Opinion
Case No. 05-12631-B7, Case No. 05-12655-B7.
September 18, 2006
ORDER ON DEBTOR'S MOTION TO VACATE ORDER OF DISMISSAL
These cases present a troubling set of circumstances and are not, unfortunately, isolated instances. Debtors seek to vacate the court's order of dismissal of their Chapter 7 cases, which was precipitated by the failure of both debtors and their attorney to appear for the noticed meetings of creditors.
The Court has subject matter jurisdiction over these proceedings pursuant to 28 U.S.C. § 1334 and General Order No. 312-D of the United States District Court for the Southern District of California. These are core proceedings under 28 U.S.C. § 157(b)(2)(A), (O).
The basic facts are uncontroverted. On October 13, 2005, just days before the bulk of the provisions of BAPCPA were to take effect, attorney David Turaski filed three bankruptcy petitions in this district: the instant case, Barragan; Soberanis (05-21655); and Meza (05-12663). At the time he did so, Mr. Turaski was not admitted to practice in the Southern District of California, which may have contributed to the ensuing problems (he finally obtained admission on May 9, 2006).
On the filing date, October 13, the Clerk's Office caused to be issued, served, and filed a "Notice of Chapter 7 Bankruptcy Case, Meeting of Creditors, Deadlines" (Form B9A). Among other things, the Notice advised that the meeting of creditors inBarragan would be held November 22, 2005 at 4:15 p.m. in San Diego. For Soberanis, the meeting was set for November 22, at 8 a.m. in San Diego. And for Meza, it was also set for 8 a.m. on November 22.
In a separate, and distinctively captioned section of the Notice, called "Dismissal of Case", the Notice stated in relevant part:
Furthermore, notice is given that . . . if the Debtor or Joint Debtor fails to appear at the scheduled § 341(a) meeting that the Trustee or U.S. Trustee will move for dismissal of case without further notice to the Debtor or Creditors. A party in interest may object to the motion for dismissal at the § 341(a) meeting, at which time a hearing on the objection will be scheduled.
The short of it is that neither the debtors nor Mr. Turaski appeared at any of the three meetings of creditors. Having failed to so appear, and consistent with the foregoing Notice, the trustee in each of the three cases submitted an order dismissing. In Barragan, the order was entered November 29. In Soberanis, it was entered December 5, and in Meza it was entered November 29.
In Barragan and Soberanis, nothing happened of record until March 16, 2006, when Mr. Turaski filed a motion to reopen the case. However, in Meza he filed a motion to vacate the dismissal on January 24, 2006. That motion was denied without prejudice by Judge Hargrove pending a motion to reopen, which was also filed on March 16.
In support of the January motion in Meza, Mr. Turaski submitted an affidavit in which he stated that he "was not able to attend the debtor's `First Meeting of Creditors' because of a scheduling conflict, which required that I attend an initial `meeting of Creditors' in another location. . . ." He referenced an Exhibit A, which was a Form B9A issued by the Clerk's Office in the Central District of California in a case named Payes. That meeting of creditors was set for November 22 at 9 a.m. in Los Angeles. Of note, the Notice was not issued until October 25, 2005, twelve days after the notices issued in the three San Diego filings.
There are several other items of note in the January filing inMeza. First, in the motion itself (but not in the declaration) Mr. Turaski says he called the trustee after the date of the meeting (and apparently after receipt of the order of dismissal because the trustee told him to file a motion to vacate). The second item is that Mr. Turaski complains in the motion of a denial of procedural due process because there was no hearing on the trustee's motion to dismiss. It seems clear that Mr. Turaski never read the Notice of meeting of creditors, or at least the separate section on dismissal of a case. It seems equally clear he did not read the published Bankruptcy Local Rules for the Southern District of California because if he had, he would have read BLR 2002-2(a)(1), which provides in relevant part:
The noticing requirements of Fed.R.Bankr.P. 2002 and this subsection are satisfied by including the notice of intended action within the § 341(a) meeting notice. . . .
As Mr. Turaski recognized in his papers, dismissal requires notice and an opportunity to be heard. Section 102 of Title 11 makes clear that "after notice and a hearing" requires notice and an opportunity to be heard. Mr. Turaski and each of his clients were given notice on or about October 13, 2005 that a failure to appear at the § 341(a) meeting could result in dismissal without further notice, and if someone wanted to object to dismissal they needed to do so by the § 341 meeting, in which case it would be set for hearing. Mr. Turaski, and each of his clients had from October 13 to and including November 22 to object to dismissal, obtain a continuation of the § 341 meeting — to do something to avoid dismissal. In so far as the record reveals, nothing was done about the § 341 appearance until after each of the three cases were dismissed. Each of the debtors clearly had timely notice and an opportunity for hearing, but failed to do anything to preserve their cases, even if it was just to call the respective trustees.
Mr. Turaski has argued that the notice of the possibility of dismissal for failure to appear at the § 341(a) was constitutionally infirm. In doing so, he relies on Dinova v. Harris, 212 B.R. 437 (2d Civ. BAP 1997). To the extent Dinova's discussion is apposite, this Court disagrees. So does the Bankruptcy Appellate Panel for the Ninth Circuit in In re Tennant, 318 B.R. 860, 870-71 (2004). The notice given to Mr. Turaski and to his clients in Barragan and Soberanis was clear, separately set out, and afforded plenty of time to avert the consequences. It passes constitutional muster, as Tennant makes clear.
The Court is also puzzled about Mr. Turaski's choice of options. He had three § 341(a) appearances set for San Diego on November 22, two at 8 a.m. and one at 4:15 p.m. He had one § 341(a) set for Los Angeles on the same date at 9 a.m. He chose the one over the three, even though the one was noticed twelve days after the three in San Diego. It would seem Los Angeles is closer to his home and office, and it might be easier to reschedule one than ignore the three in San Diego. When asked at the hearing why he did not appear in San Diego in the afternoon of November 22 for the Barragan § 341 meeting, Mt. Turaski told the Court that he had the continuation of a state court trial carried over to that afternoon. He said he told the state court he had a conflict in the morning (which was the Payes § 341 meeting, set 12 days after the San Diego meetings were set). Nothing about that state court trial appears anywhere in the written record or declarations, and it remains curious that he would tell the state court he had a conflict in the morning forPayes, but not tell the court he had a conflict in the afternoon in San Diego, especially since he had known of that conflict much longer.
For all that was set out in the filing in January in Meza, including the questions it raises, no such motions were filed inBarragan or Soberanis at that time. Finally, on March 16, 2006, three and one-half months after the cases had been dismissed, Mr. Turaski filed motions to reopen in all three cases. In support, he submitted a brief declaration that simply said that he told his client not to attend because he could not attend since he had another matter to appear on elsewhere.
In Barragan, this Court denied the motion to reopen. Mr. Turaski resubmitted his proposed order, which this Court denied again because there was no explanation of the delay between November 29, 2005 and March 16, 2006. In Soberanis, the first motion was denied. Then Mr. Turaski filed motions for reconsideration in both cases, they were set for hearing, and ultimately granted without opposition from the trustees.
In the motions for reconsideration to reopen, Mr. Turaski explained that he was tied up in a trial from the "beginning of December 2005, until the case terminated, in late February 2006." While he references the January motion to vacate, that motion was only filed in the Meza case, not in Barragan or Soberanis. He asserted, however:
In the instant case, debtor's counsel was not able to file his motion until approximately 3.5 months after the closure of debtor's case, because debtor's counsel was involved in a wrongful death civil action. . . .
. . . Therefore, after complete resolution of the aforementioned state civil case, debtor's counsel promptly acted to file a motion in the U. S. Bankruptcy Court, Southern District of California, so as to seek relief from the closure of debtor's case.
Mr. Turaski argued a number of points which he contended supported reopening, but many are inapposite in the present context. Congress designed a Chapter 7 process with short deadlines for meetings of creditors and filing objections to discharge or dischargeability, specifically intended to provide debtors with a prompt discharge and fresh start. In these cases, those goals have been frustrated by the delays occasioned by counsel, through no apparent fault of the debtors.
After finally obtaining a reopening of the cases, Mr. Turaski filed on July 17, 2006 the present motions to vacate the orders of dismissal entered seven and one-half months earlier. No one has objected in the Soberanis case, but the Chapter 7 trustee, Ms. Wolf, has objected in Barragan.
Trustee Wolf points out in her opposition that the debtors have not done most of what they were supposed to do, including providing to the trustee not less than 15 days before the § 341(a) meeting "written documentation supporting income earnings" listed in Schedule I, a requirement clearly set out in the Notice, Form B9A. The trustee argues that the estate suffered some prejudice because the estate was unable to protect possible equity in the debtor's vehicle because the debtors did not provide proof of insurance of the vehicle as required.
Mr. Turaski responded to the trustee's opposition, contending that the trustee should be estopped from objecting because the trustee did not return his call to ask the trustee whether she needed additional information and whether she "would be scheduling a hearing to dismiss their case." He claims in the document that the call was in November, which is curious since the § 341(a) was not until November 22 and dismissal followed a week later. There is no supporting declaration concerning any such phone call.
In her opposition, the trustee also noted that in the state case which had Mr. Turaski tied up through the end of February, the state court order approving the minor's compromise reflects that the hearing on approval was held on January 31, 2006. In his written response, Mr. Turaski contended there were administrative matters which consumed the month of February and, inconsistently, he stated:
c. And the fact that during the month of February 2006, both defense counsel, Mr. John Kristiansen, and the Superior Court judge, Commissioner Mahlum, both went on vacation at different times during the month.
The apparent implication of that statement is that things could not get done because of the absence of one or the other. That would seem to suggest the notion that there was time in February to address these cases precisely because the state court settlement could not advance.
Despite repeated efforts to shift responsibility for his own decisions about where to be, whether to address or ignore his scheduling priorities, and leave his clients open to dismissals, the last paragraph of his response is scandalous, outrageous and, so far, wholly unsupported. In it, he stated:
Finally, it appears that the subtext behind all of the Chapter 7 Trustee's objections is really discrimination and dislike of "people of color," i.e., [sic] the debtors in the instant case. Rather, than using the law as a cudgel to attempt to deprive the Latin-American debtors of their rights under the Bankruptcy Code, the Chapter 7 Trustee's interests would be better served by adherence to the law, and principles of equity.
In over eighteen years on the bench in this district, no one has ever made such an assertion about trustee Wolf or her counsel to the Court. Moreover, it is puzzling to imagine what basis Mr. Turaski might have to make such a bald assertion since by his own unsworn claims his only communication with the trustee was a voicemail message he left and that was not returned.
While it is an issue collateral to the underlying motion, and while the trustee has not directly addressed it (nor was there an occasion to other than oral argument since it was first raised in Mr. Turaski's response to the trustee's opposition), the Court will not allow such an accusation to lay on the record unresolved because such an allegation can taint the entire process, especially in the minds of Mr. Turaski's clients. Accordingly, Mr. Turaski is hereby ordered to file and serve within twenty-one (21) days of the date of entry of this order either: 1) his declaration and any supporting declarations or documents, or any other evidence he has which supports such an allegation; or 2) a written apology to trustee Wolf stating that he has no knowledge or other basis to support that allegation. If Mr. Turaski invokes the first option, the Court will thereafter determine how it will proceed.
Mr. Turaski's motion to vacate the order of dismissal in both this case and Soberanis raises some interesting questions which neither side has directly addressed. As already noted, Mr. Turaski separately pursued motions to reopen, which were unopposed and ultimately granted for that reason. In pursuing reopening, Mr. Turaski invoked 11 U.S.C. § 350(b), which provides: "A case may be reopened in the court in which such case was closed to administer assets, to accord relief to the debtor, or for other cause." While on its face § 350 might seem applicable to these cases which were closed after dismissal, review occasioned by these proceedings has made clear that § 350 is not applicable to cases which were dismissed without administration of the then-known estate. Section 350 is aimed at estates that have been fully administered, as § 350(a) makes clear.
The courts that have considered the question, including the Ninth Circuit Court of Appeals, have concluded that § 350 does not apply to dismissal cases, and that the standards of Rule 60(b) made applicable by Rule 9024, Fed.R.Bankr.P.) control whether relief should be afforded. In re Income Property Builders, Inc., 699 F.2d 963, 965 (9th Cir. 1982); In re Archer, 264 B.R. 165, 168 (Bankr. E.D. Va. 2001); In re Critical Cave Support Services, 236 B.R. 137, 140-41 (E.D. NY 1999); In re Woodhaven, Ltd., 139 B.R. 745, 747-48 (Bankr. N.D. AL 1992); In re Garcia, 115 B.R. 169, 170 (Bankr. N.D. IN 1990).
Rule 60(b) provides in relevant part:
On motion and upon such terms as are just, the court may relieve a party . . . from a final judgment, order, or proceeding for the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect; (2) newly discovered evidence . . .; (3) fraud . . .; (4) the judgment is void; (5) the judgment has been satisfied . . .; or (6) any other reason justifying relief from the operation of the judgment. The motion shall be made within a reasonable time. . . .
It is apparent that reasons (2), (3), (4) and (5) have no applicability to the present situation. Mr. Turaski has offered no showing of "mistake, inadvertence, surprise, or excusable neglect". As in Garcia, 115 B.R. at 170-71, debtors and their counsel were clearly advised in the B9A Notice that failure to appear at the meeting of creditors could result in dismissal without further notice, and were also advised if they wanted to contest dismissal they should do so at the § 341 and it then would be set for hearing. Neither Mr. Turaski nor his clients did anything to avert dismissal. There has been no showing of mistake, inadvertence, or surprise. Excusable neglect requires some sort of showing, although as the Supreme Court made clear inPioneer Invest. Svcs. Co. v. Brunswick Associates Ltd. P'ship, 507 U.S. 380, 395 (1993):
[T]he determination is at bottom an equitable one, taking account of all relevant circumstances surrounding the party's omission. These include . . . the danger of prejudice to the debtor, the length of the delay and its potential impact on judicial proceedings, the reason for the delay, including whether it was within the reasonable control of the movant, and whether the movant acted in good faith.
In the instant case, Mr. Turaski has argued that the debtors did nothing wrong and, while not conceding that he made any mistakes, they should not suffer the consequences of dismissal. The court of appeals in Pioneer had taken a similar view, which the Supreme Court thereafter considered. The Supreme Court wrote:
There is one aspect of the Court of Appeals' analysis, however, with which we disagree. The Court of Appeals suggested that it would be inappropriate to penalize respondents for the omissions of their attorney, reasoning that "the ultimate responsibility of filing the . . . proof[s] of clai[m] rested with [respondents'] counsel." Ibid. . . .
In other contexts, we have held that clients must be held accountable for the acts and omissions of their attorneys. In Link v. Wabash R. Co., 370 U.S. 676 . . . (1962), we held that a client may be made to suffer the consequence of dismissal of its lawsuit because of its attorney's failure to attend a scheduled pretrial conference. In so concluding, we found "no merit to the contention that dismissal of petitioner's, claim because of his counsel's unexcused conduct imposes an unjust penalty on the client." (Citation omitted.) To the contrary, the Court wrote:
"Petitioner voluntarily chose this attorney as his representative in the action, and he cannot now avoid the consequences of the acts or omissions of this freely selected agent. Any other notion would be wholly inconsistent with our system of representative litigation, in which each party is deemed bound by the acts of his lawyer-agent and is considered to have `notice of all facts, notice of which can be charged upon the attorney.'" (Citation omitted.)
507 U.S. at 396-96. The Court concluded:
This principle applies with equal force here and requires that respondents be held accountable for the acts and omissions of their chosen counsel. Consequently, in determining whether respondents' failure to file their proofs of claim prior to the bar date was excusable, the proper focus is upon whether the neglect of respondents and their counsel was excusable.
As already discussed, Mr. Turaski's sole argument in the pending motions to vacate is that his clients were denied due process because the trustees did not schedule hearings on dismissal. The Court has rejected that contention for the reasons previously set out. Mr. Turaski has not focused on the requirements of Rule 60(b) and in fairness to his clients he should be afforded the opportunity to do so. Accordingly, Mr. Turaski is ordered to file and serve a supplemental pleading within twenty-one (21) days of the date of entry of this order. That pleading shall: 1) advance any argument the debtors may have under Rule 60(b) to support their requests that the dismissal orders be vacated; 2) be accompanied in each case by a declaration from Mr. Turaski addressing a) who paid the reopening fee; b) whether the client has been asked to ultimately bear that cost; and c) whether the clients have been asked by him to pay any other attorneys fees and/or costs in these cases since October 13, 2005. In the interim, the Court will retain jurisdiction both to resolve the pending motions and to resolve the allegation made against trustee Wolf, as discussed earlier. Mr. Turaski is required to act in that matter within twenty-one days of the date of entry of this order as well.
IT IS SO ORDERED.