FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

IN RE CHARLENE M. MILBY,

Debtor,

JON A. MILBY; D&J TRUCKING

COMPANY, a California corporation;

SANDRA HOLDER MILBY, an

individual; SANJON, INC., a

California corporation; 5TH STREET

CONDO, LLC, California Limited

Liability Company; CHARLENE M.

MILBY; CHARLENE’S

TRANSPORTATION, INC., a California

corporation,

Appellants/Cross-Appellees,

v.

PATRICIA A. TEMPLETON,

individuals on behalf of the

Bankruptcy Estate of Debtor

Charlene M. Milby, and derivatively

on behalf of Charlene’s

Transportation, Inc.; G. CRESSWELL

TEMPLETON, III, Bankruptcy Estate

of Debtor Charlene M. Milby, and

derivatively on behalf of Charlene’s

Transportation, Inc.,

Appellees/Cross-Appellants.

Nos. 16-60022

16-60023

BAP No.

15-1180

OPINION
2 IN RE MILBY

Appeal from the Ninth Circuit

Bankruptcy Appellate Panel

Taylor, Faris, and Corbit, Bankruptcy Judges, Presiding

Argued and Submitted September 1, 2017

Pasadena, California

Filed November 21, 2017

Before: Kim McLane Wardlaw and Jay S. Bybee, Circuit

Judges, and Harvey Bartle III,

*

 District Judge.

Opinion by Judge Bybee

SUMMARY**

Bankruptcy

The panel affirmed the judgment of the Bankruptcy

Appellate Panel, which (1) reversed the bankruptcy court’s

dismissal as time-barred of a bankruptcy estate’s claims

seeking avoidance of fraudulent transfers and (2) affirmed the

bankruptcy court’s dismissal of other claims based on

transfers not made by the debtor.

* The Honorable Harvey Bartle III, United States District Judge for

the Eastern District of Pennsylvania, sitting by designation.

** This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.
IN RE MILBY 3

Regarding the time bar, the bankruptcy court held that the

bankruptcy estate’s delay in filing after discovering the

transfers precluded equitable tolling of the statute of

limitations. The BAP reversed, holding that such postdiscovery delay is irrelevant to whether equitable tolling

applies. The panel wrote that neither court correctly applied

the law on equitable tolling. Under the correct standard, postdiscovery delay does not preclude equitable tolling but is still

relevant to assessing a party’s overall diligence. The panel

affirmed the judgment of the BAP because the estate’s overall

diligence, combined with extraordinary circumstances

preventing earlier discovery of the transfers, warranted

equitable tolling.

The panel affirmed, for the same reasons stated in the

BAP’s opinion, the BAP’s affirmance of the bankruptcy

court’s dismissal of claims based on transfers that were made

by individuals and entities other than the debtor and therefore

could not serve as predicates for a claim under 11 U.S.C.

§ 544(b). The panel remanded the case to the bankruptcy

court.

COUNSEL

Karen L. Grant (argued), Law Offices of Karen L. Grant,

Santa Barbara, California; Janet K. McGinnis, Law Office of

Janet K. McGinnis, Santa Barbara, California; for

Appellants/Cross-Appellees.

Daniel Joseph McCarthy (argued), Hill Farrer & Burrill LLP,

Los Angeles, California, for Appellees/Cross-Appellants.
4 IN RE MILBY

OPINION

BYBEE, Circuit Judge:

The bankruptcy estate of Debtor Charlene Milby

discovered allegedly fraudulent transfers days before the

statute of limitations on avoidance claims was set to expire. 

This action was not filed until almost a year later. The

bankruptcy court dismissed the action as time barred and held

that the estate’s delay in filing after discovering the transfers

precluded equitable tolling. The Bankruptcy Appellate Panel

(“BAP”) reversed, holding that such post-discovery delay is

irrelevant to whether equitable tolling applies.

Neither court correctly applied our law on equitable

tolling. Under Gibbs v. Legrand, post-discovery delay does

not preclude equitable tolling but is still relevant to assessing

a party’s “overall diligence.” 767 F.3d 879, 891–93 (9th Cir.

2014). We affirm the judgment of the BAP because, here, the

estate’s overall diligence, combined with the extraordinary

circumstances preventing earlier discovery of the subject

transfers, warrants equitable tolling.

I

Charlene Milby petitioned for Chapter 7 bankruptcy on

September 22, 2011. Under 11 U.S.C. § 546(a)(1), the

bankruptcy estate had two years, or until September 22, 2013,

to file any avoidance actions.1 Between September 5 and 18,

1 The Templetons argue a “discovery” rule should apply, such that the

limitations period began running only when the estate discovered the

subject transfers in September 2013. This is not only contrary to what

they argued before the district court, but also contradicts the express
IN RE MILBY 5

2013, with just days remaining on the two-year limitations

period, creditors Patricia and G. Cresswell Templeton

informed the bankruptcy trustee of allegedly fraudulent

transfers the estate might seek to avoid. The trustee chose not

to act on that information, however, concluding that the cost

of litigation would likely outweigh any potential benefit. 

Thus, on September 19, 2013, the trustee filed a complaint to

avoid certain transfers but not those the Templetons had

identified.

The bankruptcy court approved a settlement of the

trustee’s action in August 2014. While the court was still

considering the settlement, the Templetons approached the

trustee about being appointed to challenge the transfers they

had previously brought to her attention. The trustee agreed,

and on September 16, 2014, the court approved the

Templetons’ appointment to pursue claims on behalf of the

estate or derivatively on behalf of Charlene’s company,

Charlene’s Transportation, Inc. (“CTI”). The next day,

September 17, 2014, the Templetons filed this avoidance

action on behalf of the estate and also, they contend,

derivatively on behalf of CTI.

The Templetons’ complaint challenged transfers from

bank accounts allegedly owned by Defendants Charlene

Milby; her father, Jon A. Milby; her step-mother, Sandra

Holder Milby; and various companies. The complaint

asserted four counts: (1) actual fraud under 11 U.S.C.

§ 544(b) and Cal. Civil Code § 3439.04(a)(1);

(2) constructive fraud under 11 U.S.C. § 544(b) and Cal. Civil

language of § 546(a)(1). See 11 U.S.C. § 546(a)(1) (requiring avoidance

actions to be brought within two years “after the entry of the order for

relief”).
6 IN RE MILBY

Code §§ 3439.04(a)(2) and 3439.05; (3) aiding and abetting

fraud; and (4) unjust enrichment. The Milby Defendants

moved for summary judgment, arguing that the first three

counts were barred by the two-year limitations period on

avoidance actions. The Templetons conceded that the

limitations period would normallyhave expired on September

22, 2013—nearly a year before the action was filed—but

argued that equitable tolling applied given Charlene’s

misconduct in failing to disclose the subject transfers or to

cooperate with the bankruptcy trustee.

In deciding summary judgment, the bankruptcy court first

analyzed whether the subject transfers were “an interest of the

debtor in property” as required to state a claim under

§ 544(b). In re Milby, No. 9:11-BK-14487-PC, 2015 WL

967714, at *10 (Bankr. C.D. Cal. Mar. 2, 2015). The court

held that only the transfers alleged in paragraph 30 of the

Templetons’ complaint so qualified. Id. at *12. It therefore

dismissed without prejudice any claim based on the

remaining transfers alleged in paragraphs 31–35 for failure to

state a claim and granted the Templetons leave to amend to

challenge those transfers under a different theory. Id.

The bankruptcy court then considered whether the claims

based on the paragraph 30 transfers were timely. Id. It found

that equitable tolling did not apply because the estate had the

opportunity to assert claims based on the subject transfers

before the limitations period would normallyhave expired but

did not do so. Id. at *16. Thus, the court held that the

Templetons’ first three claims based on the paragraph 30

transfers were untimely and dismissed those claims with

prejudice. Id. at *17. It also dismissed the unjust enrichment

claim for failure to state a claim. Id. The Templetons filed
IN RE MILBY 7

a notice that they would not amend their complaint, thereby

allowing a final judgment to issue.

On appeal, the BAP vacated in part the judgment for

Defendants. In re Milby, 545 B.R. 613, 625 (B.A.P. 9th Cir.

2016). In a published opinion, the BAP held that the

bankruptcy court erred in considering the estate’s diligence

after discovering the subject transfers. Id. It ruled that

equitable tolling could apply and remanded for further

proceedings. Id. And in a separate, unpublished opinion, the

BAP affirmed the bankruptcy court’s dismissal of any claims

based on the paragraph 31–35 transfers. In re Milby, No. AP

14-01132-PC, 2016 WL 778164, at *4 (B.A.P. 9th Cir. Feb.

24, 2016). Defendants appealed the BAP’s decision

respecting equitable tolling, and the Templetons crossappealed the decision affirming dismissal of their claims

based on the paragraph 31–35 transfers.2

II

The doctrine of equitable tolling is “read into every

federal statute of limitation.” Holmberg v. Armbrecht,

327 U.S. 392, 397 (1946). Indeed, we have previously

applied equitable tolling to § 546(a)(1). Gladstone v. U.S.

Bancorp, 811 F.3d 1133, 1143 (9th Cir. 2016). “A litigant

seeking equitable tolling bears the burden of establishing two

elements: (1) that he has been pursuing his rights diligently,

and (2) that some extraordinary circumstance stood in his

way and prevented timely filing.” Gibbs, 767 F.3d at 884–85

(quotation marks omitted).

2 We have jurisdiction pursuant to 28 U.S.C. § 158(d) and review

legal conclusions of the BAP de novo. In re Jones, 657 F.3d 921, 924 (9th

Cir. 2011).
8 IN RE MILBY

The bankruptcy court had no difficulty finding that the

second element of equitable tolling was met here. The court

described at length the extraordinary circumstances

preventing the estate from initially filing the claims at issue,

referring for example to “the Debtor’s egregious conduct,

including . . . the failure to schedule assets, false oaths in the

schedules and in response to questions at creditors’ meetings,

and failure to turn over documents and cooperate with the

trustee.”3 Milby, 2015 WL 967714 at *13. The court also

noted that there was “no significantly probative evidence in

the record that [the trustee] discovered, or could have

discovered, the Subject Transfers earlier than September 18,

2013.” Id. at *15. We agree with the bankruptcy court that

the Templetons successfully established the second element

of equitable tolling. See Gladstone, 811 F.3d at 1143

(applying equitable tolling where debtor concealed

transactions).

The principal issue is thus whether the Templetons also

established diligence, the first element of equitable tolling. 

Although the bankruptcycourt found the trustee “was diligent

in her administration of the estate” up to the time she

discovered the subject transfers, it nevertheless declined to

applyequitable tolling because no “exceptional circumstances

existed after discovery of the Subject Transfers” to prevent

timely filing. Milby, 2015 WL 967714 at *16 (emphasis

added). The BAP, in turn, reversed on the ground that “[a]

court should not look at the trustee’s post-discovery diligence

when considering whether equitable tolling should be

applied.” Milby, 545 B.R. at 622.

3 The bankruptcy court ultimately denied Milby’s discharge as a

discovery sanction.
IN RE MILBY 9

Neither the bankruptcy court nor the BAP correctly

applied our law on equitable tolling. The bankruptcy court

erred insofar as it held that equitable tolling is inappropriate

any time a litigant has the opportunity to file before a

limitations period would normally expire but does not do so. 

In other words, the bankruptcy court erred insofar as it held

that failing to file a complaint after extraordinary

circumstances cease but before the limitations period would

normally expire is dispositive of whether equitable tolling

applies. That rule is too narrow.

The BAP, for its part, erred in holding that post-discovery

diligence is never relevant to whether equitable tolling

applies. That rule is too broad. As we explained in Gibbs,

“[d]iligence after an extraordinary circumstance is lifted may

be illuminating as to overall diligence, but is not alone

determinative.” 767 F.3d at 892. It is “one factor in a

broader diligence assessment.” Id. That said, we give

diligence before the extraordinary circumstance ends more

weight than diligence afterward. Id. (noting that “diligence

after the fact is less likely to be probative of the question of

whether the extraordinary circumstance caused the late

filing,” such that “diligence during the existence of an

extraordinary circumstance is the key consideration”).

It appears that the BAP’s confusion stemmed from

conflating diligence considered as an element of equitable

tolling with the “stop-clock” rule we adopted in SocopGonzalez v. I.N.S., 272 F.3d 1176 (9th Cir. 2001). In Socop,

Oscar Socop-Gonzalez married a U.S. citizen while his

request for asylum was pending. 272 F.3d at 1181. He asked

an officer of the Immigration and Naturalization Service how

he should proceed in light of his marriage and was

erroneously advised to withdraw his request for asylum. Id. 
10 IN RE MILBY

By doing so, he unwittingly triggered his own

deportation—which he learned of only twenty-seven days

before the ninety-day period to reopen proceedings was set to

expire. Id. He sought legal advice and eventually moved to

reopen proceedings, but the Board of Immigration Appeals

refused to reopen his case because more than ninety days had

elapsed. Id. On petition for review, we applied equitable

tolling and held that “the event that ‘tolls’ the statute simply

stops the clock until the occurrence of a later event that

permits the statute to resume running.” Id. at 1195. We

therefore concluded that Socop was entitled to the full ninety

days to move to reopen proceedings counting from the date

he learned of his deportation. Id.

Socop’s stop-clock rule governs the computation of time

remaining on a statute of limitations when equitable tolling

applies. It does not, however, preclude considering postdiscovery diligence in deciding whether equitable tolling

applies in the first place. In Gibbs, we noted an apparent

“tension” between the stop-clock rule and examining postdiscovery diligence but explained how that tension is

resolved:

We note some tension between examining a

petitioner’s diligence after the lifting of an

obstacle to timely filing, and the stop-clock

rule established by an en banc panel of this

Court in Socop-Gonzalez. Socop-Gonzalez

rejected the approach to equitable tolling

wherein courts consider whether a claimant

should have been expected to file his lawsuit

within the amount of time left in the statute of

limitations, after an extraordinary

circumstance barring filing was lifted. 
IN RE MILBY 11

Instead, “the event that ‘tolls’ the statute

simply stops the clock until the occurrence of

a later event that permits the statute to resume

running.”

. . . . Socop-Gonzalez’s “stop-clock”

holding remains the law in our circuit and

applies here. That rule prohibits courts from

constraining litigants to a judicially imposed

filing window, and warns against imposing

additional diligence requirements on

recipients of equitable tolling.

Courts may, however, consider a

petitioner’s diligence, after an extraordinary

circumstance has been lifted, as one factor in

a broader diligence assessment.

767 F.3d at 891–92 (final emphasis added and citations

omitted); see also Luna v. Kernan, 784 F.3d 640, 651–52 (9th

Cir. 2015) (“[U]nder current circuit law, we must apply both

the diligence-through-filing requirement imposed by Spitsyn

and the stop-clock approach adopted in Gibbs.”); Spitsyn v.

Moore, 345 F.3d 796, 801 (9th Cir. 2003) (remanding for

consideration of diligence after an extraordinarycircumstance

in deciding whether to apply equitable tolling).

Applying Gibbs to the case before us, we hold that the

estate satisfied the diligence element of equitable tolling. The

bankruptcy court found that the trustee was diligent during

the time the subject transfers were concealed, and it is

“diligence during the existence of an extraordinary

circumstance [that] is the key consideration.” Gibbs,

767 F.3d at 892. Less than a week remained on the statute of
12 IN RE MILBY

limitations when the estate discovered the subject transfers in

September 2013, and it would have been unreasonable to

require the estate to file in that time. The trustee brought an

avoidance action challenging other unconcealed transfers, and

she settled that action in August 2014. Once it became

apparent the trustee would not pursue the subject transfers,

the Templetons asked to be appointed to do so. The

bankruptcy court appointed them on September 16, 2014, and

they filed their complaint the very next day.

4 Although nearly

a year had elapsed between discovery of the subject transfers

and filing, this does not, under the circumstances, undercut

the estate’s overall diligence. Equitable tolling applies, and

the estate gets the benefit of the stop-clock rule. The action

was timely filed.

III

Finally, we turn to the Templetons’ cross-appeal. As

noted above, the bankruptcy court found that the transfers

alleged in paragraphs 31–35 of the Templetons’ complaint

were made by individuals and entities other than the Debtor

and therefore could not serve as predicates for a § 544(b)

claim. It also found that the Templetons had failed to state a

claim to avoid the paragraph 31–35 transfers under any other

theory. It therefore dismissed without prejudice any claim

based on the paragraph 31–35 transfers, and the BAP

affirmed.

4 Prior to their appointment—which followed a court-approved

settlement between Charlene and the trustee—the Templetons did not

have the power to pursue the subject transfers. See 11 U.S.C. § 544(b)

(granting to the bankruptcy trustee the power to “avoid any transfer of an

interest of the debtor in property”).
IN RE MILBY 13

We affirm the BAP’s judgment in this regard for the same

reasons stated in its opinion. In brief, § 544(b) provides that

a bankruptcy trustee “may avoid any transfer of an interest of

the debtor in property . . . that is voidable under applicable

law by a creditor holding an unsecured claim.” 11 U.S.C.

§ 544(b)(1) (emphasis added). The transfers alleged in

paragraphs 31–35 were transfers from bank accounts in the

names of non-Debtor Defendants and therefore could not

support a § 544(b) claim. Although the Templetons argued

that their complaint also adequately pled claims under other

theories, both the bankruptcy court and the BAP correctly

held that it did not. The bankruptcy court granted the

Templetons leave to amend to plead their alternate theories,

but they chose not to do so.

Accordingly, we AFFIRM the judgment of the BAP and

REMAND to the bankruptcy court for further proceedings

consistent with this opinion.