In re McGoldrick, Bankruptcy No. LA 84-14463 KL
| Decision Date | 16 April 1990 |
| Docket Number | Adv. No. LA 88-00797 KL.,Bankruptcy No. LA 84-14463 KL |
| Court | United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — Central District of California |
| Parties | In re Brian McGOLDRICK, Debtor. Dona McGOLDRICK, Plaintiff, v. Brian McGOLDRICK, Richard Klingbail, Sandra Klingbail, James Stang, Chapter 7 Trustee, Image Development, and Does 1 through 10, inclusive, Defendants. James STANG, Chapter 7 Trustee, Cross-Complainant, v. Dona McGOLDRICK, Brian McGoldrick, Sandra Klingbail, Richard Klingbail, and Image Development, Cross-Defendants. |
Gilbert Robinson, Thomas E. Kent, Carol F. Anderson, Robinson, Diamant, Brill & Klausner, Los Angeles, Cal., for Dona McGoldrick.
Leonard A. Goldman, Goldman, Gordon & Lipstone, Los Angeles, Cal., Daniel B. Condon, Pasadena, Cal., for Klingbails.
Dona McGoldrick ("Ms. McGoldrick"), plaintiff and cross-defendant in Adversary No. LA 88-00797 arising in the bankruptcy case of Brian McGoldrick ("Debtor"), has brought a motion for summary judgment, or in the alternative, for summary adjudication of issues. This motion is opposed by Richard and Sandra Klingbail (the "Klingbails"), defendants and, by virtue of their status as the assignees of the claims of James Stang, Chapter 7 Trustee, cross-complainants in this action. The Klingbails have responded with a cross-motion for summary judgment. The cross-motion for summary judgment was denied at a prior hearing on this matter on January 12, 1990.
The complaint filed by Ms. McGoldrick seeks a judicial declaration that she is the owner of an undivided 50% interest in a certain partnership known as Image Development and that the bankruptcy estate of Brian McGoldrick, Ms. McGoldrick's former spouse, has no interest therein. The Trustee cross-complained against the Klingbails, who apparently own the other undivided 50% interest in Image Development, Ms. McGoldrick, the Debtor, and Image Development. The Trustee seeks to set aside the transfer to Ms. McGoldrick of the Debtor's interest in Image Development and a declaration that such interest is property of the bankruptcy estate.
Ms. McGoldrick moves for summary judgment on the grounds that the cross-complaint is barred by the statutes of limitations contained in 11 U.S.C. § 546(a) and Cal.Civ.Proc.Code § 338(4), leaving no triable issues of fact in this action.
The court has reviewed the pleadings and evidence presented by each of the parties and taken judicial notice of the records of this action and of the bankruptcy case. Based on this review, the court finds the following facts to be uncontroverted:
1. The Debtor, Brian McGoldrick, commenced this Chapter 7 case on July 12, 1984.
2. The Chapter 7 Trustee, James Stang ("Stang" or "Trustee") was appointed on August 30, 1984.
3. A meeting of creditors pursuant to 11 U.S.C. § 341(a) was conducted by a representative of Stang in Debtor's bankruptcy case on December 14, 1984.
4. Stang filed a "No Asset Report" in the Debtor's bankruptcy case on or about January 3, 1985.
5. The Bankruptcy Court entered an order of the Debtor's discharge on June 13, 1985.
6. The Trustee's No Asset Report was approved by the Court and the Trustee was discharged from Debtor's bankruptcy case on or about July 1, 1985.
7. On May 29, 1987, the Bankruptcy Court entered its order reopening this bankruptcy case.
8. On October 28, 1987, Stang was reappointed as the Chapter 7 trustee in Debtor's reopened case.
9. May 24, 1988, Ms. McGoldrick commenced an adversary proceeding bearing Adv. No. LA 88-00797 KL against the Debtor, the Klingbails, Stang and Image Development, a California partnership (the "McGoldrick Complaint").
10. The McGoldrick Complaint seeks declaratory relief, quiet title and an accounting.
11. On September 16, 1988, Stang, in his capacity as Chapter 7 Trustee, filed a Cross-Complaint against Ms. McGoldrick, the Klingbails, Image Development and the Debtor (the "Trustee's Cross-Complaint").
12. The Trustee's Cross-Complaint seeks declaratory relief and to set aside fraudulent conveyances.
13. The Klingbails filed their Answer to the McGoldrick Complaint on or about June 28, 1988.
14. The Trustee, Stang, filed his Answer to the McGoldrick Complaint on or about September 16, 1988.
15. Ms. McGoldrick filed her Answer to the Trustee's Cross-Complaint on or about October 4, 1988.
16. On August 7, 1989, the Bankruptcy Court entered its order approving the assignment of the Trustee's interest in the adversary proceeding and Image Development to the Klingbails.
17. The Klingbails are currently prosecuting the Trustee's Cross-complaint against Ms. McGoldrick.
18. The Trustee's Cross-Complaint was filed more than four years after Stang's appointment as Trustee on August 30, 1984.
19. On or about May 6, 1983, the Debtor entered into a marital property settlement with Ms. McGoldrick (the "Agreement").
20. The Klingbails were signatories to a document dated May 6, 1983 which purported to transfer Debtor's interest in Image Development to Ms. McGoldrick (the "Partnership Transfer Agreement").
21. On June 7, 1984, the Los Angeles Superior Court entered a Judgment on Reserved Issues in the Dissolution Proceedings between the Debtor and Ms. McGoldrick (the "Judgment") which provided, among other things, that all of the Debtor's interest in Image Development be transferred to Ms. McGoldrick.
22. The Judgment was recorded in the official records of the Recorder's Office for Los Angeles County, California on September 23, 1987.
23. The Klingbails are the owners of an undivided 50% interest in Image Development which is not in dispute in this action.
The court has concluded that Ms. McGoldrick's motion for summary judgment should be granted on the grounds that the Klingbails are not entitled to succeed to the Trustee's eligibility, if any, to plead the federal doctrine of equitable tolling of the statute of limitations.
Ms. McGoldrick claims that she is entitled to judgment as a matter of law because the statute of limitations set forth in 11 U.S.C. § 546(a) bars the action brought by the Klingbails to recover property under 11 U.S.C. §§ 544 and 548 as fraudulent transfers. Section 546(a) states:
An action or proceeding under Section 544, 545, 547, 548, or 553 of this title may not be commenced after the earlier of (1) two years after the appointment of a trustee under Section 702, 1104, 1163, 1302, or 1202 of this title; or (2) the time the case is closed or dismissed.
It is undisputed that the Chapter 7 trustee filed a cross-complaint seeking to set aside a fraudulent conveyance under Sections 544 and 548 on September 16, 1988, more than two years after his appointment as trustee on August 30, 1984. A literal interpretation of the statute would preclude recovery in this case, whether these causes of action are pursued by the Trustee or by the Klingbails.
The Klingbails, as assignees of the Trustee's Cross-complaint, assert that because the fraud perpetrated by the Debtor was concealed from the Trustee, the statute of limitations was tolled until the operative facts became known to the Trustee. They further assert that the Trustee commenced the avoidance action well within two years after the facts became known.
Putting aside for the moment whether the Klingbails may succeed to and assert any equitable defenses available to the Trustee, the court will first address whether equitable tolling could be asserted by the Trustee. If not, summary judgment in favor of Ms. McGoldrick would be appropriate without further analysis.
The doctrine of equitable tolling relied on by the Klingbails was articulated in Bailey v. Glover ("Bailey"), 88 U.S. (21 Wall) 342, 22 L.Ed. 636 (1875). In Bailey, Bailey brought an action against the bankrupt, Glover, and various members of the bankrupt's family, seeking to set aside certain conveyances whereby the bankrupt, for grossly inadequate consideration, placed his assets beyond the reach of his only creditor, Winston & Co. Because the bill was filed over a year after the two-year statute of limitations found in the Bankrupt Act of 1867 had run, a demurrer to the bill was originally sustained. On appeal, the Supreme Court reversed the decision, finding that mitigating factors existed which made literal application of the statute of limitations inequitable. The Supreme Court stated:
To hold that by concealing a fraud, or by committing a fraud in a manner that it concealed itself until such time as the party committing the fraud could plead the Statute of Limitations to protect it, is to make the law which was designed to prevent fraud, the means by which it is made successful and secure.
Therefore, the Supreme Court held:
When there has been no negligence or laches on the part of a 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.
The federal doctrine of equitable tolling has since been applied to statutes of limitation in cases involving preferential and post-petition transfers, as well as fraudulent conveyances. See In re Bookout Holsteins, Inc., 100 B.R. 427 (Bkrtcy.N.D.Ind. 1989) (); In re Butcher, 72 B.R. 247, 250 (Bkrtcy.E.D.Tenn.1987) (...
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