In re: Interworks Unlimited Inc. ( 2022 )


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  •                                                                                  FILED
    AUG 19 2022
    NOT FOR PUBLICATION                                SUSAN M. SPRAUL, CLERK
    U.S. BKCY. APP. PANEL
    OF THE NINTH CIRCUIT
    UNITED STATES BANKRUPTCY APPELLATE PANEL
    OF THE NINTH CIRCUIT
    In re:                                             BAP No. CC-22-1027-STL
    INTERWORKS UNLIMITED INC.,
    Debtor.                                Bk. No. 2:19-bk-17990-VZ
    EDWARD M. WOLKOWITZ, Attorney,                     Adv. No. 2:21-ap-01205-VZ
    Chapter 7 Trustee for bankruptcy estate
    of Interworks Unlimited Inc.,                      MEMORANDUM*
    Appellant,
    v.
    HAI OU YANG,
    Appellee.
    Appeal from the United States Bankruptcy Court
    for the Central District of California
    Vincent Zurzolo, Bankruptcy Judge, Presiding
    Before: SPRAKER, TAYLOR, and LAFFERTY, Bankruptcy Judges.
    INTRODUCTION
    Edward M. Wolkowitz, chapter 71 trustee in the Interworks
    * This disposition is not appropriate for publication. Although it may be cited for
    whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential
    value, see 9th Cir. BAP Rule 8024-1.
    1
    Unless specified otherwise, all chapter and section references are to the
    Bankruptcy Code, 
    11 U.S.C. §§ 101
    –1532, all “Rule” references are to the Federal Rules
    of Bankruptcy Procedure, and all “Civil Rule” references are to the Federal Rules of
    Civil Procedure.
    Unlimited Inc. bankruptcy case (“Interworks”) filed an avoidance action
    against Hai Ou Yang mere hours before the limitations period expired.
    Unfortunately, he filed the complaint in the wrong bankruptcy case.
    Eventually, his counsel realized the error, refiled the complaint on the
    Interworks docket, and dismissed the original action. The Interworks
    bankruptcy court then granted Yang’s motion to dismiss, holding that the
    applicable statutes of limitations barred the trustee’s claims.
    The trustee argues that the bankruptcy court erred by elevating form
    over substance. In his view, the timely filing of the complaint is dispositive,
    and its docketing in the wrong case is of no significance. He contends that
    his claims related back to the original filing or that the limitations period
    was equitably tolled. He also appeals the denial of his motion under Civil
    Rule 59(e), which introduced declarations from his counsel that the court
    instructed them to withdraw or dismiss the erroneously filed complaint.
    We disagree with his assertions. The filing of the complaint in the
    Interworks bankruptcy neither amended the complaint filed earlier in the
    other bankruptcy case, nor did it relate back to that filing date. Moreover,
    the mistake that precipitated these circumstances arose from avoidable
    negligence because the trustee waited until the last day to commence the
    avoidance action and numerous others. Human error is always a risk; the
    trustee here left himself no time to seek a remedy. Such circumstances do
    not support equitable tolling. Accordingly, the trustee’s claims were
    untimely, and we AFFIRM.
    2
    FACTS2
    In July 2019, Interworks commenced its bankruptcy by filing a
    voluntary chapter 7 petition. Wolkowitz was appointed to serve as chapter
    7 trustee. Two years later, on the final day to commence actions under
    §§ 108(a) and 546(a), the trustee filed a series of complaints against third
    parties stating a variety of claims under both bankruptcy and non-
    bankruptcy law.
    Among others, the trustee commenced adversary proceeding number
    2:21-ap-01138-VZ by filing a complaint against appellee Hai Ou Yang
    seeking recovery for breach of contract, unjust enrichment, and to avoid
    transfers made by Interworks under §§ 544, 548, 550, and 
    Cal. Civ. Code § 3439.04
    . Each of these claims for relief was premised on the allegation
    that between 2015 and 2017, Yang received from Interworks “no less than
    $399,000” in payments in excess of the amount to which he was legally or
    equitably entitled. The trustee’s complaint correctly identified Interworks
    as the debtor and the underlying bankruptcy case number as 2:19-bk-
    17990-VZ in the caption. But counsel accidentally filed the complaint in the
    unrelated bankruptcy case of Luis Garcia and Maria De La Cruz Garcia,
    bankruptcy case number 2:19-bk-17790-VZ.3
    2
    We exercise our discretion to take judicial notice of documents electronically
    filed in the underlying bankruptcy case and adversary proceeding. See Atwood v. Chase
    Manhattan Mortg. Co. (In re Atwood), 
    293 B.R. 227
    , 233 n.9 (9th Cir. BAP 2003).
    3 Though the Garcias and their bankruptcy case have no connection to the
    trustee’s complaint against Yang, we refer to this complaint as the “Garcia Complaint”
    3
    Within several days, the clerk of court issued a summons for the
    Garcia Complaint. The trustee never served it. Rather, the clerk entered a
    notice of an error or deficient document. The notice referenced a
    “mismatch” between the relevant docket information and the debtor’s
    name and bankruptcy case number on the Garcia Complaint’s caption
    page. This docket entry generated a notice of electronic filing that: “THE
    FILER IS INSTRUCTED TO FILE A NOTICE OF WITHDRAWAL USING
    WITHDRAWAL DOCKET EVENT AND REFILE THE DOCUMENT
    USING THE CORRECT DOCKET EVENT THAT MATCHES THE
    DOCUMENT.” The notice was electronically sent to the trustee’s counsel
    who had signed the complaint, Kurt Ramlo.
    Almost three months elapsed before the trustee took any action. On
    October 5, 2021, he commenced adversary proceeding number 2:21-ap-
    01205-VZ (“Interworks Adversary Proceeding”) by filing a new complaint
    in Interwork’s bankruptcy identical to the Garcia Complaint (“Interworks
    Complaint”). The clerk issued a summons for the Interworks Complaint,
    which the trustee served on Yang shortly thereafter.
    Within days of filing the Interworks complaint, the trustee filed a
    notice pursuant to Civil Rule 41(a)(1)(A)(i) 4 in the Garcia Adversary
    and this adversary proceeding as the “Garcia Adversary Proceeding” for ease of
    reference and to avoid confusion.
    4 As made applicable in adversary proceedings by Rule 7041, Civil Rule 41 in
    relevant part permits plaintiffs to voluntarily dismiss an action without prejudice upon
    the filing of a notice of dismissal, so long as the notice of dismissal is filed before the
    4
    Proceeding dismissing it without prejudice. He explained that he was
    dismissing the complaint and the adversary proceeding “per the court’s
    direction” because the Garcia Complaint was incorrectly docketed. He
    further advised that he had filed the Interworks Complaint.
    On November 12, 2021, the trustee amended the Interworks
    Complaint. The first amended Interworks complaint (“Amended
    Interworks Complaint”) stated the same claims for relief but contained
    additional, more-detailed allegations regarding Interworks’ financial
    condition and the transfer of funds between Interworks and Yang. The
    Amended Interworks Complaint also alleged that though the adversary
    proceeding initially was commenced as “Adv. No. 2:21-ap-01138,” and
    accidentally linked to the wrong bankruptcy case, “the Clerk of the Court
    asked that the [Garcia Complaint] be re-filed, correctly entering in the case
    number of the main chapter 7 case.”
    Shortly after the filing of the Amended Interworks Complaint, Yang
    moved to dismiss the Interworks Adversary Proceeding under Civil Rule
    12(b)(6).5 Yang asserted that because the Interworks Adversary Proceeding
    was not commenced within two years of the entry of the order for relief in
    defendant responds to the complaint by filing either an answer or a motion for
    summary judgment.
    5 This actually was Yang’s second Civil Rule 12(b)(6) motion. Prior to the filing of
    the Amended Interworks Complaint, Yang filed his first Civil Rule 12(b)(6) motion. But
    the parties stipulated to withdrawal of the first dismissal motion pending the filing of
    the Amended Interworks Complaint.
    5
    Interworks’ bankruptcy case, the trustee’s claims were time barred
    pursuant to §§ 108(a) and 546. Yang also argued that neither of the
    complaints filed in the Interworks bankruptcy related back to the date of
    the Garcia Complaint as provided in Civil Rule 15(c).
    The trustee opposed the dismissal motion. In his view, the two
    adversary proceedings were one and the same. He acknowledged that he
    “re-filed” the Interworks Complaint in response to the clerk’s notice of
    electronic filing regarding the error or deficiency in filing the Garcia
    Complaint and that he then had dismissed the Garcia Adversary
    Proceeding. But he posited that the form of his response should not
    prevent the Interworks Complaint from relating back to the date of the
    filing of the Garcia Complaint even though the two complaints initiated
    separate adversary proceedings. Alternately, he argued that equitable
    tolling applied because he filed his complaint timely but in the wrong case.
    After holding a hearing, the bankruptcy court granted Yang’s
    dismissal motion. The court held that the Interworks Complaint could not
    relate back to the Garcia Complaint because the trustee had dismissed that
    action. The court rejected the trustee’s argument that he merely followed
    the court’s instructions by dismissing the Garcia Complaint and filing the
    Interworks Complaint. The court also found that the trustee had not been
    diligent in pursuing the matter and that Yang lacked notice of the trustee’s
    claims for relief until he was served the Interworks Complaint in October
    2021. The bankruptcy court held that this was fatal to the trustee’s
    6
    equitable tolling argument.
    The trustee moved under Civil Rule 59(e) to alter or amend the
    court’s dismissal order. Yang opposed the motion, and the court denied it.
    The trustee timely appealed both the dismissal order and the denial of his
    Civil Rule 59(e) motion.
    JURISDICTION
    The bankruptcy court had jurisdiction under 
    28 U.S.C. §§ 1334
     and
    157(b)(2)(H). We have jurisdiction under 
    28 U.S.C. § 158
    .
    ISSUES
    1.    Did the bankruptcy court err when it dismissed the Interworks
    Adversary Proceeding?
    2.    Did the bankruptcy court abuse its discretion when it denied the
    trustee’s Civil Rule 59(e) motion?
    STANDARDS OF REVIEW
    We review de novo the dismissal of the trustee’s adversary
    proceeding under Civil Rule 12(b)(6). Telesaurus VPC, LLC v. Power, 
    623 F.3d 998
    , 1003 (9th Cir. 2010). A court’s decision to apply equitable tolling
    also is reviewed de novo when the relevant facts are undisputed. O'Donnell
    v. Vencor Inc., 
    466 F.3d 1104
    , 1109 (9th Cir. 2006). When we review a matter
    de novo, we give no deference to the bankruptcy court’s decision. Francis v.
    Wallace (In re Francis), 
    505 B.R. 914
    , 917 (9th Cir. BAP 2014).
    We review for an abuse of discretion the bankruptcy court’s denial of
    the trustee’s Civil Rule 59(e) motion. Carroll v. Nakatani, 
    342 F.3d 934
    , 940
    7
    (9th Cir. 2003). The bankruptcy court abused its discretion if it applied an
    incorrect legal rule or its factual findings were illogical, implausible, or
    without support in the record. United States v. Hinkson, 
    585 F.3d 1247
    , 1262
    (9th Cir. 2009) (en banc).
    DISCUSSION
    A.    The bankruptcy court did not commit reversible error when it
    dismissed the Interworks Adversary Proceeding.
    1.     Applicable legal standards—Civil Rule 12(b)(6).
    Motions to dismiss under Civil Rule 12(b)(6), made applicable in
    adversary proceedings by Rule 7012, challenge the legal sufficiency of the
    complaint. They test whether the complaint contains any cognizable legal
    theories and whether it includes sufficient factual allegations to support
    those legal theories. Johnson v. Riverside Healthcare Sys., 
    534 F.3d 1116
    , 1121
    (9th Cir. 2008). To survive a Civil Rule 12(b)(6) motion to dismiss, the
    plaintiff must allege “sufficient factual matter, accepted as true, to ‘state a
    claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 
    556 U.S. 662
    ,
    678 (2009) (quoting Bell Atl. Corp. v. Twombly, 
    550 U.S. 544
    , 570 (2007)). In
    other words, the complaint’s “non-conclusory factual content and
    reasonable inferences from that content, must be plausibly suggestive of a
    claim entitling the plaintiff to relief.” Moss v. U.S. Secret Serv., 
    572 F.3d 962
    ,
    969 (9th Cir. 2009) (cleaned up).
    When considering dismissal under Civil Rule 12(b)(6), the court’s
    factual investigation generally is limited to the complaint’s allegations.
    8
    United States v. Ritchie, 
    342 F.3d 903
    , 908 (9th Cir. 2003). But the court also
    may consider items properly subject to judicial notice. 
    Id.
     Judicially
    noticeable facts include those “not subject to reasonable dispute” because
    they are either (1) generally known within the territorial jurisdiction of the
    trial court or (2) capable of accurate and ready determination by resort to
    sources whose accuracy cannot reasonably be questioned. Fed. R. Evid.
    201(b). When the complaint’s allegations are at odds with matters that are
    properly the subject of judicial notice, the court need not accept those
    allegations as true when considering a motion to dismiss. Lazy Y Ranch Ltd.
    v. Behrens, 
    546 F.3d 580
    , 588 (9th Cir. 2008).
    2.    By the time the trustee filed the Interworks Complaint, the
    limitations periods had passed, and neither the relation back
    doctrine nor equitable tolling applied.
    The trustee does not dispute that by the time he filed the Interworks
    Complaint, his claims for relief were time barred under §§ 108(a) or 546
    unless either the relation back doctrine or equitable tolling applied. We
    address each doctrine in turn.
    a.    The Interworks Complaint did not relate back.
    Under Civil Rule 15(c)(1)(B), made applicable in adversary
    proceedings by Rule 7015, an otherwise time-barred claim in an amended
    complaint relates back to the date of the “original pleading” when the
    claim arises out of the same conduct, transaction, or occurrence set forth in
    the original pleading. ASARCO, LLC v. Union Pac. R.R., 
    765 F.3d 999
    , 1004
    9
    (9th Cir. 2014). But there is no “original pleading” for the “amendment” to
    relate back to when the action in which the original pleading was filed has
    been dismissed. Rather, where a plaintiff files a second complaint to start a
    new case, that complaint cannot “relate back” to any prior complaint
    because the second complaint was not an “amendment” of the first
    complaint but rather was a separate pleading commencing a new action.
    O'Donnell, 
    466 F.3d at
    1111 (citing Civil Rule 15(c)(2)).
    It is also well settled that when an action is dismissed and the
    limitations period runs during the pendency of the action, a subsequent
    action is time barred. Willard v. Wood, 
    164 U.S. 502
    , 523 (1896). As the Ninth
    Circuit has recognized, where an action is dismissed without prejudice
    under Civil Rule 41(a), the dismissed action does not affect the running of
    the statute of limitations. Humphreys v. United States, 
    272 F.2d 411
    , 412 (9th
    Cir. 1959). It is “as if the [dismissed] suit had never been brought in the first
    place.” Id.; see also Tur v. YouTube, Inc., 
    562 F.3d 1212
    , 1213 (9th Cir. 2009)
    (“A dismissal without prejudice . . . leaves the parties where they would
    have stood had the lawsuit never been brought.” (cleaned up)); 9 Charles
    Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 2367 &
    n.12 (4th ed. 2022) (“as numerous federal courts have made clear, a
    voluntary dismissal without prejudice under Rule 41(a) leaves the situation
    as if the action never had been filed.”).
    Thus, when the statute of limitations expires while an action is
    pending and that action subsequently is dismissed “without prejudice,” the
    10
    legal effect of such dismissal is the same as a “dismissal with prejudice.”
    Lal v. Felker, No. 2:07-CV-2060-KJM-EFB, 
    2015 WL 1530491
    , at *6 (E.D. Cal.
    Apr. 3, 2015), report and recommendation adopted, No. 2:07-CV-2060-KJM-
    EFB, 
    2015 WL 3469144
     (E.D. Cal. June 1, 2015) (citing Wei v. Hawaii, 
    763 F.2d 370
    , 371 (9th Cir.1985) (per curiam)); see also Bacon v. City & Cnty. of
    San Francisco, No. C04-3437 TEH, 
    2005 WL 1910924
    , at *5 (N.D. Cal. Aug.
    10, 2005) (indicating the same and stating, “[d]ismissal of Plaintiff’s case
    would prohibit a disposition on the merits because Plaintiff would be time-
    barred from re-filing his claims.”).
    The Interworks Complaint commenced a new action; it did not
    amend the Garcia Complaint. Therefore, it could not relate back to the
    Garcia Complaint under Civil Rule 15(c)(2). Even if it could, there is no
    “original pleading” for his Interworks Complaint to relate back to because
    the trustee dismissed the Garcia Adversary Proceeding. For these reasons,
    the bankruptcy court did not err by rejecting the trustee’s argument that
    the Interworks Complaint related back to the Garcia Complaint.
    b.    Equitable tolling does not apply.
    Though equitable tolling applies to the limitations period imposed by
    § 546(a)(1), Ernst & Young v. Matsumoto (In re United Ins. Mgmt., Inc.), 
    14 F.3d 1380
    , 1384 (9th Cir. 1994), the trustee’s equitable tolling argument also
    fails. “Equitable tolling is generally applied in situations ‘where the
    claimant has actively pursued his judicial remedies by filing a defective
    pleading during the statutory period, or where the complainant has been
    11
    induced or tricked by his adversary’s misconduct into allowing the filing
    deadline to pass.’” O’Donnell, 
    466 F.3d at 1112
     (quoting Irwin v. Dep’t of Vet.
    Affairs, 
    498 U.S. 89
    , 96 (1990)).
    To establish equitable tolling, the trustee was required to prove: “(1)
    that he has been pursuing his rights diligently, and (2) that some
    extraordinary circumstances stood in his way.” Kwai Fun Wong v. Beebe, 
    732 F.3d 1030
    , 1052 (9th Cir. 2013) (en banc) (cleaned up), aff'd and remanded sub
    nom., United States v. Kwai Fun Wong, 
    575 U.S. 402
     (2015). The Ninth
    Circuit has explained that:
    [t]o apply the doctrine in “extraordinary circumstances” necessarily
    suggests the doctrine’s rarity, and the requirement that extraordinary
    circumstances “stood in his way” suggests that an external force
    must cause the untimeliness, rather than, as we have said, merely
    “oversight, miscalculation or negligence on the petitioner’s part, all of
    which would preclude the application of equitable tolling.”
    Waldron-Ramsey v. Pacholke, 
    556 F.3d 1008
    , 1011 (9th Cir. 2009) (brackets
    omitted and emphasis added) (quoting Harris v. Carter, 
    515 F.3d 1051
    , 1055
    (9th Cir. 2008)). More recently, the Ninth Circuit has confirmed that there
    must be a causal relationship between the extraordinary circumstance and
    the late filing. See Smith v. Davis, 
    953 F.3d 582
    , 600 (9th Cir. 2020) (en banc).
    As the Smith court put it, “it is only when an extraordinary circumstance
    prevented a petitioner acting with reasonable diligence from making a
    timely filing that equitable tolling may be the proper remedy.” 
    Id.
     Thus,
    even in instances involving defective filings, “the principles of equitable
    12
    tolling described above do not extend to what is at best a garden variety
    claim of excusable neglect.” Irwin, 498 U.S. at 96.6
    The trustee has relied heavily on O’Donnell. There, the plaintiff timely
    commenced her first civil rights and employment discrimination action,
    but that action was stayed when the defendant filed bankruptcy. Rather
    than suspending the action during the entire pendency of the stay, the
    district court gave plaintiff creditor 180 days to somehow move her claims
    forward. When the plaintiff failed timely to do so, the court dismissed her
    complaint for failure to prosecute. She did not appeal the dismissal but
    6
    A number of cases have applied equitable tolling where the plaintiff initially
    filed its complaint in a court lacking jurisdiction or with improper venue and later filed
    a complaint in the appropriate court after the limitations period had run. See, e.g.,
    Burnett v. N.Y. Cent. R.R., 
    380 U.S. 424
    , 427-30 (1965); Oltman v. Holland Am. Line, Inc.,
    
    538 F.3d 1271
    , 1278 (9th Cir. 2008); Valenzuela v. Kraft, Inc., 
    801 F.2d 1170
    , 1175 (9th Cir.
    1986), opinion amended on denial of reh'g, 
    815 F.2d 570
     (9th Cir. 1987). These cases have
    focused on the remedial purpose (if any) of the statute giving rise to the underlying
    time-barred claims, whether the plaintiff acted reasonably in filing the lawsuit in the
    wrong court, and whether the defendant was aware of the claims against it, so as to
    ameliorate the notice and repose concerns typically underlying limitations statutes. See
    Oltman, 
    538 F.3d at 1278
    ; Valenzuela, 
    801 F.2d at 1175
    ; Berry v. Pac. Sportfishing, Inc., 
    372 F.2d 213
    , 214 (9th Cir. 1967). When the defendant has no notice of the plaintiff’s claims
    before the limitations period runs, the Supreme Court has declined to apply equitable
    tolling even when plaintiff commenced some form of litigation activity before the
    statute of limitations expired. See Int'l Union of Elec. Workers, Local 790 v. Robbins &
    Myers, Inc., 
    429 U.S. 229
    , 238 (1976). The trustee has not cited Burnett or its progeny. In
    fact, the trustee never has attempted to describe the misfiling of the Garcia Complaint as
    reasonable or justified in any way. Nor has he ever asserted that Yang had notice of his
    claims prior to service of the Interworks Complaint—well after the limitations period
    had expired. Accordingly, the trustee has forfeited the argument that the bankruptcy
    court should have applied the Burnett line of authority to this case. See Christian Legal
    Soc'y v. Wu, 
    626 F.3d 483
    , 487–88 (9th Cir. 2010); Brownfield v. City of Yakima, 
    612 F.3d 1140
    , 1149 n.4 (9th Cir. 2010).
    13
    instead commenced a new action after the automatic stay was lifted. 
    466 F.3d at 1107-08
    . The new action repeated the same claims raised in the
    dismissed action. The plaintiff later amended that complaint to add new
    claims under the Equal Pay Act. 
    Id. at 1108
    . O’Donnell made clear that
    “where a complaint is timely filed and later dismissed, the timely filing of
    the complaint does not ‘toll’ or suspend the . . . limitations period.” 
    Id. at 1111
     (quoting Minnette v. Time Warner, 
    997 F.2d 1023
    , 1027 (2nd Cir. 1993)).
    Thus, “dismissal of the original suit, even though labeled as without
    prejudice, nevertheless may sound the death knell for the plaintiff’s
    underlying cause of action if the sheer passage of time precludes the
    prosecution of a new action.” 
    Id. at 1111
     (cleaned up); see also Gibbs v. Wood,
    No. 15-CV-4115-TEH, 
    2017 WL 1407727
    , at *3 (N.D. Cal. Apr. 20, 2017) (“If
    the suit is dismissed without prejudice, meaning that it can be refiled, then
    the tolling effect of the filing of the suit is wiped out and the statute of
    limitations is deemed to have continued running from whenever the cause
    of action accrued, without interruption by that filing.”).
    O’Donnell affirmed the dismissal of the civil rights and employment
    discrimination claims in the second action as untimely. Those claims had
    expired prior to the bankruptcy filing, and the pendency of the first action
    did not equitably toll the limitations period. However, the court held that
    the automatic stay did equitably toll the limitations period for filing the
    plaintiff’s Equal Pay Act (“EPA”) claims for any such claims that had not
    expired before the bankruptcy filing. O’Donnell, 
    466 F.3d at 1112-13
    . The
    14
    Ninth Circuit differentiated the EPA claims from the civil rights and
    employment discrimination claims because defendant’s bankruptcy filing
    “created the situation which impeded O’Donnell from pursuing her EPA
    claims, and they cannot now claim to be prejudiced by the application of
    equitable tolling.” 
    Id.
     Therefore, by application of equitable tolling, the
    automatic stay effectively extended the limitations period so that any
    claims filed within that extended time period were timely. 
    Id.
    The trustee’s claims against Yang are much more akin to the
    untimely claims in O’Donnell than the EPA claims subject to equitable
    tolling. Like the untimely claims in O’Donnell, the trustee neither alleged
    nor demonstrated the existence of any external force constituting
    extraordinary circumstances that prevented the trustee from timely filing
    his action against Yang. As in O’Donnell, the Garcia Complaint was
    ineffective to toll the limitations period because the trustee dismissed it.
    Admittedly, this is not the typical situation where a plaintiff “sleeps
    on his rights.” The trustee was aware of his cause of action and timely filed
    an action; he just filed it in the wrong case. But there was no “external
    force” constituting an extraordinary circumstance that “prevented” timely
    filing and warranted equitable tolling. See Smith, 953 F.3d at 600; Waldron-
    Ramsey, 
    556 F.3d at 1011
    . Rather, the untimely filing was the result of a
    mistake arising from counsel’s batch filing of adversary cases on the day
    before the limitations period expired. This is the type of garden variety
    negligence the Supreme Court referenced in Irwin. Accordingly, the trustee
    15
    failed to allege extraordinary circumstances that would support equitable
    tolling.
    The bankruptcy court also determined that the trustee had not acted
    diligently. The Ninth Circuit has specified that “it is not enough for a
    petitioner seeking an exercise of equitable tolling to attempt diligently
    to remedy his extraordinary circumstances; when free from the
    extraordinary circumstance, he must also be diligent in actively pursuing
    his rights.” Smith, 953 F.3d at 599. The court noted that the trustee waited
    roughly three months after the limitations period had run before properly
    filing the Interworks Complaint. This also was more than two months after
    the clerk of the court gave notice that the trustee had filed the Garcia
    Complaint in the wrong case. Both in opposition to Yang’s motion and on
    appeal, the trustee has failed to provide any analysis of his diligence. Here,
    the trustee was well aware of the claims against Yang and the impending
    deadline. There was no impediment to filing; instead there was a misfiling
    of the complaint in the wrong bankruptcy. Equally important, there was
    never any impediment to the trustee refiling the complaint in the
    Interworks case. Indeed, that is what his counsel eventually did roughly
    three months later. 7
    7
    It is worth reiterating that the trustee never served the Garcia Complaint.
    Instead, he waited until October 2021—after the filing of the Interworks Complaint—to
    serve Yang. In fact, there is no dispute that Yang was unaware of the trustee’s claims
    until well after the statute of limitations expired. The absence of earlier notice to Yang
    implicates all of the repose and staleness concerns underlying enforcement of
    16
    The trustee was required to show that “he has been reasonably
    diligent in pursuing his rights not only while an impediment to filing
    caused by an extraordinary circumstance existed, but before and after as
    well, up to the time of filing his claim in federal court.” Smith, 953 F.3d at
    598-99. The trustee has failed to do so here. Rather, he argues that he timely
    filed the Garcia Complaint in the wrong bankruptcy and no prejudice has
    resulted. Lack of prejudice is not a basis for equitable tolling. Rather, it is a
    factor to be considered once a proper basis has been identified to toll the
    limitations period. Aris v. Haw. Dep’t of Educ., 
    670 F. App’x 565
    , 566 (9th
    Cir. 2016); (“prejudice ‘is not an independent basis for invoking tolling’;
    rather, it becomes relevant only after ‘a factor that might justify such tolling
    is identified.’”) (brackets omitted) (citing Baldwin Cnty. Welcome Ctr. v.
    Brown, 
    466 U.S. 147
    , 152 (1984) (per curiam)). The trustee did not allege, let
    alone establish, reasonable diligence to discover or address the impediment
    that his counsel created.8
    limitations periods. See Burnett, 
    380 U.S. at 430
    ; Berry, 
    372 F.2d at 214
    .
    8 Some of trustee’s claims are based on state law. With respect to these claims,
    state statutes of limitation and equitable tolling doctrine presumably apply. See Azer v.
    Connell, 
    306 F.3d 930
    , 936 (9th Cir. 2002) (“Because we borrow California’s statute of
    limitations, we also apply California’s tolling rules that are not inconsistent with federal
    law.”); Ambrose Branch Coal Co. v. Tankersley, 
    106 B.R. 462
    , 466 (W.D. Va. 1989) (“In
    section 108(a), Congress . . . has chosen to follow Erie principles and require application
    of state limitations [and tolling] law to the extent it does not conflict with the two-year
    minimum extension of time required by section 108(a)(2).”); see generally Rund v. Bank of
    Am. Corp. (In re EPD Inv. Co.), 
    523 B.R. 680
    , 685-88 (9th Cir. BAP 2015) (discussing
    interplay of state statutes of limitation, state statutes of repose, and equitable tolling
    doctrine in avoidance actions brought in bankruptcy court based on § 544 and state
    17
    In sum, the trustee’s equitable tolling argument does not justify
    reversal of the court’s dismissal order.
    B.     The bankruptcy court did not abuse its discretion by denying the
    Civil Rule 59(e) motion.
    The trustee sought to alter or amend the court’s dismissal order
    under Civil Rule 59(e), incorporated by Rule 9023. He argued that the
    bankruptcy court misunderstood that the clerk had directed him to
    withdraw the Garcia Complaint when instead the clerk had directed his
    firm to dismiss the Garcia Adversary Proceeding. According to the trustee,
    the clerk’s instructions were a legal impediment to the timely filing of his
    complaint and required equitable tolling of the limitations period to avoid
    manifest injustice.
    Manifest injustice is a basis to alter or amend an order under Civil
    Rule 59(e). Navajo Nation v. Confederated Tribes & Bands of the Yakama Indian
    law). Regardless, California equitable tolling law leads to the same result here. Under
    California law, a litigant cannot invoke equitable tolling based on the purported tolling
    effect of a prior lawsuit unless he or she shows: “(1) timely notice to the defendant in
    filing the first claim; (2) lack of prejudice to the defendant in gathering evidence to
    defend against the second claim; and (3) good faith and reasonable conduct by the
    plaintiff in filing the second claim.” Azer, 
    306 F.3d at 936
     (citations omitted); see also
    Centaur Classic Convertible Arbitrage Fund Ltd. v. Countrywide Fin. Corp., 
    878 F. Supp. 2d 1009
    , 1017–18 (C.D. Cal. 2011) (relying on same standards and holding, “[w]here
    plaintiffs pursue successive claims in the same forum, . . . equitable tolling does not
    apply.” (emphasis in original)). These standards are sufficiently similar to the federal
    equitable tolling standards that on this record they lead to the exact same result. Here,
    the lack of notice to Yang of the Garcia Adversary Proceeding and trustee’s
    unreasonable conduct in delaying the commencement of the Interworks Adversary
    Proceeding defeat his equitable tolling argument under California law in the same
    manner they defeated his equitable tolling argument under Federal law.
    18
    Nation, 
    331 F.3d 1041
    , 1046 (9th Cir. 2003). But it always bears mention that
    reconsideration under Civil Rule 59(e) is an extraordinary remedy that
    should be used sparingly. Kona Enters., Inc, 229 F.3d at 890 (citing 389
    Orange St. Partners v. Arnold, 
    179 F.3d 656
    , 665 (9th Cir. 1999)). More
    importantly, “[a] Rule 59(e) motion may not be used to raise arguments or
    present evidence for the first time when they could reasonably have been
    raised earlier in the litigation.” 
    Id.
    In support of his motion, the trustee submitted the declaration of his
    counsel Todd Arnold. Arnold explained that he became involved in the
    case when the attorney handling the case, Kurt Ramlo, had health issues.
    Arnold stated that he discovered the filing error for the first time in early
    October 2021 when he sought to obtain a new summons in the Garcia
    Adversary Proceeding. Yet, the trustee also submitted Ramlo’s declaration.
    Ramlo admitted that he received the electronic notice in the Garcia
    Adversary Proceeding dated July 20, 2021, that identified the misfiling.
    Arnold further stated that the day after he realized the error, he filed
    the Interworks Complaint on October 5, 2021. According to Arnold, he also
    asked an assistant to contact the bankruptcy court that same day about the
    error notice in the Garcia Adversary Proceeding. According to Arnold, the
    court clerk later advised him, and his assistant reported, that the Garcia
    Complaint had to be dismissed because it was filed in the wrong
    bankruptcy case.
    Yang opposed the motion. He argued that the trustee’s newly
    19
    introduced facts established neither clear error nor manifest injustice, and
    further demonstrated the lack of diligence in timely filing the action. Both
    Yang and the bankruptcy court focused on the lack of notice given to Yang.
    The trustee did not serve Yang with any summons and complaint until
    October 7, 2021.
    Procedurally, the trustee fails to address why his counsel did not
    present this evidence in support of his opposition to Yang’s dismissal
    motion. The Civil Rule 59(e) motion raises the same issue that was the
    focus of the motion to dismiss. Moreover, the same information was clearly
    within his counsel’s knowledge and control. In short, this was not new
    evidence. His belated attempt to introduce this evidence in support of his
    Civil Rule 59(e) motion supports the bankruptcy court’s denial of his
    motion. Kona Enters., Inc, 229 F.3d at 890.
    Substantively, the trustee also has not established an abuse of
    discretion. The bankruptcy clerk merely addressed an obvious error and
    advised that the wrongfully filed complaint be withdrawn. It was not for
    the clerk of court to know that the complaint was filed on the final day
    before the limitations period expired. Nor does Arnold ever state that the
    dismissal ever impeded the filing of the Interworks Complaint.
    The trustee devotes considerable time to discussing the differences
    between a withdrawal of a complaint and the dismissal of an action. The
    difference is meaningless in this instance. The trustee’s counsel erroneously
    filed the complaint in the wrong case. It fell upon him to address the
    20
    matter. The clerk only pointed out that the complaint did not belong in that
    bankruptcy case. The clerk’s instructions did not constitute a court order as
    alluded to by the trustee. Rather, it was merely an administrative directive.
    Administratively, the Garcia Complaint was erroneously filed. The
    July 20, 2021 notice—and the subsequent conversations with the clerk’s
    office—made it clear that the error needed to be fixed. From the clerk’s
    perspective, the impact of dismissal on the trustee’s claims was irrelevant.
    The clerk merely needed a clean docket. The obligation to protect rights
    while addressing the error was solely the responsibility of the trustee, and
    he chose to dismiss the action. As noted by Yang, the trustee could have
    raised the matter with the court and sought relief, perhaps transferring the
    adversary to the proper bankruptcy case. The trustee never did so. Rather,
    more than two months after receiving the original notice of the erroneous
    filing the trustee voluntarily dismissed the erroneously, but timely, filed
    adversary proceeding. He bears the consequences of his actions.
    Under these circumstances, the bankruptcy court did not “stand in
    his way” for purposes of equitably tolling the time to commence his action
    against Yang. See generally Kwai Fun Wong, 
    732 F.3d at 1052
    . Accordingly,
    on this record, the bankruptcy court did not abuse its discretion when it
    denied the Civil Rule 59(e) motion.
    CONCLUSION
    For the reasons set forth above, we AFFIRM the bankruptcy court’s
    orders granting Yang’s Civil Rule 12(b)(6) dismissal motion and denying
    21
    the trustee’s Civil Rule 59(e) motion.
    22
    

Document Info

Docket Number: CC-22-1027-STL

Filed Date: 8/19/2022

Precedential Status: Non-Precedential

Modified Date: 2/22/2023

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