Caraway v. Klein (In re Klein)

Citation:
In re Klein, 9th Cir. BAP., No. NC-12-1263-JuPaD (October 03, 2013) [NOT FOR PUBLICATION]
Tag(s):
Ruling:
In an unpublished opinion, the 9th circuit bankruptcy appellate panel affirmed the finding by the bankruptcy court, that Douglas Caraway’s state court judgment debt against debtor, Jack Klein, was dischargeable on the grounds that (1) Caraway had made a pre-petition assignment of his judgment debt to Sandra Williams dba Capital Judgment Recovery (Williams) and was not a party in interest and did not have standing to bring this adversary proceeding (2) Caraway’s complaint failed to state a claim against debtor as a matter of law due to filing of a satisfaction of judgment (SOJ) in the state court. The court also found that Williams did not violate the automatic stay by filing the SOJ postpetition and dismissed Caraway’s claims against Williams without prejudice for lack of subject matter jurisdiction.
Procedural context:
On April 27, 2012, Douglas Caraway filed a timely notice of appeal. Appellant, Douglas Caraway, appeals from the bankruptcy court’s judgment in an adversary proceeding in favor of chapter 7 debtor, Jack Klein.
Facts:
In March 1993, Caraway, dba as Caraway Audio, entered into an agreement with George Silva, Prompt Rewire and debtor to supply and install a public address system in and around the San Mateo County Exposition Center. Caraway was not paid and in September 1993, Caraway filed a complaint in the Superior Court of California, San Mateo County, against Silva, Prompt Rewire,debtor and the County of San Mateo alleging causes of action for breach of contract and fraud. Debtor answered the complaint, asserting as an affirmative defense, among others, that he was not a party to the contract. Debtor also filed a cross-complaint against Silva, Prompt Rewire and the County of San Mateo seeking indemnification and apportionment of fault. At some point, Caraway settled with Silva, Prompt Rewire and the County of San Mateo. On December 1, 1997, the state court held a bench trial. Debtor did not appear. After hearing testimony, the state court found for Caraway, awarding him $23,259 in damages, which included principal of $18,125 and interest, $5,000 in punitive damages and $9,960 in attorneys’ fees. On April 14, 1998, the state court entered a default judgment against debtor. The judgment was renewed. On January 11, 2010, Caraway entered into an Assignment and Acceptance Agreement with Williams. The assignment shows, among other things, that it was an “absolute assignment” of the full amount of the judgment which at that time was $75,308.33, and that Williams was to pay fifty percent of the net revenue collected to Caraway after paying costs for collection. On May 13, 2011, debtor filed a chapter 13 petition. On August 22, 2011, Caraway filed the instant adversary proceeding against debtor seeking to have the state court judgment debt declared nondischargeable under § 523(a)(2). On October 22, 2011, debtor filed a motion for summary judgment (MSJ) on the ground that Caraway had assigned all right, title and interest in the underlying judgment to Williams and, as a result, Caraway lacked standing to assert the action. On December 22, 2011, the bankruptcy court entered a Tentative Ruling on the MSJ. The court ruled that at most debtor’s motion would determine that Caraway was not the plaintiff real party in interest. Relying on Civil Rule 17(a)(3), incorporated by Rule 7017, the bankruptcy court gave Caraway time to obtain Williams’ ratification, joinder, or substitution. On January 6, 2012, the bankruptcy court entered an order denying debtor’s MSJ and giving Caraway forty-five days to obtain Williams’ ratification, joinder or substitution. The court’s order further stated that, if Caraway failed to comply fully and timely with the court’s order, the court may dismiss the proceeding without further notice or hearing. The record shows that Caraway never obtained Williams’ ratification, joinder or substitution in the adversary proceeding. On April 16, 2012, the bankruptcy court entered its Memorandum Decision and Order. The court found that upon its review of the assignment, Caraway had assigned all rights, title, and interest in the state court judgment to Williams and that Williams had full authority to recover, compromise, settle, and enforce the state court judgment. The bankruptcy court further found that although Caraway was given the opportunity to present evidence controverting the absolute assignment or SOJ, he did not do so. Finally, the court decided that the filing of the SOJ by Williams was not an action taken against debtor in violation of § 362. On April 18, 2012, the bankruptcy court entered judgment for debtor and dismissed all claims against Williams without prejudice for lack of subject matter jurisdiction or in the alternative, permissive abstention under 28 U.S.C. § 1334(c)(1). On April 27, 2012, Caraway filed a timely notice of appeal.
Judge(s):
JURY, PAPPAS, and DUNN,

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