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NOT FOR PUBLICATION

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

In re: ) BAP No. NV-14-1517-FBD

)

PETER SZANTO, ) Bk. No. 3:13-51261-GWZ

)

Debtor. ) Adv. No. 3:13-05038-GWZ

_____________________________ )

)

PETER SZANTO, )

)

Appellant, )

)

v. ) MEMORANDUM*

)

VICTOR SZANTO; ANTHONY SZANTO,)

)

Appellees. )

______________________________)

Argued and Submitted on May 19, 2016

at Las Vegas, Nevada

Filed – May 31, 2016

Appeal from the United States Bankruptcy Court

for the District of Nevada

Honorable Bruce T. Beesley, Chief Bankruptcy Judge, and

Honorable Gregg W. Zive, Bankruptcy Judge, Presiding

 

Appearances: Appellant Peter Szanto argued pro se; John S.

Bartlett argued for Appellees Victor Szanto and

Anthony Szanto.

 

FILED

MAY 31 2016

SUSAN M. SPRAUL, CLERK

U.S. BKCY. APP. PANEL

OF THE NINTH CIRCUIT

* 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.
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Before: FARIS, BARASH,** and DUNN, Bankruptcy Judges.

INTRODUCTION

Appellant/chapter 111 debtor Peter Szanto appeals from the

bankruptcy court’s order dismissing his complaint for failure to

state a claim. The bankruptcy court abused its discretion when

it denied leave to file an amended complaint. But this error was

harmless. The court dismissed the underlying bankruptcy case,

and it did not abuse its discretion when it declined to retain

jurisdiction over the adversary proceeding. Accordingly, we

AFFIRM.

FACTUAL BACKGROUND2

A. The adversary complaint

Mr. Szanto3 initiated his chapter 11 bankruptcy on June 25,

2013 and later commenced an adversary proceeding against his

brothers, the appellees in this appeal. Mr. Szanto claimed that

** Hon. Martin R. Barash, United States Bankruptcy Judge for

the Central District of California, sitting by designation.

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, Rules 1001-9037, and all “Civil Rule” references are

to the Federal Rules of Civil Procedure, Rules 1-86.

2 Mr. Szanto presents us with a limited record. We have

exercised our discretion to review the bankruptcy court’s docket,

as appropriate. See Woods & Erickson, LLP v. Leonard (In re AVI,

Inc.), 389 B.R. 721, 725 n.2 (9th Cir. BAP 2008).

3 Mr. Szanto is a serial litigant. The bankruptcy court

noted that there are seventy-six cases nationwide involving a

party named Peter Szanto, and Mr. Szanto acknowledged that he was

a party to at least fifteen or twenty of those cases. At oral

argument, Mr. Szanto acknowledged that the California state court

found him to be a vexatious litigant.

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Appellees are fraudulently concealing or withholding

approximately $3,200,000 in trust assets.

B. The motion to dismiss

Appellees moved to dismiss the adversary proceeding (“Motion

to Dismiss”). Appellees argued (among other things) that

Mr. Szanto failed to allege facts sufficient to meet the pleading

standards of Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555

(2007), and Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).

The bankruptcy court held that the complaint did not satisfy

the standards of Twombly and Iqbal. Mr. Szanto does not

challenge this decision on appeal. He does challenge the

bankruptcy court’s denial of an opportunity to file an amended

complaint.

The court explained that he would have to file a new

complaint and pay a new filing fee: “I mean, this is not even

close to Iqbal and Twombly, so you need to re-file a complaint. 

It’s not a first amended complaint. It is a new complaint. You

have to allege facts. You have to reserve it and we’ll go

forward from there.”

C. The motion for reconsideration

Mr. Szanto filed a motion for reconsideration (“Motion for

Reconsideration”), arguing that the court should have allowed him

leave to amend the complaint. The hearing on the Motion for

Reconsideration was delayed for fifteen months because Mr. Szanto

claimed he was too ill to appear. 

D. Dismissal of the bankruptcy case

In the meantime, the bankruptcy court dismissed Mr. Szanto’s

bankruptcy case. The chapter 11 trustee moved to dismiss the

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case or convert it to chapter 7 because Mr. Szanto failed timely

under § 1112(b)(4)(J) to file a disclosure statement. The court

granted the motion and dismissed the bankruptcy case with a sixmonth bar on re-filing any bankruptcy petition. 

The district court affirmed the bankruptcy court’s order of

dismissal. Mr. Szanto appealed the district court’s decision to

the Ninth Circuit, and that appeal is currently pending.

E. Ruling on the Motion for Reconsideration

The bankruptcy court denied the Motion for Reconsideration

for two reasons. First, it determined that granting leave to

amend would be an excise in futility, since Mr. Szanto failed to

“propose any amendments to his complaint that would cure the

deficiencies to allege any facts upon which a claim can be stated

against defendants.”

Second, the bankruptcy court noted that, during the fifteen

months that the Motion for Reconsideration was pending, the court

had dismissed the underlying bankruptcy case, and Mr. Szanto had

neither requested nor received a stay of the order dismissing the

bankruptcy case. Applying Carraher v. Morgan Electronics, Inc.

(In re Carraher), 971 F.2d 327, 328 (9th Cir. 1992), the court

held that it would not retain jurisdiction over the adversary

proceeding. 

JURISDICTION

The bankruptcy court had jurisdiction pursuant to 28 U.S.C.

§§ 1334 and 157(b)(1). Mr. Szanto’s notice of appeal was

premature because he filed it before the bankruptcy court decided

his Motion for Reconsideration. Now that the bankruptcy court

has denied the Motion for Reconsideration, the bankruptcy court’s

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order has become final, and we have jurisdiction under 28 U.S.C.

§ 158.

ISSUE

Whether the bankruptcy court erred in dismissing

Mr. Szanto’s adversary complaint without leave to amend. 

STANDARDS OF REVIEW

We review de novo the bankruptcy court’s decision to dismiss

a complaint under Civil Rule 12(b)(6). See Movsesian v. Victoria

Versicherung AG, 670 F.3d 1067, 1071 (9th Cir. 2012) (en banc).

In contrast, we review for abuse of discretion the

bankruptcy court’s decision whether to grant leave to amend the

complaint. See, e.g., Zadrozny v. Bank of N.Y. Mellon, 720 F.3d

1163, 1167 (9th Cir. 2013); Reddy v. Litton Indus., Inc.,

912 F.2d 291, 296 (9th Cir. 1990). Appellate courts should

“review strictly a . . . court’s exercise of discretion denying

leave to amend.” Albrecht v. Lund, 845 F.2d 193, 195 (9th Cir.

1988), amended, 856 F.2d 111 (9th Cir. 1988).

Similarly, we review for abuse of discretion the court’s

decision to decline to exercise jurisdiction over an adversary

proceeding. In re Carraher, 971 F.2d at 328.

We also review for abuse of discretion the denial of a

motion for reconsideration. See N. Alaska Envtl. Ctr. v. Lujan,

961 F.2d 886, 889 (9th Cir. 1992).

To determine whether the bankruptcy court has abused its

discretion, we conduct a two-step inquiry: (1) we review de novo

whether the bankruptcy court “identified the correct legal rule

to apply to the relief requested” and (2) if it did, whether the

bankruptcy court’s application of the legal standard was

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illogical, implausible, or “without support in inferences that

may be drawn from the facts in the record.” United States v.

Hinkson, 585 F.3d 1247, 1262–63 & n.21 (9th Cir. 2009) (en banc).

“If the bankruptcy court did not identify the correct legal rule,

or its application of the correct legal standard to the facts was

illogical, implausible, or without support in inferences that may

be drawn from the facts in the record, then the bankruptcy court

has abused its discretion.” USAA Fed. Sav. Bank v. Thacker

(In re Taylor), 599 F.3d 880, 887–88 (9th Cir. 2010) (citing

Hinkson, 585 F.3d at 1261–62).

We may affirm on any ground supported by the record. Diener

v. McBeth (In re Diener), 483 B.R. 196, 202 (9th Cir. BAP 2012).

DISCUSSION

A. The propriety of dismissal is not before us. 

As a preliminary matter, we note that Mr. Szanto is not

appealing the bankruptcy court’s decision to dismiss his

complaint. We only consider whether the court should have

allowed Mr. Szanto leave to amend his complaint.

B. The bankruptcy court abused its discretion in denying

Mr. Szanto an opportunity to amend his adversary complaint.

Civil Rule 15(a), made applicable through Rule 7015,

provides that if an amendment is not allowed as a matter of

course, “a party may amend its pleading only with the opposing

party’s written consent or the court’s leave. The court should

freely give leave when justice so requires.” Civil

Rule 15(a)(2). The Ninth Circuit has “stressed Rule 15’s policy

of favoring amendments, and [it has] applied this policy with

liberality.” Ascon Props., Inc. v. Mobil Oil Co., 866 F.2d 1149,

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1160 (9th Cir. 1989).

In determining whether to grant leave to amend, we follow

the United States Supreme Court’s dictate in Foman v. Davis,

371 U.S. 178 (1962), which instructed that: 

In the absence of any apparent or declared reason -

such as undue delay, bad faith or dilatory motive on

the part of the movant, repeated failure to cure

deficiencies by amendments previously allowed, undue

prejudice to the opposing party by virtue of allowance

of the amendment, futility of amendment, etc. - the

leave sought should, as the rules require, be freely

given.

Id. at 182; see Tracht Gut, LLC v. Cty. of L.A. Treasurer & Tax

Collector (In re Tracht Gut, LLC), 503 B.R. 804, 814 (9th Cir.

BAP 2014) (relying on the “Foman Factors”). 

“[A] determination that any amendment would be futile

requires the trial court to dismiss the complaint with

prejudice.” In re Tracht Gut, LLC, 503 B.R. at 815 (citing

Mirmehdi v. United States, 689 F.3d 975, 985 (9th Cir. 2012);

Sanford v. MemberWorks, Inc., 625 F.3d 550, 557 (9th Cir. 2010)). 

“Amendment is futile when ‘allegation of other facts consistent

with the challenged pleading could not possibly cure the

deficiency.’” Van Zandt v. Mbunda (In re Mbunda), 484 B.R. 344,

356 (9th Cir. BAP 2012), aff’d, 604 F. App’x 552 (9th Cir. 2015)

(quoting Albrecht, 845 F.2d at 195).

The Ninth Circuit has cautioned that “[d]ismissal without

leave to amend is improper unless it is clear, upon de novo

review, that the complaint could not be saved by any amendment.” 

Intri–Plex Techs., Inc. v. Crest Group, Inc., 499 F.3d 1048, 1056

(9th Cir. 2007) (quoting Sparling v. Daou (In re Daou Sys.,

Inc.), 411 F.3d 1006, 1013 (9th Cir. 2005)).

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1. The bankruptcy court erroneously denied leave to amend

based on the insufficiency of the original complaint.

The court abused its discretion by not allowing Mr. Szanto

to amend his complaint. The court apparently denied leave to

amend because it thought the complaint was very far from meeting

the Twombly and Iqbal standards. This was an error. When

deciding whether to grant leave to amend, the degree of

insufficiency of the original complaint is irrelevant. Rather,

the primary question is whether the plaintiff could file an

adequate complaint. 

Further, in its ruling on the Motion to Dismiss, the court

did not rely on any of the Foman factors in its decision to deny

leave to amend. Thus, the court applied the incorrect legal

standard.

2. The court erred in determining that any amendment would

be futile.

In ruling on the Motion for Reconsideration, the court

properly identified the Foman factors, but held that futility of

amendment justified denying leave to amend under Civil

Rule 15(a). It said that, because Mr. Szanto did not offer any

amendments to his complaint that would cure the deficiency,

“granting leave to plaintiff to file an amended complaint would

be an exercise in futility in the complete absence of any showing

by plaintiff he has a factual basis upon which a claim against

defendants can be stated.”

The record does not support the view that amendment would be

futile. For example, the court pointed out that Mr. Szanto did

not identify the “assets” referenced in the complaint; however,

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Mr. Szanto said that the “assets” at issue are those listed in

his Schedule B.4 Mr. Szanto could solve that problem simply by

identifying and adequately describing those assets in his amended

complaint. Similarly, the court faulted Mr. Szanto for not

referencing the trusts at issue; in his Motion for

Reconsideration, he identified the three trusts. Mr. Szanto

could incorporate this information in an amended complaint. In

other words, it is not apparent to us “that the complaint could

not be saved by any amendment.” See Intri–Plex Techs., Inc.,

499 F.3d at 1056; see also In re Tracht Gut, LLC, 503 B.R. at

814; cf. In re Mbunda, 484 B.R. at 356-57 (concluding that

amendment would be futile because the appellant conceded he could

not present additional facts).

The court faulted Mr. Szanto for not describing the

amendments he would make to the complaint. But this puts the

cart before the horse. A plaintiff does not have to file an

amended complaint, or say what an amended complaint would allege,

until after the court has dismissed the original complaint. The

court cannot deny leave to amend because the plaintiff has failed

to describe the proposed amendments, as long as there is reason

to believe that the plaintiff could construct a viable complaint.

C. The bankruptcy court properly declined to retain

jurisdiction over the adversary proceeding, so its error in

refusing to grant leave to amend is harmless.

Even though the court erred in denying Mr. Szanto leave to

amend, such error was harmless. The bankruptcy court dismissed

4 Schedule B generally identifies a “[f]amily trust

entitlement” valued at $3,200,000.

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the underlying bankruptcy case. It subsequently determined that

it would not exercise jurisdiction over the adversary complaint. 

Mr. Szanto did not appeal this decision or otherwise address it

in his appellate briefs, and we find no error. 

We follow the Ninth Circuit’s four-part test set forth in

Carraher to determine whether a court should retain jurisdiction

over an adversary proceeding after the underlying bankruptcy case

has been dismissed. The Ninth Circuit stated: 

In considering what standards govern the

bankruptcy court’s discretion in determining whether to

retain a related case after dismissal of the underlying

bankruptcy case, we, like other courts, turn for

guidance to cases considering the authority of federal

district courts to retain pendent state claims after

the federal claims have been dismissed. The Supreme

Court has held that where a federal district court

dismisses federal claims, the court must consider

economy, convenience, fairness and comity in deciding

whether to retain jurisdiction over pendent state

claims.

In re Carraher, 971 F.2d at 328 (emphasis added) (internal

citations omitted); see also Linkway Investment Co., Inc. v.

Olsen (In re Casamont Investors, Ltd.), 196 B.R. 517, 523 (9th

Cir. BAP 1996) (“retention of jurisdiction was found to have been

improper when the initiation of the dispute was recent, no action

had been taken prior to the dismissal and the dispute concerned

issues of probate law, in which the state courts had more

expertise” (emphasis in original)); Zegzula v. JPMorgan Chase

Bank, N.A. (In re Zegzula), BAP No. WW-14-1119-JuKiF, 2015 WL

5786572 (9th Cir. BAP Oct. 2, 2015) (holding that the bankruptcy

court did not abuse its discretion in declining to retain

jurisdiction over the adversary proceeding when it had previously

dismissed the underlying bankruptcy case and found that

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considerations of judicial economy and fairness did not support

the court’s retention of jurisdiction over the adversary

proceeding).

Mr. Szanto’s opening brief fails to discuss the bankruptcy

court’s decision not to retain jurisdiction of the adversary

proceeding. Nor did he address this issue in his reply brief,

even when specifically argued by Appellees in their answering

brief. We thus deem this issue waived for the purposes of

appeal.5 See Smith v. Marsh, 194 F.3d 1045, 1052 (9th Cir. 1999)

(“on appeal, arguments not raised by a party in his opening brief

are deemed waived”).

Even if Mr. Szanto had not waived the issue, we would

conclude that the bankruptcy court did not err in dismissing the

adversary proceeding. The bankruptcy court properly identified

the Carraher test as the correct legal standard and applied that

test to the facts of the case. We find no error in the court’s

conclusions.

First, judicial economy does not favor retention of the

adversary proceeding. As the bankruptcy court properly noted,

the adversary proceeding had not progressed beyond the initial

pleading stage. Although the case had been pending for nearly

two years, the delay was largely caused by Mr. Szanto and his

failures to appear at the hearings on his Motion for

5 At oral argument, the Panel questioned Mr. Szanto about

the effect of the dismissal of the underlying bankruptcy case. 

Mr. Szanto failed to provide any substantive answer (or explain

why he did not raise that issue in this appeal) and only stated

that, because the dismissal order is currently on appeal to the

Ninth Circuit, the effect “remains to be seen” as he is “charting

new law.”

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Reconsideration. Moreover, the issues raised by the adversary

complaint are state law issues that can be resolved expeditiously

in state court. See In re Carraher, 196 B.R. at 524. As such,

judicial economy does not support retention of the adversary

proceeding. 

Second, none of the parties would be inconvenienced by the

dismissal of the case. The bankruptcy court stated that there is

ongoing litigation in California state court, which could

potentially involve the present parties, most of whom are

California residents.6 See id. 

Third, it would not be unfair to require Mr. Szanto to

assert his claims in state court. Mr. Szanto fails to explain

why he could not assert his state law claims in state court.7 

Finally, comity favors refusing jurisdiction over the

adversary complaint. We agree with the bankruptcy court that the

fraud-based claims are grounded in state law and should be

decided in state court.

Therefore, the bankruptcy court did not err in refusing to

retain jurisdiction over the adversary proceeding after the

underlying bankruptcy case had been dismissed. 

6 Mr. Szanto says that, if his complaint is dismissed, the

statute of limitations would bar his claims. He offers no

explanation for this statement, so we cannot say that the

bankruptcy court’s refusal to retain jurisdiction would be unfair

to him.

7 At oral argument, Mr. Szanto stated that he cannot present

his claims in the California state courts because he has been

declared a vexatious litigant in California. The fact that a

party apparently has abused the state court system does not

require the federal courts to hold their doors open.

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CONCLUSION

The bankruptcy court abused its discretion in dismissing the

complaint without leave to amend. However, the bankruptcy court

has dismissed the underlying bankruptcy case, and Mr. Szanto has

not appealed the court’s decision to decline to exercise

jurisdiction over the adversary proceeding. Moreover, the court

correctly declined jurisdiction under the Carraher analysis. 

Accordingly, the bankruptcy court’s error was harmless, and we

AFFIRM.

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