FILED
AUG 21 2019
NOT FOR PUBLICATION
SUSAN M. SPRAUL, CLERK
U.S. BKCY. APP. PANEL
OF THE NINTH CIRCUIT
UNITED STATES BANKRUPTCY APPELLATE PANEL
OF THE NINTH CIRCUIT
In re: BAP No. AZ-18-1236-BFL
MICHAEL ALLEN ZITO and Bk. No. 3:09-bk-25681-GBN
ELIZABETH ZITO,
Debtors.
MICHAEL ALLEN ZITO; ELIZABETH
ZITO,
Appellants,
v. MEMORANDUM*
DOUGLASS ENTERPRISES, LLC,
Appellee.
Argued and Submitted on July 18, 2019
at Phoenix, Arizona
Filed – August 21, 2019
Appeal from the United States Bankruptcy Court
*
This disposition is not appropriate for publication. Although it may be cited
for whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no
precedential value, see 9th Cir. BAP Rule 8024-1.
for the District of Arizona
Honorable George B. Nielsen, Jr., Bankruptcy Judge, Presiding
Appearances: Appellant Michael Allen Zito argued pro se; Philip J.
Giles of Allen Barnes & Jones, PLC argued for Appellee
Douglass Enterprises, LLC.
Before: BRAND, FARIS and LAFFERTY, Bankruptcy Judges.
INTRODUCTION
Appellants Michael and Elizabeth Zito appeal a judgment
determining that their debt owed to Douglass Enterprises, LLC was not
discharged in their individual chapter 111 case under § 523(a)(3)(A). After
trial, the bankruptcy court found that the Zitos had failed to establish that
Douglass Enterprises had notice or actual knowledge of the case in time to
file a timely proof of claim. We AFFIRM.
I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY
A. Background of the parties
The Zitos owned and managed BySynergy, LLC, a Delaware limited
liability company in the business of real estate development. Prior to 2008,
1
Unless specified otherwise, all chapter and section references are to the
Bankruptcy Code, 11 U.S.C. §§ 101-1532, and all "Rule" references are to the Federal
Rules of Bankruptcy Procedure.
2
BySynergy was developing a 106 single-family home project in Arizona
("Property"). To help fund the venture, BySynergy obtained a $200,000 loan
from Douglass Enterprises, which was evidenced by a note and a second-
position deed of trust against the Property in favor of Douglass Enterprises.
To further secure repayment of the debt, the Zitos executed a Personal
Guarantee for the amounts owed to Douglass Enterprises under the note.
B. BySynergy bankruptcy case
On June 25, 2008, BySynergy filed a chapter 11 bankruptcy case
("BySynergy Case"). BySynergy listed Jay Douglass, co-owner and manager
of Douglass Enterprises, as the holder of a secured claim. Jay Douglass, on
behalf of Douglass Enterprises, timely filed a $1,181,765.20 secured proof of
claim related to the BySynergy note.
Shortly thereafter, the bankruptcy court granted stay relief to the
senior lienholder on the Property. The senior lienholder completed a
trustee's sale of its deed of trust encumbering the Property, leaving
Douglass Enterprises with no proceeds from the sale and only an
unsecured claim to pursue.
On December 17, 2008, Douglass Enterprises and Jay Douglass
retained bankruptcy attorney Daniel P. Collins2 to represent them in the
BySynergy Case. Collins filed a notice of appearance in the BySynergy Case
2
Mr. Collins was later appointed as a bankruptcy judge for the District of
Arizona.
3
on behalf of the Douglass clients on January 8, 2009. Collins did not file any
other documents in the BySynergy Case.
BySynergy later sought, unsuccessfully, to dismiss its case. A hearing
on the dismissal motion was held on December 6, 2010, at the courthouse in
Prescott, Arizona (the "Hearing"). Several parties appeared, including
BySynergy attorney Harold Campbell, the attorneys for the Unsecured
Creditors Committee ("UCC") and U.S. Trustee, and various creditors.
During a recess, several creditors attended a side meeting in a jury
room at the Prescott courthouse (the "Meeting"). Campbell informed the
attendees that he had been representing the Zitos in their personal chapter
11 bankruptcy case, already pending for over a year at the time of the
Meeting. Campbell's Application to Employ Attorneys for Limited
Appearance for Motion to Dismiss and Rule 2014 Statement of Proposed
Attorneys for Debtor filed in the BySynergy Case on December 7, 2010
("Employment Application") also noted his dual representation of the Zitos
in their individual case. The Employment Application was served on the
U.S. Trustee and counsel for the UCC.
Another dismissal hearing in the BySynergy Case was scheduled for
April 27, 2011. In a notice to continue that hearing ("April 27, 2011 Notice"),
Campbell again disclosed that he was also representing the Zitos in their
personal bankruptcy case. The April 27, 2011 Notice was served on the U.S.
Trustee and counsel for the UCC.
4
Ultimately, the BySynergy Case was converted to chapter 7 in
November 2011; the unsecured creditors received nothing in the case.
Collins received notice of the case's conversion on December 6, 2011. His
notes from that date indicate that he asked a firm employee to determine if
the firm had ever filed a proof of claim on behalf of the Douglass clients.
C. The Zitos' personal bankruptcy case
Meanwhile, on October 13, 2009, the Zitos filed, pro se, an individual
chapter 11 bankruptcy case ("Zito Case"). They did not list Douglass
Enterprises, Jay Douglass or the Personal Guarantee debt on their
bankruptcy schedules. The Zitos maintained that they inadvertently left
out of their personal bankruptcy schedules any debts related to
BySynergy's liabilities. The last date for filing proofs of claims in the Zito
Case was December 8, 2011.3
The bankruptcy court confirmed the Zitos' plan of reorganization on
February 2, 2012, which provided a 100% payment to unsecured creditors,
and on October 9, 2012, the court entered the Final Decree and Discharge
Order. The Zitos did not provide copies of or notice to Douglass
Enterprises of the claims bar date, the disclosure statement hearing, the
disclosure statement order, the plan or plan confirmation order, or any
3
The bankruptcy court noted that the claims bar date in the Zito Case was
August 12, 2011. This conflicts with the parties' position that the claims bar date was
December 8, 2011. In any case, if Collins's representation of the Douglass clients ended
in February 2010, this was long before either date.
5
other filing in the case prior to August 16, 2013 — the day the Zitos sought
to reopen the Zito Case.
D. The Zitos' motion for determination
On April 8, 2013, state court counsel for Douglass Enterprises sent a
letter to the Zitos demanding payment of the $1.6 million then owed on the
BySynergy note. If they did not pay, Douglass Enterprises would pursue its
remedies in state court.
Two days later, Mr. Zito sent a series of emails ("April 2013 Emails")
to several individuals, including BySynergy employees and personal
friends, Steven Bernard and James Hofbauer, expressing his concerns over
the demand letter. In the April 2013 Emails, Mr. Zito stated:
Betty and I were served with a massive lawsuit for $2,000,000
from a creditor, Douglass Enterprises, a BySynergy creditor. It’s
a very problematic lawsuit, because Betty and I are being sued as
'Guarantors' of a $170,000 obligation signed by BySynergy back in
March of 2007. That debt and all other debts were legally
extinguished in the BySynergy Ch. 7 BK in May of 2012. But, still
this guy are (sic) claiming that he is owed default interest of 100%
per annum compounded on $170,000, so the amount I owe is
today $2,070,000.
He is claiming that since he did not know I was in BK, he
therefore could not file a claim, his debt was NOT discharged, and
Betty and I still owe him the money. . . .
This has big implications for us because, as sole Manager of all
our companies, I have a legal obligation to disclose this kind of
6
stuff back east, and that could probably delay funding, after I sign
the stock purchase agreement. If I am compromised, so is (sic) our
companies.
Here are the key points under consideration:
...
3. A creditor, if aware of a BK affecting his obligation, has a legal
duty to file a claim in that BK court, in a timely manner. Failure to
do so, especially months after the BK was discharged, is bad for
him and good for us. The guy did file a timely claim with the
BySynergy BK court, so he absolutely knew about my BK, because
both BK cases were before the same judge, and more often than
not, hearings for both were held on the same day. So, he cannot
claim he did not know about my BK.
4. . . . The judge will not allow any creditor of BySynergy to claim
they did not know of my personal BK.
After Douglass Enterprises filed suit against the Zitos in state court
for breach of the Personal Guarantee, the Zitos moved to reopen the Zito
Case so the bankruptcy court could determine whether the debt related to
the Personal Guarantee had been discharged. Although Douglass
Enterprises did not have formal notice of the Zito Case, the Zitos argued
that it had actual knowledge and notice of it, because Jay Douglass had
attended the Meeting on December 6, 2010, where attorney Campbell
announced that he was also representing the Zitos in their personal
bankruptcy case. Because the Meeting was approximately one year prior to
the claim filing deadline, the Zitos argued that Douglass Enterprises had
7
sufficient time to file a proof of claim but failed to do so. As a result, argued
the Zitos, the debt was discharged.
After the bankruptcy court reopened the Zito Case, the Zitos filed a
motion for determination that the Personal Guarantee debt had been
discharged. In addition to their argument that Douglass Enterprises gained
actual knowledge of the Zito Case at the Meeting, the Zitos argued that
Collins had notice of the Zito Case via the Employment Application and
the April 27, 2011 Notice, wherein Campbell disclosed that he was also
representing the Zitos in their personal bankruptcy case. The Zitos argued
that Collins's knowledge of the Zito Case was imputed to Douglass
Enterprises.
In opposition, Jay Douglass denied attending the Hearing or Meeting
in Prescott and stated that he had never met any of the Zito declarants who
claimed he was there. Jay Douglass maintained that on December 6, 2010,
he was in Flagstaff, his city of residence, and that he had cell phone records
and other evidence to prove it. Jay Douglass also maintained that neither
the Employment Application nor the April 27, 2011 Notice was emailed or
mailed to him, Collins or Douglass Enterprises.
E. Trial regarding notice and the bankruptcy court's decision
The bankruptcy court held a trial on the issue of whether Douglass
Enterprises had notice or actual knowledge of the Zito Case. Specifically,
the issues were: (1) whether Jay Douglass attended the Meeting on
8
December 6, 2010, in Prescott and learned or gained personal knowledge of
the Zito Case; and (2) whether Collins's and Jay Douglass's alleged receipt
of filings in the BySynergy Case that referenced the Zito Case gave notice
of the Zito Case to Douglass Enterprises. Eleven witnesses testified.
Ultimately, the court determined that the Zitos had not met their burden of
establishing that Douglass Enterprises received legally sufficient and
timely notice or knowledge of the Zito Case that would have allowed for
the timely filing of a proof of claim. As a result, the Personal Guarantee
debt was not discharged under § 523(a)(3)(A).
Specifically, the court found that the Zitos failed to establish that Jay
Douglass attended the Meeting on December 6, 2010, in Prescott. While the
court did not find the Zito witnesses' testimony deliberately untruthful, it
could not give full credibility to the accuracy of their conflicting
recollections of attendees at a meeting held nearly eight years ago. Other
than agreeing that Jay Douglass was there, they could not provide
consistent or detailed supporting recollections, such as how Jay Douglass
was dressed, whether he arrived alone or with someone else at the Prescott
courthouse on December 6, 2010, or where or if he was seated at the
Meeting. The court specifically found that Zito witness, Sedona Junaid,
"was not a fully credible witness." The court believed that perhaps
Mr. Zito's April 2013 Emails to his testifying witnesses unintentionally
implanted witness confusion between Jay Douglass's attendance at the
9
§ 341(a) meeting of creditors for the BySynergy Case and the Meeting.
Conversely, the court found Jay Douglass's testimony that he was not
in Prescott on December 6, 2010, to be both logical and credible. It was
further supported by documentary evidence of cell phone records, a credit
card bill, an athletic club attendance record, and credible testimony of his
assistant, his business partner, and a cellular phone forensics expert
witness. It made no sense to the court that an experienced businessman like
Jay Douglass, who previously understood and complied with requirements
to file a proof of claim in the BySynergy Case, would fail to take that same
action in the Zito Case had he known about it to protect the same claim.
Overall, the court concluded that the strength of Douglass Enterprises's
contrary evidence outweighed the "troubled testimony" presented by
Mr. Zito and the Zito witnesses.
The court also found that Douglass Enterprises did not receive notice
of the Zito Case through Collins's receipt of the Employment Application
and the April 27, 2011 Notice. These documents were prepared and filed
well past the February 23, 2010 date on which the court found that the
Douglass clients and the Collins firm agreed to terminate legal
representation. Collins had no legal duty to review any pleadings after
that, and the court found his testimony that he did not review them to be
both logical and credible. The court also found that the Zitos had not
established that Douglass Enterprises was alerted on its own of the Zito
10
Case through the Employment Application or the April 27, 2011 Notice.
Both documents were served only on the U.S. Trustee and counsel for the
UCC. And nothing in the record established that the Bankruptcy Noticing
Center served notice of either pleading on any other creditor or party.
Lastly, the court found that there was no nexus between Douglass
Enterprises's retention of the Collins firm in the BySynergy Case to pursue
the direct claim against BySynergy and Douglass Enterprises's guarantee
claim against the Zitos personally, for which the firm was not retained. The
fee agreement said nothing about the Zito Case or collecting on the
Personal Guarantee. The firm's billings and representation of the Douglass
clients concluded on February 23, 2010, and billings were only for the
BySynergy Case; no time was billed for the Zito Case or any services
relating to the Personal Guarantee. The legal representation concluded well
before the Meeting, the submission of the pleadings mentioning the Zito
Case, and the claims bar date in the Zito Case. Although Collins knew
about the Personal Guarantee, the court found there was no evidence
establishing that he had knowledge of the Zito Case. Nor was any evidence
presented that he discussed the Zito Case with the Douglass clients.
The court entered a judgment in favor of Douglass Enterprises and
against the Zitos ("Judgment"). This timely appeal followed.
II. JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and
11
157(b)(2)(I). We have jurisdiction under 28 U.S.C. § 158.4
III. ISSUE
Did the bankruptcy court err in determining that the Personal
Guarantee debt was not discharged in the Zito Case under § 523(a)(3)(A)?
IV. STANDARDS OF REVIEW
When reviewing a bankruptcy court's determination of an exception
to discharge claim, we review its findings of fact for clear error and its
conclusions of law de novo. Oney v. Weinberg (In re Weinberg), 410 B.R. 19,
28 (9th Cir. BAP 2009). A court's factual determination is clearly erroneous
if it is illogical, implausible, or without support in the record. Retz v.
Samson (In re Retz), 606 F.3d 1189, 1196 (9th Cir. 2010). The bankruptcy
court's choice among multiple plausible views of the evidence cannot be
clearly erroneous. Anderson v. City of Bessemer City, 470 U.S. 564, 573-75
(1985); United States v. Elliott, 322 F.3d 710, 715 (9th Cir. 2003); Ng v. Farmer
(In re Ng), 477 B.R. 118, 132 (9th Cir. BAP 2012). The deference owed to the
bankruptcy court is heightened where its choice is based on the credibility
of live witnesses. Anderson, 470 U.S. at 575.
4
Douglass Enterprises argues that this appeal is moot because the bankruptcy
court has since closed the Zito Case. It cites no authority for this proposition. To the
contrary, the closing of the Zito Case has no effect on the viability of this appeal or the
Panel's ability to grant relief. See Menk v. Lapaglia (In re Menk), 241 B.R. 896, 905-06 (9th
Cir. BAP 1999).
12
V. DISCUSSION
A. The bankruptcy court did not err in determining that the Personal
Guarantee debt was not discharged in the Zito Case.
1. Section 523(a)(3)(A)
Section 523(a)(3)(A)5 governs the dischargeability of unscheduled
debts. It excepts from discharge unscheduled debts that are not of the type
described in § 523(a)(2), (a)(4) or (a)(6), where the creditor had no notice or
actual knowledge of the case in time to file a timely proof of claim.
§ 523(a)(3)(A). See also Mahakian v. William Maxwell Invs., LLC (In re
Mahakian), 529 B.R. 268, 275 (9th Cir. BAP 2015) ("The language contained
in § 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
5
Section 523(a)(3)(A) provides, in pertinent part:
(a) A discharge under section . . . 1141 . . . of this title does not discharge an
individual debtor from any debt —
(3) 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 —
(A) if such debt is not of a kind specified in paragraph (2), (4), or (6)
of this subsection, timely filing of a proof of claim, unless such
creditor had notice or actual knowledge of the case in time for such
timely filing[.]
13
claim].").6 Conversely, if the unscheduled creditor had notice or actual
knowledge of the case in time to file a timely proof of claim but failed to
act, then the debt is discharged. The burden of proof rests with the debtor
to establish the "exception to the exception" by proving that the creditor
had notice or actual knowledge of the bankruptcy. Hill v. Smith, 260 U.S.
592, 595 (1923); see also Jodoin v. Samayoa (In re Jodoin), 209 B.R. 132, 140-41
(9th Cir. BAP 1997).
"Notice to a creditor's attorney of a bankruptcy filing is usually
sufficient if the attorney received knowledge of it while representing his
client in enforcing a claim against the bankrupt." Lompa v. Price, 871 F.2d 97,
99 (9th Cir. 1989). However, once an attorney no longer represents a client,
notice of such filing cannot be imputed to the former client. Perle v. Fiero (In
re Perle), BAP No. CC-10-1048-PaKiL, 2010 WL 6259964, at *8 (9th Cir. BAP
Dec. 6, 2010), aff'd, 725 F.3d 1023 (9th Cir. 2013) ("The bankruptcy court had
evidence that Russo had not represented Fiero in the NASD Arbitration for
three years at the time of Perle's bankruptcy filing. Thus, information
Russo might have obtained regarding Perle's bankruptcy was not within
the 'scope and duration' of Russo's retention as Fiero's attorney in the
NASD Arbitration Award, and such knowledge would not be imputed to
6
The Ninth Circuit recognizes an exception to the operation of § 523(a)(3)(A) in
no-asset cases (i.e., chapter 7) where no bar date has been set for filing proofs of claims.
See Beezley v. Cal. Land Title Co. (In re Beezley), 994 F.2d 1433 (1992). The Zito Case was an
asset case, however.
14
Fiero.").
The Zitos did not schedule Douglass Enterprises or the Personal
Guarantee debt in the Zito Case. Thus, in order for the debt to have been
discharged, the Zitos had to prove that Douglass Enterprises had notice or
actual knowledge of the Zito Case in time to file a timely proof of claim.
The bankruptcy court found that the Zitos failed to meet their burden of
proof on that issue.
2. Analysis
The Zitos assign a number of errors to the bankruptcy court's
decision regarding notice. They primarily contest only the court's findings
of fact. We address each of their arguments in turn.
First, the Zitos assert that the bankruptcy court improperly
impeached their witnesses' testimony by considering inconsistent
statements as substantive evidence. We disagree. The court was free to
consider such statements as substantive evidence under Fed. R. Evid.
801(d)(1)(A).7 The Zitos' reliance on an Arizona criminal case applying the
7
Fed. R. Evid. 801(d)(1)(A) provides:
(d) Statements That Are Not Hearsay. A statement that meets the following
conditions is not hearsay:
(1) A Declarant-Witness' Prior Statement. The declarant testifies and is
subject to cross-examination about a prior statement, and the statement:
(continued...)
15
Arizona Rules of Evidence is misplaced. Arizona evidence rules are not
applicable to a federal proceeding.
Douglass Enterprises deposed the Zito witnesses prior to trial and
referenced their prior statements made under oath when testing their trial
testimony. Trial testimony showed that their accounts of the December 6,
2010 Hearing and Meeting were not only inconsistent with their own
deposition testimony, but their testimony also was inconsistent with each
other. Other than agreeing that Jay Douglass was in attendance at the
Meeting and did not speak, they provided inconsistent accounts as to who
rode in the car to Prescott with Mr. Zito that day, whether Jay Douglass
came alone or with a colleague to the Prescott courthouse, whether he sat
or stood at the Meeting, whether there was a break for lunch or if the Zito
witnesses went to lunch, and what time the events of that day ended.
Contrary to the Zitos' contention, the court did not rely solely on the fact
that no one could remember what Jay Douglass was wearing that day to
conclude that the Zito witnesses' testimony was not reliable or, in some
cases, credible.
As the trier of fact, the bankruptcy court weighed the evidence
presented and found that the Zito witnesses were not as reliable and
7
(...continued)
(A) is inconsistent with the declarant’s testimony and was given
under penalty of perjury at a trial, hearing, or other proceeding or
in a deposition[.]
16
credible as the witnesses for Douglass Enterprises. We cannot conclude
that the court's findings as to the reliability and credibility of the witnesses
were illogical, implausible or without support in the record.
Second, the Zitos take issue with the bankruptcy court's belief that
the April 2013 Emails unintentionally implanted witness confusion
between the Meeting and the § 341(a) meeting Jay Douglass said he
attended. They maintain that this belief was not supported by any extrinsic
evidence such as expert psychological testimony. No "extrinsic" evidence
such as the Zitos suggest was necessary for the court's reasonable inference
that the Zito witnesses may have been confused about Jay Douglass's
attendance at the Meeting in light of the April 2013 Emails and their
content. The court's inference is further supported by the Zito witnesses'
inconsistent testimony as noted.
Third, the Zitos argue that the bankruptcy court erred by applying a
double standard when considering each party's self-interest. Precisely, the
Zitos take issue with the court's conclusion that Mr. Zito had a "clear
personal incentive to convince himself he recalls such attendance (by Jay
Douglass at the Meeting) to avoid the very appreciable injury of a seven-
figure claim being held non-dischargeable," but yet the court did not apply
this same standard to the witnesses for Douglass Enterprises. Each party's
self-interest was obvious and recognized by the court: the Zitos wanted the
Personal Guarantee debt to be declared discharged; Douglass Enterprises
17
did not. The court did not, as the Zitos suggest, apply a double standard.
After examining the evidence, it simply found the testimony and
documentary evidence presented by Douglass Enterprises to be logical and
more credible. We reject the Zitos' additional argument that it was illogical
or implausible for the court to assume that they were worried about the
Personal Guarantee debt. Of course they were. In any case, any defenses
they have in the breach of contract litigation are fully preserved and can be
asserted in the state court.
Fourth, the Zitos contend the bankruptcy court erred in concluding
that they did not meet their burden of proof to establish that Douglass
Enterprises received notice of the Zito Case through Collins. They argue
that "no proof" was presented at trial that Collins's representation of the
Douglass clients ended on February 23, 2010. To the contrary, both Jay
Douglass and Collins testified to this fact. Their testimony was further
supported by the billing records from the Collins firm, which showed that
the last day Collins did any work on the BySynergy Case was February 23,
2010. The fact that Collins did not file a notice of withdrawal in the
BySynergy Case did not negate the men's testimony that the attorney-client
relationship ended on February 23, 2010.
The Zitos' speculation that the representation ended on some other
date is merely that — speculation. Mr. Zito conceded at trial he had no
evidence that Collins or any other attorney appeared for the Douglass
18
clients after that date. Accordingly, with Collins no longer representing the
Douglass clients after February 23, 2010, notice of the Zito Case from his
alleged receipt of any subsequent BySynergy filings, such as the
Employment Application and the April 27, 2011 Notice, could not be
imputed to Douglass Enterprises.
The Zitos also take issue with the bankruptcy court's conclusion that
a nexus did not exist between the Douglass clients' retention of Collins to
protect the BySynergy claim in the BySynergy Case and the Personal
Guarantee claim. Douglass Enterprises had argued that notice to creditor's
counsel is presumed to satisfy both bankruptcy and due process notice
requirements as to the creditor only "so long as there is a nexus between
the creditor's retention of the attorney and the creditor's claim against the
debtor." Vicenty v. Sandoval (In re Sandoval), 327 B.R. 493, 508 (1st Cir. BAP
2005). The Zitos argue that there can be no doubt that a nexus existed here,
because the two claims derived from the same transaction.
Although it is true that the two claims arose out of the same
transaction, the evidence at trial was: (1) the fee agreement showed that
the scope of Collins's representation was to protect the BySynergy claim in
the BySynergy Case; (2) the firm's billing records showed no evidence of
any work done for the Personal Guarantee; (3) Collins testified that he did
no work regarding the Personal Guarantee; and (4) Jay Douglass testified
that he did not hire Collins to pursue the Personal Guarantee, because a
19
less expensive, non-bankruptcy attorney could pursue that claim. While
Collins knew about the Personal Guarantee, the court concluded based on
the undisputed evidence that no nexus existed "between Creditor's
retention of the firm in the corporate case to pursue the direct claim against
BySynergy and Creditor's guarantee claim against the Zitos personally, for
which the firm was not retained." Even assuming the requirement of a
"nexus" is the law in this circuit, we see no error in the bankruptcy court's
determination.8
Fifth, the Zitos spend a great deal of time quibbling about the quality
of evidence that was presented (or evidence that Douglass Enterprises
failed to present) on Jay Douglass's whereabouts on December 6, 2010, and
argue that the bankruptcy court erred in concluding that he did not attend
the Meeting in Prescott. Again, as the trier of fact, the court weighed the
evidence presented and found that the Zitos had not established by a
preponderance of the evidence that Jay Douglass attended the Meeting.
When multiple plausible views of the evidence are possible, the court's
choice among them cannot be clearly erroneous. Anderson, 470 U.S. at
573-75. Even if the Zitos were correct that the court misconstrued the
evidence and Jay Douglass was at the Meeting, they presented no evidence
8
The Zitos' reliance on Noland Co. v. Graver Tank & Manufacturing Co., 301 F.2d
43 (4th Cir. 1962), and Schwab v. Erie Lackawanna Railroad Co., 438 F.2d 62 (3d Cir. 1971),
is misplaced. Neither case involved the issue of a creditor's retention of an attorney and
the creditor's claim against a debtor.
20
establishing that he learned or gained knowledge of the Zito Case there.9
The Zitos also fail to explain why they never amended their schedules to
include Douglass Enterprises and the Personal Guarantee debt. See, e.g.,
Hamilton v. State Farm Fire & Cas. Co., 270 F.3d 778, 784 (9th Cir. 2001) (a
debtor is under a continuing duty to amend his or her bankruptcy
schedules and statement of financial affairs).
Lastly, the Zitos argue that Douglass Enterprises inequitably delayed
enforcement of the Personal Guarantee. This has no relevance to the issue
that was before the bankruptcy court, but might be something for the state
court to consider. In any event, the Zitos do not contest that the claim of
Douglass Enterprises is subject to a six-year statute of limitations, and that
the breach of contract action was filed within that limitation. See A.R.S.
§ 12-548 (Contract in writing — "An action for debt shall be commenced
and prosecuted within six years after the cause of action accrues . . . ."). In
addition, Jay Douglass explained his reasons for why he did not sue the
Zitos right away, which the bankruptcy court found to be credible.
VI. CONCLUSION
In summary, the Zitos had a duty to list Douglass Enterprises and the
9
To the extent the Zitos argue that the evidence presented by Douglass
Enterprises was hearsay, we decline to consider this argument since it was never raised
before the bankruptcy court. See Smith v. Marsh, 194 F.3d 1045, 1052 (9th Cir. 1999) ("As
a general rule, we will not consider arguments that are raised for the first time on
appeal.").
21
Personal Guarantee in their schedules. When they failed to do that, they
had the burden under § 523(a)(3)(A) to prove that Douglass Enterprises
had notice or actual knowledge of the Zito Case in time for it to file a timely
proof of claim. They did not do so. As the bankruptcy court correctly
observed, given Jay Douglass's timely participation in the BySynergy Case,
it defies logic that he chose not to participate in the Zito Case if he in fact
had notice of it. Seeing no error by the bankruptcy court, we AFFIRM the
Judgment.
22