Opinion
Adv. No. 98-6229-SD, Case No. 98-5-2817 SD
July 1999
MEMORANDUM OPINION AND ORDER DENYING DEFENDANTS' MOTION TO DISMISS
Before the court is a Motion to Dismiss Complaint filed by the Debtors, who are the Defendants to this adversary proceeding, and Plaintiff's Motion to Deny Motion to Dismiss Complaint. For the reasons stated below, the court will deny Defendants' motion.
The Debtors filed a petition under Chapter 13 of the Bankruptcy Code on February 27, 1998, and their case was converted to Chapter 7 on April 2, 1998. The Debtors' first meeting of creditors in the Chapter 7 case was scheduled for May 13, 1998. Consequently, the deadline for filing a complaint to determine the dischargeability of a debt pursuant to 11 U.S.C. § 523 (c)(1) was July 12, 1998. See Fed.R.Bankr.P. 4007(c). July 12, 1998 was the deadline noticed by the Clerk of the Bankruptcy Court.
On October 30, 1998, Plaintiff, pro se, filed a "complaint objecting to discharge of debt." Plaintiff alleged that Defendants' debt should be excepted from discharge pursuant to 11 U.S.C. § 523(a)(2)(A). On January 21, 1999, the court dismissed the complaint for lack of prosecution and for failure to file a return of service of process. However, the adversary proceeding was reinstated on January 29, 1999, in response to Plaintiff's Motion to Reconsider. Defendants filed an answer on March 31, 1999. Defendants' answer did not raise as an affirmative defense that the complaint was filed after the deadline for dischargeability complaints. Defendants first raised the issue of whether the complaint was barred as late-filed on June 29, 1999, when they filed the instant motion to dismiss. Trial is scheduled for July 22, 1999, and both parties have filed their lists of exhibits and witnesses.
Defendants assert that Plaintiff's complaint must be dismissed because it was not filed within the sixty day period prescribed by Fed.R.Bankr.P. 4007(c). This rule provides, in pertinent part:
A complaint to determine the dischargeability of any debt pursuant to § 523(c) of the Code shall be filed not later than 60 days following the first date set for the meeting of creditors held pursuant to § 341(a).
Fed.R.Bankr.P. 4007(c). Section 523(c) of the Bankruptcy Code provides that certain debts are discharged unless the court, at the request of a creditor, determines those debts to be non-dischargeable. See 11 U.S.C. § 523(c)(1). These debts are those specified in 11 U.S.C. § 523(a)(2) (debts for money obtained by fraud), (a)(4) (debts for fraud or defalcation while acting in a fiduciary capacity), (a)(6) (debts for willful and malicious injury by the debtor), or (a)(15) (certain debts incurred in the course of a divorce or separation). See id. For these types of debts, the creditor has to raise the issue of non-dischargeability or the debt will be discharged. The effect of § 523(c)(1) is to give the bankruptcy court exclusive jurisdiction over actions to determine the dischargeability of debts that are excepted from discharge by reason of 11 U.S.C. § 523(a)(2), (a)(4), (a)(6), and (a)(15). See 4 COLLIERS ON BANKRUPTCY 6 523.08[7] (15th ed. rev. 1999).
Generally, failure to comply with a limitations period may be excused by equitable doctrines such as estoppel or waiver if a limitations period is not a jurisdictional requirement. See Schunck v. Santos (In re Santos), 112 B.R. 1001, 1004 (B.A.P. 9th Cir. 1990). If, however, the limitations period is a jurisdictional prerequisite, then waiver and estoppel are not available because the parties by their actions cannot create jurisdiction in the federal courts where Congress has not done so. See id. Bankruptcy Rule 4007(c) establishes the limitations period for a creditor to file a complaint to object to the discharge of certain debts. See Fed.R.Bankr.P. 4007(c). Although courts have come to different conclusions on the issue of whether the time limit provided in Fed.R.Bankr.P. 4007(c) is jurisdictional, compare Santos, 112 B.R. at 1005 (holding that the time limits prescribed in Fed.R.Bankr.P. 4007(c) and 4004(a) are not jurisdictional) with Brown v. Barley (In re Barley), 130 B.R. 66, 69 (Bankr.N.D.Ind. 1991) (holding that the time limits prescribed in Fed.R.Bankr.P. 4007(c) and 9006(b)(3) are jurisdictional), the law in the Fourth Circuit is settled. The time limit imposed by Fed.R.Bankr.P. 4007(c) is not jurisdictional, and therefore is subject to equitable defenses. Cf. Farouki v. Emirates Bank International, Ltd., 14 F.3d 244, 248 (4th Cir. 1994) (adopting the reasoning of Santos and holding that the time limit provided in Fed.R.Bankr.P. 4004(a) for filing a complaint to object to a debtor's discharge is not a jurisdictional prerequisite to relief). Consequently, the doctrine of waiver is available to the Plaintiff and may be applicable under the facts of this case because Defendants failed to raise the issue of limitations in their answer. See Santos, 112 B.R. at 1007. Although Defendants did raise the affirmative defense of laches, this defense is distinct from the defense of limitations under 4007(c).
Defendants cite In re Stecklow, 144 B.R. 314 (Bankr. D. Md. 1992) in support of their position that an untimely dischargeability complaint is barred on jurisdictional grounds. Stecklow only indirectly addressed the question of whether Fed.R.Bankr.P. 4007(c) is a jurisdictional prerequisite to an action under 11 U.S.C. § 523(c), as the question there was whether the court should reopen a case to allow a debtor to amend his Schedule F (Creditors Holding Unsecured Nonpriority Claims). In explaining the consequences of such an amendment, Judge Mannes noted that § 523(a)(3)(B) would not protect a creditor whose claim was added to the debtor's amended schedules. If this were to happen, and if the time limits in Fed.R.Bankr. 4007(c) and 9006(b) were jurisdictional, the court would be powerless to extend the time for the newly-listed creditor to file a complaint. Judge Mannes cited Barley in support of the assumption that the court would not be able to aid a newly-listed creditor by extending the deadline for filing a dischargeability complaint. Since Stecklow, however, the Fourth Circuit has rejected the Barley holding in favor of Santos. See Farouki, supra. Therefore, the dicta in Stecklow upon which Defendants rely no longer represents the applicable law in the Fourth Circuit.
Plaintiff, in her reply, contends that her complaint was timely filed because the deadline for objecting to the debtor's discharge was extended to June 24, 1999. This contention confuses the concepts of discharge and dischargeability. The latter is a more limited concept, applying to particular debts that are potentially excepted from the discharge described in 11 U.S.C. § 727(b). Compare 11 U.S.C. § 727(b) ("Except as provided in section 523 . . ., a discharge under [§ 727(a)] discharges the debtor from all debts that arose before the date of the order for relief. . . .") with 11 U.S.C. § 523(a)(2)(A) ("A discharge under section 727 . . . does not discharge an individual debtor from any debt . . . (2) for money . . ., to the extent obtained, by ___ (A) false pretenses, a false representation, or actual fraud. . . .").
Plaintiff's complaint alleges that the Defendants fraudulently induced Plaintiff to lend them money and then misrepresented their intention to repay Plaintiff. This does not supply a basis for denying a debtor's discharge. Rather, it is an objection to the dischargeability of Defendants' debt to Plaintiff. Further, the extensions to which Plaintiff refers were granted to the Chapter 7 Trustee, and they did not apply to Plaintiff by their terms.
At trial, a threshold issue will be whether Defendants waived their defense of limitations by answering Plaintiff's complaint. In determining whether a failure to timely raise a limitations defense should constitute waiver, the court will consider a number of factors, including the following: (1) the obviousness of the defense's availability; (2) the stage of the proceeding at which the defense is raised; (3) the time which has elapsed between the filing of the answer and the raising of the defense; (4) the amount of time and effort expended by the plaintiff in the case at the time the defense is raised; and (5) the prejudice to the plaintiff which would result from allowing the defense to be asserted. See Clyde Savings Bank Co. v. Kleinoeder (In re Kleinoeder), 54 B.R. 33, 35 (Bankr.N.D.Ohio 1985).
Therefore, it is, this ______ day of July, 1999, by the United States Bankruptcy Court for the District of Maryland,
ORDERED, that Defendants' motion to dismiss is denied.