Court Opinion

ID: 9650071
Source: CourtListenerOpinion
Date Created: 2023-08-23 15:23:01.438405+00
Date Added: 2024-06-11T18:12:17.848508
License: Public Domain

HAGAN, Bankruptcy Judge, dissenting:
I respectfully dissent.
The Appellee’s adversary proceeding is not barred under Fed.R.Civ.P. 41(b), as reasoned by the majority. Costello v. United States, 365 U.S. 265, 285, 81 S.Ct. 534, 544-45, 5 L.Ed.2d 551 (1961), interprets the rule 41(b) bar to apply only to eases that have been decided on the merits. In Costello, quoted in the majority opinion, if the prior suit was dismissed “on any ground which.did not go to the merits of the action” rule 41(b) does not bar the institution of a second action. 'The prior dismissal of the Appellee’s adversary proceeding in the chapter 11 case was not a dismissal on its merits. Rather, the dismissal was based on a statute of limitations applicable only to the chapter 11 ease. Upon conversion to chapter 7 a new' statute of limitations became effective and the chapter 11 statute of limitations was no longer applicable.
The majority concludes that a dismissal under a statute of limitations is a dismissal for a failure to state a claim upon which relief can be granted. (Suckow Borax Mines Consolidated v. Borax Consolidated, Ltd., 185 F.2d 196 (9th Cir.1950)). The majority then cites to cases holding a dismissal under a statute of limitations is a dismissal on the merits. (Ellingson v. Burlington Northern, Inc., 653 F.2d 1327, 1330-31 n. 3 (9th Cir.1981); In re Multidistrict Litigation Concerning Air Crash Disaster Near Brunswick, Ga., 879 F.Supp. 1196, 1199-1200 (N.D.Ga.1994)). The distinguishing factor is that these cases involve a statute of limitations .that would forever bar the action in contrast to a statute of limitations applicable only because the debtors were chapter 11 debtors. Ordinarily, a statute of limitations would bar a cause of action indefinitely. This is not necessarily true in a bankruptcy case. In the bankruptcy context the 60 day limitation for the filing of an adversary proceeding imposed by Fed.R.Bankr.P. 4007 (“rule 4007”) applies only to the chapter in which the debtor’s ease is being administered at that time. The sixty day period begins to run anew upon conversion from a chapter 11 case to a case under chapter 7 even though the original sixty day period expired prior to the conversion. In re Goralnick, 81 B.R. 570 (9th Cir. BAP 1987); F & M Marquette Nat. Bank v. Richards, 780 F.2d 24 (8th Cir.1985).
In reaching its conclusion that the limitations period began anew upon conversion, the Panel took into consideration the fact many creditors in a chapter 11 ease would not have filed timely dischargeability complaints. The majority attejnpts to distinguish In re Goral-nick on this basis. This distinction would create two classes of creditors upon conversion of a case to chapter 7; those who did not take any action prior to conversion and are granted a new statute of limitations period, and those who attempted, albeit untimely, to preserve their rights during the chapter 11, and are foreclosed from pursuing their complaint upon conversion. The holding of In re Goralnick, “when a chapter 11 or 13 case is converted to a chapter 7, a new period arises for filing complaints objecting to discharge or dischargeability,” does not create this distinction.
The prior dismissal of the Appellee’s adversary proceeding was not an adjudication on the merits since the statute of limitations applied only while the case was a case under chapter 11. The conversion of the case to a case under chapter 7 of title 11 allowed a new statute of limitations to become applicable and so long as the adversary proceeding was filed within the period of that statute, it should not be subject to dismissal under rule 41(b).
I would conclude the second adversary proceeding is not barred by rule 41(b) under Costello v. United States, and would affirm *857the judgment of nondischargeability entered by the bankruptcy court.