Bustos v. Molasky (In re Molasky)

Case Type:
Case Status:
14-60080 (9th Circuit, Nov 17,2016) Published

Dismissal of § 523 complaint due to lack of prosecution, after bankruptcy court had allowed intervention by creditor to prosecute the same § 523 claims, did not mean that intervenor's claims were also dismissed, and intervenor was entitled to prosecute such claims even though he had not filed a separate complaint.

Procedural context:

Corporate creditor (“OneCap”) filed a § 523(a)(2) action against a debtor for fraudulently inducing a loan.  Individual Creditor (“Bustos”) whose claims were part of the claims set forth in OneCap’s complaint, was permitted to intervene in the action initially filed by OneCap, but was not permitted to file his own complaint.  The bankruptcy court’s ruling specified that Bustos was “afforded all the rights and remedies as those granted to OneCap.” Thus, Bustos adopted OneCap’s § 523 timely filed complaint, and Bustos satisfied the Bankruptcy Rule 4007 deadline and established that the court had subject matter jurisdiction over his claim. The Ninth Circuit held that “[b]oth precedent and common sense dictate that Bustos should be permitted to continue litigating the claim after OneCap’s dismissal on procedural grounds [due to lack of prosecution]. . . .  [T]he [bankruptcy] court retain[ed] subject-matter jurisdiction over his claim, and allowing him to pursue the claim promotes judicial economy. Accordingly, Bustos is entitled to continue prosecuting the § 523 claim originally filed by OneCap. The bankruptcy court and BAP erred in concluding otherwise.”

Sidney R. Thomas, Chief Judge, and Ronald Lee Gilman and Michelle T. Friedland, Circuit Judges

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