UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT
March 12, 2012
IN RE: BRENDA KAY NARADA AND TY ESTUS NARADA, DEBTORS.
BRENDA NARADA, APPELLANT,
UNITED STATES OF AMERICA, SOCIAL SECURITY ADMINISTRATION, APPELLEE.
Appeal from the United States Bankruptcy Court for the District of Arizona Honorable Redfield T. Baum, Sr., Bankruptcy Judge, Presiding Bk. No. 10-06316-RTBP Adv. Pro. No. 10-01163-RTBP
SUSAN M SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT
Argued and Submitted on February 24, 2012 at Phoenix, Arizona
Filed - March 12, 2012
Before: DUNN, JURY and PAPPAS, Bankruptcy Judges.
Although it may be cited for whatever persuasive value it may have, FRAP 32.1, it has no precedential value. See 9th Cir. BAP Rule 8013-1.
The debtors, Brenda and Ty Narada (the "Naradas"), appeal the summary judgment order in favor of the United States on behalf of the Commissioner of Social Security ("SSA") excepting a debt of Brenda Narada ("Brenda") from discharge pursuant to 11 U.S.C. §§ 523(a)(2) and (a)(6) and the bankruptcy court's subsequent denial of the Naradas' motion for relief from judgment.*fn2 We VACATE and REMAND to the bankruptcy court for further proceedings.
The Naradas filed a chapter 7 bankruptcy petition on March 10, 2010, in the District of Arizona.
On June 25, 2010, the SSA timely filed an adversary proceeding ("Adversary Proceeding") complaint ("Complaint") against Brenda to except a debt from discharge pursuant to §§ 523(a)(2)(A) and (a)(6). Specifically, the SSA alleged in the Complaint that through misrepresentations and material omissions, Brenda had obtained a total of $24,575 in Supplemental Security Income disability benefits payments for which she was ineligible.
The SSA's claims arose from Brenda's alleged receipt of an ownership interest in a motel property located in Ash Fork, Arizona ("Motel Property") on or about August 1999. The SSA's records apparently showed that Brenda had repaid $1,467.30, leaving a balance owing of $23,107.70 that the SSA sought to except from Brenda's discharge.
Ty Narada ("Ty"), who is not an attorney, filed a response ("Response") to the Complaint in behalf of Brenda by letter on July 21, 2010.*fn3 In the Response, Ty denied that Brenda had acquired any ownership interest in the Motel Property. He also denied that Brenda had "defrauded the system." He further alleged that "Brenda was threatened with imprisonment if she did not sign the 'Statement of Claimant or Other Person' being submitted by SSA as evidence against her." (Emphasis in original.) He further alleged that Brenda was a "special needs individual incapable of defending herself."
1. Filing of Summary Judgment Motion and Supporting Documents
On or about December 1, 2010, the SSA filed a motion for summary judgment ("Summary Judgment Motion") in the Adversary Proceeding. The Summary Judgment Motion was supported by a Statement of Facts that, in turn, relied upon 1) a memorandum and report of the Office of the Inspector General of the SSA, dated September 27, 2004 ("Investigation Report"), and 2) Statements of Claimant or Other Person signed by Brenda and her then husband, George Bannister ("George"), agreeing to repay overpayments of supplemental Social Security income benefits, each dated September 22, 2004. The Investigation Report and the referenced statements are attached as exhibits to the statement of facts but are not authenticated by affidavit or declaration.
1 In the Investigation Report, the SSA's Office of the 2 Inspector General, Office of Investigations ("OI") reported the 3 following: In 1992, George and Brenda applied for and 4 subsequently began receiving Social Security income benefits.
5 The addresses used by George and Brenda were a street address and 6 post office address, both of which were for the "Copperstate 7 Motel." In February 1998, the Yavapai County Police Department 8 received an anonymous tip that George and Brenda owned and 9 operated the Copperstate Motel, which triggered the OI 10 investigation.
11 Following a preliminary investigation as to the ownership of 12 the Copperstate Motel, on March 13, 1998, the OI sent an SSI 13 Notice of Appointment to George and Brenda advising them that 14 they were scheduled for a "review" regarding their SSI 15 eligibility, which would entail a telephone interview(s).
On 16 March 26, 1998, SSA Claims Representative Donna Learned called 17 the telephone number provided by George, and when George 18 answered, conducted the interview. George advised that he and 19 Brenda lived in a house and paid rent to his sister, Vicky Davis.
20 He further stated that neither he nor Brenda worked or received 21 any income other than their SSI benefits. He confirmed that 22 neither he nor Brenda "had their names on any deeds or mortgages, 23 nor did they have any interest in any life estates or any un- 24 probated estates." Based on the interview, there were no 25 indications that George was ineligible for SSI income benefits.
26 Approximately fifteen minutes later, Ms. Learned called the 27 same telephone number with a follow-up question. Brenda answered 28 the telephone and said "Copperstate." The follow-up question was 1 whether their daughter, Tammy Bannister ("Tammy"), contributed to 2 the household. Brenda responded that Tammy worked but did not 3 contribute to the household because she was attending school.
4 Ms. Learned then inquired of Brenda why she answered the 5 telephone "Copperstate?" Brenda stated that "it was a motel 6 where she and George lived, however they did not work there.
7 Brenda also said that Vicky Davis owns the Copperstate Motel."
8 On March 30, 1998, George and Brenda went to the SSA's 9 Prescott, Arizona District Office and provided the following 10 information to Ms. Learned: Tammy had inherited the Copperstate 11 Motel from George's mother, Doris Bannister, when she died in 12 1994. "Tammy was unable to acquire the property until she was 13 twenty-one (21) years old, so the [Motel Property] stayed in the 14 deceased's name." There was a mortgage on the Motel Property 15 that Vicky Davis paid from the Copperstate Motel business account 16 "(however Brenda stated that Vicky has Brenda sign the check to 17 the mortgage company). George and Brenda do not read very well, 18 and they have trouble completing forms and reading or writing 19 letters. Due to this they rely on Vicky and Ron Davis to assist 20 them." George and Brenda apparently stated that they paid rent 21 of $450 each month to Vicky and Ron Davis, who did the books for 22 the Copperstate Motel. However, George and Brenda stated that 23 they received no wages or proceeds from income of the Copperstate 24 Motel and that they only answered the telephone. George and 25 Brenda provided Ms. Learned with a copy of Doris Bannister's 26 will. Vicky Davis subsequently advised the OI in writing that 27 she was not the landlord for the residence located on the Motel 28 Property.
Thereafter, OI investigated the Copperstate Motel situation further, and among other information, located a classified advertisement on the internet listing the Copperstate Motel for sale for $200,000 and advising any interested parties to call George and Brenda for details. Yavapai County Recorder's Office records reflect that Doris Bannister died in approximately May 1994, and following probate, a deed of distribution reflected that title to the Motel Property was held equally among Brenda, George and Tammy.*fn4
On September 22, 2004, the OI conducted a further in-person interview of George and Brenda at the SSA Prescott, Arizona District Office. After the OI officer disclosed the results of its investigation to date, George and Brenda provided the following information, among other things, to the OI officer:
In approximately August 1999, George, Brenda and Tammy received equal interest in the [Motel Property].
George and Brenda failed to report this acquisition to the SSA, as they were required. From about August 1999 through September 2004, George and Brenda participated in activities at the Copperstate Motel which could have been considered work by the SSA. George and Brenda ran the [Copperstate Motel] for Tammy, who was attending college in north Phoenix, Arizona. George and Brenda also failed to report this activity to the SSA, which they were required. George and Brenda also admitted to attempting to sell the Copperstate Motel for approximately $200,000 for gainful purpose. George and Brenda understood that they should have reported the aforementioned information to the SSA, and they were willing to pay any money back to the SSA which they ineligibly received. George and Brenda provided a sworn and signed statement regarding the above information.
OI concluded that George and Brenda each received an approximate total of $24,575 in SSI benefits for which they were ineligible.
George and Brenda each signed an SSA Statement of Claimant or Other Person on September 22, 2004, stating the following:
I agree to repay the overpayment on Supplemental
Security Income benefit from my on going SSI benefit amount till it is repaid.
2. Further Filings and Proceedings on the Summary Judgment Motion
The bankruptcy court issued an Order Setting Briefing Schedule ("Scheduling Order") for the Summary Judgment Motion on December 2, 2010. Counsel for the SSA prepared and served on the Naradas a Notice of Hearing ("Hearing Notice"), scheduling a hearing on the Summary Judgment Motion for February 18, 2011.
The Hearing Notice included a copy of the Scheduling Order.
The Scheduling Order advised the parties that they were subject to the requirements of Rule 9013-1(g)*fn5 of the bankruptcy court's local rules ("Local Rule 9013-1(g)"), meaning that each party was required to file a separate statement of facts and a memorandum of points and authorities supporting its position "as set forth in the Rule." The Naradas' responsive memorandum in opposition to the Summary Judgment Motion was due no later than 30 days after service of the Summary Judgment Motion. The Order Setting Briefing Schedule further advised that, "Failure to timely file a responsive memorandum shall constitute consent to the granting of the motion." The SSA calculated the deadline for the Naradas' response in opposition to the Summary Judgment Motion under the Scheduling Order as January 3, 2011.
The Naradas did not submit any opposition to the Summary Judgment Motion by the deadline in the Scheduling Order.
However, on January 28, 2011, Ty filed copies of three letters (collectively, "Letters") with the bankruptcy court in behalf of Brenda that he served on counsel for the SSA: The first letter, and the only one of the three that reflects a signature by Ty, appears to be a discovery request to the SSA.
The second letter, dated January 11, 2011, and addressed to 2 the bankruptcy court, includes Ty's statements as to the results 3 of his investigations with regard to the issues raised in the 4 Summary Judgment Motion. With respect to ownership of the Motel 5 Property, Ty states the following:
6 Brenda's name did not appear on any of the original transactions, but was added in a corrective deed in 7 April of 2007. I initially believed that the deed had been forged to implicate Brenda, since we had been 8 married for two years by that time. Brenda's daughter informed me that the corrective deed is legitimate.
9 (Emphasis added.)
10 He further states that Brenda's daughter would testify that 11 Brenda received no proceeds from the sale of the Motel Property.
12 In addition, he alleges that in 2004, Brenda "was threatened with 13 imprisonment if she did not sign a promissory note that [SSA was] 14 using as evidence against her." Ty admits that he was not 15 present at the time, but "Brenda called me to describe what 16 happened: An armed officer was going to take her to prison if she 17 didn't 'sign a paper.'"
18 The third letter, which is signed neither by Ty nor Brenda 19 and is addressed to "Whom it may concern," although it appears in 20 context to be addressed to SSA's counsel, includes further 21 factual statements relating to the legitimacy of Brenda's claim 22 for Social Security benefits and her alleged lack of any interest 23 in the Motel Property.
24 On or about February 11, 2011, within the 15-day period for 25 filing replies to responses opposing motions for summary judgment 26 under Local Rule 9013-1(g), SSA filed a Motion for Summary 27 Disposition ("Disposition Motion"), requesting that the Summary 28 Judgment Motion be granted based on Brenda's failure to respond 1 to the motion by the deadline required in the Scheduling Order 2 and her resulting consent to the granting of the Summary Judgment 3 Motion, as provided in the Scheduling Order. In the Disposition 4 Motion, the SSA noted the late filing of the Letters on 5 January 28, 2011, but argued that none of the Letters sufficed as 6 a response in opposition to the Summary Judgment Motion, as they 7 set forth nothing more than unsupported statements of Ty, who was 8 not married to Brenda during the period in question. However, 9 the SSA noted that the January 11, 2011 letter to the bankruptcy 10 court stated that a deed listing Brenda as an owner of the Motel 11 Property was "legitimate" according to her daughter.
12 Thereafter, for reasons that we cannot fathom, counsel for 13 the SSA submitted an order, purportedly based on the Disposition 14 Motion, providing that the Adversary Proceeding "is hereby 15 dismissed with prejudice, with each party to bear its own costs 16 and attorneys' fees," which the bankruptcy court promptly entered 17 on February 16, 2011.
18 However, recognizing their fatal error, on February 17, 19 2011, counsel for the SSA filed a motion to vacate the erroneous 20 order previously submitted and submitted a new form of order 21 granting the Summary Judgment Motion in its entirety. On 22 February 17, 2011, the bankruptcy court entered orders vacating 23 the previously entered dismissal order and granting the Summary 24 Judgment Motion. Accordingly, the hearing scheduled for 25 February 18, 2011, was taken off the calendar.
3. The Naradas' Motion for Relief from the Summary Judgment Order On March 3, 2011, the Naradas filed a Motion to Review (Rule 1 59) and Motion for Relief (Rule 60) ("Relief Motion"), requesting 2 the bankruptcy court to grant them relief from the order granting 3 the Summary Judgment Motion, arguing that they did present an 4 opposition to the Summary Judgment Motion in the Letters and that 5 Brenda did not obtain Social Security benefits by fraud, and she 6 never had an ownership interest in the Motel Property. The SSA 7 filed a response to the Relief Motion, arguing that, in fact,
8 Brenda did not file a timely response to the Summary Judgment 9 Motion, but in any event, the Letters did not raise a genuine 10 issue of material fact sufficient to justify vacating the summary 11 judgment order.
12 On April 27, 2011, the bankruptcy court held a hearing 13 ("Initial Hearing") on the Relief Motion at which counsel for the 14 SSA and both of the Naradas were present. At the Initial 15 Hearing, Brenda was not put under oath, but she stated that 16 although she cleaned rooms and did some paperwork with respect to 17 the Motel Property, she "never really was in charge of it." Tr. 18 of April 27, 2011 hr'g, 3:1-3. In response to the bankruptcy 19 court's questions regarding her signing the Statement of Claimant 20 or Other Person, Brenda stated that, "the officer was there at 21 the social security place, told me I had to agree everything what 22 they said and I had to sign the papers that he filled [sic]. If 23 I didn't, I would go to jail." She denied that the Statement of 24 Claimant or Other Person that she signed was true and correct.
25 In further response to the bankruptcy court's questions, Brenda 26 stated that she did not have a lawyer and was not getting legal 27 advice from anybody.
After hearing Brenda's statements, the bankruptcy
strongly urged the Naradas to obtain legal advice and if
have a lawyer representing them at a continued hearing on
3 Relief Motion. The bankruptcy court then continued the
4 to July 22, 2011.
On July 13, 2011, the bankruptcy court received further 6 written submissions (the "Further Submissions") from Ty in behalf 7 of Brenda. In his cover letter enclosing the Further 8 Submissions, Ty reiterated the allegations stated in the Response 9 that Brenda is a special needs person, whose "speech and learning 10 disability renders her incapable of adequately defending 11 herself." As noted earlier, the Further Submissions included a 12 copy of a deed of distribution from Doris Bannister's probate, 13 dated October 16, 1999, vesting title to the Motel Property in 14 George, Brenda and Tammy as 1/3 tenants in common. 15 The continued hearing ("Final Hearing") on the Relief Motion 16 was held on July 22, 2011, as scheduled, with the Naradas and 17 counsel for the SSA in attendance. At the Final Hearing, Ty 18 advised the bankruptcy court that the Naradas had been unable to 19 obtain counsel and that they had submitted all of their evidence 20 to the bankruptcy court for consideration. In response, counsel 21 for the SSA argued that nothing submitted by the Naradas raised 22 any genuine issue of material fact that would justify vacating 23 the order granting the Summary Judgment Motion. Counsel for the 24 SSA consequently urged that the Relief Motion be denied.
The 25 bankruptcy court then took the matter under advisement.
On August 30, 2011, the bankruptcy court entered a Minute 27 Entry/Order ruling that based on the parties' arguments and 28 submissions with respect to the Relief Motion, "the court is not convinced that the judgment that has been entered was erroneously entered by the court or that other reasons were presented that warrant the vacating of that judgment." On September 12, 2011, the bankruptcy court entered an order denying the Relief Motion. The Naradas timely appealed.
The bankruptcy court had jurisdiction pursuant to 28 U.S.C. §§ 1334 and 157(b)(2)(I), and we have jurisdiction under 28 U.S.C. § 158.*fn6
Did the bankruptcy court err in entering a summary judgment order excepting Brenda's debt to the SSA from her discharge in chapter 7?*fn7
Standards of Review
We review de novo the bankruptcy court's ruling granting a motion for summary judgment. Ghomeshi v. Sabban (In re Sabban), 600 F.3d 1219, 1221 (9th Cir. 2010).
The bankruptcy court's interpretation and application of a local rule are reviewed for abuse of discretion. Price v. Lehtinen (In re Lehtinen), 564 F.3d 1052, 1058 (9th Cir. 2009). Likewise, we review a bankruptcy court's denial of a motion to alter or amend a judgment or for reconsideration for abuse of discretion. Ta Chong Bank Ltd. v. Hitachi High Tech. Am., Inc., 610 F.3d 1063, 1066 (9th Cir. 2010); Triad Commercial Captive Co. v. Carmel (In re GTI Capital Holdings, LLC), BAP No. AZ-09-1053- JuMkD (Memorandum, p. 12, August 20, 2009).
We apply a two-part test in determining whether the
bankruptcy court abused its discretion. United States
Hinkson, 585 F.3d 1247, 1261-62 (9th Cir. 2009) (en
First, we consider de novo whether the bankruptcy court applied 3 the correct legal standard to the relief requested. Id. Then, 4 we review the bankruptcy court's fact findings for clear error.
5 Id. at 1262 & n.20. We must affirm the bankruptcy court's 6 findings unless we conclude that they are "(1) 'illogical,' 7 (2) 'implausible,' or (3) without 'support in inferences that may 8 be drawn from the facts in the record.'" Id.
10 1. Summary Judgment Standards 11 Granting a motion for summary judgment is appropriate only 12 if there is no genuine dispute as to any material fact, and the 13 moving party is entitled to judgment as a matter of law. Civil 14 Rule 56(a); Rule 7056; State Farm Mut. Auto Ins. Co. v. Davis, 15 7 F.3d 180, 182 (9th Cir. 1993). "Material facts" are such facts 16 as may affect the outcome of a case under governing law.
17 Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A 18 dispute concerning a material fact is "genuine" only if there is 19 sufficient evidence to justify a finding in favor of the non- 20 moving party. Id. However, all justifiable inferences from the 21 evidence presented are to be considered in favor of the non- 22 moving party. Id. at 255.
23 2. The Evidence before the Bankruptcy Court 24 Section 523(a)(2)(A) excepts from a debtor's discharge any 25 debt for money obtained by false pretenses, a false 26 representation, or actual fraud. In order to meet its burden to 27 except a debt from discharge under § 523(a)(2)(A), a creditor 28 must establish each of five elements by a preponderance of the evidence.
2 (1) misrepresentation, fraudulent omission or deceptive conduct by the debtor; (2) knowledge of the falsity or 3 deceptiveness of his statement or conduct; (3) an intent to deceive; (4) justifiable reliance by the 4 creditor on the debtor's statement or conduct; and (5) damage to the creditor proximately caused by its 5 reliance on the debtor's statement or conduct. 6 Turtle Rock Meadows Homeowners Ass'n v. Slyman (In re Slyman), 7 234 F.3d 1081, 1085 (9th Cir. 2000). However, recognizing the 8 reality that few debtor defendants are likely to admit to 9 defrauding their creditors, "fraudulent intent may be established 10 by circumstantial evidence, or by inferences drawn from a course 11 of conduct." Devers v. Bank of Sheridan, Mont. (In re Devers), 12 759 F.2d 751, 753-54 (9th Cir. 1985). See also First Beverly 13 Bank v. Adeeb (In re Adeeb), 787 F.2d 1339, 1343 (9th Cir. 1986).
14 In the Complaint, the SSA alleged that Brenda had obtained 15 $24,575 in Supplemental Security Income disability benefits 16 payments for which she was ineligible as a result of material 17 omissions and misrepresentations with respect to an ownership 18 interest in the Motel Property and George and Brenda's use of the 19 Motel Property for "substantial gainful activity" from 20 approximately September 1999 to September 2004. The only 21 evidence submitted by the SSA in support of the Summary Judgment 22 Motion was the Investigation Report and the Statements of 23 Claimant or Other Person signed by George and Brenda on 24 September 22, 2004. However, neither the Investigation Report 25 nor the statements were authenticated or identified by affidavit 26 or declaration, which is a condition precedent to their 27 admissibility as evidence under FRE 901(a).
In deciding a motion for summary judgment, a bankruptcy court only can consider admissible evidence.
A trial court can only consider admissible evidence in ruling on a motion for summary judgment. See [Civil Rule] 56(e); Beyene v. Coleman Sec. Servs., Inc., 854 F.2d 1179, 1181 (9th Cir. 1988). Authentication is a "condition precedent to admissibility," and this condition is satisfied by "evidence sufficient to support a finding that the matter in question is what its proponent claims." [FRE] 901(a). We have repeatedly held that unauthenticated documents cannot be considered in a motion for summary judgment. See Cristobal v. Siegel, 26 F.3d 1488, 1494 (9th Cir. 1994); Hal Roach Studios, Inc. v. Richard Feiner & Co., Inc., 896 F.2d 1542, 1550-51 (9th Cir. 1989); Beyene, 854 F.2d at 1182; Canada v. Blain's Helicopters, Inc., 831 F.2d 920, 925 (9th Cir. 1987); Hamilton v. Keystone Tankship Corp., 539 F.2d 684, 686 (9th Cir. 1976). Orr v. Bank of America, NT & SA, 285 F.3d 764, 773 (9th Cir. 2002) (emphasis added).
In addition, the Investigation Report is hearsay,*fn8 and there is nothing in the record to establish that it would be admissible in evidence under an exception to the general rule that hearsay evidence is not admissible.*fn9 See FRE 802.
Consequently, no admissible evidence was submitted in support of the Summary Judgment Motion, and on that basis, it was error for the bankruptcy court to grant the motion in spite of the Naradas' ineffective response, in light of the requirements of the Scheduling Order and Local Rule 9013-1(g).*fn10 We conclude in these circumstances that the order granting the Summary Judgment Motion should be vacated, and the Adversary Proceeding should be remanded to the bankruptcy court for further proceedings. Accordingly, any issues with respect to the Relief Motion are moot.
For the foregoing reasons, we VACATE the summary judgment order and REMAND to the bankruptcy court for further appropriate proceedings.