Meyer, In re
| Decision Date | 17 July 1997 |
| Docket Number | No. 96-2777,96-2777 |
| Citation | 120 F.3d 66 |
| Parties | 38 Collier Bankr.Cas.2d 318, 38 Fed.R.Serv.3d 331, 31 Bankr.Ct.Dec. 144, Bankr. L. Rep. P 77,456 In Re: John Robert MEYER, Debtor, FEDERAL DEPOSIT INSURANCE CORPORATION, as Successor to The Resolution Trust Corporation, as Receiver for Far West Federal Savings Bank, Plaintiff-Appellee, v. John Robert MEYER, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Estelle Linn, Chicago, IL, Jerry Langley, Federal Deposit Insurance Corporation, Office of the Executive Secretary, Roberta H. Clark (argued), Robert D. McGillicuddy, Federal Deposit Insurance Corporation, Appellate Litigation, Washington, DC, for Plaintiff-Appellee.
John R. Meyer (argued), pro se.
Before BAUER, CUDAHY and MANION, Circuit Judges.
This appeal stems from a complaint of non-dischargeability in the personal bankruptcy of the debtor John Robert Meyer. In 1988, Far West Commercial Finance Co. (Commercial Finance) extended a secured loan to Hydro-Dynamics, Inc., and Hydro-Dynamics of Colorado (collectively Hydro-Dynamics). While an officer and director of Hydro-Dynamics, the debtor Meyer personally guaranteed the loan. Hydro-Dynamics defaulted on the loan, and Commercial Finance sued Hydro-Dynamics and Meyer in Arizona state court. The Arizona court entered a default judgment against Meyer on September 23, 1992, amounting to $3,450,236.05, plus accrued interest, costs, attorney's fees and accountant's fees (as of March 6, 1995). Meyer filed for personal bankruptcy.
By the time Meyer filed, the real party-in-interest as creditor on the loan had shifted from Far West Commercial Finance, through two banks, and finally to the Resolution Trust Corporation (RTC) as receiver for the banks. The RTC fingered Meyer for numerous financial shenanigans, claiming that Meyer had fraudulently induced Commercial Finance to extend the loan and then further defrauded Commercial Finance to keep the scheme going. The bankruptcy court declared Meyer's debt nondischargeable. 11 U.S.C. § 523(a). The district court affirmed.
On appeal from the district court, Meyer argues that the wrong entity filed against him in bankruptcy court, and thus a filing flaw forestalls pursuit by the RTC--or actually by the Federal Deposit Insurance Corporation (FDIC), the RTC's successor. He also argues that the FDIC failed to prove non-dischargeability under 11 U.S.C. § 523(a), and that the bankruptcy judge committed an evidentiary error. The district court thus erred in affirming the bankruptcy court, Meyer contends. We find no error.
Although Chapter 7 affords a fresh start to individual debtors after bankruptcy, some debts can survive whole despite a general discharge. 11 U.S.C. § 523. Among them are those that a debtor incurred with the aid of fraud and deceit, as did Meyer, according to the FDIC. 11 U.S.C. § 523(a)(2)(A)-(B), (4), (6). For these deceit-debts, "the creditor to whom such debt is owed" must request a determination of non-dischargeability from the bankruptcy court. 11 U.S.C. § 523(c)(1). Bankruptcy Rule 4007(c) imposes a firm 60-day deadline (after the first creditors' meeting) for creditors to make these requests. The bankruptcy court may grant extensions of time past 60 days, but only if a creditor so moves before the 60 days are up. Tardiness is otherwise fatal. After Meyer filed for bankruptcy in April 1992, Commercial Finance timely sought and received permission to delay submitting its complaint of non-dischargeability. It finally filed on June 29, 1993.
Meyer spies a flaw: the wrong entity filed against him. During discovery, Meyer came across an assignment agreement belonging to Commercial Finance, dating from 1987. Under that agreement, Commercial Finance had assigned all present and future loan receivables to its parent, Far West Federal Bank, S.B. (Federal Bank), although Commercial Finance retained "the right to service and administer [the loans] and [to] be compensated therefor." The parent Federal Bank thus automatically had become the assignee of the Hydro-Dynamics loan payments. Federal Bank later failed, leading the RTC to put Federal Bank into receivership on June 7, 1991. The RTC set up a new Far West Federal Savings Bank (Savings Bank), to which the insolvent Federal Bank assigned all its loans and collateral. When Savings Bank failed, too, in April 1994, the banking regulators gave up on reincarnation. The RTC itself assumed the Hydro-Dynamics loan and became the real creditor party-in-interest in this action. To Meyer, whether the loan was in the hands of Federal Bank, Savings Bank, the RTC or the FDIC does not matter. What matters, Meyer says, is in whose hands the loan was not--namely, Commercial Finance's. During the crucial 60-day window after the first creditors' meeting in 1992, Commercial Finance was no longer "the creditor to whom such debt is owed." 11 U.S.C. § 523(c)(1). Yes, Meyer concedes, Commercial Finance may have asked for and received the requisite extensions from the bankruptcy court; but those extensions are unavailing, because Commercial Finance was never the right party to be pursuing the non-dischargeability complaint. Meyer adds that the real party-in-interest was the "creditor to whom such debt is owed"; and whichever of the successor parents it was, it missed the 60-day window. On this view, the FDIC is out of luck. The claim of non-dischargeability must be dismissed.
When Meyer pointed out the nominal error, the bankruptcy court rejected Meyer's view and permitted the RTC to substitute for Commercial Finance on May 20, 1994. We think the bankruptcy court acted appropriately. Rule 4007(c) guarantees a debtor a real fresh start. It defines a time certain when creditors may no longer come claiming that the debtor defrauded them and that certain debts should be non-dischargeable. After the 60 days are over, all the demands for non-discharge that can be made, have been made. The debtor can relax. The force of Rule 4007(c) therefore should fall first and foremost on whether a complaint was filed against a specific debt, not so much on who makes the complaint. Here, Commercial Finance's timely filing put Meyer on notice. Meyer knew that some creditor in a daisy chain would contest the discharge of the $3 million-plus default judgment. The purpose of Rule 4007(c) had thus been served, and the 60-day rule satisfied. We also note that Meyer has not shown, nor even argued, that he suffered any prejudice from the nominal error. That the subsidiary (Commercial Finance) filed instead of the parent (Federal Bank) was of no consequence to Meyer. The absence of prejudice to Meyer affirms our view that Rule 4007(c) turns on the identification of a contested debt, not of the contesting creditor.
Rules 15 and 17 of the Federal Rules of Civil Procedure () contemplate allowing just this sort of party-substitution. "No action shall be dismissed on the ground that it is not prosecuted in the name of the real party in interest," Rule 17(a) states, "until a reasonable time has been allowed after objection for ... substitution of[ ] the real party in interest." And under Rules 15(c) and 17(a), a court is to treat the substituted party as if it had been the named party all along. In Wadsworth v. United States Postal Serv., 511 F.2d 64 (7th Cir.1975), we confirmed a trial court's ability to correct a nominal error like the one at bar. A postal truck collided with Wadsworth's car, causing $736.50 in damage. The insurance company paid Wadsworth $676.50 for the loss, leaving a deductible of $60. Wadsworth then sued the Postal Service for the full $736.50, but he made a mistake. Following the practice of the Illinois courts, he omitted the insurance company as co-plaintiff. Federal Rule of Civil Procedure 17(a) required that the insurance company be included as the real party-in-interest. By the time this error came to light, the insurance company was time-barred from entering the tort suit against the United States under 28 U.S.C. § 2401(b). The result was that Wadsworth would only be able to sue for $60. Id. at 65-66.
Invoking Rules 15 and 17, the Wadsworth court refused to let a filing error frustrate justice. Rule 17, Wadsworth held, was intended " 'to prevent forfeiture when determination of the proper party to sue is difficult or when an understandable mistake has been made.' " Id. at 66 (). Wadsworth had made an understandable mistake; and the court ordered the insurance company joined as if it had been a party from the beginning. In the instant case, the RTC made an understandable mistake. The loan looked as if Commercial Finance still owned it. Commercial Finance still retained the obligation to service the loan. It created and maintained the pertinent documents. And Commercial Finance was the named creditor in the Arizona default judgment of September 23, 1992. As a practical matter, when the wrong entity files for an extension of time concerning a specific debt, this kind of clerical confusion is most likely afoot. Someone in control of several companies will have mixed up to whom the debt is owed. The companies are likely to be in privity with one another, see, e.g., FDIC v. Alshuler (In re Imperial Corp. of Am.), 92 F.3d 1503 (9th Cir.1996); and as here, receipt of the loan payments and administration of the loan may have been split. Like Wadsworth, the FDIC should not lose its entire claim of non-dischargeability for a clerical lapse without prejudice to Meyer. See In re Stoecker, 5 F.3d 1022, 1028 (7th Cir.1993) ().
Meyer points to a clutch of cases showing rigid observance of the 60-day rule. Ichinose v. Homer Nat'l Bank (In...
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