Court Opinion

ID: 2970909
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Date Created: 2015-09-22 16:24:37.372791+00
Date Added: 2024-06-11T12:09:53.936573
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                Pursuant to Sixth Circuit Rule 206                          2    In re Maughan                                No. 01-4151
        ELECTRONIC CITATION: 2003 FED App. 0286P (6th Cir.)
                    File Name: 03a0286p.06                                                      _________________
                                                                                                     COUNSEL
UNITED STATES COURT OF APPEALS
                                                                            ON BRIEF: Mark D. Shepard, BABST, CALLAND,
                   FOR THE SIXTH CIRCUIT                                    CLEMENTS & ZOMNIR, Pittsburgh, Pennsylvania, for
                     _________________                                      Appellant. Andrew W. Suhar, Youngstown, Ohio, for
                                                                            Appellee.
 In re: EDWIN M. MAUGHAN ,        X
                                   -                                                            _________________
 SR.,
                        Debtor. -                                                                   OPINION
                                   -   No. 01-4151
                                                                                                _________________
                                   -
                                    >
                                   ,                                           ALICE M. BATCHELDER, Circuit Judge. Plaintiff-
 JOHN P. NARDEI,                   -                                        appellant John Nardei appeals an order from the Bankruptcy
            Plaintiff-Appellant, -                                          Appellate Panel (“BAP”) of the Sixth Circuit reversing and
                                   -                                        remanding a judgment of the United States Bankruptcy Court
            v.                     -                                        for the Northern District of Ohio. Nardei, a partially secured
                                   -                                        creditor of defendant-appellee Edwin Maughan, argues that
                                   -                                        the BAP erred in reversing the bankruptcy court’s order
 EDWIN M. MAUGHAN , SR.,
                                   -                                        granting Nardei an extension to file a complaint objecting to
           Defendant-Appellee. -                                            discharge. Although Nardei acknowledges that he failed to
                                  N                                         file timely either his complaint or his request for an extension
          Appeal from the Bankruptcy Appellate                              of time for filing that complaint, he argues that the
                 Panel of the Sixth Circuit.                                bankruptcy court correctly held that Bankruptcy Rules
   No. 98-41905—William T. Bodoh, Bankruptcy Judge.                         4004(a) and 4007(c)—the rules governing the filing of
                                                                            complaints objecting to discharge under 11 U.S.C. §§ 523 and
                   Submitted: March 28, 2003                                727—are not jurisdictional in nature, but instead establish
                                                                            only filing deadlines that are subject to equitable tolling. The
             Decided and Filed: August 14, 2003                             BAP’s opinion finding that those rules are jurisdictional and
                                                                            reversing the bankruptcy court, Nardei argues, must be
 Before: MERRITT and BATCHELDER, Circuit Judges;                            reversed. Because we find that the precedent of this circuit
           DUPLANTIER, District Judge.*                                     compels us to conclude that these rules are not jurisdictional,
                                                                            we will reverse the order of the BAP and affirm the decision
                                                                            of the bankruptcy court.

    *
      The Hon orable A drian G. Duplantier, United States D istrict Judge
for the Eastern District of Louisiana, sitting by designation.

                                   1
No. 01-4151                              In re Maughan       3    4        In re Maughan                                        No. 01-4151

                    I. BACKGROUND                                 Rules 4004(a)1 and 4007(c).2 In August of 1998, Nardei filed
                                                                  a motion under Bankruptcy Rule 20043 to examine Maughan
   The relationship between these parties began when John
Nardei, a resident of Youngstown, Ohio, purchased U.S. Gold
Eagle coins from Edwin Maughan, who operated a coin and               1
                                                                          Rule 40 04(a) p rovides:
jewelry business in Pittsburgh, Pennsylvania. Over time,
Maughan convinced Nardei that he could increase the return            In a chapter 7 liquidation case a complaint objecting to the
on Nardei’s investment by trading the coins according to the          de btor's discharge under § 727(a) of the Code shall be filed no
                                                                      later than 60 days after the first date set for the meeting of
fluctuations in the price of gold. Based on this advice, Nardei       creditors under § 341(a). In a chapter 11 reorganization case, the
gave his existing investment of gold coins and additional             complaint shall be filed no later than the first date set for the
payments for the purchase of more coins to Maughan; in                hearing on confirmation. At least 25 days' notice of the time so
return, Maughan gave Nardei receipts detailing the number of          fixed shall be given to the United States trustee and all creditors
gold coins purchased in each transaction. Maughan asked               as provided in Rule 2002 (f) and (k), and to the trustee and the
Nardei to get more individuals involved in the investment             trustee's attorney.
plan, which Nardei did. Eventually, Maughan began issuing             2
                                                                          Rule 40 07(c) p rovides:
promissory notes to Nardei and the other investors covering
the total amount invested over the years.                             A complaint to determine the dischargeability of a debt under
                                                                      § 523 (c) shall be filed no later than 60 days after the first date set
   After Maughan issued several more notes, it became clear           for the meeting of creditors under § 341(a). The court shall give
to Nardei that his investment was not being used to purchase          all creditors no less than 30 days' notice of the time so fixed in
gold coins, but was being used to purchase jewelry to be              the manner provided in Rule 2002. O n motion of a pa rty in
                                                                      interest, after hearing on notice, the court may for cause extend
resold in Maughan’s retail location. Nardei sued Maughan in           the time fixed under this subdivision. The motion shall be filed
the Common Pleas Court of Allegheny County and obtained               before the time has expired.
a judgment on the notes in the amount of $1,051,503.72, plus
interest and costs. The parties then entered into a settlement        3
                                                                          Rule 200 4 provides, in relevant part:
whereby Maughan agreed to pay Nardei $1,200,000.00,
without interest, over a specified number of years. Maughan           (a) Examination on motion
failed to comply with the terms of the agreement and
                                                                      On motion of any party in interest, the court may order the
eventually filed a voluntary petition for bankruptcy under            exam ination o f any entity.
Chapter 7.
                                                                      (b) Scope of examination
  In the proceedings that followed, the bankruptcy court set
October 19, 1998, as the deadline to file a Complaint                 The examination of an entity under this rule or of the debtor
Objecting to the Discharge of the Debtor or to Determine              under §§ 343 o f the Co de m ay relate only to the acts, co nduc t,
                                                                      or property or to the liabilities and financial condition of the
Dischargeability of Certain Debts, pursuant to Bankruptcy             debtor, or to any matter which may affect the administration of
                                                                      the debtor's estate, or to the debtor's right to a discharge. In a
                                                                      family farmer's debt adjustment case under chapter 12, an
                                                                      individual's debt adjustment case under chapter 13, or a
                                                                      reorganization case under chapter 11 of the Code, other than for
                                                                      the reorganization of a railroad, the examination may also relate
No. 01-4151                                      In re Maughan             5   6        In re Maughan                                         No. 01-4151

under oath and determine the appropriateness of filing                         to produce specified documents for the Rule 2004
objections to the discharge of the settlement debt. The                        examination. Within the time allowed by the extension,
bankruptcy court granted the motion and ordered Maughan to                     Nardei filed complaint under 11 U.S.C. § 523(c), alleging that
appear for an examination on August 21, 1998, and to provide                   Maughan had obtained the money from Nardei by false
specific documents sought by Nardei. Although Maughan                          pretenses or false representations. The bankruptcy court held
appeared for the Rule 2004 examination, he failed to comply                    a hearing in this adversary proceeding on August 22, 2000,
fully with the order to produce the documents. He did,                         and issued an opinion on January 9, 2001, finding that
however, promise to provide the missing documents                              Maughan’s debt to Nardei was obtained through false
promptly.                                                                      pretenses, a false representation or actual fraud, and was
                                                                               therefore excepted from discharge under 11 U.S.C.
   When the October 19, 1998, deadline for filing a complaint                  § 523(a)(2)(A).
arrived, Maughan had still not produced all the documents
requested for the Rule 2004 examination. Three days later,                       Maughan appealed the bankruptcy court’s decision to the
on October 22, 1998, citing Maughan’s failure to produce the                   Bankruptcy Appellate Panel of the Sixth Circuit, arguing that
documents and, in the alternative, excusable neglect, Nardei                   the bankruptcy court erred by granting Nardei’s request for an
filed a Motion for Extension of Time to Object to Discharge.                   extension to file his complaint. The BAP agreed, and,
After initially granting Nardei’s motion, the bankruptcy court                 holding that the time limits set forth in Bankruptcy Rule
allowed Maughan to file a Motion in Opposition to Nardei’s                     4007(c)4 are jurisdictional in nature and not akin to statutes of
extension request. The bankruptcy court considered the                         limitation, reversed the bankruptcy court’s decision. Nardei’s
parties’ motions and ordered that the time to file a complaint                 timely appeal to this court followed.
be extended to a date twenty days following the actual day
Maughan complied with the court’s prior order directing him                                               II. DISCUSSION
                                                                                 We independently review the decision of the bankruptcy
                                                                               court that comes to us by way of appeal from a Bankruptcy
   to the operation of any business and the desirability of its                Appellate Panel. See In re Isaacman, 26 F.3d 629, 631 (6th
   continuance, the source of any money or prope rty acquired or to            Cir. 1994); In re Cassell, No. 00-4523, 2001 U.S. LEXIS
   be acquired by the debtor for purposes of consummating a plan               13969, **3-**4 (6th Cir. June 15, 2001) (unpublished). The
   and the consideration given or offered therefor, and any other
   matter relevant to the case or to the formulation of a plan.
                                                                                    4
   (c) Comp elling attendance and production o f documents                           The only bankruptcy rule properly before the bankruptcy court and
                                                                               before the BAP and this court on appeal is Rule 4007(c), because, as
   The attendance of an entity for examination and for the                     Nardei’s brief says, “[a]t trial, for strategic reasons, counsel for Nardei
   production of documents, whether the examination is to be                   choose [sic] to p ursue o nly Nardei’s claim that Debtor’s debt to him is
   conducted within or without the district in which the case is               excepted from d ischarge [Rule 4007(c)] because it was obtained by fraud
   pending, may be compelled as provided in Rule 9016 for the                  and false pre tenses p ursuan t to 11 U .S.C. § 523(a)(2)(A).” Although each
   attendance of a witness at a hearing or trial. As an officer of the         party briefed and argued the impact of both rules in this case, the
   court, an attorney may issue and sign a subpoena on behalf of               bankruptcy court discussed only Rule 4007(c), and our holding is
   the court for the district in which the exam ination is to be held          therefore limited to Rule 4007(c). Ho wever, because the reasoning and
   if the attorney is admitted to practice in that court or in the court       rationa le of both rules are co nsistent, we look to case s app lying bo th rules
   in which the case is pending.                                               for guidance on the question before us.
No. 01-4151                               In re Maughan        7    8       In re Maughan                                 No. 01-4151

first question for this court to decide is whether the deadline        The Supreme Court had an opportunity to address a similar
provided in Bankruptcy Rule 4007(c) is jurisdictional, such         rule in Taylor v. Freeland & Kronz, 503 U.S. 638 (1992)
that the bankruptcy court has no authority to alter it, or is       (examining Bankruptcy Rule 4003, which governs the
more comparable to statutes of limitation and subject to the        debtor’s list of property claimed as exempt under 11 U.S.C.
court’s equitable authority. We review de novo this question        § 522 on the schedule of assets required to be filed by Rule
of law. In re Downs, 103 F.3d 472, 476-77 (6th Cir. 1996).          1007). Under the rule at issue in Taylor, a trustee or creditor
                                                                    “may file objections to the list of property claimed as exempt
  The Federal Rules of Bankruptcy Procedure state that “a           within 30 days after the conclusion of the meeting of creditors
complaint to determine the dischargeability of a debt pursuant      held pursuant to Rule 2003(a) . . . unless, within such period,
to § 523(c) of the Code shall be filed not later than 60 days       further time is granted by the court.” FED . R. BANKR . P.
following the first date set for the meeting of creditors held      4003(b).5 The trustee in Taylor neither timely moved for an
pursuant to § 341(a).” FED . R. BANK. P. 4007(c).                   extension of time to object nor timely objected to the debtor’s
Additionally, any motion to extend the time for filing such a       including on the list of exemptions proceeds from a pending
complaint “shall be made before the time [to file the               lawsuit, believing that the lawsuit had no value. Taylor, 503
complaint] has expired.” Id. Under Bankruptcy Rule 9006,            U.S. at 641. After the debtor received a significant payment
courts may enlarge the time for taking action under Rule 4007       in settlement of the lawsuit, the trustee attempted to object to
“only to the extent and under the conditions stated” in Rule        the inclusion of the proceeds on the list of exemptions. Id.
4007. FED . R. BANK. P. 9006(b)(3). These rules, however,           The Supreme Court affirmed the appellate court’s holding
must be read together with the general powers given to the          that the trustee had failed to raise a timely objection to the
courts in bankruptcy under 11 U.S.C. § 105, which provides:         exemption, and that the debtor therefore could not be required
                                                                    to turn over the proceeds. Id. at 642.
  The court may issue any order, process, or judgment that
  is necessary or appropriate to carry out the provisions of           Looking at the specific allowance under Rule 4003(b) for
  this title. No provision of this title providing for the          trustees and creditors to file objections within thirty days of
  raising of an issue by a party in interest shall be               the initial creditors’ meeting, the Court found by “negative
  construed to preclude the court from, sua sponte, taking          implication” that the rule “indicates that creditors may not
  any action or making any determination necessary or               object after 30 days ‘unless, within such period, further time
  appropriate to enforce or implement court orders or rules,        is granted by the court.’” Id. at 643. The Court held that even
  or to prevent an abuse of process.                                if the trustee was correct, and the debtor improperly included
                                                                    the lawsuit proceeds on the exemption list, the trustee could
11 U.S.C. § 105(a).                                                 not contest the exemption. “Deadlines may lead to
                                                                    unwelcome results, but they prompt parties to act and they
   There is no question that Nardei failed to file his motion for   produce finality.” Id. at 644. The Court explicitly declined
an extension prior to the expiration of Rule 4007(c)’s sixty-       to address the question of whether the bankruptcy court could
day deadline. Nardei, however, argues that Maughan’s failure        have extended the time for filing the objection by invoking its
to comply with a prior order from the court led to the late
filing, and Section 105(a) authorizes the court to use its
equitable power to toll the filing deadline and prevent an              5
abuse of process.                                                        Rule 4003(b) is included in the series of rules along with R ule
                                                                    4007(c) who se extension is limited by Rule 9006 (b)(3).
No. 01-4151                                    In re Maughan          9    10       In re Maughan                                         No. 01-4151

equitable power under Section 105(a), noting that the trustee              similar case). But the Isaacman decision cracked open the
had raised this issue for the first time in his opening brief on           door of equity through which the bankruptcy court might
the merits in the Supreme Court.                                           accept an untimely complaint.
   Several lower courts applying Taylor have determined that                  Other circuits have gone beyond the limited facts of
the deadlines within the Bankruptcy Rules create                           Isaacman and have found that, in general, the deadlines are
jurisdictional bars and not statutes of limitation. See, e.g.,             not jurisdictional in nature. For example, the Fourth Circuit,
First Deposit Nat'l Bank v. Glover (In re Glover), 212 B.R.                in Farouki v. Emirates Bank Int’l, Ltd., 14 F.3d 244, 248 (4th
860, 862 (Bankr. S.D. Ohio 1997); Goodwin v. United States                 Cir. 1994), held that the Rule 4004(a) deadline is not
Fid. & Guar. Ins. Co. (In re Goodwin), 215 B.R. 710, 714                   jurisdictional and that the rules “do not preclude the
(Bankr. W.D. Tenn. 1997). This circuit, however, has issued                bankruptcy court from exercising its equitable powers in
only one opinion addressing the apparent conflict between the              extraordinary cases.” The Seventh Circuit compared the
filing deadlines of the Bankruptcy Rules and the bankruptcy                filing deadlines to statutes of limitations, first finding that the
court’s extensive equitable power. In In re Isaacman, 26 F.3d              text of the rules and statutes failed to resolved the issue7 and
629 (6th Cir. 1994), we held—without mentioning Taylor in                  then examining the structure, legislative history and
our discussion of this issue6—that Rule 9006(b)(3) prohibits               underlying policy of the rules and the related statutory
a court from sua sponte extending the time in which to file a              scheme. In re Kontrick, 295 F.3d 724, 730-33 (7th Cir.
dischargeability complaint, but the rule “does not prevent a               2002). The Seventh Circuit concluded that the Supreme
bankruptcy court from exercising its equitable powers under                Court’s decision in Taylor was not dispositive and held that
11 U.S.C. § 105(a) in accepting an untimely filed complaint.”              the timeliness provisions are not jurisdictional. Id. at 733.
Id. at 632. At issue in Isaacman was an error created by the               The Second Circuit has also concluded that the deadlines
bankruptcy court itself establishing two separate deadlines for            imposed by these Bankruptcy Rules are not jurisdictional.
filing complaints; the creditor relied upon the second date and            European Am. Bank v. Benedict (In re Benedict), 90 F.3d 50,
filed an untimely complaint after the first deadline expired.              54 (2d Cir. 1996). The court divided the cases on this issue
We limited our holding to a situation in which a bankruptcy                into three groups: (1) cases finding that the time periods
court erroneously set a second bar date and a creditor                     imposed by the rules are jurisdictional (citing several district
reasonably relied upon that second date when filing an
untimely complaint. Id. (joining the Ninth Circuit, In re
Anwiler, 958 F.2d 925 (9th Cir. 1992), and the Tenth Circuit,                   7
                                                                                 Specifically, the court said, “The rules we have just described do
In re Themy, 6 F.3d 688 (10th Cir. 1993), in this specific                 not, as a matter of textua l interpre tation, ad dress the issue. Although R ule
holding); see also In re Moss, 289 F.3d 540, 541-42 (8th Cir.              9006(b)(3) restricts the grounds upon which the bankruptcy court may
2002) (adopting the reasoning of Isaacman in a factually                   enlarge the time for actions required by Rules 4004(a) and 4007(c), these
                                                                           restrictions still vest a great deal of d iscretion in the bankruptcy co urt.”
                                                                           Kontrick, at 730. W e find that statement somewhat puzzling, inasmuch
                                                                           as Rule 9006(c)(3) pro vides that the court may enlarge the time for taking
    6
                                                                           action under these rules “only to the extent and under the conditions stated
     W e did, however, specifically distinguish Taylor in deciding         in those rules.” (italics added.) Rules 4004 and 4007 both permit the
whether the bankruptcy court had erred in refusing to use its equitable    court to extend the time on motion of a party in interest, but such motion
power to accept the late filing, noting that there the Supreme Court had   “shall be made before such time has expired.” That language in the text
not addressed the issue of the bankruptcy court’s equitable p owers.       of those rules sounds like a condition to us, and rather than vesting
Isaacman, 26 F.3d at 635.                                                  discretion in the court, it appears to us to limit that discretion.
No. 01-4151                               In re Maughan       11    12   In re Maughan                                No. 01-4151

and bankruptcy courts); (2) cases that fail to reach the            487 U.S. 312, 317, n. 3 (1988), the filing deadline cannot be
jurisdictional question, but permit late filings when the           jurisdictional. Rather, the rule is a statute of limitation—or
bankruptcy court has erred (essentially the                         simply a deadline—that is generally subject to the defenses of
Isaacman situation); and (3) cases explicitly rejecting the         waiver, estoppel, and equitable tolling. See United States v.
view that the time limits are jurisdictional and allowing the       Locke, 471 U.S. 84, 94 n. 10 (1985).
exercise of the court’s equitable power to extend the time for
filing complaints. Id. After specifically adopting the                Having determined the BAP erred in its legal conclusion,
reasoning from the third group of cases, the court provided an      and that the bankruptcy court correctly concluded that the
additional reason for rejecting the characterization of these       time limits in Rule 4007(c) are not jurisdictional, we must
time requirements as jurisdictional:                                next determine whether the bankruptcy court properly used its
                                                                    equitable power by allowing Nardei to file his untimely
  Our conclusion is also consistent with the line of cases          objection. We review the bankruptcy court’s use of its
  that has allowed an extension of the time period when the         equitable power for an abuse of discretion. See Isaacman, 26
  creditor was affirmatively misled by the bankruptcy court         F.3d at 633. “We will find an abuse of discretion only upon
  as to the filing deadline. See e.g., In re Themy, 6 F.3d at       a definite and firm conviction that the district court
  688. Since equitable considerations cannot excuse a               committed a clear error of judgment.” In re Kissebirth, 273
  jurisdictional defect, there is implicit in those cases the       F.3d 714, 721 (6th Cir. 2001).
  concept that [Rule 4004(a) and] 4007(c) merely
  establish[es] a filing deadline.                                    There are five factors that should be considered when
                                                                    deciding to apply the doctrine of equitable tolling: “The
Id.                                                                 factors are: (1) lack of actual notice of filing requirement;
                                                                    (2) lack of constructive knowledge of filing requirement;
   The merits or faults of the reasoning in Isaacman and of         (3) diligence in pursuing one's rights; (4) absence of prejudice
other courts on this issue is of little moment here, since we       to the defendant; and (5) a plaintiff's reasonableness in
are bound by our decision in Isaacman unless it is inapposite       remaining ignorant of the notice requirement.” Andrews v.
to this case. The first question before us, then, boils down to     Orr, 851 F.2d 146, 151 (6th Cir. 1988). Since Nardei did not
whether Isaacman’s narrow holding that the bankruptcy court         claim lack of notice or knowledge of the filing deadline, “our
could use its equitable power to circumvent the time limits         inquiry must focus on the diligence used by the plaintiff in
required by Rule 4007(c) where an error of the court itself had     pursuing its rights and the resulting prejudice, if any, to the
caused the untimely filing, requires the legal conclusion that      defendant.” First Bank System v. Begue (In re Begue), 176
Rule 4007(c)’s time limits are not jurisdictional. We               B.R. 801, 804 (Bankr. N.D. Ohio 1995).
conclude that it does. By permitting equity to trump the filing
deadline set by Rule 4007(c) in one particular circumstance,          In its opinion granting the extension, the bankruptcy court
Isaacman, despite its explicitly narrow holding, compels the        found that Maughan’s failure to comply with the court’s order
conclusion that the deadline is not jurisdictional, for to hold     to turn over documentation justified the extension.
to the contrary would be to hold that equitable considerations      Specifically, the court recognized the “dilemma” faced by
can excuse jurisdictional defects. Since “a litigant’s failure to   Nardei and his counsel; since Bankruptcy Rule 9011 creates
clear a jurisdictional hurdle can never be “harmless” or            an affirmative obligation on the creditor to investigate fully
waived by a court,” Torres v. Oakland Scavenger Company,            before initiating an adversary complaint, it would have been
No. 01-4151                               In re Maughan       13

improper for Nardei to file his complaint before Maughan
turned over all the relevant documentation. The record
indicates that Nardei continually tried to get the
documentation from Maughan, only to be misled by
Maughan’s promise that the information was forthcoming.
We find no error in the district court’s conclusion that Nardei
was diligent in seeking to enforce his rights and that
Maughan’s delay in producing the documents contributed to
Nardei’s failure to timely file his complaint. And although
Nardei could have filed his motion for an extension within the
time decreed by the rule, he filed that motion only three days
out of rule, and we find no error in the bankruptcy court’s
implicit conclusion that this delay, too, was partly attributable
to Maughan’s conduct or in the court’s express conclusion
that Maughan suffered no prejudice from the extension. The
bankruptcy court did not abuse its discretion by using its
equitable power to ensure that the debtor was not permitted
“to frustrate the ability of a litigant to comply with applicable
law by failing or neglecting to adhere to lawful orders of the
Court.”
                    III. CONCLUSION
  For the foregoing reasons, we REVERSE the order of the
Bankruptcy Appeal Panel and AFFIRM the decision of the
Bankruptcy Court. We REMAND the case for proceedings
consistent with this opinion.