The Cadle Co. v. Hughes

Filed 3/20/06 The Cadle Co. v. Hughes CA2/5

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION FIVE

APPEAL from a judgment of the Superior Court of Los Angeles County, Malcolm H. Mackey, Judge. Affirmed.

Brewer & Brewer and James R. Knoles, for Plaintiff and Appellant.

James Leonard Brown for Defendants and Respondents.

I. introduction

Plaintiff, The Cadle Company, appeals from a summary judgment entered against it on a complaint brought against defendants, Sharon and Elmer Hughes^[1] for breach of a guarantee. The guarantee had been executed in favor of plaintiff's predecessor in interest, Capital Bank of California (the bank). The trial court granted summary judgment on the ground that the debt was subject to a Chapter 7 bankruptcy discharge order obtained by defendants dated September 27, 1994. On appeal, plaintiff contends the debt was not discharged because defendants committed fraud in obtaining the loan. (11 U.S.C. § 523(a)(2)(A).) Alternatively, plaintiff contends that the debt was not discharged because defendants failed to list the bank in their bankruptcy schedule. (11 U.S.C.§ 523(a)(3)(B).) For the reasons stated below, we conclude that the trial court properly ruled defendants were entitled to summary judgment based on the September 1994 discharge order.

II. Background

Plaintiff filed its complaint on March 2, 2004 which contained a single claim against defendants for breach of guarantee. The complaint alleged: on June 22 and December 21, 1992, Technical Health Careers, Inc. executed promissory notes agreeing to repay loans to the bank; on June 22, 1992, defendants executed general guarantees of any present and future liabilities for Technical Health Careers, Inc.; Technical Health Careers, Inc. defaulted on the loans; and defendants defaulted on the guarantees. The complaint conceded that defendants filed for bankruptcy in 1994 but asserted: defendants had failed to list the bank in the petition schedules; the bank was unaware of the bankruptcy; and, therefore, the bank was unable to file a timely proof of claim or complaint against discharge. Defendants answered the complaint and asserted among other defenses that the state law claim for breach of guarantee was barred by the bankruptcy discharge order and the applicable statute of limitations. On October 5, 2004, defendants moved for summary judgment on the grounds the action was barred by the bankruptcy discharge order and the statute of limitations.

In support of the summary judgment motion, defendants produced the following evidence. The loans were made in June and December 1992 with maturity dates in June and December 1993 respectively. The guarantee agreement was dated June 22, 1992. Defendants filed a Chapter 7 bankruptcy petition on May 18, 1994. The bank was not listed in the bankruptcy schedules. The bankruptcy was a no-asset case. This means no assets were taken into possession or administered by the trustee. On September 27, 1994, the bankruptcy court issued a general discharge order releasing defendants from all dischargeable debts. The bankruptcy court further enjoined any creditors whose debts were discharged from instituting or continuing any action to collect personal liabilities unless the debts were non-dischargeable obligations.

Plaintiff opposed the summary judgment on the ground the debts were not dischargeable because: defendants had committed fraud in obtaining the loans in 1992 by failing to disclose two trust deeds on real property they owned; defendants executed a negative pledge on the property in order to secure the 1992 loans and thereafter extensively encumbered the property; and defendants fraudulently failed to list the bank as a creditor in the bankruptcy schedules. Plaintiff attached copies of the loan application and financial statements which did not contain information about two pre-existing trust deeds on defendants' personal residence. In reply, defendants argued: plaintiff had failed to produce admissible evidence to overcome the discharge defense; citing Beezley v. California Land Title Co. (9th Cir. 1993) 994 F.2d 1433, 1438 and In re Nielsen (9th Cir. 2004) 383 F.3d 922, 926, the failure to list a creditor on a schedule does not affect the discharge of the debt to the creditor; and plaintiff could not assert the alleged fraud theory because it was not raised in the complaint.

At the summary judgment hearing, the trial court noted that the fraud claim should have been raised in the bankruptcy court and it was not clearly â€