United Ins. Management, Inc., In re

• Decision Date: 20 January 1994
• Docket Number: No. 92-16397,92-16397
• Parties: 30 Collier Bankr.Cas.2d 792 In re UNITED INSURANCE MANAGEMENT, INC., Debtor. ERNST & YOUNG, as successor-in-interest to Arthur Young & Company; Karl A. Haushalter, Jr., Plaintiffs-Appellants, v. Robert K. MATSUMOTO, Trustee for Debtor United Insurance Management, Inc. and Paul I. Brown, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1380

14 F.3d 1380

30 Collier Bankr.Cas.2d 792

In re UNITED INSURANCE MANAGEMENT, INC., Debtor ERNST & YOUNG, as successor-in-interest to Arthur Young &amp Company; Karl A. Haushalter, Jr., Plaintiffs-Appellants, v. Robert K. MATSUMOTO, Trustee for Debtor United Insurance Management, Inc. and Paul I. Brown, Defendants-Appellees.

No. 92-16397.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Dec. 13, 1993.

Decided Jan. 20, 1994.

Steven B. Jacobson, Torkildson, Katz, Jossem, Fonseca, Jaffe, Moore & Hetherington, Honolulu, HI, for plaintiffs-appellants.

Patrick Jaress, Jaress & Raffetto, Honolulu, HI, for defendants-appellees.

Appeal from the United States District Court for the District of Hawaii.

Before LAY, ^* HALL, and THOMPSON, Circuit Judges.

CYNTHIA HOLCOMB HALL, Circuit Judge:

Ernst & Young appeals a district court order remanding the bankruptcy court's summary judgment with instructions to determine whether the doctrine of equitable tolling preserves the claims of chapter 7 debtor United Insurance Management, Inc. despite expiration of the Bankruptcy Code's statute of limitations. Because the doctrine of equitable tolling is inapplicable as a matter of law on undisputed facts in the record, we reverse the district court and reinstate the bankruptcy court's summary judgment.

I.

In 1981, Robert J. Keller purchased United Insurance Management, Inc. ("UIMI") from Paul I. Brown. Arthur Young & Company ("AY"), the predecessor-in-interest to Ernst & Young ("EY"), performed an acquisition review for the sale and provided UIMI with audit services for the next three years. In 1984, UIMI filed a chapter 7 bankruptcy petition and the bankruptcy court appointed Robert K. Matsumoto ("trustee") as UIMI's trustee.

In 1986, Brown filed suit against AY in Hawaii state court for alleged misrepresentations and breaches of professional duty to UIMI. In 1991, the state court granted AY's motion for summary judgment, holding that the state statute of limitations barred Brown's claims for AY's conduct during his ownership of UIMI and that Brown lacked standing to pursue claims against AY for conduct after his sale of the company. Undeterred, Brown subsequently obtained an assignment of UIMI's potential claims against EY (which had, by that time, succeeded AY). After learning of the assignment, EY commenced an adversary proceeding in bankruptcy court seeking a declaratory judgment that federal and state statutes of limitations barred any claims that Brown (as UIMI's assignee) might assert against it. ¹ Brown and the trustee contended that they were unaware of UIMI's causes of action against EY and that, as a result, the doctrine of equitable tolling preserved UIMI's claims.

The bankruptcy court granted partial summary judgment for EY, holding that the two-year statute of limitations in Sec. 546(a)(1) of the Bankruptcy Code "bars any claims UIMI has, had or ever ha[s] had under 11 U.S.C. Secs. 544, 547, 548, and/or 553, if any, against Plaintiff EY [and] its predecessor AY." The court, however, refused to issue declaratory relief on the state law issues, holding that "UIMI's alleged State law claims are best addressed to the State Court(s) in which UIMI or any assignees may attempt to file such claims." The court never addressed the equitable tolling argument raised by Brown and the trustee.

On appeal, the district court remanded, holding that the bankruptcy court erred by not considering the applicability of equitable tolling: "It is not apparent from the bankruptcy court's order whether it addressed the equitable tolling doctrine issue. Moreover, if the bankruptcy court implicitly determined that the doctrine did not apply to this case, it is unclear on what ground such a determination was made. As the issue of whether equitable tolling should apply to this case is clearly a factual determination ... this issue should first be expressly resolved by the bankruptcy court."

EY filed a timely appeal to this court, contending that equitable tolling does not apply to the Bankruptcy Code's statutes of limitation and that, even if it does, the doctrine is inapplicable on the undisputed facts of this case. Brown and the trustee contend that the district court was correct and that, in any event, we lack jurisdiction over the appeal because neither the bankruptcy court nor the district court issued final judgments. We review de novo these questions of jurisdiction and statutory interpretation. E.g., Hillis Motors, Inc. v. Hawaii Automobile Dealers' Ass'n, 997 F.2d 581, 585 (9th Cir.1993).

II.

We may exercise jurisdiction over this appeal only if the judgments of both the bankruptcy and district courts are final. E.g., Bonner Mall Partnership v. U.S. Bancorp Mortgage Co. (In re Bonner Mall Partnership), 2 F.3d 899, 903 (9th Cir.1993); 28 U.S.C. Secs. 158(a), 158(d). Brown and the trustee argue that the bankruptcy court order was not final because it granted only partial summary judgment and that the district court order was not final because it remanded EY's action to the bankruptcy court. Both arguments are incorrect.

A.

A partial summary judgment constitutes a final order in the bankruptcy context when it is "in fact a final disposition of all claims asserted ... in the underlying adversary proceeding." Koehring Co. v. Nolden (In re Pacific Trencher & Equip., Inc.), 718 F.2d 972, 972 (9th Cir.1983). See also Carroll v. Tri-Growth Centre City, Ltd. (In re Carroll), 903 F.2d 1266, 1269 (9th Cir.1990) (exercising jurisdiction where a bankruptcy court order "left no doubt that it was completely resolving the issue").

The bankruptcy court disposed of EY's federal claims and expressly "decline[d] to decide the [state-law] questions presented by [EY]'s complaint." In so doing, the court essentially exercised its ability to abstain from deciding the state-law issues. See Eastport Assocs. v. City of Los Angeles (In re Eastport Assocs.), 935 F.2d 1071, 1075-79 (9th Cir.1991); 28 U.S.C. Sec. 1334(c)(1). The court's decision to abstain is a final order because its impact "[i]s to send [the case] 'effectively out of court.' " Herrington v. County of Sonoma, 706 F.2d 938, 939 (9th Cir.1983) (quoting Idlewild Bon Voyage Liquor Corp. v. Epstein, 370 U.S. 713, 715 n. 2, 82 S.Ct. 1294, 1296 n. 2, 8 L.Ed.2d 794 (1962)). The district court properly exercised jurisdiction. ²

B.

"The unique nature of bankruptcy proceedings dictates that we take a pragmatic approach to [determining the] finality" of district court orders reviewing bankruptcy court decisions. Bonner Mall Partnership, 2 F.3d at 903. "[W]hen the district court remands for further factual findings related to a central issue raised on appeal, its order is ordinarily not final." Id. at 904. We will, however, "assert jurisdiction even though a district court has remanded a matter for factual findings on a central issue if that issue is legal in nature and its resolution either 1) could dispose of the case or proceedings and obviate the need for factfinding; or 2) would materially aid the bankruptcy court in reaching its disposition on remand." Id. (footnote omitted). See Farm Credit Bank v. Fowler (In re Fowler), 903 F.2d 694, 695-96 (9th Cir.1990); King v. Stanton (In re Stanton), 766 F.2d 1283, 1285-88 & n. 8 (9th Cir.1985).

The exception encompasses this appeal. The questions of whether equitable tolling applies to the Bankruptcy Code and, if it does, whether Brown and the trustee can invoke the doctrine on the undisputed facts of the case are both legal in nature. Moreover, we obviate the need for further factfinding by concluding that, as a matter of law, equitable tolling does not preserve UIMI's claims.

C.

The bankruptcy and district court orders were final. We have jurisdiction over the appeal. See Franklin v. Commonwealth Fin. Corp. (In re Franklin), 922 F.2d 536, 538 (9th Cir.1991) (reviewing district court's reversal and remand of bankruptcy court's summary judgment).

III.

Section 546(a)(1) of the Bankruptcy Code provides that "[a]n action or proceeding under section 544, 545, 547, 548, or 553 of this title may not be commenced after ... two years after the appointment of a trustee." 11 U.S.C. Sec. 546(a)(1). Because the bankruptcy court appointed the trustee in 1984, EY argues that neither Brown nor the trustee may now bring claims under those provisions (which delineate bankruptcy avoidance powers). Brown and the trustee contend that they were unaware of UIMI's potential claims against EY until very recently and that, as a result, the bankruptcy court should have equitably tolled Sec. 546(a)(1)'s limitations period.

We hold that equitable tolling may, in proper cases, apply to Sec. 546(a)(1) but conclude that, as a matter of law, the trustee's undisputed lack of diligence in pursuing claims against AY and EY prevents him from invoking the doctrine now.

A.

Under the equitable tolling doctrine, where a party "remains in ignorance of [a wrong] without any fault or want of diligence or care on his part, the bar of the statute does not begin to run until the fraud is discovered, though there be no special circumstances or efforts on the part of the party committing the fraud to conceal it from the knowledge of the other party." Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, --- U.S. ----, 111 S.Ct. 2773, 115 L.Ed.2d 321 (1991) (internal quotation omitted). As a general rule, "[t]his equitable doctrine is read into every federal statute of limitation." Holmberg v. Armbrecht, 327 U.S. 392, 397, 66 S.Ct. 582, 585, 90 L.Ed. 743 (1945).

Every court that has considered the issue has held that equitable tolling applies to Sec. 546(a)(1). See Amazing Enters. v. Jobin (In re M & L Business Machs., Inc.), 153 B.R. 308, 311 (D.Colo.1993); White v. Boston (In re White), 104 B.R. 951, 956-58 (S.D.Ind.1989); Steege v. Lyons (In re Lyons), 130 B.R. 272, 279-81 (Bankr.N.D.Ill.1991); McGoldrick v. McGoldrick (In re McGoldrick), 117 B.R. 554, 557-59...