In re: Adam Lee ( 2021 )

FILED
NOT FOR PUBLICATION
APR 7 2021
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 Nos. HI-20-1224-TBK
ADAM LEE, HI-20-1225-TBK
Debtor. (Related Appeals)
ADAM LEE, Bk. No. 13-01356
Appellant,
v. Adv. No. 20-90006
DANE S. FIELD, Trustee,
Appellee. MEMORANDUM1
Appeal from the United States Bankruptcy Court
for the District of Hawaii
Robert J. Faris, Chief Bankruptcy Judge, Presiding
Before: TAYLOR, BRAND, and KLEIN, ** Bankruptcy Judges.
1. 1
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.
** The Honorable Christopher M. Klein, U.S. Bankruptcy Judge for the Eastern
District of California, sitting by designation.
I. INTRODUCTION
After more than six years, chapter 71 debtor Adam Lee faced two
judgments related to his improper retention and sale of estate assets. The
record well-supports that he was not a model debtor and that this was
apparent in the early years of the case. And his lack of attention to the
requirements of the Code was also evidenced by his failure to obtain the
credit counseling required for a discharge.
So, when events occurring in the early months of the case’s seventh
year finally roused the chapter 7 trustee, he needed to seek denial of
discharge not revocation. He filed his objection complaint after obtaining
an unopposed extension of the discharge objection deadline under Rule
4004(b)(2). Lee then defaulted, and the bankruptcy court granted a motion
for default judgment denying discharge.
Lee moved for reconsideration contending that the deadline
extension was invalid and the complaint untimely. The bankruptcy court in
response sua sponte considered and declined to find good cause to vacate
default and then denied reconsideration on the merits. Default judgment
denying discharge was then entered. We perceive no error, and we
AFFIRM.
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.
2
II. FACTS 2
The bankruptcy filing and deadline to object to discharge
In 2013, Lee filed a chapter 7 petition; Dane Field was appointed as
chapter 7 trustee. By operation of Rules 4004(a)(3) and 9006(a)(1)(C),
November 18, 2013 was the last day to object to discharge. The Trustee
obtained a stipulated extension of the deadline to January 16, 2014, but he
filed nothing before this extended period expired. Lee, however, did not
obtain a discharge because he never completed the financial management
course required by § 727(a)(11). And so, the case continued over the next
six years. Lee had the ability to obtain a discharge but took no steps to
finalize the pre-requisites. The Trustee made troubling discoveries as he
managed the case, but he did not seek a continuing extension of the time to
object to discharge or act to object to discharge until year six of the case.
The turnover orders
As to the specifics of the troubling discoveries, the Trustee uncovered
numerous instances where Lee pocketed sales proceeds from estate assets
or rental income from estate real property. The Trustee eventually obtained
an order requiring turnover of the ill-gotten proceeds (the “Proceeds”), and
Lee unsuccessfully appealed; both the district court and the Ninth Circuit
affirmed.
Despite these defeats, Lee refused to comply with the bankruptcy
2
We exercise our discretion to take judicial notice of the bankruptcy court’s
dockets, where appropriate. See Atwood v. Chase Manhattan Mortg. Co. (In re Atwood),
3
court’s turnover order. Thus, almost six years into the case, the Trustee
filed a second turnover motion; he again sought turnover of the Proceeds
and a monetary judgment if Lee failed to do so promptly. And he also
raised another impropriety and requested turnover of additionally
discovered estate assets, including proceeds from Lee’s alleged sale of
Nojuice.com, Inc. stock (the “Stock Proceeds”). Lee opposed this second
turnover motion on numerous grounds, which included a denial that he
sold any stock.
The bankruptcy court promptly entered a $72,488.97 judgment
against Lee based on his failure to turn over the Proceeds.3 But it required
an evidentiary hearing in relation to the request for turnover of the Stock
Proceeds.
The Stock Proceeds proceedings
So, in November and December of 2019, as year seven of the case
commenced, the bankruptcy court held an evidentiary hearing regarding
Lee’s alleged sale of stock. Lee made the process difficult by withholding
documents until the eve of trial and providing testimony that directly
contradicted the bankruptcy schedules he signed under penalty of perjury.
And when the bankruptcy court entered its memorandum decision, it
stated that “based on [its] observation of Adam Lee during the six-year
pendency of this case, [it] find[s] that Adam Lee is generally not a credible
293 B.R. 227, 233 n.9 (9th Cir. BAP 2003).
3 Lee also unsuccessfully appealed from the turnover order related to this
4
witness, and is willing to say whatever he thinks is in his best interest at
any given moment.” The bankruptcy court concluded that, contrary to his
testimony, Lee sold stock postpetition for $25,000 and that the Trustee was
entitled to a judgment against Lee in that amount. On January 24, 2019, the
bankruptcy court entered the judgment.
The extension of time to object to discharge
Approximately three weeks after entry of judgment, the Trustee filed
a motion to extend the time to object to Lee’s discharge pursuant to Rule
4004(b)(2). As noted, despite the long life of the case, Lee had not yet
obtained a discharge, so it was not appropriate to employ § 727(d) to
revoke a discharge already obtained. Lee did not oppose the motion, and
the bankruptcy court granted an extension for good cause to March 24,
2020.
The default judgment and reconsideration proceedings
On March 23, 2020, the Trustee filed an adversary complaint
objecting to Lee’s discharge under § 727(c) based on, among other things,
Lee’s retention and concealment of the Stock Proceeds; Lee’s failure or
refusal to provide the Trustee with requested documents and information;
Lee’s knowing and fraudulent false oaths regarding the Stock Proceeds;
and Lee’s refusal to obey the bankruptcy court’s turnover orders.
Lee did not answer or otherwise respond to the complaint, the clerk
entered his default, and the Trustee moved for a default judgment. Lee
judgment.
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then filed an untimely opposition to the motion for default judgment that
did not contain an objection to the timeliness of the complaint but instead
contested the merits.
The bankruptcy court held a hearing on the motion for default
judgment, Lee failed to appear, and the bankruptcy court orally granted
the Trustee’s request.
Shortly thereafter, Lee filed motions for reconsideration of the order
granting the Trustee an extension of time under Rule 4004(b)(2) and the
oral ruling granting the Trustee’s motion for default judgment. The
bankruptcy court sua sponte considered whether good cause existed
within the meaning of Civil Rule 55(c) to vacate the entry of Lee’s default
and, while mindful of the lenient standard for vacating defaults, declined
to do so. It then declined to revise its extension order and entered a written
order memorializing its prior oral ruling, followed by a separate judgment
denying discharge. Lee timely appealed the denial of his reconsideration
motions.
III. JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and
157(b)(2)(J). We have jurisdiction under 28 U.S.C. § 158.
IV. ISSUES
Did the bankruptcy court abuse its discretion in denying
reconsideration of the extension of time to object to discharge?
Did the bankruptcy court abuse its discretion in denying
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reconsideration of the entry of a default judgment?
V. STANDARD OF REVIEW
We review a bankruptcy court’s denial of relief under Civil Rules 59
and 60 for an abuse of discretion.4 Carruth v. Eutsler (In re Eutsler), 585 B.R.
231, 235 (9th Cir. BAP 2017). A bankruptcy court abuses its discretion if it
applies the wrong legal standard, misapplies the correct one, or makes
illogical or implausible factual findings or findings without support from
the facts in the record. See TrafficSchool.com, Inc. v. Edriver Inc., 653 F.3d 820,
832 (9th Cir. 2011).
We may affirm on any ground fairly supported by the record.
Wirum v. Warren (In re Warren), 568 F.3d 1113, 1116 (9th Cir. 2009).
VI. DISCUSSION
A. The bankruptcy court did not abuse its discretion in denying
reconsideration of the extension order.
In denying Lee’s motion for reconsideration of the extension order,
4
The Civil Rules do not recognize motions for reconsideration. Captain Blythers,
Inc. v. Thompson (In re Captain Blythers, Inc.), 311 B.R. 530, 539 (9th Cir. BAP 2004), aff’d,
182 F. App’x 708 (9th Cir. 2006). However, the Civil Rules provide two means by which
a party may obtain post-judgment relief: (1) a motion to alter or amend judgment under
Civil Rule 59; and (2) a motion for relief from judgment under Civil Rule 60. Where a
party files a motion for reconsideration within 14 days following the date of entry of the
judgment or order, the motion is treated as a motion to alter or amend the judgment
under Civil Rule 59(e). Am. Ironworks & Erectors, Inc. v. N. Am. Constr. Corp., 248 F.3d
892, 898-99 (9th Cir. 2001) (citation omitted). But where the 14-day time for appeal has
expired, a motion for reconsideration is construed as a motion for relief from judgment
under Civil Rule 60(b). Negrete v. Bleau (In re Negrete), 183 B.R. 195, 197 (9th Cir. BAP
1995), aff’d, 103 F.3d 139 (9th Cir. 1996).
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the bankruptcy court found the motion was untimely and without merit.
Lee asserts error in these findings, but we detect no abuse of discretion.
1. The reconsideration motion was untimely.
Here, whether the extension order was final or interlocutory affects
the line of analysis but not the final outcome of a timeliness analysis.
Assuming the extension order was interlocutory, the reconsideration
motion, which was filed 149 days after its entry, unquestionably violated
Local Bankruptcy Rule 9024-1 of the U.S. Bankruptcy Court for the District
of Hawaii, which provides that “[a] motion for reconsideration of an
interlocutory order must be filed no later than 14 days after the entry of the
order.” “An interlocutory order is one which does not finally determine a
cause of action, but instead decides only an intervening matter.” Travers v.
Dragul (In re Travers), 202 B.R. 624, 625 (9th Cir. BAP 1996) (citation
omitted). As explained by the bankruptcy court, the extension order was
arguably interlocutory because it did not finally dispose of any claim. In
fact, other courts have held that an order granting a motion to extend the
time to file a § 727 complaint is interlocutory. See, e.g., Aucoin v. S. Ins.
Facilities Liquidating Corp. (In re Aucoin), 35 F.3d 167, 169-70 (5th Cir. 1994).
But even if the extension order was a final order, we find no abuse of
discretion in the bankruptcy court’s determination that Lee’s
reconsideration motion was untimely. The motion would be treated as one
for relief under Civil Rule 60(b) because Lee filed it after the time to appeal
from the extension order, if final, had expired. In re Negrete, 183 B.R. at 197.
8
And a motion under Rule 60(b) “must be made within a reasonable time.”
Civil Rule 60(c)(1). What constitutes a reasonable time depends on the facts
of each case and “[takes] into consideration the interest in finality, the
reason for delay, the practical ability of the litigant to learn earlier of the
grounds relied upon, and prejudice to other parties.” Ashford v. Steuart, 657
F.2d 1053, 1055 (9th Cir. 1981). These considerations all point to Lee’s
reconsideration motion being untimely.
The record here strongly supports that Lee’s defalcations and failure
to appropriately cooperate in the case led to more than six years of delay in
case completion. Thus, the interest in finally resolving the remaining case
issues powerfully favors the bankruptcy court’s determination that the
request for reconsideration came too late.
Moreover, Lee waited to contest the timeliness of the Trustee’s
complaint until after the bankruptcy court denied discharge. In Kontrick v.
Ryan, 540 U.S. 443, 447 (2004), the Supreme Court held that a debtor forfeits
his or her right to rely on the time limits of Rule 4004 by failing to raise
them before the court reaches the merits of the objections to discharge.
Lee justifies his delay by alleging that he was unable to check his post
office box and believed he was unable to file documents with the
bankruptcy court because of the COVID-19 pandemic. But the bankruptcy
court found that these allegations were “hard to believe” from a litigant in
a hotly-contested bankruptcy case who received timely service of the
extension motion by email as well as U.S. mail and that Lee had not
9
adequately explained how the pandemic caused a more than four month
delay. Lee has not shown that the bankruptcy court’s assessment of his
allegations was inherently unreasonable or unsupported by specific
reasons. In fact, the assessment is consistent with the bankruptcy court’s
prior finding that Lee “is generally not a credible witness and is willing to
say whatever he thinks is in his best interest at any given moment.”
And we agree with the bankruptcy court that Lee could have learned
of the grounds for relief stated in his reconsideration motion related to the
Rule 4004(b)(2) extension order (discussed below) shortly after, if not
before, the extension order was entered. He never argued that he lacked
access to the electronic case docket, and he received service by mail and
email.
Finally, we agree with the bankruptcy court that the Trustee would
be significantly prejudiced by reconsideration of the extension order; he
filed an adversary complaint and obtained a default judgment against Lee
in reliance on it.
Based on the foregoing, the bankruptcy court did not abuse its
discretion in denying Lee’s reconsideration motion as untimely.
2. The reconsideration motion was devoid of merit.
But even if the reconsideration motion was timely, Lee did not assert
grounds under Civil Rule 60(b) justifying reconsideration. Civil Rule 60(b)
provides, in pertinent part, that a bankruptcy court may relieve a party
from a final order for: “(1) mistake, inadvertence, surprise, or excusable
10
neglect; (2) newly discovered evidence that, with reasonable diligence,
could not have been discovered in time to move for a new trial under Rule
59(b); . . . or (6) any other reason that justifies relief.” None of these
grounds support reconsideration of the extension order.
As to Civil Rule 60(b)(1), the bankruptcy court rejected Lee’s
assertions that he failed to timely discover the extension motion and that he
mistakenly believed that the COVID-19 pandemic barred him from filing
opposition. These conclusions are logical, plausible, and supported by the
record. We see no abuse of discretion.
Any reliance on Civil Rule 60(b)(2) is similarly unavailing. Lee failed
to argue that any new evidence came to light after entry of the extension
order. In fact, his primary argument for reconsideration—that the Trustee
did not meet the Rule 4004(b)(2) requirements for an extension of time—
was based on the facts presented by the Trustee in the extension motion
and other evidence on the record.
Finally, to the extent that Lee obliquely names Civil Rule 60(b)(6) as a
basis for reconsideration when he argues that the bankruptcy court made a
clear or manifest error in law or fact when it granted the Trustee an
extension of time under Rule 4004(b)(2), we discern no error in law or fact.
Ordinarily, a motion for an extension of time to object to a debtor’s
discharge must be filed no later than 60 days after the first date set for the
§ 341(a) meeting of creditors. See Rules 4004(a) and (b)(1). However, Rule
4004(b)(2) permits extension motions after this 60-day deadline if: (1) “the
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objection is based on facts that, if learned after the discharge, would
provide a basis for revocation under § 727(d);” (2) “the movant did not
have knowledge of those facts in time to permit an objection;” and (3) the
motion is filed “promptly after the movant discovers the facts on which the
objection is based.” Rule 4004(b)(2).
Given the basis for the objection to discharge, only the requirement of
promptness requires discussion. Lee correctly argues that many of the acts
that the Trustee relied on in the extension motion occurred years earlier.
But acts justifying a denial of discharge continued throughout the case,
and, as the bankruptcy court noted, later acts adequately supported
discharge denial. As the bankruptcy court stated: “[e]ven without any of
the other wrongful acts complained of in the [extension motion], [Lee’s]
refusal to produce documents and false testimony amply justify revocation
of the debtor’s discharge.” We agree; these wrongful acts support
discharge denial under §§ 727(a)(4)(A) and (D) and (a)(6), and they
occurred during year seven of the case. 5
Further, the bankruptcy court entered its final judgment related to
5 We note that while Lee’s earlier wrongful conduct may have been stale for
purposes of obtaining an extension of time under Rule 4004(b)(2), it could nevertheless
support revocation of discharge under §§ 727(d)(2) and (d)(3), the limitations period for
which is the later of one year after the granting of the discharge or the time the case is
closed. § 727(e)(2). Assuming (without deciding) that the Trustee could overcome any
applicable laches defense to a revocation of discharge complaint filed later in this case,
any error in the extension of time under Rule 4004(b)(2) would not affect the
substantive rights of the parties; hence any error here could be harmless error that we
must disregard. 28 U.S.C. § 2111; Civil Rule 61, incorporated by Rule 9005.
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the Stock Proceeds on January 24, 2020. The Trustee suspected that Lee
improperly sold the stock long before filing his extension motion, and he
certainly knew that improper sale of the stock supported denial of
discharge under § 727(a)(2)(B). But Lee denied the Trustee’s allegations
under oath. It was reasonable for the Trustee to wait until after the
bankruptcy court resolved the dispute to seek a denial of discharge on this
basis. And once the bankruptcy court decided the issue, the Trustee moved
with alacrity; he brought the extension motion just eight days after the
appeal period terminated and sought to deny discharge on this basis 45
days after the related judgment became final. Thus, we agree with the
bankruptcy court that the Trustee promptly moved for an extension under
Rule 4004(b)(2) in relation to these later defalcations and that they
sufficiently support denial of discharge; the bankruptcy court did not
abuse its discretion in denying Lee’s motion to reconsider the extension
order.
B. The bankruptcy court did not abuse its discretion in denying
reconsideration of the order granting a default judgment.
Neither did the bankruptcy court abuse its discretion in denying
reconsideration of its default judgment.
As an initial matter, the bankruptcy court sua sponte undertook to
assess whether the “good cause” contemplated by Civil Rule 55(c) for
setting aside the default was present. It concluded that there was not “good
cause” to set aside Lee’s default after considering whether: (1) Lee engaged
13
in culpable conduct that led to the default; (2) Lee had a meritorious
defense; and (3) the Trustee would be prejudiced. See Civil Rule 55(c),
incorporated by Rule 7055; Brandt v. Am. Bankers Ins. Co., 653 F.3d 1108,
1111-12 (9th Cir. 2011); United States v. Signed Personal Check No. 730 of
Yubran S. Mesle, 615 F.3d 1085, 1091 n.1 (9th Cir. 2010); Falk v. Allen, 739
F.2d 461, 463 (9th Cir. 1984). In so doing, it applied the correct legal
standard and did not abuse its discretion in declining to set aside the
default.
It also properly denied reconsideration of the default judgment under
Civil Rule 59. Because Lee filed his reconsideration motion six days after
the bankruptcy court announced that it would grant the Trustee a default
judgment, his motion is treated as a motion to alter or amend the judgment
under Civil Rule 59. Heritage Pac. Fin., LLC v. Montano (In re Montano), 501
B.R. 96, 112 (9th Cir. BAP 2013). To justify relief under Civil Rule 59, Lee
was required to show: “(a) newly discovered evidence, (b) the court
committed clear error or made an initial decision that was manifestly
unjust, or (c) an intervening change in controlling law.” Id. (citation
omitted). He failed to do so.
In his opening brief, Lee’s sole argument for reversal is that the
bankruptcy court lacked the authority to enter the default judgment
because the Trustee’s complaint objecting to his discharge was untimely
under Rule 4004. But as explained above, the Trustee filed the complaint by
the deadline imposed in the extension order and the bankruptcy court did
14
not abuse its discretion in declining to reconsider the extension order.
Moreover, Lee did not contest the timeliness of the Trustee’s
complaint in his opposition to the Trustee’s motion for default judgment.
He was therefore precluded from raising the issue in his reconsideration
motion. Kontrick, 540 U.S. at 458-60; Kona Enters., Inc. v. Est. of Bishop, 229
F.3d 877, 890 (9th Cir. 2000) (“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.”).
While Lee contested the bases for the default judgment in his reply
brief, he also waived such a challenge by failing to present it in in his
opening brief. See Kim v. Kang, 154 F.3d 996, 1000 (9th Cir. 1998) (Appellate
courts will not ordinarily consider matters that are not specifically and
distinctly argued in an appellant’s opening brief.); Wall St. Plaza, LLC v.
JSJF Corp. (In re JSJF Corp.), 344 B.R. 94, 99 (9th Cir. BAP 2006) (In an appeal
of an order denying reconsideration under Rule 9023, an appellate court
has jurisdiction to review both the order denying reconsideration and the
underlying order.). Even if we were to consider the issue, we would find it
lacked merit. The bankruptcy court’s factual findings supporting the denial
of a discharge were based on a well-established record of Lee’s defalcations
and bad acts.
VII. CONCLUSION
Based on the foregoing, we AFFIRM the bankruptcy court’s orders
denying reconsideration of the extension order and default judgment.
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