Fifth Third Bank v. Hayes (In re Hayes)

IN RE: M. DONALD HAYES, DebtorFIFTH THIRD BANK, Plaintiff

v.M. DONALD HAYES, Defendant

Case No. 11-30499

Adv. No. 11-3226

UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF OHIO WESTERN DIVISION AT DAYTON

Dated: March 22, 2012

This document has been electronically entered in the records of the United States Bankruptcy Court for the Southern District of Ohio.

IT IS SO ORDERED.

Guy K. Humphrey

United States Bankruptcy Judge

Judge Humphrey

Decision Denying Defendant's Motion for Judgment on the Pleadings

I. Introduction

On February 1, 2011 the debtor, M. Donald Hayes ("Hayes"), filed a petition for relief under Chapter 7 of Title 11 of the United States Code (est. doc. 1). The first date set for the meeting of creditors was March 28, 2011 (estate docket entry entered February 1, 2011). Objections to a debtor's discharge must be filed in the form of an adversary complaint not later than 60 days from the first date set for the meeting of creditors, unless a timely extension is sought.¹ See Fed. R. Bankr. P. 4004(a) & (b)(1) & 7001(4). In addition, a complaint requesting the court find a debt owed to a creditor nondischargeable under 11 U.S.C. § 523(a)(2), (4) or (6)² must be filed within the same 60 day period or an extension sought prior to that deadline. Fed. R. Bankr. P. 4007(c) & 7001(6).³ The general rule on extensions of time, Bankruptcy Rule 9006(b), does not apply to extensions of time to object to a debtor's discharge or the dischargeability of a debt. Fed. R. Bankr. P. 9006(b)(3).

In this instance, an adversary complaint or a motion for an extension of time was to be filed not later than May 27, 2011. On May 24, 2011 the court entered an agreed order between Hayes and Fifth Third Bank (the "Bank") which granted the Bank until June 30, 2011 "to file a complaint or otherwise object to the dischargeability of Debtor." ("Agreed Order") (est. doc. 24). The caption of the Agreed Order similarly states "Agreed Order For CreditorFifth Third Bank To Object To Dischargeability of Debtor M. Donald Hayes." A motion was not filed prior to the entry of the Agreed Order. The Agreed Order was signed by counsel for the Bank and approved by counsel for Hayes through a facsimile authorization.

On June 30, 2011 the Bank filed a complaint objecting to Hayes' discharge under § 727 and to the dischargeability of a debt owed by Hayes to the Bank under § 523(a)(2) (adv. doc. 1). On August 12, 2011 Hayes filed an answer (adv. doc. 6). As an affirmative defense, Hayes asserted all the counts in the complaint were time barred pursuant to Bankruptcy Rules 4004(a) and 4007(c). On December 7, 2011 Hayes filed a motion for judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c), applicable through Federal Rule of Bankruptcy Procedure 7012(b). The motion asserts that 1) the complaint was filed untimely because a motion was not filed prior to the entry of the Agreed Order; 2) the language of the Agreed Order does not extend either the discharge or dischargeability deadline; and 3) neither waiver nor equitable estoppel apply in these circumstances as to the failure to file a motion nor to disregard the deadlines altogether.

The court finds that granting judgment on the pleadings is not appropriate.

II. Jurisdiction

This court has jurisdiction pursuant to 28 U.S.C. § 1334 and this is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(I), (J) and (O).

III. Standard of Review - Motion for Judgment on the Pleadings

Federal Rule of Civil Procedure 12(c), applicable to this adversary proceeding through Bankruptcy Rule 7012, states that "[a]fter the pleadings are closed—but early enough to notdelay trial—a party may move for judgment on the pleadings."⁴ A motion to dismiss under Rule 12(c) is reviewed under the same standard as a motion to dismiss under Rule 12(b)(6). JPMorgan Chase Bank, N.A. v. Winget, 510 F.3d 577, 581-82 (6th Cir. 2007); Wentz v. Saxon Mortgage (In re Wentz), 393 B.R. 545, 549 (Bankr. S.D. Ohio 2008).

Rule 12(b)(6) states that a defendant may move to dismiss a complaint for "failure to state a claim upon which relief can be granted." The Sixth Circuit has stated that "[d]ismissal of a complaint for the failure to state a claim on which relief may be granted is appropriate only if it appears beyond a doubt that the plaintiff can prove no set of facts in support of his claim that would entitle him to relief." Thomas v. Eby, 481 F.3d 434, 437 (6th Cir. 2007). To survive a defendant's motion, the plaintiff's complaint "must contain either direct or inferential allegations respecting all the material elements to sustain a recovery under some viable legal theory." Varljen v. Cleveland Gear Co., Inc., 250 F.3d 426, 429 (6th Cir. 2001).

In considering a motion to dismiss, the court "must consider as true the well-pleaded allegations of the complaint and construe them in the light most favorable to the plaintiff." Id. However, the court "need not accept as true legal conclusions or unwarranted factual inferences" in the complaint. Id. The Supreme Court has recently reminded the federal courts that while a plaintiff need not provide detailed factual allegations to survive a motion to dismiss pursuant to Rule 12(b)(6), "a plaintiff's obligation to provide the 'grounds' of his 'entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitationof the elements of a cause of action will not do." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007), quoting Papasan v. Allain, 478 U.S. 265, 286 (1986).

IV. Analysis

A. Deadlines for Filing a Complaint Objecting to a Discharge or to the Dischargeability of a Debt May be Extended Through an Agreed Order Signed by All Affected Parties Without a Separate Motion

Hayes argues that the deadline to file an adversary complaint objecting to his discharge or objecting to the dischargeability of the debt he owes to the Bank could not be extended through an agreed order without a separate motion because Bankruptcy Rules 4004(b) and 4007(c) require a party in interest to file a motion to extend the deadline, which may be extended after notice and a hearing. While the language of those rules is not in dispute, the court disagrees with Hayes' analysis.

First, this court construes an agreed order submitted by all of the affected parties as a motion for the relief sought that is provided for in the proposed order. Prior to the signing and entering of the proposed order by the court, the proposed order is a motion or a request for the relief described. The court's signing and entering of the proposed order is the court's granting of the requested relief.⁵ Of course, if not all of the affected parties have signed the proposed order and are not otherwise timely and appropriately noticed of the requested relief as required under the Federal Rules of Bankruptcy Procedure, the Federal Rules of Civil Procedure, the Local Bankruptcy Rules or due process constraints, the courtcannot enter the relief requested in the proposed order.⁶ However, when the affected parties have agreed to the relief, such as an extension of time, and have consented to the submission of an agreed order extending that time, a separate motion is unnecessary.⁷

In responding to a similar argument as made by Hayes, Judge Lifland in a case involving an extension of time to assume a lease under § 365 stated that: "Extensions of the 60-day grace period in a chapter 7 case do not require a motion when as here, the Landlord, the very party Congress was seeking to protect, is a party to the stipulation." Toledano v. Kittay (In re Toledano), 299 B.R. 284, 298 (Bankr. S.D.N.Y. 2003). The court went on to state that "when a statute gives a court discretion to extend the time in which a party is required to act, the court has authority to grant such an extension without affording other parties notice and a hearing." Id., citing Chapman Investment Assocs. v. Am. Healthcare Mgmt. (In re Am. Healthcare Mgmt, Inc.), 900 F.2d 827, 831 (5th Cir. 1990). Similarly, when the party who Congress was seeking to protect - Hayes - is a party to the stipulation extending the time, notice and a hearing are not necessary.

Second and related to the previous discussion, in consenting to the Agreed Order extending the time period, Hayes waived any right to a properly served and noticed motion and the attendant due process. Any irregularities to what appears to be a garden variety agreed order may be raised through evidence outside the pleadings at an appropriate time. However, absent some unusual revelation, it would be difficult to imagine a result more inequitable than the result sought by Hayes - rewarding a party who agreed to an extension of time only to deny that agreed upon extension after the time to take action has run.⁸ Fortunately, common sense and the legal concepts of waiver and equitable estoppel are in harmony.⁹

As argued by the Bank, waiver and equitable estoppel apply to prevent the conclusion now argued by Hayes. Waiver is defined as "the intentional relinquishment or abandonment of a known right." Days Inn Worldwide, Inc. v. Patel, 445 F.3d 899, 905 (6th Cir. 2006). The United States Supreme Court has held that the deadline in Bankruptcy Rule 4004 is not jurisdictional, but a "claim-processing" rule that can be forfeited if it is not timely raised. Kontrick v. Ryan, 540 U.S. 443, 456 (2004) (claim-processing rule may not be raised after losing at trial). The Sixth Circuit has reached the same conclusion for the parallellanguage in Bankruptcy Rule 4007. Nardei v. Maughan (In re Maughan), 340 F.3d 337, 344 (6th Cir. 2003). The Sixth Circuit has also recognized that equitable defenses such as waiver, equitable tolling, and equitable estoppel are available for the failure to comply with Bankruptcy Rules 4004 and 4007. Id.

Hayes argues that the waiver doctrine should not be applied. However, his argument falls short because it ignores the general rule that clients are responsible for the decisions...