In re Rodriguez, Bankruptcy No. 898-85361-478.

• Decision Date: 15 August 2001
• Docket Number: Bankruptcy No. 898-85361-478.,Adversary No. 800-8372-478.
• Citation: 283 B.R. 112
• Parties: In re Mario C. RODRIGUEZ, Debtor. Robert L. Pryor, as Chapter 7 Trustee of the bankruptcy Estate of Mario C. Rodriguez, Plaintiff, v. Dominic A. Barbara and Mina Rodriguez, Defendants.
• Court: U.S. Bankruptcy Court — Eastern District of New York

283 B.R. 112

In re Mario C. RODRIGUEZ, Debtor Robert L. Pryor, as Chapter 7 Trustee of the bankruptcy Estate of Mario C. Rodriguez, Plaintiff, v. Dominic A. Barbara and Mina Rodriguez, Defendants.

Bankruptcy No. 898-85361-478.

Adversary No. 800-8372-478.

United States Bankruptcy Court, E.D. New York.

August 15, 2001.

COPYRIGHT MATERIAL OMITTED

Pryor & Mandelup, LLP, by Kenneth A. Reynolds, Westbury, New York, for the plaintiff.

David J. Weiss, Mineola, New York, for defendant, Dominic A. Barbara.

Howard J. Wunderlich, Lake Grove, NY, for defendant, Mina Rodriguez.

MEMORANDUM DECISION AND ORDER

DOROTHY EISENBERG, Bankruptcy Judge.

Robert Pryor, the Chapter 7 Trustee (the "Trustee" or "Plaintiff") commenced an adversary proceeding (i) pursuant to 11 U.S.C. § 544 and New York Debtor and Creditor Law ("DCL") §§ 273, 275, 276-a and 278, 11 U.S.C. § 550(a)(1) and (2), 11 U.S.C. § 542(a), and 11 U.S.C. § 105(a) for judgment against Dominic A. Barbara ("Barbara") and Mina Rodriguez ("Mina"), Barbara and Mina sometimes referred to collectively as the "Defendants," avoiding as a fraudulent conveyance the transfer by Mario C. Rodriguez (the "Debtor" or "Rodriguez") to Barbara of funds in the amount of not less than $27,500 for legal services rendered and expenses incurred entirely for the benefit of Mina, and no benefit to the Debtor, together with the Trustee's legal fees and interest in connection with the action.

Before the Court are two separate motions (the "Barbara Motion" and the "Mina Motion") to dismiss the adversary proceeding as time barred by 11 U.S.C. § 546(a), claiming this statute to be a jurisdictional prohibition of Trustee's power to assert any claim after the expiration of the time limits referred to therein. With respect to the Barbara Motion, the Trustee argues that Barbara stipulated to extend the Trustee's time to bring the adversary proceeding and that any assertion of a statute of limitations defense was waived thereby and as a result of failure to affirmatively plead this defense in Barbara's answer. With respect to the Mina Motion, the Trustee argues that Mina has waived a statute of limitations defense by failing to file a timely answer. Based on the relevant case law on this issue, the Court finds in favor of the Trustee, and denies the Defendants' motions to dismiss. This decision contains the Court's findings of fact and conclusions of law pursuant to Fed.R.Civ.P. 52, as made applicable to adversary proceedings by Fed.R.Bankr.P. 7052.

FINDINGS OF FACT

On May 29, 1998 (the "Filing Date"), Rodriguez filed a voluntary petition for relief under Chapter 11 of title 11 of the United States Code (the "Bankruptcy Code"). By Order entered on December 30, 1998, the Debtor's Chapter 11 case was converted to a case under Chapter 7 of the Bankruptcy Code, and Robert L. Pryor was appointed as the interim trustee. On March 1, 1999, the first meeting of creditors was held pursuant to 11 U.S.C. § 341(a), and Pryor was duly qualified as the permanent Trustee.

Defendant Barbara is an attorney duly admitted to practice in the State of New York, specializing, among other things, in matrimonial law. Mina is the sister of the Debtor.

Upon examination of the books and records of the Debtor, the Trustee ascertained that the Debtor made the following payments (the "Transfers") to Barbara prior to filing the Chapter 11 petition:

(a) A Transfer of $10,000 by check number 333, dated May 10, 1996, drawn on Debtor's account number 343-1-128267 at The Chase Manhattan Bank payable to Barbara;

(b) A Transfer of $10,000 by check number 345, dated November 10, 1996, drawn on Debtor's account number 343-1-128267 at The Chase Manhattan Bank payable to Barbara;

(c) A Transfer of $3,750 by check number 539, dated February 15, 1996, drawn on Debtor's account number 025-16291-8 at European American Bank payable to Barbara; and

(d) A Transfer of $3,750 by check number 540, dated March 15, 1996, drawn on Debtor's account number 025-16291-8 at European American Bank payable to Barbara.

To enable the Trustee to investigate the circumstances surrounding these Transfers, the Trustee, by his attorneys, timely entered into two stipulations extending his time to commence an adversary proceeding against Barbara beyond the statute of limitations set forth in 11 U.S.C. § 546(a). Specifically, by Stipulations and Orders dated May 24, 2000 and July 28, 2000, the Trustee and Barbara agreed to extend the Trustee's time to commence the instant adversary proceeding, through and including July 28, 2000 (the "First Extension") and September 30, 2000 (the "Second Extension"), respectively. The first of these Stipulations and Orders was entered within two (2) years from the date of entry of the order for relief in the Chapter 11 case. The second Stipulation and Order was entered before the expiration of the First Extension.

The Trustee did not obtain a similar stipulation from Mina, the person who allegedly received the benefit of the legal services provided by Barbara which was paid by the Transfers from the Debtor to Barbara.

The Trustee commenced the instant adversary proceeding on September 22, 2000, by filing a complaint against Barbara and "Nina" Rodriguez (sic), seeking, among other things, to avoid, pursuant to 11 U.S.C. § 544 and various provisions of New York State Debtor & Creditor Law, the Transfers made by Rodriguez to Barbara in connection with his representation of Mina in her divorce proceeding. The summons, complaint, Notice of Pretrial Conference and Standing Pre-Trial Conference Order were duly served upon the Defendants on September 22, 2000, beyond the time stated in 11 U.S.C. § 546(a).

Barbara filed a timely answer, in which he asserts five affirmative defenses,¹ none of which is a statute of limitations defense. The Barbara Motion was filed on March 20, 2001 without an accompanying memorandum of law. The Trustee filed a written memorandum of law in opposition to the Barbara Motion. The Court heard oral argument on the Barbara Motion on April 26, 2001, directed Barbara's counsel to file a memorandum of law and marked the matter submitted.

Mina failed to timely answer or to file any timely pleading in response to the complaint.. However, Mina did appear pro se at a pretrial conference and does not claim that she had not been duly served with the summons and complaint. Default judgment has not been entered against her. On April 23, 2001, seven (7) months after service of the complaint, this Mina Motion was filed by newly retained counsel without an accompanying memorandum of law, raising the issue of the statute of limitations, but seeking as alternative relief authorization to file an answer that does not raise that issue. The Trustee filed a memorandum of law in opposition to the Mina Motion, to which Mina responded with a memorandum of law in support of the motion. At oral argument held on June 28, 2001, the Court announced that it had determined to deny the Barbara Motion for reasons to be set forth in a written decision, and denied Mina's motion to dismiss, but granted Mina leave to file a late answer, on condition that she did not raise a statute of limitations defense therein as she had agreed to in her application for alternative relief.

ISSUES PRESENTED

The Court must decide (1) whether the time restriction set forth in Section 546(a) of the Bankruptcy Code within which the Trustee is permitted to commence an avoidance action against the Defendants pursuant to Section 544 of the Bankruptcy Code, is in the nature of a statute of limitations and therefore waivable, or, whether 11 U.S.C. § 546(a) is jurisdictional which restricts the Court's subject matter jurisdiction and is not subject to enlargement by Order of this Court for any reason; and (2) if Section 546(a) merely sets forth a statute of limitations, whether a statute of limitations defense is waivable either by stipulation, or by failure to assert it in the answer or by failure to file a timely answer.

DISCUSSION

I. Whether 11 U.S.C. § 546(a) is Jurisdictional or a Statute of Limitations

The central issue for the Court to resolve is one of first impression in this Circuit, and concerns whether section 546(a) of the Bankruptcy Code is a true statute of limitations that can be extended by the parties; waived; or equitably tolled, or whether it confers subject matter jurisdiction on the Court, which requires the Court to adhere to a strict time constraint before it can hear the matter.

Section 546(a) of the Code provides:

(a) An action or proceeding under section 544, 545, 548 or 553 of this title may not be commenced after the earlier of —

(11) the later of —

(A) 2 years after the entry of the order for relief; or

(B) 1 year after the appointment or election of the first trustee under section 702, 1104, 1163, 1210 or 1302 of this title if such appointment or such election occurs before the expiration of the period specified in subparagraph (A)..

11 U.S.C. section 546(a).

The Defendants rely on the decision rendered by the Court of Appeals for the Sixth Circuit in Martin v. First National Bank of Louisville (In re Butcher), 829 F.2d 596, 600 (6th Cir.1987), cert. denied, 484 U.S. 1078, 108 S.Ct. 1058, 98 L.Ed.2d 1020 (1988). In Butcher, the bankruptcy trustee, who was appointed on August 17, 1983, commenced a proceeding on Monday, August 19, 1985, to avoid certain preferential transfers under Section 547(b) of the Bankruptcy Code. The defendant in that proceeding filed a motion to dismiss, claiming that the action was barred by Section 546(a) of the Bankruptcy Code. The trustee argued that the action was timely commenced because Fed.R.Bankr.P. 9006(a)² required the exclusion of August 17 and 18 (Saturday and Sunday) in computing the two year limitations period under section 546(a). The bankruptcy court held that the time limitation contained in section 546(a) was "more in the nature of a procedural bar to the exercise of a remedy...