Szanto v. Lewin (In re Lewin)

In re Lewin, BAP No. CC-12-1238-PaDKi (9th Cir. BAP, July 3, 2013) (Not for publication)
The 9th Circuit BAP VACATED and REMANDED the Bankruptcy Court Order, holding that appellant is a valid creditor in the debtor's bankruptcy case based upon holding a valid cause of action against the debtor. Accordingly, creditors has standing to bring an adversary action regarding dischargeability.
Procedural context:
Creditor appealed the decision of the bankruptcy court dismissing his adversary complaint against chapter 7 debtor for lack of standing. The 9th Circuit B.A.P. VACATED and REMANDED the lower court's decision.
Since 2003, Szanto, a real estate broker, was involved in several civil actions and probate proceedings with Lewin, an attorney. This instant case revolves around a lawsuit filed in state court in 2008 whereby Szanto sued Lewin for Lewin's negligent interference with his business plans, and several other intentional torts. Lewin failed to respond to Szanto's complaint, and the clerk entered a default against Lewin on 5/11/09, but no default judgment was entered by state court. In Feb. of 2010, Lewin filed a chapter 13 petition, and Szanto filed a relief from stay motion seeking permission to continue his prosecution of the civil action in state court. Bankruptcy court held a hearing on Szanto's motion in June 2010, and granted Szanto's motion for relief from the automatic stay. Szanto then commenced the adversary proceeding. Szanto's first claim for relief sought an exception to discharge under §523(a)(6) for debts arising from the various intentional torts Lewin had allegedly committed. The second claim for relief requested that Lewin be denied a discharge under §727(a)(2) because Lewin had allegedly concealed valuable assets. Lastly, Szanto's third claim alleged that Lewin's bankrtupcy was filed in bad faith, to avoid a possible judgment in state court. On April 2011, the bankrtupcy court entered an order denying all of Szanto's motions. In addition, the bankrtupcy court then, sua sponte, entered an Order to Show Cause directing Lewin to appear and explain why default should not be entered against him for his failure to defend. The court issued a Second Order to Show Cause to Lewin to appear and explain why the court should not strike his answer and enter defeault, but there is no indication in the docket that the bankrtupcy court ever heard or ruled on this Second Order to Show Cause. Instead, the court entered it's Third Order to Show Cause, but this time directed to Szanto and commanded him to appear at a hearing and explain why the adversary proceeding should not be dismissed because Szanto is not a creditor, by definition, and thus lacks standing to prosecute the action. Meanwhile, in the state court proceeding, on Feb. 2012, Lewin successfully set aside the default that had been entered against him. The bankrtupcy court held a hearing on the Third Order to Show Cause - the order to Szanto to explain why the adversary should not be dismissed - on May of 2012. The bankrtupcy court entered an order dismissing the adversary proceeding on May of 2012. Szanto filed this timely appeal in regards to that ruling. The Bankruptcy Appellate Panel held that Szanto was a creditor because he had a valid claim against Lewin, and as such, did have standing. Consequently, the B.A.P. found that the bankruptcy court erred in dismissing the Szanto's complaint. The order was vacated and remanded for further proceeding.

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