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Summarizing by Lars Fuller

Gonzalez v. Kitay, et al. (In re Kitay)

Ninth Circuit Bankruptcy Appellate Panel Case No. EC-14-1200-FDJu (December 10, 2015)
In the Ninth Circuit Bankruptcy Appellate Panel's ("BAP") deemed not appropriate for publication, the BAP held that the bankruptcy court did not err in granting Daniel E. Gonzalez's ("Appellant") default judgment against Robert N. Kitay ("Appellee") in the amount of $5,000 non-dischargeable debt pursuant to 11 U.S.C. Sec. 523(a)(4). Although an adversary complaint may be construed to be an informal proof of claim, a proof of claim cannot suffice as a complaint under Fed.R.Bankr.P. Rules 7001 and 7003. The bankruptcy court may set aside entry of default for good cause. The moving party does not need to prove all three factors to support good cause to set aside the entry of a default. The bankruptcy court properly weighed the five factors to determine if dismissal of the remaining asserted claims was property.
Procedural context:
Appellant appeals the bankruptcy court's decision (i) award of $5,000 rather than $250,000 as being excepting from discharge (ii) applying Fed.R.Civ. P. 55 in Appellee's proof of a meritorious defense and (iii) dismissing the remaining claims asserted by the Appellant in the adversary.
Prior to the commencement of the Appellee's Chapter 7 bankruptcy, Appellant had retained Appellee to represent he and his daughter in various matters such as an automobile accident, wrongful foreclosure, and probate collection matter. The attorney-client relationship reached a point wherein the Appellee severed all ties with Appellant as a client. Appellant commenced a state court proceeding against Appellee including asserted claims of including but not limited to breach of agreement and abandonment of client. Appellant sought $250,000 in damages plus attorneys' fees. Appellee and his spouse commenced a voluntary Chapter 7 bankruptcy. Appellant commenced an adversary proceeding pursuant to 11 U.S.C. Secs. 523 and 727 seeking exceptions to Appellants alleged claims of $250,000. Appellee filed an Answer to the Complaint; however, the bankruptcy court struck the Answer based on the failure to meet and confer pursuant to the bankruptcy court's order. Appellant sought the entry of default judgment, and the bankruptcy court only entered default judgment in the amount of $5,000 plus costs pursuant to 11 U.S.C. Sec. 523(a)(4); all other requests were denied. The bankruptcy court dismissed the Appellant's remaining claims pursuant to Fed.R.Civ.P. Rule 12(b)(6).
Honorable Faris, Dunn, and Jury, Bankruptcy Judges.

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