Opinion
Case No. 90-12851-JNF.
December 14, 2009
MEMORANDUM
I. INTRODUCTION
The matter before the Court is the Motion filed by Robert J. Mammola (the "Debtor") to Reopen his Chapter 7 case for the purpose of amending his schedules. Specifically, the Debtor seeks to reopen his case to amend Schedule F-Creditors Holding Unsecured Nonpriority Claims to add Anthony Bonadio ("Bonadio") and to afford him the opportunity to file a complaint seeking an exception to the discharge of his alleged debt. Bonadio filed an Opposition to the Debtor's Motion, and the Court heard the matter on November 3, 2009.
The material facts necessary to decide the Motion to Reopen are not in dispute. Neither party requested an opportunity to present evidence in the form of testimony or affidavits.
II. BACKGROUND
The Debtor, who did business as the M M Realty Trust, the Anita Realty Trust, the Fifth Street Realty Trust, the Third Street Realty Trust, Natalie Estates, and 33 Oak Street Realty Trust, filed a Chapter 11 petition on June 1, 1990. He was and now is represented by Steven J. Marullo, Esq.
Less than one year after the Debtor filed his Chapter 11 case, the Court, on March 20, 1991, ordered the appointment of a Chapter 11 trustee. Less than two years later, on January 12, 1993, the Court converted the Debtor's Chapter 11 case to a case under Chapter 7. Approximately five months later, the Debtor received a discharge. On December 11, 1995, the docket reflects a "Notice of Assets" and a claims bar date of March 11, 1996. The trustee administered assets during the Chapter 7 case and made distributions to creditors. The case was closed on March 29, 1999.
The Debtor represents in his "Motion of Debtor for Approval of Notice of Amendment to Schedules" that he was not aware of the existence of Bonadio's claim until 2005. In his Motion to Reopen, he states that, on May 19, 2005, Bonadio filed a complaint against him and his brother, Clement P. Mammola, in the Middlesex Superior Court, Department of the Trial Court. According to the Debtor, Bonadio alleged that Clement Mammola borrowed $25,000 from him on July 16, 1991 "evidenced by a Note signed by Clement Mammola and allegedly guaranteed by the Debtor." The Debtor disputes Bonadio's allegations, stating that his brother admitted under oath at his deposition that he forged the Debtor's signature to the Note. The Debtor also states:
The guarantee of the Note, allegedly signed by the Debtor on or about July 16, 1991, created a contingent liability for the Debtor while he was engaged in his Chapter 11 proceeding, would not have been in the ordinary course of Debtor's business, and was without Court authority, albeit the Debtor denies that he executed a Note to Anthony Bonadio or the Guarantee thereof.
In his Opposition to the Debtor's Motion to Reopen, Bonadio asserts that he was never informed of the Debtor's bankruptcy case as the Debtor failed to amend Schedule F upon conversion of his Chapter 11 case to a case under Chapter 7. See 11 U.S.C. § 349(d). He adds that the Debtor's guaranty was "a sine qua non to the decision to lend;" that Clement Mammola ceased making payments under the Note; and that he filed a civil action against the brothers in 2005. According to Bonadio, he obtained a default judgment against Clement Mammola but that the Debtor continued to defend the action in the Middlesex Superior Court. He states that he obtained a handwriting expert to testify that the Debtor's signature on the Note was genuine and that the Debtor only informed him on the eve of trial that he had filed a bankruptcy petition in 1991 and received a discharge. Bonadio maintains that the Debtor's unclean hands and delay in informing him of his bankruptcy warrants denial of the Motion to Reopen.
The Court takes judicial notice that Clement Mammola filed four bankruptcy petitions, one in 1990 (Case No. 90-16047), one in 2003 (Case No. 03-17205), one in 2004 (Case No. 04-10776), and one in 2005 (Case No. 05-22093). Attorney Marullo represented Clement Mammola in the first three cases. Clement Mammola received a discharge in his fourth case on January 18, 2006.
Bonadio attached a copy of the Note which contains the Debtor's name and appears on the letterhead of Natalie Estates. It provides:
I Anthony on this day, July 16, 1991, am giving Pat Mammola $25,000.00 cash at 10% interest for one year. This is guaranteed by Pat Mammola and Bobby Mammola.
The Note contains Bonadio's signature, Clement or Pat Mammola's signature, and the Debtor's alleged signature.
At the hearing, counsel to the Debtor represented that he did not become involved in the Middlesex Superior Court case until 2007 and that, although he was Debtor's counsel in his 1991 bankruptcy case, he did not remember that the Debtor had filed a bankruptcy petition until 2007. He added that the Debtor also did not connect the alleged guaranty signed in 1991 with his bankruptcy case either. In short, he stated that the Debtor was not aware of Bonadio's allegations until 2005 and that he did not remember his bankruptcy until 2007.
Bonadio's attorney challenged those assertions and represented that Bonadio has incurred substantial expense in engaging a handwriting expert and in preparing for trial, which had been scheduled by the Superior Court.
III. DISCUSSION
The Debtor allegedly became obligated to Bonadio after the order for relief but before his case was converted to Chapter 7. Assuming without deciding that Bonadio has a claim against the Debtor that arose during the course of his Chapter 11 case, section 348(d) provides:
[a] claim against the estate or the debtor that arises after the order for relief but before conversion in a case that is converted under section 1112 . . . of the title, other than a claim specified in section 503(b) of this title, shall be treated for all purposes as if such claim had arisen immediately before the date of the filing of the petition.
11 U.S.C. § 348(d). Thus, Bonadio's claim, if valid, potentially was dischargeable under 11 U.S.C. § 727(a) had it been listed by the Debtor following the conversion of his Chapter 11 case to a case under Chapter 7. Because the Debtor did not list Bonadio's contingent, disputed claim, section 523(a)(3) is implicated. That section provides:
(a) A discharge under section 727 . . . of this title does not discharge an individual debtor from any debt — . . .
(3) neither listed nor scheduled under section 521(1) of this title, with the name, if known to the debtor, of the creditor to whom such debt is owed, in time to permit —
(A) if such debt is not of a kind specified in paragraph (2), (4), (6) of this subsection, timely filing of a proof of claim, unless such creditor had notice or actual knowledge of the case in time for such timely filing; or
(B) if such debt is of a kind specified in paragraph (2), (4), or (6) of this subsection, timely filing of a proof of claim and timely request for a determination of dischargeability of such debt under one of such paragraphs, unless such creditor had notice or actual knowledge of the case in time for such timely filing and request.
Section 523(a) pertains to the discharge is a "debt," see 11 U.S.C. § 523(a), rather than a "claim." The debtor is required to list claims, but as the First Circuit has noted, the Bankruptcy Code's definition of debt and associated case law indicate that the concepts of debt and claim are to be read together. Colonial Sur. Co. v. Weizman, 564 F.3d 526, 530 (1st Cir. 2009). See 11 U.S.C. § 101(12) (2006). Moreover, according to the First Circuit, "[s]ubsection (A) . . . applies this restriction to most debts . . .; subsection (B) applies a somewhat similar rule to debts, primarily related to deliberate wrongdoing, not captured by the general rule under subsection (A)." Id. at n. 3.
In Colonial Sur. Co. v. Weizman, 564 F.3d 526 (1st Cir. 2009), the United States Court of Appeals interpreted section 523(a)(3) to provide that the claims of omitted creditors without knowledge of the bankruptcy are not discharged even in cases where there are no assets available for distribution to creditors. Id. at 530. Interpreting section 523(a)(3)(A), the court reasoned:
This language, as we read it, provides what one might expect to be the general rule: that if the debtor fails to list a supposed creditor's claim — meaning that the creditor will not be notified of the opportunity to participate in the proceeding (and the creditor does not otherwise happen to know of the bankruptcy), the debt is not discharged."
Id.
The First Circuit in Weizman considered its holding in light of decisions from other circuits distinguishing asset and no-asset cases. Compare In re Beezley, 994 F.2d 1433, 1435-37 (9th Cir. 1993) (section 523(a)(3) does not apply to so-called no-asset bankruptcies) with In re Stark, 717 F.2d 322 (7th Cir. 1983) (an unlisted debt is not discharged). It stated:
Nothing in the language or history of the 1978 revision of section 523(a)(3) indicates that Congress aimed to carve out no asset bankruptcies from what we perceive to be a general rule that listing the creditor is a condition of discharge. The qualifying phrase about timely filing recognizes that notice may be given late in the bankruptcy — proceeding day but still in time for the creditor to participate in the bankruptcy proceeding.
Weizman, 564 F.3d at 532. Although Weizman did not involve a motion to reopen to list an omitted creditor, the court articulated a standard for reopening a case to obtain a discharge of an omitted debt. It stated:
That the debtor claims to have no distributable assets might make one think that the creditor is not harmed by the lack of notice and so the Ninth Circuit reading is just a shortcut to a no harm, no foul outcome. But no asset claims are easy to make; a creditor might want notice precisely to argue that there are assets even though the debtor asserts otherwise. Colonial also argues that notice would have permitted it to take earlier action against other indemnitors to protect itself.
It is true that an unnotified creditor is not entirely helpless even after the bankruptcy proceeding is long over: the discovery of overlooked assets and the opportunity to prove fraud can be grounds for reopening the bankruptcy. But so, too, can a debtor move to reopen to list a debt where the failure to give notice was innocent and can be shown to have caused no harm; consistent with Stark, we conclude that in such a case the debtor would be entitled to such relief. Yet the burden of doing so is fairly upon the debtor who failed to give notice-or so Congress seems to have thought.
But it is not merely a matter of burdens. Beezley means that the un-notified creditor gets protection only if limited specified grounds can be established; by contrast, a debtor who moves to reopen to list a debt long after discharge surely must show that the omission was innocent and, even so, can probably be countered by anything that makes it inequitable to grant such relief. As between Beezley and Stark, we think that the latter best fulfills the aim of Congress.
Id. (emphasis added).
Applying the standard for reopening a case for the purpose of listing an unlisted creditor enunciated by the First Circuit inWeizman to the facts of the instant case, the Court finds that the Debtor has failed to sustain his burden of establishing an entirely innocent omission.
In the first place, the Court finds that laches bars the Debtor from seeking to reopen his case four years after he learned of Bonadio's claim. In In re Dator, No. 98-15046-JNF, 2006 WL 2056678 (Bankr. D. Mass. July 21, 2006), this Court, citing In re Levy, 256 B.R. 563 (Bankr. D. N.J. 2000), observed the following in the context of a motion to reopen for purposes of avoiding a judicial lien under 11 U.S.C. § 522(f):
Although the bankruptcy court has discretion to determine motions to reopen, the discretion is circumscribed by the equitable doctrine of laches.
According to the court in Levy,
Laches is an equitable defense which allows a court to dismiss an action when there exists inexcusable delay in instituting an action and prejudice to the non-moving party as a result of the delay. See Kepner-Tregoe, Inc. v. Executive Dev., Inc., 79 F.Supp.2d 474, 486 (D.N.J. 1999) (citing Pension Fund v. McCormick Dray Line, Inc., 85 F.3d 1098, 1108 (3d Cir. 1996)). The burden to prove the elements of the defense rests with the party asserting it. See U.S. v. Koreh, 59 F.3d 431, 445-46 (3d Cir. 1995) (citing EEOC v. Great Atlantic Pacific Tea Co., 735 F.2d 69, 80 (3d Cir.), cert. dismissed, 469 U.S. 925, 105 S.Ct. 307, 83 L.Ed.2d 241 (1984)).In re Dator, 2006 WL 2056678 at *2 (citing In re Levy, 256 B.R. at 565-66). See also In re Koza, 375 B.R. 711, 718-19 (B.A.P. 1st Cir. 2007).
The Court finds, based upon the representations set forth in the pleadings and at the hearing, that the Debtor's four-year delay in moving to reopen his bankruptcy case was unjustified. The Debtor's proffered excuse for the delay, namely no memory of his protracted and contentious bankruptcy case until the eve of trial in the Middlesex Superior Court is unpersuasive and fails to qualify as "innocent," particularly as the Debtor delayed two more years after he remembered he had filed a bankruptcy case before moving to reopen. More importantly, Bonadio will be prejudiced if the case is reopened, as he cannot share in the distribution to creditors which took place over ten years ago. In addition, he has incurred substantial costs and expenses in preparing for trial and engaging an expert witness. In short, Bonadio's prejudice outweighs any prejudice to the Debtor.
IV. CONCLUSION
In view of the foregoing, the Court shall enter an order denying the Debtor's Motion to Reopen.