In re Maughan

• Citation: 340 F.3d 337
• Decision Date: 14 August 2003
• Docket Number: No. 01-4151.,01-4151.
• Parties: In re Edwin M. MAUGHAN, Sr., Debtor. John P. Nardei, Plaintiff-Appellant, v. Edwin M. Maughan, Sr., Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

340 F.3d 337

In re Edwin M. MAUGHAN, Sr., Debtor John P. Nardei, Plaintiff-Appellant, v. Edwin M. Maughan, Sr., Defendant-Appellee.

No. 01-4151.

United States Court of Appeals, Sixth Circuit.

Submitted: March 28, 2003.

Decided and Filed: August 14, 2003.

Petition for Rehearing En Banc Denied: August 9, 2004. Pursuant to Sixth Circuit Rule 206.

ON BRIEF:

Mark D. Shepard, Babst, Calland, Clements & Zomnir, Pittsburgh, PA, for Appellant.

Andrew W. Suhar, Youngstown, Ohio, for Appellee.

Before: MERRITT and BATCHELDER, Circuit Judges; DUPLANTIER, District Judge.^*

OPINION

ALICE M. BATCHELDER, Circuit Judge.

Plaintiff-appellant John Nardei appeals an order from the Bankruptcy Appellate Panel ("BAP") of the Sixth Circuit reversing and remanding a judgment of the United States Bankruptcy Court for the Northern District of Ohio. Nardei, a partially secured creditor of defendant-appellee Edwin Maughan, argues that the BAP erred in reversing the bankruptcy court's order granting Nardei an extension to file a complaint objecting to discharge. Although Nardei acknowledges that he failed to file timely either his complaint or his request for an extension of time for filing that complaint, he argues that the bankruptcy court correctly held that Bankruptcy Rules 4004(a) and 4007(c) — the rules governing the filing of complaints objecting to discharge under 11 U.S.C. §§ 523 and 727 — are not jurisdictional in nature, but instead establish only filing deadlines that are subject to equitable tolling. The BAP's opinion finding that those rules are jurisdictional and reversing the bankruptcy court, Nardei argues, must be reversed. Because we find that the precedent of this circuit compels us to conclude that these rules are not jurisdictional, we will reverse the order of the BAP and affirm the decision of the bankruptcy court.

I. BACKGROUND

The relationship between these parties began when John Nardei, a resident of Youngstown, Ohio, purchased U.S. Gold Eagle coins from Edwin Maughan, who operated a coin and jewelry business in Pittsburgh, Pennsylvania. Over time, Maughan convinced Nardei that he could increase the return on Nardei's investment by trading the coins according to the fluctuations in the price of gold. Based on this advice, Nardei gave his existing investment of gold coins and additional payments for the purchase of more coins to Maughan; in return, Maughan gave Nardei receipts detailing the number of gold coins purchased in each transaction. Maughan asked Nardei to get more individuals involved in the investment plan, which Nardei did. Eventually, Maughan began issuing promissory notes to Nardei and the other investors covering the total amount invested over the years.

After Maughan issued several more notes, it became clear to Nardei that his investment was not being used to purchase gold coins, but was being used to purchase jewelry to be resold in Maughan's retail location. Nardei sued Maughan in the Common Pleas Court of Allegheny County and obtained a judgment on the notes in the amount of $1,051,503.72, plus interest and costs. The parties then entered into a settlement whereby Maughan agreed to pay Nardei $1,200,000.00, without interest, over a specified number of years. Maughan failed to comply with the terms of the agreement and eventually filed a voluntary petition for bankruptcy under Chapter 7.

In the proceedings that followed, the bankruptcy court set October 19, 1998, as the deadline to file a Complaint Objecting to the Discharge of the Debtor or to Determine Dischargeability of Certain Debts, pursuant to Bankruptcy Rules 4004(a)¹ and 4007(c).² In August of 1998, Nardei filed a motion under Bankruptcy Rule 2004³ to examine Maughan under oath and determine the appropriateness of filing objections to the discharge of the settlement debt. The bankruptcy court granted the motion and ordered Maughan to appear for an examination on August 21, 1998, and to provide specific documents sought by Nardei. Although Maughan appeared for the Rule 2004 examination, he failed to comply fully with the order to produce the documents. He did, however, promise to provide the missing documents promptly.

When the October 19, 1998, deadline for filing a complaint arrived, Maughan had still not produced all the documents requested for the Rule 2004 examination. Three days later, on October 22, 1998, citing Maughan's failure to produce the documents and, in the alternative, excusable neglect, Nardei filed a Motion for Extension of Time to Object to Discharge. After initially granting Nardei's motion, the bankruptcy court allowed Maughan to file a Motion in Opposition to Nardei's extension request. The bankruptcy court considered the parties' motions and ordered that the time to file a complaint be extended to a date twenty days following the actual day Maughan complied with the court's prior order directing him to produce specified documents for the Rule 2004 examination. Within the time allowed by the extension, Nardei filed complaint under 11 U.S.C. § 523(c), alleging that Maughan had obtained the money from Nardei by false pretenses or false representations. The bankruptcy court held a hearing in this adversary proceeding on August 22, 2000, and issued an opinion on January 9, 2001, finding that Maughan's debt to Nardei was obtained through false pretenses, a false representation or actual fraud, and was therefore excepted from discharge under 11 U.S.C. § 523(a)(2)(A).

Maughan appealed the bankruptcy court's decision to the Bankruptcy Appellate Panel of the Sixth Circuit, arguing that the bankruptcy court erred by granting Nardei's request for an extension to file his complaint. The BAP agreed, and, holding that the time limits set forth in Bankruptcy Rule 4007(c)⁴ are jurisdictional in nature and not akin to statutes of limitation, reversed the bankruptcy court's decision. Nardei's timely appeal to this court followed.

II. DISCUSSION

We independently review the decision of the bankruptcy court that comes to us by way of appeal from a Bankruptcy Appellate Panel. See In re Isaacman, 26 F.3d 629, 631 (6th Cir.1994); In re Cassell, No. 00-4523, 2001 U.S. LEXIS 13969, **3-4, 13 Fed.Appx. 298, 2001 WL 700801 (6th Cir. June 15, 2001) (unpublished). The first question for this court to decide is whether the deadline provided in Bankruptcy Rule 4007(c) is jurisdictional, such that the bankruptcy court has no authority to alter it, or is more comparable to statutes of limitation and subject to the court's equitable authority. We review de novo this question of law. In re Downs, 103 F.3d 472, 476-77 (6th Cir.1996).

The Federal Rules of Bankruptcy Procedure state that "a complaint to determine the dischargeability of a 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)." FED. R. BANK. P. 4007(c). Additionally, any motion to extend the time for filing such a complaint "shall be made before the time [to file the complaint] has expired." Id. Under Bankruptcy Rule 9006, courts may enlarge the time for taking action under Rule 4007 "only to the extent and under the conditions stated" in Rule 4007. FED. R. BANK. P. 9006(b)(3). These rules, however, must be read together with the general powers given to the courts in bankruptcy under 11 U.S.C. § 105, which provides:

The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. No provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process.

11 U.S.C. § 105(a).

There is no question that Nardei failed to file his motion for an extension prior to the expiration of Rule 4007(c)'s sixty-day deadline. Nardei, however, argues that Maughan's failure to comply with a prior order from the court led to the late filing, and Section 105(a) authorizes the court to use its equitable power to toll the filing deadline and prevent an abuse of process.

The Supreme Court had an opportunity to address a similar rule in Taylor v. Freeland & Kronz, 503 U.S. 638, 112 S.Ct. 1644, 118 L.Ed.2d 280 (1992) (examining Bankruptcy Rule 4003, which governs the debtor's list of property claimed as exempt under 11 U.S.C. § 522 on the schedule of assets required to be filed by Rule 1007). Under the rule at issue in Taylor, a trustee or creditor "may file objections to the list of property claimed as exempt within 30 days after the conclusion of the meeting of creditors held pursuant to Rule 2003(a)... unless, within such period, further time is granted by the court." FED. R. BANKR.P. 4003(b).⁵ The trustee in Taylor neither timely moved for an extension of time to object nor timely objected to the debtor's including on the list of exemptions proceeds from a pending lawsuit, believing that the lawsuit had no value. Taylor, 503 U.S. at 641, 112 S.Ct. 1644. After the debtor received a significant payment in settlement of the lawsuit, the trustee attempted to object to the inclusion of the proceeds on the list of exemptions. Id. The Supreme Court affirmed the appellate court's holding that the trustee had failed to raise a timely objection to the exemption, and that the debtor therefore could not be required to turn over the proceeds. Id. at 642, 112 S.Ct. 1644.

Looking at the specific allowance under Rule 4003(b) for trustees and creditors to file objections within thirty days of the initial creditors' meeting, the Court found by "negative implication" that the rule "indicates that creditors may not object after 30 days `unless, within such period, further time is granted by the court.'" Id. at 643, 112 S.Ct. 1644. The Court held that even if the trustee was correct, and the debtor improperly included...