Opinion
Minnesota Case No. 98-42360 Chapter 7; Adv. No. 99-4303.
December 14, 1999.
The matter before the Court is Defendant-Debtor's Motion to Dismiss under Federal Rule of Bankruptcy Procedure 7012, and F.R.Civ.P. 12(b)(6) and Motion for Sanctions. This is a core proceeding under 28 U.S.C. § 157(b)(2). This Memorandum of Decision and accompanying Order shall constitute the Court's findings and conclusions under F.R.Bankr.P. 7052. As set forth below, the Court concludes that Defendant-Debtor's Motion must be granted.
I.
Brett R. Hanson (Debtor) filed a Chapter 7 petition on April 9, 1998. On May 6, 1998, the Clerk gave notice that July 17, 1998 was the last date to oppose the discharge of all claims against Debtor or oppose the discharge of a particular claim. Neither Pam Jordan nor Don B. Fuller was listed on the Clerk's certificate of service. On November 18, 1998, the Clerk served creditors and parties in interest with a notice of the February 16, 1999 deadline to file a proof of claim. On July 13, 1999, the case trustee filed his proposed final report and account. The Clerk gave notice of the proposed distribution on July 16, 1999. Fuller and Jordan were again not served.
On September 10, 1999, Fuller and Jordon each filed a proof of claim. On September 10, 1999, Jordan and Fuller (Plaintiffs) filed a complaint objecting to Debtor's discharge under 11 U.S.C. § 727 and to the dischargeability of their particular claim against Debtor under § 523(a)(2), (3), (4), and (6). The case trustee filed his final report after distribution on October 5, 1999. On October 7, 1999, Debtor moved to dismiss Plaintiffs' complaint on the grounds that it failed to state a claim upon which relief could be granted. Based on correspondence between Debtor's counsel and Plaintiff Don Fuller, who was also counsel for Plaintiff Pam Jordan, Debtor stated Plaintiffs had actual knowledge of the case before July 3, 1998, which, Debtor argues, was in time for Plaintiffs to file a complaint under §§ 727 or 523(a)(2), (4), or (6). Debtor also stated Plaintiff had actual knowledge of the case in time to file a proof of claim so as to preclude non dischargeability under § 523(a)(3). As to Plaintiff Pam Jordan in particular, Debtor argued her complaint should also be dismissed because her allegations therein are inconsistent with schedules she filed in her own bankruptcy case in the District of Minnesota, Bankr. No. 496-1102. Finally, Debtor requested sanctions against Plaintiffs.
Plaintiffs filed a response and brief on October 29, 1999. They listed the several bankruptcies in which Debtor or his business were involved, and they set forth what they believed are several criminal acts by Debtor. Plaintiffs also highlighted what they perceived as Debtor's attorneys' failure to bring these alleged fraudulent acts before the appropriate authorities. In the brief, Plaintiff Fuller, who is also serving as Plaintiffs' attorney, conceded that for over a year he has had actual knowledge of Debtor's present Chapter 7 bankruptcy case and he did not contradict Debtor's reliance on correspondence that indicates Plaintiff Fuller had actual knowledge of the case in April 1998. Plaintiffs stated that this Court did not have the "power," as a court of equity, to dismiss the adversary proceeding because Debtor and his counsel have been engaged in alleged "criminal bankruptcy misconduct" and possible RICO activities. Plaintiffs' cited the excusable neglect standard in Pioneer Investments Services Co. v. Brunswick Associates Ltd. Partnership, 113 S.Ct. 1489 (1993), but they did not directly address the factors stated therein. Instead, they stated that several alleged acts of wrongdoing by Debtor and his counsel have "more merit" than the excusable neglect doctrine in Pioneer. They then alleged several circumstances that they deemed to be cause for allowing their late-filed complaint to be heard. They also asked the Court to make a criminal referral. Although Plaintiff Fuller stated he had already contacted the offices of the United States Attorney General and the United States Trustee and that Debtor is now a convicted felon, Plaintiff Fuller stated Debtor was not truthful to the United States District Court and that Debtor's acts of bankruptcy fraud continue. Plaintiffs then stated that they remain afraid of Debtor and that he has harassed them since the complaint was filed. They argued that Debtor's behavioral problems and threats against them justify their delay in filing their proofs of claim. Plaintiff Jordan said her bankruptcy schedules did not include a claim against Debtor because he was defrauding her at the time. Plaintiffs concluded with arguments why sanctions should not be imposed on them.
Plaintiffs' response and brief most often just addresses their delay in filing their proof of claim.
Debtor replied to Plaintiffs' response on November 17, 1999. He emphasized that Plaintiff Fuller has not disputed that he had actual knowledge of Debtor's bankruptcy case before the deadlines under Rules 4004 and 4007 had passed and before the deadline to timely file a proof of claim passed. Debtor also emphasized that Plaintiff Jordan has not disputed she, too, had actual notice of the case in time to timely file a discharge or dischargeability complaint.
No discharge order has yet been entered in the case. Other creditors have a complaint for denial of discharge under § 727 pending (Adv. No. 98-4190).
II. Timeliness of Complaint under §§ 727 and 523(A)(2),(4), or (6).
Under F.R.Bankr.P. 4004(a), the deadline for filing a complaint objecting to a debtor's general discharge of debts under § 727 is sixty days after the first date set for the meeting of creditors. Under F.R.Bankr.P. 4007(c), the same deadline applies to a complaint objecting to the dischargeability of a particular debt under §§ 523(a)(2),(4), (6), or (15). The deadlines in Rules 4004(a) and 4007(c) must be strictly enforced unless a timely extension of time to file is obtained under Rules 4004(a) and 4007(c). KBHS Broadcasting Co. v. Sanders (In re Bozeman), 226 B.R. 627, 630 (B.A.P. 8th Cir. 1998); In re Walgamuth, 144 B.R. 465, 467-68 (Bankr. D.S.D. 1992) (citing several cases therein); Austin Farm Center, Inc. v. Harrison (In re Harrison), 71 B.R. 457, 459 (Bankr. D. Minn. 1987) (citing In re Neumann, 36 B.R. 58 (Bankr. D. Minn. 1984)).
This statute of limitations is among the very shortest under federal law. It is designed to further the "fresh start" goals of bankruptcy relief; it requires creditors to promptly join their exceptions to discharge of debt and objections to discharge, so a petitioning debtor will enjoy finality and certainty in relief from financial distress as quickly as possible.
Harrison, 71 B.R. at 459 (cites therein).
In cases where the creditor did not get formal notice of the deadlines from the clerk, the court must consider whether the creditor had actual notice of the case and whether the creditor then had time to file the complaint or request an extension of the deadlines. GAC Enterprises, Inc. v. Medaglia (In re Medaglia), 52 F.3d 451, 455 (2nd Cir. 1995) (cites therein to four Courts of Appeal). See Carlson v. Bourcher (In re Boucher), 728 F.2d 1152, 1156 and 1156 n. 7 (8th Cir. 1984) (motion to extend deadline denied; creditor had actual notice of the case a month before the deadline expired). The length of a reasonable notice period is determined on the facts of each case. See Manufacturers Hanover v. DeWalt (In re DeWalt), 961 F.2d 848, 849 (9th Cir. 1992).
In this case, counsel for Plaintiffs (and a plaintiff himself), Don Fuller, does not dispute that he had actual knowledge of Debtor's present Chapter 7 case before the deadlines under Rules 4004(a) and 4007(c) expired. The letter Attorney Fuller wrote to Attorney Vance Bushay, one of Debtor's attorneys, on July 3, 1998, indicates he was aware of Debtor's present Chapter case as early as May 22, 1998. Thus, he had actual notice in sufficient time to allow him to either file a timely complaint under §§ 727 or 523(a)(2), (4), or (6) or to request an extension of the deadlines. Nonetheless, he did not do so.
Further, Plaintiffs' have not offered any evidence that Plaintiff-Attorney Fuller was not representing Attorney Jordan when he received actual knowledge of Debtor's present bankruptcy filing. As her agent, Plaintiff-Attorney Fuller's actual notice around May 22, 1998 is attributable to her. Bryan v. Land (In re Land), 215 B.R. 398, 404 (B.A.P. 8th Cir. 1997); Cheriogotis v. White (In re Cheriogotis), 188 B.R. 996, 999-1000 (Bankr. M.D. Ala. 1994); Minneapolis, St. Paul Sault Ste. Marie Railroad Co. v. St. Paul Mercury Indemnity Co., 129 N.W.2d 777, 787 (Mn. 1964) (notice to an attorney is notice to his client). Accordingly, the Court concludes that Plaintiffs' complaint under §§ 727 and 523(a)(2), (4), and (6) was untimely and must be dismissed.
III. Non dischargeability of claims under § 523(a)(3).
For Plaintiffs to obtain relief under § 523(a)(3)(B) they must show by a preponderance of the evidence that: first, their claims against this bankruptcy estate are of a kind specified in § 523(a)(2), (4), or (6); second, that they did not receive actual notice of the case in time to file a non dischargeability complaint under one of those subsections; and, third, if the case trustee has assets to distribute, that they did not have actual notice of the case in time to file a proof of claim. See Hauge v. Skaar (In re Hauge), 232 B.R. 141, 148 (Bankr. D. Minn. 1999); North River Insurance Co. v. Baskowitz (In re Baskowitz), 194 B.R. 839, 845-46 (Bankr. E.D. Mo. 1996).
As discussed above, the record shows that Plaintiffs had actual notice of the case in sufficient time to file a discharge or dischargeability complaint before the July 17, 1998 deadlines. Similarly, the Court finds that Plaintiffs had actual notice of the case in sufficient time to abide by the proof of claim deadline, which was several months later than the discharge and dischargeability complaint deadlines. Accordingly, upon strict application of § 523(a)(3), Plaintiffs' pre-petition claims have been discharged and Plaintiffs cannot be afforded any relief under that subsection.
IV. Equitable Extension of the Deadlines due to Debtor's Alleged Threats.
Plaintiffs do not dispute that they had actual notice of the case before the July 17, 1998 deadline for filing a fraud-based non dischargeability complaint expired or before the February 16, 1999 deadline to file a proof of claim expired. Instead, they argue that their delay in filing their complaint and proofs of claim was occasioned by, and should be excused by, Debtor's behavior and threats against them.
Federal Rule of Bankruptcy Procedure 9006(b)(3) specifically states that the deadlines in Rules 3002(c), 4004(a), and 4007(c) may not be enlarged by the Court except to "the extent and under the conditions stated in those rules." It is clear that Plaintiffs did not request an extension of the deadlines in compliance with Rules 3002(c), 4004(b), or 4007(c). Moreover, the Pioneer excusable neglect factors in Pioneer do not apply to a late-filed discharge or dischargeability complaint, Herndon v. De La Cruz (In re De La Cruz), 176 B.R. 19, 24-25 (B.A.P. 9th Cir. 1994), In re Duncan, 125 B.R. 247, 253-54 (Bankr. W.D. Mo. 1991), or to a late-filed proof of claim in a Chapter 7 case. Pioneer Investment Services Co., 113 S.Ct. at 1495 n. 4 (proof of claim filing in Chapter 7 case is governed exclusively by rule 3002(c)).
Thus, the only remaining legal issue before the Court is, under the circumstances alleged by Plaintiffs regarding Debtor's behavior and threats against them, whether Plaintiffs' complaint should still be deemed timely on other equitable grounds although they had actual notice of the case before the applicable deadlines expired.
The Supreme Court's decision in Pioneer appears to answer that question as to the filing a proof of claim in a Chapter 7 case. In dicta, the Court states that due to the explicit exception in Rule 9006(b)(3), the enlargement of time for filing of a proof of claim in a Chapter 7 case is governed exclusively by Rule 3002(c). Pioneer Investment Services Co., 113 S.Ct. at 1495 n. 4 (citing Zidell, Inc. v. Forsch (In re Coastal Alaska Lines, Inc.), 920 F.2d 1428 (9th Cir. 1990) (only the six situations listed in Rule 3002(c) may be considered for extending the proof of claim deadline in a Chapter 7 case)).
The rule of Coastal Alaska simply is that no source of discretion exists — neither equitable jurisdiction, nor § 105, nor anything else — and a source is not created even if a good reason is presented for why a source should exist.
Dicker v. Dye (In re Edelman), 237 B.R. 146, 153 (B.A.P. 9th Cir. 1999).
Since Rule 9006(b)(3) contains a similar limitation regarding the extension of time to file a discharge or discharge complaint, it appears that this Court also has no equitable power to extend those deadlines except as specifically provided in Rules 4004(b) and 4007(c). Though there is some case law to the contrary, CBS, Inc., v. Folks (In re Folks), 211 B.R. 378, 389 (B.A.P. 9th Cir. 1997), In re Weinstein, 234 B.R. 862, 864 (Bankr. E.D.N.Y. 1999), the Court concludes that the strict tenure of the Rules control and that it has no equitable power to accept Plaintiffs' late complaint and late proof of claim though the delay may have been the product of Debtor's threats. Viking Associates, L.L.C., v. Drewes (In re Olson), 120 F.3d 98, 102 (8th Cir. 1997) (court cannot use powers under 11 U.S.C. § 105 to disregard clear language and meaning of the bankruptcy statutes and rules); In re Voccola, 234 B.R. 239, 239-40 (Bankr. D.R.I. 1999) (even compelling circumstances does not give court jurisdiction to recognize a late-filed proof of claim (Chapter 13 case)); In re Colombraro, 230 B.R. 673, 677-78 (Bankr. D.N.J. 1999) (court cannot exercise discretion in deeming a claim timely filed); and In re McQueen, 228 B.R. 408, 410-11 (Bankr. M.D. Tenn. 1998) (court had no legal or equitable discretion to allow a late-filed proof of claim (Chapter 13 case)).
An order granting Debtor's motion to dismiss shall be entered and this adversary proceeding shall be closed. Sanctions will not be imposed on either party. All parties shall bear their own attorneys' fees and other costs.