no. 11-16612 united states court of...

No. 11-16612

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT In re: D. LEE JOHNSON, Debtor(s)

On Appeal from the United States District Court, District of Arizona District Court No. 2:10-cv-02036-SRB U.S. Bankruptcy Court, Arizona 2:10-ap-00678-RTB/2:10-ap-00679-SSC (Jointly Administered)

AMINA ANWAR and DAVID C. MCCLANAHAN, Appellants, v. D. LEE JOHNSON; DAVID LYN VERGEYLE; MARGARET HORNE VERGEYLE; AND THE MARITAL COMMUNITY COMPOSED OF DAVID LYN VERGEYLE AND MARGARET HORNE VERGEYLE, Appellees.

ANSWERING BRIEF OF APPELLEES

Randy Nussbaum (AZ Bar No. 006417) Beth J. Shapiro (AZ Bar No. 009563)

NUSSBAUM GILLIS & DINNER, P.C. 14850 N. Scottsdale Road, Suite 450

Scottsdale, Arizona 85254 Telephone: (480) 609-0011 Facsimile: (480) 609-0016

E-Mail: [email protected] E-Mail: [email protected]

Attorneys for Appellees

Case: 11-16612 03/30/2012 ID: 8123528 DktEntry: 25-1 Page: 1 of 41 (1 of 50)

i

TABLE OF CONTENTS

Page Table of Authorities ................................................................................................ iii I. JURISDICTIONAL STATEMENT ................................................................ 1 II. STANDARD OF APPELLATE REVIEW ..................................................... 1 III. STATEMENT OF THE ISSUES .................................................................... 2 IV. STATEMENT OF THE CASE/RELEVANT FACTS ................................... 3 A. JOHNSON/VERGEYLE CHAPTER 7 ADMINISTRATIVE CASES. .................................................................................................. 4 B. UNTIMELY NONDISCHARGEABILITY COMPLAINTS. .............. 7 C. MISSTATEMENTS AND OMISSIONS OF FACT. ......................... 10 D. OUTCOME OF APPEAL TO U.S. DISTRICT COURT. .................. 13 V. SUMMARY OF ARGUMENT ..................................................................... 15 VI. ARGUMENT ................................................................................................. 17 A. ANWAR/MCCLANAHAN'S ARGUMENT THAT THE DEBTS IN QUESTION ARE UNSCHEDULED TORT CLAIMS PURSUANT TO 11 U.S.C. §523(a)(3)(B) HAS NO MERIT. ......................................................................................... 17 1. The Argument Has Been Waived. ............................................ 17 2. Anwar/McClanahan Had Notice Of These Claims. ................. 18 B. LOCAL BANKRUPTCY RULE 5005-2(n) DOES NOT GOVERN. ........................................................................................... 21


ii

C. THIS CASE DOES NOT WARRANT THE BANKRUPTCY COURT'S EXERCISE OF DISCRETION UNDER 11 U.S.C. §105(a) TO CURE THE UNTIMELY COMPLAINTS. .................... 26 VII. CONCLUSION. ............................................................................................. 32 CERTIFICATE OF COMPLIANCE ....................................................................... 33 CERTIFICATE OF SERVICE ................................................................................ 34 STATEMENT OF RELATED CASES ................................................................... 35


iii

TABLE OF AUTHORITIES

CASES Page(s)

Allred v. Kennerley (In re Kennerley), 995 F.2d 145 (9th Cir. 1993) ............................................................................... 26, 27 Bersher Invs. v. Imperial Sav. Ass'n. (In re Bersher Invs.), 95 B.R. 126 (9th Cir. BAP 1988) .............................................................................. 22 Bilbruck v. BNSF Railway Company, 243 Fed. Appx. 293, 2007 WL 2168023 (9th Cir. 2007) ......................................... 30 Classic Auto Refinishing, Inc. v. Marino (In re Marino), 37 F.3d 1354 (9th Cir. 1994) ..................................................................................... 26 Concrete Equip. Co., Inc. v. Fox (In re Vigil Bros. Constr., Inc.), 193 B.R. 513 (9th Cir. BAP 1996)........................................................................... 18 In re Cybernetic Serv., Inc., 252 F.3d 1039 (9th Cir. 2001) ................................................................................. 18 Erie Insurance Company v. Romano (In re Romano), 262 B.R. 429 (N. D. Ohio 2001) .............................................................................. 20 Evans v. Bantek West, Inc., 2009 WL 700426 (E.D. Cal.) ................................................................................... 30 Greene v. Savage (In re Greene), 583 F.3d 614 (9th Cir. 2009) ....................................................................................... 2 In re Harris, 464 F.3d 263 (2nd Cir. 2006) .............................................................................. 30, 31 Jones v. Hill (In re Hill), 811 F.2d 484 (9th Cir. 1987) ..................................................................................... 26 Leavitt v. Soto (In re Leavitt), 171 F.3d 1219 (9th Cir. 1999) ................................................................................... 30 Litton Loan Servicing, LP v. Garvida (In re Garvida), 347 B.R. 697 (9th Cir. BAP 2006) .............................................................................. 1 Marrama v. Citizens Bank of Massachusetts, 549 U.S. 365 (2007) ................................................................................................. 29 Nardei v. Maughan (In re Maughan), 340 F.3d 337 (6th Cir. 2004) ..................................................................................... 30


iv

Nicholson v. Isaacman (In re Isaacman), 26 F.3d 629 (6th Cir. 1994) ....................................................................................... 30 Nw. Bank Worthington v. Ahlers, 485 U.S. 197 (1988) ................................................................................................. 27 O’Rourke v. Seaboard Sur. Co. (In re E.R. Fegert, Inc.), 887 F.2d 955 (9th Cir. 1989) ................................................................................... 18 Owen v. Miller (In re Miller), 333 B.R. 368 (N.D. Texas 2005) ............................................................................. 31 Phoenix Global Ventures, LLC v. Phoenix Hotel Associates, Ltd., 422 F.3d 72 (2nd Cir. 2005) ................................................................................ 29, 30 Pincay v. Andrews, 389 F.3d 853 (9th Cir. 2004) ..................................................................................... 30 Pioneer Investment Services Company v. Brunswick Associates Limited Partnership, 507 U.S. 380 (1993) ................................................................................................. 29 Santos v. Schunck (In re Santos), 112 B.R. 1001 (9th Cir. BAP 1990) ........................................................................ 27 Scovis v. Henrichsen (In re Scovis), 249 F.3d 975 (9th Cir. 2001) ................................................................................... 18 Sonders v. Mezvinsky (In re Mezvinsky), 2001 WL 1403525 (Bankr. E.D. Pa. 2001) ............................................................. 31 Sunahara v. Burchard (In re Sunahara), 326 B.R. 768 (9th Cir. 2005) .................................................................................... 22 Taylor v. Freeland & Kronz, 503 U.S. 638 (1992) ................................................................................................. 26 Western Wood Fabricators, Inc. v. Sirmans (In re Sirmans), 2009 WL 1456813 (E.D. Cal. 2009) .................................................................. 21, 26 In re Woods, 260 B.R. 41 (N.D. Fla. 2001) ................................................................................... 21 United States v. Hinkson, 585 F.3d 1247 (9th Cir. 2009) ................................................................................. 1, 2


v

STATUTES 11 U.S.C. §105 ......................................................................................................... 27 11 U.S.C. §105(a) ............................................................................................passim 11 U.S.C. §349 ......................................................................................................... 30 11 U.S.C. §523 ................................................................................................... 14, 16 11 U.S.C. §523(a) ...................................................................................................... 3 11 U.S.C. §523(c) ...................................................................................................... 3 11 U.S.C. §523(a)(3)(B) ...................................................................................passim 11 U.S.C. §523(a)(2) .................................................................................................. 5 11 U.S.C. §523(a)(4) .................................................................................................. 5 11 U.S.C. §523(a)(6) .................................................................................................. 5 11 U.S.C. §523(e) ...................................................................................................... 3 11 U.S.C. §706(d) .................................................................................................... 29 11 U.S.C. §727 ......................................................................................................... 14 11 U.S.C. §1307(c) .................................................................................................. 29 28 U.S.C. §1447(c) .................................................................................................. 30

RULES Federal Rules of Appellate Procedure Section 4(a)(5)(A) ...................................... 30 Fed. R. Bankr. P. 3003 ............................................................................................. 29 Fed. R. Bankr. P. 4003(b) ........................................................................................ 26 Fed. R. Bankr. P. 4004(a) ........................................................................................ 27 Fed. R. Bankr. P. 4007(c) .................................................................................passim Fed. R. Bankr. P. 5005(a) ........................................................................................ 24 Fed. R. Bankr. P. 9006(a)(3) .................................................................................... 28 Fed. R. Bankr. P. 9006(b)(1) .................................................................................... 29 Fed. R. Bankr. P. 9006(b)(3) .............................................................................passim Fed. R. Bankr. P. 9029 ....................................................................................... 22, 25 Local Rules of Bankruptcy Procedure 1001-1 ......................................................... 22 Local Rules of Bankruptcy Procedure 5005-2(n) .............................................passim


1

I. JURISDICTIONAL STATEMENT

Appellees D. Lee Johnson, David Lyn Vergeyle, Margaret Horne Vergeyle,

and the Marital Community composed of David Lyn Vergeyle and Margaret Horne

Vergeyle (hereinafter “Johnson/Vergeyle”) concur with the Jurisdictional

Statement set forth in the Opening Brief of Appellants Amina Anwar and David C.

McClanahan (hereinafter “Anwar/McClanahan”).

II. STANDARD OF APPELLATE REVIEW

The issues in this appeal concern the interplay among the Federal Rules of

Bankruptcy Procedure, specifically FRBP 4007(c) and FRBP 9006(b)(3), Local

Bankruptcy Rule 5005-2(n) and 11 U.S.C. §105(a), and their interpretation by the

U.S. Bankruptcy Court and the U.S. District Court. The Ninth Circuit Court of

Appeals follows a two-prong approach in determining whether the trial court, i.e.

Bankruptcy Court, has abused its discretion in dismissing Anwar/McClanahan’s

complaints with prejudice and denying relief to Anwar/McClanahan under LRBP

5005-2(n).

First, the Bankruptcy Court’s interpretation and application of the

Bankruptcy Code and Rules in its September 8, 2010 order dismissing the

complaints with prejudice are reviewed de novo. United States v. Hinkson, 585

F.3d 1247, 1261-1262 (9th Cir. 2009); Litton Loan Servicing, LP v. Garvida (In re

Garvida), 347 B.R. 697, 703 (9th Cir. BAP 2006). Also, the District Court’s order


2

dated June 3, 2011, affirming the Bankruptcy Court’s ruling is reviewed de novo.

Greene v. Savage (In re Greene), 583 F.3d 614, 618 (9th Cir. 2009).

Second, if the Bankruptcy Court has identified the correct legal rule to

apply, the Ninth Circuit determines whether the Bankruptcy Court’s application of

the facts to the relevant law was "(1) illogical, (2) implausible, or (3) without

support in inferences that may be drawn from the facts in the record." United States

v. Hinkson, 585 F.3d at 1251.

III. STATEMENT OF THE ISSUES

A. Did Anwar/McClanahan waive their arguments, raised for the first

time on appeal, that this case involves debts that are “neither listed nor scheduled”

and that Anwar/McClanahan were not provided with “notice or actual knowledge

of [the Johnson/Vergeyle cases]” under 11 U.S.C. §523(a)(3)(B) and did

Anwar/McClanahan actually receive such notice?

B. Did the U.S. Bankruptcy Court have a proper legal basis under FRBP

4007(c) and FRBP 9006(b)(3) to dismiss the Anwar/McClanahan Complaints with

prejudice for untimeliness, while at the same time implicitly denying the

Anwar/McClanahan Motions for Relief from Untimely Filing and to Determine

Timeliness?

C. Did the U.S. Bankruptcy Court and U.S. District Court properly

determine that Local Bankruptcy Rule 5005-2(n) of the United States Bankruptcy


3

Court for the District of Arizona does not apply in a case in which FRBP 4007(c)

and FRBP 9006(b)(3) are controlling?

D. Did the U.S. District Court have a proper legal basis in affirming the

U.S. Bankruptcy Court’s order dated September 8, 2010 dismissing the

Anwar/McClanahan Complaints with prejudice and denying the

Anwar/McClanahan Motions for Relief?

Addendum to Brief: Per Circuit Rule 28-2.7, Johnson/Vergeyle file their

separate Addendum to the Answering Brief.

IV. STATEMENT OF THE CASE/RELEVANT FACTS

The heart of this case concerns the inability of Anwar/McClanahan to meet

what is probably the most critical deadline in the Bankruptcy Code and Rules – the

filing of complaints to determine the dischargeability of certain debts1– because of

their own dilatory conduct. They failed to heed the strict time limitations

established in FRBP 4007(c) and FRBP 9006(b)(3) for filing nondischargeability

complaints under 11 U.S.C. §523(c). It is undisputed that the complaints in this

case were untimely filed on April 14, 2010. (APP ER 489-502; APP ER 475-

488.)2 No timely motions to extend the court-ordered extended deadline of April

1 Throughout this brief, Johnson/Vergeyle refer to complaints to determine the dischargeability of certain debts under 11 U.S.C. §§523(a) - 523(e) as “nondischargeability complaints.” 2 References by Johnson/Vergeyle to the record are taken from Appellants’ Excerpts of Record and cited as (“APP ER ___”.)


4

13, 2010 were filed as required by FRBP 4007(c). (APP ER 970-974; APP ER

975-986.) Anwar/McClanahan caused the untimely filings by inexplicably waiting

until days before the deadline to commence discovery to form the basis of their

nondischargeability complaints, leading the Bankruptcy Court and the District

Court to reject their pleas for relief.

A. JOHNSON/VERGEYLE CHAPTER 7 ADMINISTRATIVE CASES.

Anwar/McClanahan are former employees of a bankrupt business known as

Xperex Corporation (hereinafter “Xperex”). Appellees D. Lee Johnson

(hereinafter “Johnson”) and David Lyn Vergeyle (hereinafter “Vergeyle”) served

as two of the corporation’s executive officers until Xperex filed a Chapter 7

business bankruptcy case with the United States Bankruptcy Court, Northern

District of California, on July 27, 2009, in Case No. 09-32098-DM. (APP ER 681-

682; APP ER 661-663.) Subsequently, Johnson filed his individual Chapter 7

bankruptcy case with the U.S. Bankruptcy Court, District of Arizona on August 6,

2009. (APP ER 942.) David and Margaret Vergeyle (hereinafter “Vergeyles”)

filed their individual Chapter 7 bankruptcy case with the U.S. Bankruptcy Court,

District of Arizona on August 26, 2009. (APP ER 833.) Johnson/Vergeyle

received their Chapter 7 Discharge Orders on April 19, 2010 and March 19, 2010,

respectively. (APP ER 465-474; APP ER 505-514.)


5

Anwar/McClanahan were listed as unsecured wage claimants in the Xperex

Bankruptcy Schedules as well as in the respective Chapter 7 Schedules in the

Johnson/Vergeyle cases. (APP ER 681-682; APP ER 661-663; APP ER 711, 757,

852 and 877.) Anwar/McClanahan were provided Notices of Chapter 7

Bankruptcy Case, Meeting of Creditors & Deadlines by the Clerk of the Court that

Johnson/Vergeyle were seeking to discharge any personal liability owed for those

and other claims. (APP ER 420-424 and 451-455.) The notices stated that the

deadline to file nondischargeability complaints in the Johnson case was November

10, 2009 and the deadline to file in the Vergeyle case was November 30, 2009.

(APP ER 420 and 451) The Johnson/Vergeyle administrative cases were ordered

by the Bankruptcy Court to be jointly administered on December 30, 2009. (APP

ER 542-543.)

In November 2009, Anwar/McClanahan timely filed Motions for Extension

of Time to file nondischargeability complaints (hereinafter “Motions to Extend

Time”) in both the Johnson and Vergeyle cases. (APP ER 681-686 and 661-671.)

The Motions to Extend Time informed the Court that their planned investigation

“will provide sufficient evidence pursuant to Code Sections 523(a)(2), (4) or (6), to

justify denial of discharge” (APP ER 662, lines 20-25; APP ER 681, lines 18-24)

and averred “false pretenses, false representations and statements [made by

Johnson/Vergeyle] regarding Debtor’s and Xperex’s financial condition.” (APP


6

ER 664, lines 3-4; APP ER 683, lines 3-4.) The Motions to Extend in the jointly

administered cases were set for hearing on January 13, 2010. (APP ER 963.)

Anwar/McClanahan filed Motions for Order Authorizing Rule 2004

Examinations in the Johnson/Vergeyle cases to conduct discovery that they said

would focus on their allegation of reliance on the “oral pretenses, representations

or fraud” made by Johnson/Vergeyle. (APP ER 547, lines 3-4; APP ER 574, lines

3-4.) The Rule 2004 Motions did not seek to compel the production of documents

from Johnson/Vergeyle, and no subpoenas were issued demanding document

production. On December 30, 2009, the Court granted the Rule 2004 Motions to

permit oral examination of Johnson/Vergeyle, effective upon the granting of the

pending Anwar/McClanahan Motions to Extend Time. (APP ER 541.)

Following the January 13, 2010 hearing on the Motions to Extend Time, the

Bankruptcy Court issued a Minute Entry/Order dated January 25, 2010, granting

Anwar/McClanahan an extension of time to file their nondischargeability

complaints “up to and including April 13, 2010.” (APP ER 517.) The Minute

Entry/Order stated: “Counsel for creditors [Anwar/McClanahan] to prepare and

lodge an appropriate form of order.” Anwar/McClanahan lost nearly two weeks of

their extension following this Minute Entry because they did not lodge the order as

directed by the Court until February 8, 2010 (APP ER 966). The formal order

granting the extension was entered on February 9, 2010. (APP ER 515-516.)


7

On February 10, 2010, counsel for Johnson/Vergeyle emailed counsel for

Anwar/McClanahan to request a list of documents to be produced for the

examinations and to inquire about scheduling the Rule 2004 examinations of

Johnson/Vergeyle. (APP ER 282.) Counsel for Johnson/Vergeyle did not receive

a response to the February 10th email.

B. UNTIMELY NONDISCHARGEABILITY COMPLAINTS.

Counsel for Anwar/McClanahan waited until April 5, 2010, eight days prior

to the April 13th nondischargeability complaint deadline, to contact counsel for

Johnson/Vergeyle about scheduling the Rule 2004 examinations. (Opening Brief

at p. 22.)3 Johnson/Vergeyle and their counsel were available on April 12th for the

examinations, which took place at the law offices of counsel for Johnson/Vergeyle.

(Opening Brief at pp. 22-23.) It was not until Friday, April 9, 2010, three days

before the scheduled examinations, that counsel for Anwar/McClanahan provided

a list of requested documents to be produced in conjunction with the examinations,

even though there was no court order to compel such production. (APP ER 429-

3 In their Opening Brief at page 21, Anwar/McClanahan stated they filed a Bankruptcy Rule 2004 examination request in the Xperex case. To be more specific, the Xperex docket report reveals that their Rule 2004 application, which was not approved, was filed on April 5, 2010, the same day they sought to schedule discovery in the Johnson/Vergeyle cases, only days before the nondischargeability deadline.


8

436.) There is no dispute that Johnson/Vergeyle substantially complied with the

request.

Anwar/McClanahan waited until two and one-half hours before the April

13th deadline expired to begin the process of opening their Adversary Proceedings

in the Johnson/Vergeyle cases, i.e., April 13, 2010 at 9:34 p.m. and 9:51 p.m.,

respectively. (APP ER 504A and APP ER 438.) However, both Complaints were

filed the following day, April 14, 2010. Specifically, the Complaint against

Johnson was filed at 12:26 a.m. and the Complaint against Vergeyle was filed at

12:38 a.m., according to the Electronic Case Filing system. (APP ER 475-488 and

489-502.)

The Bankruptcy Court dockets in the Adversary Proceedings reflect that

Anwar/McClanahan did not file motions seeking to extend the time to file their

complaints in the Johnson/Vergeyle cases either on or after the April 13th deadline

in accordance with FRBP 4007(c). (APP ER 970-974 and 975-986.)

Thereafter, on May 18, 2010, Johnson/Vergeyle filed their respective

Motions to Dismiss the Anwar/McClanahan Complaints with prejudice for

violating the court-ordered deadline of April 13, 2010, as well as for violating the

strict deadlines established in FRBP 4007(c). (APP ER 411-441 and 442-464.)

The Johnson/Vergeyle adversary cases were ordered to be jointly administered on

June 2, 2010. (APP ER 392-393.)


9

In response, Anwar/McClanahan filed Motions for Relief from Untimely

Filing and to Determine Timeliness pursuant to Local Bankruptcy Rule 5005-2(n),

seeking the Bankruptcy Court’s determination that relief was appropriate on the

basis of good cause or excusable neglect.4 (APP ER 301-304.) The Motions for

Relief were supported by the declarations of counsel for Anwar/McClanahan and

counsel’s legal assistant. (APP ER 305-314; APP ER 363-382.) Among the

reasons stated for the untimely complaints include, but are not limited to:

• The mistaken belief that Arizona time was one hour ahead of Oregon

time on April 13, 2010 (APP ER 371-372);

• The malfunction and slow speed of counsel’s computer (App ER 374-

375);

• Counsel’s other professional obligations and personal time

commitments (APP ER 308-309);

• The difficult and time-consuming effort to locate and analyze various

Bankruptcy and non-Bankruptcy laws (APP ER 309-310);

• The time-consuming effort to investigate “Xperex/Paine Security

Interest; UForce Transaction” (APP ER 310-312); and

4 Since November 23, 2009, Anwar/McClanahan have been associated with the local law firm of Marc J. Victor, P.C. in the Johnson/Vergeyle cases (APP ER 948 and APP ER 963.) It is baffling that local counsel did not provide assistance to ensure that the complaints were timely filed.


10

• Time spent to determine who had access to important Xperex business

records and information and to investigate the relationship of the

Xperex case to the Johnson/Vergeyle cases. (APP ER 311-313.)

On August 3, 2010, the Bankruptcy Court heard oral argument on

Johnson/Vergeyle’s Motions to Dismiss and Anwar/McClanahan’s Motions for

Relief from Untimely Filing and to Determine Timeliness. (APP ER 191-199.)

Following the Bankruptcy Court’s consideration of briefing and oral

argument, the Court issued a four-page written decision on August 25, 2010, in

support of its order granting the Motions to Dismiss and denying the Motions for

Relief from Untimely Filing. (APP ER 12-16.) The Court cited to case law

controlling in the Ninth Circuit that the Court has “no or very little discretion to

grant relief when [nondischargeability] complaints … are untimely filed.” (APP

ER 13.) The Court noted that Anwar/McClanahan had been given a lengthy

extension, almost five months and yet inexplicably waited until under three hours

before the deadline to begin the filing process. (APP ER 12-13.) The formal order

dismissing the Anwar/McClanahan nondischargeability complaints was entered on

September 8, 2010. (APP ER 9-10.)

C. MISSTATEMENTS AND OMISSIONS OF FACT.

It has come to the attention of counsel for Johnson/Vergeyle that the

Opening Brief contains certain misstatements and omissions of fact by


11

Anwar/McClanahan concerning their continuing allegations of unproven fraud

committed by Johnson/Vergeyle in connection with 1) Xperex security interest

involving Dorothy Paine, Johnson’s sister-in-law and 2) UForce, Inc. Asset

Purchase Agreement. (Opening Brief at pp. 17-19.) Anwar/McClanahan purport

to make these allegations to support more than one cause of action in their

untimely nondischargeability complaints. (APP ER 475-488 and APP ER 489-

502.) As explained below, Anwar/McClanahan have been aware for many months

that the matters concerning Ms. Paine and the UForce contract were resolved by

the Xperex Trustee between September 23, 2010 and March 30, 2011.5 These

continuing and inappropriate assertions are prejudicial to Johnson/Vergeyle and are

meant to obfuscate the real issue that the untimely filed complaints were due to

self-inflicted delay.

To the extent that the Court considers any of these allegations, then the

Court should be aware of and take judicial notice of the following bankruptcy

proceedings which have already resolved the two Xperex disputes raised by

Anwar/McClanahan:

The Xperex Bankruptcy Court docket report (U.S. Bankruptcy Court,

Northern District of California, Case No. 09-32098-DM) reveals that two disputes

5 It is important to note that counsel for Johnson/Vergeyle does not and has never represented Xperex Corporation in Bankruptcy Court or in any other capacity.


12

referred to by Anwar/McClanahan in their Opening Brief – Dorothy Paine security

interest and UForce, Inc. contract (Opening Brief at pp.19-20) – have been

resolved by Xperex Bankruptcy Trustee E. Lynn Schoenmann.

The Xperex docket report reflects that the Bankruptcy Court in California

entered an order on September 23, 2010, approving the Xperex Trustee’s

compromise with Dorothy Paine to resolve the disputed pre-Petition security

interest. (Xperex docket entry no. 55.) The order makes no reference to any fraud

or other bad acts committed by Johnson/Vergeyle. But the Rider to the Order

specifically refers to correspondence to the Xperex Court from Mark McClanahan,

counsel for Anwar/McClanahan, who evidently sought a stay of the Dorothy Paine

matter pending the outcome of the appeal to the District Court from the ruling

adverse to them in the Johnson/Vergeyle cases in Arizona. In denying the stay

request, the Court found that “Mr. McClanahan has not intimated or suggested that

there has been an abuse of discretion.” The order was entered approximately two

weeks after the Bankruptcy Court in Arizona entered its September 8, 2010 order

dismissing the complaints in the Johnson/Vergeyle cases.

In addition, on March 31, 2011, during the time when Johnson/Vergeyle

were preparing their Answering Brief in the District Court appeal, the Bankruptcy

Court in the Xperex case entered another order approving of the Xperex Trustee’s


13

compromise to resolve the UForce, Inc. contract controversy. (Xperex docket

entry no. 59.)

These orders should have been brought to the Court’s attention in the

Johnson/Vergeyle cases as soon as they were known to Anwar/McClanahan. It is

highly improper and prejudicial to Johnson/Vergeyle for Anwar/McClanahan to

continue to falsely assert that Johnson/Vergeyle committed fraud in these matters

when they are fully aware that the controversies have been resolved to the

satisfaction of the Xperex Bankruptcy Trustee. Therefore, Johnson/Vergeyle

request that the Court disregard these false and prejudicial allegations.

D. OUTCOME OF APPEAL TO U.S. DISTRICT COURT.

Anwar/McClanahan timely appealed the Bankruptcy Court’s order of

September 8, 2011, dismissing the complaints to the United States District Court

for the District of Arizona. (APP ER 172-179 and 180-187.) The District Court

granted three extensions of time for Anwar/McClanahan to file their Opening

Brief to U.S. District Court, with the final extension deadline set on February 28,

2010. (APP ER 989-990.) However, on March 1, 2011, one day after the

deadline, Anwar/McClanahan untimely filed their Motion for One-Day

Enlargement of Time to File Opening Brief and their Opening Brief, to which

Johnson/Vergeyle responded. (APP ER 990-991.) After considering the briefing

on the untimely Opening Brief, the District Court granted the Motion for One-Day


14

Enlargement of Time to allow the Anwar/McClanahan Opening Brief to be timely

filed. (APP ER 993.)

Following briefing and without oral argument, the District Court issued a

Judgment and written decision filed on June 3, 2011, affirming the Bankruptcy

Court’s September 8, 2010 decision. (APP ER 1-8.) The District Court ruled that

it was bound by FRBP 4007(c) and 9006(b)(3) “and that a bankruptcy court has no

or very little discretion to grant relief when complaints for Section 523 or 727

claims are untimely filed.” (APP ER 6, lines 11-13.)

The District Court found that the Bankruptcy Court “engaged in a detailed

analysis of the law and facts and circumstances of this case” (APP ER 6, lines 13-

14) and upheld the Bankruptcy Court’s finding that:

the deadline for filing nondischargeability Complaints [is] rigid and that the bankruptcy court had no discretion to extend the deadline unless a motion to extend was filed before the time ran out.”

(APP ER 4, lines 21-23.)

The District Court also ruled that LRBP 5005-2(n) “clearly conflicts with

FRBP 4007(c) and 9006(b)(3),” and those rules “prohibit consideration of factors

such as excusable neglect.” (APP ER 6, lines 23-26.)

The District Court concluded that:

The policy in favor of firm deadlines to support prompt and final resolutions of bankruptcy proceedings and clean slates for debtors is bolstered by a system that does not permit after-the-fact extensions of due dates. In sum, a party that misses a deadline to file a


15

nondischargeability complaint may not rely on excusable neglect to extend the time limitation.

(APP ER 7, lines 2-6.)

The Court further concluded that it was not legal error for the Bankruptcy

Court to dismiss the Anwar/McClanahan complaints with prejudice and to deny the

Motions for Relief because “no amendment could cure this defect.” (APP ER 7,

lines 7-11.)

On June 30, 2011, Anwar/McClanahan filed a timely Notice of Appeal to the

Ninth Circuit Court of Appeals from the District Court’s June 3, 2011 Order. (APP

ER 99-100.)

V. SUMMARY OF ARGUMENT

Anwar/McClanahan argue that the deadline to file their nondischargeability

complaints should be extended or equitably tolled pursuant to 11 U.S.C.

§523(a)(3)(B) because their alleged fraud claims were not listed and/or scheduled

and they did not have notice or actual knowledge of alleged “tort claims” by the

April 13, 2010 extended filing deadline in order to timely file their

nondischargeability complaints. (Opening Brief at p. 26.)

First, Anwar/McClanahan waived their right to make this argument by

failing to raise it prior to this appeal. Second, they had notice or actual knowledge

that their unsecured Xperex wage claims were listed in both the Johnson and

Vergeyle Bankruptcy Schedules. Both creditors received official Notice from the


16

Clerk of the Court of the Johnson/Vergeyle bankruptcy cases and the deadlines to

file nondischargeability complaints. (APP ER 420-424; APP ER 451-455.)

Section 523(a)(3)(B) comes into play only if the debts in question were “neither

listed nor scheduled.” Anwar/McClanahan’s knowledge of their own allegations is

demonstrated by the assertions of alleged misrepresentations and fraudulent

conduct raised in their Motions to Extend Time filed in November 2009 (APP ER

681-686; APP ER 661-671) and in their Motions for Order Authorizing Rule 2004

Examinations filed in December 2009. (APP ER 544-552; APP ER 572-580.) It

was not Johnson/Vergeyle’s responsibility to divine the nature of the claims that

Anwar/McClanahan might raise (and had not yet raised) upon filing their

Bankruptcy Schedules.

Next, both the Bankruptcy Court and the District Court properly determined

that Local Bankruptcy Rule 5005-2(n) does not apply based upon the facts

presented in this case to relieve the untimely filed nondischargeability complaints.

If applied, the Rule would override the strict and unambiguous deadlines

established under FRBP 4007(c) and FRBP 9006(b)(3). Local rules must be

consistent with the Federal Bankruptcy Rules pursuant to FRBP 9029.

Finally, the Bankruptcy Court did not abuse its discretion when it relied

upon the “significant and controlling case law” in the Ninth Circuit upholding the

strict deadlines of FRBP 4007(c) and FRPB 9006(b)(3) for filing section 523


17

complaints and dismissing the untimely Anwar/McClanahan nondischargeability

complaints. After a review of the record, an analysis of the Electronic Case Filing

System in the District of Arizona, a review of Ninth Circuit precedent relating to

the deadline for filing nondischargeability complaints, consideration of the

extension of time previously granted, and Anwar/McClanahan’s list of reasons for

the untimely filings, the Bankruptcy Court soundly concluded in its written

decision dated August 25, 2010, that there were no unique circumstances or other

equities to justify exercising its discretion under 11 U.S.C. §105(a) to relieve the

untimely complaints. (APP ER 12-15.) The District Court’s later written decision

dated June 3, 2011, provides a proper and logical basis to affirm the Bankruptcy

Court’s ruling. (APP ER 2-8.)

VI. ARGUMENT

A. ANWAR/MCCLANAHAN’S ARGUMENT THAT THE DEBTS IN QUESTION ARE UNSCHEDULED TORT CLAIMS PURSUANT TO 11 U.S.C. §523(a)(3)(B) HAS NO MERIT.

1. The Argument Has Been Waived.

The record shows that Anwar/McClanahan has never raised the argument

that the alleged claims of Anwar/McClanahan are tort debts that were “neither

listed nor scheduled” pursuant to 11 U.S.C. §523(a)(3)(B) in order to file timely

proofs of claim and/or nondischargeability complaints. The argument was not

argued before the Bankruptcy Court in Anwar/McClanahan's response to the


18

Motions to Dismiss their complaints, in their own Motions for Relief from

Untimely Filing, or during the oral argument held on August 3, 2010. (APP ER

383-391G, APP ER 301-368 and APP ER 191-199.) Nor was this issue discussed

in Anwar/McClanahan’s Opening and Reply Briefs to the District Court. (Not

included in APP ER per Circuit Rule 30-1.5)

The Ninth Circuit will not consider an argument raised for the first time on

appeal. O’Rourke v. Seaboard Sur. Co. (In re E.R. Fegert, Inc.), 887 F.2d 955,

957 (9th Cir. 1989); Concrete Equip. Co., Inc. v. Fox (In re Vigil Bros. Constr.,

Inc.), 193 B.R. 513, 520 (9th Cir. BAP 1996); see also In re Cybernetic Serv., Inc.,

252 F.3d 1039, 1045 n.3 (9th Cir. 2001) (Appellate court will not explore

ramifications of argument because it was not raised below and, accordingly, was

waived); Scovis v. Henrichsen (In re Scovis), 249 F.3d 975, 984 (9th Cir. 2001)

(Court will not consider an issue raised for first time on appeal absent exceptional

circumstances).

2. Anwar/McClanahan Had Notice Of These Claims.

Section 523(a)(3)(B) excludes a debt from discharge in an individual’s

bankruptcy case if the debt involved was “neither listed nor scheduled … with the

name, if known to the debtor, of the creditor to whom such debt is owed, in time to

permit—

(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


19

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.

(Emphasis added.)

Even if the Court considers Anwar/McClanahan’s novel argument, it must

be rejected because Anwar/McClanahan received actual notice of the

Johnson/Vergeyle cases from the Clerk of the Court. (APP ER 420-424 and 451-

455.) It is irrelevant that that their claims were possibly in the nature of tort

claims. The statute only provides an exception if the creditor lacks notice or

knowledge of the case, not lack of knowledge of the type of claim a creditor may

allege against a debtor. The debts owed to Anwar/McClanahan were listed and

scheduled as unsecured debts in the respective Schedules F in the Johnson and

Vergeyle cases. (APP ER 681-682; APP ER 661-663; APP ER 711, 757, 852 and

877.) Anwar and McClanahan do not deny receiving notice of the

Johnson/Vergeyle bankruptcy cases. There has never been a claim made by

Anwar/McClanahan that they did not have proper notice or actual knowledge of

the cases in order to timely file a proof of claim under section 523(a)(3)(B).

There is no question that Anwar/McClanahan knew well in advance of the

April 13th deadline about their allegations of fraudulent concealment because they

raised these same allegations in their own pleadings as early as November 2009. It

was their burden to prove the type of claim they may have had against


20

Johnson/Vergeyle through formal discovery. The important point is that they did

not avail themselves of the more than two additional months granted by the

Bankruptcy Court to conduct discovery so that they could file timely complaints.

The case relied on by Anwar/McClanahan, Erie Insurance Company v.

Romano (In re Romano), 262 B.R. 429 (N. D. Ohio 2001) (Opening Brief at p. 29),

is inapposite because the creditor had no reason to believe there was any fraud

until more than a year following the deadline to file nondischargeability

complaints. Here, the record reflects that Anwar/McClanahan had plans to

investigate these allegations long before the April 13th deadline. The Motions to

Extend Time specifically reference alleged “false pretenses, false representations

and statements” made concerning the security interest of Johnson’s sister-in-law in

Xperex assets and the UForce, Inc. contract. (APP ER 664; APP ER 683.) The

Rule 2004 Motions reference their plans to examine Johnson/Vergeyle and

subpoena Dorothy Paine, Johnson’s sister-in-law, in connection with the Xperex

security interest and the UForce, Inc. contract. (APP ER 547-549; APP ER 574-

577.) In the face of their own filings, therefore, Anwar/McClanahan cannot claim

they were without notice to assert their allegations in timely nondischargeability

complaints.

Further, there is nothing in the record to demonstrate that Johnson/Vergeyle

prevented Anwar/McClanahan from conducting discovery, and that issue was not


21

argued to the Bankruptcy Court. (APP ER 191-199.) To the contrary, the record

shows that as early as February 10, 2010, Johnson/Vergeyle reached out to

opposing counsel to inquire about scheduling discovery. (APP ER 282.)

Anwar/McClanahan chose to wait until the week before the extended deadline to

contact counsel for Johnson/Vergeyle about scheduling discovery. “A lack of

diligent effort by a creditor can be fatal to a creditor’s last minute attempt to

achieve an extension of the nondischargeability deadline.” In re Woods, 260 B.R.

41, 44-45 (N.D. Fla. 2001); see also Western Wood Fabricators, Inc. v. Sirmans

(In re Sirmans), 2009 WL 1456813, *2 (E.D. Cal. 2009) (Bankruptcy Court did not

commit error or an abuse of discretion in denying creditor’s motion for extension

of time to file nondischargeability complaint; court found that creditor’s difficulty

in seeking discovery from the debtor in a state court proceeding did not justify the

creditor’s failure to conduct any discovery in the debtor’s bankruptcy case).

B. LOCAL BANKRUPTCY RULE 5005-2(n) DOES NOT GOVERN.

Local Bankruptcy Rule 5005-2(n) provides that “an attorney or other filer

whose filing is untimely or otherwise improper may seek appropriate relief from

the bankruptcy court upon a showing of good cause or excusable neglect.” None

of the applicable federal or local bankruptcy rules or Judicial Conference

commentary expressly or implicitly permits LRBP 5005-2(n) to override the strict


22

deadlines set by FRBP 4007(c) and 9006(b)(3) or to operate in direct contravention

of FRBP 9029.

Under FRBP 9029, the Local Rules cannot enlarge or otherwise be

inconsistent with the Federal Rules of Bankruptcy Procedure, including the long-

established deadlines for filing nondischargeability complaints set forth in FRBP

4007(c) and FRBP 9006(b)(3). Even in Arizona, Local Bankruptcy Rule 1001-1

[General Scope] requires that the Local Rules be applied consistently with the

“expedite administration” policy and FRBP 9029. LRBP 1001-1 provides in part:

The Local Rules supplement or, if permitted, modify the Federal Rules of Bankruptcy Procedure, as amended. They shall be construed to be consistent with such Rules to promote speedy and inexpensive litigation.

(Emphasis added.)

The Ninth Circuit recognizes that “district and bankruptcy courts have been

delegated authority to adopt local rules prescribing the conduct of business, but the

rules must be consistent with the Bankruptcy Code and the Federal Rules of

Bankruptcy Procedure.” Sunahara v. Burchard (In re Sunahara), 326 B.R. 768,

782 (9th Cir. 2005) (interpreting FRBP 9029); see also Bersher Invs. v. Imperial

Sav. Ass'n. (In re Bersher Invs.), 95 B.R. 126, 129 (9th Cir. BAP 1988) (FRBP

9029 permits the establishment of local bankruptcy rules as long as they are not

“inconsistent with the more general bankruptcy rules”).


23

The language of FRBP 4007(c) is thus controlling and unambiguous

concerning the strict deadline to file nondischargeability complaints: “On motion

of any party in interest, after hearing on notice, the court may for cause extend the

time fixed under this subdivision. The motion shall be filed before the time has

expired.” (Emphasis added.) FRBP 9006(b)(3) enforces the mandate of FRBP

4007(c), by providing that the court “may enlarge the time for taking action under

… 4007(c) only to the extent and under the conditions stated in [the Rule].

(Emphasis added.)

As a result, Anwar/McClanahan did not comply with FRBP 4007(c) and

9006(b)(3) because they failed to file a Motion to Extend before the April 13th

deadline expired. Therefore LRBP 5005-2(n) cannot be used in this case to

undermine the clear-cut Federal Bankruptcy Rules of Procedure.

If Anwar/McClanahan had filed Motions to Extend Time before the April

13th deadline expired, the Court may have entertained another request for extension

of time to file their nondischargeability complaints. The Bankruptcy Court,

however, had a proper and logical basis to conclude that “under the facts and

circumstances here,” it had no discretion to grant relief to Anwar/McClanahan.

The Court considered LRBP 5005-2(n) at the hearing on the Motions to Dismiss

and Motions for Relief from Untimely Filing, but the Court rejected the Rule’s

application despite counsel’s attempt to argue for relief:


24

Mr. McClanahan: We would ask Your Honor to consider that the attack on the validity of local Rule 5005-2(n) is, I believe, unprecedented. I haven’t found anyplace else, at least, where that’s been questioned. It does leave the matter for your discretion, and on the grounds of either good cause or excusable neglect, and as defined by the Supreme Court in the Pioneer decision, why, excusable neglect seems not to involve neglect anymore.” (APP ER 193, lines 13-20.)

This Court should reject Anwar/McClanahan's policy rationale which argues

inapplicable Judicial Conference history regarding electronic filing and survey of

Local Bankruptcy Rules from other jurisdictions concerning “technical failure,”

because the circumstances here, caused by Anwar/McClanahan’s own delay, are

controlled by the governing Federal Bankruptcy Rules and Ninth Circuit precedent

explained above. The Court’s electronic filing system is hardly a “phenomenon”

as Anwar/McClanahan argues, but rather the CM/ECF system has become standard

operating procedure throughout the federal court system. Since March 1, 2007,

nearly all documents are required to be electronically filed in the U.S. Bankruptcy

Court, District of Arizona. There is no support for Anwar/McClanahan’s claim

that the Ninth Circuit “embraces” a “policy of providing relief from the possible

effects of ‘technical failure.’” (Opening Brief at p. 46.) In effect,

Anwar/McClanahan are asking the Ninth Circuit to inappropriately modify or

expand the application of FRBP 5005(a) and/or LRBP 5005-2(n), the electronic

filing rules, to revive their late complaints.


25

Despite their lengthy survey of local ECF rules from around the country,

Anwar/McClanahan fail to confront how those local rules should be interpreted in

conjunction with FRBP 9029. Anwar/McClanahan can provide no legal or policy

support to reconcile the intent of FRBP 9029 with the local electronic filing rules.

That is because FRBP 9029 does not permit local rules like FRBP 5005-2(n) to

contradict and change the meaning and operation of FRBP 4007(c) and FRBP

9006(b)(3), which are the seminal bankruptcy rules governing the

nondischargeability complaint deadline.

This Court need not engage in judicial rulemaking to reverse the sound

decisions of the Bankruptcy Court and the District Court to grant relief to cure the

untimely-filed nondischargeability complaints of Anwar/McClanahan who caused

their own misfortune. Such a finding would effectively create an exception to

FRBP 4007(c) and FRBP 9006(b)(3) where none has ever existed and would

encourage parties-in-interest involved in adversary proceedings to use their

computer problems as excuses to bend these long-established rules.6 Under these

facts, Anwar/McClanahan simply missed a deadline due to their own lack of

diligence. “Deadlines may lead to unwelcome results, but they prompt parties to

6 In an effort to divert the Court from the deadline issue, Anwar/McClanahan argue that the District Court should have granted relief based upon the bald and unproven assertion that this case involves “debtors who hood-wink employees into working for them for nothing.” (APP ER 39.) The merits of this case have never been reached.


26

act and they produce finality ....” Taylor v. Freeland & Kronz, 503 U.S. 638, 644

(1992) (Supreme Court denied equitable argument of Trustee who missed the

deadline to object to the debtor’s exemption claim under FRBP 4003(b), a time-

limiting rule, which parallels Bankruptcy Rule 4007(c).) Here, the Court must not

provide extraordinary relief to Anwar/McClanahan in light of their pattern of

dilatory conduct.

C. THIS CASE DOES NOT WARRANT THE BANKRUPTCY COURT’S EXERCISE OF DISCRETION UNDER 11 U.S.C. §105(a) TO CURE THE UNTIMELY COMPLAINTS.

It is well-settled in the Ninth Circuit that FRBP 4007(c) and FRBP

9006(b)(3), which impose the deadline to file nondischargeability complaints, are

strictly construed. Classic Auto Refinishing, Inc. v. Marino (In re Marino), 37 F.3d

1354 (9th Cir. 1994); Jones v. Hill (In re Hill), 811 F.2d 484 (9th Cir. 1987).

“Deadlines provided in the Rules exist to ‘further the prompt resolution of

bankruptcies.’” Western Wood Fabricators, 2009 WL 1456813 at *2, quoting

from Hill, 811 F2d at 487.

The Ninth Circuit has addressed the question of whether the Bankruptcy

Court should exercise its discretion to apply the equitable powers in 11 U.S.C.

§105(a) to relieve an untimely nondischargeability complaint, and has expressed

that “the validity of the unique or extraordinary circumstances doctrine remains

doubtful.” Allred v. Kennerley (In re Kennerley), 995 F.2d 145, 147 (9th Cir.


27

1993); Santos v. Schunck (In re Santos), 112 B.R. 1001, 1007 (9th Cir. BAP 1990)

(Creditor who obtained pre-Petition fraud judgment against the debtor was not

excused from filing an untimely complaint in reliance upon the debtor’s non-court

approved agreement to extend the time; Court held that “equitable tolling cannot

apply because the doctrine is inconsistent with the language of the Rules [4007(c)

and 4004(a)] and because the doctrine would significantly impair the purposes of

the Rules.”) Further, the equitable power under 11 U.S.C. §105 “must and can

only be exercised within the confines of the Bankruptcy Code.” Nw. Bank

Worthington v. Ahlers, 485 U.S. 197, 206 (1988).

The Anwar/McClanahan case does not present any unique or extraordinary

facts and circumstances to justify the granting of equitable relief. Rather, the

record reflects that the list of reasons for the untimely filings demonstrate that

Anwar/McClanahan simply waited until the last minute to commence discovery

and to file their complaints. After being given months to conduct discovery they

requested, Anwar/McClanahan waited until days before the April 13th deadline to

do so and chose not to enlist the help of their local counsel. They then waited until

hours before the deadline to begin the process of opening adversary proceedings.

That delay is the reason that they missed the deadline and why the Bankruptcy

Court and the District Court rejected their pleas for relief on the basis that FRBP


28

4007(c) and FRBP 9006(b)(3) did not permit the courts to exercise discretion to

extend the deadline for excusable neglect. (APP ER 7, lines 2-11.)

No third party impaired Anwar/McClanahan’s ability to file on time. They

have not alleged that under FRBP 9006(a)(3) the Court somehow prevented the

nondischargeability complaints from being filed, and there is no proof in the record

that the Court’s electronic filing system experienced an outage on April 13, 2010.

Therefore, it is undisputed that the Clerk’s Office was accessible on the deadline

date. Further, there is no proof in the record that Johnson/Vergeyle hindered the

ability of Anwar/McClanahan to conduct discovery. Indeed, Johnson/Vergeyle

encouraged Anwar/McClanahan to serve discovery requests on them well before

the deadline. The record shows that Anwar/McClanahan delayed their own

discovery efforts. Anwar/McClanahan’s allegations to the contrary and attempt to

disparage Johnson/Vergeyle are simply subterfuge to divert attention from their

own dilatory conduct.

As a result, none of the thinly veiled reasons listed in the declarations of

their counsel or their counsel’s legal assistant for their untimely filings considered

by the Bankruptcy Court and the District Court rise to the level of unique and

extraordinary circumstances to justify invoking the Court’s equitable powers under

11 U.S.C. §105(a). There is certainly no case law or commentary to the ECF rules

and/or guidelines that support the idea that problems with a party’s aging computer


29

can cause the Clerk’s office to be “inaccessible” pursuant to FRBP 9006(b)(3). As

properly recognized by both courts, FRBP 4007(c) and FRBP 9006(b)(3) do not

excuse Anwar/McClanahan’s late filing for any reason.

The court decisions cited by Anwar/McClanahan are inapposite and do not

support their contention that excusable neglect standard and/or equitable principles

can relieve their late-filed nondischargeability complaints. None of these cases

address the interplay between FRBP 4007(c), FRBP 9006(b)(3) and LRBP 5005-

2(n), but rather relate only to other inapplicable statutes and rules.

For instance, in Pioneer Investment Services Company v. Brunswick

Associates Limited Partnership, 507 U.S. 380 (1993), creditors failed to file timely

proofs of claim under FRBP 3003 and moved to have the bar date extended under

FRBP 9006(b)(1), which permits a party to seek enlargement of the time for filing

proofs of claim “where failure to act was the result of excusable neglect.” FRBP

9006(b)(1) does not apply to late-filed nondischargeability complaints. The

applicable rule here, FRBP 9006(b)(3), is expressly conditioned upon the 60-day

deadline established under FRBP 4007(c).

Likewise, the case of Marrama v. Citizens Bank of Massachusetts, 549 U.S.

365 (2007), does not apply because the Bankruptcy Court interpreted Bankruptcy

Code section 706(d) with section 1307(c), which expressly allows the Court to

convert a Chapter 13 to Chapter 7 “for cause.” The same is true of Phoenix Global


30

Ventures, LLC v. Phoenix Hotel Associates, Ltd., 422 F.3d 72 (2nd Cir. 2005) and

related cases, Bilbruck v. BNSF Railway Company, 243 Fed. Appx. 293, 2007 WL

2168023 (9th Cir. 2007) and Evans v. Bantek West, Inc., 2009 WL 700426 (E.D.

Cal.), because these cases involved late-filed motions to remand the cases to state

court pursuant to 28 U.S.C. §1447(c).

All of the remaining cases cited by Anwar/McClanahan are easily

distinguished because of their application of different and more lenient rules, such

as: Pincay v. Andrews, 389 F.3d 853 (9th Cir. 2004) (the Court interpreted FRAP

4(a)(5)(A), which permits an extension to file a late Notice of Appeal upon a

showing of excusable neglect or good cause); Leavitt v. Soto (In re Leavitt), 171

F.3d 1219 (9th Cir. 1999) (the Court found “cause” for dismissal under 11 U.S.C.

§349 based upon bad faith in a case where the creditor obtained a pre-Petition

judgment against the debtor for fraud); Nardei v. Maughan (In re Maughan), 340

F.3d 337 (6th Cir. 2004) (the Bankruptcy Court exercised equitable powers under

11 U.S.C. §105(a) granting relief to an untimely nondischargeability complaint

where the Debtor’s delay in providing documents to creditor resulted in the belated

filing); Nicholson v. Isaacman (In re Isaacman), 26 F.3d 629 (6th Cir. 1994)

(Bankruptcy Court erroneously issued two bar dates for filing nondischargeability

complaints and erred in not exercising its equitable powers under 11 U.S.C.

§105(a) to correct the error by accepting the complaint); In re Harris, 464 F.3d 263


31

(2nd Cir. 2006) (the District Court abused its discretion in dismissing debtor’s

appeal for failure to include a hearing transcript in the designation of record

pursuant to FRBP 8006); and Sonders v. Mezvinsky (In re Mezvinsky), 2001 WL

1403525, *5-*6 (Bankr. E.D. Pa. 2001) (a “decision intended to be limited to its

facts based on the record created by the parties hereto,” where the Court excused a

late-filed notice of appeal where the record shows that the technical failure is

externally caused).

The Federal Rules in this scenario demand strict compliance. As explained

by the District Court, the reasons for the 60-day deadline mandated by FRBP

4007(c) for filing nondischargeability complaints is to promote finality and to

allow debtors to obtain their fresh start and move on with their lives. (APP ER 5

and 7.) “In the bankruptcy world, finality has great importance. Literal

application of the deadlines for objecting to discharge, dischargeability, and

exemptions promotes that worthy principle.” Owen v. Miller (In re Miller), 333

B.R. 368, 373 (N.D. Texas 2005).

FRBP 4007(c) and FRBP 9006(b)(3) are meant to prevent the instant

scenario in which debtors such as Johnson/Vergeyle are faced with appeal after

appeal and mounting attorney’s fees to defend against untimely complaints caused

by the creditors’ own neglectful delay. Johnson/Vergeyle and their Bankruptcy

Trustees are forced to wait for the resolution of these appeals, postponing


32

indefinitely the final administration and closure of their Chapter 7 bankruptcy

cases in contravention of the policies underlying the Rules.

VII. CONCLUSION

For the foregoing reasons, Johnson/Vergeyle respectfully request that this

Court: a) affirm the District Court’s written decision and final order entered June

3, 2011, which affirmed the Bankruptcy Court’s order entered September 8, 2010,

and b) affirm the Bankruptcy Court’s written decision dated August 25, 2010, and

final order entered on September 8, 2010, dismissing the nondischargeability

complaints with prejudice and denying relief to Anwar/McClanahan.

Respectfully submitted on March 30, 2012.

NUSSBAUM GILLIS & DINNER, P.C.

/s/ Beth J. ShapiroRandy Nussbaum, #006417 Beth J. Shapiro, Esq. #009563 14850 N. Scottsdale Road, Suite 450 Scottsdale, AZ 85254 Attorneys for Appellees


33

CERTIFICATE OF COMPLIANCE

Pursuant to Rule 32, Federal Rules of Civil Appellate Procedure, this

Answering Brief of Appellees D. Lee Johnson, David Lyn Vergeyle, Margaret

Horne Vergeyle, and the Marital Community composed of David Lyn Vergeyle

and Margaret Horne Vergeyle, uses a proportionately spaced type of 14 points or

more and is double-spaced using a Times New Roman font. According to the

Microsoft Word word count function, the Brief contains 6,776 words excluding the

Cover Page, Table of Contents, Table of Citations and Certificate of Compliance.

/s/ Beth J. Shapiro Beth J. Shapiro


34

CERTIFICATE OF SERVICE

The undersigned hereby certifies that on March 30, 2012, the Answering

Brief of Appellees D. Lee Johnson, David Lyn Vergeyle, Margaret Horne

Vergeyle, and the Marital Community composed of David Lyn Vergeyle and

Margaret Horne Vergeyle was electronically filed with the Clerk of the Ninth

Circuit Court of Appeals by using the CM/ECF system.

I further certify that all participants in the case are registered CM/ECF users

and that service will be accomplished by the appellate CM/ECF system. I also

mailed a copy of same to the following CM/ECF registrants:

Mark C. McClanahan, Esq. 3035 S.W. 55th Drive Portland, OR 97221 [email protected] Attorney for Appellants Mark E. Hall, Esq. Mark J. Victor, P.C. 3920 S. Alma School Road, Suite 5 Chandler, AZ 85248 [email protected] Attorneys for Appellants /s/ Beth J. Shapiro


35

STATEMENT OF RELATED CASES

Pursuant to Circuit Rule 28-2.6 the undersigned states that there are no

related cases pending in this Court.

/s/ Beth J. Shapiro Beth J. Shapiro


No. 11-16612

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT In re: D. LEE JOHNSON, Debtor(s)

On Appeal from the United States District Court, District of Arizona District Court No. 2:10-cv-02036-SRB U.S. Bankruptcy Court, Arizona 2:10-ap-00678-RTB/2:10-ap-00679-SSC (Jointly Administered)

AMINA ANWAR and DAVID C. MCCLANAHAN, Appellants, v. D. LEE JOHNSON; DAVID LYN VERGEYLE; MARGARET HORNE VERGEYLE; AND THE MARITAL COMMUNITY COMPOSED OF DAVID LYN VERGEYLE AND MARGARET HORNE VERGEYLE, Appellees.

APPELLEES’ ADDENDUM TO ANSWERING BRIEF

Randy Nussbaum (AZ Bar No. 006417) Beth J. Shapiro (AZ Bar No. 009563)

NUSSBAUM GILLIS & DINNER, P.C. 14850 N. Scottsdale Road, Suite 450

Scottsdale, Arizona 85254 Telephone: (480) 609-0011 Facsimile: (480) 609-0016

E-Mail: [email protected] E-Mail: [email protected]

Attorneys for Appellees


i

ADDENDUM INDEX Principle Statutes and Rules Page A. U.S. Bankruptcy Code 11 U.S.C. §105(a) ............................................................................... 1 11 U.S.C. §523(a)(2) .......................................................................... 1 11 U.S.C. §523(a)(3)(B) ..................................................................... 2 11 U.S.C. §523(a)(4) .......................................................................... 3 11 U.S.C. §523(a)(6) .......................................................................... 3 11 U.S.C. §523(c) ............................................................................... 3 B. Federal Rules of Bankruptcy Procedure FRBP 4007(c) ..................................................................................... 3 FRBP 5005(a) ..................................................................................... 4 FRBP 5005(c) ..................................................................................... 4 FRBP 9006(a)(3) ................................................................................ 5 FRBP 9006(b)(3) ................................................................................ 5 FRBP 9029 .......................................................................................... 5 C. Local Rules of Bankruptcy Procedure, District of Arizona LRBP 1001-1 ...................................................................................... 6 LRBP 5005-2(n) ................................................................................. 6


1

ADDENDUM

A. U.S. Bankruptcy Code: 11 U.S.C. §105(a). Bankruptcy Code, Power of Court:

(a) The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. No provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process.

11 U.S.C. §§523(a)(2), (a)(3), (a)(4), (a)(6) and (c)(1). Exceptions to Discharge:

(a) A discharge under section 727, 1141, 1228 (a), 1228 (b), or 1328 (b) of this title does not discharge an individual debtor from any debt—

(2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by—

(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition; (B) use of a statement in writing—

(i) that is materially false; (ii) respecting the debtor’s or an insider’s financial

condition; (iii) on which the creditor to whom the debtor is liable

for such money, property, services, or credit reasonably relied; and

(iv) that the debtor caused to be made or published with intent to deceive; or

(C) (i) for purposes of subparagraph (A)—


2

(I) consumer debts owed to a single creditor and aggregating more than $500 for luxury goods or services incurred by an individual debtor on or within 90 days before the order for relief under this title are presumed to be nondischargeable; and (II) cash advances aggregating more than $750 that are extensions of consumer credit under an open end credit plan obtained by an individual debtor on or within 70 days before the order for relief under this title, are presumed to be nondischargeable; and

(ii) for purposes of this subparagraph—

(I) the terms “consumer”, “credit”, and “open end credit plan” have the same meanings as in section 103 of the Truth in Lending Act; and (II) the term “luxury goods or services” does not include goods or services reasonably necessary for the support or maintenance of the debtor or a dependent of the debtor;

(3) neither listed nor scheduled under section 521(a)(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), or (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;


3

(4) for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny; (6) for willful and malicious injury by the debtor to another entity or to the property of another entity;

(c) (1) Except as provided in subsection (a)(3)(B) of this section, the debtor shall be discharged from a debt of a kind specified in paragraph (2), (4), or (6) of subsection (a) of this section, unless, on request of the creditor to whom such debt is owed, and after notice and a hearing, the court determines such debt to be excepted from discharge under paragraph (2), (4), or (6), as the case may be, of subsection (a) of this section. (2) Paragraph (1) shall not apply in the case of a Federal depository institutions regulatory agency seeking, in its capacity as conservator, receiver, or liquidating agent for an insured depository institution, to recover a debt described in subsection (a)(2), (a)(4), (a)(6), or (a)(11) owed to such institution by an institution-affiliated party unless the receiver, conservator, or liquidating agent was appointed in time to reasonably comply, or for a Federal depository institutions regulatory agency acting in its corporate capacity as a successor to such receiver, conservator, or liquidating agent to reasonably comply, with subsection (a)(3)(B) as a creditor of such institution-affiliated party with respect to such debt.

B. Federal Rules of Bankruptcy Procedure FRBP Rule 4007(c). Determination of Dischargeability of a Debt:

(c) Time for filing complaint under § 523(c) in a chapter 7 liquidation, chapter 11 reorganization, chapter 12 family farmer's debt adjustment case, or chapter 13 individual's debt adjustment case; notice of time fixed. Except as otherwise provided in subdivision (d), a complaint to determine the dischargeability of a debt under §523(c) shall be filed no later than 60 days after the first date set for the meeting of creditors under §341(a). The court shall give all creditors no less than 30 days’ notice of the time so fixed in the manner provided in Rule 2002. On motion of a party in


4

interest, after hearing on notice, the court may for cause extend the time fixed under this subdivision. The motion shall be filed before the time has expired.

FRBP Rule 5005(a) and (c). Filing and Transmittal of Papers: (a) Filing.

(1) Place of Filing. The lists, schedules, statements, proofs of claim or interest, complaints, motions, applications, objections and other papers required to be filed by these rules, except as provided in 28 U.S.C. §1409, shall be filed with the clerk in the district where the case under the Code is pending. The judge of that court may permit the papers to be filed with the judge, in which event the filing date shall be noted thereon, and they shall be forthwith transmitted to the clerk. The clerk shall not refuse to accept for filing any petition or other paper presented for the purpose of filing solely because it is not presented in proper form as required by these rules or any local rules or practices. (2) Filing by Electronic Means. A court may by local rule permit or require documents to be filed, signed, or verified by electronic means that are consistent with technical standards, if any, that the Judicial Conference of the United States establishes. A local rule may require filing by electronic means only if reasonable exceptions are allowed. A document filed by electronic means in compliance with a local rule constitutes a written paper for the purpose of applying these rules, the Federal Rules of Civil Procedure made applicable by these rules, and §107 of the Code.

(c) Error in Filing or Transmittal. A paper intended to be filed with the clerk but erroneously delivered to the United States trustee, the trustee, the attorney for the trustee, a bankruptcy judge, a district judge, the clerk of the bankruptcy appellate panel, or the clerk of the district court shall, after the date of its receipt has been noted thereon, be transmitted forthwith to the clerk of the bankruptcy court. A paper intended to be transmitted to the United States trustee but erroneously delivered to the clerk, the trustee, the attorney for the trustee, a bankruptcy judge, a district judge, the clerk of the bankruptcy appellate panel, or the clerk of the district court shall, after the date of its receipt has been noted thereon, be transmitted forthwith to the


5

United States trustee. In the interest of justice, the court may order that a paper erroneously delivered shall be deemed filed with the clerk or transmitted to the United States trustee as of the date of its original delivery.

FRBP Rule 9006(a)(3). Computing and Extending Time:

(3) Inaccessibility of Clerk's Office. Unless the court orders otherwise, if the clerk's office is inaccessible:

(A) on the last day for filing under Rule 9006(a)(1), then the time for filing is extended to the first accessible day that is not a Saturday, Sunday, or legal holiday; or (B) during the last hour for filing under Rule 9006(a)(2), then the time for filing is extended to the same time on the first accessible day that is not a Saturday, Sunday, or legal holiday.

FRBP Rule 9006(b)(3). Computing and Extending Time.

(b) Enlargement.

(3) Enlargement Governed By Other Rules. The court may enlarge the time for taking action under Rules 1006(b)(2), 1017(e), 3002(c), 4003(b), 4004(a), 4007(c), 4008(a), 8002, and 9033, only to the extent and under the conditions stated in those rules. In addition, the court may enlarge the time to file the statement required under Rule 1007(b)(7), and to file schedules and statements in a small business case under §1116(3) of the Code, only to the extent and under the conditions stated in Rule 1007(c).

FRBP Rule 9029. Local Bankruptcy Rules; Procedure When There Is No Controlling Law:

(a) Local Bankruptcy Rules.

(1) Each district court acting by a majority of its district judges may make and amend rules governing practice and procedure in all cases and proceedings within the district court's bankruptcy jurisdiction which are consistent with—but not duplicative of—Acts of Congress and these rules and which do not prohibit or limit the use


6

of the Official Forms. Rule 83 F.R.Civ.P. governs the procedure for making local rules. A district court may authorize the bankruptcy judges of the district, subject to any limitation or condition it may prescribe and the requirements of 83 F.R.Civ.P., to make and amend rules of practice and procedure which are consistent with—but not duplicative of—Acts of Congress and these rules and which do not prohibit or limit the use of the Official Forms. Local rules shall conform to any uniform numbering system prescribed by the Judicial Conference of the United States. (2) A local rule imposing a requirement of form shall not be enforced in a manner that causes a party to lose rights because of a nonwillful failure to comply with the requirement.

(b) Procedure When There is No Controlling Law. A judge may regulate practice in any manner consistent with federal law, these rules, Official Forms, and local rules of the district. No sanction or other disadvantage may be imposed for noncompliance with any requirement not in federal law, federal rules, Official Forms, or the local rules of the district unless the alleged violator has been furnished in the particular case with actual notice of the requirement.

C. Local Rules of Bankruptcy Procedure, District of Arizona LRBP 1001-1. General Scope:

The Local Rules supplement or, if permitted, modify the Federal Rules of Bankruptcy Procedure, as amended. They shall be construed to be consistent with such Rules to promote speedy and inexpensive litigation. The definition of words and phrases in the Code and the Rules govern their use in the Local Rules.

LRBP 5005-2(n). Electronic Court Filing System: Untimely or Otherwise Improper Filings. An attorney or other filer whose filing is untimely or otherwise improper may seek appropriate relief from the bankruptcy court upon a showing of good cause or excusable neglect.


7

CERTIFICATE OF SERVICE

The undersigned hereby certifies that on March 30, 2012, Appellees

Addendum to Answering Brief of Appellees D. Lee Johnson, David Lyn Vergeyle,

Margaret Horne Vergeyle, and the Marital Community composed of David Lyn

Vergeyle and Margaret Horne Vergeyle was electronically filed with the Clerk of

the Ninth Circuit Court of Appeals by using the CM/ECF system.

I further certify that all participants in the case are registered CM/ECF users

and that service will be accomplished by the appellate CM/ECF system to the

following CM/ECF registrants:

Mark C. McClanahan, Esq. 3035 S.W. 55th Drive Portland, OR 97221 [email protected] Attorney for Appellants Mark E. Hall, Esq. Mark J. Victor, P.C. 3920 S. Alma School Road, Suite 5 Chandler, AZ 85248 [email protected] Attorneys for Appellants /s/ Beth J. Shapiro


no. 11-16612 united states court of...

Documents