Court Opinion

ID: 808477
Source: CourtListenerOpinion
Date Created: 2012-09-13 20:07:45+00
Date Added: 2024-06-11T12:18:15.092849
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                             NOT FOR PUBLICATION                            SEP 13 2012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. 11-15059

              Debtor,                            D.C. No. 2:10-cv-00779-JCM-
                                                 PAL

STEVEN D. MOLASKY,
                                                 MEMORANDUM *
              Appellant,

  v.

W. LESLIE SULLY, JR., CHTD.,
PROFIT SHARING PLAN,

              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. The W. Leslie Sully, Jr., Chtd. Profit Sharing

Plan (“Sully”) intervened in the § 523 complaint. After OneCap was dismissed for

failure to prosecute, the bankruptcy court dismissed Sully. The district court

reversed the bankruptcy court’s dismissal of Sully, finding Sully to be a party

plaintiff to the § 523 complaint. We vacate the district court’s order and remand to

the bankruptcy court for proceedings consistent with the discussion below.

      We proceed assuming that Sully was originally an intervenor and not a party

plaintiff to the § 523 complaint. 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 Sully because Sully 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.

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

                                            2
B ANKR. P. 4004(b). The deadline can be extended even after the deadline has

already run. See F ED. R. B ANKR. P. 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 Sully 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 Sully. These equitable arguments suggest that Sully

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).

      Because we hold that the bankruptcy court erred as a matter of law in failing

to consider an independent basis for jurisdiction over Sully as an intervenor, we do

not reach the question of whether Sully was originally admitted as a party plaintiff

to the § 523 action.

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

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

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

                                          4
                                                                             FILED
In re Molasky, 11-15059                                                       SEP 13 2012

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

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

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

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

OneCap’s case. Following the dismissal of OneCap, the bankruptcy court

properly determined that Sully could not proceed, since its 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). Although Sully intervened by stipulation before another

intervenor was dismissed, the stipulation did not explicitly waive the statute of

limitations. Sully does not pass the Benavidez test because dismissing its time-

barred claims will not simply postpone a new suit from being brought.

      Sully does not claim the bankruptcy court abused its discretion in failing to

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

majority provides. Rather, Sully only claims that it satisfies the Benavidez test.

For the reasons explained above, it does not. Sully elected to intervene after

OneCap was dismissed. Sully did not seek an extension of the statue of limitations
to assert its own claims, nor did it 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 appellants 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.