Bell v. Donnan (In re Donnan)

• Decision Date: 15 February 2012
• Docket Number: No. 11–31083 JPS.,11–31083 JPS.
• Citation: 465 B.R. 340
• Parties: In the Matter of James M. DONNAN, III, Mary W. Donnan, Debtors.Kendrell Bell, Movant v. James M. Donnan, III and Mary W. Donnan, Respondents.
• Court: U.S. Bankruptcy Court — Middle District of Georgia

465 B.R. 340

In the Matter of James M. DONNAN, III, Mary W. Donnan, Debtors.Kendrell Bell, Movant

v.James M. Donnan, III and Mary W. Donnan, Respondents.

No. 11–31083 JPS.

United States Bankruptcy Court, M.D. Georgia, Athens Division.

Feb. 15, 2012.

Michael F. Hanson, The Hanson Firm, LLC, Atlanta, GA, Brian D. Gwitt, Damon Morley LLP, Buffalo, NY, for Movant.

Edward D. Tolley, Cook Noell Tolley & Bates LLP, Ernest V. Harris, Harris & Liken, LLP, Athens, GA, for Debtors.

ORDER

JAMES P. SMITH, Bankruptcy Judge.

This matter presents the question of whether, under the facts of this case, the deadline for filing a complaint objecting to the dischargeability of a debt should be equitably tolled so as to allow a creditor to file his complaint after the deadline has expired.

Kendrell Bell (“Bell”) filed his motion to extend the time to file a complaint objecting to the dischargeability of his claim (Docket No. 181) supported by a declaration pursuant to 28 U.S.C. § 1748 [sic].¹ James M. Donnan, III (“Donnan”) filed his objection to the motion supported by his affidavit. At the hearing on the motion held on January 25, 2012, by agreement of counsel, the declaration and affidavit were accepted into evidence as proffers of direct testimony and thereafter Bell and Donnan both submitted to cross-examination and redirect examination. After considering the evidence, the arguments of counsel and the relevant law, the Court publishes the following decision.

James and Mary W. Donnan (“Debtors”) filed their voluntary Chapter 11 petition on July 1, 2011. In numerous proceedings in this Court,² it has been alleged that Donnan engaged in and profited from a “Ponzi scheme” ³ by which he solicited investments in GLC, Ltd. (“GLC”), a company now in Chapter 11 proceedings in the Southern District of Ohio (Case No. 11–11090). Although Donnan has admitted that he was involved with GLC, he has denied any wrong doing. None of the matters in which these allegations against Donnan have been made have come to trial and thus there has been no decision in this Court as to the nature of his involvement.

Bell contends that, through Donnan's encouragement and solicitation, he invested and lost two million dollars in GLC. Bell contends that he is a victim of the alleged Ponzi scheme perpetrated by Donnan. Bell contends that he has a claim for fraud against Debtors ⁴ that is nondischargeable in bankruptcy.

Bell admits that he received from the Court the bankruptcy notice of Donnan's case filing which contained the September 30, 2011 deadline to file complaints to determine dischargeability of debts. Although, after obtaining counsel, Bell timely filed a proof of claim in the case, Bell did not file, prior to the expiration of the deadline, a complaint objecting to the dischargeability of his claim or a motion to extend the deadline. In his motion before the Court, Bell now asks that the deadline be equitably tolled and that he be allowed to file a late complaint objecting to the dischargeability of his claim.

Donnan is a former head football coach for the University of Georgia. Bell played football for the University during 1999 and 2000 while Donnan was head coach. Bell contends that, due to the special relationship between a coach and a player, Donnan was in a position of great influence over him. Bell contends that he held Donnan in awe and placed great trust in him. He contends that he missed the dischargeability deadline because, in reliance upon his special relationship with Donnan, he allowed Donnan to induce him to take no action in the bankruptcy case.

Bell contends that his claim against Debtors is excepted from discharge pursuant to 11 U.S.C. § 523(a)(2), (4) or (6). Pursuant to 11 U.S.C. § 523(c)(1), a debt specified in section 523(a)(2), (4), or (6) will nevertheless be discharged:

... unless, on request of the creditor to whom such debt is owed, and after notice and a hearing, the court determines such debt to be excepted from discharge ...

Pursuant to Bankruptcy Rule 4007(c), a complaint to determine dischargeability of a debt under section 523(c) must be filed no later than sixty days after the first date set for the meeting of creditors under section 341(a). In this case, the meeting of creditors was scheduled for August 1, 2011 and the deadline to file complaints to determine dischargeability was September 30, 2011.

Although on motion of a party in interest, and after notice and hearing, the court can extend this deadline, the motion must be filed before the deadline expires. Rule 4007(c). Further, under Rule 9006(b)(3), the court may not extend the deadline if the motion is not filed prior to expiration of the deadline.

In considering Rule 4004 ⁵, which prescribes the deadline for filing complaints objecting to discharge under 11 U.S.C. § 727, the Supreme Court has held that the deadline is not jurisdictional in nature and is subject to waiver. Kontrick v. Ryan, 540 U.S. 443, 124 S.Ct. 906, 915–18, 157 L.Ed.2d 867 (2004). In that case, the Supreme Court declined to rule on whether equitable tolling affords relief from the deadline. 540 U.S. at 457, 124 S.Ct. at 916. However, the Supreme Court has stated that “[s]tatutory filing deadlines are generally subject to the defenses of waiver, estoppel, and equitable tolling.” United States v. Locke, 471 U.S. 84, 94 n. 10, 105 S.Ct. 1785, 85 L.Ed.2d 64 (1985).

To date, the Eleventh Circuit has also declined to rule on whether equitable tolling affords relief from the Rule 4007 deadline. Alabama Dept. of Economic and Community Affairs v. Lett, 368 Fed.Appx. 975, 979 n. 3 (11th Cir.2010). However, in the case of Byrd v. Alton (In re Alton), 837 F.2d 457 (11th Cir.1988), the court refused to grant equitable relief under Rule 4007 to a creditor who had actual notice of the bankruptcy filing before the deadline expired but took no steps to inquire into the deadline date even though the creditor was not originally listed as a creditor in the bankruptcy case and thus did not receive from the court the bankruptcy notice which contained the deadline. Further, in the case of Durham Ritz, Inc. v. Williamson (In re Williamson), 15 F.3d 1037 (11th Cir.1994), the court refused to grant equitable relief under Rule 4007 where the creditor had actual notice of the case and failed to inform himself of the deadline even though the bankruptcy notice from the court stated that the deadline was “to be set”. On the other hand, the Eleventh Circuit has recognized equitable tolling in the bankruptcy arena by holding, in connection with the limitations period under 11 U.S.C. § 546(a) ⁶:

Where, despite the exercise of due diligence, a trustee fails to timely bring an avoidance action due to fraud or extraordinary circumstances beyond the trustee's control, equitable tolling prevents the expiration of § 546(a)'s limitations period. In re Levy, 185 B.R. 378 (Bank.S.D.Fla.1995). See Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350, 363, 111 S.Ct. 2773, 2782, 115 L.Ed.2d 321 (1991).IBT Int'l Inc. v. Northern (In re Int'l Admin. Services, Inc.), 408 F.3d 689, 700–01 (11th Cir.2005).

The doctrine of equitable tolling has been recognized by this Court to provide relief from the Rule 4007 deadline. In Penland v. Bryan (In re Bryan), 448 B.R. 866 (Bank.M.D.Ga.2011), this Court stated:

However, in appropriate circumstances, several courts have applied the doctrine of equitable tolling to allow an otherwise untimely motion to extend. See In re Phillips, 288 B.R. 585 (Bankr.M.D.Ga.2002) (Walker, J.) (allowed creditor an opportunity to show why equitable tolling should allow its untimely filed dischargeability objection). See also European American Bank v. Benedict (In re Benedict), 90 F.3d 50, 54–55 (2nd Cir.1996) (Rule 4007(c) time period is subject to equitable tolling); Le Grand v. Harbaugh (In re Harbaugh), 301 B.R. 317, 320 (8th Cir. BAP 2003); Saddle River Valley Bank v. Garsia, 2010 WL 4929268 (D.N.J., Nov. 30, 2010); Wilkerson Fuel Inc. v. Elliott, 415 B.R. 214, 221–22 (BankrD.S.C.2009); Wahrman v. Bajas, (In re Bajas) 443 B.R. 768, 773 (Bankr.E.D.Mich.2011); First Bank System v. Begue (In re Begue), 176 B.R. 801, 804 (Bankr.N.D.Ohio 1995).

In Nardei v. Maughan (In re Maughan), 340 F.3d 337 (6th Cir.2003), the Sixth Circuit held that equitable tolling allowed a creditor's motion to extend the time filed three days after the bar date. The court stated:

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 requirements; (2) lack of constructive knowledge of filing requirements; (3) diligence in pursing one's rights; (4) absence of prejudice to the defendant; and (5) a plaintiff's reasonableness in remaining ignorant of the notice requirements.” Andrews v. Orr, 851 F.2d 146, 151 (6th Cir.1988).

340 F.3d at 344.

Id. at 868–69.

In Bryan, the debtor did not list the creditor in his initial bankruptcy filings and therefor the creditor did not receive notice of the bankruptcy or the deadline. The creditor did not become aware of the bankruptcy until four days before the deadline when she received an amendment by the debtor to his bankruptcy schedules adding her as a creditor. Due to an intervening weekend and the Thanksgiving holidays, the creditor was unable to make contact with the debtor's attorney, even though she tried several times. She filed, pro se, a complaint objecting to dischargeability thirteen days after the deadline. This Court treated the pro se complaint as a motion to allow a late filing and found that, under those circumstances, equitable tolling was warranted.

The present case does not present these types of facts. Bell acknowledges that he received the bankruptcy notice which contained the deadline. He does not contend that he received the notice untimely. Further, although he retained counsel shortly after October 6, 2011 and timely filed a proof of claim,⁷...