Court Opinion

ID: 4374007
Source: CourtListenerOpinion
Date Created: 2019-03-05 22:01:47.257764+00
Date Added: 2024-06-11T14:48:59.877181
License: Public Domain

FILED
                                                                         MAR 5 2019
                           NOT FOR PUBLICATION
                                                                    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-18-1193-KuTaB

LINDA L. GARMONG,                                Bk. No.      3:10-bk-52588-GWZ

                    Debtor.

GREGORY O. GARMONG,

                    Appellant,

v.                                               MEMORANDUM*

LINDA L. GARMONG,

                    Appellee.

                  Argued and Submitted on February 21, 2019
                           at Las Vegas, Nevada

                                Filed – March 5, 2019

               Appeal from the United States Bankruptcy Court
                         for the District of Nevada

         *
        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.
           Honorable Gregg W. Zive, Bankruptcy Judge, Presiding

Appearances:        Carl M. Hebert argued for appellant Gregory O.
                    Garmong; Appellee Linda L. Garmong pro se on brief.

Before: KURTZ, TAYLOR, and BRAND, Bankruptcy Judges.

      Creditor Gregory O. Garmong appeals from the bankruptcy court's

order denying his motion to alter or amend the order of discharge (Motion

to Alter/Amend) entered in Linda L. Garmong's (Debtor) bankruptcy case.

We AFFIRM.

                                       FACTS

      Debtor is the former wife of Dr. Garmong. She filed a chapter 71

petition in June 2010 and scheduled Dr. Garmong as an unsecured creditor

owed divorce-related expenses in an amount unknown.

      In November 2010, Dr. Garmong filed an adversary complaint

against Debtor, alleging claims under §§ 523(a)(2)(A); (a)(4); (a)(6); (a)(15)

and 727(a)(2)(B); (a)(4)(A); and (a)(4)(B).

      In September 2015, the chapter 7 trustee filed a report of no

distribution and was discharged.

      There was no activity in Dr. Garmong's adversary proceeding from

      1
       Unless specified otherwise, 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
January 2015 to September 2017. Accordingly, the bankruptcy court issued

an Order to Show Cause For Dismissal of Adversary Proceeding for Lack of

Prosecution (OSC).2 In late October 2017, Debtor's counsel filed a motion to

dismiss the adversary proceeding. The OSC and Debtor's motion were

scheduled for a hearing in December 2017.

      On January 30, 2018, the bankruptcy court entered an order

dismissing the adversary complaint filed by Dr. Garmong for lack of

prosecution, without prejudice (Dismissal Order). Dr. Garmong did not

seek reconsideration of the Dismissal Order under Rule 9023 or 9024 nor

did he appeal it. In addition, neither party requested a stay of the Dismissal

Order.

      On January 31, 2018, the bankruptcy court entered an order

discharging Debtor under § 727(a).

      On February 14, 2018, Dr. Garmong filed the Motion to Alter/Amend.

In the motion, he asked the bankruptcy court to alter or amend the order of

discharge to deny the Debtor's discharge under Rule 9023 and Civil Rule

59(e). Dr. Garmong alleged several grounds for vacating Debtor's discharge

including, among others, concealing assets, falsifying schedules, and

misusing the bankruptcy process. He claimed that relief was required by

      2
       The bankruptcy court's Local Bankruptcy Rule 7041, entitled "Dismissal For
Lack Of Prosecution," authorizes dismissal if a proceeding has been pending for more
than one year without any activity of record.

                                          3
§§ 523(a)(15); 727(a)(2)(B); (a)(4)(A); and (a)(4)(B).

      In June 2018, the bankruptcy court heard the matter. In a lengthy

ruling, the court concluded that there was no legal basis for the Motion to

Alter/Amend. The bankruptcy court explained that under § 727(a), the

court was required to issue Debtor a discharge on January 30, 2018, because

(i) she was an individual debtor; (ii) the adversary proceeding filed by

Dr. Garmong objecting to her discharge had been dismissed; and (iii) she

had not waived her discharge.

      The court further found that it did not have the power to alter,

amend, or deny an order of discharge under Rule 9023 and Civil Rule 59(e)

as such a motion was procedurally improper under the circumstances.

Under Rules 4004(d) and 7001(4), an objection to discharge by motion was

only proper if the objection was based on §§ 727(a)(8), (a)(9), or 1328(f).

Here, none of those statutes applied. According to the court, Dr. Garmong

did not provide evidence supporting his objection to Debtor’s discharge

under §§ 727(a)(8) or (a)(9) as there was no evidence that Debtor received a

prior discharge. The court also noted that under §§ 727(a)(2) - (a)(7), and

Rules 4004(a) and 7001(4), an objection to discharge required an adversary

proceeding. The court could not deny Debtor's discharge because

Dr. Garmong's adversary complaint had been dismissed and, therefore, he

did not comply with these rules.

      The bankruptcy court also considered revocation of a discharge

                                         4
under § 727(e) which provides that a creditor may request revocation of a

discharge under § 727(d)(1) within one year after the discharge was

granted if the discharge was obtained through the fraud of the debtor. The

court found that Dr. Garmong had no legal basis to seek revocation of

Debtor's discharge under § 727(d)(1) because he had knowledge of the

alleged fraud when he filed the adversary proceeding in 2010 and the order

of discharge was entered in January 2018, almost 8 years later.

      Finally, the court found that the claims asserted by Dr. Garmong in

his 2010 adversary complaint and the relief being sought were identical or

substantially similar to the claims asserted and relief sought in his Motion

to Alter/Amend. Therefore, his motion was an attempt to re-litigate the

allegations that were dismissed in the adversary proceeding.

      At the end of the hearing, the bankruptcy court said it could not

ignore Rule 9011 and questioned Dr. Garmong's counsel as to the basis of

the Motion to Alter/Amend because every statute, rule, and case cited said

the opposite of what was argued. Dr. Garmong's counsel, Mr. Hebert, was

"not willing to admit to sanctionable conduct," but admitted that he was

directed to file the motion by Dr. Garmong and that he "should have said

no." In the end, the court did not impose sanctions but orally denied the

motion with prejudice.3

      On July 5, 2018, the bankruptcy court entered written findings of fact

      3
          The order does not reflect the with prejudice denial.

                                              5
and conclusions of law and entered its order denying the Motion to

Alter/Amend. Dr. Garmong filed a timely appeal from this 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.

                                    ISSUES

      Dr. Garmong raises three issues on appeal:

      Whether the bankruptcy court erred in granting Debtor a discharge;

      Whether the bankruptcy court erred in denying his Motion to

Alter/Amend; and

      Whether a bankruptcy judge, by relying on procedural rules, may

grant discharge when he has actual knowledge that discharge is in

violation of the Bankruptcy Code.

                         STANDARDS OF REVIEW

      We review de novo the bankruptcy court's conclusions of law and its

interpretation of statutes and rules. Clear Channel Outdoor, Inc. v. Knupfer

(In re PW, LLC), 391 B.R. 25, 32 (9th Cir. BAP 2008).

      We review the bankruptcy court's denial of a motion for

reconsideration under Rule 9023 and denial of a motion to amend or alter

judgment under Civil Rule 59(e) for abuse of discretion. Dixon v. Wallowa

Cty., 336 F.3d 1013, 1022 (9th Cir. 2003); Ocwen Loan Serv., LLC v. Marino

(In re Marino), 577 B.R. 772, 781 (9th Cir. BAP 2017).

                                       6
      A bankruptcy court abuses its discretion if it applied the wrong legal

standard or its factual findings were illogical, implausible or without

support in the record. TrafficSchool.com v. Edriver Inc., 653 F.3d 820, 832 (9th

Cir. 2011).

                                DISCUSSION

      At the outset, we put this appeal in context. As noted above, the

bankruptcy court dismissed Dr. Garmong's adversary proceeding and that

order was never appealed. Although Dr. Garmong's brief discusses the

correctness of the bankruptcy court's decision to dismiss the adversary

proceeding and the merits of the claims alleged, we do not review any

aspect of the Dismissal Order in this appeal. Put simply, this appeal is not a

substitute for the appeal Dr. Garmong could have taken from the Dismissal

Order.

      Turning to the merits, the bankruptcy court copiously set out the

facts and the law in its ruling, and we do not have much to add. There is no

merit to Dr. Garmong's arguments.

A.    The bankruptcy court properly entered Debtor's discharge.

      Section 727(a) and Rule 4004(c) place mandatory and quasi

ministerial duties on the bankruptcy court to grant a discharge forthwith

after the time to object has expired.

      Under § 727(a) the bankruptcy court "shall" grant the debtor a

discharge, unless one of the twelve disqualifying conditions set forth in the

                                        7
statute applies. See § 727(a)(1)-(12). The record shows that there were no

disqualifying conditions.

      Debtor is an individual. § 727(a)(1). Sections 727(a)(2) - (a)(7), and

Rules 4004(a) and 7001(4), provide that an objection to discharge based on

conduct listed in those subsections requires an adversary proceeding.

Dr. Garmong's adversary proceeding was dismissed. Accordingly, there

was no judicial determination that conduct listed under those subsections

was grounds to deny Debtor a discharge. There is no evidence in the record

showing a prior discharge or that Debtor had waived the discharge.

§ 727(a)(8), (9), (10). The remaining subsections are inapplicable.

      Nonetheless, Dr. Garmong argues that the bankruptcy court had an

independent duty to sua sponte deny Debtor's discharge because it had

knowledge of her fraud as evidenced by a sanctions order against her

attorney. In support of the bankruptcy court’s sua sponte authority to deny

a discharge, Dr. Garmong relies on Filice v. United States (In re Filice),580

B.R. 259 (Bankr. E.D. Cal. 2018). There, the bankruptcy court used Civil

Rule 60(a) and § 105(a) to vacate a discharge based on § 727(a)(8), relating

to the prior granting of a discharge under § 1141 "within 8 years before the

date of the filing of the petition." In doing so, the court reasoned that it may

sua sponte act to block or vacate a discharge that offends the Bankruptcy

Code's ban on two chapter 7 discharges in cases filed within eight years,

independent of whether there is a timely filed adversary proceeding.

                                        8
      Filice does not support a bankruptcy court's sua sponte act to block or

vacate a discharge that falls within § 727(a)(2) through (7). Indeed, the Filice

court noted that objections to discharge must be prosecuted under these

subsections and that "inaction on such theories may lead to forfeiture of

objections and to entry of discharge." Id. at 264. Moreover, although

Dr. Garmong was successful on his sanctions motion against Debtor’s

attorney, the bankruptcy court analyzed the motion under Rule 9011 and

made no findings on whether Debtor's conduct met any of the

requirements under §§ 727(a)(2) through (7).

B.    The bankruptcy court correctly denied the Motion to Alter/Amend.

      The bankruptcy court found that the claims and relief sought in

Dr. Garmong's adversary proceeding were similar or substantially similar

to the claims and relief requested in the Motion to Alter/Amend. We

reviewed the adversary complaint and the Motion to Alter/Amend and

find no error with the court's conclusion. In short, Dr. Garmong's Motion to

Alter/Amend amounts to an improper attempt to revive his dismissed

adversary proceeding.

      In addition, relying on Rule 9023 and Civil Rule 59(e) to alter or

amend Debtor's discharge was procedurally improper. As the bankruptcy

court properly noted, a motion objecting to discharge is proper only if

based on § 727(a)(8) or (a)(9). See Rule 4004(d) and 7001(4). There is no

evidence in the record that § 727(a)(8) and (9) applied to Dr. Garmong's

                                       9
motion. In addition, under §§ 727(a)(2) - (a)(7), and Rules 4004(a) and

7001(4), an objection to discharge requires an adversary proceeding.

Dr. Garmong's adversary complaint had been dismissed. In short, Rule

9023 and Civil Rule 59(e) cannot be used to circumvent the Rules

governing objections to discharge.

      Dr. Garmong's motion also did not meet the requirements for

revocation of a discharge under § 727(e). Revocation of a discharge requires

an adversary proceeding. See Rule 7004(4). In addition, the grounds for

revocation as alleged by Dr. Garmong are set forth in § 727(d)(1) which

provides that a discharge can be revoked if "such discharge was obtained

through the fraud of the debtor, and the requesting party did not know of

such fraud until after the granting of such discharge.” The plain language of

the statute requires that the fraud must be discovered after discharge. See

Bowman v. Belt Valley Bank (In re Bowman), 173 B.R. 922, 925 (9th Cir. BAP

1994). The record shows that Dr. Garmong knew of the alleged fraud in

2010. Therefore, the bankruptcy court properly found that he had no legal

basis to seek revocation of Debtor's 2018 discharge.

                               CONCLUSION

      In sum, Dr. Garmong makes no relevant arguments regarding the

bankruptcy court's alleged errors and his citations to statutes and analysis

have no support in the law. Accordingly, we AFFIRM.

                                       10