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FILED

MAR 25 2016

SUSAN M. SPRAUL, CLERK

U.S. BKCY. APP. PANEL

OF THE NINTH CIRCUIT

NOT FOR PUBLICATION

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

In re: ) BAP No. SC-15-1034-FJuKi

)

MARGARITA KOCHETOV aka RITA ) Bk. No. 95-11446-LA7

YUSSOUPOVA, )

)

Debtor. )

_____________________________ )

)

MARGARITA KOCHETOV aka RITA )

YUSSOUPOVA, )

)

Appellant, )

)

v. ) MEMORANDUM*

)

CALIFORNIA EMPLOYMENT )

DEVELOPMENT DEPARTMENT, )

)

Appellee. )

______________________________)

Argued and Submitted on March 17, 2016

at Pasadena, California

Filed – March 25, 2016

Appeal from the United States Bankruptcy Court

for the Southern District of California

Honorable Louise DeCarl Adler, Bankruptcy Judge, Presiding

 

Appearances: Appellant Margarita Kochetov aka Rita Yussoupova

argued pro se; Elisa B. Wolfe-Donato argued for

Appellee California Employment Development

Department.

 

Before: FARIS, JURY, and KIRSCHER, Bankruptcy Judges.

* 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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INTRODUCTION

Appellant/chapter 71 debtor Margarita Kochetov, now known as

Rita Yussoupova (“Ms. Yussoupova”), appeals from the bankruptcy

court’s order denying her motion to reopen her chapter 7 case

(“Motion to Reopen”). We hold that the bankruptcy court abused

its discretion when it declined to reopen her case based upon the

passage of time. Accordingly, we REVERSE and REMAND.

FACTUAL BACKGROUND2

Between 1991 and 1993, Ms. Yussoupova operated a small

clothing business under the name R.K. Sewing Co. During this

time, she hired people to perform certain services; she claimed

that all of the workers were independent contractors and not

employees.

In 1993, Ms. Yussoupova discontinued her business operations

and began working at an apparel manufacturing company. In

September 1995, she was contacted by an auditor at the state’s

Employment Development Department (“EDD”) who alleged that

Ms. Yussoupova owed unpaid unemployment taxes accrued during

R.K. Sewing’s operations. Ms. Yussoupova denied that she owed

any taxes, arguing that all of the workers were independent

contractors rather than employees. However, she lacked paperwork

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 Ms. Yussoupova 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).

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to support this contention, since all records were allegedly

destroyed in a fire. 

On October 19, 1995, Ms. Yussoupova initiated a “no asset”

chapter 7 case. She received her discharge on February 3, 1996,

and the case was closed in early 1996. 

While the bankruptcy case was pending, EDD issued an

estimated assessment for $672 and pursued collection despite

Ms. Yussoupova’s protests. In March 1996, Ms. Yussoupova met

twice with representatives of EDD. Ms. Yussoupova alleged that,

at the conclusion of the second meeting, the auditor informed her

that EDD would look into her case and notify her if any

additional action was necessary.

After fifteen years of silence, in September 2011, EDD sent

Ms. Yussoupova’s employer a notice of Earnings Withholding Order

for Taxes (“EWOT”). EDD alleged that Ms. Yussoupova owed

approximately $2,563 in unpaid unemployment insurance taxes

(which had increased since the 1995 assessment due to interest

and penalties).

Ms. Yussoupova claimed that the assessment had been

discharged in bankruptcy and the EWOT was the first indication in

fifteen years that the debt was not discharged. 

Ms. Yussoupova explored various avenues to challenge the

assessment. She sought relief before the California Unemployment

Insurance Appeals Board but was unsuccessful. 

Ms. Yussoupova then retained an attorney to reopen her

chapter 7 case. In January 2013, he filed a motion to reopen,

but the court denied it due to procedural defects. 

On November 21, 2014, Ms. Yussoupova, proceeding pro se,

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again moved to reopen her bankruptcy case. Ms. Yussoupova

simultaneously initiated an adversary proceeding, claiming that

the debt was discharged in 1996. EDD opposed the Motion to

Reopen, arguing, inter alia, that laches barred reopening such an

old case and that the tax assessment is nondischargeable.

The bankruptcy court agreed with EDD, stating that

(1) reopening the case would “require the EDD to delve into

records and recollections that are 20 years old”; (2) it is the

debtor’s responsibility to challenge the nondischargeability of a

tax debt; and (3) “the interest in finality outweighs the

debtor’s possible need to have the dischargeability of a debt

. . . determined by this court.”

Ms. Yussoupova timely appealed the order.

JURISDICTION

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

§§ 1334, and 157(b)(1). We have jurisdiction under 28 U.S.C.

§ 158.

ISSUE

Whether the bankruptcy court erred in denying

Ms. Yussoupova’s Motion to Reopen.

STANDARD OF REVIEW

The denial of a motion to reopen a bankruptcy case is

reviewed for abuse of discretion. Staffer v. Predovich

(In re Staffer), 306 F.3d 967, 971 (9th Cir. 2002) (citing Weiner

v. Perry, Settles & Lawson, Inc. (In re Weiner), 161 F.3d 1216,

1217 (9th Cir. 1998)). 

To determine whether the bankruptcy court has abused its

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

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whether the bankruptcy court “identified the correct legal rule

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

whether the bankruptcy court’s application of the legal standard

was 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, 1261–62 & 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).

DISCUSSION

A. The bankruptcy court has discretion to reopen a closed case.

Section 350(b) states that “[a] case may be reopened in the

court in which such case was closed to administer assets, to

accord relief to the debtor, or for other cause.” A dispute

regarding dischargeability is cause for reopening a closed case. 

See Menk v. Lapaglia (In re Menk), 241 B.R. 896, 910 (9th Cir.

BAP 1999) (Section “350, providing for reopening of cases,

provides one possible procedure for a determination of

dischargeability and related issues after a case is closed.”

(citation omitted) (emphasis in original)); In re Ford, 87 B.R.

641, 644-45 (Bankr. D. Nev. 1988) (A court “may reopen for

purposes of permitting an action to be filed to determine the

dischargeability [of a debt] under section 523(a)(3).”).

“[A]lthough a motion to reopen is addressed to the sound

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discretion of the bankruptcy court, ‘the court has the duty to

reopen an estate whenever prima facie proof is made that it has

not been fully administered.’” Lopez v. Speciality Restaurants

Corp. (In re Lopez), 283 B.R. 22, 27 (9th Cir. BAP 2002) (citing

Kozman v. Herzig (In re Herzig), 96 B.R. at 264, 266 (9th Cir.

BAP 1989)). “[R]eopening a case is typically ministerial and

‘presents only a narrow range of issues: whether further

administration appears to be warranted; whether a trustee should

be appointed; and whether the circumstances of reopening

necessitate payment of another filing fee.’” Id. at 26 (quoting

In re Menk, 241 B.R. at 916-17).

B. The bankruptcy court abused its discretion by refusing to

reopen Ms. Yussoupova’s case on the basis of laches.

The bankruptcy court held that laches and the interest of

finality precluded the reopening of Ms. Yussoupova’s case. This

was inconsistent with Ninth Circuit case law that laches and the

passage of time cannot serve as a basis to deny a motion to

reopen. Accordingly, we hold that the bankruptcy court abused

its discretion by denying the Motion to Reopen. 

In Menk, we made clear that it is inappropriate to consider

substantive issues on a motion to reopen. We noted that “the

reopening of a closed bankruptcy case is a ministerial act that

functions primarily to enable the file to be managed by the clerk

as an active matter and that, by itself, lacks independent legal

significance and determines nothing with respect to the merits of

the case.” In re Menk, 241 B.R. at 913 (citations omitted). We

held that it is improper to decide the merits of a case when

considering a motion to reopen: 

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The better practice is the procedurally correct

one of requiring merits issues to be left to the

underlying litigation and relying on Rule 9011 and the

court’s inherent sanctioning authority to constrain

inappropriate litigation.

Id. at 916 (citations omitted). We concluded that “the motion to

reopen legitimately presents only a narrow range of issues:

whether further administration appears to be warranted; whether a

trustee should be appointed; and whether the circumstances of

reopening necessitate payment of another filing fee. Extraneous

issues should be excluded.” Id. at 916-17; see also First Am.

Title Co. v. Daniels (In re Daniels), 34 B.R. 782, 784 (9th Cir.

BAP 1983) (“The reopening of a case is [a] simple mechanical

device by which the administration of the estate may be resumed

or continued. Nothing concerning the merits is considered when

the motion is granted.” (citations omitted)).

Subsequently, the Ninth Circuit expanded upon our decision

in Menk and declined to apply laches to bar reopening a case six

years after it had closed. In Staffer, a creditor sought to

reopen a chapter 7 bankruptcy case to file a nondischargeability

complaint. The bankruptcy court denied reopening on the basis of

laches. The court of appeals noted that: 

[the debtor] appears to argue both that laches bars the

preliminary motion to reopen, and that laches bars the

underlying § 523(a)(3)(B) action that [the creditor]

ultimately seeks to bring. The bankruptcy court

collapsed the two questions into one. Under its

reasoning, if the underlying action is barred by

laches, a motion to reopen should not be granted. The

BAP reached a contrary conclusion, citing In re Menk,

241 B.R. 896 (9th Cir. BAP 1999). It held that the

question of whether [the debtor] could successfully

assert the affirmative defense of laches to [the

creditor’s] nondischargeability action was an

extraneous issue at the motion-to-reopen stage, and was

not properly addressed prior to the filing [of] the

complaint. We agree with the BAP.

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In re Staffer, 306 F.3d at 972.

The court quoted and relied extensively on Menk, stating

that “although ‘it is tempting to say that the reopening motion

entitles the court to perform a gatekeeping function that

justifies inquiring in to the related relief that will be

sought,’ such inquiries are in fact inappropriate.” Id. (quoting

In re Menk, 241 B.R. at 916). It held that, “[b]ecause the

bankruptcy court was presented only with a motion to reopen and

not with the nondischargeability complaint itself, the BAP was

correct to hold that the question of applicability of laches to

that complaint was not properly before the court.” Id.3

Under Staffer and Menk, the bankruptcy court should not have

denied the Motion to Reopen on the basis of laches. See also

In re Dunning Bros. Co., 410 B.R. 877, 888 (Bankr. E.D. Cal.

2009) (holding that a 73-year interval does not preclude

reopening).

2. The bankruptcy court may consider the defense of laches

(and all other substantive issues) after reopening the

case. 

Our holding does not imply that the court may not consider

EDD’s defense of laches when adjudicating the merits of

Ms. Yussoupova’s case. As the Ninth Circuit held in Staffer,

after the court reopens the case, it may consider applicable

substantive issues and defenses, such as laches:

The BAP correctly left open the possibility that,

3 The bankruptcy court relied on United States v. Ellsworth

(In re Ellsworth), 158 B.R. 856 (M.D. Fla. 1993), and

In re Kapsin, 265 B.R. 778 (Bankr. N.D. Ohio 2001). Like the

string of cases cited by EDD, these decisions are inconsistent

with binding Ninth Circuit precedent and are distinguishable.

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upon the filing of [the creditor’s] § 523(a)(3)(B)

complaint, [the debtor] might assert laches as a

defense. As we recently held in Beaty v. Selinger

(In re Beaty)[,] 306 F.3d 914 (9th Cir. 2002), laches

can, under certain limited circumstances, bar a

§ 523(a)(3)(B) nondischargeability action. 

In re Staffer, 306 F.3d at 973 (emphasis added).

In the present case, we understand Ms. Yussoupova to be

essentially arguing two distinct points: (1) that she did not owe

any unemployment insurance taxes; and (2) that, even if she owed

such a debt, it was discharged in 1996, and she has no further

liability. 

As to the first question, the court must determine whether

the facts indicate that Ms. Yussoupova is liable for unemployment

insurance taxes. See § 505(a)(1) (“the court may determine the

amount or legality of any tax, any fine or penalty relating to a

tax . . . .”). This issue likely implicates a factual inquiry

into, among other things, whether Ms. Yussoupova’s workers were

employees or independent contractors. Making this factual

determination may be difficult, especially since Ms. Yussoupova

says her business records were destroyed in a fire years ago. 

The bankruptcy court might properly apply laches to this

situation. See In re Staffer, 306 F.3d at 973.

But these considerations do not apply to the second

question: whether the alleged debt was discharged in 1996. The

court must decide (1) whether the unemployment insurance tax was

an excise tax or otherwise nondischargeable; and (2) the

operative time period concerning the taxes, i.e., when the tax

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returns were due under state law.4 These are mostly legal

questions; the court will probably not have to conduct any

significant factual analysis that could be impaired by the

passage of time. 

More importantly, the passage of time should not justify

denial of a motion to reopen in order to implement or enforce the

discharge. The discharge injunction never expires. See McGhan

v. Rutz (In re McGhan), 288 F.3d 1172, 1176 (9th Cir. 2002)

(“When a debtor is discharged under the Bankruptcy Code, the

discharge operates as a permanent injunction against any attempt

to collect or recover on a . . . debt.” (citations and internal

quotation marks omitted)); In re Menk, 241 B.R. at 908 (“the

debtor receives a discharge, eliminating personal liability and

operating as a permanent injunction to enforce that elimination

of liability”). Employing laches to deny the debtor access to

the bankruptcy court means that, as a practical matter, the

passage of time diminishes the discharge. But courts may not use

equitable doctrines (like laches) to override clear statutory

commands (like the discharge). See Law v. Siegel, 134 S. Ct.

1188, 1194-95 (2014) (“We have long held that ‘whatever equitable

powers remain in the bankruptcy courts must and can only be

exercised within the confines of’ the Bankruptcy Code.” (citation

omitted)). The application of laches to bar a debtor’s effort to

enforce the discharge improperly creates a time limit on a right

4 EDD urges us to determine that the tax assessment is a

nondischargeable excise tax. This issue was not decided by the

bankruptcy court, and we decline to consider this issue for the

first time on appeal. See Ezra v. Seror (In re Ezra), 537 B.R.

924, 932 (9th Cir. BAP 2015).

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that Congress made perpetual. 

CONCLUSION

For the reasons set forth above, we conclude that the

bankruptcy court abused its discretion in refusing to reopen

Ms. Yussoupova’s case. Accordingly, we REVERSE the bankruptcy

court’s order and REMAND this case for proceedings consistent

with our decision.

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