Santorini Capital, LLC v. Guadie (In re Guadie)

• Decision Date: 06 June 2018
• Docket Number: Case No. 17-00054,Adversary Proceeding No. 17-10022
• Parties: In re LULSEGED GUADIE, Debtor. SANTORINI CAPITAL, LLC, Plaintiff, v. LULSEGED GUADIE, et al., Defendants.
• Court: United States Bankruptcy Courts – District of Columbia Circuit

In re LULSEGED GUADIE, Debtor.SANTORINI CAPITAL, LLC, Plaintiff, v. LULSEGED GUADIE, et al., Defendants.

Case No. 17-00054

Adversary Proceeding No. 17-10022

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF COLUMBIA

Filed: June 7, 2018

June 6, 2018

(Chapter 7)

Not for publication in West's Bankruptcy Reporter.

MEMORANDUM DECISION AND ORDER RE DEBTOR'S MOTION TO DISMISS COUNTS I, IV, V AND VI AND TO STRIKE JURY DEMAND

The amended complaint (Dkt. No. 7) filed by Santorini Capital, LLC ("Santorini") seeks in Count I to declare claims against the debtor based on the debtor's prepetition conduct nondischargeable under 11 U.S.C. § 523(a)(2); in the alternative, seeks in Counts II and III to deny the debtor a discharge pursuant to 11 U.S.C. § 727(a); in Counts IV, V, and VI asserts claims for damages based on various defendants' alleged prepetition conduct and postpetition conduct; and seeks to avoid certain transfers of property. The plaintiff also includes in its amended complaint a request for a jury trial.

The debtor, Lulseged Guadie, ("Guadie") has filed a motion to dismiss, requesting the court to dismiss Counts I, IV, V, and VI, and to strike the plaintiff's jury demand. See Dkt. No. 31. Pursuant to this Memorandum Decision and Order, I will dismiss the § 523(a)(2) claim contained in Count I as untimely. I will also dismiss the damage claims against the debtor contained in Counts IV, V, and VI. First, once the § 523(a)(2) claim is dismissed, pursuit of the damage claims that are based on prepetition conduct is barred by the automatic stay of 11 U.S.C. § 362(a). Second, to the extent that the damage claims are based not on the debtor's prepetition conduct but on the debtor's postpetition conduct, they must be dismissed for lack of subject matter jurisdiction. Finally, Santorini's claims in Counts V and VI seeking avoidance of alleged fraudulent conveyances made by the debtor will be dismissed due to the plaintiff's lack of standing to exercise avoidance powers.¹ Only Counts II and III, seeking to deny the debtor a discharge, will remain as claims against the debtor, and I will strike the jury demand as to those two counts.

I

DISMISSAL OF COUNT I OF THE AMENDED COMPLAINT

Count I must be dismissed for the following reasons.

A.

Rule 4007(c) of the Federal Rules of Bankruptcy Procedure sets the deadline for filing a complaint under 11 U.S.C. § 523(a)(2) as 60 days after the first date set for the meeting of creditors. In the debtor's chapter 7 bankruptcy case, the first and only date set for the meeting of creditors was March 9, 2017. The deadline set by Rule 4007(c) for filing a complaint under 11 U.S.C. § 523(a)(2) was therefore May 8, 2017. Accordingly, the notice of the commencement of the bankruptcy case (Case No. 17-00054, Dkt. No. 8), sent to, inter alia, all creditors, contained a section entitled "Deadlines" in which the court listed the deadline of May 8, 2017, and indicated:

File by the deadline to object to discharge or to challenge whether certain debts are dischargeable:

You must file a complaint:

• if you assert that the debtor is not entitled to receive a discharge of any debts under any of the subdivisions of 11 U.S.C. § 727(a)(2) through (7), or

• if you want to have a debt excepted from discharge under 11 U.S.C § 523(a)(2), (4), or (6).

Santorini's initial complaint commencing this adversary proceeding was filed on June 19, 2017, more than a month after the bar date for filing a complaint under § 523(a)(2). Rule 4007(c) requires that any motion to extend the time to file such a complaint must be filed prior to the expiration of the applicable deadline. Santorini never filed a motion in the bankruptcy case to extend the deadline for filing a complaint to have the debts owed it excepted from discharge. Prior to the expiration of the deadline for filing such a complaint, Santorini only sought and obtained from the court an extension of the deadlines for objecting to discharge under 11 U.S.C. § 727(a) and for filing a motion to dismiss under 11 U.S.C. § 707(b).

Santorini points to an agreement to extend all key dates in the bankruptcy case as evidence that it sought to extend the deadline to file a complaint to have the debts owed it excepted from discharge. On April 3, 2017, Santorini's counsel made the following request via e-mail to the debtor's counsel: "On another note, would you be agreeable to a 60 or 90 day extension on all of the key dates in Mr. Guadie's bankruptcy deposition [sic] in order to give us some breathing space to get the needed discovery completed?" See Dkt. No. 37, at 6, Ex. A. On April 4, 2017, the debtor's counsel e-mailed in reply: "Mr. Guadie will agree to a 60 day extension of deadlines in order to relieve the time pressure." See Dkt. No. 37, at 7, Ex. A. On April 12, 2017, Santorini filed a consent motion in the bankruptcy case (Case No. 17-00054, Dkt. No. 51) stating:

Santorini respectfully requests that this Court enter an Order extending the following deadlines by 60 (sixty) days: (1) The deadline for the U.S. Trustee and creditors to object to granting of discharge under 11 U.S.C. § 727; and (2) the deadline for the U.S. Trustee, any Party in Interest, or the Court to move to dismiss for substantial abuse under 11 U.S.C. § 707(b).

The consent motion noted that one reason for requesting the extension of the specified deadlines was that Guadie had not yet produced documents as required pursuant to an examination under Fed. R. Bankr. P. 2004. On April 18, 2017, after considering the consent motion, the court entered an order in the bankruptcy case (Case No. 17-00054, Dkt. No. 60), which:

ORDERED that Creditor Santorini Capital, LLC's Consent Motion for 60 Day Extension of Filing Deadlines is GRANTED, and . . .

ORDERED that the deadline to object to granting of discharge under 11 U.S.C. § 727, and the deadline to move to dismiss for substantial abuse under 11 U.S.C. § 707(b), are extended by 60 days from the date of the entry of this Order.²

The order did not extend the time for filing a complaint under 11 U.S.C. § 523(a)(2), just as the motion that preceded the order did not specify a request for an extension of time to file such a request. Therefore, the deadline for filing such a complaint remained May 8, 2017, and no such complaint was filed by then.

On June 6, 2017, Santorini filed a second motion in the bankruptcy case to extend certain deadlines: (1) the deadline to object to granting of discharge under 11 U.S.C. § 727, and (2) the deadline to move to dismiss for substantial abuse under 11 U.S.C. § 707(b). See Case No. 17-00054, Dkt. No. 81. However, that motion did not include a request to extend the time for filing a complaint under 11 U.S.C. § 523(a)(2). On August 4, 2017, the court granted that motion and extended the specified deadlines until October 3, 2018, but that order did not extend the time for filing a complaint under 11 U.S.C. § 523(a)(2). See Case No. 17-00054, Dkt. No. 110.

Santorini filed its initial complaint on June 19, 2017, more than a month after the bar date for filing a complaint under § 523(a)(2) had expired on May 8, 2017. Santorini then amended its complaint on September 8, 2017, and served that complaint on the debtor.

B.

In relevant part, Rule 4007(c) provides:

a complaint to determine the dischargeability of a debt under § 523(c) [which includes complaints under § 523(a)(2)] shall be filed no later than 60 days after the first date set for the meeting of creditors under § 341(a). . . . On motion of a party in interest, after hearing on notice, the court may for cause extend the time fixed under this subdivision. The motion shall be filed before the time has expired.

When an act is required or allowed to be done within a specified period by the Federal Rules of Bankruptcy Procedure, Rule 9006(b)(1) provides the general rule that "on motion made after the expiration of the specified period [the court may] permit the act to be done where the failure to act was the result of excusable neglect." However, one of the express exceptions to that general rule is contained in Rule 9006(b)(3), which provides in relevant part that "[t]he court may enlarge the time for taking action under Rule[] . . . 4007(c) [and certain other rules], only to the extent and under the conditions stated in those rules." The court therefore has no authority to enlarge the Rule 4007(c) deadline now that the deadline expired.

The debtor timely responded to the plaintiff's amended complaint on November 6, 2017, by filing his Motion to Dismiss Counts I, IV, V and VI and to Strike Jury Demand (Dkt. No. 29), raising therein the untimeliness of any claim for § 523(a)(2) relief.³ Santorini opposed the Motion to Dismiss, but, as discussed below, has raised no valid basis for denying dismissal of Count I.

C.

First, although the debtor's counsel promised that "Mr. Guadie will agree to a 60 day extension of deadlines in order to relieve the time pressure[,]" he left it to Santorini's counsel to seek the necessary order from the court to extend the deadline. Santorini's counsel only sought on Santorini's behalf an extension of the deadlines for objecting to discharge under 11 U.S.C. § 727(a) and for filing a motion to dismiss under 11 U.S.C. § 707(b). Because Santorini failed, before the deadline of May 8, 2017, imposed by Rule 4007(c), to seek an extension of the time to file a complaint for a determination that the debtor's debts to Santorini are nondischargeable under § 523(a)(2), Rules 4007(c) and 9006(b)(3) bar Santorini from seeking an enlargement of time now. See Shahrestani v. Alazzeh (In re Alazzeh), 509 B.R. 689, 694-95 (9th Cir. B.A.P. 2014) ("Mr. Shahrestani could not rely on Mr. Alazzeh's agreement to extend the § 727 complaint Deadline. Any such extension is dependent upon the bankruptcy court granting a motion filed prior to the Deadline, for cause shown.").

Prior to the filing of the motion to extend time on April 12, 2017, Santorini's counsel, in discussions with the debtor's ...