Opinion
Case No. 17-23817-B-13
09-12-2017
In re: RAFAEL A. REYES and VILLA REYES, Debtor(s).
MEMORANDUM AND ORDER DENYING DEBTORS' MOTION TO VACATE
Before the court is a motion by debtors Rafael A. Reyes and Villa Reyes ("Debtors") to vacate the order dismissing this chapter 13 case, impose the automatic stay, and reinstate an ex parte application that seeks to reverse a postpetition foreclosure sale and hold the foreclosing secured creditors in contempt for purportedly violating the automatic stay by conducting the foreclosure sale after being notified of this case. For the reasons below, the motion will be denied. Introduction
This case was filed on June 6, 2017, dkt. 1, and dismissed on July 26, 2017, for failure to timely file documents. Dkts. 26, 27. This is also the Debtors' third bankruptcy case filed within one year. The Debtors' first case, no. 17-20282, was filed on January 17, 2017, and dismissed on March 1, 2017, for failure to timely file documents. The Debtors' second case, no. 17-22413, was filed on April 11, 2017, and dismissed on May 1, 2017, again, for failure to timely file documents. The same attorney represented the Debtors in all three dismissed cases. Background
On June 9, 2017, the Debtors were notified that all required documents were not filed with the petition and they were given until June 20, 2017, to file missing documents. Dkt. 7. Missing documents were not timely filed. Instead, on June 21, 2017, the Debtors filed an ex parte application to extend the deadline to file missing documents. Dkt. 10. The court granted that ex parte application on June 26, 2017, and ordered all missing documents to be filed by July 5, 2017. Dkt. 12.
Missing documents were not filed on July 5, 2017. Instead, late that night the Debtors filed a second ex parte application to further extend the July 5, 2017, deadline. Dkt. 18. The court granted that second request in an order entered on July 11, 2017, and extended the deadline to file all missing documents to July 19, 2017. Dkt. 20. In relevant part, the order granting the Debtors' second request for an extension stated as follows:
On July 5, 2017, the Debtors also filed an ex parte application to invalidate a June 7, 2017, foreclosure sale and to hold the foreclosing secured creditors in contempt for violating the automatic stay by proceeding with that sale the day after this case was filed on June 6, 2017, and after they were informed on June 6, 2017, this case was filed. Dkt. 17.
IT IS FURTHER ORDERED (chapter 13 only) that the Debtor(s) is (are) also responsible to serve the Chapter 13 plan with a motion for confirmation and set that matter for hearing in compliance with Local Rule 3015-1(c)(3) by 7/19/17. If the Debtor(s) does (do) not file the Chapter 13 plan, or fails to timely serve and set for hearing a motion to confirm, by the extended date, the case will be dismissed without further notice of hearing on the ex parte request of the trustee.(Emphasis in original).
Some missing documents were timely filed on July 19, 2017. However, several critical documents were not. Missing from the documents filed on July 19, 2017, were a chapter 13 plan and a properly filed, set, and served plan confirmation motion. That caused the Chapter 13 Trustee to file an ex parte motion to dismiss on July 21, 2017. Dkt. 25. The court granted the Trustee's ex parte motion and dismissed this case in an order filed on July 26, 2017. Dkts. 26, 27.
An opposition to the Trustee's ex parte motion to dismiss was filed on July 26, 2017. Dkt. 28. That opposition stated only that the failure to timely file a chapter 13 plan by July 19, 2017, "ha[d] just been discovered[,]" was the result of a clerical mistake by Debtors' counsel, and a chapter 13 plan was "immediately being filed." Id. A declaration was not filed with the opposition. And although a chapter 13 plan was also filed on July 26, 2017, dkt. 29, a properly filed, noticed, and set plan confirmation motion was not.
On August 8, 2017, nearly two weeks after this case was dismissed, the Debtors filed an ex parte application to vacate the dismissal order, impose the automatic stay, and reinstate the ex parte application previously filed at docket no. 17. Dkt. 35. The court denied that ex parte application without prejudice on August 10, 2017, and ordered the Debtors to notice and set any re-filed motion for hearing in accordance with the local rules. Dkt. 36. Two weeks later, and one month after this case was dismissed, on August 24, 2017, the Debtors filed the present motion. Dkt. 37. Discussion
The motion, memorandum of points and authorities, declarations, and exhibits are all filed as one large .pdf document. In that regard, the motion fails to comply with one of the basic pleading requirements in this district, i.e., the motion, points and authorities, each declaration, and the exhibits are to be filed as separate pleadings. LBR 9014-1(d)(1); Revised Guidelines for Preparation of Documents. Not following that basic rule of pleading is grounds for denying the motion. See LBR 9014-1(1).
Relief Under Rule 60(b)(1) Will be Denied.
Debtors seek relief from the order dismissing this chapter 13 case under Federal Rule of Civil Procedure 60(b)(1) (made applicable by Federal Rule of Bankruptcy Procedure 9024). Rule 60(b)(1) permits the court to grant relief from a final judgment or order for "mistake, inadvertence, surprise, or excusable neglect." Fed. R. Civ. P. 60(b)(1); Fed. R. Bankr. P. 9024. The court's treatment of a Rule 60(b)(1) motion is not rigid, but requires the court to equitably consider all relevant circumstances surrounding a party's, or its lawyer's, error or omission. Pincay v. Andrews, 389 F.3d 853, 855-56 & 860 (9th Cir. 2004) (en banc), cert. denied., 544 U.S. 961 (2005) (citing Pioneer Inv. Servs. Co. v. Brunswick Assoc. Ltd. P'ship, 507 U.S. 380, 395 (1993)). Moreover, the party moving for Rule 60(b) relief bears the burden of establishing a basis for relief under the rule. Martinelli v. Valley Bank of Nevada (In re Martinelli), 96 B.R. 1011, 1013 (9th Cir. BAP 1988); see also South Shore Ranches, LLC v. Lakelands Co., LLC, 2009 WL 2019858, *2 (E.D. Cal. 2009). Here, that's the Debtors and they have not met their burden.
Debtors attribute their failure to timely file all required documents, specifically a chapter 13 plan and a properly filed, set, and served plan confirmation motion, to counsel's excusable neglect and mistake. "Evidence," if it can be called that, of counsel's negligence and mistake is limited to the following three conclusory statements in counsel's self-serving declaration filed in support of the present motion:
(1) "The Chapter 13 Plan was not filed with the other documents on July 19, 2017 because of the mistake and inexcusable [sic] neglect of Debtors' attorney." Dkt. 37 at 3:17-18.
(2) "Th[e] mistake was not realized by Debtors' attorney[.]" Id. at 3:18-19.
(3) "I take full responsibility for the mistake and excusable negligence in not filing the remaining documents for Debtors by July 19, 2017." Id. at 3:22-24.
Although counsel's declaration uses terms from the text of Rule 60(b)(1), it fails to establish that Rule 60(b)(1) relief is warranted. Counsel's conclusory and self-serving statements are not facts and they do not address any of the four Pioneer-Briones factors, i.e., (1) the danger of prejudice to any non-moving party if the dismissal is vacated, (2) the length of delay and the potential impact of that delay on judicial proceedings, (3) the reason for the delay, including whether the delay was within the reasonable control of the movant, and (4) whether the Debtors' conduct was in good faith. Pioneer, 507 U.S. at 395; Briones v. Riviera Hotel & Casino, 116 F.3d 379, 381 (9th Cir. 1997). Those factors are also not addressed in the motion or in the memorandum of points and authorities. For that reason alone, Rule 60(b)(1) relief is not warranted. See Bateman v. U.S. Postal Service, 231 F.3d 1220, 1224 (9th Cir. 2000) ("The court would have been within its discretion [to deny relief] if it spelled out the equitable test and then concluded that [counsel] had failed to present any evidence relevant to the four factors.").
Nevertheless, the court has independently reviewed the Pioneer-Briones factors in the context of the record before it. See Lemoge v. U.S., 587 F.3d 1188, 1192 (9th Cir. 2009). None of those factors weigh in favor of Rule 60(b)(1) relief on the basis of excusable neglect or mistake.
First, this was the Debtors' third bankruptcy case filed within one year, which means the automatic stay of § 362(a) did not go into effect when the case was filed. See 11 U.S.C. § 362(c)(4)(A)(i). It was incumbent on the Debtors to request the imposition of the automatic stay within 30 days of the date the case was filed and also to set that request for hearing. See 11 U.S.C. § 362(c)(4)(B). The Debtors did not do either.
The court is aware that on July 5, 2017, the Debtors filed an ex parte application to reverse the June 7, 2017, foreclosure sale and hold the foreclosing secured creditors in contempt for purportedly violating the automatic stay by conducting a postpetition foreclosure sale after being notified the day before the sale that this case was filed. However, even if that ex parte application could be construed as a request to impose the automatic stay under § 362(c)(4)(B), it was filed ex parte which means it was not set for a noticed hearing as also is required by § 362(c)(4)(B). So even assuming the Debtors passed the first step by filing a request to impose the stay they flunked the second step by not setting that request for a hearing.
Moreover, the ex parte application did not request, but merely assumed, that the automatic stay went into effect when this case was filed. That assumption was based on a second assumption that § 362(c)(4)(D)(i)(II) automatically applied when the case was filed. Not so. Section 362(c)(4)(D)(i)(II) applies only if there is a showing by clear and convincing evidence that a debtor's prior cases were dismissed because of counsel's negligence. See 11 U.S.C. § 362(c)(4)(D). That showing was not made here because the declaration that counsel submitted with the ex parte application, like the one submitted with the present motion, included only counsel's conclusory and self-serving assertions that the Debtors' two prior cases were dismissed because of her negligence. Those assertions are not facts and they certainly are not the clear and convincing evidence that § 362(c)(4)(D) requires in order to trigger § 362(c)(4)(D)(i)(II).
In addition to the Debtors' two prior cases which were dismissed because counsel failed to timely file required documents, counsel engaged in similar conduct in two other cases recently filed in this district which were also dismissed for the same reason. In re Tyler, no. 17-10177, was filed on January 20, 2017. Not all required documents were filed with the petition in that case. An order entered on February 16, 2017, extended the deadline to file the missing documents to March 3, 2017. Some missing documents were filed two days late on March 5, 2017. That caused the case to be dismissed on March 6, 2017. Counsel then re-filed another chapter 13 case for the same debtors on April 23, 2017, In re Tyler, no. 17-11558, and on April 26, 2017, counsel was again notified that documents were missing. Some missing documents were to be filed by April 30, 2017, and some by May 7, 2017. Again, not all missing documents were timely filed resulting in yet another dismissal of the second chapter 13 case on May 12, 2017. Counsel filed a third case for these debtors on September 10, 2017, In re Tyler, no. 17-13464, and was again notified on September 11, 2017, that numerous required documents were missing and not filed with the petition.
Nearly every other case that counsel has filed in this district has been dismissed for failure to timely file documents, including some in which an extension to file missing documents had been granted and some filed multiple times. These include the following: In re Hyatt, 1610139 (filed 1/12/16, dismissed 2/19/16, motion to vacate dismissal denied 3/14/16 & 4/8/16); In re Starr, 1514857 (filed 12/20/15, dismissed 4/8/16); In re Starr, 1610088 (filed 11/19/15, dismissed 3/3/16); In re Tracy, 1620084 (filed 11/18/15, dismissed 1/3/16); In re Tracy, 1522785 (filed 4/6/15, dismissed 4/24/15); In re Dynowski, 1431822 (filed 12/4/14, dismissed 12/14/15); In re Rodriguez, 1331031 (filed 8/22/13, dismissed 9/3/13); In re Manzo, 1330462 (filed 8/8/13, dismissed 8/19/13); In re Ascencion, 1124004 (filed 2/17/11, dismissed 3/8/11); In re Ascencion, 1121249 (filed 1/8/11, dismissed 2/8/11).
An order entered earlier this year in one of the Dynowski cases sheds light on counsel's motivation behind what appears to be deliberate conduct and an established part of counsel's practice. Referring to counsel's other cases filed in this district, the court stated:
These cases show a remarkably consistent pattern of abuse - failing to file fee disclosures, failing to file required documents, and failing to attend meetings of creditors. The court concludes from the record in the case now before it, as well as these prior cases, that Ms. Richards is aiding debtors in an abuse of the bankruptcy process that is calculated to hinder, delay, and defraud lenders in their efforts to foreclose and/or repossess their real property collateral.
But even assuming counsel's conclusory and self-serving statements met the clear and convincing standard, in a third bankruptcy case like this one, if at all, the automatic stay only goes into effect on the date an order allowing it to go into effect is entered. See 11 U.S.C. § 362(c)(4)(C). That means even if the ex parte application was granted on the same day it was filed the automatic stay would be imposed and effective only as of July 5, 2017, in which case it would have no impact on the foreclosure sale completed a month earlier on June 7, 2017.
The point is there was no automatic stay in effect when this case was filed on June 6, 2017, which means the postpetition foreclosure sale on June 7, 2017, did not and could not have violated § 362(a) even if the foreclosing secured creditors knew about this case. That also means granting the Rule 60(b)(1) relief that the Debtors now request so that they may attempt to invalidate that June 7, 2017, foreclosure sale on the basis it violated the automatic stay would only cause substantial prejudice to the foreclosing secured creditors as non-moving parties. Accordingly, this first factor weighs heavily against Rule 60(b)(1) relief.
So does the second factor, i.e., delay and the effects of that delay on the chapter 13 proceeding caused by the untimely filing of a chapter 13 plan and the absence of a timely-filed, set, and served plan confirmation motion.
The § 341 meeting of creditors was set, convened, and concluded on July 20, 2017. Dkt. 15. That triggered § 1324(b) which requires a plan confirmation hearing to be held within 45 days of that date. See 11 U.S.C. § 1324(b). That 45-day time period may not be extended. In re Butcher, 459 B.R. 115, 119 (Bankr. D. Colo. 2011). And it expired on September 5, 2017. That is a problem.
It actually expired on September 3, 2017, which was a Sunday and the following Monday, September 4, 2017, was a federal holiday.
A chapter 13 plan confirmation hearing in this district requires at least 42-days' notice. See LBR 9014-1(f)(1), & Fed. R. Bankr. P. 2002(b). So even if a plan confirmation motion was filed, set, and served with the untimely-filed chapter 13 plan on July 26, 2017, the earliest date on which a confirmation hearing could have been held would have been September 6, 2017, i.e., the day after the § 1324(b) deadline expired. Thus, by not timely filing the chapter 13 plan on July 19, 2017, and by not filing, setting, and serving a plan confirmation motion with the plan on the same date, the Debtors made it impossible to hold a confirmation hearing within the 45-day period required by § 1324(b). An inability to satisfy § 1324(b) leaves conversion, or more likely dismissal in this case due to the absence of nonexempt assets, as the only viable options. See In re Donnell, 2012 WL 8255546, *2 (Bankr. E.D. Cal. 2012). And because it makes no sense to vacate the order dismissing this case so that the case can again be dismissed due to an inability to satisfy § 1324(b), this second factor also weighs heavily against Rule 60(b)(1) relief.
Based on the court's calendar and when chapter 13 matters are heard, September 12, 2017, would have been the next available, and therefore a more accurate, date.
Had the Debtors timely filed a chapter 13 plan on July 19, 2017, and filed, set, and served a plan confirmation motion with it on the same date as the second extension order required the 42-day notice period would have run on August 30, 2017, and a confirmation hearing could have been "held" on the court's next available calendar date which then was September 5, 2017. That would have satisfied § 1324(b) even if a plan was not confirmed on that date. See In re Hegeduis, 525 B.R. 74, 82 (Bankr. N.D. Ind. 2015); In re Tiliiakos, 2013 WL 3943502 at *3 (Bankr. M.D. Fla. 2013). --------
Third, nothing is said about the reason for the delay in filing a chapter 13 plan and the absence of a plan confirmation motion and whether the failure to timely file both was within or outside the control of Debtors' counsel. Consequently, this factor weighs against Rule 60(b)(1) relief.
Fourth, as explained above, bad faith is presumed in this third bankruptcy case and that presumption was not timely or substantively rebutted. This also weighs against Rule 60(b)(1) relief.
In sum, the Debtors have not established any basis for relief under Rule 60(b)(1) and the court's independent evaluation of the Pioneer-Briones factors based on the record before it confirms that such relief is not warranted in any event. Therefore, the Debtors' request for relief under Rule 60(b)(1) will be denied.
Relief Under Rule 60(b)(6) Will be Denied.
Debtors also seek relief under Rule 60(b)(6). A court may grant relief from a judgment or order under Rule 60(b)(6) (applicable by Federal Rule of Bankruptcy Procedure 9024) for "any other reason that justifies relief." Fed. R. Civ. P. 60(b)(6); Fed. R. Bankr. P. 9024. Relief under Rule 60(b)(6) is limited to errors or actions beyond the party's control. See Cmty. Dental Serv. v. Tani, 282 F.3d 1164, 1168 (9th Cir. 1996). In other words, to qualify for relief under Rule 60(b)(6) a moving party must show injury and that circumstances beyond its control prevented timely action to protect its interests. Latshaw v. Trainer Wortham & Co., 452 F.3d 1097, 1103 (9th Cir. 2006). "Neglect or lack of diligence is not to be remedied through Rule 60(b)(6)." In re Shingleton, 2007 WL 2743503, *3 (Bankr. D. Idaho) (internal quotations omitted) (citing Lehman v. U.S., 154 F.3d 1010, 1017 (9th Cir. 1998)).
In order for the Debtors to establish that circumstances beyond their control prevented the timely filing of a chapter 13 plan and a properly filed, set, and served plan confirmation motion the Debtors would first need to explain why they were unable to, and did not comply with, the second extension order and file both documents on July 19, 2017. As noted above, the Debtors have not done that. Therefore, the Debtors' request for relief under Rule 60(b)(6) will be denied. Conclusion
The court is sympathetic to the Debtors' plight and the representation they received in this and their two prior bankruptcy cases. However, based on the record before it, the court is not persuaded that counsel's conduct in this case rises to the level of mistake or excusable neglect. Unfortunately, that leaves the Debtors in a position where they are bound by the consequences flowing from the acts and omissions of their bankruptcy attorney. See Casey v. Albertson's Inc., 362 F.3d 1254, 1260 (9th Cir. 2004) ("As a general rule, parties are bound by the actions of their lawyers, and alleged attorney malpractice does not usually provide a basis to set aside a judgment pursuant to Rule 60(b)(1)."). Fortunately, with counsel's admitted negligence and omissions in this case and her willingness to accept responsibility for both, perhaps the Debtors may find financial relief through a state law civil remedy. But as for the request for relief under Rule 60(b) in this case,
IT IS HEREBY ORDERED that the Debtors' motion filed at Dkt. 37 is DENIED.
IT IS FURTHER ORDERED that the court shall enter a separate order for counsel to show cause why she should not be further sanctioned, including notification to the State Bar of California, by filing this bankruptcy case on June 6, 2017, and an adversary proceeding in this bankruptcy case on July 17, 2017, in violation of the order filed on March 1, 2017, in case no. 15-28574, which prohibits counsel from filing any new case or proceeding after April 15, 2017, without first completing 4 hours of continuing legal education in ethics and certifying her completion of that continuing legal education with the clerk of the court.
Dated: September 12, 2017.
/s/_________
UNITED STATES BANKRUPTCY JUDGE
INSTRUCTIONS TO CLERK OF COURT
SERVICE LIST
The Clerk of Court is instructed to send the attached document, via the BNC, to the following parties: Rafael A. Reyes
110 Grubstake Place
Vallejo CA 94591 Villa Reyes
110 Grubstake Place
Vallejo CA 94591 Leslie Richards
17337 Ventura Blvd Suite 211
Encino CA 91316 Jan P. Johnson
PO Box 1708
Sacramento CA 95812 Antonia Darling
Office of the U.S. Trustee
Robert T Matsui United States Courthouse
501 I Street, Room 7-500
Sacramento CA 95814
In re Dynowski, 15-28574, Dkt. 115 (emphasis added). And the court also notes that out of approximately 227 cases that counsel filed in the Central District of California bankruptcy court since 2010, only about 43 have been discharged, and an inordinate number of the remaining cases were dismissed for failure to file documents timely.