In re Cramer

636 B.R. 830

IN RE: David Allen CRAMER, Debtor.

Case No.: 6:20-bk-11457-WJ

United States Bankruptcy Court, C.D. California, Riverside Division.

Signed February 8, 2022

Hearing: Date: February 8, 2022

Michael A. Cisneros, Monrovia, CA, for Debtor.

Thomas J. Polis, Polis & Associates, APLC, Irvine, CA, for Trustee.

Abram Feuerstein, Esq., Office of US Trustee, Riverside, CA, for U.S. Trustee.

MEMORANDUM OF DECISION DENYING MOTION TO EXTEND STATUTORY DEADLINES TO FILE COMPLAINTS ASSERTING CLAIMS UNDER 11 U.S.C. §§ 546 & 549

Wayne Johnson, United States Bankruptcy Judge

When should a bankruptcy trustee (or debtor-in-possession) assert the doctrine of equitable tolling? May the trustee invoke the doctrine prior to initiating an adversary proceeding by filing a motion to extend statutory deadlines or must the trustee wait to invoke the doctrine in a future adversary proceeding in defense of a late-filed complaint? For the following reasons, the court concludes that only the latter is permissible. Only the latter provides due process of law to the affected parties.

In this case, the chapter 7 trustee has been investigating the recovery of assets and considering whether to file avoidance actions. However, the two-year deadline to file complaints based on claims arising under 11 U.S.C. §§ 546 & 549 is approaching rapidly. The deadline will pass in the near future.

The trustee contends the debtor has been insufficiently responsive with the investigation. Indeed, the discharge of the debtor has already been revoked due to concealment of assets by the debtor. Therefore, the trustee has filed a motion to extend the two-year statutory deadline to file claims arising under sections 546 & 549.

However, no basis in law exists for such a motion. The Federal Rules of Bankruptcy Procedure contain no rule to extend statutory deadlines such as the ones in sections 546 & 549. No procedure supports the relief in the current motion.

In re Walnut Hill, Inc., 2018 WL 2672242, *1, 2018 Bankr. LEXIS 1589, *2 (Bankr. D.Conn. 2018) (holding that the rules of bankruptcy procedure do not "permit[ ] a court to extend a time limitation set by Congress in a statute. In re Damach, 235 B.R. 727, 731 (Bankr. D.Conn. 1999).").

Clearly, in appropriate circumstances, bankruptcy courts have the power to apply the doctrine of equitable tolling to excuse the filing of complaints after statutory deadlines. See, e.g., In re United Insurance Management, Inc., 14 F.3d 1380 (9th Cir. 1994). However, when should a bankruptcy court do so? Should it adjudicate the doctrine of equitable tolling in response to an ex parte motion by the trustee prior to the filing of the adversary proceeding or should it do so in the adversary proceeding that the trustee ultimately files? Fairness and due process require the latter.

The trustee has not served the current motion on the targets who he may sue months or years later. He has not done so because he cannot do so. He does not know who they are yet. He has not completed his investigation.¹

Nevertheless, the trustee seeks at this time an order applying equitable tolling in his favor with respect to any and all future defendants. If the court granted the motion then, when the trustee later files complaints after the statutory deadline, the trustee would inform defendants that they have no opportunity to contest the application of the doctrine of equitable tolling because the court resolved the matter months or years earlier without notice or an opportunity to object by the parties harmed by the court order. The trustee would seek to rely upon the court order as the law of the case which is no longer subject to collateral attack.² This is the essential goal of such a motion³ and, as such, the court cannot approve such a course of action.

The trustee remains free to raise equitable tolling at a later date after filing untimely complaints. At that point, the defendants will have notice and an opportunity to contest the application of the doctrine of equitable tolling. Granting the pending motion would deprive them of that opportunity and that would be fundamentally unfair. Walnut Hill, 2018 WL 2672242, *2, 2018 Bankr. LEXIS 1589, *5 ("It is wholly premature and procedurally flawed to address equitable tolling outside the context of an evidentiary hearing on the facts and circumstances to be proven in the adversary proceeding against specific defendants, once a statute of limitations defense has been asserted.").

The court acknowledges that the Eleventh Circuit Court of Appeals did state in IBT Int'l, Inc. v. Northern (In re International Administrative Services), 408 F.3d 689, 699 (11th Cir. 2005) that "we think a bankruptcy court has the discretion to extend the filing period for an adversary proceeding" by motion in advance of the deadline. However, this approach deprives future defendants of constitutional due process of law because they receive no notice of the relief in advance and no opportunity to contest whether or not equitable tolling is warranted. Perhaps for this unstated reason, the Eleventh Circuit proceeded to also find that equitable tolling applied regardless of whether any order had been entered by the bankruptcy court granting a motion to extend the statutory deadline. Id. at 700-702. In this court's view, that was the better analysis because it allowed the defendant an opportunity to challenge the application of equitable tolling. Granting a motion to extend in advance, however, deprives the defendant of that opportunity.

The bankruptcy court decision in In re Walnut Hill, Inc., 2018 WL 2672242, 2018 Bankr. LEXIS 1589 (Bankr. D.Conn. 2018) is well reasoned and directly on point. In that case, the chapter 7 trustee filed a similar motion that the bankruptcy court denied. The court distinguished International Administrative Services and held that "reaching the issue of equitable tolling is premature and procedurally inappropriate at this time." Id.

Likewise, the decision in In re No. 1 Contracting Corporation, 2012 WL 4114818, 2012 Bankr. LEXIS 4340 (Bankr. M.D.Pa. 2012) is on point. The court in that case also faced a request by a chapter 7 trustee to extend the deadline to file avoidance actions but the bankruptcy court rejected the motion and distinguished International Administrative Services. The court "expressed concern" regarding whether it could "extend the statute with regard to unnamed and unidentified defendants when there was no case or controversy before the Court?" Id. at *1, 2012 Bankr. LEXIS 4340 at *2-3. The court concluded it could not grant such relief and, therefore, denied the motion without prejudice. The court did not hold that equitable tolling could not apply. Rather, the court held that it would decide the issue of equitable tolling later if the trustee filed a complaint and the defendant objected based on untimeliness. This court agrees.

To repeat, in denying the trustee's motion, the court does not hold that equitable tolling is inapplicable. To the contrary, the court makes no ruling regarding whether or not equitable tolling should apply. If the trustee files a complaint after the statutory deadline and a defendant objects based on timeliness, the trustee may certainly raise the doctrine of equitable tolling.

By denying...