Opinion
NOT FOR PUBLICATION
Argued and Submitted at Pasadena, California: March 19, 2008
Appeal from the United States Bankruptcy Court for the Central District of California. Bk. No. SV 00-11061-KT. Honorable Kathleen H. Thompson, Bankruptcy Judge, Presiding.
Before: CASE, [ KLEIN and MONTALI, Bankruptcy Judges.
Hon. Charles G. Case II, Bankruptcy Judge for the District of Arizona, sitting by designation.
MEMORANDUM
We must determine whether the bankruptcy court erred in granting post discharge relief from stay under Section 362 after previously denying relief from the discharge injunction of Section 524.
Unless otherwise indicated, all chapter, section and rule references are to the Bankruptcy Code, 11 U.S.C. § § 101- 1330, and to the Federal Rules of Bankruptcy Procedure, Rules 1001-9036, in effect prior to the provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. 109-8, 119 Stat. 23.
Concluding that the bankruptcy court did not abuse its discretion in granting the relief requested, we AFFIRM.
I. FACTS
A. Overview
This dispute arises out of the sale of a house from Appellees Martin and Gabrielle Strand (" Strands") to Debtors/Appellants Jeffrey and Jodene Clark (" Clarks") in 1990. The parties sharply disagree on how that transaction was structured: Clarks assert that they bought fee title to a house by making a small down payment, obtaining a carryback loan from Strands (which, because the deed of trust drafted to secure it was never recorded, was an unsecured obligation discharged in their bankruptcy) and refinancing the existing first mortgage. Strands, on the other hand, assert that, due to a difficult financing environment at the time, the house was sold to a partnership (of which Strands and Clarks were the partners)(" Alleged Partnership") pursuant to which the two parties would share in appreciation above an agreed-upon amount. Strands presented to the bankruptcy court a copy of the Alleged Partnership agreement. For the purposes of this appeal, it is not necessary to resolve which of these versions of events is true; however, the fact of the dispute is central to decisions made by the bankruptcy court.
B. Procedural History
On February 1, 2000, Clarks filed a petition for relief under chapter 7 of the Bankruptcy Code. On Schedule A, Clarks listed a house in Simi Valley, California (the " Property"), as their residence. Clarks claimed the Property as exempt on Schedule C. However, on Schedule B, Clarks did not schedule an interest in the Alleged Partnership. On Schedule F, Clarks listed Martin Strand as an unsecured creditor in the amount of $59,750.00 and Mr. Strand's address as unknown. On Schedule G Executory Contracts and Unexpired Leases Clarks listed none.
Appellee Gabrielle Strand was not listed.
The trustee administered the case as a " no asset" estate. Clarks were granted a discharge on May 23, 2000 and the case was closed on May 31, 2000. Because the trustee took no action with regard to the Property during the administration of the case, Clarks assert that the Property was abandoned to them pursuant to Section 554(c). However, because the interest in the Alleged Partnership was not scheduled, it (if it exists) remains an asset of the estate today. 11 U.S.C. § 554(d).
Six years later, Strands asked that the case be reopened. The bankruptcy court granted the motion. Strands then filed a Motion for Relief From the Discharge Injunction of Bankruptcy Code Section 524(a)(1), (2) and (3) (the " Discharge Motion") to allow them to pursue a state court lawsuit for Dissolution of Partnership, Accounting, and Appointment of a Receiver regarding the Alleged Partnership. The Discharge Motion alleged that Clarks did not disclose their interest in the Alleged Partnership and that Strands were not listed as creditors. Strands acknowledge that the lawsuit does not seek to impose personal liability on Clarks.
SC 044691, filed on or about July 7, 2006, in Ventura County Superior Court.
Clarks objected to the Discharge Motion (" First Objection"), contending that Strands were listed as creditors with an unknown address and that the listed $59,000 in debt was discharged in May 2000. Additionally, Clarks objected to much of the declaration of Martin Strand.
At the April 3, 2007 hearing on the Discharge Motion, the bankruptcy court denied relief because the statute of limitations to revoke the discharge had run and proceeding by motion was procedurally improper.
Apparently picking up on comments made by the court during the April 3 hearing, Strands on July 30, 2007 brought a Motion for Relief from the Automatic Stay under Section 362 (the " Stay Motion"). Strands argued that Clarks' interest in the Alleged Partnership remained property of the estate because it had not been scheduled. As such, Strands requested relief from the automatic stay so that the state court could decide if a partnership existed, and, if so, to have it dissolved, and the rights of the partners determined.
Clarks filed their Response to the Stay Motion on September 5, 2007 along with Objection to Evidence in Support of Opposition to Movant's Stay Motion (collectively " Second Objection"). Clarks argued in their Second Objection that the Stay Motion was in reality a motion for reconsideration of denial of the Discharge Motion. Clarks also argued that the Section 362 stay is inapplicable because the debt has already been discharged. Further, they argued that the Property had been abandoned back to Clarks upon discharge and that the failure to schedule the Alleged Partnership interest was irrelevant.
At a hearing on September 20, 2007, the bankruptcy court granted relief under Section 362 to determine if the Alleged Partnership existed, to determine its terms, to request its dissolution and to perform an accounting. The bankruptcy court further ruled that any determination regarding the personal liability of Clarks would be made by the bankruptcy court. The bankruptcy court made no determination regarding the truth or falsity of the underlying facts set forth in the Stay Motion and the Second Objection.
The order granting relief from the stay was entered on October 4, 2007. An appeal was timely filed.
Clarks submitted their reply brief about a week late on February 5, 2008 (" Reply"). Appellees also filed their responsive brief with one page missing. Under the circumstances, the amendment to the Appellees' brief and the late Reply are accepted.
II. JURISDICTION
The bankruptcy court had jurisdiction pursuant to 28 U.S.C. § § 1334 and 157(b)(2)(A), (G), (I) and (J). The Panel has jurisdiction under 28 U.S.C. § 158.
III. ISSUES
Was the Stay Motion a motion for reconsideration of the order denying the Discharge Motion?
Did the bankruptcy court abuse its discretion in granting the Stay Motion?
IV. STANDARD OF REVIEW
Contentions presenting an issue of law regarding stay relief are reviewed de novo. Mataya v. Kissinger (In re Kissinger), 72 F.3d 107, 108 (9th Cir. 1995). Decisions by the bankruptcy court to lift an automatic stay under Section 362 are reviewed for abuse of discretion. Id.
V. DISCUSSION
A. The Stay Motion Was Not a Motion for Reconsideration
Clarks argue that the Stay Motion was in reality a motion for reconsideration of the order denying the Discharge Motion and that it did not meet the standards required for such a motion. A review of the record indicates otherwise. The Discharge Motion was a motion for relief from the discharge injunction under Section 524. The Stay Motion was a motion for relief from the automatic stay under Section 362. The two statutes are quite different in their scope and effect.
The Panel notes that if the Stay Motion was a motion for reconsideration, it would have been untimely. A timely motion to alter or amend under Rule 9023 is one filed within ten days of the entry of judgment. Preblich v. Battley 181 F.3d 1048 (9th Cir. 1999).
Section 524(a)(2) reads:
Section 362(a) reads in part:
Section 524 implements the concept of discharge by acting as a permanent injunction against a party seeking to collect a debt as a personal liability of the debtor or to commence an action to collect against property of the debtor. Lone Star Security & Video, Inc. v. Gurrola (In re Gurrola), 328 B.R. 158 (9th Cir. BAP 2005). The bankruptcy court properly determined that relief from the discharge injunction of Section 524 is only available through a complaint to revoke discharge under Section 727(e) and Rule 7001(4). At the time of the hearing, the one year statute of limitations had long passed to seek revocation of the discharge. Accordingly, the bankruptcy court correctly denied the Discharge Motion without considering whether other relief might have been appropriate under Section 362.
Rule 9024(2) requires a complaint to revoke discharge be brought within the time allowed under Section 727(e). Section 727(e) requires a complaint to revoke discharge be brought within one year of the discharge or within one year of the date the case is closed depending on the circumstances of the request. The Stay Motion was filed much more than one year past May 31, 2000, the date the bankruptcy was first closed.
Comparatively, Section 362(a) operates as a stay, inter alia, against property of the estate. The bankruptcy court's order granting relief under Section 362 specifically leaves the protections of Section 524 in place. The court granted relief solely to determine issues regarding property of the estate. As discussed more fully below, if the Alleged Partnership existed, Clarks' interest in it was property of the estate that was not disclosed. Undisclosed property of the estate does not revert to a debtor upon discharge in a Chapter 7. Pace v. Battley (In re Pace), 146 B.R. 562, 564 (9th Cir. BAP 1992). As such, under Section 362(c)(1) a stay against property of the estate remains in place until the property is no longer property of the estate. Thus, stay relief was required to pursue the matter in state court.
Section 362(c)(1) reads:
B. The Bankruptcy Court Did Not Abuse Its Discretion in Granting the Stay Motion
1. The Alleged Partnership was not fully administered and abandoned back to Clarks.
Property that has been abandoned or administered becomes property of a debtor under Section 554(c). However, property that is not abandoned or administered remains property of the estate under Section 554(d). See also In re Pace. Clarks claim that, having become property of the estate by having been scheduled, the Property was abandoned by the Trustee because it was not administered in the case.
Section 554(c) reads:
Section 554(d) reads:
Clarks misframe the argument. The correct question is whether Clarks' interest in the Alleged Partnership was scheduled and there is no dispute that it was not. The purpose of the Stay Motion was to allow a court of competent jurisdiction to determine if the Alleged Partnership exists, and if so, to make appropriate rulings about the assets of the Alleged Partnership and the rights and obligations of the partners. This Panel has previously stated, " [a]bandonment pursuant to Section 554 requires that the property to be abandoned is properly scheduled under Section 521(l)." In re Pace, 146 B.R. at 564. Here, if the Alleged Partnership exists, it was not scheduled. Accordingly, it has not been fully administered and was not abandoned back to Clarks.
The arguments of Clarks regarding dischargeability are not persuasive for similar reasons. Citing to Beezley v. California Land Title Co. (In re Beezley), 994 F.2d 1433 (9th Cir. 1993), Clarks argue that because their case was a " no asset" case, any debt owed to Strands was discharged regardless of whether they were properly scheduled as creditors. See § 523(a)(3)(A). However, this case involves an unscheduled asset, not whether a debt was dischargeable. To accept Clarks' Beezley argument would be to strip Strands of their interest in the Alleged Partnership without due process.
2. The Bankruptcy Court was Not Required to Rule on the Underlying Evidentiary Objections.
The remaining focus of Clarks' appeal rests on the bankruptcy court's treatment of the evidence underlying the Stay Motion. Specifically, Clarks claim that the bankruptcy court erred by not considering evidence regarding lack of perfection of Strands' lien on the Property, not ruling in favor of Clarks on the theory of laches and failing to rule on evidentiary objections raised by Clarks.
Again, Clarks miss the point. The order granting stay relief was not a ruling on the merits; instead, it merely permitted the state court to address the merits. Among the issues that can be presented to, and decided by, the state court are whether Strands have a perfected lien and whether they should be barred from seeking to dissolve the Alleged Partnership, even if one exists, by the doctrine of laches. Those issues are fully preserved for the appropriate court at the appropriate moment.
In this context, it is important to keep in mind the purpose of stay relief. As this Panel stated in Biggs v. Stovin (In re Luz Int'l, Ltd.), 219 B.R. 837 (9th Cir. BAP 1998):
Given the limited grounds for obtaining a motion for relief from stay, read in conjunction with the expedited schedule for a hearing on the motion, most courts hold that motion for relief from stay hearings should not involve an adjudication of the merits of claims, defenses, or counterclaims, but simply determine whether the creditor has a colorable claim to the property of the estate.
Id. at 842. Here, Strands needed to present a colorable claim. In the eyes of the bankruptcy court, they did so. We cannot say that the bankruptcy court abused its discretion in making that determination.
VI. CONCLUSION
For the foregoing reasons, the order of the bankruptcy court is AFFIRMED.
A discharge in a case under this title operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor, whether or not discharge of such debt is waived.
Except as provided in subsection (b) of this section, a petition filed under section 301, 302, or 303 of this title, or an application filed under section 5(a)(3) of the Securities Investor Protection Act of 1970, operates as a stay, applicable to all entities, of--. . . (3) any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate; (4) any act to create, perfect, or enforce any lien against property of the estate; . . . .
the stay of an act against property of the estate under subsection (a) of this section continues until such property is no longer property of the estate.
Unless the court orders otherwise, any property scheduled under section 521(1) of this title not otherwise administered at the time of the closing of a case is abandoned to the debtor and administered for purposes of section 350 of this title.
Unless the court orders otherwise, property of the estate that is not abandoned under this section and that is not administered in the case remains property of the estate.