Bustos v. Molasky, No. 14-60080 (9th Cir. 2016)
Annotate this CaseThe second appeal in this bankruptcy proceeding involved Augustine Bustos’s efforts to pursue an exception-to-discharge claim pursuant to 11 U.S.C. 523(c) against Steven Molasky, who filed for chapter 11 bankruptcy. Bustos moved to intervene in a section 523 adversary proceeding initiated by OneCap Funding Corporation, which represented Bustos’s interest under a loan-servicing agreement. The bankruptcy court allowed Bustos to intervene but prohibited him from filing his own complaint. OneCap was later dismissed from the proceeding for failure to prosecute. The bankruptcy court dismissed the adversary proceeding in its entirety, concluding that because Bustos failed to assert a timely separate objection to dischargeability, Bustos could not continue to prosecute the action. The Bankrtupcy Appellate Panel (BAP) affirmed. The Fourth District reversed, holding that Bustos was entitled to continue prosecuting the section 523 claim originally filed by OneCap.
Court Description: Bankruptcy. The panel reversed the Bankruptcy Appellate Panel’s affirmance of the bankruptcy court’s dismissal of an adversary proceeding against a chapter 11 debtor, seeking exception to discharge of debts pursuant to 11 U.S.C. § 523(c). The panel held that an intervenor can continue to litigate as the sole remaining party in a bankruptcy proceeding involving his own claim, when the original party who represented his interest, and whose adversary complaint he adopted without filing his own, was dismissed for failure to prosecute. The panel held that after the dismissal of the original party, an independent basis for subject matter jurisdiction existed because the bankruptcy court did not dismiss or otherwise adjudicate the § 523 claim itself. In addition, the goal of judicial economy was best served by allowing the intervenor to continue litigating the timely filed § 523 claim. IN RE MOLASKY 3
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