Licup v. Jefferson Ave. Temecula, LLC (In re Licup)

Case Type:
Case Status:
BAP No. SC-22-1111-GBS (9th Circuit, Feb 21,2023) Not Published
The Ninth Circuit's Bankruptcy Appellate Panel affirmed a summary judgment excepting a debt from the debtors' discharge under 11 U.S.C. § 523(a)(3)(A) in the full amount of the creditor's state court judgment, rather than in the amount of the distribution the creditor would have received from the chapter 7 estate had it received notice in time to file a proof of claim. Further, the bankruptcy court did not err in limiting its ruling to the dischargeability issue as the state court could address the debtors' arguments about the judgment's enforceability.
Procedural context:
The bankruptcy appellate panel reviewed de novo the bankruptcy court's entry of a summary judgment in the creditor's favor on its claim under 11 U.S.C. § 523(a)(3)(A). Given the debtors' concession of the material facts giving rise to nondischargeability, the panel focused on whether the bankruptcy court properly interpreted § 523(a)(3)(A) in excepting the full amount of the state court judgment from the debtors' discharge.
Creditor Jefferson Avenue Temecula, LLC obtained a state court judgment for $31,786.29 against Debtor Christine Castro in an unlawful detainer action. Thereafter, Castro and co-Debtor Edwin D. Licup filed a chapter 7 bankruptcy petition in the U.S. Bankruptcy Court for the Southern District of California. They scheduled the creditor with an unsecured $3,100 claim and identified its former counsel's address as the address for service--but they used the wrong city in the address. After the chapter 7 trustee determined the estate would have assets to distribute and notified creditors of the proof of claim deadline, the creditor didn't file a proof of claim as it hadn't received notice. Years later, the creditor filed an adversary proceeding to except the state court judgment from the debtors' discharge under § 523(a)(3)(A), asserting they did not properly schedule the debt and the creditor could not timely file a proof of claim for lack of notice. The debtors' answer denied the factual allegations and also contended that, if successful in the adversary proceeding, the creditor only should receive 5.5% of the state court judgment amount-- the distribution unsecured creditors received on claims in their bankruptcy case. In a subsequent motion for summary judgment, the debtors admitted they did not properly schedule the creditor's claim; however, the debtors reiterated a limit on the creditor's damages was appropriate, contending "because § 523(a)(3)(A) protects a creditor's right to file a proof of claim and participate in distributions, allowing the entire debt to be nondischargeable would result in a windfall for" the creditor. The creditor responded that the full debt should be excepted from the debtors' discharge as they admitted the material facts giving rise to nondischargeability. The debtors then each filed separate motions arguing that the state court judgment was unenforceable against them based on its form. At a subsequent status hearing, the bankruptcy court advised it only would address the nondischargeability motion and would leave issues of enforceability to the state court (if necessary). The court also stated it was inclined to enter a summary judgment in the creditor's favor for the full amount of the debt given the debtors' admissions, but would give the debtors time to file a supplemental brief. Instead of filing a brief, the debtors sought to withdraw their motion. The court held a hearing, took the first motion under submission, and granted a summary judgment excepting the full amount of the state court judgment from the debtors' discharge under § 523(a)(3)(A). The court explained the debtors' attempt to withdraw their motion did not impact the resolution as the court gave notice under Fed. R. Civ. P. 56(f) (incorporated by Fed. R. Bankr. P. 7056) that it might enter a judgment in the creditor's favor.

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