Opinion
Case No. 97-12939-SSM, Adversary Proceeding No. 97-1295
January 9, 1998
Jeffrey M. Sherman, Morrison Heckler, L.L.P., Washington, D.C., of Counsel for the plaintiff
Klinette H. Kindred, Law Office of Robert Ross Weed, Falls Church, VA, of Counsel for the debtor
Andrew R. Gordon, Alexandria, VA, of Counsel for the chapter 7 trustee
MEMORANDUM OPINION
This matter is before the court on the plaintiff's motion for summary judgment. A hearing was held on January 6, 1998, at which the court heard the arguments of the parties. On its own motion, the court raised the issue of whether the objection to the debtor's discharge was untimely because the debtor had already been granted a discharge prior to the filing of the complaint. At the conclusion of the hearing, the court took the matter under advisement to review the applicable law.
Facts
Richard Rae (the "debtor") filed a voluntary petition under chapter 7 of the Bankruptcy Code in this court on April 21, 1997. The meeting of creditors under § 341, Bankruptcy Code, was held on May 29, 1997, and the deadline for filing complaints to determine the dischargeability of certain debts under § 523(c), Bankruptcy Code, and to object to the debtor's discharge was July 28, 1997. Since neither a complaint objecting to the debtor's discharge nor a motion to extend the time for filing such a complaint was filed by that date, an order granting the debtor a discharge was entered on August 8, 1997, and that order is now final.
The plaintiff, the Estate of Rene Van Buren, filed this adversary proceeding some 13 days later, August 21, 1997. The complaint objects to the debtor's discharge under § 727(a)(2) and (4), Bankruptcy Code, and also seeks a determination that the debtor's liability is nondischargeable under § 523(a)(2), Bankruptcy Code. The debtor's schedule — ("Creditors Holding Secured Claims") reflects that the plaintiff holds a claim against the debtor in the amount of $100,000, which is secured by a lien against the debtor's residence located at 11807 Winterway Lane, Fairfax Station, Virginia, and by the debtor's stock in an entity called The Ticket Outlet, Inc. The plaintiff has moved for summary judgment only with respect to Count I of the complaint, which is brought under § 727(a)(4), Bankruptcy Code, and which alleges that the debtor knowingly and fraudulently made a false oath in his original and first amended schedules and during an examination under F.R.Bankr.P. 2004.
In the complaint, the plaintiff asserts that "[b]y explicit agreement, Defendant waived any defense of timeliness with respect to, and agreed to extend the filing deadline through August 21, 1997, for, the commencement of an action against him under §§ 523 and/or 727." Complaint at 1 n. 1. At the hearing held on January 6, 1998, counsel for the plaintiff explained to the court that the reason neither a complaint nor a motion to extend the time was filed prior to the deadline was because Rene Van Buren, his original client, died "around" this time and that he was waiting for the personal representative of his client's estate to be appointed. He represented further that he and counsel for the debtor informally agreed at that time that the debtor would not object to the timeliness of the complaint.
In addition to the plaintiff's lien against the debtor's residence, the debtor also lists First Union Mortgage Company as holding a lien in the amount of $284,386 against the property. No indication is provided as to which lien is senior to the other, but the plaintiff's motion for summary judgment recites that the plaintiff was given a second lien deed of trust. The debtor lists the plaintiff's claim — in its entirety — as unsecured; however, the debtor places the value of the property at $335,000. Even assuming that First Union is the first lien holder, there should be approximately $50,000 of equity to secure the plaintiff's lien. The stock in The Ticket Outlet, Inc. is listed as having a value of only $1.
The heart of the plaintiff's contention that the debtor omitted numerous items of personal property from his original and first amended schedules, and also failed to disclose the existence of the items when questioned under oath at a Rule 2004 examination taken by the plaintiff. In response to a question requiring the debtor to list all "books, picture and other art objects, antiques, stamp, coin, record, tape, compact disc and other collections or collectibles" owned at the time of filing his bankruptcy petition, the debtor answered "NONE" in his original schedule B ("Personal Property") and his first amended schedule B. At the Rule 2004 examination, the debtor testified that he had a couple of pictures, and "a few books." However, the debtor's second amended schedule B reflects that he owns several framed photographs worth about $625, two signed prints worth about $400 total, several mounted fish appraised at over $400, and a painting appraised at $75. Additionally, in response to the question for the debtor to list all "firearms and sports, photographic and hobby equipment," the debtor answered "NONE" in his original schedule B and his first amended schedule B. At the Rule 2004 examination, the debtor testified that other than a $29 racquet and a "can of balls," he had no other sporting equipment. The debtor's second amended schedule B, however, reflects that he owns numerous items of fishing equipment, a mountain bike, a pellet gun and a spear gun, with an aggregate appraised value of approximately $3,000. Additionally, none of the debtor's schedules reflect that he owns any animals, but at the Rule 2004 examination the debtor testified that he owned three Akita dogs, worth approximately $2,600, but that the dogs are now being taken care of by his roommate because the debtor cannot afford the upkeep.
At a hearing held on December 16, 1997, the court ruled that the debtor must turn over any non-exempt property to the trustee. The order reflecting the court's ruling has not yet been presented for entry.
The debtor has not contested any of the plaintiff's factual averments, but rather, contends that the debtor did not omit any of the items "knowingly and fraudulently." The debtor did not support his opposition to the plaintiff's motion for partial summary judgment with any exhibits or affidavits, but apparently relies on his Rule 2004 testimony.
Conclusions of Law and Discussion I.
This court has jurisdiction of this action under 28 U.S.C. § 1334 and 157(a) and the general order of reference entered by the United States District Court for the Eastern District of Virginia on August 15, 1984. Venue is proper in this district under 28 U.S.C. § 1409(a). Under 28 U.S.C. § 157(b)(2)(I) and (J), this is a core proceeding in which final orders and judgments may be entered by a bankruptcy judge.
II.
Under Fed.R.Civ.P. 56, made applicable to adversary proceedings by F.R.Bankr.P. 7056, a party may move, with or without supporting affidavits, for summary judgment at any time after the parties are at issue. Rule 56(c) provides:
The judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. A summary judgment, interlocutory in character, may be rendered on the issue of liability alone although there is a genuine issue as to the amount of damages.
The burden of establishing the nonexistence of a genuine issue of material fact rests on the moving party. Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 88 L.Ed.2d 285 (1985). In considering a motion for summary judgment, the court should draw all inferences from the underlying facts in a light most favorable to the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 2513, 91 L.Ed.2d 202 (1986); Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 106 S.Ct. 1348, 89 L.Ed.2d 530 (1986). Nevertheless, not just any factual dispute is sufficient to bar summary judgment; the dispute must be as to a "material" fact. Id. at 247-248. Where, as here, it is the plaintiff that is moving for summary judgment, this means that the dispute must concern a fact which, if established, would defeat a required element of the moving party's case or constitute an affirmative defense.
"By its very terms, [Rule 56] provides that the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact. As to materiality, the substantive law will identify which facts are material. Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment. Factual disputes that are irrelevant or unnecessary will not be counted." Anderson, 477 U.S. at 247-48, 106 S.Ct. at 2510.
III. A.
Before reaching the merits of the plaintiff's motion, the court believes a threshold issue must be addressed. At the hearing on the motion, the court expressed concern that, because the debtor's discharge had already been granted, and the order granting it was final, Counts I and II of the complaint are not merely time-barred — a potentially waivable defense — but foreclosed by the principle of res judicata.
Under F.R.Bankr.P. 4004(a), a complaint objecting to the debtor's discharge must be brought within 60 days after the first date set for the meeting of creditors under § 341(a), Bankruptcy Code. The rule expressly provides that any motion to extend the time must be brought "before such time has expired," F.R.Bankr.P. 4004(b), and the Bankruptcy Rules further expressly prohibit an extension based on excusable neglect when the request is made after the time has expired. Id.; 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 Banklnt'l, Ltd., 14 F.3d 244, 248 (4th Cir. 1994) (adopting Schunk v. Santos (In re Santos), 112 B.R. 1001 (9th Cir. BAP 1990)). 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; Santos, 112 B.R. at 1008. 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). However, relief from the bar of Rule 4007(c) cannot be granted on the basis of equitable tolling. Santos, 112 B.R. at 1006-7. In appropriate circumstances, it may be based on equitable estoppel or waiver. Id. at 1007-8.
As explained in Santos, "The essence of the doctrine of equitable tolling is that a limitations period does not run against a plaintiff who is unaware of his cause of action [such as] when the defendant conceals or makes it impossible for the plaintiff to discover the facts underlying his cause of action." 112 B.R. at 1006.
"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." 112 B.R. at 1007. The court held in Santos, however, that equitable estoppel did not apply where a plaintiff relied on a defendant's informal agreement to extend the bar date; the court ruled that such reliance was not reasonable, as only the court had the power to extend the deadline.
"[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." 112 B.R. at 1008 (internal citations omitted).
The deadline in the present case for filing complaints objecting to the debtor's discharge was July 28, 1997. No complaint was filed, nor was a motion brought seeking to extend that time. The Bankruptcy Rules further provide that "[i]n a chapter 7 case, on expiration of the time fixed for filing a complaint objecting to discharge . . . the court shall forthwith grant the discharge. . . ." F.R.Bankr.P. 4004(c) (emphasis added). Consistent with this requirement, the debtor was granted a discharge on August 8, 1997.
Under Federal Rule of Bankruptcy Procedure 9023, which incorporates Federal Rule of Civil Procedure 59, an appealable order entered in a bankruptcy case may be altered or amended on motion made within 10 days of its entry. Additionally, Federal Rule of Bankruptcy Procedure 9024, which incorporates, with certain limitations, Federal Rule of Civil Procedure 60, allows the court to correct clerical mistakes in its orders or errors in the record arising from oversight or omission at any time. Fed.R.Civ.P. 60(a). Additionally, the court may relieve a party from a final judgment or order on various enumerated grounds, such as inadvertence, excuseable neglect, newly discovered evidence, fraud, and the like. Fed.R.Civ.P. 60(b). A motion requesting such relief must be brought within a "reasonable" time, which for certain grounds of relief cannot be later than one year after entry of the order complained of. Unless, however, an order granting the debtor a discharge is vacated under Rules 9023 or 9024, it is final and cannot be attacked except by an action under § 727(d), Bankruptcy Code, to revoke the debtor's discharge. An action to revoke the debtor's discharge under § 727(d) based on fraud must be brought within one year after the entry of the discharge, and the objecting party must not have known of the debtor's fraud until after the granting of the discharge. § 727(d) and (e), Bankruptcy Code.
In the present case, as noted above, the order granting the debtor a discharge was entered on August 8, 1997. It was not entered as a result of administrative error. The time for filing objections to discharge had passed, and there was no pending motion to extend the time. Obedient to the command of F.R.Bankr.P. 4004(c), the court granted the debtor a discharge. No motion to alter or amend that order was brought within the 10 day period provided by F.R.Bankr.P. 9023 and Fed.R.Civ.P. 59. Nor has a motion ever been filed under F.R.Bankr.P. 9024 and Fed.R.Civ.P. 60(b) to vacate the discharge.
Even if the court were to treat the complaint filed by the plaintiff in the present adversary proceeding as including, by implication, a motion under Rule 9024 to vacate the discharge entered 13 days earlier, sufficient cause has not been shown for granting such a motion. The proffered grounds for failure to timely file either a complaint or a motion to extend the time for filing a complaint, amount, at most, to excusable neglect. Since excuseable neglect is not a permissible basis for extending, after the fact, the time to file a complaint objecting to discharge, Farouki, 14 F.3d at 249 n. 15, it cannot be the basis for vacating, after the fact, a discharge that has been properly granted. And, frankly, it is far from clear that the neglect here can fairly be characterized as "excuseable" even under the lenient standard announced by the Supreme Court in Pioneer Investment Svcs. Co. v. Brunswick Assocs. L.P., 507 U.S. 380, 113 S.Ct. 1489, 123 L.Ed.2d 74 (1993). All that has been proferred is that Rene Van Buren, the original noteholder, died "around" the time a discharge complaint was required to be filed, and that counsel, wishing to avoid the expense of filing a formal motion to extend time until he could determine who the creditor's personal representative would be, simply agreed informally with debtor's counsel for a short extension of the time. The court has not been advised of the exact date of Rene Van Buren's death. However, as noted above, the deadline for filing a complaint objecting to discharge was July 28, 1997. Only three days later — July 31, 1997 — the same counsel filed on behalf of Rene Van Buren (not her estate) a detailed, 5-page objection to the debtor's claim of exemptions. It strains the imagination to suggest that counsel could not also have put together and filed, prior to July 28, 1997, a simple motion to extend the time for filing a complaint objecting to discharge. Such motions are filed routinely in this court and are seldom very elaborate. Assuming the relief requested was not opposed by the debtor, a consent order could have been submitted, and a court appearance would not have been necessary. Even Santos, in holding that equitable relief was available in some circumstances from a strict application of the complaint deadline, rejected the notion that the parties could simply agree between themselves to extend the deadline:
A plaintiff cannot reasonably rely upon the defendants' representation that they would extend a deadline when the applicable rules clearly provide that a motion to extend the bar date must be filed prior to the extension of the bar date and only the court may extend the deadline. To determine otherwise would allow the parties to determine among themselves to what extent the bar date would be extended and would remove the court control over extensions which is mandated by the rules.
112 B.R. at 1007-08 (emphasis added). While Santos also held that the untimeliness of a challenge to the debtor's discharge was an affirmative defense that could be waived by failing to assert it, the problem here is that the parties may not "waive" the preclusive effect of an order of this court — particularly, an order that affects not simply their own interests, but that of all creditors. Here the court is not faced simply with an untimely complaint. Rather, because a timely complaint was not filed, a discharge was — quite properly, under the applicable rules — granted. Simply stated, a complaint objecting to the debtor's discharge which is filed, not merely after the deadline for objecting has expired, but after the discharge itself has been granted, comes too late.
The court's ruling on this point affects only Counts I and II of the complaint, which seek a general denial of discharge. Count III seeks a determination that the debtor's liability to Van Buren is excepted from discharge under § 523(a)(2), Bankruptcy Code, on the ground of fraud. It is true that the complaint is equally untimely as to Count III, since F.R.Bankr.P. 4007(c) sets the same deadline for dischargeability complaints as Rule 4004(a) does for objections to discharge. However, the existence of a discharge is no bar to a later action to determine that a particular debt is not discharged as a result of it. Since, under the teaching of Santos, the failure to raise the defense of untimeliness is usually a waiver, and since the debtor has not raised such a defense, Count III may proceed.
B.
Because the debtor's discharge is a final order of this court, the only way the debtor may now, in effect, be "denied" a discharge is if the debtor's discharge is revoked. Under § 727(d), Bankruptcy Code,
(d) On request of the trustee, a creditor, or the United States trustee, and after notice and a hearing, the court shall revoke a discharge granted under subsection (a) of this section if —
(1) such discharge was obtained through the fraud of the debtor, and the requesting party did not know of such fraud until after the granting of such discharge;
(2) the debtor acquired property that is property of the estate, or became entitled to acquire property that would be property of the estate, and knowingly and fraudulently failed to report the acquisition of or entitlement to such property, or to deliver or surrender such property to the trustee; or
(3) the debtor committed an act specified in subsection (a)(6) of this section.
As noted above, a complaint to revoke a debtor's discharge must be brought within one year of the discharge. § 727(e), Bankruptcy Code. Since the present adversary proceeding was commenced within one year of the granting of the debtor's discharge, and since the one year period has not expired even now, the plaintiff may file either a separate adversary proceeding, or an amended complaint in the present adversary proceeding, asserting a cause of action to revoke the debtor's discharge. The court, of course, expresses no view as to the merits of such a cause of action.
IV.
Because the court on its own motion is dismissing the count with respect to which the plaintiff has moved for summary judgment, the court need not address the merits of the plaintiffs motion. However, if the court were to reach the merits of the motion, the court would be inclined to find that a disputed material issue of fact exists which precludes summary judgment — specifically, whether the debtor possessed the requisite intent to knowingly and fraudulently make a false oath. As the Fourth Circuit explained in Williamson v. Fireman's Fund Insurance Co. (In re Williamson) 828 F.2d 249 (4th Cir. 1987), "In order to be denied a discharge under this section, the debtor must have made a statement under oath which he knew to be false, and he must have made the statement willfully, with the intent to defraud." The plaintiff correctly asserts that the fraudulent intent may be established by circumstantial evidence, or by inferences that can be drawn from a course of conduct. See In re Devers, 759 F.2d 751, 753-54 (9th Cir. 1985); Spencer v. Hatton (In re Hattori), 204 B.R. 470, 475 (Bankr. E.D. Va. 1996) (Adams, J.), aff'd 204 B.R. 477 (E.D. Va. 1997) (Smith, J.). As noted by Chief Judge Bostetter of this district, "Where a debtor has engaged in a pattern of omissions or committed numerous inaccuracies a presumption may be made that the debtor acted with fraudulent intent or acted with such reckless disregard for the truth as to be the equivalent of fraud." Peoples Bk. of Charles Town v. Colburn (In re Colburn), 145 B.R. 851, 858 (Bankr. E.D. Va. 1992). However, the court disagrees with the plaintiff that the summary judgment record is sufficient for this purpose. Having carefully reviewed the transcript of the Rule 2004 examination and considered the surrounding circumstances, the court believes that in order to make a finding, even from fairly compelling circumstantial evidence, that the debtor possessed the requisite intent to defraud, the court must assess the credibility and demeanor of the debtor. See Hatton, 484 B.R. at 484 (Smith, J.) (reasoning that a finding of fraudulent intent usually turns on an assessment of the credibility and demeanor of the debtor). Accordingly, the court would deny the plaintiff's motion for summary judgment.
V.
A separate order will be entered denying the motion for summary judgment, and dismissing, on the court's own motion, Counts I and II of the complaint, without prejudice to the plaintiff's right to file an amended complaint asserting a cause of action under § 727(d) to revoke the debtor's discharge.