In re Hosseinpour-Esfahani, BAP No. NC-95-2118-RDMe
| Decision Date | 03 July 1996 |
| Docket Number | BAP No. NC-95-2118-RDMe,NC-95-2119-RDMe. Bankruptcy No. 93-21401-C-7. Adversary No. 95-2303-C. |
| Citation | 198 BR 574 |
| Parties | In re Akbar HOSSEINPOUR-ESFAHANI and Mehangiz Hosseinpour, Debtors. Larry J. TAYLOR, Chapter 7 Trustee, Appellant, v. Akbar HOSSEINPOUR-ESFAHANI and Mehangiz Hosseinpour, Appellees. |
| Court | U.S. Bankruptcy Appellate Panel, Ninth Circuit |
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Adam S. Gruen, San Francisco, CA, for Appellant.
Donald W. Fitzgerald, Sacramento, CA, for Appellees.
Before: RUSSELL, DONOVAN1, and MEYERS, Bankruptcy Judges.
The debtors filed a motion to dismiss the chapter 72 trustee's complaint to set aside fraudulent transfers and to avoid certain liens as time barred by § 546(a)(1). The bankruptcy court rejected the trustee's contention that the statute was equitably tolled and dismissed the complaint. The trustee filed a motion for reconsideration, which the bankruptcy court denied. The trustee appeals both orders. We AFFIRM.
The debtors, Akbar Hosseinpour-Esfahani and Mehangiz Hosseinpour, filed a joint petition for chapter 7 relief on February 17, 1993. Larry J. Taylor was appointed as the interim chapter 7 trustee ("trustee").
The § 341 meeting of creditors was held on March 25, 1993. The trustee requested that the meeting be continued to April 8, 1993 to allow the debtors time to produce certain documents. Prior to the continued meeting, the debtors filed the additional documents with the trustee and, therefore, did not attend the April 8th meeting. On April 9, 1993, the trustee filed his "Report of the § 341 Meeting" in which he stated that the meeting of creditors was held and concluded on March 25, 1993.
On June 15, 1993, the debtors obtained an order granting their discharge. Shortly thereafter, Meritplan Insurance Company filed a complaint to revoke the debtors' discharge. After a trial, the bankruptcy court concluded that the debtors knowingly and fraudulently made false oaths sufficient to warrant a denial of discharge under § 727(a)(4) and entered judgment in favor of Meritplan. The order revoking the debtors' discharge was entered on May 9, 1994.
On January 6, 1995, the trustee filed an application to employ the law firm of Kenney, Burd & Markowitz ("KB & M") as special counsel to represent the trustee in a subsequent fraudulent conveyance action. KB & M was familiar with the facts of the case and the allegedly fraudulent transfers because it had represented Meritplan in its objection to the debtors' discharge. The bankruptcy court's order authorizing the trustee's retention of KB & M was entered on January 12, 1995.
On May 1, 1995, the trustee filed a complaint to set aside fraudulent transfers and obligations and to extinguish liens pursuant to §§ 544 and 548. In the complaint, the trustee acknowledged that it was filed beyond § 546(a)(1)'s two year statute of limitations, but asserted that the complaint was timely filed under the doctrine of equitable tolling.
The debtors moved to dismiss the complaint as time barred pursuant to § 546(a)(1). Alternatively, the debtors contended that the complaint failed to state a claim upon which relief could be granted because it failed to name the transferees of the allegedly fraudulent transfers as defendants in the action.
At the hearing on the motion to dismiss, the bankruptcy court issued an oral ruling dismissing the complaint as untimely. A civil minute order was entered on July 28, 1995.
On July 31, 1995, the trustee filed a Fed. R.Civ.P. 60(b) motion for reconsideration or, in the alternative, for relief from the order due to mistake, surprise or excusable neglect. The bankruptcy court denied this motion. The trustee appeals.
A. Whether the bankruptcy court abused its discretion in refusing to apply the equitable tolling doctrine when the trustee failed to timely file a complaint after discovering the existence of the cause of action within the two year statute of limitations period of § 546(a)(1).
B. Whether the bankruptcy court abused its discretion in denying the trustee's motion for reconsideration.
A court has latitude in granting relief from a strict construction of a statute of limitations and reaches this determination on a case-by-case analysis. Scholar v. Pacific Bell, 963 F.2d 264, 267-68 (9th Cir.), cert. denied, 506 U.S. 868, 113 S.Ct. 196, 121 L.Ed.2d 139 (1992). Thus, we review the bankruptcy court's decision that the trustee could not invoke the doctrine of equitable tolling for an abuse of discretion. Baldwin County Welcome Ctr. v. Brown, 466 U.S. 147, 151, 104 S.Ct. 1723, 1725, 80 L.Ed.2d 196 (1984) (per curiam), reh'g denied, 467 U.S. 1231, 104 S.Ct. 2691, 81 L.Ed.2d 885 (1984); see also Scholar, 963 F.2d at 267.
Similarly, the denial of a motion for reconsideration is reviewed for an abuse of discretion. Northern Alaska Envtl. Ctr. v. Lujan, 961 F.2d 886, 889 (9th Cir.1992). Under an abuse of discretion standard, a reviewing court cannot reverse unless it has "a definite and firm conviction that the court below committed a clear error of judgment" in the conclusion it reached upon a weighing of the relevant factors. Marchand v. Mercy Medical Ctr., 22 F.3d 933, 936 (9th Cir.1994).
Section 546(a)(1) sets forth the applicable statute of limitations period for avoidance actions. In relevant part, the statute provides:
11 U.S.C. § 546(a)(1).3
In cases commenced under chapter 7, the two year statute of limitations is calculated from the date a permanent trustee is elected at the § 341 meeting of creditors. If no election is held, however, the interim trustee automatically serves as permanent trustee in the case. § 702(d)4.
As a general rule, statutes of limitations are strictly construed. Scholar, 963 F.2d at 267. In extreme circumstances, however, under the doctrine of equitable tolling, a court may extend equitable relief to a claimant by suspending the applicable statute of limitations.
The equitable tolling doctrine is a creation of common law that has been read into every statute of limitations. Holmberg v. Armbrecht, 327 U.S. 392, 397, 66 S.Ct. 582, 585, 90 L.Ed. 743 (1945). The Ninth Circuit has held that in certain cases, the doctrine of equitable tolling may be applied to toll the two year statute of limitations contained in § 546(a)(1). In re United Ins. Management, Inc., 14 F.3d 1380, 1384 (9th Cir.1994).
Under the doctrine of equitable tolling, "where the party injured by the fraud remains in ignorance of it 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." Id. (citing Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350, 363, 111 S.Ct. 2773, 2782, 115 L.Ed.2d 321 (1991)).
In the instant case, the trustee filed his complaint on May 1, 1995, more than two years after he became the permanent trustee at the conclusion of the § 341 meeting of creditors held on March 25, 1993.5 The trustee argues, however, that as a matter of law, the two year time period was equitably tolled because he was diligent in discovering the debtors' alleged fraud and because he filed the complaint within two years after the discovery.6 In support of his argument, the trustee relies on the seminal case of Bailey v. Glover, 88 U.S. (21 Wall.) 342, 22 L.Ed. 636 (1875).
In Bailey, an assignee of the debtor brought a bill in chancery to set aside as fraudulent and void the conveyance of real estate by the bankrupt to the defendant. The defendants filed a demurrer requesting dismissal on the grounds that the suit was not brought within two years from the appointment of the assignee. The Supreme Court reversed the Circuit Court's order sustaining the demurrer and dismissing the complaint. The Court held, "when there has been no negligence or laches on the part of the plaintiff in coming to the knowledge of the fraud which is the foundation of the suit, and when the fraud has been concealed, or is of such character as to conceal itself, the statute does not begin to run until the fraud is discovered by, or becomes known to the party suing, or those in privity with him." Id. 88 U.S. at 350.
The holding of Bailey, and the numerous cases decided in its wake, focused on the diligence of the plaintiff in attempting to learn of the fraud. Courts, including the Ninth Circuit, have subsequently held that when the application of the equitable tolling doctrine turns on the plaintiff's lack of diligence in discovering a cause of action, a court may hold as a matter of law that the doctrine does not apply. United, 14 F.3d at 1385.
While we do not dispute this rule of law, the case before us does not concern whether or not the trustee was diligent in uncovering the alleged fraud. The issue before the Panel is whether the bankruptcy court abused its discretion in refusing to apply the doctrine of equitable tolling when the trustee was dilatory after discovering the existence of a claim.7
In this case, the latest possible date the trustee could rely on as the date he discovered the existence of a cause of action is January 12, 1995, the date the bankruptcy court entered its order on the trustee's motion to employ KB & M. Even relying on this date, approximately three months remained on the statute of limitations....
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