Combined Res. Interiors, Inc. v. Frankl (In re Frankl)

620 B.R. 220

IN RE: Andras FRANKL, Debtor.

Combined Resources Interiors, Inc., Appellant,

v.Andras Frankl, Appellee.

Adv. Pro. No. 18-1619 (MKV)

No. 19-CV-6799 (RA)

United States District Court, S.D. New York.

Signed August 6, 2020

Jeffrey Herzberg, Zinker & Herzberg, LLP, Smithtown, NY, for Appellant.

Lawrence Figowe Morrison, Morris Tenebaum, PLLC, New York, NY, for Appellee.

OPINION AND ORDER

RONNIE ABRAMS, United States District Judge:

Appellant-Creditor Combined Resources Interiors, Inc. appeals from an order of the United States Bankruptcy Court for the Southern District of New York (Vyskocil, J.) dismissing Combined Resources's adversary proceeding against the Chapter 7 Appellee-Debtor, Andras Frankl. For the reasons set forth below, the order of the Bankruptcy Court is affirmed.

BANKRUPTCY COURT PROCEEDING

On May 2, 2018, Frankl filed a voluntary petition ("the Petition") for relief under Chapter 7 of the United States Bankruptcy Code. See Ch. 7 Dkt. 1.¹ Notice of the Petition (the "Notice") was sent to all creditors, including Combined Resources, via certified mail on May 5, 2018. See Ch. 7 Dkt. 6 (Certificate of Mailing). The first page of the Notice instructed the parties to "read both pages carefully" as it contained important information regarding meeting dates and deadlines in the case. Id. Specifically, the Notice explained that an 11 U.S.C. § 341 meeting of creditors was scheduled for June 7, 2018 ("the 341 Meeting"), and that any creditor seeking to object to a discharge of debt had to initiate an adversarial proceeding against Frankl by August 6, 2018 (the "Objection Deadline")—sixty days from the date first set for the 341 Meeting. See id. The sixty-day deadline to file the adversary complaint seeking a discharge of debt was set in accordance with Federal Bankruptcy Rule 4007(c), which provides that "a complaint to determine the dischargeability of a debt ... shall be filed no later than 60 days after the first date set for the meeting of creditors under § 341(a)." The 341 Meeting was later adjourned to August 21, 2018 which allowed Frankl, then-incarcerated on second degree grand larceny charges, to participate telephonically. See Bankr. Dkt. 7-7 (341 Meeting Transcript); Dkt. 9-7 (Correspondence Regarding Telephonic 341 Meeting).

On August 30, 2018—twenty-four days after the Objection Deadline—Combined Resources filed an adversary complaint against Frankl objecting to the dischargeability of a $79,216.18 debt allegedly owed to Combined Resources for construction work provided to Frankl. See Bankr. Dkt. 1. In his answer to the complaint, Frankl did not raise the untimeliness of the adversary proceeding under Bankruptcy Rule 4007(c) as an affirmative defense.

On December 14, 2018, Combined Resources moved for summary judgment on its adversary complaint pursuant to Bankruptcy Rule 7056. See Bankr. Dkt. 7. On January 23, 2019, Frankl filed a cross-motion for summary judgment in which he argued for the first time that the adversary complaint should be dismissed because it was not filed within Bankruptcy Rule 4007(c)'s sixty-day statute of limitations period. See Bankr. Dkt. 9. In its reply brief in further support of its motion for summary judgment and in opposition to Frankl's cross-motion for summary judgment, Combined Resources argued that Frankl waived the right to raise an untimeliness defense by failing to assert it in his answer or in a pre-answer motion. See Bankr. Dkt. 10.

At a hearing on the parties' competing summary judgment motions, Bankruptcy Judge (now District Judge) Vyskocil directed the parties to submit supplemental briefing regarding whether the Bankruptcy Court could construe Frankl's cross-motion for summary judgment as a motion to amend his answer, which would allow Frankl to raise the untimeliness defense. See Bankr. Op. at 4; see Bankr. Dkts. 11-12 (Supplemental Briefing). In its supplemental brief to the Bankruptcy Court, Combined Resources argued that Frankl's cross-motion for summary judgment could not be construed as a motion to amend his answer because responsive pleadings "must affirmatively state any avoidance or affirmative defense, including ... statute of limitations." Bankr. Dkt. 11 at 3. Combined Resources also contended that if the Bankruptcy Court did decide to construe Frankl's cross-motion for summary judgment as a motion to amend his answer, Combined Resources should be entitled to equitable tolling of Bankruptcy Rule 4007(c)'s statute of limitations to allow it to file its adversary complaint in a timely fashion. Id. at 4. In his supplemental reply brief, Frankl responded that absent undue prejudice, the Bankruptcy Court had the inherent discretion to construe a cross-motion for summary judgment as a motion to amend, and that Combined Resources was not entitled to equitable tolling because Frankl was not at fault for Combined Resources's failure to file the adversary complaint within the statute of limitations. Bankr. Dkt. 12 at 2-4.

On July 11, 2019, Judge Vyskocil issued an opinion and order granting Frankl's cross-motion for summary judgment, denying Combined Resources's motion for summary judgment, and dismissing the adversary proceeding. See Bankr. Op. at 2. First, Judge Vyskocil held that Frankl's cross-motion for summary judgment could be construed as a motion to amend his answer. Id. at 7. Although affirmative defenses usually must be raised in responsive pleadings, she reasoned, a bankruptcy court has the discretion to construe a summary judgment motion as one to amend absent prejudice to the opposing party. Id. Next, Judge Vyskocil denied Combined Resources's request to equitably toll Rule 4007(c)'s sixty-day statute of limitations. Id. at 9. She found that Combined Resources failed to diligently pursue its rights to warrant equitable tolling and that no extraordinary circumstances, such as fraud or misrepresentation by Frankl, existed to justify equitable relief. Id. at 9-10. Judge Vyskocil declined to address the merits of Combined Resources's motion for summary judgment in light of her ruling that the adversary complaint was time-barred. Id. at 12.

PROCEDURAL HISTORY

On August 1, 2019, Combined Resources filed an amended notice of appeal of Judge Vyskocil's July 11, 2019 opinion. Dkt. 5. Combined Resources filed a brief in support of its appeal on October 4, 2019, Dkt. 8, Frankl filed his brief in opposition on November 4, 2019, Dkt. 9, and Combined Resources filed its reply on November 11, 2019, Dkt. 10.

LEGAL STANDARD

District courts have appellate jurisdiction over "final judgments, orders, and decrees" of bankruptcy courts under 28 U.S.C. § 158(a)(1). A district court reviews a bankruptcy court's findings of fact for clear error and its conclusions of law de novo. See In re Bayshore Wire Prods. Corp. , 209 F.3d 100, 103 (2d Cir. 2000). "Mixed questions of fact and law are subject to de novo review." Babitt v. Vebeliunas , 332 F.3d 85, 90 (2d Cir. 2003). "A finding of fact is clearly erroneous when ‘the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed.’ " Adler v. Lehman Bros. Holdings Inc. (In re Lehman Bros. Holdings Inc. ), 855 F.3d 459, 469 (2d Cir. 2017) (quoting Anderson v. City of Bessemer , 470 U.S. 564, 573, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985) ). "Harmless error, meaning an error not inconsistent with substantial justice or that does not affect the parties' substantial rights, is not grounds for reversal." McNerney v. ResCap Borrower Claims Trust (In re Residential Capital, LLC ), 563 B.R. 477, 485 (S.D.N.Y. 2016).

"Matters left to the [bankruptcy] court's discretion are reviewed for abuse of discretion." In re Adelphia Commc'ns Corp. , 342 B.R. 122, 126 (S.D.N.Y. 2006) (internal quotation marks omitted). "A bankruptcy court abuses its discretion when its ruling is based on an erroneous view of the law or a clearly erroneous assessment of the evidence." In re Soundview Elite Ltd. , 646 Fed. App'x 1 (2d Cir. 2016).

"A district court may affirm, modify, or reverse a bankruptcy judge's judgment, order, or decree or remand with instructions for further proceedings." Margulies v. Hough (In re Margulies ), 566 B.R. 318, 328 (S.D.N.Y. 2017) (citation omitted).

DISCUSSION

On appeal, Combined Resources seeks a ruling that the Bankruptcy Court erred in: (1) granting summary judgment to Frankl on statute of limitations grounds when Frankl failed to assert a statute of limitations defense in his answer or in a pre-answer motion; and (2) ruling that Combined Resources was not entitled to equitable tolling of the statute of limitations to file its Federal Bankruptcy Rule 4007(c) adversary complaint in objection to Frankl's debt discharge. See Dkt. 6 ("Issues and Record on Appeal). Combined Resources urges the Court to review both issues on appeal de novo , as it alleges that there are no facts in dispute. Combined Resources Br., Dkt. 8 at 2. Although it is true that there are no factual disputes on appeal, de novo review is not the proper standard of review for either issue raised by Combined Resources.

The Second Circuit reviews a district court's decision to construe a motion for summary judgment as a motion to amend for abuse of discretion. In Monahan v. New York City Dep't of Corrections , for instance, the Second Circuit held that although "an affirmative defense [ ] should be raised in the defendant's answer, the [ ] court has the discretion to entertain the defense when it is raised in a motion for summary judgment, by construing the motion as one to amend the defendant's answer." 214 F.3d 275, 283 (2d Cir. 2000) (citing Block v. First Blood Assocs. , 988 F.2d 344, 350 (2d Cir. 1993) ). The Monahan court thus reviewed the district court's decision to construe the summary judgment motion as a motion to amend the answer for abuse of discretion. See 214 F.3d at 283. District courts similarly review bankruptcy court decisions to grant or deny leave to amend for an abuse of...