Court Opinion

ID: 9858880
Source: CourtListenerOpinion
Date Created: 2023-09-24 17:02:44.106643+00
Date Added: 2024-06-11T09:57:19.082892
License: Public Domain

DENNIS D. O’BRIEN,
Bankruptcy Judge, joining in part and dissenting in part.
I join in Part A of this Memorandum Opinion and Order. However, while I agree with the majority that Local Rule 123 is invalid to the extent that it enlarges the time for filing dischargeability actions brought pursuant to 11 U.S.C. § 523(a)(2), (4), and (6), I dissent from Part B of the opinion, which provides for prospective application only. For reasons discussed below, I would apply the decision retroactively and dismiss the complaint with prejudice.
JURISDICTION
The timely filing of a § 523(a)(2), (4), and (6) complaint is jurisdictional to viability of the cause of action in this case. Section 523(a)(2), (4), and (6) type debts are discharged unless a creditor, who has timely knowledge of bankruptcy, timely commences a dischargeability action.1 See §§ 523(c) and 523(a)(3)(B) incorporated therein; see also Federal Deposit Ins. Corp. v. Kirsch (In re Kirsch), 65 B.R. 297 (Bankr.N.D.Ill.1986).
Congress conferred jurisdiction on the United States Supreme Court to fix, by rule, the appropriate time limitation for the commencement of such actions. See 28 U.S.C. § 2075. The Supreme Court did so by promulgating Federal Bankruptcy Rules 4007(c) and 9006(b)(3). These Rules, by their terms, are exclusive and absolute in both fixing the limitation and providing for its extension.
We have already recognized that the Bankruptcy Court has no authority to promulgate a rule inconsistent with Rules 4007(c) and 9006(b)(3), and that Local Rule 123 is clearly inconsistent with those Federal Bankruptcy rules regarding the time limitation. A rule promulgated without authority cannot be legitimized for any purpose by its author. The Bankruptcy Court was without jurisdiction to promulgate the substance of Local Rule 123 that would enlarge the time to file a dischargeability complaint. See Federal Bankruptcy Rule 9029.2 The same court can hardly give it effect in this case.
Our holding that the Bankruptcy Court had no authority to promulgate Local Rule 123, enlarging the dischargeability complaint period, is a jurisdictional ruling. Jurisdictional rulings cannot be applied prospectively only, but must be applied retroactively. See Budinich v. Becton Dickinson and Co., 486 U.S. -, 108 S.Ct. 1717, 100 L.Ed.2d 178 (1988) and Firestone Tire & Rubber Co. v. Risjord, 449 U.S. 368, 101 S.Ct. 669, 66 L.Ed.2d 571 (1981). Otherwise, a federal court could, in effect, create or expand its own jurisdiction in a particular case.
Accordingly, in determining whether the plaintiff in this case timely commenced its § 523(a)(2) and (6) dischargeability action, the only relevant consideration can be whether Rule 4007(c) has been complied with. If not, there is no longer a cause of action because, as discussed previously, timely commencement is jurisdictional to the viability of such causes of action. See 11 U.S.C. §§ 523(c) and 523(a)(3)(B). If dis-chargeability actions are not timely commenced regarding § 523(a)(2), (4), and (6) type debts, the debts are discharged.
*911Put another way, compliance with Federal Bankruptcy Rule 4007(c) is a jurisdictional element of the cause of action in this case.3 The Rule has not been complied with, and, accordingly, in my opinion, the Defendant is entitled to dismissal with prejudice for lack of jurisdiction. The debts have simply been discharged by operation of 11 U.S.C. § 523(c).
EQUITIES
The majority ignores the jurisdictional nature of our holding regarding Local Rule 128, and treats it as a rule sentenced to death rather than a rule that never lived. Essentially, the justification for this approach is the majority’s belief that the equities demand such treatment because the Plaintiff relied on the Local Rule. Accordingly, the majority uses the Rule in an attempt to save the complaint.
The question of reliance, as with any other equitable consideration, is irrelevant because determination of the matter is controlled by jurisdictional principles. But even if otherwise properly considered, the equities favor dismissal.
The majority’s reasoning appears to be that:
1. The parties acted in reliance on a Court order (Local Rule 123) extending the time to file the complaint in this case.
2. the order was a mistake;
3. the Debtor was not prejudiced by the mistake;
4. the Plaintiff would be prejudiced if not allowed to proceed with the action; and
5.therefore, Rule 123 should be applied in the case to save the complaint as timely filed.
Firstly, a particular local rule should not be equated with an order issued in a specific case. See generally Lompa v. Price (In re Price), 79 B.R. 888, 892, 893 (9th Cir.B.A.P.1987). One cannot appeal from a rule. The Debtor’s only practical remedy in this instance against the application of Local Rule 123 was to do exactly what he did— challenge the Rule in response to a complaint brought pursuant to it. Certainly, declaratory judgment was not available to the Debtor prior to commencement of the dischargeability proceeding. Who would he have named as parties to such an action? Not the interim trustee or the United States Trustee, as they are not proper parties in interest to dischargeability proceedings. See In re Farmer, 786 F.2d 618 (4th Cir.1986). Certainly the Debtor was not required to commence a declaratory judgment action naming all creditors as defendants. Should he have commenced such an action against the Clerk or the Judges? Even if a declaratory judgment action was possible prior to commencement of a dischargeability proceeding, it certainly was not the responsibility of the Debtor to commence such an action.
Furthermore, the parties did not act in reliance on Local Rule 123. Only the Plaintiff did. The debtor’s rights under Federal Bankruptcy Rule 4007(c) are substantially compromised by Local Rule 123. Rule 4007(c) was promulgated for the benefit of debtors and estates, not creditors. The Plaintiff was misled by the Local Rule, not by the Debtor. Falk was as innocent as *912the Plaintiff regarding the rules. Under these circumstances, it is hardly equitable to prejudice the Debtor in order to prevent prejudice to the Plaintiff that would otherwise result from Plaintiff’s reliance on an unauthorized act of the Court in which the Debtor played no part. See Loma Linda University Medical Center v. Neese (In re Neese), 87 B.R. 609 (9th Cir.B.A.P.1988). That would only aggravate the circumstances of the Court’s original sin.
Secondly, Local Rule 123 cannot be properly passed off as a mistake. The majority relies heavily on Fallang v. Hickey (In re Hickey), 58 B.R. 106 (Bankr.S.D.Ohio 1986) as authority for giving affect to Local Rule 123 in this case. Hickey involved a court order which, due to a clerical error, miscalculated the last date on which a timely dischargeability complaint could be filed, thereby affording an additional three days beyond the 60-day period allowed under Federal Bankruptcy Rule 4007(c). Local Rule 123, to the extent that one can compare it with an order, is reversible error not based on clerical mistake. As such, it should be compared no differently than to an order entered, properly appealed, and reversed. Surely, if Plaintiff had obtained such an order on notice and hearing, a complaint filed during any extended period could not survive a later reversal on appeal of the order extending the period. Plaintiff would not be heard to argue that it relied on the lower court’s erroneous order and, thus, the complaint filed pursuant to it should be saved. The circumstances here are no different.
Thirdly, the majority’s conclusion that the Debtor was not prejudiced by the mistake would be true only if the Debtor was not left with the adverse consequences of the Court’s unauthorized promulgation of the Rule. Once again, it should be remembered that Federal Bankruptcy Rule 4007(c) was promulgated for the benefit of debtors and estates, in compliance with 11 U.S.C. § 523(c), not for the benefit of creditors. The Debtor had no complicity in the promulgation of Local Rule 123. The Debt- or’s rights under Federal Bankruptcy Rule 4007(c) are clearly prejudiced by giving effect to the Local Rule in this case.
Finally, the majority concludes that Plaintiff would be prejudiced if not allowed to proceed with the action. Clearly that is so. However, Plaintiff had no right to rely on the viability of Local Rule 123 in the first instance. The authority of the Bankruptcy Court to promulgate rules is clearly defined by Federal Bankruptcy Rule 9029. There exists no other source of authority. Both Federal Bankruptcy Rule 4007(c) (as affected by Federal Bankruptcy Rule 9006(b)(3)) and Local Rule 123 are clear and unambiguous on their face. The Local Rule is clearly inconsistent with the Federal Rule. There exists no unsettled law or precedent upon which the Plaintiff could have justifiably relied that the inconsistent Local Rule could prevail over the Federal Rule. See Goodman v. Lukens Steel Co., 482 U.S. 656, 107 S.Ct. 2617, 96 L.Ed.2d 572 (1987). The Plaintiff is chargeable with knowledge of not only the rules, but with knowledge of the proper scope of their authority in this case.
CONCLUSION
Based on the foregoing, I would give retroactive effect to our holding invalidating Local Rule 123 in this case, and dismiss the complaint with prejudice. I believe that dismissal is mandated by jurisdiction principles; but if not, then by balancing the equities.4

. Plaintiff does not claim that it did not receive formal notice of the bankruptcy case and that it did not have sufficient actual notice to timely file the action.

. Federal Bankruptcy Rule 9029 is the only source of bankruptcy rule making authority in the district courts referable to the bankruptcy courts. Through promulgation of the Rule, the Supreme Court conferred very limited authority to the lower courts. That authority extends only to the promulgation of local rules that are not inconsistent with the Federal Rules.

. Plaintiff argues that Rule 4007(c) is analogous to a non-jurisdictional statute of limitation. Non-jurisdictional statutes of limitation prescribe the right to assert claims in courts of general jurisdiction that are based on common-law causes of action. Essentially, they are particularized codifications of the doctrine of lach-es. Accordingly, like the doctrine of laches, non-jurisdictional statutes of limitation can be asserted as affirmative defenses to common law actions; but the statutes are neither jurisdictional to the actions themselves, nor to a court’s ability to hear and determine them.
Federal courts are courts of limited jurisdiction, and can exercise only special jurisdiction in bankruptcy matters. In other words, the jurisdiction itself is prescribed by statute. Timely commencement of § 523(a)(2), (4), and (6) dis-chargeability actions is a statutory element of those actions; and the same legislative body that created them specifically conferred authority upon the Supreme Court to fix that limitation through promulgation of rules. Accordingly, compliance with Rule 4007(c) is jurisdictional to § 523(a)(2), (4), and (6) causes of action, and a prerequisite to a federal court’s ability to hear and determine them. Failure to comply is not merely assertable as an affirmative defense.

. Constitutional arguments regarding notice, and arguments regarding triggering of the Rule 4007(c) 60-day period, raised by the Plaintiff in its brief, but not discussed in this dissent are treated in detail in Byrd v. Alton (In re Alton), 837 F.2d 457 (11th Cir.1988) and Lompa v. Price (In re Price), 79 B.R. 888 (9th Cir.B.A.P.1987). I believe the reasoning in those cases is sound and I would adopt it as controlling the same issues raised here to the extent relevant to the determination.