Opinion
NOT FOR PUBLICATION
Argued and Submitted at San Diego, California: January 23, 2008
Appeal from the United States Bankruptcy Court for the Southern District of California. Hon. Louise DeCarl Adler, Bankruptcy Judge, Presiding. Bk. No. 91-10342-A7. Adv. No. 05-90432-A7.
Before: MARKELL, DONOVAN[ and KLEIN, Bankruptcy Judges.
Hon. Thomas B. Donovan, United States Bankruptcy Judge for the Central District of California, sitting by designation.
MEMORANDUM
This appeal is a continuation of a sixteen year odyssey. In 2005, David Selinger (" Selinger") filed a complaint in bankruptcy court for abuse of process under § 105(a) against debtors Thomas R. Beaty (" Thomas") and Nancy Z. Beaty (" Nancy") (collectively the " Beatys"). The complaint also sought relief against Michael E. Steres (" Steres"), the Beatys' legal counsel.
Unless otherwise indicated, all chapter, section, and rule references are to the Bankruptcy Code, 11 U.S.C. § § 101-1330 as enacted and promulgated prior to the effective date (October 17, 2005) of the relevant provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (" BAPCPA"), Pub. L. 109-8, 119 Stat. 23 (2005), and to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037.
The background of Selinger's complaint is long and tortuous. Selinger was an unscheduled creditor in the Beatys' 1991 chapter 7 case; at the same time, Selinger had sued, but not served, Thomas in state court. The Beatys thereafter received their discharge, and Selinger named Thomas and obtained a default judgment against him, all without either knowing of the other.
After much litigation, which we detail below, Selinger was able to have his state court default judgment for $5,000 declared nondischargeable. His effort to prove-up and add about $15,000 in punitive damages to this award, however, stalled, again for complex and sundry reasons we detail below. His abuse of process lawsuit, which leads to this appeal, sought damages for the loss of opportunity to prove up punitive damages in his state court case.
On the Beatys' and Steres' motion for summary judgment, and Selinger's motion to strike, the bankruptcy court found sua sponte that it lacked subject matter jurisdiction over the entire action. It therefore ruled that the § 105(a) claim failed as a matter of law. Alternatively, the court found that even if it had subject matter jurisdiction, the applicable statute of limitations for abuse of process had run. Selinger appeals this order and a number of other related orders as well.
For reasons detailed below, the bankruptcy court's order is AFFIRMED.
I. FACTS
Procedural History
The parties' peregrinations began in 1991, when Selinger filed a " Complaint for Breach of Duty to Exercise Reasonable Care, Negligence, Assumption of Premises Liability and Fraudulent Concealment with Malice against Saraston Development Company and Does 1-50" in California municipal court (" State Court Action"). Unrelated to this lawsuit, on September 12, 1991, the Beatys had filed a petition for bankruptcy relief under chapter 7; they received their discharge in January 1992. Neither Selinger nor the Beatys knew about the others' cases when they filed their own.
Case No. 112878.
Bankruptcy Case No. 91-10342.
Two months after the Beatys received their bankruptcy discharge, Selinger substituted Thomas for one of the doe defendants in the State Court Action. On May 18, 1992, after learning of the substitution, the Beatys' bankruptcy attorney, Steres, sent Selinger a letter demanding Selinger dismiss Thomas. Selinger admits receiving the letter but ignored it and continued to prosecute his claim.
On June 10, 1993, Selinger obtained a default judgment against Thomas in the State Court Action. Compensatory damages of $5,000 were awarded, with the court reserving the determination of punitive damages until later. Soon thereafter, Steres served Selinger with a " Notice of Injunction Against Further Proceedings, " to which was attached a copy of the Beatys' discharge (" Notice of Injunction"). The Notice of Injunction was invalid and inaccurate, but Selinger has claimed he was " bamboozled" by its tone and by the fact it incorporated an official document. Indeed, he claims that because of it, he ceased prosecuting his state court proceedings.
In August 1994, Selinger filed a pro se adversary proceeding seeking to revoke the Beatys' discharge under 11 U.S.C. § 727. In June 1995, the bankruptcy court granted summary judgment to the Beatys in that action. It later denied Selinger's motion for reconsideration. The district court affirmed the bankruptcy court's dismissal in April 1997.
Adversary No. 94-90619.
Undeterred, on April 24, 1998, Selinger filed a nondischargeability action in bankruptcy court against Thomas. He alleged that his state court default judgment was nondischargeable under § § 523(a)(2), (4), and (6) (" 523 Action"). He also sought a modification of the discharge to allow him to continue to prosecute the State Court Action in order to obtain a determination of punitive damages. In September 1998, the bankruptcy court dismissed the 523 Action. In December 1999, the BAP reversed and remanded.
Adversary No. 98-90205.
BAP Case No. SC-98-1657.
After remand, Thomas answered, but moved for summary judgment based on laches. Selinger counter-moved for summary judgment based on issue preclusion, and also moved to strike portions of Thomas' answer. The bankruptcy court granted Thomas' motion, denied Selinger's motions, and dismissed Selinger's complaint with prejudice.
Selinger again appealed to the BAP, which reversed in part and remanded in a published opinion. Beaty v. Selinger (In re Beaty), 268 B.R. 839 (9th Cir. BAP 2001), aff'd, Beaty v. Selinger, 306 F.3d 914 (9th Cir. 2002). The majority of the panel held that laches could never apply to a § 523(a)(3)(B) action. Id . at 846. One panel member wrote separately that there was a role for the laches defense. Id . at 849 (Klein, J., concurring). Thomas appealed to the 9th Circuit.
In May 2002, while the 523 Action was still pending at the Ninth Circuit, Selinger renewed his attempt to obtain an award of punitive damages in state court. The state court, however, denied his claim as no longer viable because the judge in the case had previously retired. There is nothing in the record to indicate Selinger appealed the state court's denial, or that he moved to reopen his default judgment to have compensatory and punitive damages heard anew and together.
Thereafter, the Ninth Circuit affirmed the BAP, on the reasoning stated in the BAP's concurring opinion. Beaty v. Selinger, 306 F.3d 914, 923-26 (9th Cir. 2002). On February 21, 2003, following the Ninth Circuit's decision, Selinger filed a motion in bankruptcy court for summary judgment for nondischargeability of the compensatory damages granted in the State Court Action. In May 2003, the bankruptcy court ruled the default judgment was non-dischargeable, at least as to its award of compensatory damages (" Non-Dischargeability Summary Judgment"). It left punitive damages to the state court. In August 2003, Thomas appealed this decision to BAP, but voluntarily dismissed the case in December 2003.
BAP Case No. SC-03-1419.
Present Appeal
The adversary proceeding that leads to this appeal began on September 29, 2005. On that day, Selinger filed an " Adversary Complaint for Equitable Relief and to Recover Money" in bankruptcy court (" Abuse of Process Complaint"). The complaint was filed as an equitable proceeding but sought to recover money damages from the Beatys and Steres under § 105(a) for abuse of process. The abuse of process claimed was interference with Selinger's conduct of the State Court Action.
On October 27, 2005, the Beatys and Steres answered separately, each asserting affirmative defenses, and each including a statute of limitation defense. Selinger moved to strike the Beatys' affirmative defenses and moved to strike portions of Steres' answer. A hearing was held on both motions on January 12, 2006. A minute order of even date, addressing both motions, denied the motion to strike the Beatys' affirmative defenses (" Minute Order re: Motions to Strike"). An order denying the motion to strike the Beatys' answer was entered on January 24, 2006 (" Order re: Motion to Strike Beatys' Answer"). An order granting the motion to strike certain portions of Steres' answer and denying the motion as to the affirmative defenses was entered on March 28, 2006 (" Order re: Motion to Strike Steres' Answer").
Selinger also moved to amend his complaint. He wanted to add facts and allegations of prior bank fraud and other fraud judgments against Thomas, ulterior motives for abuse by the Beatys, conspiracy between Steres and the Beatys, and malice. In a minute order dated October 5, 2006, the bankruptcy court denied the motion (" Minute Order re: Motion to Amend"). It held that the requested additions were unnecessary because an action of abuse of process necessarily includes as essential elements malice and ulterior purpose. Therefore, all allegations were within the scope of the complaint without precise facts being specifically alleged.
On January 29, 2007, Selinger filed a motion for summary judgment against Nancy only. Nancy opposed. As a further response, the Beatys moved for summary judgment asserting various affirmative defenses, including that Selinger's action was barred by California's two-year tort statute of limitations. Steres filed a joinder in the Beatys' motion. (Selinger's, Beatys', and Steres' motions are collectively referred to as the " Cross Motions").
Before the scheduled hearing on the Cross Motions, the bankruptcy court posted its tentative decision dated March 29, 2007, containing specific case law in support of its proposed decision (" Minute Order re: Cross Motions"). This tentative decision found that the court lacked subject matter jurisdiction. Alternatively, the bankruptcy court ruled Selinger's claim was time-barred. After the hearing, on April 26, 2007, the court entered an order on the Cross Motions in favor of the Beatys and Steres. A separately entered judgment, of even date, dismissed the case (" Judgment Dismissing Cross Motions Case").
Selinger then filed a motion to Alter or Amend the Judgment pursuant to Rule 9023. Selinger essentially sought reversal of the order on the Cross Motions on the same grounds on which he now appeals. In a minute order dated June 21, 2007, the bankruptcy court denied the motion as a " poorly-disguised motion for reconsideration" (" Minute Order re: Motion to Amend Judgment"). The court's order was entered on July 2, 2007 (" Order Denying Motion to Amend Judgment").
Selinger appeals each of the orders and the judgment related to the Abuse of Process Complaint. These include the:
o Minute Order re: Motions to Strike;
o Order re: Motion to Strike Steres' Answer;
Selinger appeals what at first appears to be an inconsistency between these orders. The minute order references line numbers 22-28 of paragraph 6, while the order references line numbers 22-27. The minute order includes a statement that the " [t]entative ruling is altered as stated in open court." At hearing, the bankruptcy court made clear what was to be stricken. In any case, the inconsistency is irrelevant because line 28 is blank.
o Order re: Motion to Amend;
o Minute Order re: Cross Motions;
o Order on Cross Motions;
o Judgment Dismissing Cross Motions Case;
o Minute Order re: Motion to Amend; and
o Order Denying Motion to Amend the Judgment.
Selinger asserts only that he has not received a notice of this judgment by mail.
(collectively the " Orders").
Lastly, Selinger seeks recusal on remand of the Hon. Louise DeCarl Adler.
II. JURISDICTION
The bankruptcy court's jurisdiction is at issue in this appeal and will be discussed below. We have jurisdiction pursuant to 28 U.S.C. § § 158(a)(1) and (c)(1).
III. ISSUES
1) Whether the bankruptcy court had subject matter jurisdiction over the tort claim for abuse of process to recover monetary damages for post-discharge abusive conduct, which allegedly occurred in the State Court Action.
2) If the court did have subject matter jurisdiction, whether the bankruptcy court erred in ruling on the Cross Motions against Selinger that the statute of limitations had run on his complaint for compensatory damages.
IV. STANDARDS OF REVIEW
" This court reviews the bankruptcy court's conclusions of law and questions of statutory interpretation de novo, and factual findings for clear error." Village Nurseries v. Gould (In re Baldwin Builders), 232 B.R. 406, 410 (9th Cir. BAP 1999) (citations omitted).
We review the existence of subject-matter jurisdiction and the scope of the court's power to act under 11 U.S.C. § 105 de novo. Johnson v. TRE Holdings, LLC (In re Johnson), 346 B.R. 190, 193 (9th Cir. BAP 2006).
V. DISCUSSION
The court's Order on Cross Motions subsumes the issues raised by the other orders on appeal and is dispositive. Its rulings that the court lacked subject matter jurisdiction or alternatively that Selinger's complaint was barred by the statute of limitations are thus examined in turn.
1. Subject Matter Jurisdiction
The bankruptcy court is " required to consider the presence or absence of subject matter jurisdiction sua sponte." Moldo v. Ash (In re Thomas), 428 F.3d 1266, 1268 (9th Cir. 2005). Here, though neither party raised the issue, the bankruptcy court held that it lacked subject matter jurisdiction.
The bankruptcy court's subject matter jurisdiction arises on referral under 28 U.S.C. § 157(a) from the district court, which has original and exclusive jurisdiction of all cases that arise under Title 11, pursuant to 28 U.S.C. § 1334. " The 'case' referred to in 28 U.S.C. § 1334 is the umbrella under which all of the proceedings that follow the filing of a bankruptcy petition take place." 1 COLLIER ON BANKRUPTCY ¶ 3.01[3] (15th ed. 2007). It includes all manner of proceedings from the filing of the petition until the case is closed that occur as the case unfolds in bankruptcy court. Id.
28 U.S.C. § 157(a) provides:
28 U.S.C. § 1334(a) provides:
Exclusive jurisdiction exists over " core" proceedings. Huse v. Huse-Sporsem, A.S. (In re Birting Fisheries, Inc.), 300 B.R. 489, 499 (9th Cir. BAP 2003) A " core proceeding is one that invokes a substantive right provided by title 11 or . . . a proceeding that, by its nature, could arise only in the context of a bankruptcy case." Id . (internal quotations omitted).
Selinger asserts that because he filed his adversary proceeding under the guise of § 105(a), it is a " core" proceeding and therefore that the bankruptcy court had jurisdiction. It is not, however, a core proceeding. While, actions relating to dischargability are core proceedings, 28 U.S.C. § 157(b)(2)(I), Selinger's action is a new tort action for money damages based upon post-discharge activities. It is not related to the prior Non-Dischargeability Summary Judgment. It neither invokes a substantive right provided by Title 11, nor by its nature, does it arise only in the context of a bankruptcy case. Therefore, it is not a core proceeding for which the bankruptcy court has subject matter jurisdiction.
Further, § 105
does not confer subject matter jurisdiction. " Subject matter jurisdiction and power are separate prerequisites to the court's capacity to act. Subject matter jurisdiction is the court's authority to entertain an action between the parties before it. Power under section 105 is the scope and forms of relief the court may order in an action in which it has jurisdiction."
Birting, 300 B.R. at 497 (internal citations omitted). In this instance, the bankruptcy court has neither the jurisdiction nor the power to grant the relief requested.
A bankruptcy court has subject matter jurisdiction if the action " could conceivably have any effect on the administration of the bankruptcy estate." Solidus Networks, Inc. v. Excel Innovations, Inc. (In re Excel Innovations, Inc.), 502 F.3d 1086, 1096 (9th Cir. 2007).
Although the bankruptcy court stated no reasoning for its view that it lacked subject matter jurisdiction, it did state a standard for a limitation on its equitable powers under § 105(a). It stated that its " equitable powers are limited to correcting abuses of process which occur during . . . and within the bankruptcy case."
Selinger uses this phrase as proxy for the bankruptcy court's standard for subject matter jurisdiction. He argues that the purported abuse of process, service of the Notice of Injunction, occurred before the bankruptcy case was closed in April 1995, and therefore occurred " during" the case. Citing to In re Hicks, 184 B.R. 954 (Bankr. C.D. Cal. 1995), he argues that by virtue of his status as an omitted creditor, the state had concurrent jurisdiction to determine dischargability of the default judgment. He reasons that the concurrent jurisdiction brought the purported abuse " within" the bankruptcy case. Selinger, however, provides no citation for authority to support this leap of logic.
Selinger then argues that the bankruptcy court has jurisdiction whether or not the abuse occurred during and within the bankruptcy case. In Hicks there was an abuse of discharge by an omitted creditor from which the chapter 7 debtor sought relief. The court did conclude that a debtor was penalized for omitting creditors by the loss of exclusive federal jurisdiction to determine dischargeability under § 523(a)(3)(B). Hicks at 962. But Hicks says little or nothing about actions beyond the standard nondischargeability action. Selinger ignores this and seems to carry Hicks to a conclusion, however, that confuses two different concepts; abuse of process and abuse of discharge.
In short, Selinger apparently believes that a debtor can abuse his own discharge. He seems to equate the claimed abuse of process to an abuse of discharge. Viewing the abuse of discharge as committed by a debtor, Selinger foresees an open door to debtors to abuse creditors after a case is closed if the court does not have jurisdiction in such matters.
But here the claimed abuse is not an abuse of discharge, which is committed by a creditor, but an abuse of process by the debtor. The abuse, if any, was service of the Notice of Injunction. The harm alleged is not linked to any specific Bankruptcy Code section. Neither does it have an effect on the discharge, the bankruptcy estate, creditors, or on any other administration of the bankruptcy case. Therefore, under Solidus, the bankruptcy court did not have subject matter jurisdiction.
The fact that the bankruptcy court did not state a standard for subject matter jurisdiction is not reversible error; we may affirm on any basis reasonably found in the record. California Self-Insurers' Security Fund v. Official Comm. of Unsecured Creditors (In re Lorber Indus. of Cal.), 373 B.R. 663, 670 (9th Cir. BAP 2007).
Separate from the jurisdiction question, the bankruptcy court also found that it did not have the power to grant the remedy sought under § 105. Section 105(a) provides that " [t]he court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title."
The court's power is not, as Selinger declares it to be, an unlimited power. 2 COLLIER ON BANKRUPTCY ¶ 105.01[2] (15th ed. 2007). " It should be universally recognized that the power granted to the bankruptcy courts under § 105 is not boundless and should not be employed as a panacea for all ills confronted in the bankruptcy case." Id . " [Section] 105 is not a roving commission to do equity." Yadidi v. Herzlich (In re Yadidi), 274 B.R. 843, 848 (9th Cir. BAP 2002). Accord Saxman v. Educ. Credit Mgmt. Corp. (In re Saxman), 325 F.3d 1168, 1175 (9th Cir. 2003). For the court to exercise its powers to dispense an equitable remedy under § 105, the remedy must be linked to an identifiable right conferred under the code. Myrvang v. Myrvang (In re Myrvang), 232 F.3d 1116, 1125 (9th Cir. 2000).
Yet even as Selinger claims the court has the power to grant the relief requested, his claim is not for equitable relief. He characterizes his claim as one for equitable relief to recover money damages pursuant to § 105(a). But an equitable remedy is available only when there is no adequate remedy at law, such as an award of damages. See BLACKS LAW DICTIONARY 1320 (8th ed. 2004). And, as the bankruptcy court pointed out, " Selinger has not cited (and cannot cite) any Bankruptcy Code provision which confers upon a creditor a substantive right to recover monetary damages . . . for a debtor's post-discharge abusive conduct which occurred in a state court action."
Selinger received an unfavorable ruling in state court. Rather than using his right to appeal in state court, however, he seeks money damages for post-discharge activity in bankruptcy court. He attempts to use bankruptcy law to effect a state law remedy, which remedy could have no conceivable effect on the bankruptcy case. Thus, the bankruptcy court could not exercise subject matter jurisdiction, and Selinger fails to state a claim under § 105(a) for which the court could exercise its power under that section.
2. Statute of Limitations
Under California law, a cause of action for abuse of process is considered to be an injury to the person, and is subject to the two-year period prescribed by CAL. CODE CIV. PROC. § 335.1. See Cantu v. Resolution Trust Corp., 4 Cal.App.4th 857, 886, 6 Cal.Rptr.2d 151, 168 (Ct. App. 1992) (citing former CAL. CODE CIV. P. § 340(3); Nancy Hersch, Ward Smith, CAL. CIV. PRACTICE Torts § 19.43. The limitations period begins to run when the abuse of process occurs or when the injury occurs, if later. Cantu, 4 Cal.App.4th at 886-87, 6 Cal.Rptr.2d at 168-69.
Selinger alleges that the wrongful act that constituted abuse of process occurred when he was served with the Notice of Injunction on June 17, 1993. The injury complained of was the loss of opportunity to pursue punitive damages. Service of the Notice of Injunction alone did not produce the injury. The question then is when did the injury occur?
The bankruptcy court ruled that the injury occurred on May 14, 2002. That is the date that the state court denied Selinger's motion to pursue punitive damages due to the earlier resignation of the original trial judge.
Selinger contends that the injury did not occur until May 13, 2003; the date of the Non-Dischargeability Summary Judgment. He argues that his claim was not ripe until then because the existence of the dispute hung on the outcome of the 523 Action. Further, he argues that the limitations period was tolled while Thomas' appeal of that decision was pending at BAP. Thus, he concludes that his filing on September 29, 2005, was not outside the limitations period.
The bankruptcy court is correct. The default judgment in the State Court Action was for compensatory damages, which the bankruptcy court found to be non-dischargeable in the 523 Action. Selinger did not, however, receive a punitive damages award that could be affected by the Non-Dischargeability Summary Judgment. Therefore, the outcome of the 523 Action did not, and could not, affect the injury. Even if the 523 Action had not been decided in Selinger's favor, its outcome would not have negated the injury.
Because the 523 Action had no impact on the alleged injury, tolling during appeal is not applicable. Selinger's argument that his claim was not ripe pending appeal of the 523 Action by Thomas is likewise incorrect. Selinger admits as much in a letter of May 8, 2002, to Thomas. In the letter he wrote:
Though at present, I cannot yet commence collection of the judgment, your fraudulent Notice of Injunction with respect to your bankruptcy proceeding does not bar me from continuing prosecution of this case in the punitive damages phase. See In re Beaty (Selinger v. Beaty), 268 B.R. 839 (9th Cir.BAP 2001) page 847, column 1, 3rd paragraph where the Bankruptcy Appellate Panel said: " ...[Beaty]. . . by filing a 'Notice of Injunction' in which he inaccurately represented that the discharge functioned to enjoin prosecution of the particular lawsuit in that court - it did not and does not."
Selinger quoted Judge Klein's concurring opinion.
Declaration Dated February 26, 2007 of Thomas Beaty, at 4 (reprinting letter sent to him by David Selinger dated April 24, 2002), set forth at ER B:8:533.
So although Selinger had earlier requested, as part of his 523 Action, a modification of the discharge order to pursue punitive damages in state court, he knew as early as July 2001, that he was free to go forward. Selinger went forward in state court and learned his suit was no longer viable on May 14, 2002. It was at that point that the injury, if any, occurred. It was also at that point that he had a remedy of appeal in state court, which he chose not to pursue.
The standard for the start of the limitations period is the date of the injury. Therefore, the limitations period began on May 14, 2002. Selinger filed his abuse of process complaint on September 29, 2005, over sixteen months after the limitations period ran on May 14, 2004. Selinger's complaint is time barred.
VI. CONCLUSION
The bankruptcy court lacked subject matter jurisdiction over the matter, and the matter was otherwise time-barred under CAL. CIV. CODE P. § 335.1. All Orders of the bankruptcy court are AFFIRMED.
Selinger also appeals the ruling stated in the minute order that " [a]ll of the defendants' defenses have substantial legal and factual merit."
Each district court may provide that any or all cases under title 11 and any or all proceedings arising under title 11 or arising in or related to a case under title 11 shall be referred to the bankruptcy judges for the district.
Except as provided in subsection (b) of this section, the district courts shall have original and exclusive jurisdiction of all cases under title 11.