Benedict, In re

Decision Date22 July 1996
Docket NumberNo. 1094,D,1094
Citation90 F.3d 50
Parties36 Collier Bankr.Cas.2d 550 In re Dolores BENEDICT, a/k/a Dolores Cogliano, Debtor. EUROPEAN AMERICAN BANK, Petitioner-Appellant, v. Dolores BENEDICT, a/k/a Dolores Cogliano, Respondent-Appellee. ocket 95-5064.
CourtU.S. Court of Appeals — Second Circuit

Bruce H. Babitt, Wolman, Carponter & King, L.L.P., New York City, for Petitioner-Appellant.

Neal M. Rosenbloom, New York City (Gary I. Selinger, Finkel Goldstein Berzow & Rosenbloom, New York City, of counsel), for Respondent-Appellee.

Before: MINER, JACOBS and CABRANES, Circuit Judges.

MINER, Circuit Judge:

Petitioner-appellant European American Bank ("EAB") appeals from a judgment of the United States District Court for the Southern District of New York (Sotomayor, J.) affirming an order of the United States Bankruptcy Court that: (1) rescinded its prior order extending the time for EAB to file a complaint to determine the dischargeability of a debt pursuant to 11 U.S.C. § 523(c); (2) precluded EAB from filing a future complaint to determine the dischargeability of the debt; and (3) discharged the debt owed to EAB. The district court found that Bankruptcy Rule 4007(c), which governs the time period for filing complaints to determine the dischargeability of a debt pursuant to § 523(c), was a "strict statute of limitations" that could not be extended by the bankruptcy court once it had expired. Based on this interpretation, the district court held that, because the original order of the bankruptcy court that extended EAB's time to file the complaint was entered after the Rule 4007(c) time period had expired, the bankruptcy court's rescission of the order was proper.

For the reasons that follow, we vacate the judgment of the district court and remand for further proceedings consistent herewith.

BACKGROUND

On January 30, 1991, EAB entered into a credit agreement with Cogliano Benedict Photographics, Inc. ("CBP"), a company owned and operated by respondent-appellee Dolores Benedict. The agreement permitted CBP to borrow up to $75,000 on a line of credit provided by EAB. Prior to entering into the credit agreement, Benedict had agreed to guarantee any advances, loans, or extensions of credit made to CBP by EAB. On April 13, 1993, Benedict filed a Chapter 11 bankruptcy petition. At that time, Benedict was liable to EAB for $75,000 plus interest on the line of credit by reason of the guarantee.

After Benedict filed for bankruptcy, notice was sent to Benedict's creditors, including EAB, notifying them that August 23, 1993 was the last day to file complaints to determine the dischargeability of debts. 1 This date was extended to January 10, 1994, when the bankruptcy court, on September 1, 1993, converted Benedict's Chapter 11 case to a case under Chapter 7.

Meanwhile, EAB, believing that Benedict may have fraudulently induced it to provide the line of credit to CBP, requested that Benedict provide it with documents, such as Benedict's personal tax returns and the financial records of CBP. EAB also sought Benedict's appearance at a Bankruptcy Rule 2004 examination. EAB maintains that its discovery efforts were hindered by Benedict's continuing recalcitrant behavior. EAB asserts that, on various occasions during the fall of 1993, it was led to believe that it would receive the documents it requested from Benedict and that Benedict would appear at a Rule 2004 examination. However, EAB On November 18, 1993, EAB moved in bankruptcy court to compel discovery and to require Benedict's attendance at a Rule 2004 examination or, alternatively, to dismiss the bankruptcy proceeding entirely. The motion had a return date of December 20, 1993, which was three weeks before the January 10, 1994 deadline for filing complaints to determine dischargeability. However, at Benedict's request, and with EAB's consent, the hearing on the motion was adjourned until February 7, 1994.

maintains that Benedict never complied with EAB's discovery demands.

On January 11, 1994, an 11 U.S.C. § 341(a) creditors' meeting was held. Immediately following the creditors' meeting, Benedict agreed to reaffirm the debt that she owed to EAB. On January 31, 1994, a reaffirmation agreement signed by Benedict, Benedict's attorney, Joel Bohmart, and Bruce Babitt, attorney for EAB, was executed. The reaffirmation agreement provided, in part, as follows:

2. That [Benedict] agrees to reaffirm the $87,319.22 plus interest from January 31, 1994 due and owing to EAB.

....

4. This agreement may be rescinded by [Benedict] at any time prior to discharge or within sixty days after it is filed with this Court, which ever [sic] occurs later, by giving notice of rescission to the other party to the agreement by certified mail.

5. This agreement is the entire agreement between the parties and oral agreements or representations made by or between the parties are hereby declared void and unenforceable.

In tandem with the reaffirmation agreement, the parties also executed a "Stipulation Extending the Time to File Complaint to Determine the Dischargeability of Debt" (the "stipulation"). The stipulation was signed by both Benedict and her attorney, Bohmart, and by Fred Ferrara, an EAB representative. The stipulation provides as follows:

On January 31, 1994, Dolores Benedict aka/dba Dolores Cogliano, Debtor herein, entered into a Reaffirmation Agreement with [EAB]. The parties have agreed that should Debtor rescind the Reaffirmation Agreement at any time prior to discharge, or within sixty (60) days after it is filed with the Court, or April 18, 1994, whichever occurs later, then EAB will still have available against Debtor all remedies provided by the Bankruptcy Code, including the opportunity to file a Complaint under 11 U.S.C. § 523 to determine the dischargeability of its debt.

The bankruptcy court was advised of the reaffirmation agreement and the stipulation, and a hearing was scheduled for March 3, 1994. On the morning of March 3rd, the bankruptcy judge met in chambers with Benedict without the presence of counsel for Benedict or counsel for EAB. After the meeting, the bankruptcy judge extended the date to approve or disapprove the reaffirmation agreement, stating that the agreement was not in Benedict's best interest. At the hearing held after the meeting in chambers, the bankruptcy judge asked EAB's counsel whether the deadline to object to discharge had expired. EAB's counsel mistakenly replied, "It will expire, I believe, next week sometime." The bankruptcy judge then agreed to sign an order extending EAB's time to file a complaint to determine the dischargeability of its debt and directing Benedict to appear for a Rule 2004 examination. The order was signed on March 11, 1994 (the "March Order"). The March Order stated:

The motion of [EAB was made] to compel discovery and require debtor's attendance at an examination and/or, in the alternative, to dismiss the bankruptcy case, which was to be settled pursuant to a reaffirmation agreement to be approved before the undersigned on March 3, 1994. After hearing the debtor, the debtor's attorney and EAB's counsel, the reaffirmation agreement was rejected, and it is

ORDERED, that the debtor appear at a 2004 examination on or before April 15, 1994, and it is further

ORDERED that the time for EAB to file a complaint objecting to debtor's discharge pursuant to § 523, is hereby extended to June 20, 1994 effective upon entry of this order.

Subsequently, Benedict obtained new counsel, who informed EAB that Benedict now objected to the March Order on the ground that it permitted EAB to file an untimely complaint to determine the dischargeability of its debt. According to Benedict's new counsel, once the January 10, 1994 deadline for filing complaints to determine dischargeability of debts had passed, neither the bankruptcy court nor the parties could extend the time for filing. Benedict's new counsel also sent a notice to EAB advising that Benedict was rescinding the reaffirmation agreement.

On June 13, 1994, Benedict moved to vacate the March Order to the extent that it extended EAB's time to file a complaint to determine dischargeability. The bankruptcy court held a hearing regarding the matter on June 28, 1994. At the hearing, the bankruptcy court concluded that the time period for filing complaints to determine dischargeability of debts "cannot be extended and it's not something that can be resucitated [sic] either." Thus, because the time period had expired by the time the parties executed the stipulation and the March Order was filed, the bankruptcy court ordered that the March Order be vacated. The bankruptcy court also ruled "that EAB cannot file and prosecute a complaint objecting to [Benedict's] discharge, or to the dischargeability of the obligation owed by [Benedict] to EAB." Finally, the bankruptcy court discharged the debt that Benedict owed to EAB.

On September 30, 1994, EAB appealed the bankruptcy court's order to the district court. Like the bankruptcy court, the district court found that the time period for filing complaints to determine dischargeability must be strictly complied with, and that once expired it can be revived only in rare circumstances. The district court concluded that such circumstances were not present in this case and affirmed the order of the bankruptcy court. This appeal followed.

DISCUSSION

The time period for filing complaints to determine dischargeability is governed by Rule 4007(c) of the Federal Bankruptcy Rules, which provides:

A complaint to determine the dischargeability of any debt pursuant to § 523(c) of the Code shall be filed not 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 not less than 30 days notice of the time so fixed in the manner provided in Rule 2002. On motion of any party in interest, after hearing on notice, the court may...

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