EL ECTRONI C CI TATI ON: 2012 FE D App. 0003P (6th Cir.) File Na me: 12b0003p.06

BA NK RU P TC Y A P P ELLA TE P AN EL OF THE SI XT H C IR CU IT

I n r e : B REN DAJ. B UR ER,

Debtor.

______________________________________ SI L VI A VAL DES REYES,

Ap pe lla nt,

v . B REN DAJ. B UR ER,

Appellee

.

______________________________________ ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) No. 11-8070

Appea l from the United States B ankruptc y Court for the Souther

n District of Ohio. Ba nkruptcy Case No. 10- 18054. Adv. Proce eding No. 10-1216.
Dec ided and F iled: March 15, 2012
B e fo re : F UL TO N, HA RRI S, a nd Mc I VO R, B a nk

ru ptc y Ap pe llate Pane l Judg e s.

____________________ CO UN SEL O N B RI E F: Firooz T. Name i, McKI NNEY & NAMEI , Cincinnati, Ohio, for Appe llant. Br enda Jean B urer , Hamilton, Ohio, pro se.2 ____________________ OP IN ION

____________________
M AR C I B. Mc I VOR, Chief B ankruptc y Appellate Pane l J udg e. Silvia Valdes Rey es (“A ppellant”) appea ls an order of the ba nkruptcy court dismissing her complaint to determine the d i s ch ar geab i l i t y

o f a d eb tp u rs u an t t o 1 1 U. S

. C

. § 5 2 3 (a )( 2 )( A) an d (a )( 6 ) “w i t h p re j u d i ce , ” a l t h o u gh sh e ha d f ile d a no tic e of dis mis sa l “ wi th ou t prejudic e ,” wh ic h th e ba nk ru ptc y c ourt tr e a te d a s a motion to di smiss. The bankruptcy court recor d is silent on the cour t’s rea sons for dismissing the adver sary proce eding with prejudice . For the re asons that follow, the Pane l reve rses the ba nkruptcy
c ourt ’s dis mis sa l or de r a

nd re mand s th e c a se to t

he ba nk ru ptc y c ourt fo r f ur the r p ro c e e din g s.

STATE MENT OF ISS UE The issue in this case is whether the bankruptc y court abused its discretion when it dismissed t h e a d v er s ary

p ro ce ed i n g wi t h p re

j u d i ce wi t h o u tgi v i n g re as o n s fo r i t s ru l i n g.

JU RI SDI CT ION AN D ST AN DA RD OF RE VI EW Th e B a nk ru ptc y Ap pe llate Pane l of the Sixth C ir c uit ha s juri sd ic tio n to de c ide thi s a pp e a l. The United States District Court for the Southern District of Ohio h as authoriz ed appe als to the Pane l, an d ne ith e r part

y ha s time ly e le c te d to hav e thi s app e a l hea rd by the dis tr ic t c ourt . 2 8 U .S. C. §§ 15 8( b) (6 ), (c )( 1) . Afi na l or de r o f t he ba nk ru ptc y c ourt may be a

pp e a le d a s o f r ig ht p ur su a nt t o 28 U. S.C. § 1 58 (a )( 1) . F or purp os e s of ap pe a l, an or de r is f ina l if it “ e nd s th e lit ig a tio n o n th e me ri ts and leaves not hing for the c ourt to do but ex ecute the judg ment.” Midland Asphalt Corp. v. United States , 489 U.S. 794, 798, 109 S. Ct. 1494, 1497 (1989) (citations omitted). The ba nkruptcy court’s
or de r d ism iss inga

pa rt y ’s c omp la int

to d e te rm ine the dis c ha

rg e a bil ity of a de bt “ wi th p re

jud ic e ” is a fina l, appea lable orde r.

A bankruptc y court’s de cision with respec t to a motion for voluntary dismiss al under

Fe d. R. C iv. P. 41( a ), ma de a

pp lic a ble in bank

ru ptc y by F e d. R. B a nk

r. P. 7 04 1( a ), is r e vie we d f or a bu se3

of discre tion. Bridgeport Music Inc . v. Universal-M CA Music Publishing, Inc. , 583 F.3d 948, 953 (6th Cir. 2009) (citations omitted). “An abuse of discretion occurs where the review ing c ourt has ‘a de finite and fir

m conviction that the [bankruptcy court] committed a clea

r er ro r o f judg ment.’” B- Lin e, LLC

v . W inge rte r ( In re W ingerter ), 594 F .3d 931, 936 (6th Cir. 2010) (ci t ation omitted). Un de r t he a bu se of dis c re tio n s tand a rd , th e ba nk ru ptc y c ourt ’s de c isi on wi ll on ly be dis tur be d if it “re lied upon clea

rly err oneous finding s of fa ct , improperly applied the g overninglaw, or use d an
err oneous l eg al standar d.” Elec. W orkers Pension Trust Fund of L ocal Union #58, IBEW v. Gary ’s E le c
. S e r v
. Co. , 340 F.3d 373, 378 ( 6th Cir. 2003). “The que stion is not how the re viewing court would have ruled, but r ather whether a rea sonable person c ould ag ree with the bankruptc y court’s decision; if re asonable persons c ould differ as the issue, th en t h er e is no abuse of discretion.” BLine, LL C v. W

ingerter , 594 F.3d at 936 (citation omitted).

BACK GR OUND Appellant, Silvia Rey es, alleg es that in the fa ll of 2008 her home w as for eclose d upon. As
a r e s u l t , A p p e l l a n t a n d h e r c h i l dr e n w e r e f o r c e d t o l i v e i n a

m o t e l w h i l e s h e l o o k e d

f o r h o u s i n g . In Aug ust 2009, A

ppellant beg an looking for a home a nd enter ed into neg otiations with Brenda J ean Bur er ( “De btor/Appellee ”) to buy the Debtor/Appe llee’s tra iler. Appe llant and the De btor/Appellee ag ree d to a sale pr ice of $ 2 2 , 0 0 0

. Appellant paid the D ebtor/Appe llee $15,000 in ca sh, and Appellant ag ree d to p ay t h e $ 7 , 000 balanc e at the c losing. The closing never took place, a

nd the Debtor/Appe llee neve r transf err ed the tra iler to Appellant. Appe llant states that afte r she pa id the De bto r/Ap pe lle e $1 5, 00 0, the De bto r/Ap pe lle e wo uld no t ans we r o r r e tur

n a ny of he r p ho ne c a lls

. Upon re achingthe Debtor /Appellee, A

ppellant informed the Debtor/Appe llee that if sh e d id not ob ta in p os se ssi on

of the tr a ile r, sh e wa s g oin g to as k for he r mon e y ba c k. Ap pe lla nt s ta te s th a t in order to ge t her money

back, the Debtor/Appe llee re quested she sig n a docume nt stating that she w as no longe r intere sted in the proper ty

. Appellant signe d the document, but the Debtor/Appe llee neve r returne d her money . Appellant alleg es that the Debtor/Appe llee subsequently had t h e d o cument notarized by someone whose notary seal had bee n revoke d four months prior. Appe llant also alleg es that rec ords maintained in the Butler County Auditor’s Off

ice r evea l that the Debtor/Appe llee had4

tr ans fe rr e d ti tle to the tr a ile r in July 20 09 a nd the re fo re wa s no t the ow ne r of the tr a ile r a t th e tim e of the sale

.
On Dec ember

18, 2009, Appellant filed an action in B utler County Court of Common P leas in an attempt to rec over he r money . On Novembe r 29, 2010, the e ve of trial, the Debtor /Appellee filed a voluntar

y petition under Chapter

7.

On Dec ember

20 , 2010, Appellant filed a complaint under 11 U .S.C. § 523(a)(2) (A) a nd (a) (6), a rg uing that the $15,000 debt owed by the Debtor/Appe llee to A ppellant is nondischarg eable

.
On J anuar y 18, 2011, the Debtor

/Appellee f

iled a mot ion to dismi ss the adver sary complaint pursuant t o Fe d

. R. Civ. P . 12(b)( 6), 9(b) , and 8. Appe llant filed a re sponse re questing that the motion to di smiss be denied. On F ebrua ry 22, 2011, the bankr

uptcy court e ntere d an orde r deny ing Debtor/Appe llee’s motion to dismi ss and finding that the complaint “mee ts the heig htened plea ding standard f or fr aud” a

nd “g ive[s] defe ndant fa ir notice of the claims ag ainst her, suc h that defe ndant should be ca

pable of draf ting a n informed a

nd responsive a

nswer.” (Adv. Proc. D ocket #6)

.
On Marc h 1, 2011, the Debtor /Appellee filed a motion for summary judgme nt. On Marc h 24, 2011, Appellant filed a response to Debtor/Appe llee’s motion for summary judgme nt. On the
same da y , th e De bto r/Ap pe lle e fi le d a mot ion to w ith dr a w the mot ion

fo r s umm a ry

jud g me nt.

On Marc h 31, 2011, the Debtor /Appellee’ s attorney filed a motion to withdraw as counsel for the D ebtor/Appe llee pursua nt to L ocal B ankruptc y

Rule 2091-1(2). I n the motion, counsel states in releva nt part that “[s]i nce the filing of the bankruptcy case and the a dversa rial proc eeding , counsel for the Debtor has deter

mined that continued re prese ntation of the De btor prese nts significa nt ethical issues for c ounsel.” (A dv. Proc. Doc ket #16). More over, a fter me eting with the Debtor/Appe llee “counse l believes he is no longe r able to prosec ute Debtor ’s ca se without violating his duties as an Officer of th e Court .” On Ap ri l 26 , 2 01 1, the ba

nk ru ptc y c ourt g ra nte d c ouns e l’ s r e qu e st t oUnlike Rul e 41 of the Ohio Rules of Civil Procedur e, which pe rmits a plaintiff to file a 1 voluntary notice of dismissal at any time be fore the commence ment of trial, Rule 41 of the F eder al

5 withdraw. A fter the motion to wit hdrawwas g rante d, the Debtor /Appellee cont inued without the

r e p r e s e n t a t i o n o f

a n a t t o r n e y.
On April 28, 2011, the De btor/Appellee filed a motion to ext end the time to file a preliminary pretria l statement. The bankruptc y court g rante d the Debtor/Appe llee’s reque st f or an e x tension of time until M ay

9, 2011.

On J une 29, 2011, the ba nkruptcy court en t ere d an orde r setting dates for the pre trial confe renc e and the trial. The pr etrial c onfer ence was schedule d for J uly 22, 2011, and the trial wa s set for Aug ust 5, 2011.

On J uly 11, 2011, the Debtor

/Appellee filed a letter

reque sting a

continuance of the pre trial he ari ngstatin g tha

t sh e ha d “p lans to be ou t of tow n” a nd wa s in con ve rs a tio ns wi th an a tto rn e y to repr esent he r and he was a lso not available on the date set for the p re trial hea

ring . (Adv. Proc. Docke t #28). The ba

nkruptcy court g rante d the Debtor/Appe llee’s reque st f or a continuanc e. The pretria l confere n ce wa s s chedule d for Septembe r 23, 2011, and the trial was r eset for October 7, 2011.

On Octobe r 6, 2011, the attorney repr esenting Appellan t filed a motion for a short continuance of two we eks for trial. Counsel attache d a memora ndum stating that c ounsel and the De bto r/Ap pe lle e ha d not be e n ab le to co mpl e te sti pu la tio ns du e to the De bto r/Ap pe lle e ’s fa ilure to respond to phone c alls and e- mails. I n addition, Appellant ha d “ e n c o u n te r e d e me rg ent circ umstances and is not available for trial on October 7, 2011.” (A dv. Proc. Doc ket #40). On O ctober 6, 2011, the bankr uptcy court de nied the Appe llant’s motion for a short continuanc e.

On Octobe r 7, 2011, Appe llant’s counsel filed a notice of voluntar

y dismiss al of the adver sary case “without prejudice .” On October 7, 2011, Appellant’s c ounsel appe are d at the 1Rules of Civil P roce dure only permits a plaintiff to file a notice of dismi ssal “bef ore the opposing party serve s either an answe r or a motion for summary

judgme nt.” Fe d. R. Civ. P . 41(a) (1)( A)(i)

.
I ti s u n cl ea r f

ro m t h e r ec o rd wh et h er

co u n s el ’s n o t i ce o f d i s m i s s al wa s wi t h t h e k n o wl ed ge 2 or c on se nt o f h is c lie nt. 6 schedule d trial date without his client. The Debtor/Appe lle e a p p ea red pr o s e . At t h e h ea ri n g, counsel e x plained his r easons for filing a notice of dismissal stating that Appe llant had an e merg ency
and wa s una ble to b e re a c he d e ith e r at he r hom e or by ph on e . Th e De bto r/Ap pe lle e did no t ob je c t. 2 The ba nkruptcy court tre ated the notice of dismissal as a motion for voluntary d ismiss al and responde d: “Well, Mr. Namei, I will sign y our orde r but I will not sign it without prejudice . Thank y ou.” To whic h counsel responde d: “Thank you.” (A dv. Proc. Doc ket #69, Tr. of hear ing he ld on October 7, 2011). The ba

nkruptcy court subseque ntly enter ed an or der dismissing the c omplaint “with pre judice” w ithout further e x planation.

DI SCU SSIO N Rule 41 of the F eder al Rules of C ivil proce dure, made applicable i n bankruptc y by Fe dera l Rule of B ankruptc y

Procedur e 7041, g overns the voluntary dismiss al of adver sary proce eding s. Fe d. R

. C i v . P

. 4 1 (a )( 2 ) s t at es t h e f o l l o wi n g: (2) By Cour t Order; Effec t
. Ex cept as provided in Rule 41(a )(1) , an action may

be dismissed at the plaintiff’s r equest only by court orde r, on te r ms th a t t h e c o u rt c o n s id e r s p r o p e r . I f a d e f e n d a n t h a s pleade d a c ounte rc la im b e fo re be ingse rv e d w iththe pla int if f’s mot ion

to dismiss , the ac tion may

be dismissed over the defe ndant’s objec tion only if the counter claim ca

n rema in pending for indepe ndent a dju dic a tio n. Un le ss t

he or de r s ta te s o the rw ise , a dis mis sa l un de r t

his para g raph ( 2) is without prejudice.

A voluntary

dismiss al pursuant to Rule 4 1(a) (2) is within the sound discretion of the trial court. Grove r by Grove r v. Eli Lill y &Co. , 33 F.3d 716, 718 ( 6th Cir. 1994) (citation omitted). Howeve r, a dismissal with prejudice is subject to a diffe rent standa rd than a dism i s s al without7

prejudice . I n Michigan Surgery Inve stment, LLC

v. Arman , 6 27 F .3 d 5 72 (6 th C ir . 2 01 0) , the Sixth Circuit set forth three fac tors to be considere d in de termining whether a court abused its discretion in dismi ssing a

complaint with prejudice in response to a plainti ff ’s re q u est for dismissal without prejudice

. F ir st, the

. . . c ourt mus t g ive t he p la int if

f n oti c e of

its int e nti on

to dismiss with prejudice . Second, t h e plaintiff is entitled to an o p portunity

to be hea

rd in opposition to di smissal with prejudice. Third, the plaintiff must be g iv en an opportunity to withdraw the re qu e st f or vo lun tary

dis mis sa l and

pr oc e e d w iththe lit ig a tio n. Th is third require ment is essent ial beca use, unlike a dismissal without prejudice , a dismissal with prejudice ope rate s as a rejection of the plaintiff’s c laims on the merits and re s judicata pre cludes fur ther litigation. Michigan Surgery

Inve stment, LLC

v. Arman , 627 F.3d at 575 (citation omitted). The ba nkruptcy court fa iled to g ive any rea sons as t o why Appellant’s adversa ry proce eding was dismissed with prejudice

. The P anel finds the bankruptcy court a bused its discretion in failing to state a reason as to why the case was dismiss ed with pre judice. The Panel there fore reve rses the order of dismissal entere d by the bankruptcy court. Consist ent wit h the S ix th Circuit standard set forth in Michigan Surgery Inve stment, LLC

v. Arman , the ca se is rema nded for the bankr uptcy court to h old a he a ri ngfo r t

he fo llo wi ng pu rpo se s: ( 1) to a llo w the ba nk ru ptc y c ourt to g ive no tic e to Appellant of its intention to dism iss with prejudice a nd state i ts reasons f

or doing so; (2) to aff

ord Appellant the oppor

tunity to be hea rd in opposition t o d i s m i s s al wit h prejudice ; and (3) to a ffor d Appellant the oppor

tunity to withdraw he r notice of dismiss al, which the ba

nkruptcy court tre ated as a motion to dismis s, and proc eed w ith the liti g ation.

CO NC LU SION For the re asons stated a

bove, the Pane l reve rses the ba nkruptcy court’s or der of

dismiss al with prejudice , and re mands the ca se for further proce eding s consistent with this opi nion.