Opinion
Case No. 10-13275 Adversary Case No. 11-1109
03-06-2012
In Re BEN E. SPEARS PATRICIA M. SPEARS Debtors KATHLEEN WINTERS Plaintiff v. BENJAMIN E. SPEARS PATRICIA M. SPEARS Defendants
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.
_______________
Jeffery F. Hopkins
United States Bankruptcy Judge
Judge Hopkins
MEMORANDUM ON ORDER GRANTING
DEFENDANTS' MOTION FOR SUMMARY JUDGMENT
The Plaintiff, Kathleen Winters, commenced this action with a complaint to determine dischargeability pursuant to 11 U.S.C. § 523(a)(2)(A) and/or (6). Alternatively, the complaint seeks revocation of the discharge pursuant to 11 U.S.C. § 727(d).
Presently before the Court is a summary judgment motion ("Motion")(Doc. 24) filed by the Defendants, chapter 7 debtors Benjamin and Patricia Spears, and Ms. Winters' response (Doc. 29). The Motion seeks summary judgment on the § 523(a) claims, contending they were untimely filed. The deadline to file a dischargeability complaint under § 523(a)(2) and (6) was August 23, 2010 ("the Deadline"). Ms. Winters commenced this adversary proceeding on June 15, 2011.
According to Ms. Winters, the Spearses should be equitably estopped from asserting this defense because they intentionally failed to schedule her as a creditor before the Deadline. Consequently, she never received notice of the Deadline. However, in state court litigation between the parties, Ms. Winters' attorney received notice of the bankruptcy case on June 3, 2010, more than eleven weeks before the Deadline.
APPLICABLE RULE AND STATUTE
A complaint to determine dischargeability under § 523(a)(2) and (6) must be filed within sixty days following the first scheduled date of the meeting of creditors. Fed. R. Bankr. P. 4007(c).
A creditor with an untimely claim under § 523(a)(2) and/or (6) is not without recourse if the debtor failed to schedule the creditor in a timely manner. The creditor might be able to obtain a nondischargeable judgment if the creditor did not receive notice or actual knowledge of the bankruptcy case in time to file a timely complaint. See 11 U.S.C. § 523(a)(3)(B).
A discharge under section 727 . . . of this title does not discharge an individual debtor from any debt-11 U.S.C. § 523(a)(3)(B)(emphasis added).
. . .
(3) neither listed nor scheduled under section 521(1) of this title . . . in time to permit-
. . .
(B) if such debt is of a kind specified in paragraph (2), (4), or (6) of this subsection, timely filing of a proof of claim and timely request for a determination of dischargeability of such debt under one of such paragraphs, unless such creditor had notice or actual knowledge of the case in time for such timely filing and request[.]
ISSUE
The issue presented is whether Ms. Winters possessed notice or actual knowledge of the Spearses' bankruptcy case in time to file her dischargeability complaint prior to the Deadline.
FACTS
Ms. Winters seeks a nondischargeable judgment for malicious prosecution and/or defamation. She raised the same claims in a state court action against Mr. Spears, among others. Ms. Winters filed the state court action one day after the bankruptcy filing. Three weeks later, the Spearses' bankruptcy lawyer filed a Suggestion of Bankruptcy ("Suggestion") in the state court action.
Mrs. Spears was not a party to the state court action.
Attached to the Suggestion was a Notice of Bankruptcy Case Filing ("Notice"), a form generated by this Court's electronic filing system upon the filing of the Spearses' chapter 7 case. The Notice, signed by the Clerk of this Court, is designed to advise creditors of the filing of a bankruptcy case. The form may be printed by debtors and served upon creditors to provide notice of the bankruptcy filing prior to creditors' receipt of the notice of meeting of creditors.
On June 3, 2010, the Suggestion was served upon Ms. Winters' state court counsel, Blankenship Massey & Steelman, PLLC ("BM&S"). BM&S, who is also Ms. Winters' counsel in this proceeding, received the Suggestion.
The Notice states the following: (1) the Spearses filed a joint chapter 7 case on May 13, 2010; (2) the case was filed in the Southern District of Ohio and assigned case number 1:10-bk-13275; (3) "If you would like to view the bankruptcy petition and other documents filed by the debtor, they are available at our Internet home page http://ecf.ohsb.uscourts.gov/ or at the Clerk's Office, 221 East Fourth Street, Suite 800, Cincinnati, OH 45202-4133."; and (4) "You may be a creditor. If so, you will receive an additional notice from the court setting forth important deadlines."
The Suggestion, to which the Notice is attached, provides that the state court action "is founded on a claim from which a discharge would be a release[.]"
The Deadline to file a dischargeability complaint under § 523(a)(2) and (6) was August 23, 2010. The Spearses did not schedule Ms. Winters as a creditor until September 22, 2010. Therefore, Ms. Winters never received notice of the Deadline. On April 12, 2011, Ms. Winters moved to reopen the chapter 7 case to pursue this adversary proceeding. Ms. Winters commenced this adversary proceeding on June 15, 2011.
Both parties incorrectly believe that the Deadline was extended to September 11, 2010. The Court takes judicial notice of the docket in the Spearses' bankruptcy case. See Case No. 10-13275. There is no order extending the deadline to object to dischargeability. The meeting of creditors was continued to July 13, 2010. See Doc. 17. The parties may believe that the continuance extended the Deadline. If so, they are mistaken. The deadline to object to dischargeability is sixty days from the "first date set for the meeting of creditors." See Fed. R. Bankr. P. 4007(c)(emphasis added). This deadline is not extended simply because the creditors' meeting is continued.
On May 16, 2010, the Clerk of this Court served a notice of the bankruptcy filing, including the Deadline, upon all creditors scheduled at the time.
See Case No. 10-13275 at Doc. 30.
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ANALYSIS
BM&S's receipt of the Suggestion and attached Notice provided Ms. Winters with timely notice or actual knowledge of the bankruptcy case that precludes her from proceeding under § 523(a)(3).
A. Notice to Creditor's Attorney in State Court Litigation
The facts of this case are very similar to those of Lompa v. Price (In re Price), 871 F.2d 97 (9th Cir. 1989). Lompa sued Price in state court. Three years later, Price filed a chapter 7 petition. Price failed to schedule Lompa as a creditor. Therefore, Lompa never received notice of the July 22, 1986 deadline for filing dischargeability complaints. However, Lompa's state court counsel received a notice of the bankruptcy from Price's counsel on May 21, 1986. The notice did not mention any deadlines and Lompa's counsel assumed that he would receive further notices from the bankruptcy court. Subsequent to the expiration of the deadline to file dischargeability complaints, Lompa filed a motion for leave to file such a complaint. On appeal, the Ninth Circuit held that the notice received by Lompa's counsel placed Lompa on notice of the bankruptcy and the pendency of the dischargeability bar date and precluded Lompa from proceeding under § 523(a)(3)(B). "The fact that Price failed to list Lompa as a creditor did not relieve Lompa of his obligation to take timely action to protect his claim. . . . When Lompa's attorney was notified of the bankruptcy of Price, Lompa was given reasonable notice of the action, and he had sufficient opportunity to present his objections at that time." Price, 871 F.2d at 99; accord Peoples Savs. & Loan Co. v. Legge (In re Legge), 138 B.R. 188, 189 (Bankr. S.D. Ohio 1991) ("As this time constraint for filing complaints challenging discharge is expressly provided for by Rule, receipt of the [notice of meeting of creditors] by the Creditor is not necessary to advise the Creditor of the bar date imposed by the Rule. The Creditor is certainly capable of counting 60 days from the scheduled meeting of creditors. Actual notice of the bankruptcy filing is clearly sufficient.").
Ms. Winters' circumstances are less compelling than Lompa's. Ms. Winters had more time than Lompa to file a timely complaint. Lompa's counsel received notice of the bankruptcy sixty-two days before the dischargeability deadline. BM&S was served with notice of the Spearses' bankruptcy eighty-one days before the Deadline. B. Equitable Estoppel
According to Ms. Winters, the Spearses should be equitably estopped from asserting the Deadline as a defense because they manipulated the system to preclude her from filing a timely complaint. Equitable estoppel occurs when a defendant prevents a plaintiff, who knows of a claim against the defendant, from filing a timely lawsuit. Egerer v. Woodland Realty, Inc., 556 F.3d 415, 424 (6th Cir. 2009).
The Rule 4007(c) deadline is not jurisdictional. In re Maughan, 340 F.3d 337, 344 (6th Cir. 2003). Therefore, it is subject to the defenses of waiver, equitable estoppel and equitable tolling. Id.
1. In re Maughan
Maughan is distinguishable from this case because it did not involve an unscheduled creditor and § 523(a)(3)(B). In Maughan, a creditor ("Nardei") obtained an order from the bankruptcy court directing the debtor ("Maughan") to appear for a Fed. R. Bankr. P. 2004 examination and produce certain documents. The examination was held approximately two months prior to the Rule 4007(c) deadline. However, Maughan did not produce all of the documents. Notwithstanding a promise to produce the documents promptly, Maughan had yet to produce the documents when the Rule 4007(c) deadline arrived. Three days after the expiration of the deadline, Nardei filed a motion to extend the deadline. The Sixth Circuit affirmed the bankruptcy court's conclusion that Maughan's noncompliance justified an extension of the deadline.
The sole basis for Ms. Winters' equitable estoppel argument is that the Spearses intentionally omitted her from their bankruptcy schedules until the Deadline expired. When a creditor is not scheduled, § 523(a)(3)(B) dictates that the only issue is whether the creditor "had notice or actual knowledge of the case in time" to file a timely complaint. See § 523(a)(3)(B). Whether the debtor intended to deceive the creditor is irrelevant. Tidwell v. Smith (In re Smith), 582 F.3d 767, 777-78 (7th Cir. 2009)(collecting cases). Therefore, in deciding whether the Spearses should be equitably estopped, this Court does not believe the Sixth Circuit would consider factors other than Ms. Winters' knowledge of the bankruptcy.
2. Elements of Equitable Estoppel
Even considering factors other than Ms. Winters' knowledge of the bankruptcy, equitable estoppel is not warranted. Equitable estoppel requires proof of: (1) a false representation by the defendant; (2) reasonable reliance by the plaintiff; and (3) detriment to the plaintiff. United States v. Loveland, 621 F.3d 465, 473 (6th Cir. 2010); Egerer v. Woodland Realty, Inc., 556 F.3d 415, 425 (6th Cir. 2009). However, the plaintiff's ignorance cannot be the result of a lack of due diligence. Egerer, 556 F.3d at 425.
a. False Representation By Defendant
The only allegedly false representation identified by Ms. Winters is the language of the Notice, which states: "You may be a creditor. If so, you will receive an additional notice from the court setting forth important deadlines." According to Ms. Winters, the Spearses employed this language to lull her into the false belief that she need not worry about any bankruptcy deadlines until she received further notice.
The Court does not find this language to be a representation by the Spearses. Again, the Notice is generated by the Court's electronic filing system. The Clerk's name is affixed to the end of the Notice, indicating that the statements therein are those of the Clerk.
b. Reasonable Reliance
Even if the Spearses somehow adopted the Clerk's representation in the Notice, Ms. Winters' reliance upon the representation was not reasonable. Creditors "do not have a right to assume that the statutory reasonable notice will be given them before their claims are forever barred because the statute itself warns that actual knowledge of the case will be enough to permit the discharge injunction to operate against their claims." In re Arch Wireless, Inc., 534 F.3d 76, 86 (1st Cir. 2008).
c. Due Diligence
BM&S was served with notice of the Spearses' bankruptcy eighty-one days before the August 23, 2010 Deadline. The Suggestion and Notice provided the following information about the bankruptcy: (1) the court; (2) the case number; (3) the date of the petition; (4) the chapter under which the case was filed; (5) the name and contact information of the Spearses' bankruptcy attorney; (6) the name and contact information of the chapter 7 trustee; and (7) a warning that the state court "action is founded on a claim from which a discharge would be a release." Lastly, the Notice provides the address of the Clerk's Office and the internet address for the Court's electronic filing system for anyone who "would like to view the bankruptcy petition and other documents[.]"
Armed with this information, Ms. Winters lacked due diligence when she failed to take any action in the bankruptcy case until approximately ten months later when she filed her motion to reopen the case. Again, the Suggestion was served eighty-one days prior to the Deadline. Actual notice at least thirty days in advance of the bar date typically satisfies due process. See In re Dewalt, 961 F.2d 848, 851 (9th Cir. 1992); In re Heiney, 194 B.R. 898 (D. Colo. 1996); In re Shaheen, 174 B.R. 424 (E.D. Va. 1994); In re Burrier, 184 B.R. 32 (Bankr. N.D. Ohio 1995). Creditors with more than thirty days' notice, and sometimes less, have been precluded from asserting an action. See Smith, 582 F.3d at 780 (collecting cases). Even if measured from the date the Spearses added Ms. Winters to their schedules, on September 22, 2010, Ms. Winters still waited almost seven months to file her motion to reopen.
CONCLUSION
Ms. Winters' § 523(a) claims are untimely because she possessed notice or actual knowledge of the Spearses' bankruptcy case in time to file her dischargeability complaint prior to the Deadline. Through counsel, she was served with notice of the Spearses' bankruptcy eighty-one days before the Deadline.
Whether the Spearses intended to deceive Ms. Winters is irrelevant under § 523(a)(3)(B). Even if intent is relevant, the Spearses are not equitably estopped from asserting the Deadline as a defense because they did not make any false representations to Ms. Winters, Ms. Winters' reliance upon the alleged representation by the Spearses was not reasonable, and Ms. Winters lacked due diligence in asserting her § 523(a) claims.
Accordingly, the Motion will be GRANTED. Ms. Winters' § 523(a) claims will be DISMISSED. An order to this effect will be entered.
Copies to:
C. Ed Massey
cedmassey@nkylawyers.com
Charles Tate
charlestate@fuse.net
Randy J. Blankenship
504 Erlanger Road
Erlanger, KY 41018