Steege v. Johnsson (In re Johnsson)

• Decision Date: 02 June 2016
• Docket Number: Adversary No. 14ap00106,Case No. 11bk38307
• Citation: 551 B.R. 384
• Parties: In re: Margaret Ann Johnsson, Debtor. Catherine L. Steege, not individually but as the Chapter 7 Trustee of the Estate of Margaret Ann Johnsson, Plaintiff, v. Margaret Ann Johnsson, Defendant.
• Court: U.S. Bankruptcy Court — Northern District of Illinois

551 B.R. 384

In re: Margaret Ann Johnsson, Debtor.

Catherine L. Steege, not individually but as the Chapter 7 Trustee of the Estate of Margaret Ann Johnsson, Plaintiff

v.Margaret Ann Johnsson, Defendant.

Case No. 11bk38307

Adversary No. 14ap00106

United States Bankruptcy Court, N.D. Illinois, Eastern Division.

Signed June 2, 2016

Catherine L. Steege and Landon S. Raiford, Jenner & Block, Chicago, IL, Attorneys for Plaintiff

Margaret Ann Johnsson, Chicago, IL, Debtor/Defendant (pro se)

MEMORANDUM DECISION

TIMOTHY A. BARNES

, Judge

The matter before the court arises out of the Complaint [Adv. Dkt. No. 1] (the “Complaint ”), filed by Catherine Steege, not individually but as the Chapter 7 Trustee (the “Trustee ”) for the Estate of Margaret Ann Johnsson (the “Debtor ”), in the above-captioned adversary proceeding (the “Adversary ”), seeking to revoke the Debtor's bankruptcy discharge under 11 U.S.C. § 727(d)

. Count I of the Complaint seeks to revoke the Debtor's discharge under section 727(d)(1) for the Debtor's alleged failure to disclose a prepetition interest in real property (“Count I ”), while Count II seeks to do the same under section 727(d)(2) for failures with respect to a postpetition inheritance received by the Debtor (“Count II ”). The matter was tried before the court in a six-day trial. The trial began on February 2, 2016, resumed on March 7, 2016 and continued through and concluded on March 11, 2016 (collectively the “Trial ”).

For the reasons set forth herein, the court finds that it lacks jurisdiction to decide Count I of the Complaint. The court finds in favor of the Trustee on Count II of the Complaint and therefore holds that the Debtor's discharge must be revoked.

This Memorandum Decision constitutes the court's findings of fact and conclusions of law in accordance with Rule 7052 of the Federal Rules of Bankruptcy Procedure

(the “Bankruptcy Rules ”). A separate order will be entered pursuant to Bankruptcy Rule 9021.

JURISDICTION

The federal district courts have “original and exclusive jurisdiction” of all cases under title 11 of the United States Code (the “Bankruptcy Code ”). 28 U.S.C. § 1334(a)

. The federal district courts also have “original but not exclusive jurisdiction” of all civil proceedings arising under title 11 of the United States Code, or arising in or related to cases under title 11. 28 U.S.C. § 1334(b). District courts may, however, refer these cases to the bankruptcy judges for their districts. 28 U.S.C. § 157(a). In accordance with section 157(a), the District Court for the Northern District of Illinois has referred all of its bankruptcy cases to the Bankruptcy Court for the Northern District of Illinois. N.D. Ill. Internal Operating Procedure 15(a).

A bankruptcy judge to whom a case has been referred may enter final judgment on any proceeding arising under the Bankruptcy Code or arising in a case under title 11. 28 U.S.C. § 157(b)(1)

. A proceeding to revoke the discharge, much like an objection to discharge, may only arise in a case under title 11 and is specified as a core proceeding. 28 U.S.C. § 157(b)(2)(J) ; Tidwell v. Smith (In re Smith ), 379 B.R. 315, 322 (Bankr.N.D.Ill.2007) (Schmetterer, J.); Grochocinski v. Eckert (In re Eckert ), 375 B.R. 474, 476 (Bankr.N.D.Ill.2007) (Squires, J.).

While none of the parties have raised the issue of whether this court has constitutional authority to enter a final judgment on all counts of the Complaint in light of the United States Supreme Court's decision in Stern v. Marshall, 564 U.S. 462, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011)

, this court has an independent duty to determine whether it has such authority. Rutkowski v. Adas (In re Adas ), 488 B.R. 358, 379 (Bankr.N.D.Ill.2013) (Hollis, J.).

The Complaint is based on sections 727(d)(1) and (2) of the Bankruptcy Code

. Section 727 is unequivocally a bankruptcy cause of action. The court has constitutional authority to enter final orders in matters that involve the Debtor's discharge, “a matter which is designated as a ‘core proceeding’ and is at the center of the adjustment of the debtor-creditor relationship.” Wan Ho Indus. Co. v. Hemken (In re Hemken ), 513 B.R. 344, 350 (Bankr.E.D.Wis.2014) (relying on 28 U.S.C. § 157(b)(2)(J) ; Stern, 564 U.S. 462, 131 S.Ct. 2594 ). As one bankruptcy court explains “[b]ecause the issue of whether a discharge should be revoked ‘stems from the bankruptcy itself’ ... the Court also has the constitutional authority to enter a final order[.]” McDermott v. Davis (In re Davis ), 538 B.R. 368, 370 (Bankr.S.D.Ohio 2015) (citations omitted).

As revocation of discharge is a core proceeding that arises under the Bankruptcy Code, it is within the court's statutory core jurisdiction, and under existing Supreme Court precedent, there is no question as to the court's constitutional authority to hear and determine such claims. See generally Stern, 564 U.S. 462, 131 S.Ct. 2594

.

Accordingly, subject to the discussion following regarding section 727(e)(1)

and Count I, final judgment is within the scope of the court's general statutory jurisdiction and constitutional authority.

COUNT I

Despite having that general authority, the court cannot rule when it is deprived of statutory subject matter jurisdiction to do so as to a matter specifically. While the Debtor failed to argue that the court lacks subject matter jurisdiction as to this matter, “the court has an independent duty to satisfy itself that it has subject-matter jurisdiction.” Hammes v. AAMCO Transmissions, Inc., 33 F.3d 774, 778 (7th Cir.1994)

.

The Complaint alleges causes of action under sections 727(d)(1) and (2) of the Bankruptcy Code

. Section 727(e), however, provides that:

(e) The trustee, a creditor, or the United States trustee may request a revocation of a discharge—

(1) under subsection (d)(1) of this section within one year after such discharge is granted; or

(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)

. Given that the case has not been closed, Count II is timely under the express terms of section 727(e)(2)(B).

As to Count I, however, the issue is not so clear. The Debtor received her discharge on December 20, 2011. Dkt. No. 42. The period within which to bring Count I under section 727(e)(1)

, which applies to Count I as it is a claim under subsection (d)(1), therefore, expired on December 20, 2012. The Trustee filed the Complaint on February 17, 2014. As a result, absent some other consideration, the Count I claim appears to be time-barred under section 727(e)(1). While, as discussed below, the Trustee had reason to believe the section 727(e)(1) period had been extended, the court must first determine the jurisdictional nature of section 727(e)(1) and whether such an extension is permissible.

Section 727(e)(1)

“is not a mere statute of limitations, but an essential prerequisite to the proceeding.” 6 Collier on Bankruptcy ¶ 727.18 [1] (15th ed.2015) (collecting cases). Indeed, numerous courts have classified the time limitations found in section 727(e)

as jurisdictional in nature meaning that “any extension beyond the one-year deadline period with respect to revocation of discharge [even by agreement of the parties] is ineffective.” Car Care Center of Crystal Lake, Ltd. v. Miller (In re Miller ), 336 B.R. 408, 413 (Bankr.E.D.Wis.2005) ; see also

The Cadle Co. v. Anderson (In re Anderson ), 476 B.R. 668, 673–74 (1st Cir. BAP 2012) (collecting cases). The statute is often juxtaposed with the limitations found in the Bankruptcy Rules, which, as judicially created rules, “do not create or withdraw federal jurisdiction.” Kontrick v. Ryan, 540 U.S. 443, 453, 124 S.Ct. 906, 157 L.Ed.2d 867 (2004) ; see also

Anders

e

n, 476 B.R. at 673 (discussing Kontrick ); Miller, 336 B.R. at 411–12 (same). As Kontrick explains, “[o]nly Congress may determine a lower federal court's subject-matter jurisdiction.” Kontrick, 540 U.S. at 452, 124 S.Ct. 906. Congress has done so with section 727(e)(1). See

Anders

e

n, 476 B.R. at 673 (“Consistent with Kontrick's teaching, we have held that § 727(e)(1) is jurisdictional [.]”); see also

Gonsalves v. Belice (In re Belice ), Adv. No. 09–01241–WCH, 2011 WL 4572003, at *4 (1st Cir. BAP Mar. 7, 2011). Effectively, the limitations set forth in section 727(e) set “an outside limit after which, regardless of whether the cause of action has accrued, the cause of action is extinguished.” Apex Wholesale Inc. v. Blanchard (In re Blanchard ), 241 B.R. 461, 465 (Bankr.S.D.Cal.1999).¹

Thus, section 727(e)(1)

is jurisdictional in nature. What then, is the effect of the extension alluded to above? The Debtor and the Trustee entered into a tolling agreement on February 28, 2013, which tolled the “running of any limitation period applicable to any claim or cause of action the Trustee may have against the Debtor” for one year. Trustee's Ex. No. 58 (emphasis added) (the “Tolling Agreement ”). The Tolling Agreement, to begin with, was ill-timed, being entered into after the section 727(e)(1) period had expired. Moreover, even if timely, a jurisdictional deadline cannot be extended by agreement. “It is well established that jurisdiction cannot be conferred upon a court by agreement of the parties.” Miller, 336 B.R. at 413 (collecting cases). Moreover, “where the statute's language is plain, the sole function of the courts is to enforce it according to its terms.” U.S. v. Ron Pair Enters., Inc., 489 U.S. 235, 240, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989) (quotation and citation omitted). The Tolling Agreement, therefore, does not remedy the lateness of the Count I claim.

Nor could the Trustee avail herself of the doctrine of equitable tolling to extend the time by which she can bring the claim. Equitable tolling can occur “where a plaintiff has been injured by fraud and ‘remains in ignorance of it without any fault or want of diligence or care on his part, the bar of the statute does...