In re Magee, 74 B 1819-W-1.

• Decision Date: 12 April 1976
• Docket Number: No. 74 B 1819-W-1.,74 B 1819-W-1.
• Citation: 415 F. Supp. 521
• Parties: In re Martin C. MAGEE, Bankrupt, RENSENHOUSE ELECTRIC SUPPLY COMPANY, INC., Plaintiff, v. Martin C. MAGEE, Defendant.
• Court: U.S. District Court — Western District of Missouri

415 F. Supp. 521

In re Martin C. MAGEE, Bankrupt,

RENSENHOUSE ELECTRIC SUPPLY COMPANY, INC., Plaintiff, v. Martin C. MAGEE, Defendant.

No. 74 B 1819-W-1.

United States District Court, W. D. Missouri, W. D.

April 12, 1976.

William J. Hill, Kansas City, Mo., for plaintiff.

Thomas A. Schwindt, Kansas City, Mo., for bankrupt-defendant.

MEMORANDUM AND ORDER

JOHN W. OLIVER, District Judge.

This bankruptcy appeal presents several questions concerning the propriety of the Bankruptcy Court's order exempting an action on an alleged joint obligation against the bankrupt and his wife from automatic stay and postponing discharge of the bankrupt's debts pending completion of the action in state court. Appellant Martin C. Magee, the bankrupt, noticed an appeal from two orders entered by the Bankruptcy Judge. The first order denied appellant's motion to dismiss appellee Rensenhouse's amended complaint seeking to except the alleged joint obligation suit from the automatic stay of all actions against the bankrupt "founded on an unsecured provable debt other than one not dischargeable under clause (1), (5), (6), or (7) of § 17a of the Act." Bankruptcy Rule 401(a).

The second order, entered after a hearing on appellee's amended complaint, granted the relief requested, and stayed the bankrupt's discharge until the action in state court against the bankrupt and his wife is completed. Since essentially the same issues are presented in both appeals, we will treat them together.

I.

The background of this case can be briefly summarized. The facts are virtually undisputed.

On November 8, 1974, the bankrupt filed his voluntary petition in bankruptcy, together with accompanying schedules. Ten days later the Bankruptcy Judge by written order set the first meeting of creditors for December 16, 1974. The Court fixed January 15, 1975 as the last day for filing objections to discharge of the bankrupt's debts. On December 16, 1974, the bankrupt appeared for examination, but no creditors appearing, the meeting was continued by the Bankruptcy Judge until January 15, 1975. Due to the illness of the Bankruptcy Judge, the first meeting of creditors was not reconvened on January 15, and nothing occurred in the case until February 13, 1975, when, by order of the Bankruptcy Judge, the first meeting of creditors was again continued until March 14, 1975.

Meanwhile, on February 20, 1975, Rensenhouse had commenced an action in state court against bankrupt, his wife and Bomar Electric Company, Inc., alleging that they were jointly and severally liable on a promissory note. On March 14, the appellee Rensenhouse filed its amended complaint in the bankruptcy proceeding seeking an order exempting this suit from the automatic stay provided in Bankruptcy Rule 401. Rensenhouse claimed that its right to seek a joint judgment on a joint obligation and thereafter satisfy the judgment by execution on property held by the joint obligors in an estate by the entirety had been "clouded by the automatic stay order." It sought an order from the Bankruptcy Court "clarifying, preserving and excepting Applicant's right to proceed in said pending state action against Bankrupt only to the extent that any judgment that may be rendered therein against the Bankrupt shall be limited to a joint judgment against the Bankrupt and his wife, Barbara J. Magee, and that any execution of any such joint judgment shall be limited to assets held by the entirety by the Bankrupt and his wife, Barbara J. Magee."

Shortly thereafter the bankrupt filed a motion to dismiss appellee's amended complaint. Appellee also sought an order of discharge. The Bankruptcy Judge overruled this motion, directed the bankrupt to file an answer, declined to enter an order of discharge and set the matter for hearing on June 11, 1975. The hearing was adjourned on that day and reconvened on July 16, 1975. On September 2, the Bankruptcy Court filed its memorandum opinion and an order staying discharge "for such reasonable time as is necessary to permit Rensenhouse to prosecute to final judgment" its claim against bankrupt and his wife, vacating the automatic stay of all actions against the bankrupt to permit prosecution of Rensenhouse's claim to final judgment, and enjoining Rensenhouse from enforcing any judgment it might obtain other than by proof of a claim in bankruptcy and a levy on real estate owned at bankruptcy by the bankrupt and his wife in an estate by the entirety. The bankrupt appeals from both the order denying his motion to dismiss and the order granting relief to Rensenhouse on its amended complaint.

Essentially, two issues are presented here: (1) whether Rensenhouse's amended complaint was timely filed; and (2) whether the Bankruptcy Judge erred in exempting the Rensenhouse claim from automatic stay and delaying discharge pending prosecution of Rensenhouse's claim in Missouri state court. For the reasons which we shall state, we affirm the decision of the Bankruptcy Judge.

II.

The timeliness issue presents a question of interpretation of the new Bankruptcy Rules. Appellant contends that no showing of excusable neglect has been made under Bankruptcy Rule 906(b)(2), which he claims is necessary to permit filing of objections to discharge after the period specified in the original order setting the first meeting of creditors. Furthermore, the appellant argues that he was prejudiced by Rensenhouse's late filing, and that under Section 14 of the Bankruptcy Act, 11 U.S.C. § 32(b), and Rule 404(d), the Bankruptcy Court has no other choice but to discharge the bankrupt if no objections are filed within the time fixed by the Court. Since the time for objections under the Bankruptcy Court's order of November 18, 1974 expired prior to the filing of the amended complaint, appellant claims he is entitled to discharge.

The Bankruptcy Judge found appellant's arguments unpersuasive. He concluded that Section 14 and Rule 404 could not be read so strictly. He could find no prejudice resulting from the filing of the amended complaint after the expiration of the time for filing objections to discharge. Since no order of discharge had ever been entered as of March 14, 1975, the Bankruptcy Judge concluded that Section 14 and the Bankruptcy Rules did not prevent considering Rensenhouse's amended complaint on the merits. We agree.

Section 14(b)(2) provides in relevant part as follows:

(2) Upon the expiration of the time fixed in the order for filing objections or of any extension of such time granted by the court, the court shall discharge the bankrupt if no objection has been filed and if the filing fees required to be paid by this Act have been paid in full; otherwise, the court shall hear such proofs and pleas as may be made in opposition to the discharge, by the trustee, creditors, the United States attorney, or such other attorney as the Attorney General may designate, at such time as will give the bankrupt and the objecting parties a reasonable opportunity to be fully heard. 11 U.S.C. § 32(b)(2) (Supp.1975).

Bankruptcy Rule 404(d) closely parallels the language and import of Section 14(b)(2).

Treating Rensenhouse's amended complaint as one objecting to discharge, Bankruptcy Rule 404(c) clearly gives the Bankruptcy Judge discretion to permit filing after the fixed period:

Extension of Time. The court may for cause, on its own initiative or on application of any party in interest, extend the time for filing a complaint objecting to discharge. Emphasis added

If Rensenhouse's complaint is considered as one contesting the dischargeability of its note, the Bankruptcy Judge is also given discretion to consider untimely complaints under Bankruptcy Rule 409(a)(2):

Time for Filing Complaint Under § 17c(2) of the Act; Notice of Time Fixed. The court shall make an order fixing a time for the filing of a complaint to determine the dischargeability of any debt pursuant to § 17c(2) of the Act. The time shall be not less than 30 days nor more than 90 days after the first date set for the first meeting of creditors, except that if notice of no dividend is given pursuant to Rule 203(b), the court may fix such time as early as the first date set for the first meeting of creditors. The court shall give creditors at least 30 days' notice of the time so fixed except that only 10 days' notice is required if notice of no dividend is given under Rule 203(b). Such notice shall be given to all creditors in the manner provided in Rule 203. The court may for cause, on its own initiative or on application of any party in interest, extend the time fixed under this paragraph Emphasis added

No order of discharge was ever entered in this case. We find no error in the Bankruptcy Judge's decision to consider Rensenhouse's amended complaint on the merits even though it was filed after the expiration of the time for filing objections to discharge. The Bankruptcy Rules clearly permit such action by the Bankruptcy Court on its own initiative.

III.

The second issue presented here concerns the propriety of the Bankruptcy Judge's excepting Rensenhouse's action on the promissory note from the automatic stay order and postponing discharge until Rensenhouse has an opportunity to reduce its claim against bankrupt and his wife to judgment. This question has troubled Bankruptcy Judges and District Courts for some time. The Bankruptcy Judge here reasoned that to permit the bankrupt to discharge his debts would lead to the inequitable result of Rensenhouse never being able to seek enforcement of its claim against property held by bankrupt and his wife in a tenancy by the entirety. This is because, under Missouri state law, such property could not be reached by obtaining a judgment against the bankrupt's wife alone. Only upon entry of a joint judgment against both the bankrupt and his wife could Rensenhouse levy on any estate by entirety held by them. Such a joint judgment would be foreclosed by allowing the bankrupt to discharge his part of...