Opinion
Case No. 98-12994-SSM, Adversary Proceeding No. 99-1023
April 23, 1999
Richard S. Brooks, Esquire, Arlington, VA, of Counsel for the plaintiff
Russell B. Adams III, Esquire, Chung Press, P.C., McLean, VA, of Counsel for the defendant
MEMORANDUM OPINION AND ORDER
A hearing was held in open court on March 23, 1999, on the defendant's motion to dismiss the complaint in this adversary proceeding on the ground that it was untimely filed. The issue before the court is whether the present complaint relates back to a prior, timely-filed, adversary complaint. That complaint was dismissed with leave to file an amended complaint. The plaintiff, instead of filing an amended complaint, commenced an entirely new adversary proceeding.
Background
Ghulam Merzazada ("the debtor"), who listed his occupation as "unemployed," filed a voluntary petition under chapter 7 of the Bankruptcy Code in this court on April 15, 1998, and received a discharge on August 30, 1998. Among the debts listed on his schedules was a $5,000 claim by Manoukian Brothers, Inc. ("Manoukian Brothers") for oriental rugs. The statement of financial affairs reflected that a judgment had been obtained by Manoukian Brothers approximately four months prior to the bankruptcy filing. The meeting of creditors was scheduled for May 18, 1998, and the notice of commencement of case advised creditors that the deadline to file a complaint objecting to the debtor's discharge or to determine the dischargeabiliry of certain types of debts was July 17, 1998.
On July 9, 1998, Manoukian Brothers filed a pleading entitled "Complaint Objecting to Debtor's Discharge (Fraud)." The complaint was assigned adversary proceeding docket No. 98-1287. Notwithstanding the title of the complaint, the substance of the relief requested was a money judgment against the debtor for the value of two oriental rugs allegedly consigned to the debtor prepetition, or, in the alternative, for the return of the rugs if they were still in the debtor's possession. The debtor filed an answer and, subsequently, a motion for judgment on the pleadings. At a hearing held on January 5, 1999, the court ruled from the bench that the complaint would be dismissed for failure to state a claim for relief, but with leave to file an amended complaint within 20 days. An order reflecting the court's bench ruling was entered on the docket on January 8, 1999, dismissing the complaint "with leave to the plaintiff to file an amended complaint within twenty (20) days of the entry of this order."
No amended complaint was filed in Adversary Proceeding No. 98-1287. Instead, on January 22, 1999, Manoukian Brothers commenced a new adversary proceeding by filing the "Complaint to Determine Debtor's [sic] Dischargeabiliry" that is presently before the court. The new complaint closely copies the complaint in Adversary Proceeding No. 98-1287, albeit with some minor additional allegations. No new transaction is alleged; rather, the new complaint simply attempts to bring the previously-pleaded transaction within the discharge exceptions for fraud, embezzlement, and willful injury to property set forth in § 523(a)(2), (a)(4), and (a)(6), Bankruptcy Code. On February 24, 1999, the debtor filed the motion that is now before the court seeking to dismiss the complaint on the ground that it was not filed within the period specified by Federal Rule of Bankruptcy Procedure 4007(c).
At the hearing on the present motion, counsel for Manoukian Brothers stated that he had understood the court's oral ruling to be that he was being granted leave to "refile", and that he took the court's direction literally to mean that a new complaint should be filed rather than an amended complaint. The court has obtained a transcript of the hearing, and the term "refile" was not used. The court's ruling, as taken down by the court reporter, was as follows:
I think the appropriate thing to do is, I'm going to grant the motion — I'm going to treat the motion for judgment on the pleadings as a motion to dismiss for failure to state a claim for relief. I'm going to grant the motion, but without prejudice to the right of the plaintiff, to file an amended complaint within 20 days, and I'll go ahead and do the order on that. And I think it would be appropriate to continue the pretrial conference, then, over to March 9, 1999, at 9:30.
Tr. 1/5/99 at 8-9 (emphasis added). Thus, the court cannot find that its oral ruling misled counsel for the plaintiff.
Discussion A.
A chapter 7 discharge releases an individual debtor from liability for "all" prepetition debts except for 18 specified categories of debts. § 727(b) and 523(a), Bankruptcy Code. With respect to 14 of those categories, no particular action need be taken during the bankruptcy in order to preserve the nondischargeable character of the claim. With respect to four of the categories, however — those specified in § 523(a)(2), (a)(4), (a)(6), and (a)(15) — the rule is different. Such debts are discharged unless, within 60 days of the first date set for the meeting of creditors, the creditor files a complaint with the Bankruptcy Court to determine the dischargeability of the claim. § 523(c), Bankruptcy Code; Fed.RBankr.P. 4007(c). The 60 day period may be enlarged, but only if the motion for enlargement is filed "before the time has expired." F.R.Bankr.P. 4007(c). Otherwise, the court is without power to enlarge the time. F.R.Bankr.P. 9006(b)(3). The Fourth Circuit, in dicta, has sided with those courts that have held that the time limit is not jurisdictional. Farouki v. Emirates Bank Int'l, Ltd., 14 F.3d 244, 248 (4th Cir. 1994). At the same time, it is clear that the deadline is strictly enforced and is not subject to enlargement based on excusable neglect. Farouki, 14 F.3d at 249 n. 15; Schunk v. Santos (In re Santos), 112 B.R. 1001, 1008 (9th Cir. BAP 1990); Mann v. CCR Financial Planning, Ltd (In re McKoy), 211 B.R. 843, 846 (E.D. Va. 1997) (Ellis, J.) (Rule 4007(c) establishes a strict deadline which, while not jurisdictional, is analogous to a statute of limitations and cannot be enlarged for excuseable neglect).
The categories in question consist of debts grounded in fraud, larceny, embezzlement, fiduciary defalcation, or willful and malicious injury to person or property, as well as debts — other than debts for spousal and child support — arising under a divorce decree or property settlement agreement.
It is true that under Farouki, the Bankruptcy Rules "[do] not preclude the bankruptcy court from exercising its equitable powers in extraordinary cases." 14 F.3d at 248. Such circumstances, for example, include those where a notice from the court misleads creditors as to the bar date, Themy v. Yu (In re Themy), 6 F.3d 688 (10th Cir. 1993), or where equitable estoppel or waiver applies. Santos at 1007-8. However, the strictness with which the bar date is applied in the absence of extraordinary circumstances is well illustrated by McKoy. In that case an individual debtor and his solely-owned corporation both filed chapter 7 petitions. Adding to the confusion, the caption of the individual petition listed the corporation as his trade name, while the caption of the corporation's case listed the individual debtor as its alias. The creditor filed a timely complaint to determine dischargeability, but blundered and filed it in the corporation's case rather than the individual debtor's case. By the time the creditor discovered its error, the time for filing a complaint in the individual debtor's case had expired. The creditor then sought to amend the caption of the complaint to reflect the individual debtor's case. Chief Judge Bostetter of this court denied the motion and dismissed the complaint as untimely. Mann v. CCR Financial Planning, Ltd. (In re CCR Financial Planning, Ltd.), 199 B.R. 347 (Bankr. E.D. Va. 1996). On appeal, the District Court agreed with the creditor that a dischargeability complaint can be amended under F.R.Bankr.P. 7015, even after the filing deadline has passed, to correct a misnomer or to allege an additional basis for excepting debt from discharge arising out of the same conduct, transaction, or occurrence. McKoy, 211 B.R. at 847. Nevertheless, the District Court held that where the complaint had been filed in the wrong case altogether, it could not be amended, after the bar date had passed, to reflect the correct case. Id. ("[T]he amendment sought here seeks to accomplish no less than the transfer of a pleading from one proceeding to another. This is a task beyond Rule 7015's capacity[.]").
"Equitable estoppel requires reasonable reliance on a defendant's words or conduct in forebearing suit within the applicable limitations period. . . . [T]he application of estoppel . . . takes its life from the principle that no person will be permitted to profit from his or her wrongdoing in a court of justice." Santos, 112 B.R. at 1007 (internal citations omitted).
"[T]he timeliness of a dischargeability complaint presents an affirmative defense that must be raised in an answer or responsive pleading. If the defense is not raised in the answer or responsive pleading, it is generally waived." Santos, 112 B.R. at 1008 (internal citations omitted).
B.
There is no question that the present adversary proceeding was commenced more than 60 days — indeed more than eight months — after the first date set for the meeting of creditors in the debtor's chapter 7 case. Accordingly, it is barred under Bankruptcy Rule 4007(c) unless, under the circumstances, the complaint can be said to relate back to the defective, but timely, complaint filed in the prior adversary proceeding. Had Manoukian Brothers filed an amended complaint in that adversary proceeding, there would now be little difficulty, since Rule 15(c), Federal Rules of Civil Procedure, made applicable by Federal Rule of Bankruptcy Procedure 7015, expressly provides that "[a]n amendment of a pleading relates back to the date of the original pleading when . . . (2) the claim or defense asserted in the amended pleading arose out of the conduct, transaction, or occurrence set forth or attempted to be set forth in the original pleading[.]" See, Framingham UA W Credit Union v. Kelley (In re Kelley), 46 B.R. 63 (Bankr. E.D. Va. 1985) (Shelley, J.) (granting leave, after Rule 4004 deadline had expired, to amend a § 727 complaint objecting to the debtor's discharge to instead seek a determination of dischargeability under § 523, where claim in amended complaint arose out of same conduct, transaction, or occurrence as set out in the original complaint). However, no statute or rule expressly provides that a timely-filed dischargeability complaint tolls the running of the 60-day period specified by Rule 4007(c) with respect to a subsequent complaint. The issue presented, therefore, is whether the court should find that the new complaint — which was filed within the 20-day period which the court allowed for the filing of an amended complaint in Adversary Proceeding No. 98-1287 — is functionally the equivalent of an amended complaint in that adversary proceeding so as to relate back.
See Davis v. Lewis, 36 B.R. 88 (E.D. Ark. 1984) (dismissal "without prejudice" of original discharge and dischargeabiliry complaint did not permit refiling when bar date for dischargeabiliry complaints had passed in the interim). Indeed, even if the pendency of the earlier complaint were held to toll the running of the 60-day period, the new complaint would nevertheless be untimely in the absence of some provision allowing the new complaint to relate back. When the original complaint was filed, 8 days remained of the original 60-day period. The new complaint was not filed, however, until 14 days after the dismissal of the complaint in Adversary Proceeding No. 98-1287.
C.
Although both parties have filed memoranda in support of their positions, neither party has cited the court to any case addressing the precise issue presented. The court's own research has discovered only three published opinions that appear even remotely analogous, and the results they reach are far from consistent. The first (and the only one involving a dischargeabiliry complaint) is Miller v. Levine (In re Levine), 132 B.R. 464 (Bankr. M.D. Fla. 1991). In that case the plaintiff, within the dischargeabiliry bar date, filed a pleading entitled "Objection to Dischargeabiliry." The pleading was not in the form of a complaint, however, and it did not meet any of the other formal requirements for an adversary proceeding. Because a determination of dischargeability requires an adversary proceeding, the court ordered the pleading stricken without prejudice, with leave "to cure the procedural defects" within ten days. Within that time, but after the bar date for discharge and dischargeabiliry complaints, the plaintiff commenced a formal adversary proceeding by filing a two-count complaint seeking both a determination of dischargeabiliry and a denial of discharge. The court held that the count seeking a denial of discharge raised new matter and did not relate back to the defective pleading. With respect to the dischargeabiliry count, however, the court held that it related back to the original "submission," even though the prior pleading did not properly commence an adversary proceeding. Id. at 467.
In Pender v. Texas Napco, Inc. (In re LaJet, Inc.), 150 B.R. 648, 657 (Bankr. E.D. La. 1993), rev'd on other grounds 1994 WL 392893 (E.D. La. 1994), the court, in holding that a second adversary proceeding by a chapter 7 trustee against a director of the corporation for breach of fiduciary duty did not relate back to prior, dormant adversary proceeding, reasoned, "The second adversary complaint was filed as an entirely new proceeding, makes no reference to the first proceeding and cannot be construed as an amendment to the complaint filed in the first adversary proceeding." Finally, Bailey v. Northern Indiana Public Svc. Co., 910 F.2d 406, 412-13 (7th Cir. 1990), in holding that a time-barred claim in the plaintiff's second employment discrimination suit could not relate back to a prior suit, explained, "Rule 15(c), by its terms, only applies to amended pleadings in the same action as the original, timely pleading." Bailey, however, is not entirely on point, because the court noted that the specific claim at issue in the second suit involved time periods, locations, and company employees wholly different from those involved in the prior suit. Id. at 413 n. 9.
The court is of course mindful that the Federal Rules of Bankruptcy Procedure "shall be construed to secure the just, speedy, and inexpensive determination of every case and proceeding." F.R.Bankr.P. 1001. It is also true, as noted in Bailey, that Rule 15(a) applies in literal terms only to amendment of pleadings in the same case, and not to the filing of a new case. At the same time, to insist too strongly on that technical difference — where leave has been granted to amend, the new action is filed within the time allowed for amendment, and the new complaint involves exactly the same transactions and events pleaded in the original complaint — would unjustifiably elevate form over substance. As in Levine, where an adversary proceeding that was not formally commenced until after the bar date had passed was determined to relate back to a timely but defective pleading, the court concludes that the complaint presently before the court should, in the interest of justice, be treated as the functional equivalent of an amendment to the timely, but defective, complaint filed in Adversary Proceeding No. 98-1287. Accordingly, the motion to dismiss will be denied.
ORDER
For the foregoing reasons, it is
ORDERED:
1. The motion to dismiss is denied.
2. An answer, if not already filed, will be served and filed within ten (10) days of the entry of this order.
3. A copy of this memorandum opinion and order will be mailed to counsel for the parties.