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FILED

 2/19/2014

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. NV-13-1146-TaJuKi

)

VINH CHAU and LANG MACH, ) Bk. No. 12-19953-MKN

)

Debtors. ) Adv. No. 12-01307-MKN

______________________________)

)

CLARA BUENAVENTURA, )

)

Appellant, )

)

v. ) MEMORANDUM*

)

VINH CHAU; LANG MACH, )

)

Appellees. ) )

Argued and Submitted on January 24, 2014

at Las Vegas, Nevada

Filed - February 19, 2014

Appeal from the United States Bankruptcy Court

for the District of Nevada

Honorable Mike K. Nakagawa, Chief Bankruptcy Judge, Presiding 

Appearances: Thomas F. Christensen of Christensen Law Offices,

LLC argued for appellant Clara Buenaventura;

A.J. Kung of Kung & Brown argued for appellees

Vinh Chau and Lang Mach. 

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

FILED

 2/19/2014

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 8013-1.

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Judgment creditor Clara Buenaventura (“Creditor”) appeals

the order of the bankruptcy court dismissing with prejudice her

adversary complaint against chapter 71 debtors Vinh Chau (“Chau”)

and Lang Mach (“Mach,” and together with Chau, “Debtors”) under

Civil Rule 12(b)(6). We AFFIRM.

FACTS

In November 2006, Creditor’s husband, Benjamin Buenaventura,

died as a result of injuries he sustained in a head-on automobile

collision. Chau caused the accident, as driver of a vehicle

owned by Mach. Creditor, along with others,2 sued Debtors in

2007, based on negligence theories, for the wrongful death of her

husband (“State Court Action”). She obtained a judgment after a

jury trial held in 2012 (“Judgment”).3 

 Debtors’ insurance policy with Western United Insurance

Company, dba AAA Insurance Company (“AAA”), included bodily

injury liability limits of $100,000 per person. In late 2006,

1

 Unless otherwise indicated, all chapter and section

references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532.

“Rule” references are to the Federal Rules of Bankruptcy

Procedure, and “Civil Rule” references are to the Federal Rules

of Civil Procedure.

2

 Mrs. Buenaventura, individually and as representative of

Benjamin Buenaventura’s estate, along with Mr. Buenaventura’s

children and heirs, obtained the Judgment in an action initiated

in the Eighth District Court, Clark County, Nevada (“State

Court”).

3

 The Judgment, in excess of $500,000, was granted in favor

of all the plaintiffs. For ease of reference, and based on the

fact that Creditor is the only named plaintiff in the adversary

proceeding at issue in this appeal (the Adversary Proceeding), we

define Creditor simply as Mrs. Buenaventura.

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prior to filing a wrongful death action in State Court,

Creditor’s counsel made a policy limits demand on AAA, requiring

payment within two weeks. AAA did not pay the policy limits at

that time. In 2008, AAA filed a complaint in the United States

District Court in Nevada4 (“Federal Court”), seeking declaratory

relief regarding the insurance policy (“Federal Court DRA”). The

Federal Court entered an Order on July 15, 2010, granting AAA’s

motion for summary judgment (the “Summary Judgment Order”) and

concluding that AAA’s “liability under the insurance policy is

fixed at $100,000 and [AAA’s] failure to settle within the time

limit set by [Creditor] does not constitute bad faith under

Nevada law.” See Adv. Dkt. #8, Ex. 1.

Creditor was not named as a party to the Federal Court DRA,

although she was allowed to intervene and she filed papers in

opposition to AAA’s motion for summary judgment. She appealed

from the Summary Judgment Order. The Ninth Circuit, however,

dismissed her appeal based on lack of standing.5

Creditor attempted to execute on the Judgment. Her efforts

included seeking judicial assignment in the State Court Action of

any possible insurance bad faith claims or malpractice claims. 

On August 27, 2012, Hon. Rob Bare, the judge in the State Court

4 Case No.: 08-cv-00827-GMN-LRL, captioned as AAA Nevada

Insurance Company v. Vinh Chau, et al.

5

 During the pendency of this appeal, and after dismissal

of her appeal by the Ninth Circuit in the Federal Court DRA,

Creditor moved for reconsideration of the Summary Judgment Order

in the Federal Court. We take judicial notice of the order

signed on November 26, 2013 by Hon. Robert C. Jones in case

2:08-cv-00827, which struck the Summary Judgment Order (the “2013

Order”). See BAP Dkt. #24.

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Action, verbally ordered judicial assignment of Debtors’

“insurance bad faith claim” and “any and all legal claims they

may have, including a potential attorney malpractice case,” in

full satisfaction of the Judgment. Adv. Dkt. #21, Ex. 3. 

The following day, August 28, 2012, Debtors filed for

protection under chapter 7. The Debtors included neither

insurance bad faith claims nor any potential attorney malpractice

claims in their schedules. They disclosed, however, the

existence of the pending litigation by Creditor against Debtors

and AAA in State Court regarding “insurance proceeds” in response

to question 4a in their statement of financial affairs.6

Thirteen days later, and weeks before the first meeting of

creditors, Debtors filed an amended schedule B (“Amended Schedule

B”) and amended statement of financial affairs. In their Amended

Schedule B, Debtors included the following as “Other personal

property of any kind not already listed,” valued at $0.00:

Potential Attorney malpractice case: Debtors do NOT

believe this to be an asset as they do NOT believe

their attornies (sic) committed any malpractice. 

However, Debtors have provided this amendment pursuant

to the request of Attorney Tom Christensen (Counsel for

the Bonaventuras (sic)) who has advised Debtors (sic)

counsel that he belives (sic) this to be an asset of

the Chaus.

Potential Bad Faith Claim: Debtors do NOT believe they

have a bad faith claim. They take this position

because among other reasons the Federal Court in case

number 08-00827 GMN has ruled the same. Additionally,

Debtors do not believe that their insurance company has

acted in bad faith. However, Debtors have provided

this amendment pursuant to the request of Attorney Tom

6

 We have taken judicial notice of the bankruptcy

schedules. See O'Rourke v. Seaboard Sur. Co. (In re E.R. Fegert,

Inc.), 887 F.2d 955, 957-58 (9th Cir. 1989) (reviewing court may

take judicial notice of underlying bankruptcy documents).

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Christensen (Counsel for the Bonaventuras (sic)) who

has advised Debtors (sic) counsel that he belives (sic)

this to be an asset of the Chaus.

After Debtors filed the Amended Schedule B, Creditor filed

multiple motions in the bankruptcy case, seeking access or

control over the potential insurance bad faith and legal

malpractice claims. Despite notice of these motions, and the

allegations raised therein, the chapter 7 trustee (“Trustee”)

filed a report of no distribution in the case.7 

On November 27, 2012, Creditor filed a complaint seeking to

obtain a nondischargeable judgment against the Debtors under

§ 523(a)(2)(A) and (a)(6), and denial of their discharges under

§ 727(a)(2) (the “Complaint”), initiating the Adversary

Proceeding. Generally, the Creditor alleges that Debtors

committed fraud by colluding with AAA to obtain the Federal Court

DRA in 2010, filed bankruptcy with the intent to discharge the

Judgment and destroy potential bad faith claims, and concealed

insurance bad faith claims and legal malpractice claims by

failing to schedule them in their initial schedules.

Debtors filed a Motion to Dismiss and for Award of Attorneys

Fees and Costs,8

 seeking dismissal of the Complaint pursuant to

7

 Thereafter, Creditor sought a 2004 examination of the

Debtors. In response, Debtors moved for a protective order,

which the bankruptcy court granted (“Protective Order”). In

footnote 5 of the Protective Order, the bankruptcy court included

a quotation from the Federal Court, observing Creditor’s

counsel’s modus operandi in this and other similar cases and

“what appear to be attempts to set up a bad faith claim.” 

Bk. Dkt. #75 at 6 n.5.

8 Creditor also filed another motion in the bankruptcy

(continued...)

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Civil Rule 12(b)(6) (“MTD”) for failure to state a claim upon

which relief can be granted. Creditor filed an opposition to the

MTD (“Opposition”) and requested leave to amend the Complaint

pursuant to Civil Rule 15(a)(2) if the bankruptcy court found the

Complaint insufficiently pled. 

The bankruptcy court took the matter under submission after

hearing oral arguments and entered a memorandum decision along

with a separate order on March 13, 2013 (“MTD Order”). The

bankruptcy court granted the MTD with prejudice and denied the

request for an award of attorneys fees. Creditor timely filed a

notice of appeal from the MTD Order only as to the dismissal of

the Adversary Proceeding. 

JURISDICTION

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

§§ 1334 and 157(b)(1) and (2)(I) and (J). We have jurisdiction

under 28 U.S.C. § 158.

ISSUE

Whether the bankruptcy court erred when it dismissed the

Adversary Proceeding.

STANDARD OF REVIEW

We review de novo the bankruptcy court’s grant of a Civil

Rule 12(b)(6) motion to dismiss. Movsesian v. Victoria

8

(...continued)

case, this time seeking to compel the Trustee to sell the alleged

choses in action to Creditor, and for relief from stay to pursue

the pending actions against AAA (the “Sale/Relief from Stay

Motion”). The bankruptcy court denied the Sale/Relief from Stay

Motion, and Creditor filed a notice of appeal to be heard by the

district court.

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

means review is independent, with no deference given to the trial

court's conclusion. Rule 8013. We may affirm on any basis in

the record. See Caviata Attached Homes, LLC v. U.S. Bank, N.A.

(In re Caviata Attached Homes, LLC), 481 B.R. 34, 44 (9th Cir.

BAP 2012).

DISCUSSION

In her opening brief, Creditor articulates five issues for

review and asks this Panel to reverse the bankruptcy court’s

dismissal of the Adversary Proceeding and “remand for a trial on

all issues.” Apl’t Opening Brief at 3-4. Her stated issues,

paraphrased, consist of: whether the bankruptcy court correctly

applied the Civil Rule 12(b)(6) standard; whether the Protective

Order and lack of discovery rendered dismissal inappropriate;

whether the bankruptcy court erred by finding no insurance bad

faith claims existed and no assets were hidden; and whether the

bankruptcy court erred in its interpretation of the Summary

Judgment Order. We address each of Creditor’s stated issues

below, in the context of the three grounds for relief contained

in the Complaint.

Creditor did not identify denial of leave to amend the

Complaint as an issue on appeal, nor did she include any legal

argument that the bankruptcy court abused its discretion by

denying leave to amend. We, therefore, deem this issue

abandoned, and we will not consider it. See Padgett v. Wright,

587 F.3d 983, 986 n.2. (9th Cir. 2009)(per curiam)(appellate

courts “will not ordinarily consider matters on appeal that are

not specifically and distinctly raised and argued in appellant's

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opening brief.”). 

A. Standards for Civil Rule 12(b)(6) dismissal

A motion under Civil Rule 12(b)(6), applicable through

Rule 7012, challenges the sufficiency of the allegations set

forth in the complaint. The court’s review is limited to the

allegations of material facts, which must be read in the light

most favorable to the plaintiff, and together with all reasonable

inferences therefrom, must be taken to be true. Pareto v. FDIC,

139 F.3d 696, 699 (9th Cir. 1998). The court need not accept as

true allegations that are merely conclusory. St. Clare v. Gilead

Scis., Inc. (In re Gilead Scis. Sec. Litig.), 536 F.3d 1049, 1055

(9th Cir. 2008) (citation omitted). 

Although a court generally may not consider any material

beyond the pleadings, Hal Roach Studios, Inc. v. Richard Feiner &

Co., 896 F.2d 1542, 1555 (9th Cir. 1989), matters that are

properly the subject of judicial notice may be considered along

with the complaint. MGIC Indem. Corp. v. Weisman, 803 F.2d 500,

504 (9th Cir. 1986). And, facts properly subject to judicial

notice may be used to establish that the complaint does not state

a claim for relief. Intri-Plex Techs., Inc. v. Crest Grp., Inc.,

499 F.3d 1048, 1052 (9th Cir. 2007). In this regard, a court can

properly take judicial notice of court papers filed in related

litigation. Estate of Blue v. Cnty. of Los Angeles, 120 F.3d

982, 984 (9th Cir. 1997). A plaintiff’s memorandum in opposition

to a Civil Rule 12(b)(6) motion, however, cannot serve to

supplement or amend the complaint. See Gomez v. Ill. State Bd.

of Educ., 811 F.2d 1030, 1039 (7th Cir. 1987). In short, the

focus is on the complaint.

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A complaint must contain either direct or inferential

allegations respecting all the material elements necessary to

sustain recovery under some viable legal theory. Bell Atl. Corp.

v. Twombly, 550 U.S. 544, 555 (2007) (citation omitted). The

plaintiff must provide grounds for her entitlement to relief,

which requires more than labels and conclusions; and the actions

must be based on legally cognizable claims. Twombly, 550 U.S. at

555. The court, thus, need not accept as true mere recitals of a

claim's elements, supported by conclusory statements; and the

plausibility of a claim is context-specific on review of which

the court may draw on its judicial experience and common sense. 

See Ashcroft v. Iqbal, 556 U.S. 662, 678-79, 129 S.Ct. 1937, 1950

(2009); Moss v. U.S. Secret Service, 572 F.3d 962, 969 (9th Cir.

2009) ("for a complaint to survive a motion to dismiss, the

non-conclusory 'factual content,' and reasonable inferences from

that content, must be plausibly suggestive of a claim entitling

the plaintiff to relief."). Dismissal is appropriate if

“well-pleaded facts” do not allow the court to infer “more than

the mere possibility of misconduct.” Iqbal, 556 U.S. at 679.

B. Creditor failed to state a claim under § 523(a)(2).

Section 523(a)(2)(A)9 excepts from discharge any debt for

money, property, services, or an extension, renewal, or

refinancing of credit, to the extent obtained by false pretenses,

a false representation, or actual fraud, other than a statement

9

 Based on the Creditor’s allegations, we infer, as did the

bankruptcy court, that while not specific, Creditor’s First Claim

for Relief under the Complaint, seeks relief under

§ 523(a)(2)(A), not (B).

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respecting the debtor’s or an insider’s financial condition. In

the Ninth Circuit, to prove actual fraud, a creditor must

establish each of five elements:

(1) misrepresentation, fraudulent omission or deceptive

conduct by the debtor; (2) knowledge of the falsity or

deceptiveness of his statement or conduct; (3) an

intent to deceive; (4) justifiable reliance by the

creditor on the debtor’s statement or conduct; and

(5) damage to the creditor proximately caused by its

reliance on the debtor’s statement or conduct. 

Turtle Rock Meadows Homeowners Ass’n v. Slyman (In re Slyman),

234 F.3d 1081, 1085 (9th Cir. 2000). Therefore, the Complaint

must contain either direct or inferential allegations respecting

each of these five material elements.

In her first claim for relief, under § 523(a)(2)(A),

Creditor seeks a nondischargeable judgment, in an amount to be

determined, based on Debtors’ alleged fraudulent conduct (the

“Fraud Claim”). In the Complaint, Creditor asserts that the

Debtors colluded with AAA to obtain the Federal Court DRA

absolving AAA of bad faith on the issue of the time-limit demand. 

In support, Creditor alleges that Debtors admitted in their

petition and at the 341(a) hearing that AAA did not act in bad

faith, thus, according to Creditor, proving that the Federal

Court DRA was contrived and collusive. In addition, Creditor

alleges that Debtors, through their counsel, “represented that

they would follow the court’s ruling assigning their claims to

[Creditor], knowing they would be filing bankruptcy in an effort

to destroy the claims.” Adv. Dkt. #1 at ¶34. The balance of the

allegations in support of the Fraud Claim consist of labels,

paraphrased elements of a generic fraud claim, and conclusory

statements.

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On its face, the Complaint fails to state a plausible claim

against Debtors for fraud.10 Even accepting as true Creditor’s

allegation that Debtors “did not believe there was any wrongdoing

on the part of AAA,” Creditor does not allege that Debtors could

have prevented the Federal Court from entering the Summary

Judgment Order if they had disclosed their belief. Nor does

Creditor allege that Debtors knowingly kept silent and intended

to deceive by doing so. Creditor also failed to plead any actual

reliance by her, or that she suffered any damages as a proximate

result of issuance of the Summary Judgment Order.11 We cannot

simply infer all the missing material elements of Creditor’s

Fraud Claim from the sparce factual allegations contained in the

Complaint. 

Nor does Creditor adequately state a claim under

§ 523(a)(2)(A) in the one sentence allegation that Debtors

misrepresented that they would abide by the State Court’s

10 At oral argument, the bankruptcy court asked Creditor’s

counsel if he was arguing that the Debtors “defrauded Judge

Navarro [at the Federal Court]?” Hr’g Tr. (January 9, 2013) at

19. He agreed. At appellate oral argument, Creditor’s counsel

argued that the Debtors’ fraud on the Federal Court justified

Creditor’s collateral attack on the Summary Judgment Order. We

conclude herein that neither of these arguments aid the

plausibility of Creditor’s Fraud Claim against the Debtors.

11 As stated above in footnote 5, the Summary Judgment

Order has since been stricken and is no longer in effect. At

oral argument in this appeal, the Panel asked Creditor’s counsel

how Creditor’s alleged claims against the Debtors are impacted by

having the Summary Judgment Order stricken. Counsel argued that

Creditor’s § 523 claims were validated by the 2013 Order striking

the Summary Judgment Order. He could not explain how, and we

find this argument illogical.

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judicial assignment ruling, knowing they would be filing

bankruptcy. Again, Creditor fails to plead the other necessary

elements of fraud: intent to deceive, reliance, and damages as a

proximate result thereof. Thus, we determine that the bankruptcy

court appropriately dismissed the Fraud Claim; as pled it was

insufficient.

C. Creditor failed to state a claim under § 523(a)(6).

Section 523(a)(6) provides that a debtor may not discharge a

debt "for willful and malicious injury by the debtor to another

entity or to the property of another entity." See Barboza v. New

Form, Inc. (In re Barboza), 545 F.3d 702, 706 (9th Cir. 2008). 

Both willfulness and maliciousness must be alleged and proven and

the malicious injury requirement is separate from the willful

injury requirement. Carrillo v. Su (In re Su), 290 F.3d 1140,

1146-47 (9th Cir. 2002) (conflating the two requirements is

grounds for reversal). Tortious conduct is a required element of

a § 523(a)(6) claim. Lockerby v. Sierra, 535 F.3d 1038, 1040

(9th Cir. 2008). 

Here, Creditor bases her second claim for relief, under

§ 523(a)(6), on the same allegations Creditor made in support of

her Fraud Claim plus alleged “further willful and malicious

conduct” by Debtors. Adv. Dkt. #1 at ¶42. Creditor asserts in

the Complaint that Debtors’ alleged misconduct includes: “filing

bankruptcy with the intent of destroying the claims assigned to

[Creditor], attempting to have the wrongful death judgment

discharged in the bankruptcy, obtaining [the Summary Judgment

Order] by collusion, and hiding assets in an attempt to

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defraud.”12 Id. 

Other than perhaps the vague reference to “attempt to

defraud,”13 Creditor fails to allege tortious conduct by the

Debtors that, if proven, could support a nondischargeable claim

under § 523(a)(6). The Judgment, which was based purely on

negligence, is dischargeable in bankruptcy as a matter of law. 

Therefore, intending such a legitimate consequence can not

support a tort under state law. Even if Debtors filed bankruptcy

with the specific intent to stop entry of an order on Judge

Bare’s judicial assignment, nothing is inherently wrong with such

an intention. One of the purposes underlying bankruptcy law is

to achieve a level playing field for a debtor’s creditors. Many

bankruptcy filings appropriately are timed to prevent an

aggressive creditor, with whom negotiations have stalled or

failed, from obtaining an advantage over other creditors; or even

just to stop litigation. And, even if an order on the judicial

assignment were entered prior to the petition date here, it could

conceivably be subject to challenge and avoidance as a

preference. See 11 U.S.C. § 547. 

Thus, the Creditor’s willful and malicious injury

allegations fail to state a claim under § 523(a)(6) and we

determine the bankruptcy court did not err by dismissing this

12 As with the Fraud Claim, the Complaint includes a few

additional paragraphs in support, but they consist of labels,

paraphrased bare elements of a § 523(a)(6) claim mixed with fraud

elements, and conclusory statements.

13 As discussed above, the Complaint fails to state a claim

for recovery on a fraud theory and the inclusion of “hiding

assets” does not cure the deficiencies.

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claim; as pled, the § 523(a)(6) claim was insufficient.

D. Creditor did not state a claim under § 727(a).14

Section 727(a)(2) provides that the court shall grant the

debtor a discharge, unlessthe debtor, with intent to hinder, delay, or defraud a

creditor or an officer of the estate charged with

custody of property under this title, has transferred,

removed, destroyed, mutilated, or concealed, or has

permitted to be transferred, removed, destroyed,

mutilated, or concealed-

(A) property of the debtor, within one year before the

date of the filing of the petition; or

(B) property of the estate, after the date of the

filing of the petition

Simply stated, Creditor alleges that Debtors failed to

disclose in their original schedules the possible insurance bad

faith claims and potential legal malpractice actions, thus

concealing assets within one year of filing, and continuing the

concealment after filing. She argues on appeal that the

bankruptcy court erred by construing facts in a light most

favorable to the Debtors rather than Creditor, contrary to the

Civil Rule 12(b)(6) standard, disregarding uncontroverted

affidavits valuing the possible bad faith claims, and finding

that Debtors did not attempt to conceal any claims. 

As a preliminary matter, we determine that the bankruptcy

court did not err by disregarding “affidavits” that were

14 Creditor’s opening brief on appeal contains extensive

argument regarding application of judicial estoppel: arguing

both that Debtors should be judicially estopped from arguing that

bad faith claims exist and judicially estopped from arguing they

do not exist. Not only are these arguments nonsensical, a

judicial estoppel argument is inappropriate on review of a

dismissal under Civil Rule 12(b)(6), and we do not address it

further herein.

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apparently submitted by Creditor in connection with another

motion she filed in the bankruptcy case. A Civil Rule 12(b)(6)

motion involves review of the pleadings for sufficiency, not

review of evidentiary submissions unless the bankruptcy court,

pursuant to Civil Rule 12(d), determines to treat the motion as

one for summary judgment under Civil Rule 56. The bankruptcy

court did not do so here. Thus, the bankruptcy court did not err

by disregarding the affidavits. 

We also note that the bankruptcy court determined, based in

part on its review of the Summary Judgment Order, that Debtors

had no legal basis to schedule possible insurance bad faith

claims against AAA. In light of the 2013 Order, any reliance

placed on judicial notice taken of the Summary Judgment Order is

no longer appropriate, and could be considered error. As

discussed below, however, such error would be harmless. 

Moreover, reliance on the Summary Judgment Order is not critical

to our conclusion that Creditor’s § 727(a)(2) claim is not

plausible.

Specifically, the Complaint includes the following

paragraphs15 in connection with Creditor’s § 727(a)(2) claim: 

¶15. During AAA’s handling of the liability claims

against the [Debtors], AAA made a number of claims

handling failures which gave the [Debtors] certain

causes of action against AAA (the “Claims”).

15 Creditor incorporated all earlier pled paragraphs into

the specific claim for § 727(a)(2) relief. We do not quote all

the paragraphs of the Complaint that contain mere conclusory

statements, but focus on the paragraphs from which we may

determine the plausibility/implausibility of Creditor’s

§ 727(a)(2) claim.

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¶16. Under Nevada law, because of AAA’s claims

handling failures, it is liable for all amounts owed by

the [Debtors] to [Creditor] above the $100,000 policy

limits.

¶24. Furthermore, as admitted in their petition and

341 meeting, they did not believe there was any

wrongdoing on the part of AAA proving that the

declaratory relief action was contrived and collusive. 

See Amended Schedule B.

¶27. On August 27, 2012, Hon. Rob Bare verbally

ordered the bad faith claims and legal malpractice

claims16 the Debtors had against AAA and their

attorneys would be assigned to [Creditor] and the

[Debtors] would cooperate in evaluating and bringing

the claims, in full satisfaction of the judgment.

¶29. The [D]ebtors did not list or hid (sic) the

assets of their claims against AAA.

¶30. Debtors have not been forthcoming with the

officers of the estate in regards to their assets,

including their claims against AAA and other related

issues to their fraudulent and deceitful behavior. 

¶42. That this further willful and malicious conduct

included, but is not limited to, filing bankruptcy with

the intent of destroying the claims assigned to

[Creditor], attempting to have the wrongful death

judgment discharged in the bankruptcy, obtaining a

Federal DRA judgment by collusion, and hiding assets in

an attempt to defraud.

Fourth Claim for Relief17

¶47. Debtors, with the intent to hinder, delay, and

continually defraud [Creditor] and the officers of the

estate charged with custody of the propery (sic), has

(sic) concealed property of the debtor, within one yer

before the date of the filing of the petition and

property of the estate since the filing of the

petition.

¶49. That Debtor, (sic) contrary to information

16 This is one of only three limited references to

malpractice claims contained in the Complaint. The other two

references are equally skeletal and conclusory.

17 The Complaint does not contain a “Third Claim for

Relief.”

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contained in the petition and testified to by Debtors

in the 341 Creditors’ Meeting, have valuable claims

against AAA and legal malpractice claims against their

attorneys.

¶50. That this conduct by Debtors was fraudulent and

malicious.

Adv. Dkt. #1.

1. Possible insurance bad faith claims

The sufficiency of the § 727(a)(2) claim, in substantial

part, turns on the sufficiency of Creditor’s assertion that

insurance bad faith claims exist,18 as well as her allegation

that Debtors intentionally concealed the existence of such

claims. Embedded in Creditor’s allegations are legal conclusions

regarding the existence of insurance bad faith claims, asserted

by Creditor as fact, without legal (or factual) support. These

conclusions do not logically flow from factual allegations in the

Complaint; they are not otherwise supportable; and, thus, they

are not entitled to the presumption of truth. We, therefore,

find Creditor’s bare assertions do not establish a plausible

§ 727(a)(2) claim.

Our Civil Rule 12(b)(6) plausibility analysis is informed

not only by evaluation of the Complaint itself, but by our common

sense and judicial experience. As was the bankruptcy court, we

are aware of Creditor’s prepetition attempt to execute on the

Judgment by seeking judicial assignment of potential insurance

bad faith claims, coupled with a requirement that the Debtors

cooperate fully in identifying and bringing such claims. In

18 A minor part of the § 727(a)(2) claim is based on the

sufficiency of Creditor’s assertion that legal malpractice claims

exist, which we separately address below.

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addition, we are aware of the multiple unsuccessful, or

withdrawn, motions filed by Creditor in the bankruptcy case,

directed toward discovery attempts in order for Creditor to

identify facts to support the potential bad faith claims (i.e.,

the 2004 exam quashed by the Protective Order), and/or

acquisition by Creditor of authority to pursue the potential

claims in other courts. It is apparent that Creditor’s

perspective is that of a person not privy to the relationship

between the insurer (AAA) and the insureds (Debtors), the

relationship from which any insurance bad faith claims must

necessarily arise. And it is apparent that, during the five-plus

years of prepetition litigation, Debtors did not pursue insurance

bad faith claims against AAA, a fact consistent with the

Creditor’s allegation that Debtors did not believe there was any

wrongdoing committed by AAA.19 

Creditor merely asserts that AAA made “claims handling

failures” for which AAA is liable to Debtors for all liability in

excess of policy limits.20 The foundation for Creditor’s

19 Which we note is entirely consistent with the Amended

Schedule B.

20 In Nevada, insurance claims handling standards are set

forth in Nevada Revised Statute § 686A-310. The statute lists

six activities considered to be unfair practices and provides

that an “insurer is liable to its insured for any damages

sustained by the insured as a result of the commission of any act

set forth in subsection 1 as an unfair practice.” N.R.S.

§ 686A.310(2). This statutory provision does not state that

claims handling failures automatically entitle an insured to all

amounts in excess of policy limits, as Creditor alleges in the

Complaint. Creditor does not identify any particular misconduct

(continued...)

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allegation that Debtors failed to disclose a valuable asset is no

more than a mere possibility that such asset exists. The

Complaint fails to sufficiently allege that Debtors have any

legal basis to file insurance bad faith claims against AAA. The

mere possibility that such claims exist21 does not support a

plausible claim that Debtors concealed a valuable asset.22

Creditor argues that she was prevented, by the Protective

Order, from conducting discovery into facts that could support

the insurance bad faith claims. She argues that because the

Adversary Proceeding was dismissed before discovery could be

taken, “[i]t was impossible for [Creditor] to gather any more

information then (sic) was previously provided to the court

regarding the claims . . . . “ Apl’t Opening Brief at 23. But,

as discussed by the Supreme Court in Iqbal, a complaint that does

20(...continued)

by AAA nor does Creditor allege that Debtors suffered any damages

as a result thereof.

21 On appeal, Creditor argues that the “possibility” cannot

“be foreclosed that AAA failed to settle” and “there is no

evidence” that “offers were adequately communicated.” Apl’t

Opening Brief at 23 and 21, respectively. Such additional

alleged possibilities, even if they could appropriately be

considered when raised for the first time on appeal, would not

render Creditor’s claims plausible.

22 In addition, we note that in their original statement of

financial affairs filed with their petition, Debtors disclosed

the existence of the pending litigation in State Court regarding

“insurance proceeds.” This disclosure, of which we may take

judicial notice, is facially inconsistent with Creditor’s

conclusory allegation that Debtors concealed the existence of the

disputed claims, and would serve to alert the Trustee to the need

to explore the pending litigation on behalf of all creditors of

the estate.

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not state a plausible claim for relief, “does not unlock the

doors of discovery for a plaintiff armed with nothing more than

conclusions.” Iqbal, 556 U.S. at 678-79. The plausibility

requirement, therefore, appropriately serves as a barrier to

discovery when not established. 

We acknowledge that Creditor’s Judgment is based on

Creditor’s loss of her husband under horrible circumstances. 

Nonetheless, Creditor’s loss was caused by Chau’s negligence, not

by any intent to cause harm. And, as the Judgment is based on

negligence, it is fully dischargeable in Debtors’ bankruptcy case

as a matter of law. The Complaint appears to be driven by

Creditor’s desire to obtain and prosecute unfiled insurance bad

faith claims as a means to collect more of the amount of the

Judgment than will be possible in Debtors’ “no asset” chapter 7

bankruptcy case. Creditor’s attempt to collect through other

types of claims requires legal justification. Creditor concedes

that Debtors have disavowed any basis for the claims, and the

Trustee determined not to pursue them on behalf of the estate. 

We, therefore, conclude that the Complaint cannot pass the Iqbal

plausibility standard by hoping and insisting that the claims

exist; as pled the § 727(a)(2) claim based on alleged insurance

bad faith claims is insufficient. 

2. Potential legal malpractice claims

On appeal, Creditor argues that the bankruptcy court

disregarded the potential attorney malpractice claims. The

bankruptcy court’s Memorandum Decision did not directly discuss

the Complaint’s allegations regarding the legal malpractice

claim. The bankruptcy court acknowledged, however, that, as

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stated in the Amended Schedule B, Debtors did not believe they

existed. The bankruptcy court also noted that Creditor had

attempted to examine the Debtors pursuant to Rule 2004 concerning

potential attorney malpractice claims along with the possible

insurance bad faith claims. At oral argument in this appeal,

Creditor’s counsel represented to the Panel that Creditor did not

know whether the Debtors retained their own counsel or if counsel

was retained by the insurer, a question that Creditor sought

answers for through discovery that was blocked by the Protective

Order. 

Based on our review of the record here, we determine that

the Complaint’s reference to legal malpractice claims suffers

from the same deficiencies as discussed above with respect to the

possible insurance bad faith claims. The Complaint is devoid of

allegations that Debtors had any grounds to commence suit against

any attorney – for any reason. The Complaint only mentions legal

malpractice claims as possibilities that Creditor, in essence,

wants to explore. That desire is not enough to establish the

plausibility that a claim exists. Not only does this desire fail

to support a § 727(a)(2) claim, we are mindful that no existing

bankruptcy policy would be served by encouraging third parties to

initiate litigation against debtors’ pre-bankruptcy attorneys

based only on unsupported speculation; as pled the § 727(a)(2)

claim based on alleged malpractice claims is insufficient.23 

23 Assignment of unfiled potential legal malpractice

claims, if grounds were sufficiently alleged to exist, is not

permitted under Nevada law. See Chaffee v. Smith, 98 Nev. 222,

(continued...)

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CONCLUSION

Based on the foregoing, we AFFIRM the bankruptcy court’s

dismissal of the Adversary Proceeding.

23(...continued)

224; 645 P.2d 966 (1982) (public policy prevents the transfer of

a previously unasserted claim for legal malpractice because “the

decision as to whether to bring a malpractice action against an

attorney is one peculiarly vested in the client”.). Here, both

the attorney-client privilege and the right to file any suit

based on legal malpractice claims are held by the Trustee, not

the Debtors. And we note that Trustee determined that such

claims held no value for the chapter 7 estate, presenting another

layer of impediment to Creditor’s ability to plausibly allege a

claim for legal malpractice.

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