As a general matter, a person lacks standing to sue “if, for example, it is not a real property in interest.” (Color-Vue, Inc. v. Abrams (1996) 44 Cal.App.4th 1599, 1604, fn. 4). “The widely accepted rule is that after a person files for bankruptcy protection, any causes of action previously possessed by that person become the property of the bankrupt estate.” (Cloud v. Northrup Grumman Corp. (1998) 67 Cal.App.4th 995, 1001 (citing 11 U.S.C. §§ 541, subd. (a)(1) and 323). Where a claim becomes such property, the plaintiff debtor losses standing to assert it unless it is abandoned by the bankruptcy trustee. (Id. (citing 11 U.S.C. § 554, subd. (d) (stating that “Unless the court orders otherwise, property of the estate that is not abandoned under this section remains property of the estate”); Harris v. St. Louis University (E.D. Mo. 1990) 114 B.R. 647, 648).
Given that the bankruptcy estate includes “all legal or equitable interests of the debtor” (11 U.S.C. § 541, subd. (a)(1)), the Bankruptcy Code subjects debtors to a “continuing duty to disclose all pending and potential claims.” (Kane v. National Union Fire Ins. Co. (2008) 535 F.3d 380, 384-385; In re Mohring (Bankr. E.D. Cal. 1992) 142 B.R. 389, 394 (stating that “[T]he debtor has a duty to prepare schedules carefully, completely, and accurately”)) The consequences for failing to do so are significant. First, causes of action that the debtor fails to properly schedule continue to belong to the bankruptcy estate and do not revert back to the debtor. (Cusano v. Klein (2001) 264 F.3d 936, 945; Stein v. United Artists Corp. (9th Cir. 1982) 691 F.2d 885, 893 (holding that only property “administered or listed in the bankruptcy proceedings” reverts to the bankrupt); accord Hutchins v. IRS (3d Cir. 1995) 67 F.3d 40, 43). Second, the doctrine of judicial estoppel is implicated, which operates to preclude a party from gaining an unfair advantage by asserting one position in one proceeding and subsequently taking a clearly inconsistent position in another. (Hamilton v. State Farm Fire & Casualty Co. (9th Cir. 2001) 279 F.3d 778, 782).
Under 11 U.S.C. §108, subd. (a), the filing of bankruptcy can extend the time "the trustee may commence such action" for two years. However, the jurisprudence is divided on whether it applies to Chapter 13 bankruptcies.
“By filing their petitions with the bankruptcy court, the debtors, by operation of laws that initially presume the filing of good-faith and truthful petitions, received the benefits of automatic stays from the bankruptcy courts. (Hamilton v. State Farm Fire & Casualty Co. (9th Cir. 2001) 270 F.3d 778, 784 (noting that discharge of debt is not required to meet the judicial acceptance prong and that ‘[t]he bankruptcy court may “accept” the debtor’s assertions by relying on the debtor’s nondisclosure of potential claims in many other ways.’)).
“The bankruptcy court ha[s] subject-matter jurisdiction over all claims alleging willful violation of the automatic stay.” (In re Davis (B.A.P. 9th Cir. 1995) 177 B.R. 907, 912). “The existence of a federal remedy for violation of the stay must be read as an implicit rejection of state court remedies.” (Abdallah v. United Savings Bank (1996) 43 Cal.App.4th 1101, 1109).
“[A] discharge in bankruptcy voids a judgment only to the extent of the debtor’s personal liability. A discharge does not affect a judgment to the extent that it supports a lien perfected prior to bankruptcy. As to such liens the judgment remains valid and enforceable after discharge.” (Songer v. Cooney (1989) 214 Cal.App.3d 387, 391 (1989).
11 U.S.C. § 523(a)(3)(A) excepts from the bankruptcy discharge debts neither listed nor scheduled in time to permit timely filing of a proof of claim, unless such creditor had notice or actual knowledge of the case in time to timely file a claim. The advisory committee note to Fed.R.Bank.P 4007 states: “Subdivision (b) does not contain a time limit for filing a complaint to determine the dischargeability of a type of debt listed as nondischargeable under § 523(a)(1), (3), (5), (7), (8), or (9). Jurisdiction over this issue on these debts is held concurrently by the bankruptcy court and any appropriate nonbankruptcy forum.”
In Schrupp v. Wells Fargo Bank (E.D. Cal. 7/13/16) 2016 WL 3753326, the federal district court rejected Wells Fargo’s argument that bankruptcy court approval of the loan modification was required.
‘The debtor, once he institutes the bankruptcy process, disrupts the flow of commerce and obtains a stay and the benefits derived by listing all his assets.’ (Hamilton v. State Farm Fire & Cas. Co. (9th Cir. 2001) 270 F.3d 778, 785). “The Bankruptcy Code and Rules ‘impose upon the bankruptcy debtors an express, affirmative duty to disclose all assets, including contingent and unliquidated claims.’ The debtor’s duty to disclose potential claims as assets does not end when the debtor files schedules, but instead continues for the duration of the bankruptcy proceeding.” (Id. (internal citations omitted)). As has been recognized in the Second District Court of Appeal, the failure to adequately disclose assets during bankruptcy proceedings may trigger judicial estoppel as to claims that should have been disclosed. (Hamilton v. Greenwich Investors XXVI, LLC (2011) 195 Cal.App.4th 1602, 1613-14).
Under federal decisional authority, a Chapter 7 debtor may not prosecute on his or her own a cause of action belonging to the bankruptcy estate unless the claim has been abandoned by the trustee. (Bostanian v. Liberty Savings Bank (1997) 52 Cal. App. 4th 1075, 1080–1081). When a person files for Chapter 7 bankruptcy, all of his property becomes estate property and must be turned over to the trustee. The debtor relinquishes all rights and interests in the estate property, and the trustee “controls the bankruptcy estate,” and therefore, “she or he is the real party in interest with standing to sue.” (Id.; 11 U.S. C. §§ 521, 542, 543; Cal. Prac. Guide, Bankruptcy (The Rutter Group 2013) § 6:17). When he files for bankruptcy, the debtor is obligated to file schedules showing all of his assets. Nonetheless, even property not shown on the debtor’s schedules is part of the bankruptcy estate. (Cal. Prac. Guide, Bankruptcy, supra, §6:44). When the bankruptcy is closed, property scheduled by the debtor but not administered in the bankruptcy is abandoned back to the debtor. (Id., § 6:440). But if the asset was not scheduled, it is not abandoned and remains property of the estate even after the bankruptcy case closes. (Id., § 6:442). As a result, whether by lack of standing or equitable estoppel, the Chapter 7 debtor cannot pursue a cause of action not shown on his bankruptcy schedules. (Id. § 6:68; See In re JZ L.L.C. (9th Cr. BAP 2007) 371 B.R. 412, 418 (noting that after chapter 7 bankruptcy case closes, nobody controls unscheduled property; the debtor lacks standing)).
The Second District found that the trial court was correct that plaintiff lacked standing to pursue her claims, as the causes of action were the property of the bankruptcy estate, but that the “apparent assumption” of the trial court and employer “that plaintiff’s lack of standing was fatal to her complaint was mistaken.” (Cloud v. Northrup Grumman Corp. (1998) 67 Cal.App.4th 995, 1005). In Cloud, plaintiff had requested a stay in the trial court to reopen her bankruptcy case in order to substitute the trustee as real party in interest or to obtain the trustee’s abandonment of her claim, which the trial court denied. The Second District reviewed the relevant case law, and in that case concluded: “The effect of plaintiff’s lack of standing, therefore, was simply that plaintiff needed to amend.” (Id. at 1010).
The Second District found that in such cases “the debtor must take affirmative steps to comply with section 554 concerning abandonment. (Bostanian v. Liberty Savings Bank, FSB (1997) 52 Cal.App.4th 1075, 1078–1079). Until the debtor secured an abandonment of the claim, the debtor lacks standing to pursue it.” (Id. at 1083).
An unscheduled debt can be discharged in a Chapter 7 bankruptcy case. In a no asset, no claims bar date Chapter 7 case, an omitted debt that is of a type covered by 11 U.S.C. § 523(a)(3)(A), is discharged pursuant to 11 U.S.C. § 727. (Beezley v. California Land Title Co. (9th Cir. 1993) 994 F.2d 1433, 1434).
Chapter 11 debtors in possession have such standing with or without bankruptcy court approval because they retain possession and control of their assets as part of their bankruptcy court-supervised plans to revive their businesses and satisfy their creditors. (§ 1107(a); Fed. Rules Bankr. Proc., rule 6009 (11 U.S.C.); J & K Painting Co. v. Bradshaw (1996) 45 Cal. App. 4th 1394, 1402, fn. 8; California Aviation, Inc. v. Leeds (1991) 233 Cal. App. 3d 724, 729).
The Second District in Hamilton v. Greenwich Investors XXVI, LLC adopted the rule of Oneida Motor Frieght, a Third Circuit case which applied doctrines of equitable and judicial estoppel to find that a debtor’s failure to disclose a lender liability claim in chapter 11 bankruptcy proceedings precluded the debtor from later litigating the claim. (Hamilton v. Greenwich Investors XXVI, LLC (2011) 195 Cal.App.4th 1602, 1610 (citing Oneida Motor Freight, Inc. v. United Jersey Bank (3d Cir. 1998) 848 F.2d 414)). In Hamilton, the appellate court affirmed that the plaintiff borrower’s fraud and breach of contract claims against the defendant lender were barred under the doctrine of equitable and judicial estoppel, because he failed to disclose the existence of the claims against the lender in the bankruptcy proceedings. (Hamilton, supra, at p.1610.) The court adopted the Oneida Motor Freight rule because it reasoned that similar to Oneida Motor Freight, the defendant bank was one of the plaintiff’s principal creditors in the bankruptcy proceedings and the events the complaint was based on occurred before his bankruptcy proceedings. (Id. at p. 1614.) As a consequence, the Hamilton court distinguished cases such as Ryan Operations G.P. v. Santiam-Midwest Lumber Co. (3d Cir. 1996) 81 F.3d 355, Cloud v. Northrop Grumman Corp. (1998) 67 Cal.App.4th 995 and Gottlieb v. Kest (2006) 141 Cal.App.4th 110 where judicial estoppel was not applied. (Id. at p. 1610.) Those cases either did not involve lender liability, or the bankruptcy court did not confirm a plan of reorganization. (Id).
[A] bankruptcy stay is only effective as to the party in bankruptcy; a plaintiff must proceed against nonbankrupt defendants. (Barnett v. Lewis (1985) 170 Cal.App.3d 1079, 1088, 217 Cal.Rptr. 80; see also Lauriton v. Carnation Co., supra, 215 Cal.App.3d at p. 164, 263 Cal.Rptr. 476)” (Freiberg v. City of Mission Viejo (1995) 33 Cal.App.4th 1484, 1488). The action against a defendant who filed for bankruptcy protection is automatically stayed by the bankruptcy filing. (11 U.S.C. § 362). If it is impracticable for plaintiff to proceed separately against the nonbankrupt defendants, the actions should be stayed as to those defendants as well. (See Traweek v. Finley, Kumble, etc. Myerson & Casey (1991) 235 Cal.App.3d 1128, 1135). If it is not impracticable, the severance of the action against the nonbankrupt defendants from the bankrupt defendant and allowing the case to be prosecuted against the nonbankrupt defendants would appear appropriate.
There is an “unusual circumstances” exception to the rule that the bankruptcy stay does not apply to nonbankrupt defendants. This exception arose in A.H. Robins Co. v. Piccinin, in which the Fourth Circuit upheld the district court's issuance of an injunction restraining prosecution of asbestos lawsuits against the debtor's nonbankrupt codefendants. (A.H. Robins Co. v. Piccinin (4th Cir. 1986) 788 F.2d 994). The Fourth Circuit found that the “unusual circumstances” justifying an extension of the stay arises when there is such identity between the debtor and the third-party defendant that the debtor may be said to be the real party defendant and that a judgment against the third-party defendant will in effect be a judgment or finding against the debtor. (In re Chugach Forest Products, Inc. (9th Cir. 1993) 23 F.3d 241, 246-247.) Where a nondebtor has obligations that are independent and primary, not derivative of those of the debtor-in-bankruptcy the unusual circumstances exception simply does not apply. (In re Chugach Forest Products, Inc. (9th Cir. 1993) 23 F.3d 241, 247.) Even if there is an argument made that the unusual circumstances exception applies under the circumstances, the bankruptcy stay is not automatically applied to nonbankrupt parties in that instance. The extension of the stay to other nonbankrupt defendants is solely dependent upon a motion being brought in the bankruptcy court to extend the stay by injunction using the bankruptcy court’s equitable powers. Therefore, absent a bankruptcy court order there is no stay of proceedings against the nonbankrupt defendants preventing litigation against those nonbankrupt defendants. (See In re Chugach Forest Products, Inc. (9th Cir. 1993) 23 F.3d 241, 247.)
A bankruptcy court has also held: “It is clear to me that the Fourth Circuit in Robins agrees that the automatic stay under § 362 of the Code may be extended to cover non-debtors in special situations. However, to achieve this result, a debtor must proceed through § 105(a). In other words, the extension of § 362 does not occur automatically in this instance, but requires the filing of an appropriate adversary proceeding under § 105 and § 362 to achieve the desired result. (See In re All Seasons Resorts, Inc. (CD CA 1987) 79 B.R. 901, 903-904). The automatic stay does not stay actions against non-bankrupt co-defendants, the claims and cross claims against the bankrupt parties may be severed from an ongoing proceeding, and the proceedings may continue against the remaining defendants/cross-defendants. The Bankruptcy Court in the Northern District of California has stated: “We are thus in accord with the recent opinion of Judge Justice in Kindle v. Fibreboard, No. TY-79-35-CA (E.D.Tex. Aug. 12, 1982). Kindle ordered that all claims and cross-claims brought by or against Unarco be severed and stayed and the remaining actions be permitted to proceed.[Footnote omitted.]” (In re Related Asbestos Cases (N.D. Cal. 1982) 23 B.R. 523, 529). The appellate court in Maximum Technology v. Superior Court (1987) 188 Cal.App.3d 935 found no difficulty in finding that the bankruptcy of the defendant corporation did not prevent proceeding against the individual defendant as an alter ego of the defendant corporation. (Maximum Technology, supra at pages 938-939). Merely because a principal of a corporation has filed file bankruptcy protection does not stay proceedings against the corporation. “A proceeding against a non-bankrupt corporation is not automatically stayed by the bankruptcy of its principal. (Marcus, Stowell & Beye v. Jefferson Investment, Corp., 797 F.2d 227, 230 n. 4 (5th Cir.1986); Personal Designs, Inc. v. Guymar, Inc., 80 B.R. 29, 30 (E.D.Pa.1987). Additionally, section 362 does not bar an action against the principal of a debtor-corporation. (In re Philadelphia Gold Corp., 56 B.R. 87, 90 (Bankr.E.D.Pa.1985).” Maritime Elec. Co., Inc. v. United Jersey Bank (3rd Cir.1992) 959 F.2d 1194, 1205-1206).
A debtor proceeding under Chapter 13 retains standing, concurrent with the trustee, to pursue claims belonging to the bankruptcy estate. (Kelsey v. Waste Management of Alameda County (1999) 76 Cal.App.4th 590, 595–96; accord Linares v. CitiMortgage, Inc. (N.D.Cal. May 5, 2015, No. 14-CV-3435-EMC) 2015 WL 2088705, citing In re DiSalvo (9th Cir. 2000) 219 F.3d 1035, 1039).
In a Chapter 13 plan, the 11 U.S.C. § 541 definition of estate property is expanded to include “all property of the kind specified in [Section 541] that the debtor acquires after the commencement of the case but before the case is closed, dismissed, or converted to a case under chapter 7, 11, or 12 of this title, whichever occurs first.” (11 U.S.C. § 1306(a)(1)).
In Elliott v. ITT Corp., a debtor brought a consumer class action against creditors, challenging a practice known as “insurance packing.” (Elliott v. ITT Corp. (N.D. Ill. 1992) 150 B.R. 36). “[U]nderlying debts are not ‘confirmed’ in a Chapter 13 plan. Instead, a Chapter 13 plan confirms the manner in which the debtor will discharge his financial obligations…[m]oreover, even if a confirmed Chapter 13 plan did bar challenges to the underlying claims, res judicata would not apply where the confirmed plan had been dismissed. Under Chapter 13, a debtor has an absolute right to dismiss the plan. (11 U.S.C. § 1307(b)). Once a debtor dismisses the action, the confirmation of the plan is vacated and without res judicata effect….
Chapter 15 is a new chapter added to the Bankruptcy Code by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. It is the U.S. domestic adoption of the Model Law on Cross-Border Insolvency promulgated by the United Nations Commission on International Trade Law ("UNCITRAL") in 1997, and it replaces section 304 of the Bankruptcy Code. (11 U.S.C.A. § 1501, et seq). Generally, a chapter 15 case is ancillary to a primary proceeding brought in another country, typically the debtor's home country.
An ancillary case is commenced under chapter 15 by a "foreign representative" filing a petition for recognition of a "foreign proceeding." ((1) 11 U.S.C. § 1504). Chapter 15 gives the foreign representative the right of direct access to U.S. courts for this purpose. (11 U.S.C. § 1509).
The petition must be accompanied by documents showing the existence of the foreign proceeding and the appointment and authority of the foreign representative. (11 U.S.C. § 1515). After notice and a hearing, the court is authorized to issue an order recognizing the foreign proceeding as either a "foreign main proceeding" (a proceeding pending in a country where the debtor's center of main interests are located) or a "foreign non-main proceeding" (a proceeding pending in a country where the debtor has an establishment, but not its center of main interests). (11 U.S.C. § 1517)
Immediately upon the recognition of a foreign main proceeding, the automatic stay and selected other provisions of the Bankruptcy Code take effect within the United States. (11 U.S.C. § 1520). To obtain a stay based upon comity requires that the moving party do more than simply show that a bankruptcy was filed in another jurisdiction. (Allstate Life Ins. Co. v. Linter Group Ltd. (2d Cir.1993) 994 F.2d 996, 999 (discussing factors considered in court’s discretionary application of comity). The Ninth Circuit, however, stated that comity is required only in instances of a “true conflict” between domestic and foreign laws. Other courts have held that the enactment of Chapter 15 has displaced the application of comity absent a Chapter 15 filing. (In re Iida (9th Cir.BAP2007) 377 B.R. 243, 257 (precluding the district court from relying on principles of comity until the foreign insolvency proceeding is recognized under Chapter 15 of the Bankruptcy Code); Oak Point Partners, Inc. v. Lessing (N.D. Cal. Apr. 19, 2013) 2013 WL 1703382).
Defendants Lawrence Wu and Mealea Men (collectively, “Defendants”) demur to the complaint (“Complaint”) filed by plaintiff Majid Marhamat (“Plaintiff”).I. Factual and Procedural BackgroundThis is an action seeking equitable relief from default and default judgment. According to the allegations of the operative Complaint, on July 21, 2006, Defendants filed an action in this Court against Plaintiff...
..fault judgment in the Original Action were obtained through extrinsic fraud, particularly in that he was never served with the summons and complaint, and that the proof of service of summons filed in the action fraudulently represented that he was. (Complaint, ¶ 5.) Plaintiff...
May 02, 2019
Santa Clara County, CA
7/19/17 Dept. 73 Rafael Ongkeko, Judge presiding VILMA IGLESIAS v. CAPITAL GUARDIAN TRUST COMPANY, et al. (BC634921) Counsel for plaintiff/opposing party: Thomas Girardi (Girardi, etc.) Ebby Bakhtiar (Livingston, etc.) Counsel for defendants/moving parties Capital Guardian, etc., et al.: Tracey Kennedy; Nora Stiles (Sheppard, etc.) MOTION FOR JUDGMENT ON THE PLEADINGS OR, IN THE ALTERNATIVE,...
..is not dismissed, however, as the court also GRANTS the motion to stay proceedings in order to allow Plaintiff to update her bankruptcy schedules and to allow the bankruptcy trustee to elect whether or not to pursue this action. The court sets a status conference re dismissal or amendment of the complaint to substitute the bankruptcy trustee as plaintiff for _______________, 2017, 8:30 a.m., in...
Jul 19, 2017
Los Angeles County, CA
TENTATIVE RULINGMOTION TO DISSOLVE OR MODIFY PRELIMINARY INJUNCTION[CCP § 533]Calendar: 12Date: 1/6/17Case No: EC 065074 Trial Date: October 16, 2017Case Name: Gooler v. US Bank National Association, et al.Moving Party: Defendant MGA Investments Group, LLCResponding Party: Plaintiff Judy Gooler (No Opposition)RULING:[No opposition]Defendant MGA Investment Group, LLC’s UNOPPOSED Motion to Dissolve...
..nd obtaining a Chapter 7 bankruptcy discharge. [See RFJN, Ex. B, FAC, Ex. K, Ex. C]. The court also notes that the operative complaint, the Second Amended Complaint, filed after this motio...
Jan 06, 2017
Los Angeles County, CA
Pepper Carlson v. Jojax, LLC, et al. DEMURRER TO FIRST AMENDED COMPLAINT MOVING PARTY: Defendants Jojax, LLC, Greater Good Content, Inc., Joe Care, Jackson Morton, Rocky Morton, Pedro Aragao De Oliveira and John-Michael Triana RESPONDING PARTY(S): Plaintiff Pepper Carlson STATEMENT OF MATERIAL FACTS AND/OR PROCEEDINGS: Plaintiff alleges that she was terminated after disclosing her disabilitie...
..agao De Oliveira and John-Michael Triana’s demurrer to the first amended complaint is SUSTAINED. Generally speaking, leave to amend must be allowed where there is a reasonable possibility of successful amendment. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 348.) Plaintiff must demonstrate this possibility at the hearing. If she does not, no leave to amend will be given. DISCUSSION: Demurrer Meet...
Sep 16, 2019
Los Angeles County, CA
Hearing Re: Status of Cross-Defendant Thomas’ Bankruptcy Stay.At the issues conference on May 11, 2017 the court was advised that cross-defendant Thomas filed for Chapter 13 bankruptcy protection on January 13, 2017. Defendants contend that the bankruptcy court has 100% control of the shares of Affiliated Professional Services, Inc. and that the bankruptcy stays all proceedings in this action, inc...
..ective as to the party in bankruptcy; a plaintiff must proceed against nonbankrupt defendants. (Barnett v. Lewis (1985) 170 Cal.App.3d 1079, 1088, 217 Cal.Rptr. 80; see also Lauriton v. Carnation Co., supra, 215 Cal.App.3d at p. 164, 263 Cal.Rptr. 476 [bankru...
Jun 22, 2017
El Dorado County, CA
Motion denied. Sanctions denied. Plaintiff to give notice. This court is not required to stay this action, and Defendants have failed to show that a stay is appropriate under principles of comity. This is particularly true given that the United States Bankruptcy Court has previously denied the very relief that defendant seeks in Canada. Furthermore, and on separate basis; the underlying bankrupt...
..onal Trade Law ("UNCITRAL") in 1997, and it replaces section 304 of the Bankruptcy Code. (11 U.S.C.A. § 1501, et seq.) Generally, a chapter 15 case is ancillary to a primary proceeding brought in another country, typically the debtor's home country. An ancillary case is commenced under chapter 15 by a "foreign representative" filing a petition for recognition of a "foreign proceeding." ((1) 11 U....
May 24, 2017
Riverside County, CA
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