Opinion
NOT FOR PUBLICATION
Argued and Submitted at Seattle, Washington: May 19, 2009
Appeal from the United States Bankruptcy Court for the Western District of Washington. Bk. No. 01-45594, Adv. No. 08-04050. Honorable Thomas T. Glover, Bankruptcy Judge, Presiding.
Before: HOLLOWELL, MONTALI and JURY, Bankruptcy Judges.
MEMORANDUM
Creditor William Hagler (" Hagler") filed a complaint against the chapter 7 bankruptcy trustee for negligently failing to preserve an asset for the benefit of the estate. The bankruptcy court determined, on a motion for reconsideration of a summary judgment motion, that the trustee was not responsible for the loss of the asset and that Hagler's cause of action was timebarred. Hagler appeals that ruling. The trustee cross-appeals the bankruptcy court's denial of the trustee's request for sanctions against Hagler. We AFFIRM the bankruptcy court's grant of summary judgment in favor of the trustee including its refusal to award sanctions against Hagler.
Unless otherwise indicated, all chapter, section, and rule references are to the Bankruptcy Code, 11 U.S.C. § § 101-1532, and to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037, as enacted and promulgated prior to the effective date of The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. 109-8, 119 Stat. 23 (" BAPCPA").
I. FACTS
A. The Bankruptcy Case
Christina Roth (" Roth") filed a joint chapter 7 bankruptcy case with her husband on June 6, 2001. The chapter 7 trustee was Scott Kilpatrick (" Kilpatrick").
Roth's Schedule B list of personal property included a 50% interest in the estate of Derenda Crumpler (" Crumpler"), her aunt who died thirteen months before Roth filed bankruptcy. Crumpler's estate was in probate at the time Roth filed bankruptcy. Roth listed the value of her interest in Crumpler's estate (" Inheritance") as " unknown" and located " in debtor's possession." Roth scheduled the Inheritance as exempt under § 522(d) with an " unknown" value (" Exemption").
Section 522 governs the allowance of exemptions in bankruptcy. Under § 522(b)(1) and (2), a debtor has the option to choose between those exemptions provided by the Code under § 522(d), or to choose those made available under state law. Washington is not a state that has prohibited the election of federal exemptions; therefore, Roth was entitled to claim the Exemption under § 522(d).
Kilpatrick met with Roth for the § 341 meeting of creditors on July 18, 2001. According to Roth's attorney, James Dart (" Dart"), Kilpatrick asked Roth questions regarding the Inheritance. Dart subsequently sent Kilpatrick additional information regarding Crumpler's probate estate and a copy of Crumpler's will describing the disposition of her residuary estate in trust for its named beneficiaries. Roth maintained that the Inheritance was in the nature of a spendthrift trust and not property of the estate. According to Dart, Kilpatrick did not agree. However, Kilpatrick did not object to Roth's exemption of the Inheritance.
On September 5, 2001, Roth amended her schedules to list a service contract with Hagler, D/B/A Hagler Investigative, and her intention to reject the contract. Hagler was added to the creditor mailing matrix (" Matrix") with a street address on Granger. Dart certified he sent Hagler the § 341 Meeting of Creditors Notice on September 5, 2001. The § 341 meeting notice states the case is considered to have no assets with which to pay creditors and directs creditors not to file proofs of claim unless notified by the court.
We have taken judicial notice of the § 341 notice to creditors. See O'Rourke v. Seaboard Sur. Co. (In re E.R. Fegert), 887 F.2d 955, 957-58 (9th Cir. 1988) (authorizing appellate court to take judicial notice of underlying bankruptcy records).
On September 17, 2001, notwithstanding the § 341 meeting notice's directive not to file claims, Hagler filed a secured proof of claim for $105,000, plus interest, asserting that his claim was secured by the real property of Crumpler's probate estate. Hagler alleged he had enhanced the value of the Inheritance through the provision of private investigative services to Crumpler. He attached to his proof of claim an Agreement with Roth (nee Cox) memorializing Roth's agreement to pay Hagler for those services. Hagler's proof of claim form was handwritten. The street address was given as Granger; however, from the handwriting it read as Orange. Hagler was, therefore, added to the Matrix by the bankruptcy clerk's office a second time with the street address of Orange. Thus, Hagler appears on the Matrix twice, with one correct address and one incorrect address.
Roth and her husband received their discharge on September 19, 2001. Notice of the discharge was sent to the Matrix on September 21, 2001.
On August 14, 2002, Kilpatrick resigned as the chapter 7 trustee; Appellee, Brian Budsberg, was substituted as the trustee on August 22, 2002 (" Trustee"). In October 2002, Trustee and Dart exchanged correspondence regarding the Inheritance. Roth again asserted her position that the Inheritance was held in a testamentary spendthrift trust and not property of the estate.
The Trustee filed a report of no distribution (" No-Asset Report") on January 17, 2003, and the case was closed on January 21, 2003.
On Roth's motion, the case was reopened on January 15, 2004, for an amendment of the bankruptcy schedules, rescinding the discharge of Roth's husband, bifurcating the case, and converting Debtor's husband's case to chapter 13. Notice of this motion was sent to the Matrix. The case was then re-closed on January 30, 2004.
In January 2004, Hagler contacted an attorney regarding his claim. Hagler's attorney reviewed the bankruptcy case docket and sent the Trustee a letter advising of his client's interest in the Inheritance and his understanding that Crumpler's estate would be settling with Roth receiving approximately $150,000.
Apparently, as a result of receiving that letter, the Trustee filed a Motion to Reopen Case for the Purpose of Administering Asset on February 5, 2004, in order to administer the Inheritance (" Motion to Reopen"). The Motion to Reopen and notice of hearing on the Motion to Reopen was sent to the Matrix the same day.
The following day, the Trustee faxed a letter to Crumpler's probate attorney advising him a Motion to Reopen had been filed due to Roth's impending receipt of the Inheritance and advised him to disburse the funds to the bankruptcy estate pending further order from the bankruptcy court. On the same day, the letter was copied by FAX to Hagler's attorney. Hagler's attorney subsequently sent a notice of appearance addressed to the bankruptcy court on February 24, 2004, with service on the Trustee, Dart, and Roth. However, for reasons not explained in the record, the notice of appearance was not docketed and Hagler's attorney was not added to the Matrix.
Roth objected to the Trustee's Motion to Reopen contending that because the case was closed, the Inheritance had been irrevocably abandoned under § 554(c). On March 10, 2004, the bankruptcy court denied the Motion to Reopen with prejudice and noticed the order to Dart and the Trustee. There are no written or oral findings in the record that set out the reasons for the denial of the Motion to Reopen.
B. The Adversary Proceeding.
On December 31, 2007, Hagler filed, pro se, a complaint against the Trustee in Washington state court for negligence and breach of fiduciary duty. Through counsel, Hagler amended his complaint in January 2008, alleging the Trustee failed to identify, disclose, or inventory the Inheritance for the benefit of Roth's estate (" Complaint").
The record on appeal does not contain a copy of the original complaint.
The exact date is illegible on the copy in the record and not provided by the parties otherwise.
On March 27, 2008, Hagler filed a Motion to Reopen Case and Authorize Creditor to Pursue Trustee. The Trustee objected to reopening the case on the basis that the issues raised in the Complaint were litigated and resolved by the denial of the Motion to Reopen. In his objection, the Trustee requested sanctions against Hagler under Rule 9011. On May 19, 2008, the bankruptcy court ordered the case reopened. Hagler removed the Complaint to bankruptcy court on April 16, 2008 and commenced an adversary proceeding.
The Trustee filed an Answer to the Complaint on May 15, 2008, asserting affirmative defenses and counterclaiming for sanctions and attorney's fees. On May 16, 2008, Trustee filed a motion for summary judgment (" Summary Judgment Motion"). The Trustee argued: (1) he had immunity; (2) it was Kilpatrick who lost the Inheritance by failing to timely object to the Exemption; (3) claim and issue preclusion barred the action against the Trustee; and, (4) the statute of limitations barred Hagler's Complaint. As part of the Summary Judgment Motion, the Trustee again sought sanctions under Rule 9011.
Hagler filed a pro se response to the Summary Judgment Motion on August 14, 2008, and he amended the response on August 21, 2008. The hearing on the Summary Judgment Motion was held August 28, 2008. The bankruptcy court denied the Summary Judgment Motion, concluding that the Inheritance was not abandoned from the estate through the failure of Kilpatrick to object to the Exemption and that the Trustee did not enjoy immunity from suit; but, it found a material issue of fact existed as to when the statute of limitations began to run.
At the close of oral argument, the bankruptcy court stated it would give the parties the opportunity " to note up another motion. If I am wrong on this law, because this is the first time you are hearing it, then I want to know. . . . This ruling on summary judgment is without prejudice to anybody re-noting these issues." Hr'g Tr. 10:8-15 (August 28, 2008). It then entered the Order Denying Defendant's Motion for Summary Judgment Without Prejudice on September 18, 2008. The following day, Judge Snyder recused himself from the case and the case was transferred to Judge Glover.
On September 26, 2008, the Trustee filed a Motion for Reconsideration (" Reconsideration Motion"). The Trustee alleged Judge Snyder " overlooked fundamental issues that go to the lack of substance in Hagler's claim." Hagler responded, contending his claim was not meritless and objected to Judge Glover hearing the Reconsideration Motion. The Trustee filed a Reply on November 4, 2008, and the matter was heard on November 7, 2008.
Judge Glover granted the Trustee's Reconsideration Motion and granted summary judgment in favor of the Trustee. He ruled the Inheritance was lost by Kilpatrick's failure to object to the Exemption and that Hagler's Complaint was time barred by the statute of limitations. Judge Glover made no findings regarding the Trustee's request for sanctions.
The bankruptcy court entered the Order on Reconsideration Granting Summary Judgment to Defendant (" Reconsideration Order") on November 7, 2008, and dismissed Hagler's Complaint with prejudice. The Reconsideration Order was drafted and submitted by the Trustee's counsel. The court struck from the proposed order the language imposing sanctions on Hagler and awarding the Trustee attorney's fees. The Trustee timely appealed the portion of the Reconsideration Order denying attorney's fees.
II. JURISDICTION
The bankruptcy court had jurisdiction pursuant to 28 U.S.C. § 157(b)(1). We have jurisdiction under 28 U.S.C. § 158.
III. ISSUES
1. Did the bankruptcy court err in entering the Reconsideration Order dismissing Hagler's Complaint?2. Did the bankruptcy court abuse its discretion in declining to impose sanctions against Hagler and award the Trustee attorney's fees?
IV. STANDARDS OF REVIEW
Whether the bankruptcy court properly considered and granted a motion for reconsideration is reviewed for an abuse of discretion. Arrow Elecs., Inc. v. Justus (In re Kaypro), 218 F.3d 1070, 1073 (9th Cir. 2000). We also review for abuse of discretion a court's decision to reconsider a previously assigned judge's interlocutory order. Castner v. First Nat'l Bank, 278 F.2d 376, 380-81 (9th Cir. 1960); Abada v. Charles Schwab & Co., Inc., 300 F.3d 1112, 1117 (9th Cir. 2002). A bankruptcy court abuses its discretion if it bases its decision on an erroneous view of the law or clearly erroneous factual findings. Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 400, 110 S.Ct. 2447, 110 L.Ed.2d 359 (1990). We review a bankruptcy court's conclusions of law de novo. Educ. Credit Mgmt. Corp. v. McBurney (In re McBurney), 357 B.R. 536, 538 (9th Cir. BAP 2006).
The bankruptcy court's decision to grant the Reconsideration Motion resulted in a grant of summary judgment in favor of the Trustee. We review de novo the bankruptcy court's ruling on a motion for summary judgment. Woodworking Enters., Inc. v. Baird (In re Baird), 114 B.R. 198, 201 (9th Cir. BAP 1990). Viewing the evidence in the light most favorable to the non-moving party, we determine whether the bankruptcy court correctly found there were no genuine issues of material fact and that the moving party is entitled to summary judgment as a matter of law. Id . We may affirm the bankruptcy court on any basis supported by the record. Canino v. Bleau (In re Canino), 185 B.R. 584, 594 (9th Cir. BAP 1995).
A decision whether to award sanctions under Rule 9011 is reviewed for an abuse of discretion. Smyth v.City of Oakland (In re Brooks-Hamilton), 329 B.R. 270, 277 (9th Cir. BAP 2005).
V. DISCUSSION
A. Hagler's Appeal.
Judge Snyder found there was a material issue of fact as to when the statute of limitations began to run on Hagler's claims. However, Judge Glover, as the successor judge, determined there were no material facts in dispute and that Hagler's Complaint was, as a matter of law, time barred. We agree the Complaint is time barred. However, before discussing that conclusion, we address Appellant's contention that the Reconsideration Order was entered in error due to procedural defect.
The Appellant asks the Panel to vacate the Reconsideration Order because Judge Glover did not certify he had familiarized himself with the earlier proceedings as required by Fed.R.Civ.P. 63. (" If a trial or hearing has been commenced and the judge is unable to proceed, any other judge may proceed with it upon certifying familiarity with the record and determining that the proceedings in the case may be completed without prejudice to the parties.") However, Fed.R.Civ.P. 63 is not violated where there are no material facts in dispute and the successor judge rules as a matter of law. Patelco Credit Union v. Sahni, 262 F.3d 897, 906 (9th Cir. 2001). The Reconsideration Motion presented no new facts or change in the law. Judge Glover did not make any factual findings, but ruled as a matter of law that Hagler's Complaint was time barred. Under these circumstances, we decline to vacate the Reconsideration Order for not filing a certification under Fed.R.Civ.P. 63.
Appellant also contends Judge Glover impermissibly exceeded the scope of Fed.R.Civ.P. 59 by conducting a de novo review of Judge Snyder's previous ruling. The denial of the Summary Judgment Motion was an interlocutory order; therefore, it is subject to reconsideration by the court at any time. Freeman v. Jamond, 1999 WL 58595, *2 (N.D. Cal. 1999); Preaseau v. Prudential Ins. Co. of Am., 591 F.2d 74, 79-80 (9th Cir. 1979). Where a federal judge has denied a motion for summary judgment and the case has been transferred to another federal judge, the second judge has discretion to revisit the prior judge's ruling. Castner, 278 F.2d at 380.
Furthermore, Judge Snyder specifically stated he was denying the Summary Judgment Motion without prejudice so that the parties could re-note any of the issues ruled on by the court if they believed the court was wrong on the law.
Appellant argues the Trustee failed to articulate a basis for reconsideration; however, the Reconsideration Motion states the motion is brought because the Trustee believed Judge Snyder committed a manifest error of law in denying the Summary Judgment Motion. This is an appropriate basis for seeking reconsideration under Fed.R.Civ.P. 59, made applicable to bankruptcy proceedings under Rule 9023. Hale v. United States Trustee (In re Basham), 208 B.R. 926, 934 (9th Cir. 1997), aff'd, 152 F.3d 924 (9th Cir. 1998) (reconsideration is appropriate if the moving party demonstrates (1) manifest error of fact; (2) manifest error of law; or (3) newly discovered evidence). We find nothing in the record to demonstrate the bankruptcy court abused its discretion in granting the Reconsideration Motion.
Finding it was not an abuse of discretion for the bankruptcy court to grant the Reconsideration Motion, we review de novo the substantive issues presented and the bankruptcy court's conclusions of law. Judge Glover ruled: (1) the Trustee was not liable to Hagler because the Inheritance was lost from the bankruptcy estate when Kilpatrick failed to timely object to the Exemption; and, (2) the statute of limitations had run on the two-year statute of limitations under the trustee's bond, under § 322(d), and, on the three-year limitations period provided by state law under Washington Revised Code (" RCW") 4.16.080.
The bankruptcy court's ruling was based upon the precedent set in Taylor v. Freeland & Kronz, 503 U.S. 638, 112 S.Ct. 1644, 118 L.Ed.2d 280 (1992), which strictly construes Rule 4003 and holds when a debtor makes an unambiguous manifestation of intent to seek an unlimited exemption in property, absent a timely objection, the property is exempt in its entirety, even if its actual value exceeds the statutory exemption amount. Id . at 642; Rule 4003(b); 11 U.S.C. § 522(l).
Rule 4003(b)(1) provides that " a party in interest may file an objection to the list of property claimed as exempt within 30 days after the meeting of creditors held under § 341(a) is concluded or within 30 days after any amendment to the list or supplemental schedules is filed, whichever is later.
Section 522(l): " The debtor shall file a list of property that the debtor claims as exempt under subsection (b) of this section. If the debtor does not file such a list, a dependent of the debtor may file such a list, or may claim property as exempt from property of the estate on behalf of the debtor. Unless a party in interest objects, the property claimed as exempt on such list is exempt."
There is no dispute Kilpatrick did not timely object to Roth's claimed exemption in the Inheritance. However, Hagler argues the failure of Kilpatrick to object to the Exemption resulted, at most, in the partial exemption of the Inheritance (to the amount allowed under the exemption statute) but did not exempt the full value of the Inheritance. Hagler relies on cases holding that if a debtor does not signal an intent to exempt the entirety of an asset, the trustee can later object to the value of the property subject to the exemption, even if the trustee did not timely object to the validity of the claimed exemption. Hyman v. Plotkin (In re Hyman), 967 F.2d 1316, 1319 (9th Cir. 1992); Stoebner v. Wick (In re Wick), 276 F.3d 412, 416 (8th Cir. 2002); Klein v. Chappell (In re Chappell), 373 B.R. 73, 78 (9th Cir. BAP 2007).
Judge Snyder, in his ruling on the Summary Judgment Motion, relied on this line of cases, in particular, In re Wick, 276 F.3d 412 (8th Cir. 2002), in determining the Trustee was not entitled to summary judgment on Hagler's allegation that the Trustee was responsible for the removal of the entire Inheritance from the bankruptcy estate when he allowed the case to be closed.
Relying on the holding of those cases, Hagler alleges the Trustee breached his fiduciary duty to creditors by negligently filing the No-Asset Report allowing the case to be closed resulting in the abandonment of the entire Inheritance from the estate under § 554(c).
A bankruptcy trustee's determination that the case is a no asset case does not, by itself, constitute a de facto abandonment of property of the estate. Schwaber v. Reed (In re Reed), 940 F.2d 1317, 1321 (9th Cir. 1991). However, once the case is closed, any scheduled property of the estate that is not administered is abandoned to the debtor. 11 U.S.C. § 544(c). The property becomes " technically abandoned." Schwaber, at 1321. Abandonment under § 554(c) is generally irrevocable. DeVore v. Marshack (In re DeVore), 223 B.R. 193, 197-98 (9th Cir. BAP 1998).
The revocation of an abandonment is only appropriate when the trustee is misled by false or incomplete information. In re DeVore, 223 B.R. at 197-98; Vasquez v. Adair (In re Adair), 253 B.R. 85, 89 (9th Cir. BAP 2000). Neither party contends the abandonment of the Inheritance should be revoked due to misinformation; the facts demonstrate Roth scheduled the Inheritance and that both Kilpatrick and the Trustee sought and received detailed information about the Inheritance from Roth.
Even if we accept Hagler's argument and assume, without deciding, that the Inheritance was only partially exempted and remained in the estate until the bankruptcy case was closed and the Inheritance was technically abandoned, Hagler's claim against the Trustee is still time-barred.
Hagler brought his Complaint in state court under a negligence theory. He seeks damages against the Trustee individually, not against the Trustee's surety. Therefore, Hagler's Complaint is governed by § 322(b), which allows actions against the trustee personally for negligent conduct during the administration of the estate. 11 U.S.C. § 322(b); Searles v. Dye (In re Noakes), 104 B.R. 323, 327 (Bankr. D. Mont. 1989). Section 322(b) does not contain a statute of limitations. The rule for federal causes of action with no federal limitations period is to " look at the state statute of limitations applicable to the most similar state cause of action." Briley v. California, 564 F.2d 849, 854 (9th Cir. 1977). Therefore, the applicable statute of limitations is three years under Washington state tort law. RCW 4.16.080.
A statute of limitations period begins to run when the cause of action accrues; in a negligence action it accrues when the plaintiff suffers injury or damage. RCW 4.16.005; Crisman v. Crisman, 85 Wn.App. 15, 931 P.2d 163, 165 (Wash.App. 1997). The limitations period may be equitably tolled by the " discovery doctrine, " which is used by the courts to " balance the policies underlying statutes of limitations against the unfairness of cutting off a valid claim where the plaintiff, through no fault of her own, could not have reasonably discovered the claim's factual elements until some time after the date of injury." Id . at 166.
Thus, if there is a delay between the injury and the plaintiff's discovery of it, and the delay was not caused by the plaintiff sleeping on his or her rights, the court may toll the limitation period until such time as the plaintiff knew, or, through the exercise of due diligence, should have known of the facts supporting his or her cause of action. Janicki Logging & Constr. Co., Inc. v. Schwabe, Williamson & Wyatt, P.C., 109 Wn.App. 655, 37 P.3d 309, 312 (Wash.App. 2001).
Hagler asserts he " first learned that Roth had been disbursing funds received from Crumpler's probate estate" on January 15, 2005. He contends he did not receive notice of the outcome of the Motion to Reopen, and therefore, had not become aware of the facts supporting his claim against the Trustee until January 15, 2005.
Generally, it is an issue of fact whether the limitations period should be tolled. However, " when [the] application of equitable tolling turns on the plaintiff's diligence in discovering a cause of action, courts may hold, as a matter of law, that the doctrine does not apply." Ernst & Young v. Matsumoto (In re United Ins. Mgmt., Inc.), 14 F.3d 1380, 1385 (9th Cir. 1994). The court may, therefore, grant a summary judgment motion if the uncontroverted evidence irrefutably demonstrates that a plaintiff discovered or should have discovered the facts supporting his cause of action but failed to file a timely complaint. Id . This is such a case. There is ample undisputed evidence in the record demonstrating Hagler had actual notice of the facts supporting his claim prior to January 15, 2005.
Hagler was first put on notice that there were no identified assets or non-exempt assets from which to pay creditors on September 5, 2001. On September 5, 2001, Roth amended her bankruptcy schedules to add Hagler to the Matrix. At that time, Roth, pursuant to Rule 2002, sent a § 341 meeting notice to Hagler at the Granger street address. The notice informed Hagler there did not appear to be property available to pay creditors. Hagler could have, under Rule 4003(b)(1), objected to the Exemption within 30 days of Roth's amendment. Hagler made no objection.
The bankruptcy case docket shows the No-Asset Report was entered on January 17, 2003, and the case closed on January 21, 2003. Even if Hagler did not monitor the bankruptcy case docket, he had notice on or about December 9, 2003, that Roth's bankruptcy case was closed and the Inheritance abandoned. At that time, Roth sent to the Matrix her motion to reopen the case in order to rescind the discharge of Roth's husband and bifurcate the case. The notice of hearing on the motion to reopen was also sent to the Matrix with the motion.
When the Trustee filed the No-Asset Report, the case was considered " fully administered." Rule 5009. After the case is fully administered, the bankruptcy court must close the case. 11 U.S.C. § 350.
Hagler received a second notification that the case was closed (and that the Inheritance, was therefore, technically abandoned) on February 5, 2004. The Trustee's Motion to Reopen was noticed to the Matrix. Although Hagler denies receiving the notice, there is nothing in the record indicating the Granger street address was incorrect.
Additionally, Hagler had consulted an attorney in January 2004, to represent his interests in Debtor's bankruptcy. Hagler submitted a declaration from his attorney stating that the attorney checked the bankruptcy docket and wrote the Trustee alerting the Trustee to the possible closure of Crumpler's probate case and distribution to Roth and of his client's interest in those proceeds. It was this letter that apparently prompted the Trustee to file the Motion to Reopen. On February 6, 2004, the Trustee sent a letter to Crumpler's probate attorney informing him the Trustee had filed a Motion to Reopen to administer the Inheritance and directing him to pay the funds to the bankruptcy court pending further order from the court. The Trustee copied this letter to Hagler's attorney the same day; Hagler's attorney admits he received a copy of that letter on February 6, 2004.
Therefore, there is no material issue of fact that Hagler knew or should have known by, at the latest, January or February 2004, via his attorney, by the pleadings he received at the Granger address he provided to the bankruptcy court, and by reviewing the bankruptcy case docket, that Kilpatrick had not objected to the Exemption, the Trustee filed a No-Asset Report, the case was closed, and the Inheritance was technically abandoned. See Allen v. State, 118 Wn.2d 753, 826 P.2d 200, 203 (Wash. 1992) (A cause of action accrues when plaintiff knows or should know the relevant facts, whether or not the plaintiff also knows the facts are enough to establish a legal cause of action.).
The Complaint against the Trustee was filed December 31, 2007, several months outside the three-year state statute of limitation for tort actions. RCW 4.16.080.
The evidence demonstrates Hagler was provided ample notice of the facts supporting his Complaint, yet he did not act diligently to pursue those claims. Accordingly, we affirm the bankruptcy court's Reconsideration Order.
B. Trustee's Cross Appeal.
The Trustee assigns error to the bankruptcy court's denial of an award for attorney's fees or imposition of other sanctions against Hagler under Rule 9011, which gives the bankruptcy court the authority to sanction parties for frivolous actions; and, under RCW 4.84.185, which allows a court to order the non-prevailing party to pay the reasonable expenses including attorney's fees of the prevailing party when it finds an action was frivolous.
The Motion for Summary Judgment sought sanctions and an award of attorney's fees against Hagler, contending the Complaint was meritless. The Trustee cited Rule 9011 and RCW 4.84.185 in his request, but he failed to follow the requirement that a request for sanctions be made by separate motion. Rule 9011(c)(1)(A) (" A motion for sanctions under this rule shall be made separately from other motions or requests . . ."); RCW 4.84.185 (the determination to award fees " shall be made upon motion . . . after a . . . final order terminating the action as to the prevailing party."). In any event, the denial of the Summary Judgment Motion eviscerated the Trustee's contention that the Complaint was frivolous.
Because Hagler initiated an adversary proceeding in the bankruptcy court, Rule 9011 sanctions, rather than sanctions under state law, apply. Hurd v. Ralphs Grocery Co., 824 F.2d 806, 808 (9th Cir. 1987); Wolf v. Kupetz (In re Wolf & Vine, Inc.), 118 B.R. 761, 768 (Bankr. C.D. Cal. 1990) (federal court applies state sanctions when the federal rule is inapplicable).
The Trustee again sought the imposition of sanctions in the Reconsideration Motion, but failed to specify the statutory authority for his renewed request and again failed to make the request by filing a separate motion. The Trustee did not resurrect the original basis for sanctions; rather, he based his request on the contention that Hagler had no claim at all against Roth's bankruptcy estate. However, Judge Glover never reached the merits of Hagler's claim. Notwithstanding the language inserted in the Reconsideration Order that " plaintiff's underlying claim lacks merit and that this action lacks any basis in fact or law, " Judge Glover expressly stated, at the hearing on the Reconsideration Motion, he was not reaching the merits of Hagler's claim and that he would assume Hagler was entitled to a benefit from Roth's estate. Hr'g Tr. 14:1-4 (November 7, 2008).
The sole basis for the Trustee's request for sanctions was not reached by the bankruptcy court. Under these circumstances, imposition of sanctions was not appropriate. Accordingly we do not find the bankruptcy court abused its discretion by declining to impose them.
VI. CONCLUSION
For the reasons given above, the bankruptcy court did not abuse its discretion in ruling on the Reconsideration Motion. The undisputed evidence demonstrates Hagler had knowledge of the facts supporting his Complaint but did not file it until after the statute of limitations had run. We do not find it was an abuse of discretion for the bankruptcy court to decline to impose sanctions. Accordingly, we AFFIRM the bankruptcy court's entry of the Reconsideration Order dismissing Hagler's Complaint and denying sanctions against Hagler.