F OR P UBLICATION



### UNIT E D ST AT E S CO URT O F APPE AL S FO R T H E NINT H CIRCUIT

I N R E C H A R L E N E M. M I L B Y , Debtor

,

J O N A. M I L B Y ; D& J T R U C K I N G C O M P A N Y , a California corporation; S A N D R A H O L D E R M I L B Y , an individual; S A

N J O N , I N C ., a California corporation; 5 T H S T R E E T C O N D O , L L C, California L imited L iability Company ; C H A

R L E N E M. M I L B Y ; C H A

R L E N E ’ S T R A N S P O R T A T I O N , I

N C

. , a California corporation, Appellants/Cross-Appellees

,

v

.

P A T R I C I A A

. T E M P L E T O N , individuals on behalf of the B ankruptcy

Estate of Debtor Charlene M. Milby , and derivatively on behalf of Charlene’s Transportation, I

nc.; G. C R

E S S W E L L T E M P L E T O N , I I I , B ankruptcy Estate of Debtor Charlene M. Milby , and derivatively on behalf of Charlene’s Transportation, I

nc., Appellees/Cross-Appellants. Nos. 16-60022 16-60023

B AP No. 15-1180

OPI NI ONI N R E M I L B Y 2

Appeal from the Ninth Circuit

B ankruptcy

Appellate Panel Tay lor, F aris, and Corbit, B ankruptcy J udg es, Presiding

Arg ued and Submitted September 1, 2017

Pasadena, California

F iled November 21, 2017

B efore: Kim McL a

ne W ardlaw and J ay

S. B y bee, Circuit J udg es, and Harvey

B artle I I I
, * District J udg e.

Opinion by

J udg e B y bee

SUMMARY * *

Bankruptcy

The p a n e l affirmed the judg ment of the B ankruptcy Appellate Panel, which (1) r eversed the bankruptcy c o u r t ’s dismissal a s time-barred of a bankruptcy estate’s c laims seeking a voidance of fraudulent transfers and (2) affirmed the bankruptcy court’ s dismissal of other claims based on transfers not made by

the debtor.

* T h e H o no r a b le Harv ey B artle III, Un ited States District J u d g e f or th e Eastern District o f

P en n sy l v an ia, sittin g b y

d esig n atio n

.

** T h is su m m ary co n stitu

t es n o p art o f th e o p in io n o f th e co u rt. It h as b een p rep ared b y

co u rt staf

f f o r th e co n v en i en ce o f

th e read er.I N R E M I L B Y 3

Reg arding the time bar, the bankruptcy court h eld that the bankruptcy estate’s d elay in filing after discovering the transfers preclud e d e quitable tolling of the statute o f limitations. The B AP r ev e rsed, holding that such postdiscovery delay is irrelevant to whether equitable to l l i n g applies. The panel wrote that neither c ourt c orrectly applied the law on equitable tolling

. Under the correct standard, postdiscovery delay does n ot preclude e quitable tolling but is still

re l e v ant to assessing a party ’ s overall dilig ence. The panel affirmed the judg ment of the B A P because the estate’s overall dilig ence, combined w ith ex t r aordinary circumstances preventing earlier d i scovery of the transfers, warranted equitable tolling

.

The panel affirmed, f

or the same r e asons stated in the B AP’s opinion, the B AP’s af f i r mance of the bankruptcy court’s d ismissal 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 cl a i m under 1 1 U .S.C. § 544(b). The panel remanded the case to t h e b ankruptcy
court.

COUNSEL

Karen L

. Grant (arg

ued), L aw O f

f ices of Karen L

. Grant, Santa B arbara, California; J anet K. McGinnis, L a w Office o f J anet K. McGinnis

, S anta B arbara, California; for Appellants/Cross-Appellees.

Daniel J o seph McCarthy (arg ued), Hill F arrer & B urrill L L P, L os Ang eles, California, for Appellees/Cross-Appellants.I N R E M I L B Y 4

OP INION

B YB EE, Circuit J udg e:

The bankruptcy e state o f Debtor Charlene Milby discovered alleg edly frau d u lent transfers day s before the
statute of limitations on avoidance claims was set to ex pire. This a ction was n ot filed u n t i l a l most a y ear later. The bankruptcy court dismissed the action as time barred and h eld that the estate’s delay in f iling after discovering the transfers precluded equitable tolling

. The B ankruptcy Appellate Panel (“B A P ” ) r eversed, holding that such post -discovery delay is irrelevant to whether equitable tolling applies.

Neither court corre ctly applied our law on equitable tolling

. U nder Gibbs v. Legrand

, post-discovery de l a y does
not preclude equitable tolling b ut is still relevant to assessing

a party ’s “overall dilig ence.” 767 F

. 3d 879, 891–93 (9th Cir. 2014). W e affirm the judg ment of the B AP because, h ere, the estate’s overall dilig ence, combined w i th the ex traordinary circumstances preventing earlier discovery of the subject transfers, warrants equitable tolling

.

I

Charlene Mi l b y petitioned for Chapter 7 bankruptcy on September 22, 2 011. U n d e r 1 1 U.S.C. § 546(a)(1), the bankruptcy estate had two y ears, or until September 22, 2013,
to file any avoidance a c tions. 1 B etween September 5 and 18,

1 T h e T em p leto n s arg u e a “ d isco v ery ” ru le s h o u ld ap p ly

, su ch th at th e l i m itatio n s p erio d b eg an ru n n in g o n ly w h en th e estate d i s co v ered t h e

su b j ect tran sf

ers i n Sep tem

ber 2 01 3

. T h is is n o t o n ly co n trary to w h at th ey arg u ed b ef

o re th e d istrict co u rt, b u t also co n trad icts th e ex p ressI N R E M I L B Y 5

2 013, with just day s remaining on the two-y ear limitation s period, creditors Patricia and G

. Cresswell Templeton informed the bank r u p tcy trustee of a lleg edly fraudulent transfers the estate mig h t seek to avoid. T he trustee chose not to act on that information, however, concluding that the cost of litig ation would likely outweig h a n y potential be n e fit. Thus, o n September 1 9, 2013, the trustee filed a complaint to avoid c e r t ai n transfers but not those the Templetons h ad identified.

The bankruptcy court a p proved a settlement of the
trus t e e ’s ac tion in Aug ust 2014. W hile the court was still considering the settlement, the Te m pletons approached the
trustee a bout being appointed to challeng e the transfers they had p reviously broug h t to h er attention. The trustee ag r eed,

an d o n S eptember 16, 2014, the c ourt approved the Templetons’ appointment to pursue c l a i m s on behalf of the
estate or d erivatively o n behalf of Charlene’s company , Charlene’s Transportation, I n c. (“CTI ” ). T he nex t day

, September 17, 2014, the Templetons filed this av o idance action o n behalf of the estate and also, they contend, derivatively

on behalf of CTI

.

The Templetons’ complaint challeng ed t ransfers from bank accounts alleg edly owned by Defendants Charlene Milb y ; h e r father, J on A. Milby ; her step-mother, Sandra Holder Milby ; and v a

r ious companies. The complaint

as s e r t e d four counts: (1) actual fraud under 11 U .S.C. § 5 4 4 ( b ) a n d C a l

. Civil Cod e § 3 4 3 9

. 0 4 ( a ) ( 1 ) ; (2) constructive fraud under 11 U.S.C. § 544(b) and Cal. Civil

lan g u ag e o f § 5 4 6 (a)(1 ). S ee 1 1 U.S.C. § 5 4 6 (a)(1 ) (req u irin g av o id an ce actio n s to b e b ro u g h t w i th i n tw o y ears “ af ter th e en try o f th e o rd er f or relief ”).I N R E M I L B Y 6

C o de §§ 3439.04(a)(2) and 3439.05; (3) aiding and a bettin g fraud; and ( 4 ) unjust enrichment. The Milby Defendants moved for summary judg ment, arg uing that the fi r st three
counts were barred by the two-y ear limitations per i od on avoidance actions. T he Templetons conceded that the limitations period wou l d n o r m a l l y h a ve ex pired on September 22, 2013—nearly a y ear before the a c tion w as f iled—but
arg ued that equitable to l l i ng applied g iven Charlene’s mi s c o nduct in failing to disclose the subject transfers or to cooperate with the bankruptcy trustee.

I n deciding summary judg ment, the bankruptcy c ourt first analy z ed whether the subject transfers were “an interest of the debtor in p r o p e r t y ” a s required to state a claim under § 544(b). In re M

i l b y , No. 9:11-B K -14487-PC, 2015 W L 967714, at *10 (B ankr. C.D. Cal. Mar. 2, 2 0 1 5 )

. The court held that only the transfers alleg ed in parag rap h 30 of the Templetons’ complaint so qualified. Id. at *12. I t therefore dismissed without prejudice any claim b a s ed o n the remaining transfers alleg ed in parag raphs 31–35 for failure to state a claim and g ranted the Templet o n s leave to amend to challeng e those transfers under a different theory

. Id.

The bankruptcy c ourt then considered whether the c laims based on the parag raph 30 transfers w ere timely

. Id. I t f ound that equitable tolling did not apply because the estate had the opportunity to ass e r t cl aims based on the subject transfers before the limitations period would normally have exp i r e d but did not d o so. Id. at *16. T h u s , the court held that the Templetons’ first three claims b ased on the parag raph 30 transfers were untimely a nd dismissed those claims with prejudice. Id. a t *17. I t also dismissed the unjust enrichment

c l a i m f or failure to state a claim. Id. The Templetons file dI N R E M I L B Y 7

a notice that they w ould not amend th e ir complaint, thereby allowing a final judg ment to issue.

On appeal, the B AP vacated in p a r t t h e judg ment for Defendants. In re Milby

, 545 B .R. 613, 625 (B .A.P. 9th Cir. 2016). I n a published opinion, the B AP h el d t h a t the bankruptcy c ourt erred in c onsidering the estat e ’ s d ilig e nce after discovering the subject transfers. I d

. I t ruled that equitable tolling could apply a n d remanded f or f urther proceeding s. I

d. And in a separate, unpublished opinion, the B AP affirmed the bankruptcy court’s d ismissal of any c laims based on the parag raph 31–35 transfers. In re Milby

, No. AP 14-01132-PC, 2016 W L 778164, at *4 (B .A.P. 9th Cir. F eb. 24, 2016). D e fe ndants appealed the B AP’s decision respecting equitable t o l ling

, and the Templetons crossappealed the decision affirming d ismissal of their c laims based on the parag

raph 31–35 transfers. 2

I I

The doctrine of e qu i table tolling is “read into every fe d e ral statute o f limitation.” Holmberg v. Armbrecht

, 327 U.S. 392, 397 (1946). I ndeed, we h a v e previously applied equitable toll ing to § 5 46(a)(1). Gladstone v. U .S. Bancorp
, 811 F

. 3 d 1133, 1 143 (9th C i r. 2016). “A litig ant seeking equitable tolling bears the burden of e stablishing two elements: (1) that h e has been pursuing his rig hts di l i gently

, and ( 2) that some ex traordinary c ircumstance st o od in his
way and prevented timely filing .” G ibbs

, 767 F .3d at 884–85 (quotation marks omitted).

2 W e h av e j u risd ictio n p u rsu a n t t o 2 8 U.S.C. § 1 5 8 (d ) an d rev iew leg al co n clu sio n s o f th e B A P de n o v o. In re Jo n es , 6 5 7 F.3 d 9 2 1
, 9 2 4 (9 th Cir. 2 0 1 1 ).I N R E M I L B Y 8

The b an k r u p t c y court had no difficulty finding that the second element o f equitable tolling w as met here. The court described at leng th the ex traordinary circumstances preventing the estate from initially filing the claims at issue, referring for ex ample to “ t h e Debtor’s eg reg ious conduct, including

. . . the failure to schedule assets, false oaths in the schedules a

nd in response to questions at creditors’ meeting s, and failure to turn over do cuments and cooperate with the trustee.” 3 M

ilby

, 2015 W L 9 67714 at * 13. The court also noted that there was “no sig n ifi cantly probative evidence in th e r e cord that [ the trustee] d iscovered, or could have discovered, the Subject Transfers earlier than September 18, 2013.” Id. at *1 5

. W e a gree with the bankruptcy court that the Templetons successfully established the second element of equitable tollin g. See Gladstone

, 811 F .3d at 1143 (apply ing equitable tolling where debtor c o n cealed transactions).

The principal issue is thus whether the Te m p l e t ons also established dilig ence, the first element of equitable tolling

. Althoug h the bankruptcy court found the trustee “ was dilig ent in her administration of the estate” up to the time she discovered the subject tran s f e rs , it n evertheless d eclined to apply equitable tol l i n g b e c a u s e n o “ e xc e p t ional circumstances

ex isted after discovery of the Subject Transfers” to prevent timely filing

. Milby

, 2015 W L 9 67714 at * 1 6 ( e m phasis added). The B AP, in turn, reversed on the g round that “[ a]
court should not look at the trustee’s post-discovery dilig e nce when considering w hether e q uitable tolling should be applied.” M

ilby

, 545 B .R. at 622.

3 T h e ban k r up t c y co u rt u ltim ately d en i ed Milb y ’ s d isch arg e as a d isco v ery san ctio n

.I N R E M I L B Y 9

Neither the bankruptcy court nor the B AP correctly applied our law on equitable tolli ng

. The bankruptcy court erred insofar as it held that equitable tolling is inappropriate
any time a litig ant has the opportunity to file be fo r e a limitations period would normally ex p ire but does not d o so. I n other words, the bankruptcy court e r red insofar as it h eld that failing to file a complaint af t er ex traordinary circumstances cease but before the limitations period would normally e x pi re is dispositive of whether equitable tolling applies. That rule is too narrow.

The B AP, for its p art, erred in holding that post-discovery dilig ence is never re levant to whether equitable tolling applies. T h at rule is too broad. As we ex plained in Gibbs

, “[ d] ilig ence after an ex traordinary circumstance is lifted may be illuminating as to overall d ilig ence, but is not alone determinative.” 767 F .3d at 8 9 2. I t i s “ o n e factor in a broader dilig ence assessment.” Id. T h a t said, we g ive dilig ence before the ex traordinary cir c u m s tance ends more weig ht than dilig ence afterward. Id. (noting t h a t “d ilig e nce

a f ter the fact is less likely to be probative of the question o f whether the ex t r a o rdinary circumstance caused the late filing

, ” such that “dilig ence during the ex istence o f an

ex traordinary

circumstance is the key

consideration”).

I t appears t hat the B AP’s confusion stemmed from conflating dilig ence considered a s a n element of equitable tolling with the “stop-clock” ru le we adopted in SocopGonzalez v. I

. N.S.
, 272 F .3d 1176 (9th Cir. 2001). I n Socop
, Oscar Socop-Gonz alez married a U.S. citiz en whi l e h is request for asy lum was pending

. 272 F .3d at 1181. He asked

an officer of the I mmig ration and Naturaliz ation Service h ow h e s h ould proceed in lig ht of his marriag e a nd w a s erroneously advised to withdraw h is request for asy lum. Id.I N R E M I L B Y 10

By d o i n g s o , h e u n w i t t i n gl y t r i gge r e d h i s o w n deportation—which h e learned of o nly twenty -seven day s before the n inety -day period to reopen proceeding s was set to

ex p ire. Id. He soug ht leg al advice and eventually moved to

r e o pen proceeding s, but the B oard o f I mmig ration Appe a l s refused to reopen his c a se b ecause more than ninety d a y s h ad elapsed. Id. On p e tition for review, we applied equitable tolling and h eld that “the event that ‘tolls’ the statute simply stops the clock until the occurrence of a later e vent that permits the statute to resume r u n n i n g

. ” Id. at 1195. W e therefore concluded that Socop was entitled to the f ull n inety day s to move to reopen p roceedi n gs c o unting from the date he learned of his deportation. Id.

Socop ’s stop-clock rule g overns the computation o f time

re m a i ning on a statute of limitations when equitable tolling applies. I t does not, h owever, preclude considering postdiscovery dilig ence in deciding wheth e r e quitable tolling applies in the first place. I n Gibbs

, we n o t e d an apparent “tension” between the stop-clock rule a nd ex amining postdiscovery dilig ence but ex plained how that tension is resolved:

W e n ote some tension b e t w een ex amining a p etitioner’s dilig ence a

fter the lifting of a n obstacle to timely filing

, an d the stop-clock rule established b y a n en banc panel of this Court in Socop-Gonzale

z

. Socop-Gonzalez rejected the approach to equitabl e tolling wherein courts conside r whether a c laimant should have b een e x p ected to file his lawsuit within the amount of time left in the statute o f l i m i t a t i o n s , a f

t e r a n e x t r a o r d i n a r y circumstance barring filing was lifted.I N R E M I L B Y 11

I nstead, “the event t h a t ‘tolls’ the statute simply stops the c lock u ntil the o ccurrence o f

a later e vent that p ermits the statute to resume running .”

. . . . S

ocop-Gonzalez ’s “stop-clock” holding remains the law in o ur circuit a nd applies here. That rule p rohibits courts f rom

c o n straining litig ants to a judicially impose d filing win dow, and w arns ag ainst imposing

a d d i t i o n a l d i l i g e n c e r e q u i r e m e n t s o n recipients of equitable tolling

.

Courts may, h ow ever, consider a petitioner’s diligence, after a n extraordinary circumstance has been lifted, as one factor in a broader diligence assessment

.

767 F .3d at 891–92 ( final emphasis a dded and ci t a t i ons omitted); see a lso Luna v. Kernan
, 784 F .3d 640, 651–52 (9th Cir. 2 015) (“[ U] nder current circuit law, we must a pply both the dilig ence-throug

h-filing requirement imposed by Spitsyn and the stop-clock approach adopted in Gibbs .”); S pitsyn v

. Moore
, 345 F. 3 d 7 9 6
, 801 (9th Cir. 2003) (remanding for considera t i o n o f d i l i g e n c e after a

n ex traordinary circumstance in deciding whether to apply equitable tolling ).

Ap p ly ing Gibbs to the case before us, we hold that the
estate satisfied the dilig ence element of equitable tolling

. The bankruptc y court found that the trustee was dilig ent during the time the subjec t transfers were concealed, and it is “dilig ence d

u ring the ex istence of an e x traordinary circumstance [ that] is the key consideration.” Gibbs

, 767 F .3d at 892. L ess than a week remained on the statute o fI N R E M I L B Y 12

limitations w hen the e state discovered the subject transfers in September 2013, and it would have be e n u n reasonable to require the estate to file in that time. The trustee broug ht an avoidance action challeng ing other un c o n c e a l e d t r a n s f e rs, a nd she settled that action in Aug ust 2014. Once it became apparent the trustee would not p ursue the subject tr a n s fers, the Templetons asked t o b e appointed to do so. The bankruptcy court appointed them on September 16, 2014, a nd they filed their complaint the very n ex t day

. 4 Althoug h nearly

a y ear had elapsed between discovery o f the subject transfers and filing

, this does n ot, u n d e r the circumstances, undercut the estate’s overall dilig ence. Equitable tolling applies, a nd the estate g et s t h e benefit o f the stop-clock rule. The action was timely

filed.

I I I

F inally

, we turn to the Templetons’ cross-app eal. A s noted above, the b a

n kruptcy court found t h a t the transfers alleg ed in parag r aphs 3 1–35 of the Templet ons’ complaint

were made by individuals and entitie s o t h er than the Debtor and therefore could not serve as pre d i cates for a § 544(b) claim. I t also found that the Templetons had failed to state a claim to avoid the p arag raph 31–35 transfers under any other theory

. I t therefore di s m i s s ed without prejudice any claim based on the p a rag raph 31–35 transfers, and the B AP affirmed.

4 P rio r to th eir ap p o i n tm en t—w h ich f ollo w ed a co u rt- ap p ro v ed settlem en t b etw een Ch arlen e an d th e tru stee—th e T em p leto n s d id n o t h av e th e p o w er to p u rsu e th e su b j ect tran sf

ers. S ee 1 1 U.S.C. § 5 4 4 (b ) (g ran tin g to th e b an k

ru p tcy tru stee th e p o w er to “ av o id an y tran sf er o f an in terest o f th e d eb to r in p ro p erty ”).I N R E M I L B Y 13

W e affirm the B AP’s judg ment in this reg ard for the same

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

a bankruptcy trustee “ may a void any transfer of a n interest of the debtor i n p roperty

. . . that is voidable under applicable l a w b y a c reditor holding a n unsecured claim.” 11 U.S

. C

. § 544(b)(1) (emphasis added). T h e transfers alleg ed in
parag raphs 31–35 were tran sfers from bank accounts in the

names o f non-Debtor Defe ndants a n d therefore could not support a § 544(b) claim. Althoug h the Templetons a rg u ed that their complaint also adequa t e l y pled claims under other theories, both the bankruptcy court and the B AP correctly held th a t i t did n o t. The bankruptcy court g ranted the Templetons leave t o a mend to plead their alternate theories, but they chose not to do so.

According ly

, we AF F IRM the judg ment of the B A P a nd REMAND to the bankruptcy court f o r further proceeding s consistent with this opinion.