In re Johnson
| Decision Date | 05 October 1995 |
| Docket Number | Bankruptcy No. 93-07233-B7. Adv. No. 94-90908-B7. |
| Parties | In re Sandra Fox JOHNSON, Debtor. Gerald H. DAVIS, Chapter 7 Trustee, Plaintiff, v. Sandra Fox JOHNSON, Defendant. |
| Court | United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — Southern District of California |
Brian A. Kretsch, Karp, Richardson & DerOvanesian, San Diego, CA, for plaintiff.
The central issue in this case is whether equitable tolling applies to toll the limitations period for bringing an action under 11 U.S.C. § 727(d)(2) to revoke the debtor's discharge.
This Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1334 and General Order No. 312-D of the United States District Court for the Southern District of California. This is a core proceeding under 28 U.S.C. § 157(b)(2)(J).
Debtor filed her petition in bankruptcy under Chapter 7 on July 2, 1993. On or about November 8, 1993 debtor was granted a discharge. The case was closed by Order entered December 2, 1993. Subsequently, the trustee moved to reopen the case, which motion was granted by Order entered on July 29, 1994. On December 23, 1994, the trustee filed the instant adversary proceeding, seeking to revoke the debtor's discharge.
In his complaint, the trustee alleges that in March, 1994 the debtor collected approximately $5,500 that her ex-husband had owed to her prior to the date the bankruptcy was filed. Debtor had not listed the ex-husband's obligation in her schedules as an asset, whether in the form of an account receivable or otherwise. The trustee alleges that the debtor knowingly and fraudulently failed to report the asset to the trustee, or to turn it over to him after receipt. The trustee alleges he learned of the existence of the asset about one week after debtor received the funds, in March, 1994. As noted, the trustee's complaint was filed on December 23, 1994.
Authority for revocation of a debtor's discharge received in a case under Chapter 7 is contained in 11 U.S.C. § 727(d). That subsection reads:
Subsection (e) of 11 U.S.C. § 727 provides the time limits within which actions under § 727(d) may be brought. It states:
The instant case was brought by the trustee under (d)(2), for debtor's failure to report or turnover property of the estate which she obtained post-petition, but was entitled to pre-petition. Consequently, the action must have been filed before the later of one year after the granting of the discharge or the date the case is closed. The discharge was granted on November 8, 1993 and the case was closed December 2, 1993. The case closing date is the later, so the trustee's action should have been filed within one year of December 2, 1993. However, it was not filed until December 23, 1994, more than one year after the case was closed. Consequently, the trustee's action is time-barred unless there is some exception to the provisions of § 727(e). The trustee argues that equitable tolling applies as such an exception.
The trustee cites In re Succa, 125 B.R. 168 (Bankr.W.D.Tex.1991) in support of his argument. The facts in that case were similar to those of the instant case in that the debtor received a discharge on March 28, 1988, the case was closed June 30, 1988, and was reopened August 26, 1988. The opinion was silent on the date the trustee's complaint to revoke discharge was filed, but the opinion constituted the court's ruling on the debtor's motion to dismiss the complaint on the ground that it was not timely filed.
The court in Succa concluded that the limitations period of § 727(e)(2) never commenced to run because the case was not properly closed, at least in the metaphysical sense, because there was a previously unknown asset to administer. After so concluding, the court stated as an additional ground for denial of the motion to dismiss that equitable tolling should apply because of the debtor's non-disclosure of the asset and failure to turnover the asset. This Court disagrees with both conclusions, for essentially the same reason.
The gravamen of the causes of action for revocation of discharge under § 727(d)(1) and (d)(2) are, respectively, that the debtor committed fraud in obtaining the discharge and the plaintiff did not know of the fraud until after the discharge; and that the debtor acquired property of the estate but "knowingly and fraudulently" failed to report it or surrender it to the trustee. For those specific events of undiscovered fraud and unknown acquisition of property of the estate, Congress wrote the statutes of limitation found in § 727(e)(1) and (e)(2). Agreement with the Succa court's conclusions would wipe those provisions from the books. Under the Succa rationale, if the debtor has acquired or become entitled to acquire an asset which under 11 U.S.C. § 541 would be property of the estate, the case can never be closed properly, such that the limitations period of 727(e)(2) would never commence to run. Yet that is the precise set of circumstances § 727(d)(2) and (e)(2) were written to regulate.
As noted, the Succa court also concluded that equitable tolling would apply to make the trustee's complaint timely. The Succa court found no other court decision so holding, but rather borrowed from cases decided under a trustee's avoiding powers with the general statute of limitations of 11 U.S.C. § 546, and where fraudulent concealment is not an element of any of the avoidance causes of action. This Court recognizes that equitable tolling may apply to a trustee's avoiding cause of action under §§ 544-549. In re Olsen, 36 F.3d 71 (9th Cir.1994); In re United Ins. Management, Inc., 14 F.3d 1380 (9th Cir.1994); In re Candor Diamond Corp., 76 B.R. 342 (Bankr.S.D.N.Y.1987); White v. Boston, 104 B.R. 951 (S.D.Ind.1989). But application of equitable tolling to the general statute of limitations for avoidance actions does not support its application in proceedings to revoke a discharge.
A leading treatise, Collier on Bankruptcy, pp. XXX-XXX-XXX (15th Ed.1991) observes that the limitations periods of § 727(e) have particular import:
This is not a mere statute of limitations, but an essential prerequisite to the proceeding. The year undoubtedly begins to run from the date of entry of the order of discharge, and not from the discovery of the fraud. . . . Bankruptcy Rule 9024, while making Fed.R.Civ.P. 60 applicable to bankruptcy cases, specifically provides that such application of the Civil Rule does not permit extension of the time allowed by section 727 of the Code for the filing of a complaint to revoke a discharge. The 1983 Advisory Committee note to Rule 9024 states that this makes clear that Rule 60(b) affords no basis for circumvention of the time limitations prescribed by section 727 for the commencement of any proceeding to revoke a discharge.
The Succa court correctly recognized the origins of federal equitable tolling in Bailey v. Glover, 88 U.S. (21 Wall.) 342, 22 L.Ed. 636 (1875), and Holmberg v. Armbrecht, 327 U.S. 392, 66 S.Ct. 582, 90 L.Ed. 743 (1946). Holmberg is particularly instructive because it involved a suit in equity to enforce a federal statute which itself provided no period of limitations for bringing actions under it. The Second Circuit Court of Appeals held that an analogous state statute of limitations should be applied, and found the action barred. The Supreme Court reversed.
The Supreme Court prefaced its discussion by stating:
If Congress expressly puts a limit upon the time for enforcing a right which it created, there is an end of the matter. The Congressional statute of limitation is definitive. (Citation omitted.) The rub comes when Congress is silent.
327 U.S. at 395, 66 S.Ct. at 584. The Court then defined the issue before it.
The critical language of the decision followed:
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