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In Re Mickie L. Riley and Hansi Riley v. Arturo Cisneros

May 7, 2013

IN RE MICKIE L. RILEY AND HANSI RILEY, DEBTORS. APPELLANT,
v.
ARTURO CISNEROS, CHAPTER 7 TRUSTEE FOR THE ESTATE OF MICKIE L. RILEY AND HANSI RILEY, CENTRAL PACIFIC BANK AND CITY NATIONAL BANK, N.A., APPELLEES.



Bankruptcy Case No. 6:09-bk-23174-DS

The opinion of the court was delivered by: Dolly M. Gee United States District Judge

JS-6

ORDER RE BANKRUPTCY APPEAL DIVERSIFIED PACIFIC OPPORTUNITY FUND I, LLC,

This matter is before the Court on an appeal from the Bankruptcy Court. The Court deems this matter suitable for decision without oral argument. See Fed. R. Civ. P. 78(b); C.D. Cal. L.R. 8012-7. Having duly considered the respective positions of the parties, the Court now renders its decision. For the reasons set forth below, the judgment of the Bankruptcy Court is REVERSED.

I. INTRODCUTION

On June 15, 2009, the Mickey and Hansi Riley ("Debtors") filed for Chapter 7 bankruptcy in the United States Bankruptcy Court in the Central District of California. R. at 779.*fn1 On July 10, 2012, the Bankruptcy Court issued an Order disallowing two claims by Appellant Diversified Pacific Opportunity Fund I, LLC ("Diversified"), worth approximately $13.1 million. Appellee Arturo Cisneros (the "Trustee") is the Chapter 7 Trustee of the estate and Appellee Central Pacific Bank ("CPB") is another creditor.

Debtors owed Diversified more than $12 million based on unpaid loan guarantees. R. at 331. Before the bankruptcy, in December 2008, Diversified obtained writs of attachment for about $10.4 million, which likely precipitated the bankruptcy. R. at 719, 722-43. The precise amount of the debt owed to Diversified was initially undetermined because of a future contingency, but the existence of the debt was not disputed. R. at 331. Debtors' initial Schedule F, filed at the outset of the bankruptcy and listing all unsecured claims against them, included Diversified's two claims, totaling $13.1 million.

R. at 866. The claims were listed as contingent, unliquidated, and disputed. Id.

On June 16, 2009, the bankruptcy court issued a Notice of Chapter 7 Bankruptcy Case, Meeting of Creditors, & Deadlines ("Case Commencement Notice"), which included the directive: "Please Do Not File a Proof of Claim Unless You Receive a Notice to Do So." R. at 779. The Case Commencement Notice set July 23, 2009 as the date for the first meeting of creditors pursuant to 11 U.S.C. § 341(a). Id. At the 341(a) hearing, the Trustee requested the amended versions of several documents. R. at 68. On August 17, 2009, after Debtors met with their counsel, Debtors' counsel sent the Trustee a letter in response to his request, which included, among other documents, an Amended Schedule F. Id., R. at 131-32. The Amended Schedule F contains the same information as the original Schedule F with respect to Diversified's claims. R. at 589.

On February 10, 2010, the court issued a notice establishing the bar date of May 17, 2010 for filing proofs of claim. R. at 778. Diversified failed to file a proof of claim by the bar date. On April 6, 2012, Diversified filed formal proofs of claim, and then amended them on May 14, 2012. R. at 356-571. On May 10, 2012, CPB filed a motion to disallow Diversified's two claims. On June 14, 2012, Diversified filed a motion to approve and allow informal proofs of claim. On July 10, 2012, the court held a hearing on both motions. Diversified claimed that it never received the notice of the bar date in the mail, and only discovered the error when it received notice of the Trustee's final report.*fn2 R. at 336.1-.4, 341. As a result, Diversified argued, the letter from Debtors' counsel to the Trustee should be treated as an informal proof of claim and Diversified should be permitted to amend it after the bar date with the filing of formal proofs of claim.

On July 20, 2012, the court issued the order on appeal before this Court, incorporating its oral rulings, granting CPB's motion, denying Diversified's motion, and disallowing both of Diversified's claims. R. at 6-10. On August 2, 2012, Diversified appealed to this Court.

II. STANDARD OF REVIEW

A district court reviews the bankruptcy court's findings of fact for clear error and its conclusions of law de novo. Fed. R. Bankr. P. 8013; Gebhart v. Gaughan (In re Gebhart), 621 F.3d 1206, 1209 (9th Cir. 2010) (citing Abele v. Modern Fin. Plans Servs., Inc. (In re Cohen), 300 F.3d 1097, 1101 (9th Cir. 2002)). Whether certain documents in the record relating to Diversified's claims constitute an amendable informal proof of claim is a question of law reviewed de novo. Pizza of Hawaii, Inc. v. Shakey's, Inc. (In re Pizza of Hawaii, Inc.), 761 F.2d 1374, 1377 (9th Cir. 1985).

III. DISCUSSION

A. Informal Proof of Claim ...


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