Stanley ex rel. Estate of Hale v. Trinchard

• Decision Date: 17 August 2009
• Docket Number: No. 08-30899.,08-30899.
• Citation: 579 F.3d 515
• Parties: H.S. STANLEY, Jr., In his capacity as Trustee of the Bankruptcy ESTATE OF Gary Eugene HALE, Plaintiff-Appellant, v. Clare W. TRINCHARD, Esquire; Trinchard & Trinchard LLC; Clarendon National Insurance Co., Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

579 F.3d 515

H.S. STANLEY, Jr., In his capacity as Trustee of the Bankruptcy ESTATE OF Gary Eugene HALE, Plaintiff-Appellant, v. Clare W. TRINCHARD, Esquire; Trinchard & Trinchard LLC; Clarendon National Insurance Co., Defendants-Appellees.

No. 08-30899.

United States Court of Appeals, Fifth Circuit.

August 17, 2009.

Bruce A. Cranner (argued), Miles Paul Clements, Michael H. Pinkerton, Frilot, L.L.C., New Orleans, LA, for Stanley.

Gustave A. Fritchie, III (argued), McDonald Gustin Provosty, Edward W, Trapolin, Irwin, Fritchie, Urquhart & Moore, New Orleans, LA, Brandon A. Brown, Ryan James Richmond, Gordon, Arata, McCollam, Duplantis & Eagan, Baton Rouge, LA, Gerald H. Schiff, Gordon, Arata, McCollam, Duplantis & Eagan, Lafayette, LA, for Clare W. Trinchard and Trinchard & Trinchard, LLC.

David S. Daly, Allen & Gooch, Metairie, LA, for Clarendon Nat. Ins. Co.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before JONES, Chief Judge, ELROD, Circuit Judge, and GUIROLA, District Judge.^*

EDITH H. JONES, Chief Judge:

H.S. Stanley, as trustee for the bankruptcy estate of Gary Eugene Hale, appeals a summary judgment from the district court, which held that the estate's legal malpractice claims against Trinchard, Trinchard, & Trinchard LLC ("Trinchard") were time-barred. Because Congress expressed an overriding and unqualified interest in allowing bankruptcy trustees sufficient time to discover causes of action on behalf of their estates, we hold that § 108(a) of the Bankruptcy Code, 11 U.S.C. § 108(a), extended Louisiana's legal malpractice peremption period. We reverse and remand to authorize the original complaint to be pursued and to allow the filing of an amended complaint.

I. BACKGROUND

The facts of this case have been set out in detail in Stanley v. Trinchard, 500 F.3d 411 (5th Cir.2007) ("Trinchard II"). Broadly, the case involves a multi-million dollar judgment, referred to herein as Burge, against Gary Eugene Hale, the result of which forced Hale into involuntary bankruptcy in October 2001. As the appointed trustee of Hale's bankruptcy estate, Stanley brought claims under Louisiana law for breaches of professional and fiduciary duties constituting legal malpractice against Hale's attorneys, Trinchard, in April 2002.

The district court granted Trinchard's motion for summary judgment, initially finding that Hale's bankruptcy discharge made it impossible for Stanley to show that any damages resulted from Trinchard's alleged malpractice. Stanley v. Trinchard, 2005 WL 2037543, *13 (E.D.La. Aug.1, 2005) ("Trinchard I"). On appeal, this court reversed, holding that Hale's bankruptcy discharge did not vitiate his legal malpractice claims, and remanded for further proceedings.¹ Trinchard II, 500 F.3d at 431.

After remand, Trinchard filed another summary judgment motion, claiming the lawsuit was barred by Louisiana's one-year peremptive period. The district court concluded that Hale knew or should have known of his legal injury as of March 2001, and because of the one-year peremptive period, Stanley's lawsuit, filed in April 2002, was untimely. Stanley v. Trinchard, 2008 WL 2686364, at *5-6 (E.D.La. July 8, 2008) ("Trinchard III"). Stanley argued that, as trustee of Hale's bankruptcy estate, he had filed the malpractice claims within the two-year period allowed by § 108(a) of the Bankruptcy Code. The district court responded:

In light of the fact that the rights attached to a peremptive period extinguish upon the expiration of that period and that peremptive periods cannot be interrupted or suspended, applying Section 108(a) to peremptive periods would impermissibly alter substantive property rights as defined by Louisiana law.

Id. at *6. Therefore, the district court held Louisiana's peremptive period, and not the Bankruptcy Code's limitation period, governed the estate's malpractice claim. The court also denied Stanley's proffered amendments to include allegations against a former attorney at the Trinchard firm. Id. Stanley's motion to reconsider was rejected by the district court.

Stanley now appeals. He contends that § 108(a) of the Bankruptcy Code preempts Louisiana's peremption period; that there are material facts as to whether Hale became aware of the claim in March 2001 or September 2001; and that his addition of vicarious liability claims relates back to his original complaint.

II. DISCUSSION

We review a grant of summary judgment de novo, using the same standards applied by the district court. Warfield v. Byron, 436 F.3d 551, 557 (5th Cir.2006). Summary judgment is proper when "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." FED.R.CIV.P. 56(c).

Bankruptcy Code § 108(a) allows a trustee to commence an action on behalf of the debtor's estate within the period allowed by state law for such an action or within two years after the order for relief, whichever is later.² See United States ex rel Am. Bank v. C.I.T. Constr. Inc. of Tex., 944 F.2d 253, 259 (5th Cir.1991). The question here is whether Louisiana's peremptive statute, which controls the estate's claim, is somehow exempt from § 108 because of its status as a statute of repose.³ We hold that it is not. LA. REV. STAT. § 9:5605(A) provides that no legal malpractice claims:

shall be brought unless filed in a court of competent jurisdiction and proper venue within one year from the date of the alleged act, omission, or neglect, or within one year from the date that the alleged act, omission, or neglect is discovered or should have been discovered; however, even as to actions filed within one year from the date of such discovery, in all events such actions shall be filed at the latest within three years from the date of the alleged act, omission, or neglect.

These "periods of limitation ... are peremptive periods within the meaning of Civil Code Article 3458⁴ and, in accordance with Civil Code Article 3461,⁵ may not be renounced, interrupted, or suspended." LA. REV. STAT. § 9:5605(b); Reeder v. North, 701 So.2d 1291, 1295 (La.1997).

Trinchard argues that § 108(a) is inapplicable to statutes of repose, including the statute controlling Louisiana's malpractice claims.⁶ It argues that Louisiana's peremptive period is not a period in which an action may be commenced but rather represents the lifespan of a substantive right. Atlas Iron & Metal Co. v. Ashy, 918 So.2d 1205, 1209 (La.Ct.App. 2006). Once the substantive right has been extinguished, Trinchard contends that it may not be resurrected through the Bankruptcy Code. As Trinchard notes, the Supreme Court has cautioned that "[u]nless some federal interest requires a different result, there is no reason why such [state law property] interests should be analyzed differently simply because an interested party is involved in a bankruptcy proceeding." Butner v. United States, 440 U.S. 48, 55, 99 S.Ct. 914, 918, 59 L.Ed.2d 136 (1979).

We are sympathetic to the importance of preserving state law property rights intact in bankruptcy. Butner itself, however, refers to superseding federal interests. Id. The subject of bankruptcy falls within the express constitutional powers of Congress, and bankruptcy law therefore takes precedence over state laws under the Supremacy Clause. U.S. CONST., art. VI. Section 108(a) is written broadly to extend any "period [fixed inter alia by `applicable nonbankruptcy law'] within which the debtor may commence an action." The statute's clear purpose is to afford bankruptcy trustees extra time to assess and pursue potential assets of the debtor's estate. Congress drew no distinction among the state law vehicles that govern time limits for filing suit, whether statutes of limitations or prescription, repose or peremption. The language of Section 108(a) compels the conclusion that Congress expressly extended the time for pursuing any action that would otherwise be time-barred under state law.

There seems to be no authority on point apart from district court decisions in this ongoing dispute. Other cases cited by the litigants are either not inconsistent with or irrelevant to our conclusion. Trinchard cites Spears Carpet Mills, Inc. v. Century Nat'l Bank, 85 B.R. 86, 88 (W.D.Ark.1988), which noted that a U.C.C. notification period had been held peremptive under Louisiana law.⁷ The court went on to conclude that the notice provision constituted a condition precedent but did not itself fix a period within which the debtor may commence an action as required by § 108. See Spears, 85 B.R. at 88-89. Louisiana law governing attorney malpractice suits, in contrast, both prescribes a cause of action and states when it must be commenced. The latter is expressly within § 108(a); the former provision is not.

Trinchard draws a similarly faulty comparison with 15 U.S.C. § 1635(f), which provides a three-year period for rescinding a consumer credit transaction under the Truth in Lending Act. Again, this is not akin to the commencement of an action, and § 108(a) has correctly been held inapplicable to extend a period that by its terms does not refer to commencement of an action. See, e.g., Williams v. EMC Mortgage Corp. (In re Williams), 276 B.R. 394, 397 (Bankr.E.D.Pa.2002).

Because we are interpreting § 108(a), Stanley's proposed analogy to 11 U.S.C. § 546(a) is also unhelpful. In First Union National Bank v. Gibbons (In re Princeton-New York Investors, Inc.), 219 B.R. 55, 64 (D.N.J.1998), a court allowed a trustee to bring a claim for fraudulent transfer under 11 U.S.C. §§ 544 and 548 after the time allowed by the applicable state statute of repose because 11 U.S.C. § 546(a) affords the trustee a two-year limitations period.⁸ Several other courts have held that § 546 "preempts" state statutes of repose. See, e.g., Smith v. Am. Founders Fin., Corp., 365 B.R. 647, 677 (S.D.Tex. 2007)....