VS: ADV. NO. 90-0378




This matter is before the Court on defendant James William Runyon's Motion for Summary Judgment and for Attorney's Fees and on defendant Julip Coal, Inc.'s Motion for Summary Judgment. The plaintiff has filed responses to both motions. This case places several issues before the Court, including the timeliness of filing of the plaintiff's Complaint, the standing of the plaintiff to complain of a preferential or fraudulent transfer, and the capacity of a defunct corporation to assert a security interest in property belonging to the debtor. This Court has jurisdiction of this matter pursuant to 28 U.S.C. '1334(b); it is a core proceeding pursuant to 28 U.S.C. '157(b)(2)(I)(J) and (K).

The defendant/debtor herein, James William Runyon ("Runyon"), filed a Chapter 7 petition in this Court on May 25, 1990. On December 20, 1990, the plaintiff herein filed this adversary proceeding on behalf of six of Runyon's former employees for $47,809.17 in back wages and interest thereon. This amount had been awarded them pursuant to an administrative decision of the Federal Mine Safety and Health Review Commission that Runyon had discriminated against the six miners for exercising safety related rights under the Federal Mine Safety and Health Act of 1977. The plaintiff states that the Complaint is brought to determine the validity, priority or extent of a lien on property of the debtor, to object to the debtor's discharge and to the dischargeability of the debt to the plaintiff, to obtain an injunction against a putative creditor, and, in the alternative, to obtain a declaratory judgment relating to these causes and actions.

The plaintiff contends that on April 20, 1989, Runyon transferred certain real property to his sister for less than adequate consideration and that the transfer constitutes fraud. She also contends that in April 1989 the defendant Julip Coal Company, Inc. ("Julip") purported to file a financing statement to perfect a security interest in certain mining equipment taken to secure loans previously made to Wax Enterprises, a partnership between Runyon and his brother-in-law, after Julip's corporate charter had been revoked. The plaintiff maintains that the financing statement is therefore void and of no legal effect. The plaintiff finally states that Runyon attempted to conceal certain assets from the trustee and the plaintiff by failing to list them on his Schedule of Assets.

Upon the plaintiff's motion for an extension of time in which to file an adversary proceeding, an Order was entered in this Court on November 2, 1990, allowing the plaintiff 60 days from and after October 18, 1990 in which to file. However, as noted above, this adversary proceeding was not filed until December 20, 1990. Julip filed an Answer on January 16, 1991. Runyon filed a Motion to Dismiss on January 28, 1991, alleging that the 60 day period allowed for filing by the Court's November 2, 1990 Order expired on December 17, 1990. Runyon therefore maintained that insofar as the Complaint objected to the dischargeability of the plaintiff's debt and to his discharge, it was untimely filed pursuant to Bankruptcy Rules 4004(b) and 4007(c). Runyon also maintained that the plaintiff did not have standing to complain of an alleged preferential transfer to Julip, and that, in any event, it occurred more than one year prior to the filing of the bankruptcy.

Julip filed its Motion to Dismiss on January 30, 1991, alleging that the plaintiff did not have standing to bring a fraudulent conveyance or preference action and that the transfer complained of occurred more than one year prior to the filing of the bankruptcy. On March 1, 1991, Julip filed its Motion for Summary Judgment based on the latter argument. Therein Julip asked that the Court authorize the sale of that mining equipment which Julip possesses pursuant to its security agreement, that the security interest be adjudged valid, and that Julip be assigned the status of secured creditor. Runyon filed his Motion for Summary Judgment and Attorney's Fees on March 7, 1991, reiterating the arguments put forth in his Motion to Dismiss and seeking dismissal of the Complaint and attorney's fees in the amount of $850.00.

The plaintiff had filed a Response to Motions to Dismiss on February 14, 1991, wherein she maintained that once an extension has been granted, timeliness requirements are governed by Bankruptcy Rule 9006(f) which adds three days to the period in which filing must be accomplished. She also responded to Runyon's allegation that service had not been effected upon his counsel pursuant to Bankruptcy Rule 7004(b)(9), arguing that his rights had not been prejudiced by this oversight. On March 14, 1991, the plaintiff filed her Response to Motion for Summary Judgment as regards Runyon and on April 5, 1991, her Second Response to Julip Coal's Motion to Dismiss (in effect a response to Julip's Motion for Summary Judgment). By Agreed Order of the parties, the plaintiff had been given until April 3, 1991, to file this response.

The plaintiff's response to Runyon's Motion for Summary Judgment expands the argument she had previously made concerning the application of Bankruptcy Rule 9006. Her response to Julip's Motions to Dismiss and for Summary Judgment deals specifically with the issue of "whether or not Julip as a defunct corporation had the power or ability to pursue its claim against the debtor in this case." This Court will consider the issue of timeliness of filing of the Complaint first.

As Runyon points out, Bankruptcy Rule 4004(a) provides for a 60 day time limit to file a complaint objecting to the discharge of a debtor pursuant to 11 U.S.C. '727. Rule 4004(b) provides for an extension of that time but requires that the motion for extension be made before the expiration of the 60 day period. A similar 60 day time limit is set for the filing of a complaint objecting to the dischargeability of a debt, pursuant to Bankruptcy Rule 4007(c). Rule 4007(d) also provides for the extension of the 60 day time period, but requires that a motion for such extension be made before the time has expired.

The plaintiff's Complaint was filed three days after the 60 period set by this Court in its Order of November 2, 1990. This period was itself an extension granted by this Court after the plaintiff failed to file her Complaint within 60 days of the first meeting of creditors. In any event, the plaintiff did not request another extension of time before December 17, 1990, the deadline for filing her Complaint pursuant to this Court's Order. The plaintiff has responded, however, that her Complaint was timely filed because the Order was served by mail, and pursuant to Bankruptcy Rule 9006(f), she therefore had three additional days in which to file.

Bankruptcy Rule 9006(f) provides that "[w]hen there is a right or requirement to do some act or undertake some proceedings within a prescribed period after service of a notice or other paper and the notice or paper other than process is served by mail, three days shall be added to the prescribed period." The Advisory Committee Note to Rule 9006 states that "[s]ubdivision (f) is new and is the same as Rule 6(e) F.R. Civ. P." In Matter of Robintech, Inc., 863 F.2d 393 (5th Cir. 1989), the court construed Bankruptcy Rule 9006(f) by reference to precedents interpreting FRCP 6(e), wherein the court had held that the "purpose of rule 6(e) is only to guarantee that parties served personally have no advantage over those served by mail. The rule accordingly applies only when the 'prescribed period' is fixed by the date on which notice is served." Citing Carr v. Veterans Admin., 522 F.2d 1355, 1357-58 (5th Cir. 1975).

In the case at bar, the "prescribed period" was fixed by the date set by this Court from which the 60 day period should be calculated, i.e., October 18, 1990. There was no reason to add three days to this period, as the 60 day period was not being calculated from the date of service of the Order. It is therefore the opinion of this Court that Bankruptcy Rule 9006(f) does not apply herein and that the plaintiff's Complaint was untimely filed insofar as the Complaint objects to the discharge of the debtor or the dischargeability of a debt.

As concerns the alleged fraudulent transfer of real estate to Runyon's sister (who is not joined in this action), Kentucky law provides for a five year limitation on the bringing of such an action. See KRS 413.120. The plaintiff, however, has not cited any authority or developed any argument concerning it beyond the initial allegations of her Complaint. If relief is appropriate, it would appear that it should be sought against the sister or subsequent transferees.

Any argument as to whether the plaintiff has standing to complain of the alleged preferential transfer is overshadowed by the fact that it took place more than one year before the filing of Runyon's bankruptcy petition. This is outside the preference period defined by 11 U.S.C. '547, even for a transfer to an insider. It is outside the 180 day period set out by statute in Kentucky as well. See KRS 378.070.

The only issue remaining to be determined, therefore, is whether Julip, as a defunct corporation, had the power and the ability to assert a security interest in property belonging to the debtor. Julip was administratively dissolved on August 1, 1988. Thereafter, it could not "carry on any business" except pursuant to KRS 271B.14-050, which provides in part:

(1) A dissolved corporation shall continue its corporate existence but may not carry on any business except that appropriate to wind up and liquidate its business and affairs, including:

(a) Collecting its assets;

(b) Disposing of its properties that will not be distributed in kind to its shareholders;

(c) Discharging or making provision for discharging its liabilities;

(d) Distributing its remaining property among its shareholders according to their interests; and

(e) Doing every other act necessary to wind up its and liquidate its business and affairs.

The plaintiff maintains that Julip was without the power or ability to file a security agreement on April 5, 1989, because such action does not qualify as an act of winding up or liquidating its business and affairs. The plaintiff has cited no authority in support thereof, and bases her argument on the fact that prior to April 5, 1989, Julip had apparently not made any effort to collect the underlying debt. This Court does not believe that this is sufficient to establish or demonstrate that the filing of a security agreement may not be considered an act of winding up or liquidating a defunct corporation's business and affairs.

As concerns the issue of Runyon's Motion for Attorney's Fees, no briefs have been submitted either in support of or in opposition to an award of attorney's fees, despite the fact that this Court set briefing time on March 14, 1991, the date of the pre-trial conference in this case. Consequently, Runyon has not demonstrated that he is entitled to attorney's fees.

The Sixth Circuit in Street v. Bradford & Co., 886 F.2d 1472 (6th Cir. 1989) has established principles for courts to consider in ruling on motions for summary judgment. The instant case meets the criteria set out in Street. It is therefore the opinion of this Court that defendants Runyon and Julip have carried forward their burdens of establishing that there is no genuine issue as to any material fact; that per his Motion Runyon is entitled to Summary Judgment dismissing the Complaint in its entirety; and that per its Motion Julip is entitled to Summary Judgment that the transfer complained of by the plaintiff occurred outside the preference period.

The request by Julip for a Summary Judgment authorizing the sale of mining equipment in its possession, pursuant to its security agreement, that its security interest therein is valid, and that it has the status of a secured creditor is not necessarily resolved by this Court's finding concerning the alleged preferential transfer. These issues remain to be determined in the context of Runyon's bankruptcy case.



By the Court -






Copies to:

Marcia A. Smith, Esq.

Ben K. Davis, Esq.

Thomas A. Grooms, Esq.

James R. Westenhoefer, Esq. Trustee