Court Opinion

ID: 808476
Source: CourtListenerOpinion
Date Created: 2012-09-13 20:07:44+00
Date Added: 2024-06-11T15:25:42.850999
License: Public Domain

FILED
                             NOT FOR PUBLICATION                            SEP 13 2012

                                                                        MOLLY C. DWYER, CLERK
                    UNITED STATES COURT OF APPEALS                       U .S. C O U R T OF APPE ALS

                             FOR THE NINTH CIRCUIT

In the Matter of: STEVEN D. MOLASKY,             No. 11-15060

              Debtor,                            D.C. No. 2:10-cv-00781-JCM-
                                                 PAL

STEVEN D. MOLASKY,
                                                 MEMORANDUM *
              Appellant,

  v.

AUGUSTINE C. BUSTOS,

              Appellee.

                    Appeal from the United States District Court
                             for the District of Nevada
                     James C. Mahan, District Judge, Presiding

                                Argued April 20, 2012
                           Re-Submitted September 11, 2012
                               San Francisco, California

        *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
Before: NOONAN and MURGUIA, Circuit Judges, and TIMLIN, Senior District
Judge.**

      Steven D. Molasky (“Molasky”) filed a voluntary bankruptcy petition in

which One Cap Holding Corporation (“OneCap”) commenced an adversary

proceeding under 11 U.S.C. § 523. Augustine C. Bustos (“Bustos”) intervened in

the § 523 complaint. After OneCap was dismissed for failure to prosecute, the

bankruptcy court dismissed Bustos. The district court reversed the bankruptcy

court’s dismissal. We vacate the district court’s order and remand to the

bankruptcy court for proceedings consistent with the discussion below.

      An intervenor can proceed after dismissal of the original party if 1) there is

an independent basis for jurisdiction, and 2) unnecessary delay would otherwise

result. See Benavidez v. Eu, 34 F.3d 825, 830 (9th Cir. 1994). The bankruptcy court

summarily found no independent basis for jurisdiction for Bustos because Bustos

failed to file a timely § 523 complaint. The bankruptcy court erred as a matter of

law, however, in failing to recognize that the § 523 deadline is discretionary and

may be extended with cause. See F ED. R. B ANKR. P. 4004(b). The deadline can be

extended even after the deadline has already run. See F ED. R. B ANKR. P.

       **
             The Honorable Robert J. Timlin, Senior District Judge for the U.S.
District Court for Central California, sitting by designation.

                                          2
4004(b)(2). Failure to meet the § 523 deadline is not a mandatory jurisdictional

bar.

       The bankruptcy court could have considered various factors in determining

whether “cause” existed for extending the § 523 deadline: “(1) whether granting

the delay will prejudice the debtor, (2) the length of the delay and its impact on

efficient court administration, (3) whether the delay was beyond the reasonable

control of the person whose duty it was to perform, (4) whether the creditor acted

in good faith, and (5) whether clients should be penalized for their counsel's

mistake or neglect.” In re Magouirk, 693 F.2d 948, 951 (9th Cir. 1982) (citations

omitted). Molasky does not appear prejudiced by allowing jurisdiction, as he was

already on notice as to OneCap's complaint. If the bankruptcy court limits Bustos

to litigating OneCap's original complaint, Molasky is not exposed to any new

complaints. The length of the delay is related specifically to the time it took for

OneCap to fail to prosecute, so the delay should not be an undue burden to the

court's administrative process. OneCap's failure to prosecute appears to be beyond

the reasonable control of Bustos. These equitable arguments suggest that Bustos

should be allowed to continue the § 523 action, and “bankruptcy courts . . . are

courts of equity and appl[y] the principles and rules of equity jurisprudence.”

                                           3
Young v. U.S., 535 U.S. 43, 50 (2002) (alteration in original) (quoting Pepper v.

Litton, 308 U.S. 295, 304 (1939)) (internal quotation marks omitted).

      For the reasons stated above, we VACATE the district court’s order and

REMAND to the bankruptcy court for a determination of jurisdiction over Bustos

under F ED. R. B ANKR. P. 4004(b).

                                          4
                                                                              FILED
In re Molasky, 11-15060                                                       SEP 13 2012

                                                                         MOLLY C. DWYER, CLERK
MURGUIA, Circuit Judge, dissenting.                                       U .S. C O U R T OF APPE ALS

      I respectfully dissent. Bustos failed to file an adversary action before the

applicable statute of limitations ran. Rather than seek an extension of the statute of

limitations, Bustos reached an agreement with the debtor, Molasky, to intervene in

OneCap’s case. The scope of Bustos’s intervention was expressly limited by the

bankruptcy court, so that intervention would not serve as a means of defeating the

time bar. Following the dismissal of OneCap, the bankruptcy court properly

determined that Bustos could not proceed since his claims were time barred. A

court can only retain jurisdiction over an intervenor’s claims after dismissal of the

original plaintiff if “the court can avoid the senseless delay and expense of a new

suit, which at long last will merely bring the parties to the point where they now

are.” Benavidez v. Eu, 34 F.3d 925, 830 (9th Cir. 1994) (internal quotations

omitted). Bustos does not pass the Benavidez test because dismissing his time-

barred claims will not simply postpone the inevitable filing of a new suit.

      Bustos does not claim the bankruptcy court abused its discretion in failing

to extend the statute of limitations, nor does he seek the “equitable” remedy the

majority provides. Rather, Bustos only claims that he satisfies the Benavidez test.

As noted above, he does not. Bustos elected to intervene on limited grounds.

Bustos did not seek an extension of the statue of limitations to assert his own
claims, nor did he seek to be substituted for OneCap before its dismissal. It is not

the province of this Court, at this stage, to introduce a remedy that in hindsight

appears better for the appellant as a matter of equity. See, e.g., In Re Bernal, 207
F.3d 595 (9th Cir. 2000) (holding that where noteholder improperly sought

intervention after default where the proper remedy was substitution pursuant to

Fed. R. Bankr. P. 7025, court had no remedy for the noteholder); see also, F.D.I.C.

v. Deglau, 207 F.3d 153, 159 n.2 (3d Cir. 2000). I would affirm the bankruptcy

court.