Source: http://caselaw.findlaw.com/us-supreme-court/540/443.html
Timestamp: 2016-12-11 02:23:21
Document Index: 28979472

Matched Legal Cases: ['§727', '§727', '§727', '§727', '§523', '§523', '§523', '§523', '§523', '§727', '§523', '§727', '§2401', '§2107', '§12']

KONTRICK v. RYAN [02-819] | FindLaw
KONTRICK v. RYAN [02-819]
KONTRICK v. RYAN, (2004)
Argued: November 3, 2003 Decided: January 14, 2004
On April 4, 1997, petitioner Kontrick filed a Chapter 7 bankruptcy petition. After gaining three successive time extensions from the Bankruptcy Court, respondent Ryan, Kontrick's creditor, filed a complaint on January 13, 1998, objecting to Kontrick's discharge. Ryan alleged that Kontrick had transferred property, within one year of filing his petition, with the intent to defraud creditors, and therefore did not qualify for discharge under 11 U. S. C. §§727(a)(2)-(5). Ryan filed an amended complaint on May 6, 1998, with leave of court, but without seeking or gaining a court-approved time extension. The amended complaint alleged with particularity that Kontrick had fraudulently transferred money to his wife, first by removing his own name from the family's once-joint checking account, then by continuing regularly to deposit his salary checks into the account, from which his wife routinely paid family expenses (the "family-account" claim). Kontrick's June 10, 1998, answer to the amended complaint did not raise the untimeliness of the family-account claim; on the merits, the answer admitted the transfers to the family account but denied that Kontrick had violated §727(a)(2)(A). In response to Ryan's summary judgment motion, which appended a statement of material facts, Kontrick cross-moved to strike portions of Ryan's summary judgment filings, but did not ask the court to strike the amended complaint's family-account allegations. On February 25, 2000, the Bankruptcy Court awarded Ryan summary judgment on the family-account claim, concluding that Kontrick was not entitled to discharge because his transfers to the family account were made with intent to defraud at least creditor Ryan. Kontrick then moved for reconsideration. For the first time, Kontrick urged that the court was powerless to adjudicate the family-account claim. The amended complaint containing that claim, Kontrick observed, was untimely under Rules 4004(a) and (b) and 9006(b)(3). Those rules, Kontrick maintained, establish a mandatory, unalterable time limit of the kind Kontrick called "jurisdictional." The Bankruptcy Court denied reconsideration and entered final judgment, holding that Rule 4004's complaint-filing time instructions are not "jurisdictional," and that Kontrick had waived the right to assert the untimeliness of the amended complaint by failing squarely to raise the point before the court reached the merits of Ryan's objections to discharge. The District Court sustained the denial of discharge, and the Seventh Circuit affirmed. Both courts relied on decisions of sister Circuits holding that the timeliness provisions at issue are not "jurisdictional." Held: A debtor forfeits the right to rely on Rule 4004 if the debtor does not raise the Rule's time limitation before the bankruptcy court reaches the merits of the creditor's objection to discharge. Pp. 8-15.
(b) No reasonable construction of complaint-processing rules would allow a litigant situated as Kontrick is to defeat a claim, as filed too late, after the party has litigated and lost the case on the merits. The relevant claim-processing rules in this case, Bankruptcy Rules 4004(a) and (b) and 9006(b)(3), include, among their primary purposes, affording the debtor an affirmative defense to a complaint filed outside the Rules 4004(a) and (b) time limits. It is uncontested that Ryan filed his complaint objecting to Kontrick's discharge outside those limits. Kontrick urges that nothing occurring thereafter counts, for the Rules' time prescriptions are unalterable, allowing no recourse to equitable exceptions. This case, however, involves no issue of equitable tolling or any other equity-based exception. Neither at the time Ryan filed the amended complaint containing the family-account claim nor anytime thereafter did he assert circumstances--equitable or otherwise--qualifying him for a time extension. The sole question is whether Kontrick forfeited his right to assert the untimeliness of Ryan's amended complaint by failing to raise the issue until after that complaint was adjudicated on the merits. In other words, how long did the affirmative defense Rules 4004(a) and (b) and 9006(b)(3) afforded Kontrick linger in the proceedings? The Seventh Circuit followed the proper path on this key question. It noted that time bars generally must be raised in an answer or responsive pleading. See Fed. Rule Civ. Proc. 8(c) (made applicable to bankruptcy court adversary proceedings by Fed. Rule Bkrtcy. Proc. 7008(a)). An answer may be amended to include an inadvertently omitted affirmative defense, and even after the time to amend "of course" has passed, "leave [to amend] shall be freely given when justice so requires." Fed. Rule Civ. Proc. 15(a) (made applicable to adversary proceedings by Fed. Rule Bkrtcy. Proc. 7015). Kontrick not only failed to assert the time constraints of Rules 4004(a) and (b) and 9006(b)(3) in a pleading or amended pleading responsive to Ryan's amended complaint. In addition, Kontrick moved to delete certain items from Ryan's summary judgment filings, but, even that far into the litigation, he did not ask the Bankruptcy Court to strike the family-account claim. Ordinarily, a defense is lost if it is not included in the answer or amended answer. See Fed. Rule Bkrtcy. Proc. 7012(b) (Fed. Rules Civ. Proc. 12(b)-(h) apply in adversary proceedings). Rules 12(h)(2) and (3) prolong the life of certain defenses, but time prescriptions are not among them. Even if a defense based on Bankruptcy Rule 4004 could be equated to "failure to state a claim upon which relief can be granted," the issue could be raised, at the latest, "at the trial on the merits." Fed. Rule Civ. Proc. 12(h)(2). Only lack of subject-matter jurisdiction is preserved post-trial. Fed. Rule Civ. Proc. 12(h)(3). Kontrick's resistance to the family-account claim is not of that order. Pp. 12-15.
ANDREW J. KONTRICK, PETITIONER v.ROBERT A. RYAN
The District Court sustained the Bankruptcy Court's decision denying Kontrick's discharge. App. to Pet. for Cert. 25-38. The Court of Appeals for the Seventh Circuit, in turn, affirmed the judgment of the District Court. In re Kontrick, 295 F. 3d 724 (CA7 2002). Both courts relied on decisions of sister Circuits holding that "the timeliness provisions at issue here are not jurisdictional." Id., at 733 (citing In re Benedict, 90 F. 3d 50, 54-55 (CA2 1996), and Farouki v. Emirates Bank Int'l Ltd., 14 F. 3d 244, 248 (CA4 1994)); accord, App. to Pet. for Cert. 31-32. Both courts also agreed with the Bankruptcy Court that Kontrick had waived the right to challenge Ryan's amended complaint as impermissibly late.
We can assume, arguendo, that had Kontrick timely asserted the untimeliness of Ryan's amended complaint, Kontrick would have prevailed in the litigation. The question, in that event, would have been "whether the time restrictions in th[e] Rules are in such 'emphatic form' " as to preclude equitable exceptions. Brief for United States as Amicus Curiae 16 (citation omitted). See, e.g., Carlisle, 517 U. S., at 419-433 (upholding timely challenge to one-day-late filing under Fed. Rule Crim. Proc. 29(c)); Taylor, 503 U. S., at 642-646 (similar ruling regarding Fed. Rule Bkrtcy. Proc. 4003(b)); Robinson, 361 U. S., at 222-230 (similar ruling regarding Fed. Rule Crim. Proc. 45(b)). Here, however, the sole question is whether Kontrick forfeited his right to assert the untimeliness of Ryan's amended complaint by failing to raise the issue until after that complaint was adjudicated on the merits.13 In other words, how long did the affirmative defense Rules 4004(a) and (b) and 9006(b)(3) afforded Kontrick linger in the proceedings?
FOOTNOTESFootnote 1 Under §727(a), the court may not grant a discharge of any debts if the debtor, inter alia: (1) is not an individual; (2) has, with intent to defraud a creditor, concealed, transferred, or destroyed property of the estate (A) in the year preceding bankruptcy or (B) during the bankruptcy case; (3) has destroyed books or records; (4) has knowingly (A) given a false oath or account, (B) presented or used a false claim, (C) attempted to obtain money by acting or forbearing to act, or (D) withheld documents relating to the debtor's property or financial affairs; or (5) has failed to explain a loss or deficiency of assets. 11 U. S. C. §§727(a)(1)-(5).
Footnote 2 Section 523 categorizes debts that are nondischargeable. See, e.g., 11 U. S. C. §523(a)(1) (certain debts "for a tax or a customs duty"); §523(a)(2)(A) (certain debts for money obtained by "false pretenses, a false representation, or actual fraud"); §523(a)(5) (certain debts "to a spouse, former spouse, or child of the debtor" for "support of such spouse or child"); §523(a)(6) (debts for "willful and malicious injury by the debtor").
Footnote 3 Under Bankruptcy Rule 4007(c), essentially the same time prescriptions apply to complaints targeting the discharge of a particular debt pursuant to 11 U. S. C. §523(c). See supra, at 2, n. 2. Rule 4007(c) tracks Rules 4004(a) and (b), and Rule 9006(b)(3) lists Rule 4007(c) as well as Rule 4004(a) among time prescriptions bankruptcy courts may enlarge "only to the extent and under the conditions stated [in the rules themselves]." Because of the practical identity of the time prescriptions for objections to the discharge of any debts under §727(a) and for objections to the discharge of particular debts under §523(c), courts have considered decisions construing Rule 4007(c) in determining whether the time limits delineated in Rules 4004(a) and (b) may be forfeited. See, e.g., In re Kontrick, 295 F. 3d 724, 730, n. 3 (CA7 2002) (citing In re Santos, 112 B. R. 1001, 1004, n. 2 (BAP CA9 1990)).
Footnote 4 Although Kontrick took his name off the family bank account some four years prior to his bankruptcy petition, his salary check deposits continued into the one-year period preceding bankruptcy specified in 11 U. S. C. §727(a)(2)(A) (described supra, at 2, n. 1). See App. to Pet. for Cert. 33, 52-53.
Footnote 5 In a pre-bankruptcy deposition, Kontrick admitted he transferred the once-joint bank account to his wife to prevent his creditors from attaching the funds. See App. to Pet. for Cert. 53; 295 F. 3d, at 727-728.
Footnote 6 Compare, e.g., In re Coggin, 30 F. 3d 1443, 1450-1451 (CA11 1994) (referring to Rule 4004(b) as a "jurisdictional requirement" and a "jurisdictional bar"), with, e.g., In re Benedict, 90 F. 3d 50, 54 (CA2 1996) ("time period imposed by Rule 4007(c) is not jurisdictional").
Footnote 7 On brief and at oral argument, counsel for Kontrick suggested that, by noting that the family-account claim was not stated in the original complaint, Kontrick had implicitly invited dismissal of the claim. See Tr. of Oral Arg. 5; Brief for Petitioner 5 ("Kontrick . . . argued that in opposing Ryan's many other allegations as untimely, he had also sufficiently raised the untimeliness of the family account claim."). Kontrick's notation that the family-account claim was absent from the original complaint, the courts below agreed, fell short of an argument that the claim was untimely. 295 F. 3d, at 735; App. to Pet. for Cert. 72. We have no cause to disturb that determination. In any event, we train our attention on the question Kontrick here presented: "[W]hether the deadline set by Rule 4004 is mandatory and jurisdictional and thus cannot be waived." Brief for Petitioner i. See also Pet. for Cert. i. We note, too, that the question whether the family-account claim could properly "relate back" to the original complaint was neither raised in the Seventh Circuit, 295 F. 3d, at 729, n. 2, nor aired in this Court, see Tr. of Oral Arg. 33.
Footnote 8 Provisions of a similar order, with built-in time constraints, include 28 U. S. C. §2401(b) (tort claim against United States "shall be forever barred" unless presented "to the appropriate Federal agency within two years after [the] claim accrues" or civil action "is begun within six months after . . . notice of final denial of the claim by the agency to which it was presented"); and §2107(a) ("Except as otherwise provided in this section, no appeal shall bring any judgment, order or decree in an action, suit or proceeding of a civil nature before a court of appeals for review unless notice of appeal is filed, within thirty days after the entry of such judgment, order or decree.").
Footnote 9 Even subject-matter jurisdiction, however, may not be attacked collaterally. Des Moines Nav. & R. Co. v. Iowa Homestead Co., 123 U. S. 552 (1887); see Restatement (Second) of Judgments §12 (1982).
Footnote 10 Like Federal Rule of Criminal Procedure 45(b) and Federal Rule of Appellate Procedure 26(b), Bankruptcy Rule 9006(b) is modeled on Federal Rule of Civil Procedure 6(b). See Advisory Committee's Note accompanying Rule 9006 ("Subdivision (b) is patterned after Rule 6(b) F.R.Civ.P. and Rule 26(b) F.R.App.P." (emphasis in original)).
Lower courts have divided on the question whether Bankruptcy Rules 4004 and 4007(c) allow equitable exceptions. Compare, e.g., 295 F. 3d, at 733 (Rules 4004 and 4007(c) "are subject to equitable defenses"); In re Benedict, 90 F. 3d, at 54 (same conclusion regarding Rule 4007(c)); Farouki v. Emirates Bank Int'l, Ltd., 14 F. 3d 244, 248 (CA4 1994) (same conclusion regarding Rule 4004), with, e.g., In re Alton, 837 F. 2d 457, 459 (CA11 1988) (Rule 4007(c) confers no discretion to grant an untimely motion to extend the time to object, even if the creditor lacked notice of the bar date); Neely v. Murchisen, 815 F. 2d 345, 346-347 (CA5 1987) (same).
Footnote 13 As the Government notes, "[t]he issue in this case is more accurately described as one of forfeiture rather than waiver." Brief for United States as Amicus Curiae 7, n. 5. Although jurists often use the words interchangeably, "forfeiture is the failure to make the timely assertion of a right[;] waiver is the 'intentional relinquishment or abandonment of a known right.' United States v. Olano, 507 U. S. 725, 733 (1993) (quoting Johnson v. Zerbst, 304 U. S. 458, 464 (1938))." Brief for United States as Amicus Curiae 7, n. 5 (some internal quotation marks omitted).
Footnote 14 In fuller detail, Bankruptcy Rule 4004(d) provides that "[a] proceeding commenced by a complaint objecting to discharge is governed by Part VII of these rules." Part VII includes Bankruptcy Rule 7008(a), which states that "Rule 8 F.R.Civ.P. applies in adversary proceedings."
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