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1 Case: /13/2012 ID: DktEntry: 14-1 Page: 1 of 3 (1 of 232) In Re: Mark C. McClanahan OR MARK C. McCLANAHAN, PC S.W. 55 th Drive Portland, OR Telephone: Facsimile: markmcclan@cs.com Admitted in the District Court Pro Hac Vice Mark E. Hall MARC J. VICTOR, P.C S. Alma School Road, Ste. 5 Chandler, AZ Telephone: Facsimile: mhall@attorneyforfreedom.com Attorneys for Appellants Amina Anwar and David C. McClanahan IN THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT D. Lee Johnson, Debtors. Amina Anwar and David C. McClanahan, CA Case No v. Appellants, D. Lee Johnson; David Lyn Vergeyle; Margaret Horne Vergeyle; and the Marital Community Composed of David Lyn Vergeyle and Margaret Horne Vergeyle, Appellees. APPELLANTS MOTION FOR EXTENSION OF TIME TO FILE OPENING BRIEF AND EXCERPTS OF RECORD PAGE 1 YMM08003

2 Case: /13/2012 ID: DktEntry: 14-1 Page: 2 of 3 (2 of 232) Motion Pursuant to FRAP 26(b) and 27 and Ninth Circuit Rule (b), Appellants move for an Order (i) extending the due date for service and filing Appellants Opening Brief and Initial Excerpts of Record to November 1, 2011; (ii) making the due date for service and filing Appellees Answering Brief and Supplemental Excerpts of Record as December 1, 2011; and (iii) amending the Time Schedule Order (filed herein July 1, 2011) accordingly. Because of the uncertainties involved in the circumstances described below, Appellants wish to reserve the right to request an additional extension should the expectations expressed in the supporting Declaration prove unattainable. This Motion is supported by the Declaration of Mark C. McClanahan attached hereto as Exhibit A, showing good cause, diligence and substantial need pursuant to Circuit Rule (b). Appellants have not designated this Motion as an Emergency Motion under Circuit Rule 27-3(a) even though action by the court on this Motion is needed in less than 21 days. Appellants are relying in that regard on the telephone advice received September 28, 2011, from the Court s Motion Attorney, Monica Fernandez, to the effect that the Emergency Motion procedure does not apply to motions for extensions. Dated September 28, /S/ Mark C. McClanahan Mark C. McClanahan, OR MARK C. McCLANAHAN, P.C S.W. 55 th Drive Portland, OR PAGE 2 YMM08003

3 Case: /13/2012 ID: DktEntry: 14-1 Page: 3 of 3 (3 of 232) Telephone: markmcclan@cs.com Facsimile: Of Attorneys for Appellants Amina Anwar and David C. McClanahan PAGE 3 YMM08003

4 Case: /13/2012 ID: DktEntry: 14-2 Page: 1 of 1 (4 of 232) In Re: No IN THE UNITED STATES COURT OF APPEALS D. LEE JOHNSON, FOR THE NINTH CIRCUIT Debtor(s) AMINA ANWAR and DAVID C. McCLANAHAN, v. Appellant(s), D. LEE JOHNSON, DAVID LYN VERGEYLE, AND THE MARITAL COMMUNITY COMPOSED OF DAVID LYN VERGEYLE AND MARGARET HORNE VERGEYLE, Appellee(s). APPELLANTS OPENING BRIEF Appeal from the Judgment of the United States District Court for the District of Arizona District Court Civil No Honorable Susan R. Bolton, United States District Judge Mark C. McClanahan OR Mark E. Hall AZ MARK C. McCLANAHAN, P.C. MARC J. VICTOR, P.C 3035 S.W. 55 th Drive 3920 S. Alma School Road, Ste. 5 Portland, OR Chandler, AZ Telephone: markmcclan@cs.com mhall@attorney for freedom.com Attorneys for Appellants Amina Anwar and David C. McClanahan

5 Case: /13/2012 ID: DktEntry: 14-3 Page: 1 of 8 (5 of 232) i Table of Contents Page JURISDICTION 1 A. District Court 1 B. Bankruptcy Court. 2 C. Court of Appeals.. 2 ISSUES PRESENTED; STANDARDS OF REVIEW. 3 A. Issues Presented 3 B. Standards of Review. 5 STATEMENT OF THE CASE. 9 A. Nature of the Case 9 B. Course of Proceedings Administrative Proceedings; Extension of Time Adversary Proceedings in Bankruptcy Court; Dismissal of Complaints Appeal to District Court. 18 STATEMENT OF FACTS 19 A. Technical Failures 19 B. Investigation/Complexities/Diligence/Discovery of Fraud 21 SUMMARY OF ARGUMENT 30

6 Case: /13/2012 ID: DktEntry: 14-3 Page: 2 of 8 (6 of 232) ii ARGUMENT 35 I. The Dismissals Were Error Because the Filing Deadline Was Tolled Under Code 523(a)(3)(B) By Reason of the April 12 Discovery of Fraudulent Concealment 35 II. The Courts Below Erred in Failing to Exercise Equitable Discretion and In Applying Inapplicable Policies 37 A. Alternative Solutions Regarding Discretionary Relief and Standards B. The Strict Approach of the Lower Courts Should Be Rejected Here; The Fresh Start and Expedite Administration Policies Do Not Apply.. 40 C. Local Rule (n) is Valid and Establishes Good Cause and Excusable Neglect as Permissible Standards for Relief from Late Filing of the Complaints The Roles of Electronic Filing, the Judicial Conference and Local Court Rules Survey of Local Rules; Addendum IV Lower Courts Other Errors on FRBP 5005(a). 58 D. With or Without Local Rule (n), Plaintiffs Were Qualified Candidates for Equitable Relief Electronic Filing Precedents Equitable Tolling and Unique Circumstances Required Evaluation of Factors.. 66 III. Alternatively, the Courts Below Erred in Assuming the Complaints Were Untimely; Inaccessibility 66 CONCLUSION. 67

7 Case: /13/2012 ID: DktEntry: 14-3 Page: 3 of 8 (7 of 232) iii Cases TABLE OF AUTHORITIES American Boat Company, Inc. v. Unknown Sunken Barge, 418 F3d 910 (8 th Cir 2005)...63 Anwiler v. Patchett, 958 F2d 925 (9 th Cir 1992), cert. den. 506 US 882 (1992)... passim Baker v. Commissioner of Social Security, 2010 WL ** 4-5 (ED Mich 2010)...64 Barr, In re, 47 BR 334 (ED NY 1985)...46 Beachport Entertainment, In re, v. California State University, 396 F3d 1083 (9 th Cir 2005)...6, 7 Bilbruck v. BNSF Railway Company, 243 Fed Appx 293, 2007 WL (9 th Cir 2007)... 40, 62 Blewett, In re, 14 BR 840 (9 th Cir BAP 1981) Bowles v. Russell, 551 US 205 (2007)... 65, 66 Camus, In re, 386 BR 396 (Bkr D Conn 2008)... 8 Cooter & Gell v. Hartmarx Corporation, 496 US 384 (1990)... 6 Croston, In re, 313 BR 447 (9 th Cir BAP 2004)...44 De la Cruz, In re, 176 BR 19 (9 th Cir BAP 1994)...46 Dewalt, In re, 961 F2d 848, (9 th Cir 1992)...6, 8 Eminence Capital, LLC v. Aspeon, Inc., 316 F3d 1048 (9 th Cir 2003)... 7 English-Speaking Union v. Johnson, 353 F3d 1013 (DC Cir 2004)... 8 Enron, In re, 419 F3d 115 (2 nd Cir 2005)...39 Evans v. Bantek West, Inc., 2009 WL (ED Cal 2009) Fernandez, In re, 227 BR 174 (BAP 9 th Cir 1998), aff d 208 F3d 220 (9 th Cir 2000)... 8 Foman v. Davis, 371 US 178 (1962)... 7, 45, 53 Forsythe, In re, 2005 WL * 4 (Bkcy SD Ohio 2005)...62 Gordon, In re, 988 F2d 1000 (9 th Cir, March 23, 1993)...46 Grogan v. Garner, 498 US 279 (1991)... passim Grove v. Mead School Dist. No. 354, 753 F2d 1528 (9 th Cir 1985)... 8 Halstead, In re, 158 BR 485 (9 th Cir BAP 1993)... 6 Harris Truck Lines, Inc. v. Cherry Meat Packers, Inc., 371 US 215 (1962)...66 Harris, In re, 464 F3d 263 (2d Cir 2006)...8, 45

8 Case: /13/2012 ID: DktEntry: 14-3 Page: 4 of 8 (8 of 232) iv Hill, In re,811 F2d 484 (9 th Cir, February 24, 1987)...46 Isaacman, In re, 26 F3d 629 (6 th Cir 1994)... 6, 45, 65 James v. Jacobson, 6 F3d 233 (4 th Cir 1993)... 6 Kennerley, In re, 995 F2d 145 (9th Cir 1993)...65 Kontrick v. Ryan, 540 US 443 (2004)... passim Leavitt, In re, 171 F3d 1219 (9 th Cir 1999)... 7, 39, 44 Magouirk, In re, 693 F2d 948 (9 th Cir 1982)... 8, 45, 47 Markus, In re, 313 F3d 1146 (9 th Cir 2002)...22 Marrama v. Citizens Bank of Massachusetts, 549 US 365 (2007)... passim Maughan, In re, 340 F3d 337 (6 th Cir 2003)... passim Mezvinsky, In re, 2001 WL **4-5 (Bkcy ED Pa, Oct. 5, 2001). 51, 60, 61 Otte, In re, 2004 WL ** 2-3 (Bkcy D Kan 2004)...64 Pauley v. Ball Metal Beverage Container Corporation, 2005 WL * 2 (WD Mo 2005), aff d 460 F3d 1069 (8 th Cir 2006)...63 Phillips, In re, 288 BR 585 (Bkcy MD Ga 2002)...64 Phoenix Global Ventures, LLC v. Phoenix Hotel Associates Ltd., 2004 WL ** 4-5 (SD NY 2004) aff d on broader grounds 422 F3d 72 (2 nd Cir 2005)...61 Phoenix Global Ventures, LLC v. Phoenix Hotel Associates, Ltd., 422 F3d 72 (2d Cir 2005)... 40, 61, 62 Pincay v. Andrews, 389 F3d 853 (9 th Cir 2004), cert. den. 544 US 961 (2005);...7, 39, 44, 53 Pioneer Investment Service Co. v. Brunswick Associates Ltd. Partnership, 507 US 380 (1993)... 7, 39, 44 Polinski, In re, No. NC JuMkK, 2008 WL , at * 3 (9 th Cir. B.A.P. Feb. 19, 2008)... 41, 46 Rhodes, In re [Donald D.], 71 BR 206 (9 th Cir BAP 1987)... 45, 46 Rhodes, In re [Herbert B.], 61 BR 626 (9 th Cir BAP May 23, 1986)...45 Robinson v. Wix Filtration Corporation LLC, 599 F3d 403 (4 th Cir 2010)...64 Romano, In re, 262 BR 429 (ND Ohio 2001),... 36, 37 Rosson, In re, 545 F 3d 764 (9 th Cir 2008)...6, 44 Rutherford, In re, 427 BR 656 (SD Ohio 2010)...63 Santos, In re, 112 BR 1001 (9 th Cir BAP 1990)... 40, 46, 47 Sierra Switchboard Co. v. Westinghouse Electric Corporation, 789 F2d 705 (9 th Cir 1986)... 8

9 Case: /13/2012 ID: DktEntry: 14-3 Page: 5 of 8 (9 of 232) v Silivanch v. Celebrity Cruises, Inc., 333 F3d 355 (2 nd Cir 2003), cert. den. 540 US 1105 (2004)...39 Somlyo v. J. Lu-Rob Enters., Inc., 932 F.2d 1043 (2d Cir. 1991)...61 SPR Corporation, In re, 45 F3d 70 (4 th Cir 1995)... 8 Taylor v. Freeland & Kronz, 503 US 638 (1992)...44 Thompson v. INS, 375 US 384 (1964)...66 United States Securities and Exchange Commission v. Maxxon, Inc., 465 F3d 1174 (10 th Cir 2006), cert. den. 550 US 905 (2007)...64 United States v. Davis, 645 F Supp 2d 541 (WD N Carolina 2009)...63 University of West Virginia Board of Trustees v. Vanvoorhies, 342 F3d 1290 (Fed Cir 2003)... 6 Woods, In re, 69 BR 999 (ED Pa 1987)...22 Local Rules, U.S. Bankruptcy Court, District of Arizona Local Rule passim Local Rule (n)... passim Federal Statutes 11 USC 101(31)) USC 105(a)... passim 11 USC passim 11 USC 523(a)... passim 11 USC 523(a)(2), (4) and (6) USC 523(a)(3)... 3, 30, USC 523(a)(3)(B) , 37,41,67 11 USC USC USC 158(a) and (c)...1, 2 28 USC 158(d) USC USC USC USC

10 Case: /13/2012 ID: DktEntry: 14-3 Page: 6 of 8 (10 of 232) vi 28 USC USC 1447(c) USC USC USC USC USC USC National Rules FRBP FRBP 4007(c)... passim FRBP 5005(a)... passim FRBP 5005(a)(2)... passim FRBP 7001(b)... 2 FRBP FRBP 7012(d)... 8 FRBP FRBP 8001(a) and (e) FRBP 8008(a)... 4 FRBP FRBP 9006(a)...4, 51 FRBP 9006(a)(3) and (4)... passim FRBP 9006(b)... passim FRBP 9006(f)...54 FRBP passim FRBP FRBP 9029(a)... 4 FRBP 9029(a)(1)...54

11 Case: /13/2012 ID: DktEntry: 14-3 Page: 7 of 8 (11 of 232) vii FRCP FRCP 5(d)(3)... 32,54 FRCPs 6 (holidays), 6(a) and (d), 15(a)(3), 33(b)(2), 34(b)(2)(A)...54 FRCP FRCP 12(d)... 8 FRCP 26 to FRCP 45(c)(2)),...26 FRCP FRCP 56(a) and (c),... 8 FRCP 60(b)... passim FRCP 60(b)(2), (3) and (6);... 7 FRCP , 54 FRCP 83(a),...55 FRCrP 12(e)...63 FRAP 4(a)(1)... 3 FRAP 25(a)(2)(D)... 53, 59 FRAP 26(c),...54 FRAP 31(b)...54 FRAP 31(b) 32(a)(2)...54 Circuit Rule Circuit Rule Other Authorities 40 ALR Fed 2d 541, Equitable Tolling of Federal Rules of Bankruptcy Procedure, Rule 4007(c) * * *....64

12 Case: /13/2012 ID: DktEntry: 14-3 Page: 8 of 8 (12 of 232) viii ADDENDUMS (In Separate Document) ADDENDUM NO. I Principal Statutes and Rules Add. I ADDENDUM NO. II Judicial Conference of the United States Add. II ADDENDUM NO. III Excerpts from Advisory Committee Notes to FRBP Rules 5005(a) and 9006(a) Add. III ADDENDUM NO. IV Local Electronic Filing Rules Regarding Electronic Filing and Technical Failures Add. IV

13 Case: /13/2012 ID: DktEntry: 14-4 Page: 1 of 68 (13 of 232) 1 JURISDICTION 1 This is an appeal from the decision of the District Court for the District of Arizona in its Case No. CIV PHX-SRB (ER 1-8) which in turn was an appeal from final orders of the Bankruptcy Court for the District of Arizona entered in the jointly administered adversary proceedings under the Bankruptcy Court caption In re D. Lee Johnson, Debtor; Amina Anwar and David C. McClanahan, Plaintiffs, v. D. Lee Johnson, Defendant, Adv. Proc. No. 2: RTB, but encompassing both the Johnson adversary proceeding and the one captioned In re David Lyn Vergeyl [et ux] * * *, Debtors; Amina Anwar and David C. McClanahan, Plaintiffs, v. David Lyn Vergeyle [et ux], Adv. Proc. No. 2:10-ap SSC. (ER 9-16) A. District Court. Jurisdiction of the District Court to hear the appeal was pursuant to 28 USC 158(a) and (c) and 1334 and FRBP 8001(a) and (e). The final orders of the Bankruptcy Court appealed to the District Court had dismissed with prejudice Plaintiffs complaints filed pursuant to 11 USC 523(a) objecting to Debtors discharge from particular debts. Those orders had been filed September 7, 2010, and entered September 8, The Bankruptcy Court had 1 Citations to sections of the Code refer to sections of the Bankruptcy Code Title 11 USC; to FRCP refer to Federal Rules of Civil Procedure; to FRBP refer to the national Federal Rules of Bankruptcy Procedure; to Local Rule or LR refer to the Local Rules of Bankruptcy Procedure for the District of Arizona. Add refers to Addendums I to IV to this Opening Brief.

14 Case: /13/2012 ID: DktEntry: 14-4 Page: 2 of 68 (14 of 232) 2 granted Appellees /Debtors motions to dismiss Plaintiffs complaints and denied Plaintiffs motions for relief. The dismissals were with prejudice and on the ground that the complaints were not filed within the time permitted by FRBP 4007(c) in that they were filed electronically about 27 and 38 minutes after midnight of the bar date. Appellants Notices of Appeal to the District Court and separate elections to have the appeals heard by that court were filed September 21, 2010, and entered September 22, (ER ) B. Bankruptcy Court. The Bankruptcy Court as a unit of the District Court had had jurisdiction of this core proceeding pursuant to 28 USC 151, 157(b)(2)(I) and 1334(b); FRBPs 7001(b) and 7003; and FRCPs 3 and 46. Such jurisdiction was also based on 28 USC 1331 (federal question); 1332 (diversity of citizenship); 2201 and 2202 (declaratory judgment); and on ERISA, 29 USC 1001 et seq. and C. Court of Appeals. This Court has jurisdiction under 28 USC 158(d) and The decision of the District Court so appealed was its final Order and memorandum opinion filed June 3, 2011, affirming the above described decision of the Bankruptcy Court and directing entry of judgment for Appellees. The District Court Clerk s Judgment on the District Court s order was filed and entered in the District Court June 3, 2011, and in the Bankruptcy Court June 6, (ER 1-8) The Notice of

15 Case: /13/2012 ID: DktEntry: 14-4 Page: 3 of 68 (15 of 232) 3 Appeal to this Court was filed with the Clerk of the District Court June 30, 2011, within the time allowed (FRAP 4(a)(1)) and a copy was filed in the Bankruptcy Court July 2, 2011, (ER 87-90, )). ISSUES PRESENTED; STANDARDS OF REVIEW A. Issues Presented (a) Were the tort claims alleged in Plaintiff s Complaints neither listed nor scheduled within the meaning of Code 523(a)(3)? (b) If not so listed and scheduled, then within the meaning of sub-subparagraph (B) of Code 523(a)(3), were there triable issues of fact as to some or all of such tort claims on whether Plaintiffs had sufficient time to permit * * * timely filing of their requests for determination of non-dischargeability? (ER A, , ) 2. (a) Is the Bankruptcy Court s Local Rule (n) authorized by FRBP 5005(a)(2) and valid in conferring equitable discretion on the court to relieve Plaintiffs untimely electronic filings of the complaints? (b) If so, may such relief be based on grounds of good cause or excusable neglect? (ER G, , (and Exs. I and II), , 39-43) 2 Per Circuit Rule 28-5, citations to the record where that respective issue was raised are in parenthesis after each numbered issue. These may not be the only place where the issue was raised.

16 Case: /13/2012 ID: DktEntry: 14-4 Page: 4 of 68 (16 of 232) 4 3. In any event, did the Bankruptcy Court have discretionary power to relieve the untimeliness pursuant to (i) Code 105(a) or (ii) the inherent broad equitable powers and rulemaking powers of that court or (iii) such equitable powers under 28 USC 2071 and 2075; the All Writs Act (28 USC 1651); FRBPs 8008(a), 9006(a), 9024 and 9029(a); or FRCP 60(b)? (Same record as 2 above) 4. Did the Bankruptcy Court err (a) in failing to exercise such discretion and (b) by failing to give consideration to or explain its evaluation of the technical failures in the electronic filings attempted and of the factors pertaining to good cause; or excusable neglect; or exceptional, emergency or unusual circumstances; and lack of prejudice? (Same record as 2 above) 5. Did the fresh start and prompt administration of estates policies, applicable to determining the occurrence or consequences of some kinds of untimeliness in bankruptcy proceedings, apply to determining consequences of less than 40 minutes of untimeliness in the dead of night of complaints under Code 523(a) objecting to discharge on the grounds of fraud? (ER 391E to G) 6. Regarding the diligence issue, (a) Did Plaintiffs factual showing and Debtors failure to make any factual showing or to contest Plaintiffs showing establish good cause or excusable neglect or entitlement to equitable relief as a matter of law?

17 Case: /13/2012 ID: DktEntry: 14-4 Page: 5 of 68 (17 of 232) 5 (b) If not, did the record establish triable questions of fact on those issues? (ER A, , , , 229, (Exhibit X)) 7. In any event, was dismissal overly harsh in light of the shortness of the period of untimeliness and the impossibility that it could have prejudiced anyone or court administration of the bankruptcy estates or delayed any court proceedings? (ER ) 8. Alternatively, (a) was the Clerk s office inaccessible at the critical times within the meaning of FRBP 9006(a)(3) and (4) such that the Complaints actually were timely, or (b) were there triable questions of fact on that issue? (ER 385, , , 43) Addendums to Brief. Per Circuit Rule , Addendums I to IV to this Brief are bound and indexed separately. B. Standards of Review. All of the above described Issues Presented are reviewed here de novo for error of law, except that factual issues in Issues 1 and 8 above are reviewed further on the summary judgment/clearly erroneous standard. Each of the opinions

18 Case: /13/2012 ID: DktEntry: 14-4 Page: 6 of 68 (18 of 232) 6 below was premised on the understanding that it was, respectively, deciding and reviewing only issues of law. (ER 5) More specifically: 1. On appeal from a district court s affirmance of a bankruptcy court decision, this court independently reviews the bankruptcy court s decision, without giving deference to the district court. In re Rosson, 545 F 3d 764, 771 (9 th Cir 2008). 2. When as here lower courts have declined to exercise discretion and the appellant asserts that the law required the exercise of it, the standard of review of that refusal is de novo for error of law. See In re Dewalt, 961 F2d 848, 850 (9 th Cir 1992); and cf. In re Blewett, 14 BR 840 (9 th Cir BAP 1981). Even if the abuse of discretion standard is nominally employed, the rule is still that a per se ground for reversal is (1) a failure of the court to exercise discretion when the law requires its exercise or (2) a failure to consider or explain evaluation of recognized factors. See Cooter & Gell v. Hartmarx Corporation, 496 US 384, (1990); In re Beachport Entertainment v. California State University, 396 F3d 1083 (9 th Cir 2005); In re Halstead, 158 BR 485, 487 (9 th Cir BAP 1993); In re Isaacman, 26 F3d 629, 630, 633, 636 (6 th Cir 1994); University of West Virginia Board of Trustees v. Vanvoorhies, 342 F3d 1290, 1294 (Fed Cir 2003); and James v. Jacobson, 6 F3d 233, 239 (4 th Cir 1993).

19 Case: /13/2012 ID: DktEntry: 14-4 Page: 7 of 68 (19 of 232) 7 3. The questions on whether and how the Bankruptcy Court or District Court should have dealt with the issues of entitlement to equitable relief, good cause and excusable neglect are also reviewed (a) as to factual matters of diligence, on the summary judgment standards (see below); (b) more specifically, for appropriate consideration and evaluation of the several factors (especially lack of prejudice) as approved in Pioneer Investment Service Co. v. Brunswick Associates Ltd. Partnership, 507 US 380, (1993) and as interpreted in Pincay v. Andrews, 389 F3d 853, (9 th Cir 2004), cert. den. 544 US 961 (2005); or as to good cause for fraud and concealment under Marrama v. Citizens Bank of Massachusetts, 549 US 365, , 368 n. 1, 371 (2007) and In re Leavitt, 171 F3d (9 th Cir 1999) and FRBP 9024 and its incorporation of FRCP 60(b)(2), (3) and (6); and (c) for whether the dismissal of the Complaints comports with the national policies (i) of deciding cases, when possible, on the merits rather than on mere technicalities ; (ii) of being more lenient of untimeliness when dismissal deprives a party of his or her day in court ; and (iii) of avoiding the harshness of dismissal when possible. See Foman v. Davis, 371 US 178, (1962); Eminence Capital, LLC v. Aspeon, Inc., 316 F3d 1048, (9 th Cir 2003); Beachport Entertainment, supra; Sierra Switchboard Co. v.

20 Case: /13/2012 ID: DktEntry: 14-4 Page: 8 of 68 (20 of 232) 8 Westinghouse Electric Corporation, 789 F2d 705, 707 (9 th Cir 1986); In re Magouirk, 693 F2d 948, (9 th Cir 1982); In re Harris, 464 F3d 263, (2d Cir 2006, Opinion by Sotomayor, J. then Circuit Judge); English-Speaking Union v. Johnson, 353 F3d 1013, 1021 (DC Cir 2004); and In re SPR Corporation, 45 F3d 70, (4 th Cir 1995, Panel including retired Justice Powell). 4. In reviewing the grant of the motions to dismiss the complaints the findings, assertions and assumptions of fact on which the lower courts relied in their opinions are reviewed on the clearly erroneous standard (including FRBP 8013) and the summary judgment standard of FRCP 56(a) and (c), made applicable by FRCP 12(d) and FRBPs 7012(d) and 7056, whereby reversal is required if there was a genuine dispute as to any material fact. In re Dewalt, supra; In re Camus, 386 BR 396, 397 (Bkr D Conn 2008); and cf In re Fernandez, 227 BR 174, (BAP 9 th Cir 1998), aff d 208 F3d 220 (9 th Cir 2000), citing Grove v. Mead School Dist. No. 354, 753 F2d 1528, 1533 (9 th Cir 1985). 5. The issue of whether the Clerk s office was inaccessible within the meaning of FRBP 9006(a) is reviewed (a) for whether as a matter of law it was accessible and whether the bankruptcy court gave the issue proper attention; and (b) if not, then on the genuine issue summary judgment standard. / / / /

21 Case: /13/2012 ID: DktEntry: 14-4 Page: 9 of 68 (21 of 232) 9 STATEMENT OF THE CASE A. Nature of the Case. These were Jointly Administered Adversary Proceedings in Chapter 7 bankruptcy proceedings in the District of Arizona. Plaintiffs/Appellants objected pursuant to Code 523(a)(2), (4) and (6) to the discharge of debts of Debtors/Appellees D. Lee Johnson and David Lyn Vergeyle and Margaret Horne Vergeyle, alleged to have been created by their fraudulent representations, concealment and breach of fiduciary duties. These matters arise out of the affairs of Xperex Corporation, a Silicone valley start-up; the sale of its assets on the eve of bankruptcy to UForce, Inc.; and the Xperex Chapter 7 bankruptcy proceedings pending in the Northern District of California. (ER , ) Johnson and David Vergeyle were the founders, principal shareholders and directors of Xperex; and they were, respectively the Chief Financial Officer and Chief Executive Officer of Xperex. Plaintiffs were lower level employees of Xperex. When Xperex, Johnson and Vergeyle filed bankruptcy in July and August 2009, Plaintiffs ongoing wages and other employment benefits, like those for numerous other Xperex employees, had not been being paid for several months. (ER ) B. Course of Proceedings. 1. Administrative Proceedings; Extension of Time. Plaintiffs wage claims were listed in both Johnson s and Vergeyle s Schedule F as unsecured

22 Case: /13/2012 ID: DktEntry: 14-4 Page: 10 of 68 (22 of 232) 10 non-priority claims. However, Plaintiffs claims alleged in their nondischargability complaints sounding only in tort, for fraud, interference with contractual relations and breach of fiduciary duties were neither listed nor scheduled. (See schedules at ER 711, 737, 852, 877 and Statement of Facts below, B 2 and ER ) The Johnson and Vergeyle cases were no asset cases in which creditors were instructed by the court not to file claims. (ER 942, 833) See below regarding debts scheduled and not scheduled. The respective original initial general bar dates for filing objections to discharge under Code 523 and FRBP 4007(c) were November 10, 2009, in the Johnson case and November 30, 2009, in the Vergeyle case. (ER 833, ) Plaintiffs timely motions to extend those due dates explicitly were based on factual showings of the need to investigate complexities involved (described more specifically in the Statement of Facts below) regarding (i) a mysterious security interest granted to the sister-in-law of Johnson; (ii) the Xperex operations and financing transactions; (iii) the sale of all its assets a few weeks prior to its filing bankruptcy; and (iv) Plaintiffs lack of knowledge regarding who had the business records of Xperex disclosing essential facts. (See ER , , , , , ) At the January 13, 2010, hearing on these motions for

23 Case: /13/2012 ID: DktEntry: 14-4 Page: 11 of 68 (23 of 232) 11 extension, Plaintiffs counsel, while proposing April 13 as the new bar date, warned that ultimately: He * * * may need to request additional time. (ER 530) Debtors objections to the extensions were extensively argued but they made no factual showing whatsoever contesting Plaintiffs showing above described. On February 9, 2010, the court granted Plaintiffs motions, setting a new general bar date for April 13, (ER ) Vergeyles and Johnson received their general Code 727 discharges March 19, 2010 and April 19, 2010, respectively, and the administrations of both estates are now substantially complete. (See ER 954, 957, 967, 969) 2. Adversary Proceedings in Bankruptcy Court; Dismissal of Complaints. The Adversary Proceedings here were opened electronically on April 13, 2010 in the Johnson case (Adv. Case No RTB) at 9:34 p.m. and in the Vergeyle case (Adv. Case No SSC) at 9:51 p.m. (ER 503A-503B, 504A-504B) However, because of subsequent technical failures of the computer at the filers end, the complaints were not completely filed electronically until shortly after midnight of April 13, 2010 in Johnson at minutes after midnight and in Vergeyle at 38 minutes after midnight meaning that the filing was completed in the very early morning of April 14 in the dead of night. (ER )

24 Case: /13/2012 ID: DktEntry: 14-4 Page: 12 of 68 (24 of 232) 12 The non-dischargeability complaints and objections, as redrafted April 13 and filed electronically as described above, alleged tort claims for misrepresentation, actual fraud, concealment, tortious interference and breach of fiduciary duties. (Although in their bankruptcy schedules Debtors had listed and scheduled Plaintiffs wage claims for unpaid wages, no claims by Plaintiffs sounding in tort or for fraud had been listed or scheduled.) (ER , 711, 737, 852, 877) (a) The Complaints First Claim alleged (i) that Debtors fraudulently represented to the employees adequate capacity and intentions of Xperex, Johnson and Vergeyle to see to the payment of all past and ongoing employment benefits and that Xperex was treating the obligations to the employees as having first priority over all other obligations and, in effect, making specific receivables (from ongoing projects, including specifically those of Xperex s major asset, a service contract with the grocery store chain Albertsons) as covered by an oral pledge and security agreement in favor of the employees; (ii) but that at the same time Debtors fraudulently concealed from the employees (aa) that Xperex had already secretly granted a blanket security interest to Johnson s sister-in-law, Dorothy Paine (without filing a UCC Financing Statement thereon); (bb) that Xperex, Johnson and Vergeyle were then hopelessly unable to pay and, moreover, (cc) that Vergeyle had secretly resigned and was no longer active.

25 Case: /13/2012 ID: DktEntry: 14-4 Page: 13 of 68 (25 of 232) 13 (b) The Second Claim alleged tortious interference with Plaintiffs contractual and business relations with Xperex, achieved (i) through the fraudulent representations and concealment alleged in the First Claim and (ii) through further fraudulent conduct and concealment in connection with the sale of all its assets and planning its bankruptcy proceedings to follow, as described below. (c) The Third Claim was alleged under ERISA for breach of fiduciary duties under Xperex s employee health insurance plan. The current version of its Local Rule of the Bankruptcy Court for the District of Arizona and the Administrative Procedures referenced therein make electronic filing mandatory for all parties represented by counsel and expressly preclude them, under any circumstances, from making paper or other non-electronic filings of complaints and objections to discharge. (Add. I 9-12) Applying FRBP 9006(a)(3) and (4), as amended December 1, 2009, meant that in the absence of a contrary local rule or order in the case the filing deadline of April 13, 2010 (the Last Day ) was deemed to end at midnight local time. At that time no local rule specifically and directly changed that definition for the Last Day ; but Local Rule (n) authorized an order relieving an apparent late electronic filing, and extending the effective deadline for technical failures in the

26 Case: /13/2012 ID: DktEntry: 14-4 Page: 14 of 68 (26 of 232) 14 electronic filing process, to be based on a finding of good cause or excusable neglect. (Add. I 6, 12) On May 18, 2010, Debtors filed motions to dismiss the complaints. The only ground stated in the motions themselves was that the untimeliness of the complaints deprived the court of subject matter jurisdiction of the objections to discharge; but Debtors accompanying arguments filed in and with the motions asserted other factual grounds, essentially lack of diligence. (ER ) As with their prior objections to the original extension, however, they offered no declarations, affidavits or evidence on the lack of diligence grounds. On May 27, 2010, Debtors filed their Answers to the Complaints, including affirmative defenses based on alleged untimeliness of the Complaints. (ER , ) On June 18, 19 and 21 and July 26, 2010, Plaintiffs filed their Plaintiffs Responses to Jurisdiction and First Response to Other Issues in Defendants Motions to Dismiss ; their Plaintiffs Motions for Relief From Untimely Filing and to Determine Timeliness ; and later Replies. (ER , ) After rebutting the jurisdiction contention by reference to Kontrick v. Ryan, 540 US 443 (2004), Plaintiffs relied specifically and explicitly on the above cited Bankruptcy Court s Local Rule (n). More generally with respect to both technical failures and due diligence Plaintiffs also relied on the general equity powers of bankruptcy courts under 11 USC 105; on their inherent power

27 Case: /13/2012 ID: DktEntry: 14-4 Page: 15 of 68 (27 of 232) 15 to soften or even waive their own timelines; and directly or by analogy or extension, on the unique circumstances doctrine or unusual circumstances doctrine developed by the courts in the pre-electronic filing age. These Plaintiffs filings were supported by Declarations of Plaintiffs counsel and his secretary, showing in detail (1) that specific unforeseen Technical Failures of their computer (occurring after opening of the Adversary Proceedings) had surprisingly prevented completion of the electronic filings by midnight; (2) that notwithstanding their due diligence, the complexities and practical problems encountered in counsel s investigation, as well as Debtors continued concealment of the facts, had led to delays in ascertaining facts supporting the complaints and objections; (3) that they had learned critical, material new facts (previously concealed) only on April 12 (the day before the new Last Day ) justifying some of the most important particular allegations of the tortious fraudulent acts and concealment ultimately alleged, which in turn had required substantial redrafting of the Complaints on April 13 (the Last Day ); but also (4) that they had had reasonable expectations, even after opening the adversary proceedings until shortly before midnight, that the filing deadline would be met. (ER (esp ), and Exhibits thereto) As to Debtors factual grounds for dismissal, including lack of diligence, Plaintiffs contended that for these to be considered at all the court must

28 Case: /13/2012 ID: DktEntry: 14-4 Page: 16 of 68 (28 of 232) 16 treat the motions to dismiss as motions for summary judgment under FRCP 12(b) and (d). Apparently on that ground the court reset the hearing date to satisfy summary judgment procedures. (See ER , 304, ) Alternatively, Plaintiffs contended that the filings actually were not untimely, arguing that the technical failures encountered at the filer s end had rendered the Clerk s office inaccessible to Plaintiffs so that under the December 2009 amendments to FRBP 9006(a)(3) and (4) the Last Day had automatically been extended to April 14, (ER , 264, ) Debtors never denied any of the declarations and evidence supplied by Plaintiffs; and Debtors failed to offer any evidence, declarations or documents contesting the specific showing made by Plaintiffs or supporting Debtors lawyerwritten argumentative contentions of Plaintiffs negligence and lack of diligence. Debtors argued principally (1) that the fresh start policy and FRBPs 4007(c) and 9006(b) had eliminated excusable neglect or any other reason as a ground for relief from the untimeliness here; (2) that Local Rule (n) was therefore invalid; (3) that, in any event, the neglect was not excusable ; and (4) that the unique circumstances doctrine was inapplicable. (ER , ) Based on the written opinion of Hon. Redfield T. Baum of August 25, 2010, formal orders were entered September 8, 2010, granting the motions to dismiss and denying the motions for relief in both cases. The opinion declined to

29 Case: /13/2012 ID: DktEntry: 14-4 Page: 17 of 68 (29 of 232) 17 deal with the many matters disputed by the parties because the core facts are undisputed, which it described as Late on the evening of April 13, 2010, counsel for Plaintiffs started to file the complaints * * * [but] experienced technical problems with his computer and the complaints were not filed until shortly after midnight on April 14 th. (ER 13-14) The opinion then ruled that the court had no discretion and could not consider Plaintiffs showings; that the prior authorities it cited (all from the pre-electronic era and including those on unique circumstances ) were binding; and that the dismissals were required as a matter of law. The binding effect of such precedents was attributed First and foremost to the court s belief that the ECF system allows greater and easier access * * * than the prior manual system. The opinion made no reference to Local Rule (n); or to diligence; or to the inaccessible issue. (ER 12-16) It also did not expressly mention the fresh start policy; but most of the precedents cited had expressly relied on that supposed policy. By an opinion and order dated and entered November 23, 2010, and an order entered thereon December 9, 2010, in connection with denying Debtors motion for an award of attorney fees in the above described adversary proceedings, the Bankruptcy Court found in substance that at least the First Claim and Second Claim of Plaintiffs Complaints and objections to discharge were not wage claims

30 Case: /13/2012 ID: DktEntry: 14-4 Page: 18 of 68 (30 of 232) 18 but were tort claims for fraud. (See ER 121B-121E) Debtors did not appeal that decision and such characterization is now res judicata herein. 3. Appeal to District Court. Plaintiffs elected that their first appeal would be to the District Court instead of the Ninth Circuit BAP. (ER ) By its June 3, 2011, Order (including an opinion by Hon. Susan R. Bolton) the District Court affirmed the dismissal of the complaints and denial of the motions for relief. The opinion finally concluded, as had Judge Baum, that the bankruptcy court did not have discretion to extend the [April 13] deadline for filing dischargeability complaints pursuant to FRBP 4007(c) and 9006(b)(3). (ER 7) However, there were marked differences between the opinions of the two courts in their treatment (or non-treatment) of some of the intermediate or predicate issues, as specifically delineated in the ARGUMENT below. The principal difference was that Judge Bolton ruled that Local Rule (n) is invalid as in irreconcilable conflict with FRBPs 4007(c) and 9006(b) and as important bases therefor, explicitly relied on the fresh start and the expedite administration policies. (ER 5-7)

31 Case: /13/2012 ID: DktEntry: 14-4 Page: 19 of 68 (31 of 232) 19 STATEMENT OF FACTS 3 We first describe the technical failures immediately resulting in not achieving the midnight filing deadline and then describe the facts addressing the diligence issue. A. Technical Failures. 1. The Bankruptcy Court found as a fact that the less-than-forty minutes of untimeliness (in the dead of the night) was caused by technical problems with [counsel s] * * * computer. There was no declaration or evidence to the contrary. The court declined to consider whether these malfunctions were beyond reasonable control. 2. Both Plaintiffs counsel and his secretary had been quite aware of the midnight due date for filing the Complaints, and had carefully planned for meeting the filing deadline. She had picked Plaintiff s counsel up at the Portland airport late the night of April 12 on his return from the Rule 2004 examination of Johnson in Phoenix/Scottsdale. On April 13, the Last Day, they had been busily engaged in making numerous substantial revisions to and lengthening the draft complaints previously prepared. They both had shared caution that the revisions be kept within workable limits and reasonably believed 3 Unless otherwise indicated, in accordance with summary judgment standards, the Facts (including controversial ones) are stated herein, with inferences, most favorably to Plaintiffs as the non-moving parties.

32 Case: /13/2012 ID: DktEntry: 14-4 Page: 20 of 68 (32 of 232) 20 that there was no danger of not achieving the final filing prior to midnight. (ER , ) 3. The technical difficulties with Plaintiffs counsel s computer commenced in the late evening of April 13 shortly after the Adversary Proceedings had been opened in the Court s ECF System (at 9:34 p.m. and 9:51 p.m.). 4 The final versions of the Complaints and Objections had been completed about 10:00 p.m. The technical difficulties were unanticipated computer system technical failures beyond [counsel s and secretary s] * * * control which alone caused [them] * * * to [not] achieve complete filing until shortly after midnight. As of about 10:30 p.m., both Plaintiffs counsel and his secretary still expected, reasonably, that the timely filings would be achieved. The secretary s declaration graphically described these events, including: 9. * * * Each time this happened [the repeated shut down[s] and reboot[s] ] the reboot and scanning took still longer than normal. This was surprising and contrary to the past experience. I knew that the filing deadline was near; that there were no other options for filing; that FedEx/Kinko s and other similar offices were closed; that, even if other computers could be found, the time required to find and use them would not likely facilitate timely filing; and that filing by U.S. mail was not permitted. * * * 10. Until almost midnight I still thought that the filings by midnight would be achieved. * * * By * * * [11:30 p.m.] I knew that it was too late to prepare and effectively file prior to midnight any 4 According to the Bankruptcy Court s Adversary Opening Instructions (ER ) at completion of step 14 of the electronic filing process the proceedings have been opened and at step 22 the filing has been completed.

33 Case: /13/2012 ID: DktEntry: 14-4 Page: 21 of 68 (33 of 232) 21 kind of written request to the court to extend the midnight deadline. Moreover, the same technical failures likely would have precluded success to such an effort; and our time would be better spent in continuing the efforts to file the complaints as soon as technically possible. (ER ; underscoring supplied) Contrasting with typical electronic filing local rules of other federal courts, under LR of the Bankruptcy Court for the District of Arizona there was no permissible alternative method of filing that could have been utilized to avoid these effects of these technical failures. (See Add. IV, esp. pp. 6-7 and Argument below, citing the rules in 15 other courts.) B. Investigation/Complexities/Diligence/Discovery of Fraud. 1. The complaints/objections filed the night of April 13-14, 2010 (ER ) were the product of intensive investigation of several interrelated, highly complex transactions, mainly pertaining to Xperex Corporation, its sale of its assets to UForce, Inc. and the Xperex bankruptcy proceedings in the Northern District of California. See general description above in Section A, Statement of the Case. 2. (a) On December 10, 2009, Plaintiffs counsel had brought to the court s attention an extensive list of categories for the needed investigation; that for fraud there must be clear and convincing evidence ; and that merely some admissible evidence of fraud is insufficient so that practically and

34 Case: /13/2012 ID: DktEntry: 14-4 Page: 22 of 68 (34 of 232) 22 ethically more evidence was required before instituting adversary proceedings, citing In re Woods, 69 BR 999, 1004 (ED Pa 1987). 5 (ER 639) This presented important professional ethical challenges under FRCP 11. There was also serious risk in merely alleging some fraud in order to make the bar date and then amending the Complaints for facts learned after that bar date. Such would risk exclusion at trial of those new allegations and all evidence about them because bankruptcy courts had shown a marked propensity to being restrictive as to what allegations would be allowed to relate back to the original filing before the bar date. (See In re Markus, 313 F3d 1146 (9 th Cir 2002) and ER 231) (b) The laws investigated were numerous and difficult and review was time consuming. (ER, Ex. A; , ) (c) In December 2009 Plaintiffs obtained from the court authority to conduct Rule 2004 examinations but because the initial bar dates had already passed the ultimate order was not effective until February 9, 2009, when the extensions beyond the initial bar dates were allowed. (The ultimate effective extensions to April 13 were thus effectively two months, not five or three.) (ER , 541) (d) Until the day before the revised bar date of April 13, 2010, Plaintiffs counsel had still been unable to ascertain either (i) the location of 5 Accord: FRBP 9011(b) and In re Maughan, 340 F3d 337, 344 (6 th Cir 2003)

35 Case: /13/2012 ID: DktEntry: 14-4 Page: 23 of 68 (35 of 232) 23 any of Xperex s business records (vital to the claims and objections alleged) or who had custody or control of them or (ii) sufficient specifics about the Paine security interest. (ER , and Ex. III attached thereto, ) 3. Much of the course of the investigation had been presented to the Bankruptcy Court contemporaneously as it was occurring in connection with the motions to extend the initial bar dates -- with nearly all of it encountering repeated and determined resistance, sometimes from the Xperex Trustee and even stonewalling by Debtors and their allies. (For prior to February 9, 2010, see ER , and for thereafter through April 13, 2010, see the descriptions in connection with Debtors Motions to Dismiss and Plaintiffs Responses thereto and motions for relief, see ER , G. The initial scope of the investigation is described in ER ) The investigation also tended to confirm the falsity of Debtors alleged representations of their and Xperex s ability to see to the payment of their past and ongoing wages. (ER , , 954, , ) 4. (a) The critical Asset Purchase Agreement of July 8, 2009 (the sale of all Xperex s assets) is in ER # 68, Exhibit A, ER pp , and the pivotal Section 12 is at The sale was made explicitly in anticipation of Xperex s bankruptcy petition filed July 27, Xperex had thereby sold all of its assets, including the computers which had held its business records, to UForce,

36 Case: /13/2012 ID: DktEntry: 14-4 Page: 24 of 68 (36 of 232) 24 Inc. UForce s conditional promise to pay the purchase price ($545,000) thus became the only remaining asset of Xperex. Plaintiffs counsel had first learned some of the terms of the sale in November 2009, including a peculiar provision (Section 12 of the Agreement) which conditionally required UForce to honor and pay a $220,000 security interest (date not therein stated) held by Dorothy Paine, the sister-in-law. From the UCC filing with the California Secretary of State, filed November 28, 2008, that Paine security interest appeared (to the public) to have been created in November 2008, and probably to have been insulated from voidable preference issues e.g., by not having been for an antecedent debt. Of course, fraudulent conveyance issues were possible. However, the above mentioned Section 12 included a forfeiture provision explicitly aimed at other creditors and the trustee in bankruptcy of Xperex to the effect that if Paine was not timely paid the entire $220,000 plus interest then UForce would be completely absolved of any further obligation to pay anything. That included any more of the purchase price and interest thereon. (ER , Section 12 and ER , ) The Trustee of the Xperex bankruptcy estate would be intimidated and induced not to seek avoidance of the Paine security interest. (See ER (Johnson testimony) and ) 6 6 See ER regarding the later characterization of these provisions by Judge Montali (in the Xperex bankruptcy proceedings) as smelling of fraud.

37 Case: /13/2012 ID: DktEntry: 14-4 Page: 25 of 68 (37 of 232) 25 (b) On February 1, 2010 (even before the Arizona Bankruptcy Court s February 9, 2010, order had become effective to permit 2004 examinations of Johnson, Vergeyle, Dorothy Paine and others), Plaintiffs counsel had conferred with counsel for Johnson and Vergeyle seeking to arrange for the anticipated appropriate document production and discovery. Debtors counsel claimed to have no significant knowledge of the history or documents involved; did not know who had the business records of Xperex; and requested specifics of what was to be produced in spite of Plaintiffs limited knowledge of the facts. (ER ) In these circumstances, and upon learning of and reviewing an Adversary Proceeding that the Trustee in the Xperex bankruptcy had just instituted to avoid one aspect of the above mentioned Dorothy Paine security interest (ER ), Plaintiffs counsel turned his attention to the Paine security interest. That included unsuccessful efforts on March 9, 2010, to obtain the records and facts from the trustee of the Xperex bankruptcy. That trustee s counsel declined to cooperate, announcing a desire not to be involved in the Arizona proceedings because he was in the process of seeking approval from the Northern District of California Bankruptcy Court to a proposed compromise settlement with Paine. Thereafter, upon receipt of the motion to approve the compromise and its terms, and further investigation, Plaintiffs prepared and on March 29, 2009, instituted an extensive contested matter proceeding in the Xperex bankruptcy objecting to that