TERRY L. MYERS, CHIEF U.S. BANKRUPTCY JUDGE.
S.D. Sanders, Inc. and Steve Sanders ("Plaintiffs") assert that chapter 7 debtor Ronald Hazard ("Hazard") owes debts that
On October 2, 2015, Hazard filed a second motion for summary judgment, Adv. Doc. No. 53 ("Motion"), again seeking dismissal on the basis that applicable statutes of limitations bar this action. In support of this renewed Motion, Hazard filed multiple declarations along with supporting documents, and Plaintiffs responded in kind. Adv. Docs. 55, 56, and 63. Oral argument was heard on November 16, 2015, and the Motion taken under advisement.
In Hazard I, the Court summarized the applicable summary judgment standards. Id. at *1-2. Those standards still apply.
Hazard I also laid out at length the undisputed facts as established by the parties' submissions. Id. at *2-5. The Decision today addresses the same and, importantly, some additional undisputed facts that were not previously before the Court but established by the new submissions.
Steve Sanders and Hazard, and their companies,
Id. at *3.
The state court resolved one issue. It affirmed a decision of an arbitrator, Senior Judge George Reinhardt ("Arbitrator"), that held the parties' so-called Sandstone Workout Agreement was neither valid nor enforceable. Adv. Doc. No. 55 at 10-15
The state court case was effectively idle for several years while the arbitration proceeded. The state court ultimately dismissed the civil case for inactivity in September 2012, four years after Plaintiffs initially filed suit, and three years after they filed a second amended complaint. Adv. Doc. No. 63-4. The state court based its dismissal on Idaho Rule of Civil Procedure 40(c), despite Plaintiffs' argument that the parties were "actively engaged" in the court-ordered arbitration of "all their disputed claims." Plaintiffs sought reconsideration, which was denied on December 28, 2012. Adv. Doc. No. 63-5.
Though the case was gone, the arbitration continued. Hazard later filed a motion to also dismiss the arbitration. That motion was brought under Idaho Rule of Civil Procedure 41(b) for failure to prosecute. The Arbitrator denied that motion on March 1, 2013. Adv. Doc. No. 54 at 49-52 (decision re: motion to dismiss). Though the Arbitrator found fault with Plaintiffs' handling of the arbitration (i.e., failing without good cause to pursue the claims, failing to cooperate with Hazard's counsel, and unreasonable delay), he concluded dismissal of the arbitration with prejudice would be "an unduly harsh penalty" and that a dismissal for such reasons rather than on the merits should be avoided. Id. Later, in June 2013, the Arbitrator denied Hazard's motion to disqualify Plaintiffs' expert witness and granted Plaintiffs' motion to compel regarding the disclosure of several records, including Hazard's personal tax returns. Adv. Doc. No. 63-8.
On July 16, 2013, the Arbitrator entered a "Decision Re: Motion to Withdraw." Adv. Doc. No. 54 at 53-59. In addition to addressing withdrawal of Hazard's counsel, Regina McCrea, the Arbitrator in this decision outlined the events in the matter, which had commenced in 2009, "in order to provide a factual background ... in the event [Plaintiffs' counsel] seeks to have this dispute litigated in [Idaho] District Court in lieu of proceeding with arbitration." Id. at 54. The Arbitrator explained that six days of hearing preceded his ruling that the Sandstone Workout Agreement was invalid and unenforceable. Id. Thereafter, between April and July, 2010, nine days of testimony and evidence was received, addressing the issues set forth in the state court case, but the hearings were "uncompleted." Id. Subsequently, Plaintiffs' lawyer, John Whelan, withdrew and was replaced by Eric Smith. However, the arbitration thereafter suffered significant additional delays. Id. at 55-56.
McCrea had served as Hazard's attorney since 2010 after Hazard's original counsel, Charles Dean, withdrew based on Hazard's inability to pay for his services. In 2013, McCrea filed a motion to withdraw as counsel on the grounds that Hazard could no longer pay for her services and owed her approximately $18,000, and also because "irreconcilable differences [had] arisen between ... McCrea and [Hazard] concerning the production of certain tax documents to [Plaintiffs]." Id. at 54, 56. The order granting McCrea's motion was made on July 16, 2013, a week before the arbitration had been scheduled to recommence on July 23, 2013. Id. at 56.
Upon granting McCrea's motion, the Arbitrator recognized that he was not in a
Adv. Doc. No. 54 at 57. The Arbitrator then opined:
Id. at 57-58.
Plaintiffs thereafter filed a motion to reopen the state court case, which was heard on December 10, 2013. Adv. Doc. No. 56 at 11-38 (transcript). The state court denied the motion to reopen at the conclusion of the hearing. Id. at 35-37. Three days later, on December 13, 2013, Hazard and his wife filed the voluntary chapter 7 petition commencing this bankruptcy.
Hazard's prior summary judgment motion contended that the claims asserted by Plaintiffs are barred by the applicable statute of limitations. This Court held in Hazard I that one limitation period, the Rule 4007(c) deadline for filing a § 523(c) adversary proceeding, was met. It also held that the statutes of limitations applicable to establishing the underlying debt had to be determined under state law:
Hazard I at *5. The applicable Idaho statutes of limitations regarding the underlying substantive claims are Idaho
The Court found in Hazard I that the state court case, No. CV-2008-6073, had been dismissed, reconsideration of dismissal had been denied, and the case remained dismissed and closed as of the date of Hazards' bankruptcy filing. Further, this Court concluded the fact that dismissal of the state court action was "without prejudice" was of no benefit to Plaintiffs because while it would allow them to file a new action, in doing so, they would be exposed to, and fail to meet, the relevant statutes of limitations. Id. at *6-7.
The problem that remained in Hazard I was due to the pendency of the arbitration proceeding after the state court action was dismissed.
In the Arbitrator's decision on the motion to withdraw, he unambiguously "recused" himself. But in doing so, at no point does he state that the arbitration is being dismissed.
While the state court case is gone and now incapable of resurrection as a § 523 action, see Hazard I, the question remains whether the same situation attends the arbitration that was pending and not dismissed as of the bankruptcy filing.
Plaintiffs argue the pending arbitration fits within the Bankruptcy Code's broad definition of claim. The Code defines "claim" as a "right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured[.]" See § 101(5)(a). Congress intended to adopt the "broadest available definition of `claim.'" Johnson v. Home State Bank, 501 U.S. 78, 83, 111 S.Ct. 2150, 115 L.Ed.2d 66 (1991).
In this case, the arbitration was still pending at the time bankruptcy was filed. Though the Arbitrator had recused himself, that did not effect a dismissal or conclusion of the arbitration. If Hazard had hired an attorney, the order suggests that the recusal would be reversed and the Arbitrator would continue to resolve whatever claims remained. The process would then end in an arbitration award.
In Idaho, either party may apply for confirmation or vacation of an arbitration award that is made under the Idaho Uniform Arbitration Act (IUAA). "Although time limitations are imposed for vacating, modifying, or correcting an award, no limitations exist in the [IUAA] which restrict the time as to when an application for confirmation of an arbitration award may be filed." Wolfe v. Farm Bureau Ins. Co., 128 Idaho 398, 913 P.2d 1168, 1172 (1996), overruled on other grounds by Jackson Hop, LLC v. Farm Bureau Mut. Ins. Co. of Idaho, 158 Idaho 894, 354 P.3d 456 (2015).
During oral argument, Hazard seemed to argue that confirmation of an arbitration award cannot be made without an open underlying case. The Idaho Code does not support that contention. Idaho Code § 7-911 states "[u]pon application of a party, the court shall confirm an award" unless a party timely seeks to vacate, modify or correct that award. Idaho Code § 7-917 clarifies that "[t]he term `court' means any court of competent jurisdiction of this state." Nothing in these or other sections of the IUAA indicates that such an application must be made in an underlying open case. Indeed, arbitrations can be commenced without any prior state court litigation between the parties at all. See Idaho Code § 7-901 (written agreement to submit controversy to arbitration is valid and enforceable); § 7-902(a) (party subject to an agreement to arbitrate where other party refuses to arbitrate may apply to court for an order requiring the parties to proceed with arbitration).
Once arbitration concluded, either party could seek judicial confirmation, vacation or modification. Under Idaho law, that could be to "any" Idaho court of competent jurisdiction, and Hazard has not established that only the state court in Case No. CV-2008-6073 could hear such requests. Indeed, in denying a motion to reconsider its dismissal of that case, the state court
Fundamentally, the arbitration was at a standstill, but it was not dismissed or concluded. Plaintiffs' claims asserted and still pending within the arbitration constitute claims under § 101(5)(A), notwithstanding that they are disputed and unliquidated.
Whatever claims against Hazard individually that were remaining before the Arbitrator as of his recusal are "claims" of Plaintiffs in the bankruptcy sense. They are thus justiciable in a § 523(a) action.
This adversary proceeding is limited to adjudication of the nondischargeability of debts asserted by Plaintiffs in the arbitration and still pending in that arbitration at the time of the bankruptcy filing. The parameters of those "claims" is not entirely clear. This Court stated in Hazard I that "[t]he parties have not provided the Court ... a summary of issues remaining before the arbitrator." Id. at *7. However, the precise identification of those claims is not required in order to deal with the present Motion, which seeks preemptively to bar any and all such issues from adjudication. Hazard's assertion of such a bar is found not well taken.
The Motion brought by Hazard will be denied. The Court will enter an order consistent with this Decision.
