Roque v. Yniguez (In re Yniguez)

Summarized by Margreta Morgulas , Okin Hollander LLC
12 years 3 weeks ago

Citation:

Roque v. Yniguez (In re Yniguez), BAP No. EC-13-1048-KiPaJu (B.A.P. 9th Cir., Jan. 31, 2014)

Tag(s):

Ruling:

The Bankruptcy Appellate Panel for the Ninth Circuit Court of Appeals ("9th Cir. BAP"), in an opinion labeled "not for publication," affirmed orders of the United States Bankruptcy Court for the Eastern District of California ("Bankruptcy Court") denying the Appellant's Motion to Continue and granting the Appellee's Motion to Compel Discovery. The 9th Cir. BAP, however, vacated and remanded the Bankruptcy Court's order granting the Appellee's Motion for Summary Judgment in Appellee's non-dischargeability proceeding against Appellant on the grounds that the Bankruptcy Court improperly inferred "justifiable reliance" by Appellee under Bankruptcy Code section 523(a)(2)(A) rather than requiring direct, admissible evidence of the same.

Procedural context:

Appellant timely appealed several orders of the Bankruptcy Court that were entered in the adversary proceeding brought by the Appellee and seeking a ruling of non-dischargeability of loans made by Appellee by Appellant pursuant to Bankruptcy Code section 523(a)(2)(A). Specifically, Appellant challenged: 1. The Bankruptcy Court's grant of Appellee's motions to compel discovery in the non-dischargeability action on the grounds that the Bankruptcy Court abused its discretion in failing to give Appellant, a pro se litigant, deference; 2. The Bankruptcy Court's denial of Appellant's motion to continue the hearing on the Appellee's motion for summary judgment in the non-dischargeability action on the grounds that the Bankruptcy Court abused its discretion by refusing to acknowledge that doing so may have permitted him time to establish triable issues of fact sufficient to defeat the motion for summary judgment; and 3. The Bankruptcy Court's order granting Appellee's motion for summary judgment in the non-dischargeability action on the grounds that the evidentiary record did not support the requested relief.

Facts:

Appellant, chapter 7 debtor Ernest Felipe Roque ("Roque" or "Appellant"), was engaged to Appellee Rafaela Yniguez ("Yniguez" or "Appellee") for a number of years before his bankruptcy filing. While engaged to Yniguez, Roque employed her at his insurance agency. Over the course of several years, Roque obtained both documented and undocumented loans from Yniguez that ultimately totaled over $160,000. The undisputed terms of the loans (which were undisputed because Roque never challenged any relevant pleadings or submitted anything in discovery to refute the same) provided for their repayment within a specified period as well as for Yniguez to receive ownership interests in Roque's insurance agency and certain net profits of the insurance agency. Roque both failed to repay any of the loans or to otherwise honor the undisputed terms of the loans. Thereafter, Yniguez and Roque broke off their engagement, Yniguez ceased working with Roque, and Yniguez filed a state court suit against Roque and his insurance company in California state court alleging breach of contract. Roque failed to respond and a default judgment was entered. While the state court suit was pending, Roque (unbeknownst to Yniguez) created a new insurance agency and transferred all of the assets of his old agency to the new entity. Thereafter, Roque filed for chapter 7 in the Bankruptcy Court and provided grossly incomplete disclosures with respect to his assets and liabilities. For instance, there was no information of substance regarding the loans and he did not even include the new insurance entity to which he had transferred all of the assets of his prior agency. Yniguez requested leave of the state court to amend her complaint to add the new entity but the state court held that it could not permit such an amendment without evidence that the new entity was not impacted by Roque's bankruptcy filing. Subsequently, Yniguez filed an adversary complaint against Roque, seeking a determination the loans were excepted from discharge pursuant to Bankruptcy Code sections 523(a)(2)(A) and 727(a)(2) - although relief with respect to the latter was ultimately denied in connection with Yniguez's motion for summary judgment and was not subject to the appeal at issue. Roque failed to timely or completely respond to discovery in the adversary proceeding despite the Bankruptcy Court granting him several opportunities and many months to do so. Ultimately, the Bankruptcy Court granted Yniguez's second motion to compel (based on Roque's repeated failures to respond to propounded discovery and in violation the Bankruptcy Court's prior order requiring him to do so) insofar as it sought reasonable costs and expenses incurred as a result of Yniguez having to bring a second motion to compel Roque's compliance with the Bankruptcy Court's previous discovery order. Roque challenged the Bankruptcy Court's partial grant of Yniguez's second motion to compel on the basis that the Bankruptcy Court allegedly failed to give him sufficient deference as a pro se litigation. The 9th Cir. BAP, however, affirmed the Bankruptcy Court's orders with respect to discovery, finding that Roque was given more than sufficient time and opportunity to comply and that there is no justification for any party, even a pro se litigant, to be excused from a failure to comply with the applicable rules of procedure. More than 16 months after Yniquez filed the non-dischargeability action and over 3 months after the close of discovery therein, she filed a motion for summary judgment in the action, Roque did not propound any discovery and did not seek any extension of time from the Bankruptcy Court to do so (and, in fact, indicated in a status report that he had no intention of seeking any discovery). 13 days before the scheduled hearing on Yniquez's motion for summary judgment, Roque filed a motion to continue the hearing on the motion for summary judgment and requesting additional time to take discovery. The Bankruptcy Court denied the motion to continue, and the 9th Cir. BAP affirmed the denial on the basis that the Bankruptcy Court did not, under the facts and circumstances of the case, abuse its discretion when it denied the request as untimely and lacking merit. Thereafter, the Bankruptcy Court granted Yniquez's motion for summary judgment in the non-dischargeability action pursuant to Bankruptcy Code section 523(a)(2)(A), finding that the undisputed facts supported a finding that Roque had obtained the loans from Yniquez by false pretenses and representations and, therefore, that the same should not be discharged in Roque's chapter 7 case. On appeal, Roque challenged the Bankruptcy Court's order granting summary judgment on the basis that the evidentiary record did not support the motion for summary judgment. The 9th Cir. BAP vacated the Bankruptcy Court's order and remanded the matter to the Bankruptcy Court upon finding that the evidence presented by Yniguez did not establish all of the necessary elements for fraud under Bankruptcy Code section 523(a)(2)(A). Specifically, the 9th Cir. BAP held that there was nothing in the evidentiary record that supported the Bankruptcy Court's implicit finding that Yniguez has justifiably relied upon Roque's promise to repay the loans. The 9th Cir. BAP found that while a court may infer intent from the evidentiary record, it may not infer justifiable reliance on the part of the plaintiff. Rather, a finding of justifiable reliance, according to the 9th Cir. BAP, requires direct evidentiary support. The 9th Cir. BAP held that as no such evidence was in the record, the Bankruptcy Court's entry of the order granting summary judgment in favor of Yniguez was in error and had to be vacated.

Judge(s):

Bankruptcy Judges Kirscher, Pappas and Jury

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