Opinion
NOT FOR PUBLICATION
Argued and Submitted at Pasadena, California: September 22, 2006
Before: BRANDT, PAPPAS, and LEE, [ Bankruptcy Judges.
Hon. W. Richard Lee, United States Bankruptcy Judge for the Eastern District of California, sitting by designation.
MEMORANDUM
Approximately one year after the pro se chapter 7 debtor received his discharge, appellants filed a § 727(d) complaint for revocation of the discharge. The bankruptcy court dismissed the complaint as to the non-debtor wife, and after trial on written declarations, entered judgment in favor of the debtor. Appellants appealed both orders, as well as an order denying their motion to compel discovery.
Absent contrary indication, all " Code, " chapter and section references are to the Bankruptcy Code, 11 U.S.C. § § 101-1330 prior to its amendment by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. 109-8, 119 Stat. 23, as the case from which the adversary proceeding and these appeals arise was filed before its effective date (generally 17 October 2005). All " Rule" references are to the Federal Rules of Bankruptcy Procedure, all " FRCP" references are to the Federal Rules of Civil Procedure. " LR" or " Local Rule" references are to the Local Rules of the Central District of California Bankruptcy Court.
We DISMISS in part and AFFIRM in part.
I. FACTS
In 1996, Khanbaba Banayan and his wife Parirokh (jointly, " Banayans") obtained a state court default judgment of over $1.2 million against Shahram Mesbahi (" Debtor"), stemming from real estate transactions. Debtor filed his individual chapter 7 petition on 14 November 2003. He scheduled no real property or business interests. At time of filing, he was employed by National Wholesale Corporation and scheduled no other income. Including the Banayans' judgment, he scheduled almost $6,800,000 in liabilities. The trustee filed a noasset report, Debtor received his discharge on 23 February 2004, and the case was closed.
In 2004, Banayans filed a § 523(a) action on theories of fraud, embezzlement or conversion, based on Banayans' investment in a limited partnership with the Debtor for the purpose of developing real estate. Banayans saw no return on the investment. Finding that plaintiffs had not proven the alleged conduct at trial, the bankruptcy court entered judgment for Mesbahi, and we affirmed. (No. 04-1628- MaMoB). An appeal is pending before the Ninth Circuit (No. 05-56860).
Approximately one year later, within days of the expiration of the one year limitation of § 727(e), Banayans moved to reopen the case and filed a § 727(d) complaint. Debtor filed an " Objection to Revoke Discharge, " signed under penalty of perjury, denying all allegations, and specifically that he had any real property or business interests.
There are three orders on appeal:
1. Order Dismissing Katie Mesbahi. The complaint named Katie Mesbahi, Debtor's then wife, seeking to " revoke" any marital " community discharge" as to her (she had filed a petition for dissolution of the marriage post-petition in December 2003). The bankruptcy court noted a show cause hearing to dismiss Katie Mesbahi as a party because, although she was not a debtor, the action sought revocation of discharge. Banayans objected and moved for default.
After a contested hearing, the bankruptcy court entered an order on 24 June 2005 dismissing the complaint as to Katie Mesbahi.
2. Order Denying Motion to Compel and Continuance. The Trial Setting Order established the discovery cutoff at 6 September 2005 and barred requests for continuances of trial.
Banayans had served a request for production of documents on 12 May 2005, some of which Debtor provided on 12 June 2005. On 6 September 2005, Banayans moved for an order to compel production under FRCP 37 and to extend the time for discovery by 90 days, arguing Mesbahi failed to cooperate in discovery. They also sought to continue the trial to allow additional time to prepare and supplement the response based on newly discovered evidence. The motion also requested summary judgment, apparently based on discovery issues, although the motion only hints at the merits. Debtor responded, denying fraud, also arguing the merits of property ownership issues, and denying an interest in any assets, including in businesses, as was alleged. Summary judgment was denied.
The order, entered 14 October 2005, simply states:
Plaintiff's Motion for 1) Order Compelling Documents; 2) Extending Discovery Cutoff/trial; and 3) Summary Judgment/Adjudication came on for hearing at the above captioned time and place. Appearances were noted on the record.
The adversary proceeding docket reflects no entry for a hearing on that date.
IT IS ORDERED that the Motion is denied.
Appellants' excerpts of record, required by Rules 8006 and 8009(b), contain no transcript of the hearing on the motion, no findings or conclusions, or anything to indicate what the court considered in deciding the motion to compel. The court's Memorandum of Decision, filed approximately two months later, states only: " Plaintiffs' failure to properly follow Local Bankruptcy Rule 9013-1(c) led to an order denying the discovery aspects of the motion entered on October 14, 2005. (Plaintiffs' request for summary judgment and summary adjudication were also denied.)"
3. Judgment. Trial was conducted by declaration. Banayans submitted the declarations of Shai Oved and of Allan Herzlich, attaching discovery papers and copies of documentation from various judicial proceedings, to support their claim that Mesbahi had fraudulently failed to disclose property, interests in businesses, and the existence of his spouse. This evidence was unopposed, because the bankruptcy court struck Debtor's declaration, which had been filed and served late.
The bankruptcy court issued its memorandum of decision, finding that the evidence of Debtor's acts was insufficient to rise to the level of fraud required to revoke discharge under § 727(d)(1) or (2). The court entered judgment for Debtor and dismissing the complaint on 20 December 2005.
Banayans appealed.
II. JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. § 1334(b)and § 157(b)(1) and (2)(J), and we do under 28 U.S.C. § 158(a)(1) and (c).
III. ISSUES
A. Whether we have jurisdiction over the appeal of the dismissal of the complaint as to Katie Mesbahi;
B. Whether the bankruptcy court clearly erred by not compelling production of documents and continuing the trial; and
C. Whether there are grounds to revoke Debtor's discharge under § 727(d).
IV. STANDARDS OF REVIEW
A. We review case management decisions, including whether to continue a hearing or trial, for abuse of discretion. Ungar v. Sarafite, 376 U.S. 575, 589, 84 S.Ct. 841, 11 L.Ed.2d 921 (1964). Under the abuse of discretion standard, we must have a definite and firm conviction that the bankruptcy court committed a clear error of judgment in the conclusion that it reached before reversal is proper. In re Black, 222 B.R. 896, 899 (9th Cir. BAP 1998).
B. Factual findings are reviewed for clear error. Rule 8013. A factual finding is clearly erroneous if the appellate court, after reviewing the record, has a firm and definite conviction that a mistake has been made. Anderson v. Bessemer City, N.C., 470 U.S. 564, 573, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985). If two views of the evidence are possible, the trial judge's choice between them cannot be clearly erroneous. Id. at 574.
C. We review conclusions of law, including the bankruptcy court's interpretation of the Bankruptcy Code, de novo. In re Pardee, 218 B.R. 916, 919 (9th Cir. BAP 1998), aff'd, 193 F.3d 1083 (9th Cir. 1999) (citations omitted).
D. An appellate court may consider any issue supported by the record and may affirm on any basis supported by the record, even where the issue was not expressly considered by the bankruptcy court. In re E.R. Fegert, Inc., 887 F.2d 955, 957 (9th Cir. 1989).
E. In reviewing a judgment denying an objection to discharge:
(1) the court's determinations of the historical facts are reviewed for clear error; (2) the selection of the applicable legal rules under § 727 is reviewed de novo; and (3) the application of the facts to those rules requiring the exercise of judgment about values animating the rules is reviewed de novo.
In re Searles, 317 B.R. 368, 373 (9th Cir. BAP 2004) (citation omitted); In re Bowman, 173 B.R. 922, 924 (9th Cir. BAP 1994). We see no reason why review of an action to revoke discharge should differ.
V. DISCUSSION
A. Order Dismissing Katie Mesbahi
Banayans argue that Katie Mesbahi should not have been dismissed as a party because she had an interest in the outcome of the proceeding via her " community discharge, " and was a material witness. Presumably Katie Mesbahi did not receive a discharge, and from the argument at pages 14-16 of their opening brief, Appellants focus on the scope of the discharge injunction under § 523(a) and (b). However, they did not seek a declaratory judgment regarding the effect of those provisions as to her possible liability or property.
But Appellants did not name Katie Mesbahi as an appellee in their notice of appeal or in their amended notice of appeal, nor have they identified her as a party directly affected by this appeal. She has not appeared in this appeal.
It is beyond our jurisdiction to grant relief against someone not a party to the appeal. In re Bankruptcy Petition Preparers, 307 B.R. 134, 144 (9th Cir. BAP 2004); In re Unioil, 948 F.2d 678, 681-82 (10th Cir. 1991)(dismissal for lack of jurisdiction of parties not specifically named in the notice of appeal).
We DISMISS the appeal of the order dismissing the complaint as to Katie Mesbahi.
B. Order Denying Motion to Compel Discovery
A key factual issue concerned Debtor's alleged concealment of business affairs and property interests. He did not produce the following requested documents: tax returns for 2002 and 2004 (2001 and 2003 were produced), unlawful detainer documents, prepetition personal or business banking statements (only one bank statement was produced) or records and documents to support his income and monthly expenses, including child and spousal support payments.
Despite many attempts from 8 July to 24 August 2005, Banayans were unable to effect service of subpoenas on Debtor's parents-in-law and other family members. But there is no explanation why Banayans could not depose Mesbahi to develop the missing facts, or why Debtor is responsible for their inability to effect service on other people.
The motion, which elaborated on the merits of the § 727(d) action, states that " Plaintiff, counsel and Defendant met and conferred in person on June 16, 2005 regarding the responses received[, ] and additional documents were to be produced but to date have never been produced." Responding on the merits, Debtor responded that he had produced all the documents in his possession, that due to his move (to his parents' home) after he separated from his wife (and a subsequent messy dissolution), other documents were lost. He also asserted that when they were married, he and his wife lived in property which was owned by his parents, purchased with his parents' funds and down payment in 1997, and that he had no interest in that property.
Our review of this order is severely hampered by the lack of a hearing transcript in the excerpts of record. It is appellants' job to provide the complete record. In re Kritt, 190 B.R. 382, 387 (9th Cir. BAP 1995). Where appellants have omitted something from the excerpts, we are entitled to presume they do not regard the missing items as helpful to their appeal. In re Gionis, 170 B.R. 675, 680-81 (9th Cir. BAP 1994), aff'd, 92 F.3d 1192 (9th Cir. 1996) (table); In re McCarthy, 230 B.R. 414, 416-417 (9th Cir. BAP 1999).
Here, the record shows that bankruptcy court denied the motion because of lack of compliance with LR 9013-1(c), which provides:
(c) DISCOVERY
For any dispute which may arise under F.R.B.P. 7026-7037 or F.R.B.P. 2004, counsel shall comply with all portions of this subsection of the Local Bankruptcy Rules unless excused from doing so by order of the court for good cause shown.
(1) Meeting of Counsel. Prior to the filing of any motion relating to discovery, counsel for the parties shall meet in person or by telephone in a good faith effort to resolve the discovery dispute. It shall be the responsibility of counsel for the moving party to arrange for the conference. Unless altered by agreement of the parties or by order of the court upon good cause shown, counsel for the opposing party shall meet with counsel for the moving party within 10 days of service upon counsel of a letter requesting such meeting and specifying the terms of the discovery order to be sought.
(2) Moving Papers. If counsel are unable to settle their differences, the party seeking discovery shall file and serve a notice of motion together with a written stipulation. This written stipulation shall be formulated by the parties and shall specify, separately and with particularity, each issue that remains to be determined at the hearing and the contentions and points and authorities of each party as to each issue. The stipulation shall be set forth in 1 document which shall contain all such issues in dispute and the contentions and points and authorities of each party. The stipulation shall not refer the court to other documents to describe the dispute. For example, if the sufficiency of an answer to an interrogatory is in issue, the stipulation shall contain, verbatim, both the interrogatory and the allegedly insufficient answer, followed by each party's contentions, separately stated. In the absence of such stipulation or a declaration of counsel of noncooperation by the opposing party, the court will not consider any discovery motion.
(emphasis added).
Based upon our review of the excerpts of record, the motion, reply, and given the lack of findings, we agree that the motion to compel failed to comply with the strict requirements of LR 9013-1(c). The parties did not file the " single document" incorporating a " written stipulation" formulated by the parties specifying issues to be determined. Nor did Banayans file a " declaration of noncooperation" by Mesbahi. Based upon the last sentence of LR 9013-1(c)(2), we cannot say that the bankruptcy court abused its discretion in denying the motion to compel.
And, we also must consider that, in spite of the court's scheduling order which barred trial continuances and allowed seven months to complete discovery, Banayans waited until the deadline to move to compel and to request a continuance.
C. Revocation of Discharge Generally
" Section 727 'is the heart of the fresh start provisions of the bankruptcy law.'" In re Lawson, 193 B.R. 520, 523 (9th Cir. BAP 1996), aff'd, 122 F.3d 1237 (9th Cir. 1997)(citations omitted). Revocation of discharge is an extraordinary remedy. Bowman, 173 B.R. at 924. The statutory provisions regarding objections to discharge are construed liberally in favor of the debtor and strictly against the objector. In re Adeeb, 787 F.2d 1339, 1342 (9th Cir. 1986).
Averments of fraud or mistake must be stated with particularity, FRCP 9(b), and the " burden of proof for objections to discharge is the ordinary preponderance of the evidence standard." Bowman, 173 B.R. at 925 (citations omitted).
We proceed by considering each allegation, as charged in paragraphs 7 and 10 of the Complaint:
1. Discharge Obtained through Debtor's Fraud - § 727(d)(1)
A discharge may be revoked if it was " obtained through the fraud of the debtor, and the requesting party did not know of such fraud until after the granting of such discharge." § 727(d)(1). " Obtained through" means that the creditor must show that " but for the fraud, the discharge would not have been granted." In re Nielsen, 383 F.3d 922, 926 (9th Cir. 2004).
To effectuate a revocation under § 727(d)(1), the fraud must be discovered post-discharge. In re Dietz, 914 F.2d 161, 163 (9th Cir. 1990). Plaintiff must diligently investigate any possible fraudulent conduct before discharge, and " prove that it was unaware of the fraud at the time the discharge was granted." Bowman, 173 B.R. at 925.
Appellants' entire first cause of action is framed in terms of § 727(a)(1), and does not allege the elements of actual fraud, necessary to establish a § 727(d)(1) claim. Bowman, 173 B.R. at 925 (Plaintiff must prove fraud in fact). Nevertheless, we will consider Banayans' factual assertions, shown below with the corresponding § 727(d)(1) analysis:
| Facts alleged to support § 727(d)(1)claim | Analysis |
| Mesbahi failed to disclose an interest in real propertyat 3541 Caribeth Drive, Encino, CA and 1934 Idaho Ave.,Santa Monica, CA. | Prepetition, Debtor lived at the Caribeth property from1999 to June 2003. No evidence Mesbahi owned rentalproperties. Evidence does not show community propertyinterest in Caribeth Drive property; documents showingMesbahi's address at Caribeth Drive does notsupport finding of ownership. |
| Mesbahi failed to disclose rental income in CaribethDrive and Idaho Avenue properties. | No evidence Mesbahi earned any rental income. |
| Mesbahi failed to preserve documents as to his businesstransactions or financial condition. | No evidence. |
| Mesbahi failed to disclose offices or businessinterests in Sam Rox Industries, Inc., stock inL'Orient Industry, Venom Jean TS Investment, orAmerican Dream Homes. Signing power on behalf of SamRox creates the " possibility" that a debtorcould write out checks to himself, not disclosed inschedules. | Per pleadings from state court cases, Mesbahi hadsigning authority for Sam Rox, which does not evidencean ownership interest. No evidence hissigning authority was ever abused. Unclear whetherDebtor held stock ownership as of petition date.Secretary of State internet reports do not reflectstock ownership. Excerpt of § 523 trial transcriptdoes not establish nature or timing of Mesbahi'sstock in TS Investment or American Dream Homes. Banayans did not argue before the BAP that the state court default judgment must be given issue and claim preclusive effect. See Appellants' Opening Brief at 7. |
| False oath: Mesbahi was married within the last sixyears and his failure to identify his spouse in hisschedules is a material omission. | Schedules were somewhat conflicting: he listed hismarital status as " separated" but on hisstatement of financial affairs indicated he had nospouse. Statement of financial affairs was technicallyincorrect but plaintiffs did not prove intent todeceive. Tax returns show Mesbahi filed jointly withhis wife for 2001 and 2003. Also, it is unclear howsuch an omission rises to the level of fraud. Not abasis to revoke discharge as plaintiffs were aware ofMesbahi's marital situation from prior state courtlitigation. |
Appellants proffered no evidence showing their " diligent investigation, " or any investigation, nor evidence to convince us that the bankruptcy court made a mistake in not finding fraud sufficient to revoke discharge under § 727(d)(1). The bankruptcy court did not clearly err.
2. Fraudulent Transfer or Concealment of Property
Section 727(d)(2) provides that a discharge may be revoked if
the debtor acquired property that is property of the estate, or became entitled to acquire property that would be property of the estate, and knowingly and fraudulently failed to report the acquisition of or entitlement to such property, or to deliver or surrender such property to the trustee[.]
Under § 727(d)(2), Appellants must show two elements: that Mesbahi, with knowing intent to defraud, " acquired or became entitled to acquire property of the estate and knowingly and fraudulently failed to report or deliver the property to the trustee. . . ." Bowman, 173 B.R. at 925.
| Facts alleged to support § 727(d)(2)claim | Analysis |
| Mesbahi failed to disclose 2001 income; income notitemized in Statement of Financial Affairs | No showing of intent to defraud, or materiality ofomission. |
| Mesbahi failed to disclose rental income in CaribethDrive and Idaho Avenue properties. | No evidence Mesbahi owned any rental properties orearned any rental income. |
| Mesbahi failed to disclose other property. | No evidence to support. |
None of the allegations were proven by a preponderance of the evidence, nor does that evidence show that Debtor committed fraud for the purpose of obtaining a discharge. As well, Banayans did not prove that they did not know of any fraud prior to the discharge. Dietz, 914 F.2d at 163. Certainly Katie Mesbahi's existence was not " concealed." Although Debtor only produced a bare minimum of documentation, and may have not adequately adhered to the requirement of keeping and preserving records and documenting transactions, the record reflects more sloppy business and record keeping practice than true concealment. Some income tax returns for prior years were produced, and some county property ownership documents. Most of the business transactions and relationships involved here could have been discoverable in the course of the chapter 7, or in the seven years between Appellant's obtaining a seven-figure judgment against Debtor and his bankruptcy filing.
Banayans could have investigated before discharge, but were dilatory, not diligent, see Dietz, 914 F.2d at 163 (one with knowledge of probable wrongdoing does not have the privilege to wait), and Appellants have not shown clear error.
D. Appellants' Motion to Supplement Designation of Record
We have reviewed Appellants' motion to supplement their excerpts of record, filed 28 February 2006, the response and the reply.
We grant the motion to supplement with respect to the 14 October 2005 order denying Appellants' motion to compel discovery and continue the trial, discussed above, but deny the balance of the motion, which proposes to include in the record material not before the bankruptcy court in deciding this adversary proceeding.
We could and would take judicial notice of this order absent this motion. In re Atwood, 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003).
VI. CONCLUSION
As we have no jurisdiction to afford relief against someone not a party to this appeal, we DISMISS the appeal as to the dismissal of Katie Mesbahi.
The order denying the motion to compel was not an abuse of discretion, based on the lack of compliance with LR 9013-1. Nor have Appellants carried their appellate burden to show that the bankruptcy court made an error of law or predicated its judgment for debtor on a clearly erroneous finding of fact. We AFFIRM both.