In re Succa

• Decision Date: 08 March 1991
• Docket Number: Adv. No. 90-1305-FM,Bankruptcy No. 1-86-00014-FM.
• Citation: 125 BR 168
• Parties: In re Charles J. SUCCA, Debtor. Harvey D. CAUGHEY, Trustee Plaintiff, v. Charles J. SUCCA, Defendant.
• Court: U.S. Bankruptcy Court — Western District of Texas

125 B.R. 168 (1991)

In re Charles J. SUCCA, Debtor Harvey D. CAUGHEY, Trustee Plaintiff, v. Charles J. SUCCA, Defendant.

Adv. No. 90-1305-FM, Bankruptcy No. 1-86-00014-FM.

United States Bankruptcy Court, W.D. Texas, Austin Division.

March 8, 1991.

Patrick C. Hargadon, Martinec, Hargadon & Wise, P.C., Austin, Tex., for debtor/defendant.

Harvey D. Caughey, Austin, Tex., Chapter 7 Trustee/plaintiff.

MEMORANDUM OPINION ON MOTION OF CHARLES J. SUCCA, DEFENDANT, TO DISMISS COMPLAINT AS NOT TIMELY FILED

FRANK R. MONROE, Bankruptcy Judge.

A hearing was held on December 18, 1990 on the Motion of Charles J. Succa, Defendant to Dismiss the above styled and numbered Complaint filed by Harvey D. Caughey, Plaintiff as Not Timely Filed.

This Court has jurisdiction of this case pursuant to 28 U.S.C. §§ 1334(b) and (d), 28 U.S.C. §§ 157(a) and (b)(1) and the standing Order of Reference existing in this District. This adversary proceeding is a core proceeding under 28 U.S.C. § 157(b)(1)(G). This Memorandum Opinion constitutes the Court's Findings of Fact and Conclusions of Law pursuant to Bankruptcy Rule 7052.

SETTING THE STAGE

On January 6, 1986, Charles J. Succa filed a voluntary petition under Chapter 11 of the Bankruptcy Code. The case was converted to Chapter 7 on October 22, 1987, and Plaintiff was appointed trustee to administer the assets of the estate. Defendant received a discharge on March 28, 1988. The case was closed by order dated June 30, 1988.

The case was reopened by order filed on August 26, 1988 pursuant to the Trustee's request in order to administer assets of the estate previously not scheduled by the Debtor. Plaintiff was reappointed Trustee.

Plaintiff alleges that Defendant failed to schedule, and therefore, concealed his interest in a condemnation proceeding in California styled City of Thousand Oaks v. Charles Succa, Case No. 77192, filed July 1, 1982, a lawsuit the Defendant continues to prosecute and that he has received a partial award of at least $19,900.00 in said condemnation proceeding which he also failed to disclose or turn over to Plaintiff.

Defendant denies these allegations and alleges that the real property that is the subject of the condemnation proceeding was transferred by him prepetition to a third party, that he had no interest in the condemnation action when he filed bankruptcy, and that he has continued to prosecute the lawsuit only because he acquired an interest in the condemnation action by an agreement with the third party subsequent to his bankruptcy filing. Defendant further alleges that Plaintiff's causes of action are barred by the statute of limitations set forth in 11 U.S.C. § 727(e)(2), i.e., the Complaint was filed more than one year after the later of the date the case was closed or the date he received his discharge.

Plaintiff asserts that the Complaint was timely filed in that the case has not been finally closed and the federal limitation period is tolled during the time of concealment of the asset.

ISSUES

1) From what date does the statute of limitations period set forth in 11 U.S.C. § 727(e) run?; and

2) Is the § 727(e) statute of limitations period tolled for the period of time the Defendant fraudulently concealed assets of the estate?

DISCUSSION AND CONCLUSIONS OF LAW

Section 727(e)(2) of the Bankruptcy Code provides:

"The trustee, a creditor, or the United States trustee may request a revocation of discharge —

(2) under subsection (d)(2) or (d)(3) of this section before the later of —

(A) one year after the granting of such discharge; and

(B) the date the case is closed."

11 U.S.C. § 727(e)(2).

Plaintiff's allegation is that, "the debtor acquired property that is property of the estate, or became entitled to acquire property that would be property of the estate, and knowingly and fraudulently failed to report the acquisition of or entitlement to such property, or to deliver or surrender such property to the trustee." 11 U.S.C. § 727(d)(2).

Bankruptcy Rule 7012(b) makes Rule 12(b) of the Federal Rules of Civil Procedure applicable to the Defendant's motion. In re Edmonds, 924 F.2d 176 (10th Cir. 1991); see also 5A C. Wright & A. Miller, Federal Practice and Procedure § 1360 (2d ed. 1990). Further, because Defendant's motion requests dismissal for if limitations apply, Plaintiff has failed to state a claim upon which relief can be granted, the Court must assume all facts alleged in the Complaint to be true. Id.; see also In re Garafano, 99 B.R. 624, 627-28 (Bankr.E.D.Pa.1989). And, in considering a Rule 7012(b) motion, "dismissal is inappropriate unless plaintiff can prove no set of facts which would entitle him to relief." Id. (citing In re Kelpe, 98 B.R. 479, 480 (Bankr.W.D.Mo.1989)).

1) Effect of Reopening. A case is not closed until the estate is fully administered and the trustee has been discharged. 11 U.S.C. § 350(a). Further, a case may be reopened in order "to administer assets, to accord relief to the debtor, or for other cause." 11 U.S.C. § 350(b). The legislative history to this section does not speak directly to the effect of reopening a case on the limitations periods set forth in the Bankruptcy Code; thus, the Court turns to a review of case law researched.

No cases were found specifically dealing with the effect of reopening a case on the limitations period set forth in §§ 727(e)(1) or (2). However, reopening a case "puts the bankruptcy estate back into the process of administration. The original bankruptcy is revived including all the procedural and substantive rights of the debtor." In re Cassell, 41 B.R. 737, 740 (Bankr.E.D.Va. 1984) (citations omitted). If all rights of the debtor are reinstated, is it not only equitable and logical that all rights of creditors and/or the trustee are revived as well?

Further, courts have ruled that other limitations periods in the Bankruptcy Code tied to the closing of the case do not begin to run until the assets have been fully administered. In re White, 104 B.R. 951, 955 (S.D.Ind.1989). In this case, the debtor challenged the trustee's action to void a mortgage on the debtor's home as barred by the limitations period in § 546(a), a section requiring avoidance actions to be brought before the earlier of two years of the appointment of the trustee or the time the case is closed or dismissed. Id. The debtor argued that the bankruptcy court abused its discretion in reopening the case to allow the trustee to bring the avoidance action because the trustee had been appointed almost three years before moving to reopen, and the estate had been closed at that time for three years. Id. The district court denied the debtor's challenge to the trustee's motion to reopen by stating that:

"It is clear that the closing of a case cannot trigger section 546(a)(2) unless the case has been properly closed, i.e., the assets fully administered. In the present case, previously undisclosed assets have been alleged. To permit an erroneous closing to bar reopening would allow the debtors to profit from their own misconduct."

Id. at 955 (emphasis in original).

Another court in a reopened case held that the limitations period set forth in § 546(a) when applied to actions brought under § 547 does not begin to run from the date the case is first closed. In re Petty, 93 B.R. 208 (9th Cir.BAP 1988). The court reasoned that because the debtor's interest in an asset was not disclosed in his petition, the trustee of the case could not have administered the asset. Id. at 212. Thus, "the case was never fully administered within the meaning of § 350(a), and therefore not properly closed under that section." Id. "Accordingly, the word `closed' in § 546(a)(2) must be read to mean properly and finally closed." Id.

Applying the rationale expressed in In re Cassell, In re Petty, and In re White, the Court concludes that this Debtor's case was not properly closed on June 30, 1988, as not all assets, specifically those which are the subject of Plaintiff's Complaint, had been properly administered at that time. Therefore, the limitations period set forth in § 727(e)(2) has not yet begun to run, and the Plaintiff's Complaint is timely.

2) Tolling of Limitations. The Court was unable to find any precedent that has dealt with the tolling of the limitations period in § 727(e)(2) because of a debtor's fraudulent concealment of assets from the estate. However, courts have considered the effect of a debtor's fraudulent concealment of assets when considering actions brought under other sections of the Bankruptcy Code and have applied the doctrine of equitable tolling to federal statutes of limitations when the conduct of the debtor has so warranted.

For example, one court has considered "the limitations period established by Bankruptcy Rule 4004 for discharge complaints . . . to be tolled when a ground for an objection to discharge has been fraudulently concealed." In re Mufti, 61 B.R. 514, 519 (Bankr.C.D.Cal.1986). This court stated that, although appearing not to be allowed when Bankruptcy Rule 4004 and §§ 727(d)(1) and (e) are read together, a trustee could file a discharge complaint in the interim period between the last date to object to discharge but before the discharge was issued due to the debtor's concealment of the fraud. And, after discharge, the discovery of the debtor's fraudulent conduct would be determined by the parameters of § 727. Id. The Mufti court reasoned that "fraudulent concealment of a cause of action results in the equitable tolling of federal statutes of limitation in the absence of contrary congressional intent." Id.

Further, the White court applied the doctrine of equitable tolling to allow the trustee's avoidance action to proceed although filed more than two years after the appointment of the trustee; a result in conflict with the limitations period established by § 546(a)(1) but which was allowed due to the debtors' concealment of an undisclosed mortgage on their home and other personal...