Court Opinion

ID: 866921
Source: CourtListenerOpinion
Date Created: 2013-05-08 15:20:19.885333+00
Date Added: 2024-06-11T15:10:08.516200
License: Public Domain

United States Bankruptcy Appellate Panel
                             For the Eighth Circuit
                     ___________________________

                             No. 13-6002
                    ___________________________

                  In re: Corwin D. Petty; Rachel R. Petty

                           lllllllllllllllllllllDebtors

                          ------------------------------

                    Michele Hathorn; Michael Hathorn

                   lllllllllllllllllllll Plaintiffs - Appellants

                                        v.

                               Corwin D. Petty

                   lllllllllllllllllllll Defendant - Appellee
                                  ____________

               Appeal from United States Bankruptcy Court
             for the Western District of Arkansas - Fayetteville
                              ____________

                         Submitted: April 17, 2013
                            Filed: May 8, 2013
                              ____________

Before SALADINO, KRESSEL and SHODEEN, Bankruptcy Judges.
                          ____________

SALADINO, Bankruptcy Judge.
      This is an appeal of a bankruptcy court’s order granting the Debtor-Defendant’s
motion to dismiss an adversary proceeding as untimely. For the reasons stated below,
we reverse.

                     FACTS AND PROCEDURAL HISTORY

       On May 21, 2012, Dr. Corwin D. Petty and Rachel R. Petty filed a case under
Chapter 7 of the Bankruptcy Code in the United States Bankruptcy Court for the
Western District of Arkansas. Prior to filing bankruptcy, Michael and Michele
Hathorn had filed a complaint against Dr. Petty in the Circuit Court of Benton
County, Arkansas, asserting various state law claims including intentional torts. The
statement of financial affairs that Dr. Petty filed in his bankruptcy case on June 13,
2012, listed Mr. and Mrs. Hathorn’s lawsuit as a pending legal proceeding. However,
Mr. and Mrs. Hathorn’s claims set forth in that lawsuit were not listed in Dr. Petty’s
bankruptcy schedules, nor were Mr. and Mrs. Hathorn or their attorney listed in the
mailing matrix filed with the bankruptcy court. Therefore, when the bankruptcy court
sent notice of the bankruptcy filing1 to all parties on the mailing matrix, neither Mr.
and Mrs. Hathorn nor their attorney received a copy. This notice advised all recipients
that the last date for filing objections to discharge or complaints to determine the
dischargeability of certain debts would be August 20, 2012.

       On June 18, 2012, Dr. Petty filed amended schedules in his bankruptcy case.
Again, these amended schedules and the updated mailing matrix did not include Mr.
and Mrs. Hathorn or their attorney. On September 18, 2012, Dr. Petty’s bankruptcy
schedules were again amended and, for the first time, listed Mr. and Mrs. Hathorn and
their attorney. Thus, Mr. and Mrs. Hathorn clearly were not scheduled by Dr. Petty
until after the deadline for filing dischargeability complaints had passed.

      1
       The document is entitled “Notice of Chapter 7 Bankruptcy Case, Meeting of
the Creditors, and Deadlines.”
                                          2
      It is undisputed, however, that Mr. and Mrs. Hathorn’s state court attorney
received actual notice of the bankruptcy case, including a copy of the bankruptcy
notice, by email on August 14, 2012, six days prior to the deadline for filing
dischargeability complaints. In an affidavit attached to the adversary complaint, Mr.
and Mrs. Hathorn’s state court attorney acknowledges receipt of the email notice from
Dr. Petty’s attorney and states that he notified Mr. and Mrs. Hathorn via email on that
same date.2

      On October 17, 2012, Mr. and Mrs. Hathorn filed an adversary proceeding
against Dr. Petty which, among other things, contained references to 11 U.S.C.
§§ 523(a)(3)(B) and 523(a)(6). Indeed, at paragraph 27 the complaint states:

                    The Plaintiffs, pray that the Court find that the
             Debtors’ failure to properly schedule them as Creditors,
             until after the time to object to dischargeability of a certain
             debt had passed, deems the debt not discharged, or
             alternatively under equitable principals [sic] of tolling or,
             estoppel that they be allowed to proceed on the allegation
             that their contingent unliquidated debt is the kind that is
             not dischargeable under subsection 523(a)(6).

A similar request is made in other paragraphs and in the prayer at the end of the
complaint.

      In response, Dr. Petty filed a motion to dismiss the adversary complaint for
untimeliness and failure to state a claim. After briefing and oral argument, the
bankruptcy court granted Dr. Petty’s motion and dismissed the complaint as untimely.
This appeal followed.

      2
       In their own affidavits attached to the adversary complaint, Mr. and Mrs.
Hathorn acknowledge getting notice of the bankruptcy filing from their attorney in
“mid to late August of 2012.”
                                           3
                             STANDARD OF REVIEW

       On appeal, we review the bankruptcy court’s factual findings for clear error and
its conclusions of law de novo. Official Comm. of Unsecured Creditors v. Farmland
Indus., Inc. (In re Farmland Indus., Inc.), 397 F.3d 647, 651 (8th Cir. 2005);
Blackwell v. Lurie (In re Popkin & Stern), 223 F.3d 764, 765 (8th Cir. 2000). The
adequacy of notice in a proceeding involving § 523(a)(3)(B) “presents a mixed
question of law and fact, in that it calls for the application of legal standards to the
unique facts of this case.” Tidwell v. Smith (In re Smith), 582 F.3d 767, 778 (7th Cir.
2009) (citing Thomas v. Gen. Motors Acceptance Corp., 288 F.3d 305, 307 (7th Cir.
2002)). The Sixth Circuit Bankruptcy Appellate Panel reached a similar conclusion,
stating:

                    Adequacy of notice required by a statute is a mixed
             question of law and fact, composed as follows: “[T]he
             question of whether any notice was given, and if so, what
             the notice consisted of and when it was given, is one of
             fact. However, the question of whether the notice satisfied
             the statutory requirement is one of law.” K & M Joint
             Venture v. Smith Int’l, Inc., 669 F.2d 1106, 1111 (6th Cir.
             1982); accord BP Care, Inc. v. Thompson, 398 F.3d 503,
             514 n.8 (6th Cir. 2005) (A determination of whether a party
             had notice of a particular proceeding is a finding of fact.)

Burgraf v. Munion (In re Munion), Case No. 12-8020, 2013 Bankr. LEXIS 113, at *2
(B.A.P. 6th Cir. Jan. 11, 2013).

       When a case requires the application of an objective legal standard to the
established facts of the case, it is a mixed question of law and fact subject to de novo
review. Loehrer v. McDonnell Douglas Corp., 98 F.3d 1056, 1061 (8th Cir. 1996).
In such a situation, “[a] lower court’s answer to such a question is normally reviewed
for clear error, although de novo review is required as to certain mixed findings,

                                           4
usually those having a constitutional dimension.” Tidwell, 582 F.3d at 778 (citing
Thomas, 288 F.3d at 307). “Both statutory and constitutional implications arise when
a creditor fails to receive adequate notice of the bankruptcy proceedings.” United
States v. Hairopoulos, 118 F.3d 1240, 1244 (8th Cir. 1997).

                                     DISCUSSION

      A discharge in a Chapter 7 case discharges the debtor from all debts that arose
before the case was filed, except those that are excepted from discharge. 11 U.S.C.
§ 727(b). The exceptions to discharge are listed in 11 U.S.C. § 523.

             There are nineteen exceptions to discharge listed in §
             523(a) and all but three are self-effectuating. Palmer v.
             Nordin (In re Nordin), 299 B.R. 915 (B.A.P. 8th Cir.
             2003). By self-effectuating, we mean that no action is
             required before the discharge is entered. The debts are
             excepted from discharge simply because of the nature of
             the debts. Obviously, there may be later disputes . . . over
             whether the debt fell into one of the appropriate categories.
             “Thus while it is not entirely obvious, careful analysis
             reveals that the scope of a discharge is final when entered
             and subsequent events do not change what debts were or
             were not discharged by that discharge. However, under §
             523, certain debts were excepted from that discharge when
             entered.” In re Anderson, 72 B.R. 495, 496 (Bankr. D.
             Minn. 1987).

Everly v. 4745 Second Ave., Ltd. (In re Everly), 346 B.R. 791, 795 (B.A.P. 8th Cir.
2006) (footnote omitted).

       The three exceptions to discharge that are not self-effectuating are debts of a
kind listed in §§ 523(a)(2), (4), or (6). Creditors holding those types of debts must file
a complaint to determine dischargeability no later than 60 days after the first date set

                                            5
for the meeting of creditors. Fed. R. Bankr. P. 4007(c). A failure to timely file such
a complaint will result in the discharge of those debts. Everly, 346 B.R. at 796 (citing
11 U.S.C. § 523(c)(1)).

      Mr. and Mrs. Hathorn’s adversary complaint relies, in part, on § 523(a)(6),
which is the exception from discharge for willful and malicious injury by the debtor
to another person or entity. It is undisputed that Mr. and Mrs. Hathorn’s complaint
was not filed by the deadline established by Fed. R. Bankr. P. 4007(c) and is,
therefore, untimely. We do recognize that the adversary complaint does, in part, seek
leave to file the complaint after the deadline for equitable reasons, but we are
prohibited from doing so. As we discussed in Le Grand v. Harbaugh (In re
Harbaugh), 301 B.R. 317, 320 (B.A.P. 8th Cir. 2003):

             Federal Rule of Bankruptcy Procedure 4007(c) establishes
             a deadline for filing a complaint to determine
             dischargeability of a debt under 11 U.S.C. § 523(c) of 60
             days after the first date set for the meeting of creditors. The
             rule permits the court to extend that deadline for cause.
             However, the motion for extension “shall be filed before
             the time has expired.” Fed. R. Bankr. P. 4007(c).
                    Federal Rule of Bankruptcy Procedure 9006(b)
             governs enlargements of time in which to perform an act
             required or allowed under the rules. Rule 9006(b)(3) states,
             “The court may enlarge the time for taking action under
             Rule[ ] . . . 4007(c) . . . only to the extent and under the
             conditions stated in [that rule].”
                    As noted above, Rule 4007(c) permits an extension
             of time only when the request is filed before the time has
             expired. In this case, the request for extension was not
             properly filed before the deadline, so the court had no
             authority to grant the request. See Palmer v. Nordin (In re
             Nordin), 299 B.R. 915, 917 (8th Cir. BAP 2003).

                                           6
       However, creditors who miss the deadline still have a remedy – among the
self-effectuating exceptions to discharge is 11 U.S.C. § 523(a)(3), which was also
relied upon by Mr. and Mrs. Hathorn in their adversary complaint. That section
contains an exception to discharge for debts that are neither listed nor scheduled in
time to permit –

             if such debt is of a kind specified in paragraph (2), (4), or
             (6) of this subsection, timely filing of a proof of claim and
             timely request for a determination of dischargeability of
             such debt . . ., unless such creditor had notice or actual
             knowledge of the case in time for such timely filing and
             request[.]

11 U.S.C. § 523(a)(3)(B).

      This provision protects creditors who missed the deadline for filing § 523(c)
complaints because they were not properly scheduled. Everly, 346 B.R. at 796 (citing
Peterson v. Anderson (In re Anderson), 72 B.R. 783, 786 (Bankr. D. Minn. 1987)).
Importantly, there is no bankruptcy-created time limitation on filing a complaint
under § 523(a)(3). Id. (citing In re Honeycutt, 228 B.R. 428, 430 (Bankr. E.D. Ark.
1998)). See also Le Grand v. Harbaugh (In re Harbaugh), 301 B.R. 317, 320 (B.A.P.
8th Cir. 2003) (“The rules do not contain a deadline for filing a complaint under
§ 523(a)(3).”). Therefore, a complaint under § 523(a)(3) may be filed at any time.
Fed. R. Bankr. P. 4007(b).

     We have previously held that when making a determination regarding the
adequacy of notice under § 523(a)(3), a court will have to decide at least four issues:

             1.     Is the debt of a kind described in § 523(a)(2), (4), or
                    (6)?

                                           7
               2.    Was the debt listed or scheduled (as that term has
                     been interpreted) under § 521(a)(1) of the
                     Bankruptcy Code with the name of the plaintiff?
               3.    Did the plaintiff have actual knowledge of the case
                     in time to timely file an adversary proceeding in the
                     bankruptcy court under § 523(a)(2), (4), or (6)?
               4.    Does the plaintiff’s case have merit?

Everly, 346 B.R. at 797.

       It is undisputed that the debt alleged in the complaint is of a kind described in
§ 523(a)(6). It is also undisputed that the debt was not listed or scheduled with Mr.
and Mrs. Hathorn’s names until after the deadline for objecting had passed. Of
course, the bankruptcy court has not yet reached the merits of the case. Thus, at this
stage, the only question to be addressed is whether Mr. and Mrs. Hathorn had actual
knowledge of the case in time to timely file an adversary proceeding. To analyze that
question, we turn to the transcript of the bankruptcy court’s oral ruling. The
bankruptcy court specifically held that Mr. and Mrs. Hathorn had sufficiently stated
their cause of action for willful and malicious injury and that the adversary
proceeding should not be dismissed for failure to state a claim.3

       However, the bankruptcy court also held that the adversary proceeding should
be dismissed as untimely. In so holding, the bankruptcy court found that Mr. and Mrs.
Hathorn should not be entitled to the self-effectuating exception from discharge set
forth in 11 U.S.C. § 523(a)(3)(B) because they failed to take timely action once they
received actual notice of the bankruptcy filing. Since Mr. and Mrs. Hathorn did not
take action for 64 days after receiving actual notice, the bankruptcy court held that
equity would not protect their inaction.

      3
          This conclusion of the bankruptcy court was not appealed by Dr. Petty.
                                           8
         In so holding, the bankruptcy court did not find that Mr. and Mrs. Hathorn had
actual knowledge of the case in time to file a timely request for determination of
dischargeability. In fact, it held just the opposite. After reciting a number of equitable
considerations supporting Mr. and Mrs. Hathorn’s inability to proceed prior to the
deadline, the bankruptcy court stated: “I don’t think the six days, honestly, is enough
. . . .” Tr. 33:8-9. Based on that, the motion to dismiss should have been denied since
there is no deadline for filing a complaint under 11 U.S.C. § 523(a)(3)(B). Everly, 346
B.R. at 796. In other words, if a creditor with a debt of the kind specified in
§ 523(a)(2), (4), or (6) did not receive actual knowledge of the bankruptcy case in
time for timely filing of a request for determination of dischargeability, the inquiry
ends there – the debt is not discharged.

       Therefore, the bankruptcy court should not have addressed the issue of whether
Mr. and Mrs. Hathorn took timely action once they had actual notice of the
bankruptcy filing. Instead, the only consideration for the bankruptcy court was
whether six days was sufficient notice to timely file an adversary proceeding. As
indicated, the bankruptcy court determined that six days was not sufficient notice to
take meaningful action under the undisputed facts of this case. The facts supporting
the court’s conclusion (such as the timing and type of notice) were undisputed and,
therefore, not erroneous. In our de novo review, we do not disagree with the
bankruptcy court’s legal conclusion that six days’ notice of the deadline was
insufficient under the circumstances of this case, as it is in accord with numerous
other cases:

             See Mfrs. Hanover v. Dewalt (In re Dewalt), 961 F.2d 848,
             851 (9th Cir. 1992) (in most cases, at least thirty days’
             notice to creditor is necessary and sufficient to satisfy §
             523(a)(3)(B); notice supplied seven days prior to bar date
             is insufficient); Sophir Co. v. Heiney (In re Heiney), 194
             B.R. 898, 902-03 (D. Colo. 1996) (notice received eighteen
             days prior to bar date insufficient); In re Walker, 149 B.R.

                                            9
             511, 515-17 (Bankr. N.D. Ill. 1992) (knowledge of
             bankruptcy acquired by unrepresented creditor twenty days
             prior to bar date insufficient); cf. Muse v. Muse (In re
             Muse), 289 B.R. 619, 623-24 (Bankr. W.D. Pa. 2003)
             (notice provided seventy-seven days prior to deadline for
             nondischargeability complaint sufficient); Herman v.
             Bateman (In re Bateman), 254 B.R. 866, 874-75 (Bankr. D.
             Md. 2000) (notice received twenty-six days prior to bar
             date sufficient); Marino, 195 B.R. at 895-97 (two months’
             notice was adequate); but see also Grossie v. Sam (In re
             Sam), 894 F.2d 778, 781-82 (5th Cir. 1990) (eighteen days’
             notice sufficient).

Tidwell v. Smith (In re Smith), 582 F.3d 767, 780 (7th Cir. 2009).

       In addition, see Georgia Lottery Corp. v. Koshy (In re Koshy), Case No.
10-06329, 2010 WL 4226609 (Bankr. N.D. Ga. Sept. 27, 2010) (denying a motion to
dismiss where the creditor received less than a day’s actual notice of the bankruptcy);
Strickland v. Barr (In re Barr), Case No. 08-09017-MGD, 2009 WL 6499257 (Bankr.
N.D. Ga. Feb. 9, 2009) (denying a motion to dismiss where the creditor received at
most six days’ actual notice of the pending bankruptcy); Penland v. Bryan (In re
Bryan), 448 B.R. 866 (Bankr. M.D. Ga. 2011) (four days’ notice, which included a
weekend, was insufficient); Employers Workers’ Compensation Ass’n v. Kelley (In
re Kelley), 194 B.R. 258 (Bankr. N.D. Okla. 1996) (eleven days’ actual notice was
sufficient time to file a complaint or motion to extend); In re Linzer, 264 B.R. 243,
250 (Bankr. E.D.N.Y. 2001) (holding that nine days’ notice is inadequate).

                                     DECISION

      Since there is no deadline to file a complaint under 11 U.S.C. § 523(a)(3)(B),
Mr. and Mrs. Hathorn have the right to proceed with their complaint to try to prove

                                          10
that they hold a debt of a kind described in § 523(a)(6). Therefore, we reverse the
bankruptcy court’s order granting Dr. Petty’s motion to dismiss.
                       ______________________________

                                        11