Hank Willms, et al v. Rowe Sanderson, III

Filing

FILED OPINION (ARTHUR L. ALARCON, M. MARGARET MCKEOWN and JACQUELINE H. NGUYEN) VACATED; REMANDED. Judge: JHN Authoring. FILED AND ENTERED JUDGMENT. [8717060]

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FOR PUBLICATION

UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

HANK WILLMS; DOLLY WILLMS,
Plaintiffs-Appellees,

No. 12-35135

v.

D.C. No.
3:11-cv-00818-HZ

ROWE SANDERSON III,
Defendant-Appellant.

OPINION

Appeal from the United States District Court
for the District of Oregon
Marco A. Hernandez, District Judge, Presiding
Argued and Submitted
November 5, 2012—Portland, Oregon
Filed July 25, 2013
Before: Arthur L. Alarcón, M. Margaret McKeown,
and Jacqueline H. Nguyen, Circuit Judges.
Opinion by Judge Nguyen

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WILLMS V. SANDERSON
SUMMARY*

Bankruptcy
The panel vacated the district court’s judgment affirming
the bankruptcy court’s order granting plaintiffs an extension
of time to file a nondischargeability complaint against a
debtor.
The panel held that the bankruptcy court erred by sua
sponte extending the time after the deadline had already
passed and by doing so without either a showing or a finding
of cause. The panel remanded with instructions to dismiss.

COUNSEL
Lawrence W. Erwin, Bend, Oregon, for Defendant-Appellant.
D. Zachary Hostetter, Hostetter Knapp, LLP, Enterprise,
Oregon, for Plaintiffs-Appellees.

OPINION
NGUYEN, Circuit Judge:
Appellant Rowe Sanderson III appeals from the district
court’s judgment affirming the bankruptcy court’s order

*

This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.

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granting Appellees Hank and Dolly Willmses’ motion for an
extension of time to file a nondischargeability complaint. We
conclude that under our existing case law the bankruptcy
court erred in two ways—by sua sponte extending the time
for the Willmses to file a nondischargeability complaint after
the deadline had already passed and by doing so without
either a showing or a finding of cause. Therefore, we reverse
the district court and remand with instructions to dismiss.
I.
A.
The material facts underlying the parties’ dispute are
straightforward. Rowe Sanderson’s company (“SCI”) was
experiencing a cash flow problem. It had a promissory note
for $1.5 million from La Pine Village, LLC (“LPV”) that was
secured by a deed of trust to real property in Oregon.
Sanderson expected to receive full repayment on the LPV
note in two months but in the meantime needed operating
capital for SCI.
Hank and Dolly Willms agreed to provide bridge
financing. They loaned $500,000 to SCI, in exchange for
which SCI executed a note agreeing to repay that amount plus
interest within six days after the LPV payment was due. SCI
granted the Willmses an interest in the LPV note as security
and, sometime later, delivered it to them. LPV did not repay
its debt to SCI on time. Consequently, SCI could not repay
the Willmses by the agreed date.1

1

Sanderson in fact needed to borrow even more money from the
W illmses to stay solvent. These additional loans— as well as Sanderson’s
other debts to the W illmses— are not at issue here.

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Approximately nine months after the payments on the
LPV and SCI notes were originally due, LPV repaid $500,000
to SCI. On the same day, SCI paid the Willmses
$507,117.33, an amount that, according to Sanderson,
represented the principal and remaining interest due on SCI’s
note.
The Willmses did not agree that Sanderson’s payment
should be applied to the debt on the SCI note and refused to
return the LPV note, which they held as collateral.
Sanderson, meanwhile, desiring to close the LPV transaction,
attempted to induce the title company to release the funds
from escrow and reconvey the deed of trust to LPV. To that
end, he signed a letter of indemnity in which he claimed that
SCI had lost, misplaced, or destroyed the LPV note, despite
knowing that the note remained in the Willmses’ possession.
B.
Sanderson filed a voluntary Chapter 7 petition seeking
personal bankruptcy protection in October 2009. The
meeting of creditors was first set in December. On February
16, 2010—the last possible day—the Willmses moved to
extend the deadline for filing either a complaint objecting to
the petition’s discharge or a motion to dismiss.
The bankruptcy court held a hearing on the Willmses’
motion ten days later. At the hearing, the bankruptcy court
denied all of the relief requested in the Willmses’ motion.
After hearing the Willmses’ allegations, the bankruptcy court
opined that the Willmses may have “a fairly straightforward
[11 U.S.C.] § 523(a)(2)(A) claim” objecting to

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dischargeability.2 The bankruptcy court then sua sponte
extended the time for the Willmses to file such a complaint.
The Willmses never requested this relief and, by all
appearances, never even considered this strategy.3 The
Willmses’ original request for an extension referenced
11 U.S.C. § 707(b)(3) only. Nonetheless, they adopted the
bankruptcy court’s suggestion and filed a nondischargeability
complaint within the extended time period set by the court.
The Willmses objected to the dischargeability of the debt
owed under the SCI note from Sanderson’s bankruptcy estate.
Overlooking the legal distinction between Sanderson and
SCI, the Willmses claimed that Sanderson was personally
liable on the SCI note. Although they acknowledged
receiving SCI’s $507,117.33 payment, they contended that it
applied to Sanderson’s other debts to them. They sought to
have the debt on the SCI note declared nondischargeable
under 11 U.S.C. § 523(a)(2)(A) on the ground that Sanderson
had obtained the loan fraudulently.
At the conclusion of a one-day bench trial, the bankruptcy
court found in favor of the Willmses. In an oral ruling, the
bankruptcy court declared SCI’s debt to be nondischargeable
on the basis that Sanderson failed to prove that he had repaid

2

Under 11 U.S.C. § 523(a)(2)(A), creditors can seek to have certain
debts excepted from discharge to the extent they were obtained by “false
pretenses, a false representation, or actual fraud, other than a statement
respecting the debtor’s or an insider’s financial condition.”
3
The bankruptcy court stated at the hearing that it had merely “cut back
from the extensive request that [the W illmses] made.” Its subsequent
order denied the W illmses’ motion “in part.” These statements suggest
that the W illmses expressed an intent to seek relief under § 523. They had
not.

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the debt from the LPV loan proceeds. Sanderson moved for
relief from this ruling, presenting documentary evidence for
the first time that he had repaid the Willmses immediately
after receiving LPV’s payment. The bankruptcy court
accepted this evidence, reversed its initial decision, and
entered a judgment of dismissal.
The Willmses appealed the bankruptcy court’s judgment
to the district court, arguing that the bankruptcy court had
abused its discretion by allowing Sanderson to present new
evidence after trial. Sanderson cross-appealed on the ground
that the Willmses should not have been allowed to file their
adversary proceeding at all. Sanderson asserted that the
Willmses failed to request a time extension to file a
nondischargeability complaint and the bankruptcy court
decided to do so only after the deadline had passed. In
addition, Sanderson argued that the Willmses had failed to
show cause for needing more time.
The district court affirmed the bankruptcy court’s sua
sponte time extension but reversed its decision to consider
Sanderson’s post-trial evidence. Accordingly, the district
court instructed the bankruptcy court to enter judgment
reinstating its initial oral findings in favor of the Willmses.
Sanderson now appeals both of the district court’s rulings.4

4

As they did below, the W illmses argue that the bankruptcy court
abused its discretion by considering the post-trial evidence because
Sanderson should have presented it earlier. Even if they are correct, we
need not reach this issue. As we shall explain, the W illmses failed to
timely file their adversary complaint, rendering the subsequent
proceedings unnecessary.

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II.
Because we are in as good a position as the district court
to review the bankruptcy court’s findings, we review them
independently, Hedlund v. Educ. Res. Inst. Inc., __ F.3d __,
No. 12-35258, slip op. at 12 (9th Cir. May 22, 2013) (quoting
Ragsdale v. Haller, 780 F.2d 794, 795 (9th Cir. 1986)), and
apply the same standard of review, Goodrich v. Briones (In
re Schwarzkopf), 626 F.3d 1032, 1035 (9th Cir. 2010)
(quoting Christensen v. Tucson Estates, Inc. (In re Tucson
Estates, Inc.), 912 F.2d 1162, 1166 (9th Cir. 1990)). The
bankruptcy court’s legal conclusions are reviewed de novo
and its factual findings for clear error. Id. (quoting Tucson
Estates, 912 F.2d at 1166).
III.
We cannot endorse the bankruptcy court’s approach for
a number of reasons. First, the court recommended a specific
legal course of action for the Willmses to pursue. “[O]ur
adversary system is designed around the premise that the
parties know what is best for them, and are responsible for
advancing the facts and arguments entitling them to relief.”
Greenlaw v. United States, 554 U.S. 237, 244, 128 S. Ct.
2559, 171 L. Ed. 2d 399 (2008) (quoting Castro v. United
States, 540 U.S. 375, 386, 124 S. Ct. 786, 157 L. Ed. 2d 778
(2003)) (internal quotation marks omitted).
The bankruptcy court also sidestepped Sanderson’s due
process right to notice and meaningful opportunity to
respond. See Griffin v. Wardrobe (In re Wardrobe), 559 F.3d
932, 936 (9th Cir. 2009) (“[W]hile a bankruptcy court has
equitable judicial power, its power is confined by ordinary
standards of notice and opportunity to be heard.”). Sanderson

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was denied that right when the court suggested that the
Willmses proceed on a completely new theory of relief
and—without input from Sanderson—extended their time to
do so.
Finally, there are limited circumstances in which a
bankruptcy court can sua sponte extend the deadline to file a
nondischargeability complaint after the deadline has passed,
and this case was not among them. Moreover, even when
presented with a timely motion, a bankruptcy court errs by
granting it without cause. See Fed. R. Bankr. P. 4007(c)
(setting strict 60-day deadline for filing complaint alleging a
§ 523(a) claim and providing that, after a hearing, the court
“may for cause” extend the deadline).
A.
1.
Congress enacted § 523(a)(2) “to prevent a debtor from
retaining the benefits of property obtained by fraudulent
means and to ensure that the relief intended for honest debtors
does not go to dishonest debtors.” Ghomeshi v. Sabban (In re
Sabban), 600 F.3d 1219, 1222 (9th Cir. 2010) (quoting Turtle
Rock Meadows Homeowners Ass’n v. Slyman (In re Slyman),
234 F.3d 1081, 1085 (9th Cir. 2000)). If a debt is
nondischargeable, the debtor attempting to emerge from
bankruptcy remains laden with part of the financial burden
that drove him to seek bankruptcy protection in the first
place. Section 523(a) therefore stands in tension with the
“overriding goal of the Bankruptcy Code to provide a ‘fresh
start’ for the debtor.” Cal. Dep’t of Health Servs. v. Jensen
(In re Jensen), 995 F.2d 925, 928 (9th Cir. 1993) (internal
quotation marks omitted).

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The strict deadline for filing a § 523(c)
nondischargeability complaint is one of the ways these
competing goals are balanced. See Hamada v. Far E. Nat’l
Bank (In re Hamada), 291 F.3d 645, 649 (9th Cir. 2002)
(quoting State Bank & Trust, N.A. v. Dunlap (In re Dunlap),
217 F.3d 311, 315 (5th Cir. 2000)). In general, time limits in
bankruptcy proceedings may be extended before they expire
“for cause shown” and afterwards on motion with an
additional showing of excusable neglect for the delay. Fed.
R. Bankr. P. 9006(b)(1). Certain deadlines may not be
extended. Id. R. 9006(b)(2). Other deadlines—including the
deadline for filing a nondischargeability complaint—may be
extended “only to the extent and under the conditions stated”
in the applicable rule. Id. R. 9006(b)(3).
Bankruptcy Rule 4007(c) governs the time for filing a
complaint objecting to the discharge of a debt due to fraud
under § 523(a)(2). It provides that such a motion “shall be
filed no later than 60 days after the first date set for the
meeting of creditors . . . . On motion of a party in interest,
after hearing on notice, the court may for cause extend the
time . . . . The motion shall be filed before the time has
expired.” Fed. R. Bankr. P. 4007(c) (emphasis added). Thus,
when a creditor seeks to extend the 60-day window to file a
nondischargeability complaint, the creditor must file a motion
before the deadline passes and show cause why the extension
is necessary.
“Ninth Circuit law . . . strictly construes Rule 4007(c)”
and courts “cannot extend [its] time limit implicitly” where
no such motion is made. Kennerley v. Allred (In re
Kennerley), 995 F.2d 145, 147 (9th Cir. 1993); see also
Anwar v. Johnson, __ F.3d __, No. 11-16612, slip op. at 9
(9th Cir. July 2, 2013) (“[W]e have repeatedly held that the

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sixty-day time, limit for filing nondischargeability complaints
under 11 U.S.C. § 523(c) is strict and, without qualification,
cannot be extended unless a motion is made before the 60-day
limit expires.” (internal quotation marks omitted)); Anwiler
v. Patchett (In re Anwiler), 958 F.2d 925, 927 (9th Cir. 1992)
(“[A] court no longer has the discretion to set the deadline,
nor can it sua sponte extend the time to file . . . .”); cf.
Kontrick v. Ryan, 540 U.S. 443, 448 n.3, 456 (2004)
(characterizing Rule 4004’s time prescription, which is
“essentially the same” as that in Rule 4007, as “an inflexible
claim-processing rule” that is “unalterable on a party’s
application”). Strict construction of Rule 4007(c) is
necessary due to “the need for certainty in determining which
claims are and are not discharged.” Kennerley, 995 F.2d at
148. Accordingly, we held in Kennerley that a complaint to
determine dischargeability was untimely because “there was
no clear indication in the record at the expiration of Rule
4007(c)’s 60-day period for filing complaints . . . that th[e]
debt [at issue] was not to be discharged along with all others.”
Id.
2.
The Willmses’ two-page motion did not provide notice
that they intended to have a specific debt declared
nondischargeable. The Willmses brought their motion
pursuant to Bankruptcy Rules 4004(b) and 1017(e)(1) on the
ground that it was the last day to file such a motion and they
“require[d] additional time to complete an investigation and
evaluate whether or not a complaint objecting to discharge or
a motion to dismiss is warranted.” It stated only that they
sought “an order extending through and including March 11,
2010, the deadline . . . to file a complaint objecting to the
debtor’s discharge pursuant to 11 U.S.C. §707(b)(3).”

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This minimal description could not have put Sanderson on
notice that the Willmses planned to file a complaint to have
the SCI debt (or any specific debt, for that matter) declared
nondischargeable. Rule 4004 governs complaints objecting
to discharge of the petition for one of the reasons set forth in
11 U.S.C. § 727(a). Similarly, Rule 1017(e) governs motions
to dismiss a petition if discharge would be an abuse of
Chapter 7. See 11 U.S.C. § 707(b). Rule 4007, in contrast,
governs the time for filing a complaint to have a specific debt
declared nondischargeable due to the fraudulent or wrongful
way in which the debtor acquired it. See 11 U.S.C. § 523(c).
We found it significant in Kennerley that, as here, “the
motion [did] not even mention Rule 4007 or § 523(c).”
Kennerley, 995 F.2d at 147.
Discharge and dischargeability “refer to distinct concepts
and cannot be used interchangeably” because they “are based
on separate policies and are governed by distinct procedural
rules.” Irving Fed. Sav. & Loan Ass’n v. Billings (In re
Billings), 146 B.R. 431, 435 (Bankr. N.D. Ill. 1992). Denial
of discharge under 11 U.S.C. § 727 is a remedy that
“punishes debtors for misconduct in the bankruptcy process.”
Latman v. Burdette, 366 F.3d 774, 782 (9th Cir. 2004)
(emphasis added) (citing 11 U.S.C. § 727(a)). Discharge can
be denied under certain enumerated circumstances that
“would clearly prejudice the rights of all creditors,” such as
the debtor’s failure to produce adequate records, failure to
obey a court order or answer questions, improper acts in
another bankruptcy case, or prior discharge within a certain
time frame. Billings, 146 B.R. at 434 (citing Prairie Prod.
Credit Ass’n v. Suttles (In re Suttles), 819 F.2d 764, 766 (7th
Cir. 1987)).

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Similarly, 11 U.S.C. § 707(b) “allows a court to dismiss
a Chapter 7 bankruptcy case, either sua sponte or upon
suggestion of the United States Trustee, when an individual
has primarily consumer debt and the court finds that granting
relief would be a substantial abuse of the provisions of the
chapter.” Price v. U.S. Trustee (In re Price), 353 F.3d 1135,
1138 (9th Cir. 2004) (emphasis added). Congress enacted it
“in response to concerns that some debtors who could easily
pay their creditors might resort to chapter 7 to avoid their
obligations.” Id. (quoting 6 Collier on Bankruptcy ¶ 707.04)
(16th ed. 2012) (internal quotation marks omitted).
In contrast, the rationale for § 523(c)—which allows a
creditor to have a specific debt declared nondischargeable—
“is that the debtor acted in an improper manner at the time
[that] he or she incurred the specific debt.” Billings, 146 B.R.
at 434; see also Muegler v. Bening, 413 F.3d 980, 983 (9th
Cir. 2005) (“[T]he overriding purpose of § 523 is to protect
victims of fraud.” (citing Cohen v. de la Cruz, 523 U.S. 213,
222–23 (1998))). A § 523 complaint “focus[es] on the
debtor’s prior dealings with an objecting creditor, rather than
on actions which necessarily affect the rights of all creditors.”
Billings, 146 B.R. at 434.
The Willmses’ motion failed to reference § 523 or
otherwise put Sanderson on notice that they sought to have a
specific debt declared nondischargeable for being
fraudulently obtained. Nor did the Willmses clarify the
nature of their request before the hearing, which came after
the 60-day deadline. Compare In re Weinstein, 234 B.R. 862,
864–65 (Bankr. E.D.N.Y. 1999) (construing request under
Rule 4004 to extend the time to file adversary complaint
“objecting to the discharge of the debtor” as request under
Rule 4007 to extend the time to file § 523 complaint

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objecting to the dischargeability of particular debt where “the
Movants . . . properly referred to Section 523 of the
Bankruptcy Code, thereby placing the Debtor on notice that
they sought to object to dischargeability of their debt,” and
“corrected the error prior to the hearing date”), with Toth v.
Ham (In re Ham), 174 B.R. 104, 106–08 (Bankr. S.D. Ill.
1994) (refusing to construe request for “an order extending
the time [to] file a complaint objecting to the discharge of the
debtors” as request under Rule 4007 where “[n]o request was
made to extend the time in which to determine the
dischargeability of certain debts, nor was Code § 523
referenced”).5
It was the bankruptcy judge who first suggested a § 523
complaint after denying the motion that the Willmses actually
filed. The most that could be gleaned from the Willmses’
motion is that they sought to stop Sanderson’s bankruptcy
petition from being discharged or have it dismissed as a bad
faith effort to abuse the bankruptcy process. In fact, that was
precisely how Sanderson interpreted it. In opposing the
motion, Sanderson argued that § 707(b) did not apply because
his debts were not primarily consumer debts. Sanderson did
not mention § 523 or dischargeability, likely because there
was no indication that it would be at issue.

5

As many courts did at the time, Ham described the time limit as being
“jurisdictional.” See 174 B.R. at 106–07 (“Once the limitation period
expires, a creditor is jurisdictionally barred from seeking a determination
of dischargeability pursuant to § 523(c), and the court has no choice but
to dismiss any complaint filed after that time.”). The Supreme Court has
since clarified in Kontrick that the time limit, though strictly construed, is
not jurisdictional and is subject to waiver. 540 U.S. at 447. W aiver was
not an issue in Ham, however, and the bankruptcy court’s
mischaracterization of the time limit as jurisdictional did not affect the
result.

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By the time of the hearing, the time to extend the deadline
for filing a § 523(a)(2) complaint had already expired.
Because an extension of time to file a challenge to
dischargeability had not then been discussed, Sanderson did
not have notice that the Willmses intended to challenge the
dischargeability of the SCI debt or their grounds for doing so.
See Markus v. Gschwend (In re Markus), 313 F.3d 1146,
1149–50 (9th Cir. 2002) (concluding that timely motion to
object to discharge of bankruptcy petition due to the debtor’s
fraudulent actions did not describe the facts underlying the
creditor’s later-filed complaint objecting to dischargeability,
which was therefore time-barred). The Willmses’ complaint
was untimely, and the bankruptcy court erred in granting the
extension and allowing the Willmses to proceed.
3.
The Willmses argue in the alternative, and for the first
time on appeal, that the bankruptcy court could have treated
their motion under Rule 4004 as arising under Rule 4007(c)
through the exercise of its equitable powers under 11 U.S.C.
§ 105(a). We disagree. Such a result would conflict with
Markus, which holds that bankruptcy courts may not make
such a characterization.6
More generally, § 105(a) is not a “roving commission to
do equity.” Pac. Shores Dev., LLC v. At Home Corp. (In re

6

This does not preclude a bankruptcy court from correcting
typographical or other non-substantive errors if a request for an extension
makes clear to the debtor the nature of the challenge. See, e.g., Weinstein,
234 B.R. at 865 (treating timely motion for extension mistakenly filed
under Bankruptcy Rule 4004 as if it had been filed under Rule 4007 where
the motion’s substance provided adequate notice to the debtor).

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At Home Corp.), 392 F.3d 1064, 1070 (9th Cir. 2004)
(quoting Saxman v. Educ. Credit Mgmt. Corp. (In re
Saxman), 325 F.3d 1168, 1175 (9th Cir. 2003)) (internal
quotation marks omitted). A bankruptcy court’s equitable
powers “must and can only be exercised within the confines
of the Bankruptcy Code.” Norwest Bank Worthington v.
Ahlers, 485 U.S. 197, 206, 108 S. Ct. 963, 99 L. Ed. 2d 169
(1988); see also 2 Collier on Bankruptcy, supra, at
¶ 105.02[5][c] (explaining that while courts occasionally
invoke § 105(a) to extend the time to assert a claim’s
nondischargeability, an extension “normally can be granted
only in accordance with Bankruptcy Rule 4007(c)”).
We have previously rejected the use of § 105(a) to extend
the strict time limits enumerated in Bankruptcy Rule
9006(b)(3). See Zidell, Inc. v. Forsch (In re Coastal Alaska
Lines, Inc.), 920 F.2d 1428, 1431–33 (9th Cir. 1990). In
Coastal Alaska, a creditor filed a proof of claim after
Bankruptcy Rule 3002(c)’s 90-day limit had expired. This
time limit, like that in Rule 4007(c), is subject to Rule
9006(b)(3)’s prohibition on extensions except “to the extent
and under the conditions stated in those rules.” We examined
this language and concluded that it did not permit a court to
extend the time limit under its § 105(a) powers.
On occasion, we have suggested that “‘unique’ or
‘extraordinary’ circumstances” might allow an untimely
§ 523(a)(2) complaint to stand. Kennerley, 995 F.2d at 147;
see also Anwar, slip op. at 12 (“[A]bsent unique and
exceptional circumstances . . . , we do not inquire into the
reason a party failed to file on time in assessing whether she
is entitled to an equitable exception from [Bankruptcy Rule]
4007(c)’s filing deadline . . . .”). But “the validity of the
doctrine remains doubtful” and “would appear to be limited

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to situations where a court explicitly misleads a party.”
Kennerley, 995 F.2d at 147–48. Thus, in Anwiler we
permitted creditors to file an untimely § 523 complaint
because the bankruptcy court had sent them a notice
containing the incorrect filing deadline. We found that
“[a]llowing a court to correct its mistakes is not inconsistent
with the purpose of Bankruptcy Rules 4004 and 4007.”
958 F.2d at 929.
The record here does not reflect any unique or
extraordinary circumstances. No confusion existed over the
correct deadline. The Willmses were represented by counsel
in the bankruptcy court just as they were while negotiating
the SCI note. There is no legal or equitable reason why they
should have been allowed to file an untimely § 523
complaint.
B.
The bankruptcy court also abused its discretion by
granting the time extension without either a showing or a
finding of cause. At a minimum, “cause” means excusable
neglect. See Pioneer Inv. Servs. Co. v. Brunswick Assocs. LP,
507 U.S. 380, 382, 113 S. Ct. 1489, 123 L. Ed. 2d 74 (1993).7
The bankruptcy court did not attempt to find cause for the
time extension—either at the hearing or in its subsequent
7

In Pioneer, the Supreme Court embraced the factors that we previously
identified as relevant to determining the existence of excusable neglect:
(1) whether granting the delay would prejudice the debtor; (2) the delay’s
length and impact on efficient court administration; (3) whether the delay
fell within the reasonable control of the person whose duty it was to
perform; (4) whether the creditor acted in good faith; and (5) whether
clients should be penalized for the mistake or neglect of their counsel.
507 U.S. at 385.

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order. Nor did the Willmses’ motion provide a basis for such
a finding.
The Willmses asserted only that they needed additional
time “to complete an investigation and evaluate whether or
not a complaint objecting to discharge or a motion to dismiss
is warranted.” Critically, they failed to explain why they did
not complete their investigation prior to the deadline. While
the “cause” standard may be a lenient one, accepting the
Willmses’ request for more time so that they could determine
whether or not they even had a viable argument for
nondischargeability—without any explanation why they
could not have made this determination within the time set by
Rule 4007—would render the standard toothless. See 9
Collier on Bankruptcy, supra, at ¶ 4007.04 (“[T]he cause for
an extension [under Rule 4004] must be compelling and a
creditor must show why it was not able to comply with the
deadline as originally set.”). The bankruptcy court therefore
erred in granting the time extension.8
IV.
Ultimately, the bankruptcy court dismissed the
case—albeit after needless delay and expense—because the
Willmses failed to prove that Sanderson acted fraudulently in
procuring the loan from them. Because we hold that the
Willmses should not have been allowed to file their adversary
complaint, we need not reach the bankruptcy court’s decision
to consider the supposedly new evidence that Sanderson cited
in his post-trial motion for reconsideration and that impelled

8

In fact, the bankruptcy court abused its discretion merely by failing to
apply the Pioneer factors. See Oyama v. Sheehan (In re Sheehan),
253 F.3d 507, 515 (9th Cir. 2001).

Case: 12-35135

18

07/25/2013

ID: 8717060

DktEntry: 65-1

WILLMS V. SANDERSON

the bankruptcy court’s final decision. We also do not reach
the merits of the parties’ underlying dispute.
We vacate the district court’s judgment. On remand, the
district court should vacate the bankruptcy court’s orders and
remand this matter to the bankruptcy court with instructions
to deny the Willmses’ request to file a nondischargeability
complaint and dismiss the adversary proceeding with
prejudice.
VACATED and REMANDED with instructions.

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