United States Bankruptcy Appellate Panel of the Ninth Circuit
In re: CHARLES STUART BROWN and HOLLY ANN BROWN, Debtors.
QUANTUM3 GROUP LLC; MOMA FUNDING LLC, Appellees. CHARLES STUART BROWN; HOLLY ANN BROWN, Appellants,
and Submitted on October 25, 2018 at Pasadena, California
from the United States Bankruptcy Court for the Southern
District of California Honorable Louise DeCarl Adler,
Bankruptcy Judge, Presiding
Michael G. Doan of Doan Law Firm argued for Appellants;
Winters of Winters Law Firm argued for Appellees.
Before: SPRAKER, FARIS, and LAFFERTY, Bankruptcy Judges.
SPRAKER, BANKRUPTCY JUDGE
Charles and Holly Brown appeal the overruling of their
objection to creditor MOMA Funding LLC's unsecured proof
of claim of $832.30. The Browns objected on the ground that
the claim was barred by the applicable statute of
limitations. They acknowledge that the statute of limitations
had not run when they filed their bankruptcy case but contend
that the claim is barred by the applicable statute of
limitations because the applicable limitations period expired
postpetition before the creditor filed its claim.
AFFIRM the order overruling the Browns' claim objection.
We agree with the bankruptcy court's conclusion that the
time to commence an action on the underlying claim has been
continuously tolled by applicable state law since the filing
of the Browns' bankruptcy. We publish because no prior
published decision has determined whether the discharge
injunction triggers the limitations period suspension
provided for in the relevant California tolling statute -
California Code of Civil Procedure ("C.C.P.")
controlling facts are not in dispute. In August 2012, the
Browns commenced their bankruptcy case by filing a voluntary
chapter 7 petition. Because of an apparent lack of
assets, the bankruptcy court did not set a deadline to file
proofs of claim, and its notice of the bankruptcy filing
instructed creditors not to file proofs of
claim. The chapter 7 trustee promptly thereafter
issued his final report stating that there were no assets to
distribute. Within a matter of months, the Browns received
their discharge, and the case was closed.
August 2017, roughly four and a half years after the case was
closed, the Browns moved to reopen their case. According to
the Browns, they recently discovered a potential prepetition
personal injury or product liability cause of action. The
bankruptcy court entered an order reopening the case, and a
new chapter 7 trustee was appointed. The bankruptcy court
then issued a notice advising creditors that assets for
distribution had been found and set a claims bar date of
December 26, 2017, for creditors to file proofs of claim.
October 2, 2017, Quantum3 Group LLC signed and filed a proof
of claim on behalf of MOMA, as MOMA's
agent. MOMA asserted that it held a valid
unsecured claim of $832.30. The Browns objected to MOMA's
proof of claim as barred by the statute of
limitations. The Browns conceded that a four-year
limitations period applied under California law, C.C.P.
§ 337, and that their bankruptcy case intervened before
the limitations period expired. Citing C.C.P. § 356, the
Browns also conceded that, under California law, the
limitations period was tolled as long as the automatic stay
prohibited MOMA from instituting a collection action on its
the Browns argued that, once they received their discharge
and their bankruptcy case was closed, the automatic stay
terminated. The Browns insisted that the limitations period
resumed upon the closing of their case and ultimately expired
on July 25, 2016. They further maintained that, unlike the
automatic stay, the discharge injunction did not prohibit
MOMA from suing them. The Browns contended that MOMA should
have nominally sued them for the outstanding $832.30 balance
solely for the purpose of preserving its rights before the
statute of limitations expired. Therefore, they posited that
the discharge injunction did not cause a further suspension
of the limitations period. Consequently, because MOMA did not
file its proof of claim until October 2017, the Browns
reasoned that the claim was barred by the statute of
response to the Browns' claim objection, MOMA argued that
the tolling provision provided by C.C.P. § 356 was
broader in scope than the Browns admitted and was triggered
by the Browns' discharge. MOMA pointed to the language of
the statute, which provides for a suspension of the
applicable limitations period whenever - and so long as - the
commencement of an action is stayed by injunction or
statutory prohibition. Additionally, MOMA rejected out of
hand the Browns' assertion that the discharge injunction
permitted MOMA to bring an action nominally naming the Browns
as defendants solely for the purpose of preserving their
holding a hearing on the claim objection, the bankruptcy
court entered an order overruling the objection and allowing
the claim. The bankruptcy court explained that, pursuant to
C.C.P. § 356, the discharge injunction suspended the
applicable limitations period. According to the court, the
Browns' argument that the discharge injunction did not
trigger C.C.P. § 356 was unsupported by any persuasive
authority and was at odds with the plain language of the
statute. The Browns timely appealed.
bankruptcy court had jurisdiction under 28 U.S.C.
§§ 1334 and 157(b)(2)(B). We have jurisdiction
under 28 U.S.C. § 158.
1. Did the bankruptcy court err when it held that the
Browns' discharge injunction tolled the applicable
statute of limitations?
2. Did the bankruptcy court abuse its discretion by not
holding an evidentiary hearing on the ...