral status report and the declaration of his counsel explaining why a
joint status report was not filed. In his declaration, Jeong’s counsel
explained that he had contacted Ree and sought to meet and confer
regarding the case, but was rebuffed. Counsel also stated that he had
pointed out to Jeong that “he had failed to file the second amended
complaint, and that there was no operative complaint in this action.” The
declaration concludes by requesting that the court “rule clearly that this
action is dismissed in its entirety, so that Plaintiff knows that there is no
further pending matter in this action.” The proof of service included with
the declaration states that the unilateral status report and declaration were
mailed to Ree at his address.
Ree failed to appear at the continued status conference. The
bankruptcy court noted Ree’s failure to file and serve a second amended
complaint and concluded that the adversary proceeding should be
dismissed. On July 8, 2019, the bankruptcy court entered its order
dismissing the adversary proceeding in its entirety. Ree timely appealed
both the dismissal order and the sanctions order.4
4 Orders imposing Civil Rule 11 sanctions against a party are considered interlocutory orders that generally are not appealable until entry of the final judgment in the litigation. See Riverhead Sav. Bank v. Nat'l Mortg. Equity Corp., 893 F.2d 1109, (continued...)
10 JURISDICTION
The bankruptcy court had jurisdiction pursuant to 28 U.S.C. §§ 1334
and 157(b)(2)(I) and (J). We have jurisdiction under 28 U.S.C. § 158.
ISSUES
1. Did the bankruptcy court abuse its discretion when it dismissed Ree’s
adversary proceeding because he did not file a second amended
complaint after the dismissal of his first amended complaint?
2. Did the bankruptcy court abuse its discretion when it imposed
$3,000.00 in Rule 9011 sanctions against Ree?
STANDARDS OF REVIEW
We review de novo the bankruptcy court’s order granting Jeong’s
Civil Rule 12(b)(6) motion. Barnes v. Belice (In re Belice), 461 B.R. 564, 572
(9th Cir. BAP 2011). But we review for an abuse of discretion its decision to
dismiss Ree’s adversary proceeding. Ferdik v. Bonzelet, 963 F.2d 1258, 1260
(9th Cir. 1992), as amended (May 22, 1992). We also review for an abuse of
discretion the bankruptcy court’s imposition of Rule 9011 sanctions. Valley
Nat'l Bank v. Needler (In re Grantham Bros.), 922 F.2d 1438, 1441 (9th Cir.
1991). The denial of a motion to extend the deadline to file a court paper
also is reviewed for an abuse of discretion. See Ahanchian v. Xenon Pictures,
Inc., 624 F.3d 1253, 1258 (9th Cir. 2010).
4 (...continued) 1113–14 (9th Cir. 1990).
11 A bankruptcy court abuses its discretion if it applies an incorrect
legal rule or its factual findings are illogical, implausible, or without
support in the record. See TrafficSchool.com, Inc. v. Edriver Inc., 653 F.3d 820,
832 (9th Cir. 2011) (citing United States v. Hinkson, 585 F.3d 1247, 1262 (9th
Cir. 2009) (en banc)).
DISCUSSION
A. Civil Rule 12(b)(6) standards.
Civil Rule 12(b)(6) motions test the legal sufficiency of the plaintiff’s
complaint by challenging whether the complaint presents any cognizable
legal theories and whether it contains sufficient factual allegations to
support those legal theories. See Johnson v. Riverside Healthcare Sys., LP, 534
F.3d 1116, 1121–22 (9th Cir. 2008). In other words, “for a complaint to
survive a motion to dismiss, the non-conclusory ‘factual content,’ and
reasonable inferences from that content, must be plausibly suggestive of a
claim entitling the plaintiff to relief.” Moss v. U.S. Secret Serv., 572 F.3d 962,
969 (9th Cir. 2009) (citing Ashcroft v. Iqbal, 556 U.S. 662, 677-78 (2009)).
To survive a Civil Rule 12(b)(6) motion, a claim for relief must be
plausible on its face. Iqbal, 556 U.S. at 678. The claim is facially plausible
only if it contains enough factual allegations that, if taken as true, would
allow the court to reasonably infer that the defendant is liable to the
plaintiff. Id. “Threadbare recitals of the elements of a cause of action,
supported by mere conclusory statements, do not suffice.” Id. Furthermore,
12 mere legal conclusions are not accepted as true and cannot by themselves
establish a plausible claim for relief. Id. Determining whether a claim for
relief is plausible is “a context-specific task that requires the reviewing
court to draw on its judicial experience and common sense.” Id. at 679.
Importantly, plausibility “asks for more than a sheer possibility that a
defendant has acted unlawfully.” Id. at 678. Therefore, if a complaint
contains factual allegations “that are merely consistent with a defendant’s
liability, it stops short of the line between possibility and plausibility of
entitlement to relief.” Id. (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544,
557 (2007)) (internal quotation marks omitted). The requirement the claim
be plausible – and not merely possible – recognizes that some litigants
pursue spurious lawsuits solely for their “in terrorem” effect and the
resulting settlement value they engender. See Twombly, 550 U.S. at 556-58.
The Civil Rules governing pleading further inform our
understanding of the plausibility standard. Civil Rule 8(a)(2) specifies that
all claims for relief must contain “a short and plain statement of the claim
showing that the pleader is entitled to relief.” However, when pleading
fraud, the plaintiff must state the circumstances constituting the fraud with
greater particularity. See Civil Rule 9(b); Ebeid ex rel. United States v.
Lungwitz, 616 F.3d 993, 998 (9th Cir. 2010). The plaintiff must include in his
or her fraud allegations “the who, what, when, where, and how of the
misconduct charged.” Ebeid ex rel. United States, 616 F.3d at 998 (quoting
13 Vess v. Ciba–Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003)). Civil
Rules 8 and 9 apply to bankruptcy court adversary proceedings. See Rules
7008, 7009.
It bears mention that in considering Jeong’s motion to dismiss, the
court could properly take into account matters subject to judicial notice,
including the entry of Ree’s state court default judgment and the content of
Ree’s papers requesting entry of that judgment. See Estate of Blue v. Cty. of
L.A., 120 F.3d 982, 984 (9th Cir. 1997). The court also could take into
account the contents of papers referenced in the plaintiff’s complaint whose
authenticity is not disputed. United States v. Ritchie, 342 F.3d 903, 907-08
(9th Cir. 2003).
In his appeal brief, Ree does virtually nothing to argue that there
were sufficient allegations to support the claims for relief stated in his
complaint. He does not even mention the elements for the claims he
attempted to state under §§ 523 and 727. We shall list the elements for each
claim stated and then consider Ree’s allegations with respect to each claim.
B. The § 523(a)(2)(A) claim for relief.
To state a claim for fraud under § 523(a)(2)(A), the plaintiff needs to
allege and prove: “(1) misrepresentation, fraudulent omission or deceptive
conduct by the debtor; (2) knowledge of the falsity or deceptiveness of his
statement or conduct; (3) an intent to deceive; (4) justifiable reliance by the
creditor on the debtor’s statement or conduct; and (5) damage to the
14 creditor proximately caused by its reliance on the debtor's statement or
conduct.” Deitz v. Ford (In re Deitz), 760 F.3d 1038, 1050 (9th Cir. 2014).
In support of his § 523(a)(2)(A) fraud claim, Ree essentially stated
that Jeong’s 2018 bankruptcy filing was the culmination of a fraudulent
scheme that began when Jeong originally purchased the goods from the
original creditor in 2006 and 2007 without any intent to pay for them. He
claims that Jeong always intended to file bankruptcy even though over a
decade elapsed between the purchase of the goods and the bankruptcy
filing. As Ree put it, Jeong planned to file bankruptcy as soon as any
collection activity was commenced. This is not plausible. In fact, it is
inconsistent with the state court judgment Ree obtained. Ree began his
collection action when he sued Jeong in state court and obtained judgment
in 2013. But Jeong did not file bankruptcy until 2018. The fact that Jeong
filed bankruptcy several years after Ree obtained the state court judgment,
and long after the original transaction, is insufficient to support Ree’s
allegation that Jeong’s bankruptcy filing was by itself part of a fraudulent
scheme.
Put differently, we must consider the context and draw on our
“judicial experience and common sense.” Iqbal, 556 U.S. at 679. In the
context of what appears to be a garden-variety contract claim, a plaintiff
must plead and prove more than the fact that the defendant filed
bankruptcy in order to convert the contract claim into a nondischargeable
15 fraud claim. While it is possible that Jeong may never have intended to pay
when he entered into the contract more than a decade ago, that mere
possibility does not make it plausible for purposes of defeating the motion
to dismiss. Indeed, to hold otherwise would permit, and even encourage,
every creditor with a breach of contract claim to file an exception to
discharge complaint under § 523(a)(2)(A) based only upon the bankruptcy
filing.
Ree indicated in his opposition to the motion to dismiss that he
hoped to uncover facts to support his fraud allegations during discovery,
but he ignored the need to include sufficient factual allegations in his
complaint, as mandated by Civil Rule 9 and Iqbal’s plausibility standard. In
short, the bankruptcy court did not err in dismissing Ree’s § 523(a)(2)(A)
claim with leave to amend.
C. The § 523(a)(6) claim for relief.
Section 523(a)(6) excepts from discharge debts arising from injuries to
the creditor’s person or property resulting from the debtor’s willful and
malicious conduct. Barboza v. New Form, Inc. (In re Barboza), 545 F.3d 702,
706 (9th Cir. 2008). A debtor’s conduct is willful only if he or she
subjectively intended to harm the plaintiff or subjectively believed that
harm was substantially certain to occur as a result of his or her conduct.
Carrillo v. Su (In re Su), 290 F.3d 1140, 1144-45 (9th Cir. 2002). In turn,
maliciousness requires “(1) a wrongful act, (2) done intentionally, (3) which
16 necessarily causes injury, and (4) is done without just cause or excuse.” Id.
at 1146–47 (citations and internal quotation marks omitted). A debt arising
from a breach of contract sometimes can be willful and malicious within
the meaning of the statute, but only if it is “accompanied by malicious and
willful tortious conduct.” Lockerby v. Sierra, 535 F.3d 1038, 1040 (9th Cir.
2008) (emphasis added) (citing Petralia v. Jercich (In re Jercich), 238 F.3d 1202,
1205 (9th Cir. 2001)). For purposes of § 523(a)(6), conduct is tortious only if
it would be considered tortious under state law. Id. at 1041-42.
The only tortious conduct Ree alluded to in his complaint is Jeong’s
supposed fraud. However, as set forth above, Ree did not sufficiently
allege this fraud, and it would be implausible to infer fraud from the sparse
facts in Ree’s first amended complaint. The fact that Jeong eventually filed
bankruptcy many years after purchasing goods does not by itself plausibly
indicate the existence of fraud or any other tortious conduct.
Thus, the bankruptcy court did not err in dismissing Ree’s § 523(a)(6)
D. The § 727(a)(3) claim for relief.
Generally speaking, debtors who do not fully and accurately present
their financial affairs are not entitled to a bankruptcy discharge. Lansdowne
v. Cox (In re Cox), 41 F.3d 1294, 1296 (9th Cir. 1994). Section 727 helps to
enforce this policy. Id. In particular, § 727(a)(3) prohibits the debtor’s
discharge when “debtor has concealed, destroyed, mutilated, falsified, or
17 failed to keep or preserve any recorded information, including books,
documents, records, and papers, from which the debtor’s financial
condition or business transactions might be ascertained, unless such act or
failure to act was justified under all of the circumstances of the case.”
§ 727(a)(3); see also Caneva v. Sun Cmtys. Operating Ltd. P'ship (In re Caneva),
550 F.3d 755, 761 (9th Cir. 2008). Thus, the debtor should be denied a
discharge under § 727(a)(3) if the objecting party shows: “(1) that the
debtor failed to maintain and preserve adequate records, and (2) that such
failure makes it impossible to ascertain the debtor's financial condition and
material business transactions.” In re Cox, 41 F.3d at 1296.
Here, the allegations of Ree’s first amended complaint contained little
more than a recitation of § 727(a)(3)’s text. Ree mentioned in passing his
suspicion that Jeong filed fraudulent tax returns and bankruptcy schedules.
But Ree did virtually nothing to identify the factual basis for this suspicion.
He pointed to the fact that Jeong’s reported monthly expenses of $5,142.00
exceeded his monthly household income of $2,907.00 by a large amount.
He also posited that Jeong’s household assets could not have been “built
up” with the monthly income and expenses Jeong reported.
These allegations are not plausibly indicative of a failure to create
and maintain accurate financial records. They do not even make
meaningful sense. We are not aware of any concrete or fixed correlation
between a household’s income and expenses and its ability to accumulate
18 assets. Indeed, Jeong’s scheduled debt reflects the extensive use of credit to
obtain assets, which would drastically attenuate any relationship between
Jeong’s income and expense numbers and the extent of his assets.
In the parlance of Iqbal, Ree’s § 727(a)(3) claim was made up of
nothing more than “[t]hreadbare recitals of the elements . . . supported by
mere conclusory statements.” Iqbal, 556 U.S. at 679. As a result, Ree failed to
state a plausible § 727(a)(3) claim, and the bankruptcy court did not err in
dismissing this claim with leave to amend.
E. The § 727(a)(4) claim for relief.
In relevant part, § 727(a)(4) prohibits the debtor’s discharge if he or
she makes a false oath or account in connection with his or her bankruptcy
case. “A false statement or an omission in the debtor’s bankruptcy
schedules or statement of financial affairs can constitute a false oath.” Retz
v. Samson (In re Retz), 606 F.3d 1189, 1196 (9th Cir. 2010) (quoting Khalil v.
Developers Sur. & Indem. Co. (In re Khalil), 379 B.R. 163, 172 (9th Cir. BAP
2007), aff’d & adopted, 578 F.3d 1167, 1168 (9th Cir. 2009)). Section 727(a)(4)
applies when: “(1) the debtor made a false oath in connection with the case;
(2) the oath related to a material fact; (3) the oath was made knowingly;
and (4) the oath was made fraudulently.” Id. (quoting Roberts v. Erhard (In
re Roberts), 331 B.R. 876, 882 (9th Cir. BAP 2005)).
Ree gave virtually no information regarding what parts of Jeong’s
schedules supposedly were false or why Ree believed them to be false. Ree
19 baldly claimed that Jeong “falsely [listed] exempt assets and falsely [under-
reported his] income.” Once again, Ree pointed to Jeong’s monthly income
and expense figures and Jeong’s supposed accumulation of assets. The first
amended complaint then stated that Jeong’s “most recent income report in
the tax return are false and manipulated figures . . . .” As we stated above,
far from being plausible, these allegations don’t make sense and are
nothing more than threadbare recitals of elements supported by conclusory
statements. Accordingly, Ree failed to state a plausible § 727(a)(4) claim,
and the bankruptcy court did not err in dismissing this claim with leave to
amend.
F. Dismissal of Ree’s adversary proceeding.
Though the bankruptcy court dismissed Ree’s first amended
complaint, it granted Ree leave to amend all of his claims for relief and set
a deadline for filing and service of Ree’s second amended complaint. In
addition, to facilitate Ree’s preparation of a second amended complaint, the
court posted its written analysis of the grounds for dismissal of Ree’s first
amended complaint.
The same day the court entered its order dismissing the first
amended complaint and setting the deadline for the second amended
complaint, Ree sought to extend the time to file the second amended
complaint. He stated that he could not find the court’s written analysis. He
(wrongly) assumed that the court had not posted its written analysis and
20 asked the court to set a deadline for his second amended complaint of 30
days after the court’s written analysis was uploaded. But the court’s
deadline for the second amended complaint already gave Ree this exact
amount of time. The court posted the written analysis on its tentative
rulings webpage exactly 30 days before the second amended complaint
was due.
On April 16, 2019, the court entered an order denying the extension
motion. The court explained as follows:
The motion is DENIED. The court indicated at the March 12, 2019 hearing that it would post its ruling to the Tentative Ruling field where it could be reviewed by Plaintiff. In fact, the court posted the written basis for its ruling on March 13, 2019.
Order To Continue Schedules - Denied (Apr. 16, 2019) at 2. Ree never
sought any additional or different relief with respect to the deadline for
filing and serving his second amended complaint. Nor did he ever attempt
to obtain leave to belatedly file the second amended complaint on
excusable neglect or other grounds.
Ree additionally failed to meet and confer with Jeong’s counsel to
prepare a required joint status report. The declaration from Jeong’s counsel
filed with his unilateral status report details Jeong’s unsuccessful efforts to
get Ree to participate, to remind him that he had failed to file the second
amended complaint, and to advise him that Jeong was asking the court to
confirm its dismissal of the case at the June 20, 2019 status conference.
21 Despite this, Ree failed to appear at the status conference. He has never
offered any explanation for his failure to appear. At the status conference,
the court noted Ree’s failure to file and serve his second amended
complaint. On that basis, the court dismissed the adversary proceeding.
When a plaintiff fails to file an amended pleading after dismissal of
the prior complaint with leave to amend, the court has discretion to dismiss
the action. Ferdik, 963 F.2d at 1260. The court typically needs to consider the
following factors: “(1) the public’s interest in expeditious resolution of
litigation; (2) the court’s need to manage its docket; (3) the risk of prejudice
to defendants/respondents; (4) the availability of less drastic alternatives;
and (5) the public policy favoring disposition of cases on their merits.”
Pagtalunan v. Galaza, 291 F.3d 639, 642 (9th Cir. 2002) (citing Ferdik, 963 F.2d
at 1260–61). When the trial court does not explicitly address these factors,
the appellate court can independently review the record and consider the
factors to determine whether the dismissal was an abuse of discretion. Id. at
640.
Ree has not argued that the bankruptcy court failed to consider or
inappropriately weighed the controlling factors. Indeed, Ree has
hamstrung our ability to review the bankruptcy court’s exercise of its
discretion by not ordering the transcript from the status conference at
which the court confirmed the dismissal of the adversary proceeding.
When the appellant fails to provide a necessary transcript, we are entitled
22 to presume that nothing in the missing transcript would assist the
appellant. See, e.g., California v. Yun (In re Yun), 476 B.R. 243, 253-54 (9th Cir.
BAP 2012); Gionis v. Wayne (In re Gionis), 170 B.R. 675, 680-81 (9th Cir. BAP
1994), aff'd, 92 F.3d 1192 (9th Cir. 1996).
Ree’s appeal brief focuses exclusively on the denial of his motion for
an extension of time to file and serve his second amended complaint. As
Ree put it, he lost the chance to amend his complaint because the court
denied his extension motion. Ree also assailed the court for not advising
him of the differences between bankruptcy practice and general civil
practice, for not instructing him how to find the court’s written ruling on
the internet, and for not arranging for the written ruling to be served on
Ree by mail. He contends that, if the court had taken any of these steps, he
could have timely prepared and submitted his second amended complaint.
Ree’s argument is betrayed by his failure to ever file the second
amended complaint. The only relief Ree sought in his extension motion
was a deadline for filing and serving his second amended complaint of 30
days from the date of posting on the court’s website the court’s written
analysis in support of its dismissal of the first amended complaint. But the
deadline the court already had set was exactly 30 days after it posted its
analysis.5 Thus, Ree actually had the 30 days he sought to file the second
5 Ree admits in his appeal brief that the legal consultant at his “Pro-Se Clinic” (continued...)
23 amended complaint, but he still failed to file it by the date he had
requested. He failed to take any further action after the court denied his
motion for extension of time. And Ree still had not amended his complaint
by the time the status conference was held more than two months later,
after Jeong stated his intent to confirm the dismissal for Ree’s failure to
amend the first amended complaint. Indeed, Ree failed to appear for the
hearing on the sanctions motion or the status conference.
While public policy strongly favors disposition of cases on the merits,
the other Ferdik factors strongly weighed in favor of dismissal given the
threadbare nature of Ree’s two prior complaints and his continuing failure
to remedy that situation by filing his third complaint. The bankruptcy court
made available to Ree a detailed written analysis of the deficiencies in his
first amended complaint, and yet Ree did little or nothing to fix those
deficiencies. Under similar circumstances, the Ninth Circuit has affirmed
dismissal of the lawsuit. See Ferdik, 963 F.2d at 1261. In short, the
bankruptcy court did not abuse its discretion when it confirmed the
dismissal of the adversary proceeding for failure to file the second
5 (...continued) was able to “easily discover” where the court’s written ruling was posted on the court’s website. Apl’t Br. at 5. While Ree states that he did not have this meeting with counsel until after he filed his notice of appeal in July of 2019, the admission supports the notion that the court’s written analysis supporting its dismissal of the first amended complaint was readily available on its tentative rulings webpage, as the court told Ree it would be during the hearing on the motion to dismiss.
24 amended complaint.
G. The imposition of Rule 9011 sanctions.
Under Rule 9011(b), when Ree submitted his first amended
complaint to the bankruptcy court, he certified: (1) that it was not
presented for an improper purpose; (2) that the complaint’s legal
contentions were warranted by existing law or by a nonfrivolous argument
urging a change to existing law; and (3) that the allegations had evidentiary
support or were likely to have evidentiary support after a reasonable
opportunity for investigation or discovery. See Rule 9011(b)(1)-(3); see also
Dressler v. The Seeley Co. (In re Silberkraus), 336 F.3d 864, 870 (9th Cir. 2003)
(describing nature of certifications).
When a party’s Rule 9011 certifications turn out to be false, the
bankruptcy court may impose sanctions, including reasonable attorney’s
fees, so long as the moving party demonstrates both frivolousness and
improper purpose. See Rule 9011(c)(2); In re Silberkraus, 336 F.3d at 870
(citing Marsch v. Marsch (In re Marsch), 36 F.3d 825, 830 (9th Cir. 1994)). The
assessment of these two factors is considered on a sliding scale “where the
more compelling the showing as to one element, the less decisive need be
the showing as to the other.” In re Silberkraus, 336 F.3d at 870 (quoting In re
Marsch, 36 F.3d at 830). A filing is frivolous if it is “both baseless and made
without a reasonable and competent inquiry.” Townsend v. Holman
Consulting Corp., 929 F.2d 1358, 1362 (9th Cir. 1990) (en banc). And a filing
25 is made for an improper purpose if, for example, it is filed “to harass or to
cause unnecessary delay or needless increase in the cost of litigation.” In re
Silberkraus, 336 F.3d at 870 (quoting Rule 9011(b)). 6
Ree has not challenged the legal standards the bankruptcy court
applied or the findings it made in support of its imposition of sanctions.
He merely argues on appeal that Rule 9011 does not apply in adversary
proceedings. This is simply wrong. The advisory committee notes
accompanying Rule 7001 reflect that adversary proceedings are subject to
Rule 9011. Furthermore, the Ninth Circuit has applied Rule 9011 to
frivolous adversary complaints. See In re Grantham Bros., 922 F.2d at 1440;
see also Weinstein, Pinson & Riley, P.S. v. Nelson (In re Nelson), 650 F. App’x
528 (9th Cir. 2016).7
Ree’s appeal brief also mentions in passing that he should not have
6 Pro se litigants are bound by the same procedural rules that govern practice in counseled cases. See Clinton v. Deutsche Bank Nat'l Tr. Co. (In re Clinton), 449 B.R. 79, 83 (9th Cir. BAP 2011); see also Briones v. Riviera Hotel & Casino, 116 F.3d 379, 382 (9th Cir. 1997) (stating that “pro se litigants are not excused from following court rules.”). 7 The sanctions motions actually referenced Civil Rule 11 rather than Rule 9011. The bankruptcy court apparently treated the motion as one seeking relief under Rule 9011. The two rules are virtually identical and the applicable legal standards are similar. See generally In re Marsch, 36 F.3d at 829-30 (discussing the rules’ textual similarities and policy differences). Ree has not challenged how the court treated the sanctions motion. Nor was treatment of Civil Rule 11 and Rule 9011 as functional equivalents erroneous in this context. As we have stated, Rule 9011 is the bankruptcy cognate to Civil Rule 11. Shalaby v. Mansdorf (In re Nakhuda), 544 B.R. 886, 899 (9th Cir. BAP 2016), aff'd, 703 F. App’x 621 (9th Cir. 2017) (citing In re Marsch, 36 F.3d at 829).
26 been sanctioned under Rule 9011 because Jeong did not prove that he did
not commit fraud. This argument misses the point. Prevailing on the merits
of the underlying litigation is not a prerequisite to the imposition of Rule
9011 sanctions. Instead, as stated above, Jeong as the moving party only
needed to establish frivolousness and improper purpose. See In re
Silberkraus, 336 F.3d at 870. Therefore, Ree has not persuaded us that the
bankruptcy court abused its discretion when it imposed against him
$3,000.00 in Rule 9011 sanctions.
CONCLUSION
For the reasons set forth above, we AFFIRM the bankruptcy court’s
order dismissing Ree’s adversary proceeding and its order imposing
sanctions.