Marino v. Classic Auto Refinishing, Inc. (In Re Marino)

213 B.R. 846
CourtUnited States Bankruptcy Appellate Panel for the Ninth Circuit
DecidedOctober 22, 1997
DocketBAP No. CC-96-1326-OHV, Bankruptcy No. LA 91-76426-BR, Adv. No. AD 94-02625-BR
StatusPublished
Cited by8 cases

This text of 213 B.R. 846 (Marino v. Classic Auto Refinishing, Inc. (In Re Marino)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Appellate Panel for the Ninth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Marino v. Classic Auto Refinishing, Inc. (In Re Marino), 213 B.R. 846 (bap9 1997).

Opinions

AMENDED OPINION

OLLASON, Bankruptcy Judge.

Debtor Salvatore Marino (“Marino”) appeals the bankruptcy court’s order of nondis-chargeability of a debt. Marino contends that a creditor’s complaint was barred by res judicata when it was dismissed as untimely in the Chapter 11 case before the ease was converted to Chapter 7.1 We Reverse and Remand.

STATEMENT OF FACTS

In 1991, Classic Auto Refinishing, Inc. (“Classic Auto”) won a favorable judgment in Los Angeles County Superior Court against Marino individually and his wholly owned corporation, Jim Marino Imports, Inc., a Mercedes-Benz dealer, in the amount of $741,000. The state court complaint was based on fraud and breach of contract and sought damages incurred when Marino Imports increased rents and evicted Classic Auto as its landlord.

On May 21, 1991, both Marino and his corporation filed Chapter 11 bankruptcy petitions. The official notice of the creditors’ meeting stated that “the last day for filing complaints as provided in 11 U.S.C. Section 523(e), to determine the dischargeability of debts claimed to be nondischargeable under paragraph (2), (4), or (6)” in Marino’s Chapter 11 ease was September 10, 1991. Although it had notice of the proceedings and the deadline, Classic Auto filed an untimely complaint under § 523(a)(2)(A), (a)(2)(B) and (a)(6) on September 20, 1991, based on the state court judgment, and seeking nondis-chargeability of the debt of approximately $241,000. (The original judgment of over $700,000 included punitive damages which were disallowed on appeal.) Marino filed an answer to the complaint in October, 1991, that included an affirmative defense stating that the complaint was not timely under § 523(c) and Fed.R.Bankr.P. 4007(c). On November 14, 1991, Marino filed a motion to dismiss the complaint, in which he requested sanctions under Fed.R.Bankr.P. 9011. Following a hearing on December 4, 1991, the bankruptcy court entered an order on December 20, 1991, in which it found that the complaint “was filed after the deadline imposed by Bankruptcy Rule 4007(c)” and in which it dismissed the complaint and the adversary proceeding “with prejudice against their reinstitution.” (Emphasis added.) This order was appealed by Classic Auto, and Marino asserted a cross appeal for the denial of his motion for sanctions. The bankruptcy court was affirmed by both the Bankruptcy Appellate Panel (“BAP”) and the Ninth Circuit Court of Appeals. See In re Marino, 143 B.R. 728 (9th Cir. BAP 1992), aff'd, 37 F.3d 1354 (9th Cir.1994).

Marino’s ease was converted to Chapter 7 on April 27, 1994, and Marino received a discharge on September 21, 1994. On May 20, 1994, however, the bankruptcy court had sent to all creditors a Notice of Commencement of Case under Chapter 7. The notice stated that the deadline for filing complaints to determine dischargeability of a debt was August 22, 1994. On June 8, 1994, Classic Auto filed a nondischargeability complaint [849]*849alleging the same facts and allegations as the complaint filed in the Chapter 11, and filed a first amended complaint on September 12, 1994.

Marino filed a motion for summary judgment on March 8, 1995, on the ground that the complaint was barred by res judicata because the first complaint had been dismissed with prejudice. Classic Auto also filed a motion for summary judgment on the same date contending that the debt was non-dischargeable based on the state court judgment. A hearing on the motion was held on March 29,1995. At trial, the court discussed its reasoning for its determination that the doctrine of res judicata did not apply to preclude the filing of the complaint in the Chapter 7 case, as follows:

[I]t’s pretty obvious Rule 4007 couldn’t possibly be res judicata because indeed the fact [sic] have changed____[I]n this particular case, neither res judicata nor collateral estoppel could possibly apply, because the only issue in the dismissal was whether or not it was timely in the context of the Chapter 11 then pending. Having been converted, in view of the bankruptcy rules, which specifically set a new time limit, couldn’t possibly [sic]. There are different issues involved. The issue now is the time limit under Chapter 7, which is totally different than the issue involved in the Chapter 11, so it couldn’t possibly, under any definition that I know of, be either res judicata or collateral estoppel, and ... Rule 41 can’t change that.

Marino’s summary judgment motion was denied in the bankruptcy court’s order of May 11, 1995. In the same order, the court also granted partial summary judgment in favor of Classic Auto under § 523(a)(2)(A), in the amount of $241,000.

In June, 1995, the parties signed a pretrial order which listed as an issue of law to be litigated whether the claims raised in the adversary were barred by the doctrine of res judicata. Trial went forward on February 14,1996.

According to pages 12-13 of the February 14, 1996, trial transcript, the bankruptcy court took judicial notice of pleadings and documents filed in the summary judgment portion of the proceeding. The bankruptcy court acknowledged that by granting judicial notice, it was preserving the issue decided on summary judgment for trial. The court then ruled the same way:

THE COURT: Okay, well, I rule the same way, and I thought I made it clear the last time, but I understand your position “better to be safe than sorry,” so I will allow that judicial notice, and the record is very clear that I’m making the — to the extent necessary, which I don’t think is, but I’m making obvious the same rulings. The rulings were in the merits of the motion.
[MARINO]: Excuse me, your Honor, just for clarity, that’s our argument, that Rule 41 barred the relitigation of the second proceeding, and that rule, [sic] 1019,1 believe, did not give Classic Auto second opportunity.
THE COURT: Right, I understand.

On March 8, 1996, the bankruptcy court entered judgment in favor of Classic Auto for $25,391 of the $241,000 debt nondisehargeable under § 523(a)(2)(A) and the entire $241,000 debt nondischargeable under § 523(a)(6). The judgment referenced the court’s consideration of its prior rulings, the pretrial order and the evidence, among other things.

Marino timely appealed both the March 8, 1996, judgment and the May 11, 1995, order denying his summary judgment motion, solely arguing the res judicata issue raised in his motion for summary judgment.

ISSUES

1. Whether the Panel has jurisdiction to review the issue of whether Classic Auto’s complaint in the Chapter 7 case was barred by res judicata when that issue was decided in an interlocutory order denying Marino’s motion for summary judgment, and a trial on the merits was subsequently held.

2. Whether the dismissal of Classic Auto’s complaint in the Chapter 11 ease for untimeliness was an adjudication on the merits of the complaint.

[850]*8503. Whether the bankruptcy court erred by failing to apply res judicata

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213 B.R. 846, Counsel Stack Legal Research, https://law.counselstack.com/opinion/marino-v-classic-auto-refinishing-inc-in-re-marino-bap9-1997.