Isaacman, In re

• Decision Date: 03 June 1994
• Docket Number: No. 93-5716,93-5716
• Parties: Bankr. L. Rep. P 75,948 In re Kenneth L. ISAACMAN, Debtor. J.E. NICHOLSON, Jr., Plaintiff-Appellant, v. Kenneth L. ISAACMAN, Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 629

26 F.3d 629

Bankr. L. Rep. P 75,948

In re Kenneth L. ISAACMAN, Debtor.

J.E. NICHOLSON, Jr., Plaintiff-Appellant, v. Kenneth L. ISAACMAN, Defendant-Appellee.

No. 93-5716.

United States Court of Appeals, Sixth Circuit.

Submitted April 26, 1994.

Decided June 3, 1994.

J. Nevin Smith (briefed), Margaret B. White (briefed), Dana G. Diment, Smith & Diment, Carrollton, GA, for plaintiff-appellant.

Randall J. Fishman (briefed), Memphis, TN, for defendant-appellee.

Before: MERRITT, Chief Judge; and MILBURN and SILER, Circuit Judges.

MILBURN, Circuit Judge.

In this bankruptcy proceeding, plaintiff J.E. Nicholson, Jr. filed a complaint seeking to have a debt owed to him by defendant Kenneth L. Isaacman declared nondischargeable. The bankruptcy court concluded that plaintiff's complaint was untimely, despite the fact that it was filed within the date set by the court clerk following a change of venue, 149 B.R. 502. The district court affirmed. On appeal, the issues are (1) whether a bankruptcy court is empowered to exercise its equitable powers to correct its own mistake where a creditor reasonably relies on that mistake, and (2) whether the bankruptcy court in this case abused its discretion in failing to exercise its equitable powers and accept plaintiff's untimely complaint. For the reasons that follow, we reverse and remand.

I.

A.

Defendant filed a petition under Chapter 7 of the Bankruptcy Code in the United States Bankruptcy Court for the Northern District of Georgia on March 19, 1992. Several days later, the bankruptcy court clerk for that district issued a "Notice of Commencement of Case Under Chapter 7 of the Bankruptcy Code." J.A. 104. Among other things, the notice provided that a meeting of creditors was scheduled on April 28, 1992, and that the deadline to file a complaint to determine the dischargeability of certain types of debts, sometimes referred as the "bar date," was June 29, 1992. A copy of this notice was mailed to plaintiff, and plaintiff appeared at the creditors meeting on April 28, 1992.

The United States Trustee subsequently filed a motion to transfer venue to the Western District of Tennessee, and a hearing was scheduled on June 12, 1992. There is no evidence that the hearing was conducted. However, by order dated June 1, 1992, a Bankruptcy Judge for the Northern District of Georgia entered a consent order transferring the case to the Bankruptcy Court in the Western District of Tennessee.

Upon receiving the entire case file, the clerk's office for the United States Bankruptcy Court for the Western District of Tennessee issued a "Notice of Commencement of Case under Chapter 7 of the Bankruptcy Code." J.A. 119. Among other things, the notice provided that a meeting of creditors was scheduled for July 22, 1992, and that the deadline to file a complaint to determine the dischargeability of certain types of debts was September 21, 1992. A copy of the notice was mailed to plaintiff on June 25, 1992, only four days before the bar date (June 29, 1992) set by the bankruptcy court for the Northern District of Georgia was to expire. When an attorney for plaintiff inquired by telephone whether a new bar date had been set for filing complaints to determine the dischargeability of certain types of debts, the attorney was advised by the clerk's office for the United States Bankruptcy Court for the Western District of Tennessee that a new bar date had been set for September 21, 1992.

B.

Relying on the oral representation of the bankruptcy court clerk's office, plaintiff filed a complaint in the United States Bankruptcy Court for the Western District of Tennessee on September 21, 1992, seeking to have a debt owed to him by defendant declared nondischargeable. Without specifying the applicable provisions of the Bankruptcy Code, plaintiff alleged that the debt was obtained by false pretenses, false representations, and actual fraud. Plaintiff also alleged that the amount due and owing totaled $629,000.

Defendant subsequently filed a motion to dismiss the complaint, contending that the complaint was untimely. According to defendant, the deadline to file a complaint to determine the dischargeability of a debt was June 29, 1992, the date set by the clerk's office for the United States Bankruptcy Court for the Northern District of Georgia, not September 21, 1992, the date set by the clerk's office for the United States Bankruptcy Court for the Western District of Tennessee. Defendant also contended that although the bankruptcy court may for cause extend the time fixed for filing the complaint on a motion to enlarge time, no such motion had been filed in this case.

The bankruptcy court granted defendant's motion to dismiss. It first determined that plaintiff's complaint was filed pursuant to 11 U.S.C. Sec. 523(c)(1), which provides that a debtor receives an automatic discharge from debts obtained by false pretenses, false representations, or actual fraud unless the creditor files a timely complaint to determine dischargeability. The bankruptcy court then deemed plaintiff's complaint untimely because the complaint was filed after the bar date established by the United States Bankruptcy Court for the Northern District of Georgia. Although recognizing that in some instances a bankruptcy court may exercise its equitable power and accept an untimely filed complaint, the bankruptcy court declined to exercise such power in this case because it considered plaintiff's reliance on the September 21, 1992, bar date unreasonable. The district court affirmed, and this timely appeal followed.

II.

In a bankruptcy proceeding, the bankruptcy court is the finder of fact. In re Caldwell, 851 F.2d 852, 857 (6th Cir.1988). On appeal from the judgment of the bankruptcy court, a district court reviews the bankruptcy court's findings of fact under the clearly erroneous standard but reviews de novo the bankruptcy court's conclusions of law. In re Zick, 931 F.2d 1124, 1126 (6th Cir.1991). On appeal to this court, we consider the judgment of the bankruptcy court directly, using the same standards of review as the district court. In re Charfoos, 979 F.2d 390, 392 (6th Cir.1992).

A.

Bankruptcy Rule 4007(c) provides that where, as here, a creditor files a complaint to determine the dischargeability of a debt pursuant to 11 U.S.C. Sec. 523(c), the complaint "shall be filed not later than 60 days following the first date set for the meeting of creditors." Rule 4007(c) further states:

On motion of any party in interest, after hearing on notice, the court may for cause extend the time fixed under this subdivision. The motion shall be made before the time has expired.

Rule 9006(b)(3) limits the ability of a court to enlarge the time for taking action under Rule 4007(c) "only to the extent and under the conditions stated in [that] rule[ ]." Taken together, these bankruptcy rules "prohibit a court from sua sponte extending the time in which to file dischargeability complaints." In re Themy, 6 F.3d 688, 689 (10th Cir.1993). Thus, because there was no motion filed to extend the bar date set by the United States Bankruptcy Court for the Northern District of Georgia, under the bankruptcy rules, the bankruptcy court was not empowered to extend the bar date established by its clerk's office.

The inability of a bankruptcy court to sua sponte extend the time in which to file dischargeability complaints, however, does not prevent a bankruptcy court from exercising its equitable powers under 11 U.S.C. Sec. 105(a) ¹ in accepting an untimely filed complaint. In a substantially similar case, the Ninth Circuit in In re Anwiler, 958 F.2d 925 (9th Cir.), cert. denied, --- U.S. ----, 113 S.Ct. 236, 121 L.Ed.2d 171 (1992), stated as much. In that case, a debtor originally filed a petition under Chapter 7 in the United States Bankruptcy Court for the Central District of California. Shortly thereafter, the clerk's office issued an order over the name of a bankruptcy judge setting May 23 as the deadline for filing complaints to determine the dischargeability of debts. When the case was subsequently transferred to the United States Bankruptcy Court for the Southern District of California, however, the clerk of that court issued an order over the clerk's name setting June 20 as the deadline for filing complaints to determine the dischargeability of debts. On June 19, the creditors filed their complaint, which, among other things, objected to the dischargeability of certain debts. In response, the debtor filed a motion to dismiss the complaint on the ground that the complaint was untimely.

The bankruptcy court agreed with the debtor and dismissed the complaint. On appeal, the Bankruptcy Appellate Panel reversed and the Ninth Circuit affirmed. The Ninth Circuit first determined that under the bankruptcy rules, the creditors' complaint was untimely because it was filed after May 23, the deadline set by the transferor court. However, viewing the issuance of the two deadlines as a mistake of the court, the Ninth Circuit concluded that "[t]he equitable power given to courts by 11 U.S.C. Sec. 105(a) would be meaningless if courts were unable to correct their own mistakes." In re Anwiler, 958 F.2d at 929. Because, among other things, the creditors could have reasonably relied on the second deadline date, June 20, the court held that the bankruptcy court should exercise its equitable powers and permit the complaint to proceed even though it was untimely filed. In In re Themy, 6 F.3d 688, 690 (10th Cir.1993), the Tenth Circuit recently approved of the holding in In re Anwiler.

Under the circumstances of this case, we agree with the Ninth and Tenth Circuits that if the bankruptcy court erroneously sets a second bar date for the filing of complaints to determine the dischargeability of a debt and if a creditor, reasonably relying on that second date, files a complaint before the expiration of the second bar date, the bankruptcy court should exercise its...