I was the third attorney on this lien avoidance matter. Instead of it being “third time’s the charm”, it came close to being “three strikes and you’re out.” All because of FRBP 7041.
This was the set up: original counsel filed a number of lien avoidance actions, including the one against a landlord with a large default judgment. Motion was served, and, for reasons unknown, it was withdrawn, but not until the landlord had filed a response.
Enter the second attorney who files a lien avoidance motion against the judgment creditor, who duly responds. The court pushes the matter forward, discovery is propounded by creditor, and second counsel gets cold feet, concluding that the debtor is toast based on the attorney’s view of the facts. The motion is withdrawn.
Then I get the call, file the motion a third time, evaluate the response, and set it for hearing.
At what is essentially the pre trial conference, creditor, all of a sudden, seeks dismissal on the basis of FRBP 7041, which applies because this is a contested matter. FRBR 9014.
Bankruptcy rules make FRCP 41 applicable in adversary proceedings, with a carve out for actions to deny a discharge. For these purposes, the rule reads
(a) Voluntary Dismissal.
(1) By the Plaintiff.
(i) a notice of dismissal before the opposing party serves either an answer or a motion for summary judgment; or
(ii) a stipulation of dismissal signed by all parties who have appeared.
(B) Effect. Unless the notice or stipulation states otherwise, the dismissal is without prejudice. But if the plaintiff previously dismissed any federal- or state-court action based on or including the same claim, a notice of dismissal operates as an adjudication on the merits.
So, the moving party can dismiss his motion unilaterally if the opposing party has not responded, or by stipulation if the opposing party has answered. The sticking point for this case was whether the manner in which the prior iterations of the motion were handled triggered the provision that plaintiff’s dismissal was an adjudication on the merits.
If the “withdrawal” of the prior motions were “dismissals”, then my client was stuck with a $369,000 judgment on his home. Plus the judgment accrued interest at 10% in the intervening years.
The bankruptcy judge concluded that the “withdrawals” of the prior motions were not dismissals within the meaning of the rule, and, more importantly the BAP agreed, in an opinion marked for publication.
What the BAP concluded
The appellate panel opened its discussion by acknowledging that application of the adversary rules to contested matters is challenging, in this case because no “answer” is required to a motion. But the court accepted the stance of both parties that the opposition to the motion to avoid a lien was an “answer” for the purposes of this rule.
That determination carried the day for the debtor. The BAP reasoned that debtor’s unilateral “withdrawal” of the motion was not an effective dismissal because the creditor had answered. Thus, the first motion and its demise did not count as a dismissal for the purposes of R. 41.
That left the court with one withdrawn motion before the one taken to trial and eliminated the challenge to debtor’s prosecution of the avoidance action. The panel felt no need to weigh in on whether the more involved circumstances surrounding the second-filed motion, which still lacked a stipulation or a court order, constituted a dismissal.
By footnote, however, the BAP had more to say.
It recounted the bankruptcy court’s observation: “the lesson to be learned…by all parties, including the Court, is that if a party withdraws a motion after an objection or response has been filed, someone should raise the issue ..is this a dismissal or not…”
So far, “third time’s the charm” prevails. The matter is on appeal to the 9th Circuit.
Airport Bus. Ctr. v. Alfahel (In re Alfahel), BAP NC-22-1219-GFB (B.A.P. 9th Cir. June 1, 2023)