Dunlap v. Sentry Group Svcs ( 2000 )

UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
99-10338
In The Matter Of:
ELIJAH THOMAS DUNLAP, JR.,
Debtor.
____________________
STATE BANK & TRUST, N.A.,
Appellant,
V.
ELIJAH THOMAS DUNLAP, JR.,
Appellee.
____________________
99-11195
____________________
In The Matter Of:
ELIJAH THOMAS DUNLAP, JR.,
Debtor.
___________________
ELIJAH THOMAS DUNLAP, JR.,
Appellee,
V.
SENTRY GROUP SERVICES INC.,
Appellant.
Appeals from the United States District Court
for the Northern District of Texas -- Dallas Division
June 29, 2000
Before GARWOOD, DeMOSS and PARKER, Circuit Judges.
ROBERT M. PARKER, Circuit Judge:
Creditors appeal from final orders issued by the district
court dismissing their nondischargeability complaints as untimely.
Because we disagree with the district court’s interpretation of
FED. R. BANKR. P. 4007(c), we REVERSE and REMAND.
I.
On October 25, 1996, an Oklahoma state court awarded two
judgments against Elijah Thomas Dunlap in civil actions brought by
appellants State Bank & Trust, N.A. (“State Bank”) and Sentry Group
Services, Inc. (“Sentry”). State Bank was awarded a $358,167.73
judgment based upon the court’s finding that Dunlap had committed
fraud and breached his representation of warranty and authority
when he obtained a loan from State Bank. Sentry was awarded a
$941,913.22 judgment for conversion, misappropriation of funds and
breach of fiduciary duty.
On July 3, 1997, Dunlap filed a voluntary Chapter 7 bankruptcy
petition in the United States Bankruptcy Court for the Northern
District of Texas, Dallas Division. Pursuant to the notice
originally issued by the Bankruptcy Court Clerk, and in accordance
with 11. U.S.C. § 341 (1994), the first meeting of creditors (the
“section 341 meeting”) was scheduled for August 11, 1997. The
2
Clerk, in accordance with FED. R. BANKR. P. 4007(c), then calculated
the deadline for the filing of nondischargeability complaints to be
October 10, 1997 -- 60 days after the August 11, 1997, “date first
set for the meeting of creditors held pursuant to § 341(a).” FED R.
BANKR. P. 4007(c). At the debtor’s request, the 341 meeting was
rescheduled for September 5, 1997, but the October 10, 1997, bar
date was not altered.
Dunlap did not appear at the meeting of creditors, instead his
attorney appeared and announced that Dunlap would be filing a
motion to dismiss the bankruptcy. Counsel for Sentry informed
Dunlap’s counsel that an objection to the dismissal would likely be
forthcoming and asked that an order of dismissal not be presented
to the court ex parte. Nevertheless, Dunlap filed his motion, and
on September 15, 1997, the bankruptcy court dismissed the case.
Both appellants moved to vacate the court’s order of dismissal as
premature and in violation of the due process safeguards mandated
by the Bankruptcy Code. See 11 U.S.C. § 707(a)(1994); FED. R. BANKR.
P. 1017(a). On December 2, 1997, the bankruptcy court, concluding
that it had erred in granting debtor’s motion to dismiss without a
hearing and an opportunity for all interested parties to be heard,
reinstated the case and directed Dunlap to reset his motion for a
hearing. Due to a clerical error, the order vacating the dismissal
was not entered until December 15, 1997.
Dunlap never moved to reset his motion to dismiss and the
3
motion ultimately went unresolved. Given Dunlap’s failure to re-
prosecute his motion to dismiss, on January 12, 1998, the Chapter
7 Trustee set a new date for the first meeting of creditors,
February 6, 1998, and calculated a corresponding bar date for
nondischargeability complaints as April 7, 1998. Later that same
day, the debtor rescheduled the first meeting of creditors for
January 30, 1998, and issued a notice titled “Notice of Continued
Section 341 Meeting.”
Although both dates were docketed by the Bankruptcy Court
Clerk, no formal notice of the dates was issued to interested
parties. Counsel to both appellants obtained the new scheduling
information through consultation by telephone with the Bankruptcy
Court Clerk. On at least three separate occasions in February and
March the creditors were informed that the docket reflected a bar
date of April 7, 1998.
On March 31, 1998, Sentry filed its complaint seeking a
determination that the fraud and embezzlement rendered Sentry’s
judgment nondischargeable pursuant to 11 U.S.C. § 523(a)(2) and (4)
(1994). On April 2, 1998, State Bank filed its complaint also
seeking a determination of nondischargeability. Dunlap then moved
to dismiss the adversary proceedings contending that both
complaints were time-barred. A hearing was held on debtor’s motion
on June 23, 1998. The bankruptcy court concluded that the 60-day
window for filing complaints commenced on January 30, 1998, the
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date the section 341 meeting was actually “held,” not February 6,
1998, the “first date set for the meeting.”1 The bankruptcy court
determined that the 60-day filing window ended on March 31, 1997,
and accordingly, the court ruled that Sentry’s March 31, 1997,
complaint was timely, but State Bank’s April 2, 1997, complaint was
not. Within its order resolving debtor’s motion to dismiss the
complaints, the bankruptcy court discussed its belief that debtor’s
attempt to dismiss his case should act to toll the running of the
60-day filing period while the bankruptcy court considers the
motion. Under the bankruptcy court’s tolling theory, the clock on
the filing period would not commence again until the section 341
1
The language of the rule was amended in 1999 (after all the
relevant events of this case occurred) by eliminating the word
“held” to emphasize that the 60 days runs from the first date set
for the section 341 meeting not the date the meeting actually takes
place. See FED. R. BANKR. P. 4007(c); LAWRENCE P. KING, ET AL., 9 COLLIER
ON BANKRUPTCY § 4007.04[1][a] (15th ed. 1999)(“The drafters
presumably opted for the absolute certainty of such a fixed date
rather than a date which might change one or more times depending
upon the ultimate scheduling of the creditors’ meeting.”).
A clear majority of courts addressing the complaint filing
deadline under the old Rule 4007(c) concluded that the 60-day
limitations period runs from the date first set for the meeting,
regardless of when the meeting is actually held. See, e.g.,
Peerless Ins. Co. v. Merriell L. Miller (In re Miller), 228 B.R.
399, 401 (B.A.P. 6th Cir. 1999)(“ The majority of cases interpret
Rule 4007(c) to require that the 60-day period runs from the ‘first
date set for the meeting of creditors,’ notwithstanding that the
meeting is continued and actually occurs on a different date. We
concur.”); see also Durham Ritz, Inc. v. Williamson (In re
Williamson), 15 F.3d 1037, 1039 (11th Cir. 1994). In this case,
largely because Dunlap failed to appear at the September 5, 1997,
section 341 meeting, the bankruptcy court ruled that the filing
window ran from January 30, 1998, the date the meeting was actually
held with Dunlap in attendance.
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meeting of creditors was held on January 30, 1998. Nevertheless,
the suggestion of tolling as an appropriate equitable remedy in
this case did not form the basis for the bankruptcy court’s ruling,
and therefore, was mere dicta.
State Bank appealed the bankruptcy court’s ruling only to have
the district court affirm the dismissal after application of a
tolling rule based in part upon the bankruptcy court’s dicta. But
the district court did not adopt the bankruptcy court’s tolling
proposal wholesale, instead, it determined that “the tolling period
would have ended when Dunlap noticed the January 30, 1998, meeting
of creditors on January 12.” The court concluded that although
debtor’s motion to dismiss was never resolved -- because the debtor
failed to take any action to prosecute the motion after
reinstatement of the case -- the motion could be deemed abandoned
by January 12, 1998. Ultimately, the district court concluded that
the bar date was actually March 13, 1998, 60 days after the motion
to dismiss was deemed abandoned. State Bank took appeal from that
ruling.
Debtor appealed the bankruptcy court’s order finding Sentry’s
complaint timely. The district court, with a different judge
presiding, adopted the reasoning from the order dismissing State
Bank’s complaint as untimely after calculating a bar date of March
13, 1998. Based on the newly calculated complaint filing deadline,
the court ruled that Sentry’s complaint was untimely. Further
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adding to the procedural confusion, the court incorrectly stated
that “the date first set for the creditors’ meeting was January 12,
1998, not January 30, 1998.” Sentry appealed the district court’s
dismissal of its complaint. On appeal to this Court, both cases
were consolidated.
II.
Since there are no contested issues of fact in this appeal, we
are presented solely with questions of law. We review a bankruptcy
court’s legal rulings and decisions de novo. See Traina v. Whitney
National Bank, 109 F.3d 244, 246 (5th Cir. 1997).
III.
The sole issue before us is how to determine the bar date for
the filing of nondischargeability complaints after a bankruptcy
court has dismissed the case. There is no controlling Fifth Circuit
precedent, and our sister circuits have not yet addressed the
issue. Accordingly, we turn first to the relevant provision of the
Bankruptcy Rules, FED. R. BANKR. P. 4007(c), which provides:
A complaint to determine the dischargeability of a debt
pursuant to § 523(c) of the Code shall be filed no later
than 60 days following the first date set for the meeting
of creditors held pursuant to § 341(a). The court shall
give all creditors no less than 30 days' notice of the
time so fixed in the manner provided in Rule 2002. On
motion of any party interest, after hearing on notice,
the court may for cause extend the time fixed under this
subdivision. The motion shall be filed before the time
has expired.
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FED. R. BANKR. 4007(c)(emphasis added).
Rule 4007(c) must be read in conjunction with Rule 9006(b)(3)
which permits a bankruptcy court to “enlarge the time for taking
action under [Rule 4007] . . . only to the extent and under the
conditions stated in [that rule].” FED. R. BANKR. P. 9006(b)(3).
The strict time limitation placed upon creditors who wish to object
to a debt’s dischargeability reflects the Bankruptcy Code’s goal of
providing debtors with a fresh start. See Matter of Ichinose, 946
F.2d 1169, 1172 (5th Cir. 1991); see also Neeley v. Murchison, 815
F.2d 345, 346 (5th Cir. 1987)(Rule 4007(c) “evince[s] a strong
intent that the participants in bankruptcy proceedings be assured
that, within the set period of 60 days, they can know which debts
are subject to an exception to discharge.”). Also, “[t]his fixed,
relatively short limitation period enables the debtor and creditors
to make better-informed decisions early in the [] proceedings.”
Neeley, 815 F.2d at 346-47. In evaluating the various rules for
interpreting Rule 4007(c) proffered by the parties and the courts
below, we seek a rule that best preserves the integrity of the
fixed 60-day window following the section 341 meeting of creditors,
facilitates informed decision making by creditors, and allows
creditors sufficient unequivocal information to calculate the bar
date with certainty.
Like the bankruptcy and district courts below, we can quickly
discard debtor’s proffered rule for interpreting Rule 4007(c).
8
Debtor argues that the “date first set” language must refer to
August 11, 1997, the original setting for the meeting of creditors,
with the corresponding bar date of October 10, 1997. Under
debtor’s theory, the deadline passed during the three-month period
in which the case was dismissed. Purportedly, the creditors could
have taken steps to protect themselves by filing motions and
complaints with the court despite the dismissal and the fact that
the debtor had never appeared for examination by the creditors at
the section 341 meeting. While debtor’s rule offers the certainty
of a fixed filing period of 60 days, it would precipitate a barrage
of prophylactic filings in all cases dismissed before the complaint
deadline, and would thus burden both creditors and the courts with
unnecessary expense and effort.
Creditors argue that this case is best resolved by application
of the rule set forth in the analogous case Coston v. Bank of
Malvern, 987 F.2d 1096 (5th Cir. 1992), in which we held that the
60-day period for filing nondischargeability complaints did not run
from the scheduled date of the first meeting of creditors where the
proceedings were stayed due to pendency of a related action in
another state.2 In Coston, two creditors filed a petition in the
Bankruptcy Court for the Western District of Arkansas forcing the
2
Creditors argue first for the application of Coston to the
case at bar. Alternatively, they advance numerous equitable
arguments for reversal. Because we adopt the reasoning of Coston
as the basis for our holding, we need not consider these equitable
arguments.
9
Costons into involuntary bankruptcy. The following day, the
Costons filed a voluntary petition in the Bankruptcy Court for the
Eastern District of Texas. One of the creditors then filed a
notice of stay, pursuant to FED. R. BANKR. P. 1014(b), with the Texas
bankruptcy court and the case was stayed pending disposition of the
Arkansas case. However, prior to the stay, the Texas bankruptcy
court had already scheduled the first meeting of creditors for
March 1, 1989. Due to the stay, the Texas court canceled the
meeting and put all other proceedings on hold.
On May 10, 1989, the Arkansas bankruptcy court entered an
order dismissing the involuntary bankruptcy case, thus reactivating
the Texas voluntary case. The court then rescheduled the meeting
of creditors which was held on July 10, 1989. Within 60 days of
the July 10, 1989, meeting, one of the creditors filed a
nondischargeability complaint. The Costons sought to have the
complaint dismissed as untimely because it was not filed within 60
days of the originally scheduled March 1 meeting. The Costons,
like Dunlap, argued that not only had the bar date passed during
the stay, but that no new date could be set subsequent to the stay
and revival of the case. We did not find this argument persuasive,
and explained why rescheduling a new bar date was necessary:
Once the notice of stay was recognized by the court in
Texas, that court's proceeding was on hold indefinitely until the
stay was lifted and the proceeding in Arkansas dismissed. Only
when that occurred and a date was set for the initial meeting of
creditors did the sixty days begin to run. In the stay situation,
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the new date set by the court is the "first date" under Rule
4007(c); it is not merely a rescheduling of the old pre-stay date.
Facially, this ruling may appear to contradict the
wording of Rule 4007(c). But, in light of Rule 1014(b),
no other result is sensible or possible. The Bank cannot
be penalized because it did not comply with a filing
deadline of a court whose proceedings had been stayed.
To suggest that even though the court's proceedings on
the Costons' case had been stayed under Rule 1014(b), its
filing deadline under Rule 4007(c) continued to run is
ludicrous.
Coston, 987 F.2d at 1099.
The district court dismissed Coston as inapplicable to the
case sub judice by suggesting that a “premature dismissal” of the
case failed to generate the same consequences as a stay pursuant to
FED. R. BANKR. P. 1014(b). The court went on to imply that because
State Bank recognized the bankruptcy court’s error in granting the
ex parte dismissal, State Bank should have taken some measures to
protect itself. To the contrary, we believe the case for
rescheduling the section 341 meeting and recalculating the bar date
is far more compelling when a bankruptcy case has been dismissed
rather than merely stayed. Resetting the meeting of creditors and
the complaint filing deadline preserves the integrity of the 60-day
period and allows creditors sufficient unequivocal information to
calculate the bar date with certainty.
With this bright-line rule in mind, the deficiencies of a
tolling rule, like that applied by the district court, are evident.
11
First, there is no provision for a tolling regime found in the
relevant portions of the Bankruptcy Code or Rules. Instead, a new
rule had to be crafted based largely upon the equitable
considerations elaborated upon by the bankruptcy court. There is
similarly no provision for a tolling rule to be found in any of our
earlier decisions. Debtor, who supports application of a tolling
rule as an alternative argument, cites to our decisions in Grossie
v. Sam (In re Sam), 894 F.2d 778 (5th Cir. 1990), and Neeley v.
Murchison, 815 F.2d 345 (5th Cir. 1987), as supporting application
of a tolling regime, when in fact they are silent on the issue.3
Second, a tolling rule fails to comport with the purpose of
Rule 4007(c), namely to establish a “fixed, relatively short
limitation period” for creditors to act after the section 341
meeting. In this case, confusion in applying a tolling rule stems
from the uncertainty surrounding the date the limitation period
recommenced: did the 60-day clock start anew on December 2, 1997,
the day the order vacating the dismissal was signed; December 15,
1997, the day the order was entered on the docket; January 12,
1998, the day the motion to dismiss was deemed abandoned; or
3
The debtor also cites these cases as supporting his
contention that the bar date passed during the three-month period
in which the case was dismissed. Neither case supports this
contention. The sole issue in Neeley and In re Sam was whether the
court clerk’s failure to give a creditor the 30-day notice of
dischargeability required under Rule 4007 excused the filing of
complaints outside the 60-day window provided in Rule 4007(c).
These cases tell us nothing about the calculation of the bar date
following dismissal and reinstatement of a bankruptcy case.
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January 30, 1998, the day the meeting of creditors was finally
held? The tolling theories advanced by the debtor, the bankruptcy
court (in dicta), and the district court all result in different
complaint deadlines, ranging from January 11, 1998, to March 31,
1998. The harshest tolling theory is advanced by the debtor.
According to debtor’s calculations, the bar date would be tolled
only until January 11, 1998, despite the fact that the 341 meeting
of creditors would not take place until January 30, 1998.4 It is
difficult to see how a rule that could allow a complaint filing
deadline to precede the meeting of creditors, the benchmark for
calculating the 60-day filing period, could possibly comport with
the purpose of Rule 4007(c) to allow informed decision making early
in the proceedings. A tolling rule avoids the need for
prophylactic filings, but only at the expense of the certainty
provided by a fixed 60-day filing period. We see no reason to
believe that the amorphous nature of an equitable tolling rule
would likely result in any less confusion when applied in other
cases. In sum, a tolling rule finds no support in the Bankruptcy
Code and holds little promise of providing an efficient and certain
procedural rule of law.
Conversely, application of the Coston rule best preserves the
4
Debtor fails to explain how creditors, or the trustee for
that matter, could be expected to make “better-informed decisions”
without having first examined the debtor at the section 341 meeting
as contemplated by the Bankruptcy Code.
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integrity of the 60-day period following the meeting of creditors,
facilitates informed decision making by creditors, and allows
creditors sufficient unequivocal information to calculate the bar
date with certainty. Resetting the meeting of creditors and the
complaint filing deadline will also forestall the one certainty a
tolling rule would provide -- namely, an inevitable fusillade of
creditors’ calls to the Bankruptcy Court Clerk seeking confirmation
of their bar date calculations. Instead, a bright-line rule based
on the new first meeting of creditors eliminates creditor
guesswork, strictly adheres to the language of Rule 4007(c), and
does not conflict with precedent of this Court.
In the instant case, the Bankruptcy Court Clerk rescheduled
the section 341 meeting for February 6, 1998, and recalculated the
bar date as April 7, 1998. Although the meeting of creditors was
subsequently moved forward, February 6, 1998 remained the new
“First date set” under Rule 4007(c), and consequently, the bar date
was correctly docketed as April 7, 1998. Because both creditors
made their filings before April 7, 1998, both were timely.
IV.
For the reasons set forth above, we REVERSE and REMAND both
district court orders dismissing as untimely creditors
nondischargeability complaints with instructions to remand both
cases to the bankruptcy court for further proceedings consistent
with this order.
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