IN RE:
UNITED STATES BANKRUPTCY COURT
IN RE:
JOHN A. HINKLE and CASE
NO. 04-61841
THERESA KAY HINKLE
DEBTORS CHAPTER
7
MASTERBRAND CABINETS, INC. PLAINTIFF
v. ADV
NO. 05-6013
JOHN A. HINKLE DEFENDANTS
THERESA KAY HINKLE
Defendant John Hinkle is a former employee of plaintiff Masterbrand Cabinets,
Incorporated (Masterbrand).
Defendants John and Theresa Hinkle
filed a voluntary petition under chapter 7 on November 16, 2004. The 11 U.S.C § 341 Meeting of Creditors was
scheduled for and conducted on January 6, 2005. Consequently, the deadline to file a complaint in opposition to
debtors’ discharge or the discharge of a debt was set for 60 days after the
scheduled 341 meeting or on March 7, 2005.[1] Plaintiff’s complaint to determine
dischargeability of a debt under 11 U.S.C. § 523 was filed on March 10,
2005.
In their April 15, 2005 answer,
defendants asserted the complaint was “time barred” and failed to “comply with
applicable bankruptcy rules.” (Document # 11).
On May 9, 2005 defendants filed a motion to dismiss the adversary
proceeding with prejudice citing plaintiff’s failure to timely file the
complaint pursuant to Bankruptcy Rule 4007(c)[2]
and Rule 9006(b)(3)[3]. (Document # 12). In response to the motion to dismiss, plaintiff filed a motion to
extend the time to file a complaint objecting to dischargeability and a
separate objection to the dismissal motion.
(Documents # 17 and # 18).
The court held a preliminary hearing
on the motion to dismiss on May 19, 2005.
The hearing was continued to allow time for defendants to review and respond
to plaintiff’s objection filed on May 17, 2005. Defendants subsequently filed an objection to the motion to
extend. The continued dismissal hearing
along with a hearing on plaintiff’s motion to extend was held on June 23, 2005
at which time the court heard arguments of counsel and having reviewed the
record took the matters under advisement.
The matter now before the court is
whether plaintiff is entitled to the defense of equitable tolling to allow the
late-filed complaint and even later-filed motion for leave to file out of time.
In its reading of the plain language of
Rule 4007(c) this court viewed the time limit in the Rule as creating a
jurisdictional requirement. See this
court’s opinion in In re Gentry, 2003 Bankr. LEXIS 713 (unpublished)
decided July 7, 2003. However, on
August 14, 2003 the Sixth Circuit, relying on its holding in In re Isaacman,
26 F.3d 629 (6th Cir. 1994), reached the legal conclusion that Rule
4007(c)’s time limits are not jurisdictional and are subject to the court’s
equitable authority. In the case of Nardei
v. Maughan (In re Maughan), 340 F.3d 337, 343 (6th Cir. 2003) the Sixth
Circuit held “the rule is a statute of limitation – or simply a deadline – that
is generally subject to the defenses of waiver, estoppel, and equitable
tolling.” Id at 344.
The plaintiff in Maughan, as here,
raised the defense of equitable tolling to defendant’s claim that the complaint
was untimely and subject to dismissal.
Plaintiff Nardei and Defendant Maughan were engaged in an unsuccessful
business relationship. Nardei sued
Maughan and a judgment was entered in Nardei’s favor. The parties then entered into a post-judgment settlement
agreement whereby Maughan was to pay Nardei over a period of years. Maughan, being unable to meet the terms of
the agreement, filed a voluntary petition under chapter 7 of the Bankruptcy
Code. Maughan was ordered by the court
to appear for a rule 2004 examination.
Maughan appeared but failed to bring the documents requested by
Nardei. During the following two months
Maughan repeatedly promised to produce the requested documents and repeatedly
failed to comply. The deadline to file
a complaint objecting to dischargeability passed without Nardei filing a motion
for an extension of time or filing an actual complaint.
Pursuant to the circuit court’s ruling in
Maughan this court must consider the applicability of the doctrine of
equitable tolling to the circumstances in the case at bar and if applicable the
court must allow plaintiff Masterbrand’s untimely filing of the complaint. The Maughan court provides direction
to this court on the application of the court’s equitable powers. Citing Andrews v. Orr, 851 F.2d 146, 151
(6th Cir. 1988), the Sixth Circuit instructs, there are five factors that
should be considered when deciding to apply the doctrine of equitable tolling:
"The factors are: (1) lack of actual notice of filing requirement; (2)
lack of constructive knowledge of filing requirement; (3) diligence in pursuing
one's rights; (4) absence of prejudice to the defendant; and (5) a plaintiff's
reasonableness in remaining ignorant of the notice requirement.”
Plaintiff
does not allege a lack of notice or knowledge nor does plaintiff claim any
ignorance of the notice requirements.
As such, the court will focus on Masterbrand’s diligence in pursuing the
right to file the complaint. In making
its determination of Masterbrand’s diligence or lack thereof, the court looks
to the motion for an extension of time and the objection to the motion to
dismiss. Having reviewed the record,
the court is unable to find in Masterbrand’s actions a similar diligence that
the Maughan court finds in Mr. Nardei’s multiple attempts to acquire the
documents. Instead the court sees many
references to actions taken by counsel on the eve of the filing deadline. In this case, as distinguished from Maughan,
the creditor/plaintiff Masterbrand failed to meet a plainly stated deadline and
has not demonstrated diligence in attempting to comply with that deadline.
The Sixth Circuit limited its
holding in Isaacman to “a situation in which a bankruptcy court
erroneously set a second bar date and a creditor reasonably relied upon that
second date” thereby failing to file a complaint by the bar date. Maughan at 342. The holding in Maughan is similarly
limited to a situation where the creditor was diligent in seeking to enforce
his rights and debtor’s delay contributed to the failure to adhere to the
deadlines. The Maughan court
used its equitable power to “ensure that the debtor was not permitted to
frustrate the ability of a litigant to comply with applicable law by failing or
neglecting to adhere to lawful orders of the Court.”
The Maughan court’s ruling
did not prejudice the defendant/debtor in that it was only due to his lack of
cooperation that the complaint was untimely.
In this instance, the decision to use the court’s equitable powers to
grant the motion to extend and allow this adversary proceeding to continue
would result in prejudice to the defendant given the failure to meet the
deadline is not attributable to either the action or the inaction of the
defendant.
Creditor
has simply failed to meet a plainly stated deadline.
An order
in conformity with this opinion will be entered separately.
[1]
Deadlines set pursuant to Bankruptcy Rule 4004(a) and Rule 4007(c).
[2]
Defendants’ answer incorrectly cites bankruptcy rule 4004(a). Defendants’ counsel corrected the citation
during the June 23, 2005 arguments on the motion to dismiss.
[3]
Defendants’ answer incorrectly cites Bankruptcy Rule 9006(3).