Unpublished Disposition, 933 F.2d 1013 (9th Cir. 1985)Annotate this Case
In re Marvin J. BARSKY, Debtor.Carol MORGAN, Plaintiff-Appellant/Cross-Appellee,v.Marvin J. BARSKY, Defendant-Appellee/Cross-Appellant.
Nos. 88-5965, 88-6076.
United States Court of Appeals, Ninth Circuit.
Argued and Submitted Oct. 31, 1989.Decided May 17, 1991.
Before WILLIAM A. NORRIS, REINHARDT and TROTT, Circuit Judges.
When Marvin Barsky filed his Chapter 13 bankruptcy case on October 17, 1984, he owed Carol Morgan $29,365.73. Barsky properly listed Morgan in his bankruptcy schedules and master mailing list at her correct address.
In the Central District of California, the Clerk of the Court is responsible for sending the debtor, the trustee, and listed creditors a notice entitled "Order for Meeting of Creditors, Combined with Notice Thereof and Automatic Stay." This notice sets forth the dates of the creditors' meeting and the plan confirmation hearing and provides instructions for filing proofs of claims. In this case, however, the Clerk erroneously served only the debtor, the debtor's attorney, and the trustee, not Morgan.
Morgan subsequently filed a complaint seeking a determination that her claim against Barsky was not discharged because she received no notice of the deadline for filing a proof of claim, the creditors' meeting, or the plan confirmation hearing in Barsky's Chapter 13 proceedings. Her argument was rejected by the bankruptcy court, and she appealed to the district court.
The district court held that the lack of notice constituted a due process violation, but found Morgan's claim barred by laches. Morgan appeals the latter finding, and Barsky cross-appeals the court's decision that Morgan was denied due process. Because we conclude that Morgan's claim was indeed barred by laches, we need not reach her due process claim based on lack of notice. Thus, we affirm.
* Factual and Procedural Background
When Barsky filed his Chapter 13 petition on October 17, 1984, he owed Morgan a partially unsecured debt of $29,365.73.1 Barsky telephoned Morgan at some point between October 1984 and February 1985, and informed her generally about the filing. On February 15, 1985, Morgan received a copy of the plan filed by Barsky pursuant to 11 U.S.C. § 1321 (1988).2 The plan does not name Morgan specifically, but does describe "Class 7" creditors as " [a]ll other unsecured non-priority claims against Debtor ... not otherwise included in any other Class hereof."
The plan provides for the following treatment of Class 7 creditors:
Class 7: The allowed Class 7 claims, if any, are impaired under this Plan. The claims of the holders of allowed Class 7 claims will be paid and satisfied out of the monies deposited by the Debtor after payment and satisfaction therefrom of the Class 5 and 6 claims, respectively. Periodic pro rata distributions shall be made by the Trustee to all holders of allowed Class 7 claims as and when the Trustee deems appropriate or as may be otherwise ordered by the Court.
The plan requires Barsky to make payments of $300 per month until either all the allowed claims are paid in full or until he has made 36 payments, whichever occurs first.
Pursuant to Bankruptcy Rule 2002, the Clerk of the Central District of California (the district in which this filing occurred) sends Chapter 13 creditors a document listing the date of the 11 U.S.C. § 341 creditors' meeting, the deadline for and manner of filing claims, and the date of the hearing to confirm the debtor's plan. In the present case, although Barsky properly listed Morgan in his bankruptcy schedules, the record reflects service of this notice never reached Morgan.
After a hearing, Barsky's plan was confirmed in March 1985. Aside from the section on Class 7 claims, it included no provision to address the debt owed to Morgan. Morgan made demand on Barsky for relief in January 1987. In April 1987, Morgan filed this action, claiming her debt should be found not dischargeable because the general notice she had received through the telephone conversation and the copy of the plan was inadequate under the due process clause of the Fifth Amendment. Barsky received a discharge in May 1987, based on payment of all the allowed claims. In July 1987, Morgan filed a proof of claim. On cross motions for summary judgment, the bankruptcy court concluded that Morgan received sufficient notice to satisfy due process. The bankruptcy court also found that, even if the notice had been inadequate, Morgan's claim was barred by laches. The district court held that the lack of notice constituted a due process violation, but agreed that laches barred the claim. On that basis, the district court granted summary judgment for Barsky.
Standard of Review
In an appeal from a district court's affirmance of a bankruptcy court decision, this court essentially assumes the role of the district court. In re Global W. Dev. Corp., 759 F.2d 724, 726 (9th Cir. 1985). We review the bankruptcy court's findings of fact under a "clearly erroneous" standard and its conclusions of law de novo. Id. We review the district court's ruling on laches for abuse of discretion. See In re Anderson, 833 F.2d 834, 836 (9th Cir. 1987) (appellate court uses abuse of discretion standard to review bankruptcy court equitable actions); In re Dix, 95 Bankr. 134 (Bankr. 9th Cir. 1988) (bankruptcy court's decision whether bar date for filing proofs of claim should be extended will not be set aside absent abuse of discretion); see also Matter of GAC Corporation, 681 F.2d 1295, 1300-01 (11th Cir. 1982) (bankruptcy court's decision not to extend claims bar deadline reviewable on abuse of discretion standard).
Summary judgment may be granted " 'only where there is no genuine issue of any material fact or where viewing the evidence and the inferences drawn therefrom in the light most favorable to the adverse party, the movant is clearly entitled to prevail as a matter of law.' " Boone v. Mechanical Specialties Co., 609 F.2d 956, 958 (9th Cir. 1979) (quoting Stansifer v. Chrysler Motors Corp., 487 F.2d 59, 63 (9th Cir. 1973)); Fed. R. Civ. P. 56(c). The material facts here are not disputed; we must decide whether Barsky was entitled to prevail as a matter of law. Boone, 609 F.2d at 958.
Even assuming that the lack of formal notice suffered by Morgan constitutes a due process violation, such a lack of formal notice did not give her a license to wait indefinitely. See Remington Rand, 836 F.2d at 833; In re Chicago, R.I. & P.R.R., 788 F.2d 1280, 1284 (7th Cir. 1986); In re Pagan, 59 Bankr. 394, 396-97 (D.P.R. 1986). In Pagan, the court noted that the creditor had not received formal notice regarding the bankruptcy proceedings or the bar date for filing, but stated:
Normally, under these circumstances this would constitute a denial of due process subject to redress.
However, it does not follow that creditors can wait indefinitely to file their claims. Trustees, creditors, debtors, and even bankruptcy judges are entitled to some measure of finality in bankruptcy proceedings.
59 Bankr. 394, 396. The court went on to find the creditor's claim was barred by laches, observing that "equity assists the vigilant and diligent." Id. at 397.
The need for finality in bankruptcy proceedings mandates that creditors act promptly and diligently in asserting their rights. See Remington Rand, 836 F.2d at 833. Thus, we agree with the district court that the equitable doctrine of laches has applicability in cases such as this one.
"To successfully invoke the defense of laches, an individual must show there was inexcusable delay in the assertion of a known right and that the party asserting laches has been prejudiced." Trustees for Alaska Laborers v. Ferrell, 812 F.2d 512, 518 (9th Cir. 1987); see also Brown v. Continental Can Co., 765 F.2d 810, 814 (9th Cir. 1985). Both the bankruptcy court and the district court concluded that Morgan's delay satisfied the first prong of this test, i.e., that the delay was unreasonable. The district court's analysis, with which we agree, was as follows:
Appellant Morgan filed her claim over two years after she was notified of the pendency of the claim, and she received a copy of the Chapter 13 Plan. Morgan's failure to file a claim prior to the passing of the bar date does not preclude her from making a claim because she was denied adequate notice of that date under rules and the due process clause. However, failure to apprise Morgan of the bar date only precludes the court from denying her claim on account of her failure to file a claim prior to the expiration of the bar date. In determining whether Morgan's two year delay was unreasonable, the court must look to the individual circumstances of the case.
The phone call from Barsky and Morgan's receipt of the Chapter 13 Plan would have indicated to a reasonable creditor that her interests were at risk on account of both the pendency of the proceedings, and the Plan's failure to specifically account for her claim....
Pursuant to Gregory [Matter of Gregory, 705 F.2d 1118 (9th Cir. 1983) ], it cannot be disputed that Morgan was supplied with information sufficient to put her on inquiry notice.3 The Chapter 13 Plan failed to list Morgan's claim, and such a failure would apprise a reasonable creditor that her claim was at risk under the Plan. The question is whether her delay in bringing suit was "unreasonable" under the circumstances. In analyzing this question, the court reviews the bankruptcy court's determination for an abuse of discretion.
Morgan has not presented this court with any reason justifying her failure to bring a claim at an earlier date, except her statement that she was just being patient, and that she assumed that her claim fell under class 7 of the Plan (all claims not specifically mentioned fall into class 7), and the Plan called for satisfaction of classes 1 through 6 in full before the class 7 creditors receive anything. Thus, Morgan was waiting to see if she would collect anything under the plan before she made a claim.
Appellant's stated reasons for delay are patently insufficient. Morgan knew that her claim fell within a class of creditors with the least likelihood of collecting, and instead of moving immediately to bring a claim and object to the Plan, she decided to wait it out, and let the proceedings wind down before she would decide whether to make a claim. Under the circumstances, the bankruptcy judge did not abuse his discretion in finding that appellant slept on her rights and behaved in a dilatory manner. Upon learning of the proceedings and receipt of the Chapter 13 Plan, Morgan should have immediately begun protecting her rights. Her two year wait is unjustified and supports the bankruptcy judge's determination that the delay was unreasonable. Thus, it is not the claim bar date, but the unreasonableness of appellant's dilatory conduct in bringing the claim that precludes appellant from filing a claim at this stage in the proceedings.
In re Barsky, 85 Bankr. 550, 554-5 (Bankr.C.D. Cal. 1988).
As to the second prong, prejudice, the district court also rendered a written analysis:
The prejudice suffered by the chapter 13 debtor is apparent. The bankruptcy laws provide a debtor to undergo a fresh start after living through the necessarily lengthy Chapter 13 proceedings. As recognized by the court in Pagan, the debtor, trustee, creditors, and even the bankruptcy court are entitled to some measure of finality. Allowing a dilatory creditor to wait out the proceedings before asserting her rights would significantly prejudice all involved by robbing them of the significant benefit of finality. A finding of prejudice under these circumstances does not constitute an abuse of discretion.
Therefore, the Bankruptcy Court's decision is upheld on the ground that appellant was guilty of laches.
Id. at 555.
We agree with the district court's conclusion that the delay resulted in prejudice. Barsky has fully paid his other creditors pursuant to the terms of his confirmed plan. The Chapter 13 trustee so certified in the appropriate notice. At that point, he was entitled to a discharge, which he received, and a fresh start. To reopen the matter at this stage of the proceedings would not only cancel Barsky's fresh start, but it would also reengage the judicial machinery necessary to sort out how Morgan's debt should be handled. This is a task that would entail taking into consideration obligations that have already been settled and paid--not an easy task by any measurement. Such additional proceedings would require the expenditure of judicial resources which in turn would generate expenses not only to the debtor, but possibly to other creditors as well. All this could have been avoided had Morgan not been dilatory in protecting her rights. Under the circumstances, the district court's finding of prejudice is supported by the record.
Presented with a record that establishes to our satisfaction both unreasonable delay and prejudice, we find no abuse of discretion in the application by the district court of the equitable doctrine of laches to bar her claim to the extent that the claim is unsecured. Barsky's cross-appeal is thus moot.
This disposition is not appropriate for publication and may not be cited to or by the courts of this circuit except as provided by 9th Cir.Rule 36-3
Both parties acknowledge that the debt is at least partially unsecured. Because the bankruptcy court found that Morgan was barred from asserting her claim, it made no finding "as to whether or to what extent Morgan had or has a valid perfected security interest in any property of the Debtor." However, the bankruptcy court did conclude that "since Morgan need not have participated in the Chapter 13 proceeding in order to have preserved any secured claim she had against property of the debtor, said secured claim survives the Bankruptcy proceeding," but only to the extent it can be satisfied from the collateral described in the UCC-1 financing statement
Unless otherwise noted, references to Code sections refer to sections from Title 11 of the U.S.Code. References to rules are to the Bankruptcy Rules
In fact, this was not disputed. We quote Morgan's attorney at a hearing before the bankruptcy court: "Your Honor, I'm willing to assume for the sake of this hearing, that she had inquiry notice, and I'm willing to proceed on that basis."