Grantz v. Fashion Show Mall, LLC

584 F.Supp.3d 915

Joshua Michael GRANTZ, Appellant

v.FASHION SHOW MALL, LLC, Appellee

Case No. 2:20-cv-00043-JAD

United States District Court, D. Nevada.

Signed February 10, 2022

Corey B. Beck, Law Office of Corey B. Beck, P.C., Las Vegas, NV, for Appellant.

Bryan Viellion, Kaempfer Crowell, Las Vegas, NV, Louis Martin Bubala, III, Kaempfer Crowell, Reno, NV, for Appellee.

Order Affirming Bankruptcy Court Decision

Jennifer A. Dorsey, United States District Judge Debtor Joshua Michael Grantz appeals the bankruptcy court's denial of his contempt motion against creditor Fashion Show Mall, LLC, after Fashion Show collected on a debt Grantz contends was discharged in bankruptcy. Because I find that the Fashion Show debt was excepted from discharge under 11 U.S.C. § 523(a)(3)(A), I affirm the bankruptcy court's decision and close this case.

Background

In 2003, Grantz and his wife Meital¹ leased a commercial space at the Fashion Show Mall in Las Vegas for their business, Talulah G.² Only Meital signed the ten-year lease, but both spouses signed "a written and unconditional personal guaranty" of Talulah G's obligations under the lease.³ In 2008, the Grantzes divorced, and in the divorce decree the court ordered that "the parties are to share equally the debt owed by Talulah G, Inc." but that Meital "will assume 100 percent of the debt owed by Talulah G, Inc."⁴ Fashion Show was not a party to the divorce case, of course, and while it assigned responsibility for Talulah G's debts to Meital, "it did not release [Grantz] from liability under the terms of the written guaranty" he signed when the Grantzes leased the commercial space.⁵

In 2009, Meital sold Talulah G.⁶ The buyer continued operating the store but quickly fell behind on lease payments, ultimately defaulting and vacating the space before the lease expired.⁷ Grantz was not informed of the sale or the default.⁸ In July 2009, Grantz filed for Chapter 7 bankruptcy protection.⁹ Grantz listed his business interests in Talulah G. in his statement of financial affairs, but he did not list the personal guaranty as one of his debts, nor did he list Fashion Show as a creditor, in any of the schedules he filed in support of his bankruptcy petition.¹⁰ As a result, Fashion Show was not served with notice of Grantz's bankruptcy case when it began.¹¹

In December 2009, the trustee assigned to administer Grantz's bankruptcy estate filed an asset report stating that he had identified non-exempt assets in the debtor's estate that could result in a dividend to creditors.¹² The case was then changed from a no-asset case to an asset case, and in April 2010, the trustee filed a notice of assets and notice to file claims advising creditors that, "to be considered for a dividend[,] ... a proof of claim must be filed [by] July 1, 2010."¹³ That date is referred to as a claims-bar date. Because Fashion Show was not listed as a creditor in any of the schedules filed with Grantz's bankruptcy case, it was not served with the trustee's notice.¹⁴ The trustee ended up recovering assets of $2,016.70, some of which covered administrative fees and the rest went to the California State Board of Equalization.¹⁵ Grantz's case was closed on March 30, 2011, "with [Fashion Show] having [n]ever been scheduled as a creditor pursuant to the debtor's guaranty of the lease or, to the extent of the record before the [bankruptcy] [c]ourt, having ever had actual knowledge of the case."¹⁶

In January 2013, Fashion Show sued Grantz, Meital, and Talulah G seeking recovery of unpaid rent under the lease and guaranty.¹⁷ Grantz failed to appear or defend against that action, and Fashion Show was awarded a default judgment against him for $134,322.02 in October 2013.¹⁸ In 2015, Grantz moved to reopen his bankruptcy case "so that he may list three personal guarantees on leases as dischargeable debts."¹⁹ His case was reopened and Grantz filed an amendment to Schedule G—which asks for any executory contracts and unexpired leases—identifying Fashion Show as the other party to a "retail lease executed on 6/6/2003 personally guaranteed by debtor ...."²⁰ But Grantz did not amend any other schedules to list Fashion Show as a creditor.²¹ Grantz's amendments were served on Fashion Show's counsel.²² The case was closed again in February 2016.²³

In October 2019—more than three years after his bankruptcy case was closed for a second time—Grantz again moved to reopen it, this time for the purpose of filing a contempt claim against Fashion Show for violating his discharge injunction when it collected its default judgment through a writ of execution against Grantz's bank account.²⁴ The case was reopened and Grantz filed a contempt motion, which Fashion Show opposed.²⁵ Grantz argued that Fashion Show's debt was discharged in his bankruptcy and that attempting to collect was thus a violation of his discharge injunction. Fashion Show argued that its debt wasn't discharged in Grantz's bankruptcy under 11 U.S.C. § 523(a)(3)(A) because the guaranty claims were omitted from his statements and schedules and Fashion Show therefore did not have notice or actual knowledge of the bankruptcy case in time to file a proof of claim by the July 1, 2010, deadline. It also argued that, even if the bankruptcy court found that the debt was discharged, contempt was not the appropriate sanction.

The bankruptcy court denied Grantz's motion, finding that the plain language of § 523(a)(3)(A) applied to Fashion Show's claim, and because Fashion Show was not given notice of the bankruptcy proceedings before the claims-bar date, the guaranty was not discharged.²⁶ It also found that, even if the debt had been discharged, contempt sanctions would be unwarranted.²⁷ Grantz appeals the bankruptcy court's decision.

Discussion

I. Standards of review

"In bankruptcy discharge appeals, [appellate courts] review[ ] the bankruptcy court's findings of fact for clear error and conclusions of law de novo, and appl[y] de novo review to ‘mixed questions’ of law and fact ...."²⁸ A bankruptcy court's interpretation of a statute is reviewed de novo.²⁹ "In reviewing the bankruptcy court's finding of a willful violation of [a debtor's discharge injunction], a district court applies the clearly erroneous standard of review."³⁰ Reviewing courts "review for abuse of discretion the bankruptcy court's finding of civil contempt and imposition of sanctions."³¹ And the bankruptcy court's "findings of fact in connection with the civil contempt order" are reviewed for clear error.³²

II. Relevant law

A bankruptcy discharge under 11 U.S.C. § 727 "discharges the debtor from all debts that arose before the date of the order for relief."³³ Section 523 provides exceptions to § 727 ’s general rule.³⁴ As relevant here, § 523(a)(3)(A) states that bankruptcy "does not discharge an individual from any debt ... [that is] neither listed nor scheduled under section 521(a)(1) of this title, with the name, if known to the debtor, of the creditor to whom such debt is owed, in time to permit ... timely filing of a proof of claim, unless such creditor had notice or actual knowledge of the case in time for such timely filing."³⁵ The Supreme Court has explained that "[w]hen [a] statute's language is plain, the sole function of the courts—at least where the disposition required by the text is not absurd—is to enforce it according to its terms."³⁶ The Ninth Circuit Bankruptcy Appellate Panel has held that " § 523(a)(3)(A) is clear and not ambiguous: a debt is excepted from discharge if the creditor was neither listed nor scheduled and did not otherwise know of the bankruptcy case in time to file a timely [proof of claim]."³⁷ Courts interpreting this statute have emphasized that it does not allow consideration of equitable factors to determine whether a debt that was not listed or noticed could still be discharged notwithstanding the plain language of § 523(a)(3)(A).³⁸

III. The bankruptcy court's decision is affirmed.

A. A plain reading of § 523(a)(3)(A) confirms that the debt was not discharged.

The parties agree that § 523(a)(3)(A) is the applicable statute to determine whether the disputed debt was discharged in Grantz's bankruptcy.³⁹ Fashion Show argues that because it lacked notice of Grantz's bankruptcy by the claims-bar date, the plain language of the statute applies and the debt secured by Grantz's guaranty was not discharged.⁴⁰ Grantz focuses on the word "known" in the statute and contends that he did not know he owed the debt, thus making § 523 inapplicable.⁴¹

Grantz's arguments are based on a misunderstanding of § 523(a)(3)(A) and the caselaw interpreting it. A plain reading of the statute confirms that it does not exempt from application debts that are not "known" to the debtor. Rather, it excludes any debt not listed or scheduled along with the name of the creditor, if that name is known to the debtor.⁴² "Known" modifies the name of the creditor, not the debt.⁴³ Grantz does not deny that he knew Fashion Show's name or that he knew he signed the personal guaranty securing the debt. He argues instead that because he signed the guaranty many years earlier and thought his debt was assumed by his ex-wife in the divorce, he didn't know he still owed it. But, as the Ninth Circuit Bankruptcy Appellate Panel has emphasized, under § 523 ’s plain language, "the reason why a debt was omitted from the bankruptcy schedules is irrelevant."⁴⁴ I therefore decline to consider Grantz's attempts to explain away his failure to list this Fashion Show debt.

The Bankruptcy Appellate Panel's opinion in In re Mahakian illustrates the folly of Grantz's position.⁴⁵ There, the debtor omitted a creditor from his schedules because he believed his brother assumed the debt.⁴⁶ The creditor was not given notice of debtor's bankruptcy in time to file a claim and later took action to collect the debt.⁴⁷ The debtor amended his schedules to add the creditor and then sought a determination that any debt owed to the creditor was discharged in his...