Opinion
No. 04 Civ. 8254 (SHS), Bankr. No. 91-B-11221 (CB), Adv. No. 91-6143A (CB).
March 4, 2005
OPINION ORDER
Creditor Alan Rosefielde appeals from an order of the bankruptcy court dated July 15, 2004, denying Rosefielde's motion to vacate a prior order in which the bankruptcy court corrected a purported clerical error pursuant to Fed.R.Civ.P. 60(a) and consequently granted debtor Andrea Toledano a discharge from bankruptcy. For the reasons set forth below, this Court vacates the bankruptcy court's order of July 15, 2004 and remands for consideration of whether the equitable defenses of laches and unclean hands barred Toledano from receiving a discharge.
I. Background
In 1991, Toledano filed a voluntary petition for bankruptcy pursuant to chapter 7 of the Bankruptcy Code, 11 U.S.C. § 701 et seq. (Archive Docket at 1, Ex. A of Table of Exhibits Accompanying Appellant's Designation of Items to Be Included in the Record on Appeal; Bankruptcy Petition dated March 20, 1991, Ex. C). Later that year, creditor Gary Iskowitz objected to Toledano receiving a discharge. (Archive Docket at 3, Ex. A; Adversary Complaint dated September 6, 1991, Ex. D). However, after three years of dormancy, in August of 1994 the bankruptcy court sua sponte directed the parties to show cause why the court should not close the adversary proceeding. (Docket at 2, Ex. B; Order to Show Cause dated Aug. 17, 1994, Ex. G). After a hearing at which the creditor failed to appear, the bankruptcy court closed the adversary proceeding. (Order dated November 14, 1994, Ex. I). Because no other adversary proceeding was pending at that time and no other objection had been made to her discharge, Toledano was accordingly entitled to a discharge. See 11 U.S.C. § 727(a); Fed.R.Bank.P. 4004; 9 ALAN N. RESNICK ET AL., COLLIER ON BANKRUPTCY ¶ 4004.04[3] (15th ed. 2004).
Alan Rosefielde later became the assignee of Iskowitz's interest in Toledano's estate.
However, the order granting the motion to close the adversary proceeding was incorrectly docketed as an order granting the objection to the discharge. (Archive Docket at 4, Ex. A). Consequently, the clerk's office sent a notice of denial of discharge to all creditors and interested parties (id. at 5; Notice of Denial of Discharge, Ex. J), and on September 12, 1995 the bankruptcy court signed an order of final decree that discharged the trustee, cancelled the bond, and closed the chapter 7 case. (Archive Docket at 5, Ex. A; Order of Final Decree dated Sept. 12, 1995, Ex. K).
A full eight years later — in August of 2003 — Toledano's counsel noticed the clerical error and attempted to have it corrected. He wrote to Judge Cornelius Blackshear asking that the court either reopen the original bankruptcy case or instruct the clerk to accept a new adversary proceeding complaint. (Letter from Michael B. Wolk to Hon. Cornelius Blackshear dated August 12, 2003, Ex. L). In response, the bankruptcy court issued an order in which it corrected the "inadvertent" clerical error, vacated the September 12, 1995 order of final decree, and granted Toledano a discharge. (Order dated September 15, 2003, Ex. M).
Rosefielde then moved to vacate the order (Notice of Motion dated Dec. 31, 2003, Ex. T), claiming that: (1) the discharge was improper pursuant to Rule 60(a) of the Federal Rules of Civil Procedure because the error was not a "clerical" error; (2) Rule 60(b) was the correct rule to apply, and it contained a one-year limitations period that barred the correction in 2003 of the purported clerical error and the grant of a discharge; and (3) even if the grant of a discharge were proper pursuant to Rule 60(a), Toledano was barred from requesting that relief because she was guilty of laches and unclean hands.
The bankruptcy court denied the motion to vacate, concluding that the correction of the clerical error and the resulting discharge were proper pursuant to Fed.R.Civ.P. 60(a); the court did not address the issues of laches and unclean hands. (Memorandum Decision dated July 2, 2004, at 7, Ex. X; Order dated July 15, 2004, Ex. Z).
Rosefielde then appealed that order to this Court and raised two issues: First, whether the bankruptcy court erred in applying Rule 60(a), which allows for the correction of a clerical error without time limitation, instead of Rule 60(b), which contains a one-year statute of limitations; and second, even if Rule 60(a) were the correct rule to apply, whether the bankruptcy court erred in implicitly rejecting the equitable defenses of laches and unclean hands.
II. Discussion
The district court accepts the bankruptcy court's findings of fact unless they are clearly erroneous, and reviews the bankruptcy court's conclusions of law de novo. Fed.R.Bank.P. 8013; In re Momentum Mfg. Corp., 25 F.3d 1132, 1136 (2d Cir. 1994); In re Ames Dep't Stores, Inc., 2004 WL 1948754 at *2 (S.D.N.Y. 2004). The district court reviews the bankruptcy court's determination on the issues of laches and unclean hands for abuse of discretion. Perez v. Danbury Hosp., 347 F.3d 419, 426 (2d Cir. 2003); Fitzgerald Pub. Co., Inc. v. Baylor Pub. Co., Inc., 807 F.2d 1110, 1114 (2d Cir. 1986); In re Drexel Burnham Lambert Group, Inc., 157 B.R. 532, 538 (S.D.N.Y. 1993).
Rosefielde contends that the bankruptcy court should not have corrected the purported clerical mistake and granted Toledano a discharge because she is guilty of laches and unclean hands. The bankruptcy court, however, did not address either contention, although each independently could have obviated its decision pursuant to Rule 60(a). Moreover, this Court is required to review for abuse of discretion the bankruptcy court's determination on laches and unclean hands, and this Court is presently unable to perform that task.
Accordingly, this Court vacates the bankruptcy court's order dated July 15, 2004 and remands the matter to that court in order for the bankruptcy court to address the question of whether laches or unclean hands bar Toledano from receiving a discharge.See, e.g., Aris Isotoner Inc. v. Berkshire Fashions, Inc., 924 F.2d 465, 465-66 (2d Cir. 1991); In re Gucci, 309 B.R. 679, 684-86 (S.D.N.Y. 2004); In re Cassani, 214 B.R. 459, 462-63 (D. Vt. 1997).
SO ORDERED.