In re: Michael W. Perry

                                                           FILED
                                                            AUG 26 2014
 1                         NO FO PUBL A IO
                             T R     IC T N             SUSAN M. SPRAUL, CLERK
                                                          U.S. BKCY. APP. PANEL
 2                                                        OF THE NINTH CIRCUIT


 3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                            OF THE NINTH CIRCUIT
 5   In re:                        )      BAP No.     AZ-13-1438-TaPaKi
                                   )
 6   MICHAEL W. PERRY,             )      Bk. No.     08-04762
                                   )
 7                  Debtor.        )      Adv. No.    11–01556
     ______________________________)
 8                                 )
     MYCHELLE MOXLEY,              )
 9                                 )
                    Appellant,     )
10                                 )
     v.                            )      MEMORANDUM*
11                                 )
     MICHAEL W. PERRY,             )
12                                 )
                    Appellee.      )
13                                 )
14                     Submitted Without Oral Argument**
                               on July 25, 2013
15
                            Filed – August 26, 2014
16
               Appeal from the United States Bankruptcy Court
17                       for the District of Arizona
18     Honorable George B. Nielsen, Jr., Bankruptcy Judge, Presiding
19
     Appearances:     Mychelle Moxley, pro se, on brief; Michael W.
20                    Perry, pro se, on brief.
21
     Before:   TAYLOR, PAPPAS, and KIRSCHER, Bankruptcy Judges.
22
23
24
25        *
            This disposition is not appropriate for publication.
     Although it may be cited for whatever persuasive value it may
26   have (see Fed. R. App. P. 32.1), it has no precedential value.
     See 9th Cir. BAP Rule 8013-1.
27
          **
            On April 14, 2014, the Panel entered an order deeming
28   this appeal suitable for submission without oral argument.
 1        Appellant Mychelle Moxley filed an adversary proceeding
 2   against Debtor Michael Perry, seeking a denial of discharge under
 3   various provisions of § 727(a).1   Following the bankruptcy
 4   court’s denial of her motion for summary judgment, Moxley moved
 5   for leave to amend her adversary complaint in order to add
 6   § 523(a) nondischargeability claims for relief.   The bankruptcy
 7   court denied the motion, based on the doctrine of laches, and
 8   dismissed the adversary proceeding with prejudice.   Within a
 9   four-day period, Moxley moved twice for reconsideration; the
10   bankruptcy court denied those motions.   Moxley, pro se, appeals
11   from the judgment denying her second reconsideration motion.     We
12   AFFIRM the bankruptcy court.
13                                  FACTS2
14        Moxley was previously in a relationship with the Debtor; the
15   latter is in active military service.    During the course of their
16   relationship, Moxley co-signed on various car loans for the
17   Debtor.   She alleges that in November 2005, the loan proceeds
18   from a second mortgage on her home were used to pay off the
19
20        1
            Unless otherwise indicated, all chapter and section
     references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532.
21   “Rule” references are to the Federal Rules of Bankruptcy
     Procedure and “Civil Rule” references are to the Federal Rules
22   of Civil Procedure.
23        2
            Moxley’s excerpts of record were not consecutively
     paginated as required by 9th Cir. BAP Rule 8009(b)-1(b)(2); she
24   also neglected to include key documents. We, thus, exercised our
     discretion to take judicial notice of documents electronically
25   filed in the adversary proceeding and underlying bankruptcy case.
     See Atwood v. Chase Manhattan Mortg. Co. (In re Atwood), 293 B.R.
26   227, 233 n.9 (9th Cir. BAP 2003).
          Many of the facts are taken from the many pleadings,
27   motions, papers, orders, judgments, minute entries, and audio
     files filed on the bankruptcy case and adversary proceeding
28   dockets.

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 1   Debtor’s then outstanding debt.   The record before the bankruptcy
 2   court did not include evidence of a promissory note or a written
 3   contract governing repayment or other terms of Moxley’s alleged
 4   loans to the Debtor.3
 5        The relationship eventually disintegrated, and Moxley
 6   commenced a collection action against the Debtor in Arizona state
 7   court.4   In April of 2008 and while that action was pending, the
 8   Debtor filed a chapter 7 bankruptcy case.   For reasons that the
 9   parties later disputed,5 the Debtor did not schedule Moxley as a
10   creditor; Moxley did not otherwise obtain notice of the
11   bankruptcy filing.   The Debtor subsequently obtained a chapter 7
12   discharge.
13        In March 2009, after learning of the bankruptcy case in the
14
          3
            Moxley attached one page of a “formal agreement” with the
15   Debtor to her excerpts of record on appeal. In a note to the
     exhibit, Moxley alleged that, although she did not have the
16   remainder of the agreement, the Debtor did. The agreement is
     dated September 5, 2005 and provides that the Debtor agreed to
17   pay Moxley installment payments of $138.92 for 84 months based on
     a personal loan of $11,669.95. If this document is genuine, a
18   determination we do not make, it is both incomplete and otherwise
     inadequate to govern Moxley’s total claim in the alleged amount
19   of more than $60,000. More importantly, however, there is no
     evidence that Moxley presented this particular document to the
20   bankruptcy court. Thus, we do not consider it further on appeal.
21        4
            While the record is unclear, it appears that sometime
     after the bankruptcy filing, the state court action was dismissed
22   for lack of prosecution. Later in 2010, Moxley commenced a
     second (and identical) action against the Debtor in state court.
23   While Moxley at one point claimed that she obtained a default
     judgment in the second state court action, the only evidence on
24   the record is inconsistent with this assertion. In fact, the
     record indicates the state court denied entry of default and
25   designated the matter as inactive and subject to dismissal.
26        5
            According to the Debtor, at the time of filing, his
     attorney advised him not to list Moxley as a creditor as there
27   was no judgment in the state court action. As the Debtor pointed
     out to the bankruptcy court, however, the state court action was
28   listed in his statement of financial affairs.

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 1   state court action, Moxley filed a proof of claim in the amount
 2   of $68,564.02 and based on a “money loan & car loan.”    The Debtor
 3   then amended his schedule F and included Moxley as an unsecured
 4   creditor with a claim in the amount of $62,619.90.
 5        In March 2011, the chapter 7 trustee filed a final report,
 6   which proposed a pro rata distribution to Moxley.    Moxley
 7   received notice of the final report, failed to object, and
 8   received a distribution of $2,374.20.
 9        Nearly four months later, Moxley withdrew her proof of
10   claim, filed a motion in the bankruptcy case, stating that she
11   was an omitted creditor, and, thus, sought an order deeming her
12   claim nondischargeable.   The bankruptcy court set the matter for
13   hearing.   In the interim, Moxley filed yet another document, this
14   time asserting that the Debtor failed to properly disclose a
15   personal injury action then pending in Arizona state court and a
16   $30,000 military bonus that he received soon after his bankruptcy
17   filing.
18        Moxley obtained permission to file an adversary proceeding
19   and did so within the time period set by the bankruptcy court.
20   The adversary complaint alleged that the Debtor had engaged in
21   fraud in connection with the bankruptcy case and objected to the
22   Debtor’s discharge under § 727(a)(2)(A) and (B), (a)(3), and
23   (a)(4)(A) and (D).   The adversary complaint also contained copied
24   and pasted partial provisions of § 523(a)(2) and (a)(3) and
25   Rule 7034 (incorporating Civil Rule 34 into adversary
26   proceedings).   It did not, however, include any reference to the
27   events related to the alleged loans.
28        Moxley next applied for and obtained an entry of default

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 1   and, eventually, a default judgment.   The bankruptcy court
 2   thereafter vacated the Debtor’s discharge.
 3        Ten months later, in October 2012, the Debtor moved to
 4   vacate the default judgment, based on alleged military deployment
 5   during the litigation and in reliance on the Servicemembers Civil
 6   Relief Act.   After the matter was heard in November 2012, the
 7   bankruptcy court entered an order reopening the bankruptcy case
 8   and reappointing the chapter 7 trustee.
 9        Moxley then moved for summary judgment in the reinstated
10   adversary proceeding.   The Debtor opposed.   At the summary
11   judgment hearing, the bankruptcy court denied the entirety of
12   Moxley’s motion for summary judgment, on its own motion set a
13   subsequent hearing on whether the adversary proceeding should be
14   dismissed, and advised Moxley that it would dismiss the adversary
15   proceeding if she did not respond.
16        Rather than file a response, as instructed by the bankruptcy
17   court, Moxley moved for leave to amend the adversary complaint so
18   as to add claims for relief under § 523(a)(2), (a)(4), and
19   (a)(6).   Her claims were based on alleged intentional infliction
20   of emotional distress, false advertisement, breach of contract,
21   intentional infliction of mental suffering, and breach of the
22   implied covenant of good faith and fair dealing.    These claims
23   were all based on the alleged loans.
24        The bankruptcy court, after two hearings and supplemental
25   briefing, denied Moxley’s request for leave to amend based on the
26   doctrine of laches.   It noted that Moxley also had problems with
27   relation back of her new claims for relief to the original
28   adversary complaint, but ultimately did not rely on futility

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 1   given its concerns about the implications of § 523(a)(3)(B).    The
 2   bankruptcy court dismissed the adversary proceeding with
 3   prejudice and afterward entered a judgment confirming its ruling.
 4        Undeterred, Moxley moved for reconsideration, a rehearing
 5   under Rule 8015, and clarification of the final judgment (“First
 6   Reconsideration Motion”).    Just four days later, she moved for
 7   leave to amend under Civil Rule 15, reargument and
 8   reconsideration, and a rehearing under Rule 8015 (“Second
 9   Reconsideration Motion”).    In the second motion, Moxley asserted
10   both a lack of undue delay and prejudice to the Debtor in
11   granting her leave to amend the adversary complaint.
12        The bankruptcy court denied both reconsideration motions.
13   Moxley timely appealed from the order on the Second
14   Reconsideration Motion.
15                                JURISDICTION
16        The bankruptcy court had jurisdiction pursuant to 28 U.S.C.
17   §§ 1334 and 157(b)(2)(J).    We have jurisdiction under 28 U.S.C.
18   § 158.
19                                   ISSUE6
20        Did the bankruptcy court abuse its discretion when it denied
21   the Second Reconsideration Motion?
22                             STANDARD OF REVIEW
23        We review a decision on a motion to alter or amend a
24   judgment under Civil Rule 59(e) (incorporated into bankruptcy
25   proceedings by Rule 9023) for an abuse of discretion.    Heritage
26   Pac. Fin., LLC v. Montano (In re Montano), 501 B.R. 96, 105
27
          6
            Moxley lists approximately 47 issues on appeal. Most of
28   those issues are actually factual allegations and statements.

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 1   (9th Cir. BAP 2013).
 2        Review of an abuse of discretion determination involves a
 3   two-pronged test; first, we determine de novo whether the
 4   bankruptcy court identified the correct legal rule for
 5   application.    See United States v. Hinkson, 585 F.3d 1247,
 6   1261-62 (9th Cir. 2009) (en banc).      If not, then the bankruptcy
 7   court necessarily abused its discretion.     See id. at 1262.
 8   Otherwise, we next review whether the bankruptcy court’s
 9   application of the correct legal rule was clearly erroneous; we
10   will affirm unless its findings were illogical, implausible, or
11   without support in inferences that may be drawn from the facts in
12   the record.    See id.
13        We may affirm on any basis supported by the record.     Caviata
14   Attached Homes, LLC v. U.S. Bank, N.A. (In re Caviata Attached
15   Homes, LLC), 481 B.R. 34, 44 (9th Cir. BAP 2012).
16                                DISCUSSION
17   A.   Threshold issues.
18        At the outset, we address two threshold issues.     First, our
19   review of the record shows that there was never a formal order
20   vacating or setting aside the default judgment in the adversary
21   proceeding.    According to the bankruptcy court’s statements at a
22   June 2013 hearing, it vacated the default judgment at the hearing
23   on the Debtor’s motion to vacate default judgment; neither a
24   transcript nor an audio file of the latter hearing exists in the
25   record or on the bankruptcy case docket.
26        In any event, the bankruptcy court’s subsequent orders and
27   judgments in the adversary proceeding effectively superseded the
28   default judgment.    The bankruptcy court’s denial of summary

                                     - 7 -
 1   judgment on Moxley’s § 727 claims was clearly inconsistent with a
 2   default judgment on the same claims.    And, in the order denying
 3   Moxley’s First Reconsideration Motion, the bankruptcy court noted
 4   that Moxley “complain[ed] that not all of [Debtor’s] misdeeds
 5   were taken into account when the court subsequently vacated
 6   default judgment.”    Adv. ECF No. 66 at 2 (emphasis added).   All
 7   things considered, the default judgment was vacated.
 8        Second, Moxley dedicates a number of issues on appeal and a
 9   significant portion of her brief in arguing, directly and
10   indirectly, that the bankruptcy court erred by: (1) vacating the
11   default judgment; (2) denying the § 727 claims in her summary
12   judgment motion; and (3) dismissing the adversary proceeding.
13   Both a vacation of default judgment and denial of summary
14   judgment are interlocutory and not final for appeal purposes
15   until trial or dismissal of an adversary proceeding.   Here, that
16   occurred when the bankruptcy court entered the judgment
17   dismissing the adversary proceeding with prejudice.    But, Moxley
18   immediately moved for reconsideration, thereby tolling the time
19   to appeal.   See Fed. R. Bankr. P. 8002(b)(2).
20        Moxley’s notice of appeal, however, provided that she
21   appealed only from the judgment entered on August 27, 2013,
22   denying the Second Reconsideration Motion; she attached that
23   judgment.    The Second Reconsideration Motion related only to her
24   request for leave to amend the adversary complaint.    Pursuant to
25   Federal Rule of Appellate Procedure 3(c)(1)(B),7 an appellant
26
          7
27          Pursuant to BAP Rule 8018(b)-1, the Panel exercises its
     discretion and applies Federal Rule of Appellate
28                                                         continue...

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 1   must designate the judgment or order being appealed in his or her
 2   notice of appeal.   This rule is liberally construed in the Ninth
 3   Circuit; thus, “[w]hen a party seeks to argue the merits of an
 4   order that does not appear on the face of the notice of appeal,
 5   we consider: (1) whether the intent to appeal a specific judgment
 6   can be fairly inferred and (2) whether the appellee was
 7   prejudiced by the mistake.”   Le v. Astrue, 558 F.3d 1019, 1022-23
 8   (9th Cir. 2009) (internal quotation marks omitted).   In
 9   considering intent and prejudice, we consider whether the
10   appellee had notice of the issue on appeal and an opportunity to
11   fully brief the issue.   See id. at 1023.
12        Here, the first factor militates in favor of Moxley; we can
13   infer Moxley’s intent to appeal from the vacation of default
14   judgment, the denial of summary judgment, and dismissal as she
15   discusses the merits of those decisions in her brief on appeal
16   and in her statement of issues on appeal.   She also attached to
17   her notice of appeal a prior judgment dismissing the adversary
18   proceeding.
19        Nonetheless, under these circumstances, the second factor
20   weighs in favor of the Debtor.    The Ninth Circuit has determined
21   that a lack of prejudice to an appellee exists where the appellee
22   fully briefed the procedurally deficient issue on appeal or was
23   provided sufficient opportunity to fully brief the notice issue.
24   See Le v. Astrue, 558 F.3d at 1022-23; Ahlmeyer v. Nev. Sys. of
25   Higher Educ., 555 F.3d 1051, 1055 (9th Cir. 2009); One Indus.,
26
27
          7
           ...continue
28   Procedure 3(c)(1)(B) to this particular case.

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 1   LLC v. Jim O’Neal Distrib., Inc., 578 F.3d 1154, 1159 (9th Cir.
 2   2009); Knievel v. ESPN, 393 F.3d 1068, 1072 n.2 (9th Cir. 2005);
 3   Lolli v. Cnty. of Orange, 351 F.3d 410, 414 (9th Cir. 2003);
 4   McCarthy v. Mayo, 827 F.2d 1310, 1314 (9th Cir. 1987); Lynn v.
 5   Sheet Metal Workers’ Int’l Ass’n, 804 F.2d 1472, 1481 (9th Cir.
 6   1986), aff’d, 488 U.S. 347 (1989).
 7        Here, the Debtor, like Moxley, is pro se on appeal.    In his
 8   appellate brief, the Debtor did not respond to or brief the
 9   various issues raised by Moxley; instead, his appellate brief
10   focused solely on reconsideration and the denial of leave to
11   amend.    Moreover, this appeal was designated for submission on
12   the briefs, which Moxley expressly agreed to.    As a result, the
13   Debtor lacked the opportunity to further address those issues in
14   oral argument.
15        None of the previously cited Ninth Circuit cases involved a
16   pro se appellee.    Although “[w]e make reasonable allowance[s] for
17   pro se litigants and construe their papers liberally,” see Ozenne
18   v. Bendon (In re Ozenne), 337 B.R. 214, 218 (9th Cir. BAP 2006),
19   we must also take care to balance that convention as to both the
20   pro se appellant and appellee.    Given the generally incoherent
21   nature of Moxley’s appellate brief and the Debtor’s pro se status
22   on appeal, it is impossible for us to conclude that the Debtor
23   had appropriate notice of the other issues raised by Moxley and a
24   meaningful opportunity to fully respond.    Our consideration of
25   the vacation of default judgment, denial of summary judgment, and
26   dismissal, thus, would result in significant prejudice to the
27   Debtor.    Therefore, we do not review or consider those decisions.
28

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 1   B.   The bankruptcy court did not abuse its discretion in denying
 2        Moxley’s second reconsideration motion.
 3        On appeal, Moxley fails to explain how the bankruptcy court
 4   abused its discretion in denying the Second Reconsideration
 5   Motion.   As a result, she waived this issue for the purposes of
 6   appeal.   See Fadel v. DCB United LLC (In re Fadel), 492 B.R. 1,
 7   18 (9th Cir. BAP 2013).   We, thus, may affirm the bankruptcy
 8   court.
 9        Nonetheless, even if we considered the issue on the merits,
10   the record supports the bankruptcy court’s decision.   In order to
11   obtain relief from a judgment under Civil Rule 59(e), the movant
12   must show: (1) the existence of newly discovered evidence;
13   (2) that the bankruptcy court committed clear error or made an
14   initial decision that was manifestly unjust; or (3) that there
15   was an intervening change in controlling law.   In re Montano,
16   501 B.R. at 112.   Moxley does not assert the existence of newly
17   discovered evidence or an intervening change in controlling law.
18   Thus, we only focus on the second basis for relief.
19        The bankruptcy court denied Moxley’s Second Reconsideration
20   Motion as “a duplicative and cumulative repetition of her first
21   motion for reconsideration,” referencing its concurrently filed
22   order denying the First Reconsideration Motion.   In that order,
23   it responded to Moxley’s assertion that it did not properly
24   review all of the documents filed in denying her request for
25   leave to amend the adversary complaint.   Properly applying Civil
26   Rule 59(e), the bankruptcy court determined that Moxley’s papers
27   in the bankruptcy case - filed prior to the adversary proceeding
28   - failed to sufficiently allege the § 523 claims for relief such

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 1   that they should be deemed incorporated into her adversary
 2   complaint.   And it emphasized that, while some of Moxley’s papers
 3   contained some § 523 verbiage, her papers, adversary complaint,
 4   and motion for summary judgment, in substance, focused
 5   exclusively on the § 727 claims.
 6        In the Second Reconsideration Motion, Moxley recited the
 7   standard for leave to amend under Civil Rule 15 and asserted a
 8   lack of undue delay or prejudice in allowing her to file an
 9   amended adversary complaint.   These arguments, however, were
10   better suited for the motion for leave to amend, rather than the
11   motion to reconsider.   But, to the extent that Moxley’s
12   assertions related to the bankruptcy court’s laches
13   determination, Moxley fails to demonstrate that the bankruptcy
14   court committed clear error or made an initial decision that was
15   manifestly unjust such that it abused its discretion when it
16   denied reconsideration.
17        The bankruptcy court denied the motion for leave to amend
18   based on the doctrine of laches.   It noted that, rather than
19   responding to its stated concerns and instructions regarding the
20   pending § 727 claims, Moxley asserted yet another § 727 claim8
21   and the § 523 claims for relief.   Relying on Beaty v. Selinger
22   (In re Beaty), 306 F.3d 914 (9th Cir. 2002), the bankruptcy court
23   determined that Moxley’s delay of more than four years in
24   bringing these claims for relief was both unreasonable and
25   prejudicial to the Debtor.   It noted that “[a]ll of these claims
26   existed -- to the extent they actually exist -- they would have
27
          8
            Moxley made a single conclusory reference to § 727(a)(5)
28   in the motion for leave to amend. See Adv. ECF No. 52 at 12.

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 1   existed at the time she first became active in this case in March
 2   of 2009” or, at the very least, at the time that she commenced
 3   the adversary proceeding.   Hr’g Tr. (Aug. 20, 2013) at 7:17-22.
 4   It also determined that the delay in bringing the § 523 claims
 5   for relief was prejudicial to the Debtor insofar as it delayed
 6   resolution as to whether a large debt was discharged.
 7        In Beaty, the Ninth Circuit held that, based on the
 8   particular circumstances, the doctrine of laches – as an
 9   equitable limitation based on prejudicial delay – was available
10   as a defense in a § 523(a)(3)(B) and Rule 4007(b) context.
11   306 F.3d at 922-23.   Application of laches requires proof of:
12   (1) a lack of diligence by the party against whom the defense is
13   asserted; and (2) prejudice to the party asserting the defense.
14   Id. at 926.   As the bankruptcy court determined here, those
15   elements were satisfied.
16        The record supports the determination that Moxley did not
17   diligently prosecute her § 523 claims for relief.   She was aware
18   of the bankruptcy case in March 2009 when she timely filed a
19   proof of claim.   Two years later, in March 2011, the chapter 7
20   trustee filed a final report, and Moxley did not object.   She, in
21   fact, subsequently received a distribution as an unsecured
22   creditor.   It was not until August 2011, however, that Moxley,
23   for the first time, raised concerns about discharge.
24        Moxley commenced an adversary proceeding the following month
25   – almost two and a half years after she filed her proof of claim.
26   The adversary complaint contained just two references to the
27   alleged loans: “This is a request that the debtor be ordered to
28   pay for the $68,564.02 loan at 8.6% revolving interest as stated

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 1   in the 2nd mortgage on my property” and “I am requesting that
 2   this debtor pay the sum of $650.00 as stated in the original
 3   loan.”    Adv. ECF No. 1 at 1.   The adversary complaint did not
 4   squarely raise any claims for relief under § 523.     Given that
 5   Moxley allegedly made the loans in 2005, however, she clearly was
 6   aware of facts giving rise to her alleged § 523 claims for relief
 7   when she commenced the adversary proceeding in September 2011.
 8        Only when the bankruptcy court denied her summary judgment
 9   motion almost two years later did Moxley make any effort to amend
10   the adversary complaint and properly assert the § 523 claims for
11   relief.    And, contrary to Moxley’s belief, mere reference to
12   § 523(a)(2), (a)(4), or (a)(6) in her summary judgment motion
13   neither properly asserted nor preserved those claims for relief.
14   As it took Moxley over four years to squarely assert the new
15   claims for relief, the bankruptcy court correctly found that
16   Moxley engaged in unreasonable delay.
17        The bankruptcy court also correctly found significant
18   prejudice to the Debtor.    The Debtor’s discharge had been in
19   question for over four years.     The bankruptcy court appropriately
20   considered that the Debtor’s defense against Moxley’s adversary
21   proceeding was hampered by his military duties.9    As a result,
22   the bankruptcy court did not err in concluding that requiring the
23   Debtor to defend against new claims at this later date would be
24   unduly prejudicial.
25
          9
            Moxley asserts that she obtained the Debtor’s military
26   record through a Freedom of Information Act request, which she
     alleges shows that he was not deployed during the dates and times
27   that he so asserted to the bankruptcy court and Arizona state
     court. It appears that she did not present this particular
28   evidence to the bankruptcy court; thus, we do not consider it.

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 1        Moxley failed to show error in the bankruptcy court’s
 2   decision to deny reconsideration of its denial of leave to amend
 3   the adversary complaint.   As such, the bankruptcy court did not
 4   abuse its discretion in denying the Second Reconsideration
 5   Motion.
 6                               CONCLUSION
 7        Based on the foregoing, we AFFIRM the bankruptcy court.
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