Opinion ID: 76965
Heading Depth: 2
Heading Rank: 2

Heading: Statute of Limitations and the Filing of the Complaint

Text: 20 One of the primary issues of the appeal concerns whether the Trustee let the limitations period run prior to filing suit. IBT and SCSD argue that the statute of limitations set forth in 11 U.S.C. § 546(a)(1) had lapsed before the Trustee filed this adversary proceeding on February 10, 1999. Count I of the complaint seeks avoidance of the transfer to IBT and SCSD under § 544(b), and is limited by 11 U.S.C. § 546(a), which provides that: 21 An action or proceeding under section 544, 545, 545, 547, 548, or 553 of this title may not be commenced after the earlier of — 22 (1) the later of — 23 (A) 2 years after the entry of the order of relief; or 24 (B) 1 year after the appointment of election of the first trustee ... 25 Because there was no statutory trustee 4 appointed in this case, the statute of limitations would have run two years after the filing of the bankruptcy case — June 20, 1998. Three days before the limitations was set to run, the bankruptcy court entered an order extending the time until a hearing by the Special Master on July 29, 1998. Due to the ongoing discovery disputes, that hearing was not held until September 3, 1998. On September 17, 1998, the bankruptcy court entered a second order, granting a further extension of the time for filing an adversary action through February 10, 1999. 26 The Defendants' four-pronged attack on the extension of the statute of limitations consists of: (1) that the bankruptcy court did not have the power to extend the § 546(a) period; (2) that the bankruptcy court's extension of the § 546(a) period was inoperative because of the gap period between the orders extending the limitations period; 5 (3) that the doctrine of equitable tolling should not apply to the adversary proceeding; and (4) that the § 546(a) enlargement orders were ineffective against IBT and SCSD. 27 There is the threshold matter of whether the bankruptcy court had any authority — either by its own order or the doctrine of equitable tolling — to enlarge the § 546(a) period for commencing avoidance actions. The Defendants suggest that rather than a statute of limitations, § 546(a) operates as a jurisdictional bar, and point to Bankruptcy Rule 9006(b), which does not specifically provide for enlargement of time period created by statute, as opposed to those created by the Federal Rules of Bankruptcy Procedure or a court order. We find no merit in this argument. Rule 9006(b) states: 28 [W]hen an act is required or allowed to be done at or within a specified period by these rules or by a notice given thereunder or by order of court, the court for cause may at any time in its discretion ... order the period enlarged. 29 Although by these rules ... or by order of court does not explicitly encompass statutory timeframes, it does bring all of the Federal Rules of Bankruptcy Procedure under its umbrella. Not surprisingly, this would include Rule 7001, which defines an adversary proceeding as one to recover money or property and Rule 7003, which governs the commencement of adversary proceedings. To read a jurisdictional bar into § 546 would lead to absurd results, and the Defendants did not cite any authority for such a proposition. Therefore, § 546 is indeed a statute of limitations, subject to waiver, equitable tolling, and equitable estoppel. See In re Rodriguez, 283 B.R. 112, 116-18 (Bankr. E.D.N.Y.2001) (finding § 546 to be a true statute of limitations, subject to enlargement by court order, rather than a statute of repose or jurisdictional bar). 30 While we think a bankruptcy court has the discretion to extend the filing period for an adversary proceeding, that resolution is only the tip of the iceberg. It is undisputed that the Trustee filed the adversary proceeding within the § 546(a) period, as extended by the bankruptcy court's second order. The controversy lies with the so-called gaps between the orders that extended the time period, and whether the extension was fixed by date or reference to a hearing. Namely, the ambiguity arose out the June 17 enlargement order, which provided for an extension of the § 546(a) limitations period through the time of the hearing by the Special Master on July 29, 1998. This hearing was then continued until September 3 due to the protracted discovery disagreements. At the September 3 hearing, the judge granted an oral motion to extend the § 546(a) period through February 10, 1999. The bankruptcy court memorialized this extension by written order on September 17, 1998. 31 The Defendants maintain that the effective words of the bankruptcy court's first enlargement order were July 29, 1999 rather than the reference to the hearing set before the special master. Further, the second order was docketed fifteen days after the oral ruling, and was not entered nunc pro tunc. Given these inherent ambiguities, the bankruptcy court declined to rest its opinion solely on its own orders, although it eventually determined that the Trustee timely filed the complaint. 32 We think that the bankruptcy court's orders did indeed extend the limitations period, albeit not in a seamless fashion. In its Findings of Fact and Conclusions of Law, the bankruptcy court noted that [w]ithout question, [it] intended the limitations period of Section 546(a) to extend through February 10, 1999. Such a statement demonstrates the clear purpose of the bankruptcy court, even where an order does not. Where an order is ambiguous, its extent must be determined by what preceded it and what it was intended to execute. Union Pacific Railroad Co. v. Mason City & Fort Dodge Railroad Co., 222 U.S. 237, 247, 32 S.Ct. 86, 56 L.Ed. 180 (1911). Moreover, we may use a memorandum opinion to determine the intent of the court in issuing that order. United States v. Taylor, 544 F.2d 347, 349 (8th Cir.1976). Consequently, the language hearing set before the Special Master controls, and the limitations period was continued in conjunction with the hearing. 33 There is also the matter of the alleged gap between September 3 and September 17, where the bankruptcy court orally granted a second extension at the hearing of the Special Master, but did not enter a written order until September 17. In this instance, the time at which the written order was entered by the court and file-stamped by the clerk is irrelevant to the time of its effectiveness. A judgment is not what is entered but what was directed by the court ... In the very nature of things, the act must be perfect before its history can be so; and the imperfection or neglect of its history fails to modify or obliterate the act. In re Ackermann, 82 F.2d 971, 973 (6th Cir.1936) (citation omitted). Other courts have treated oral orders similarly. See, e.g., Noli v. Commissioner, 860 F.2d 1521, 1525 (9th Cir.1988) (holding a bankruptcy's court oral order binding and effective despite the court's failure to enter it on the docket). Thus, a court's order is complete when made, not when it is reduced to paper and entered on the docket. See also Dalton v. Bowers, 53 F.2d 373, 374 (2d Cir.1931) (Entry is for most purposes not necessary to the validity of an order.). 34 In an abundance of caution, we will not limit our analysis of the limitations period to the bankruptcy court's orders. Rather, we will also reach the question of whether the Trustee demonstrated an equitable basis for extending the limitations period. Where, despite the exercise of due diligence, a trustee fails to timely bring an avoidance action due to fraud or extraordinary circumstances beyond the trustee's control, equitable tolling prevents the expiration of § 546(a)'s limitations period. In re Levy, 185 B.R. 378 (Bankr.S.D.Fla.1995). See Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350, 363, 111 S.Ct. 2773, 2782, 115 L.Ed.2d 321 (1991) (where the party injured by the fraud remains in ignorance of it without any fault or want of diligence or care on his part, the bar of the statute does not begin to run until the fraud is discovered, though there be no special circumstances or efforts on the part of the party committing the fraud to conceal it from the knowledge of the other party.) (quoting Bailey v. Glover, 21 Wall. 342, 348, 22 L.Ed. 636 (1875)). 35 The equitable tolling doctrine most often applied is that enunciated in Holmberg v. Armbrecht, 327 U.S. 392, 397, 66 S.Ct. 582, 585, 90 L.Ed. 743 (1946). When a defendant's fraudulent deceptions leave a plaintiff ignorant of the facts or even existence of his claim, the limitations period is tolled until discovery of the fraud. Id. at 396-97, 66 S.Ct. at 584-85. Equity does not lend itself to fraud of any kind. Id. at 396, 66 S.Ct. at 584. While this doctrine is not applicable to the time limitation imposed by every federal statute, it does apply to all federal statutes where the time limits are in the character of a true statute of limitations. In re M&L Bus. Mach. Co. Co., Inc., 75 F.3d 586 (10th Cir.1996); In re United Ins. Mgmt., Inc., 14 F.3d 1380 (9th Cir.1994). In such a case, the statute is simply an affirmative defense, and, consequently, subject to equitable considerations such as estoppel and waiver. Smith v. Mark Twain Nat'l Bank, 805 F.2d 278, 293-94 (8th Cir.1986) (applying equitable estoppel to section 549(d)). Equitable considerations are inapplicable, however, where time limits are jurisdictional in nature and are to be strictly construed. Id. Our Circuit's precedent holds that § 546(a) is a statute of limitation that can be waived. In re Pugh, 158 F.3d 530, 537 (11th Cir.1998). We think the same principles apply to equitably toll the statute as well. See In re Klayman, 228 B.R. 805 (Bankr.M.D.Fla. 1999); In re United Ins. Management, Inc., 14 F.3d 1380, 1385 (9th Cir.1994) (noting that [e]very court that has considered the issue has held that equitable tolling applies to § 546(a)(1).). 6 36 Generally, two types of cases give rise to the equitable principles of tolling where the plaintiff cannot timely commence an action because of a defendant's affirmative or negligent conduct. In re Pomaville, 190 B.R. 632 (Bankr.D.Minn. 1995). First, when the fraud goes undiscovered because the defendant has taken positive steps after the commission of the fraud to keep it concealed, then the statute of limitations is tolled until the plaintiff actually discovers the fraud. Id. at 636-37. In re Lyons, 130 B.R. 272, 280 (Bankr.N.D.Ill.1991). Fraudulent concealment must consist of affirmative acts or representations which are calculated to, and in fact do, prevent the discovery of the cause of action. Lyons, 130 B.R. at 280. The identity of the party concealing the fraud is immaterial, the critical factor is whether any of the parties involved concealed property of the estate. Id. The second instance is the more mundane circumstance where the defendant has not actively concealed the fraud, and the plaintiff must then exercise due diligence in an attempt to discover the fraud. Id. The limitations clock starts ticking when the plaintiff obtains — or should have obtained — knowledge of the underlying fraud. Id. Again, the inquiry is whether assets of estate have been concealed. Id. Because the applicability of equitable tolling is a fact-based decision, the bankruptcy court determines whether equitable tolling governs on a case-by-case basis. Pomaville, 190 B.R. at 636. 37 Thus, in the instant case, the Trustee must demonstrate either that he acted with due diligence to discover the negligently concealed fraud or that one of the parties involved in the alleged fraud took positive steps to conceal the transfers. In re Naturally Beautiful Nails, Inc., 243 B.R. 827, 829 (Bankr.M.D.Fla.1999). The statute of limitations in the former situation begins when the Trustee either acquired, or should have acquired, actual knowledge of the existence of a cause of action. Id. The latter scenario, however, overlooks the Trustee's diligence, and the statute begins to run only when the Trustee gains actual knowledge. Id. 38 The bankruptcy court found that the Trustee succeeded under both tests, observing that the Trustee worked long and hard to discover all the intricacies of IAS' and Givens' asset diversion plan. We agree. The Trustee hired a forensic accountant to assist in piecing together the jigsaw puzzle of transfers. Although the Trustee identified some of the initial transfers early in the case, it took months to assemble and ascertain the different mechanisms at work behind the IAS transfers. 39 To further complicate the Trustee's attempts to ferret out the details of the asset diversion plan, the Debtor and Givens went to extreme lengths to hide their activities. The case was replete with discovery violations, mostly in the form of the Debtor and its associates' refusals to supply the Trustee with critical and important documentation. The appointment of a Special Master and his concluding report demonstrate the deliberate and intentional attempts to obscure the true nature of the asset transfers. The documents that evidenced a money trail from IAS to IBT and SCSD were not produced until after September 3, 1998. Without that information, it would have been careless, and perhaps malpractice, for the Trustee to file this adversary proceeding prior to the delivery of these documents. As such, we conclude that the Trustee did not obtain actual knowledge of the cause of action until after September 3, 1998, at which time the limitation period of Section 546 began to run. The February 10, 1999 complaint was timely filed. Moreover, even if the concealment was negligent or inadvertent, and we are not in the least convinced that it was, the bankruptcy court was right to find that the Trustee acted with exemplary diligence given the complexities of this case. 40 As a final challenge to the enlargement of the § 546(a) statute of limitations, the Defendants argue that the bankruptcy court's orders do not apply to them. The second enlargement order encompassed potential adversary proceedings against certain limited partnerships and any other entity (including individuals) which holds or held, either directly or indirectly, assets for the benefit of Charles J. Givens or members of his family. IBT and SCSD contend that the order could not apply to them because they do not hold any such interests. The record, however, demonstrates otherwise. 41 The evidence at trial established that Tedder and Givens orchestrated an elaborate operation that filtered money directly from IAS to IBT and SCSD. Tedder and Dan Baer — the owner of both Defendants — initiated various business ventures together and collaborated on a variety of investment programs and seminars. In their business dealings, Baer managed the day-to-day activities and Tedder arranged for financing. Moreover, the Guild project, where the Defendants eventually put the IAS funds, was one of many investments Tedder made within the confines of the asset dissipation plan. Finally, evidence demonstrated that Baer knew that Guild funding originated with IAS and Givens. 42 The second enlargement order pertained to those that held assets either directly or indirectly. The Defendants' possession of IAS funds falls squarely within that description. The money moved through a chain from IAS and Givens to Tedder and his entities to Baer and his entities, the Defendants. As joint venture partners, Baer was to renovate and manage the Guild project, while Tedder secured and supplied financing. Tedder clearly knew the source of the funds, and the bankruptcy court charged Baer with this knowledge as well. IBT unquestioningly accepted the money, no strings attached. Baer knew that IAS was not an equity participant in the project, but no one signed a promissory note. Rather, Tedder incredibly supplied $1.050 million free and clear of any debt. IBT and SCSD cannot escape liability on the notion that Charles Givens did not directly hand them a fist full of cash or write a million-dollar check. Simply put, the Defendants were subject to the terms of the bankruptcy court's second enlargement order.