Tidewater Finance Co. v. Williams

• Citation: 341 B.R. 530
• Decision Date: 09 May 2006
• Docket Number: Civ.A. No.: RDB 05-2147.
• Parties: TIDEWATER FINANCE COMPANY, Appellant, v. Deborah WILLIAMS, Appellee.
• Court: U.S. District Court — District of Maryland

341 B.R. 530

TIDEWATER FINANCE COMPANY, Appellant, v. Deborah WILLIAMS, Appellee.

Civ.A. No.: RDB 05-2147.

United States District Court, D. Maryland.

May 9, 2006.

COPYRIGHT MATERIAL OMITTED

James Robert Sheeran, Virginia Beach, VA, for Appellant.

Edward A. Derenberger, Glen Burnie, MD, for Appellee.

MEMORANDUM OPINION

BENNETT, District Judge.

This case is before this Court on appeal from the Order of United States Bankruptcy Judge E. Stephen Derby granting summary judgment in favor of the Appellee-debtor Deborah Williams ("Williams"). Judge Derby determined that the mandatory six year period between discharges set forth in 11 U.S.C. § 727(a)(8) was not equitably tolled during three Chapter 13 cases that were filed by Williams after receiving a Chapter 7 discharge. This determination resolved Appellant Tidewater Finance Company's ("Tidewater") action, which was only viable if equitable tolling applied to § 727(a)(8). This Court has jurisdiction pursuant to 28 U.S.C. § 158(a), as Tidewater's appeal arises from the final order entered by the United States Bankruptcy Court for the District of Maryland and is brought pursuant to Local Rule 404. The Court conducted a hearing on December 22, 2005. For the reasons stated below, the Order of United States Bankruptcy Judge E. Stephen Derby is AFFIRMED.

BACKGROUND

The material facts are not in dispute. Between 1996 and 2004, Williams filed five bankruptcy cases in the United States Bankruptcy Court for the District of Maryland. The Chapter, case number, filing date, disposition, disposition date, and length of those cases are summarized below:

                                           Filing                       Disposition    Length
                Chapter      Case No.       Date        Disposition        Date        of Case
                -------      --------       ----        -----------        ----        -------
                   7         96-60644     10/29/1996     discharged       2/10/1007   104 days
                  13         99-62251     9/21/1999       dismissed      11/02/1999    42 days
                  13         00-56264     5/16/2000       dismissed       1/25/2001   254 days
                  13         01-62584     8/14/2001       dismissed       9/11/2003   758 days
                   7         04-16311     3/15/2004       pending            n/a         n/a
                

(See Appellant's Br. p. 3; Appellee's Br. pp. 1-2.) The period between the commencement dates of Williams' Chapter 7 cases is seven years and 139 days. Williams was a debtor in the intervening Chapter 13 cases for a combined period of two years and 324 days. Williams neither completed payments under a plan nor obtained a discharge in any of her Chapter 13 cases. Tidewater v. Williams (In re Williams), 333 B.R. 68, 74 n. 4 (Bankr. D.Md.2005). Finally, Tidewater has not alleged bad faith or fraud against Williams in connection with either her Chapter 7 or Chapter 13 cases. Id. at 75 n. 6.

The debt that is the subject of this controversy was incurred by Williams on October 18, 1997, when she financed the purchase of an automobile by executing a Consumer Credit Retail Installment Contract and Security Agreement that was later assigned to Tidewater. Williams defaulted on this finance agreement,¹ the collateral was repossessed and sold, and Tidewater obtained a deficiency judgment against Williams in Virginia General District Court on July 6, 2001. The unpaid principal associated with this deficiency judgment amounts to $7,468.84 plus accrued interest and costs. (See Appellant's Br. p. 2.)

In the underlying bankruptcy proceeding, Tidewater sought summary judgment on its claim that Williams is not entitled to a discharge of her second Chapter 7 case under 11 U.S.C. § 727(a)(8). Section 727(a)(8) provides that a debtor must wait six years from the filing of one Chapter 7 case before she is entitled to the discharge of another Chapter 7 case. The basis of Tidewater's motion was that the six year waiting period should have been equitably tolled for the two years and 324 days that Williams' intervening Chapter 13 cases were pending. On June 28, 2005, Judge Derby found that "equitable tolling shall not be applied to the time periods in which Debtor was in her three Chapter 13 cases, and Tidewater's claim under 11 U.S.C. § 727(a)(8) fails." In re Williams, 333 B.R. at 75. On August 5, 2005, Tidewater filed a notice of appeal in this Court.

STANDARD OF REVIEW

This appeal is brought pursuant to Rule 8001(a) of the Federal Rules of Bankruptcy Procedure. On appeal from the bankruptcy court, the district court acts as an appellate court and reviews the bankruptcy court's findings of fact for clear error and conclusions of law de novo. Devan v. Phoenix American Life Ins. Co. (In re Merry-Go-Round Enterprises, Inc.), 400 F.3d 219, 224 (4th Cir.2005); Kielisch, et al. v. Educational Credit Management Corp., et al. (In re Kielisch), 258 F.3d 315, 319 (4th Cir.2001). The grant of summary judgment is reviewed de novo under Rule 56 of the Federal Rules of Civil Procedure. Century Indemnity Co., et al. v. National Gypsum Company Settlement Trust, et al. (In re National Gypsum Co.), 208 F.3d 498, 504 (5th Cir.2000). The district court may affirm, modify, or reverse a bankruptcy judge's order, or remand with instructions for further proceedings. See Fed. R. Bankr.P. 8013.

DISCUSSION

I. Equitable Tolling.

The doctrine of equitable tolling "permits a court to suspend the measuring period for a party to take action during the time the party was unable to act." In re Williams, 333 B.R. at 71. The Supreme Court has explained the role of this doctrine in the bankruptcy context as follows:

It is hornbook law that limitations periods are "customarily subject to `equitable tolling,'" unless tolling would be "inconsistent with the text of the relevant statute." Congress must be presumed to draft limitations periods in light of this background principle. That is doubly true when it is enacting limitations periods to be applied by bankruptcy courts, which are courts of equity and "appl[y] the principles and rules of equity jurisprudence."

Young v. United States, 535 U.S. 43, 49-50, 122 S.Ct. 1036, 152 L.Ed.2d 79 (2002) (citations omitted).

Courts have equitably tolled limitations periods in the Bankruptcy Code. For example, the two-year limitations period set forth in 11 U.S.C. § 546(a)(1)(A) for commencing adversary proceedings under §§ 544, 545, 547, 548, or 553 has been equitably tolled in fraud and other situations where, despite exercising due diligence, the trustee was unable to file a timely proceeding. See Randall's Island Family Golf Centers, Inc. v. Acushnet Co., et al. (In re Randall's Island Family Golf Centers, Inc.), 288 B.R. 701, 706 (Bankr. S.D.N.Y.2003). Similarly, the "three-year lookback period" for determining whether federal income tax debt is excepted from discharge under 11 U.S.C. §§ 523(a)(1)(A) & 507(a)(8)(A)(i) has been equitably tolled during the pendency of a prior bankruptcy petition. Young, 535 U.S. at 54, 122 S.Ct. 1036. Other limitations periods have been subjected to equitable tolling.²

Courts have also declined to equitably toll limitations periods in the Bankruptcy Code. For example, the 240 day lookback period for determining the priority of federal income tax debt under 11 U.S.C. § 507(a)(8)(A)(ii) is not equitably tolled during the pendency of a debtor's case in United States Tax Court. In re Tecson, 291 B.R. 199, 202 (Bankr.M.D.Fla.2003). Likewise, the one-year limitations period for commencing an action to revoke a discharge under § 727(e)(1) is not subject to the doctrine of equitable tolling, even where the debtor allegedly committed fraud by concealing facts that formed the basis of the trustee's cause of action. Northrup v. Phillips (In re Phillips), 233 B.R. 712, 717-18 (Bankr.W.D.Tex.1999). At least one other limitations periods has been excepted from the doctrine of equitable tolling.³

II. Section 727(a) of the Bankruptcy Code.

Section 727(a) of the Bankruptcy Code provides that "[t]he court shall grant the debtor a discharge" unless specific conditions or circumstances exist. 11 U.S.C. § 727(a). One such condition is identified in § 727(a)(8), which prevents debtors from obtaining a discharge when "the debtor has been granted a discharge under this section, under section 1141 of this title, or under section 14, 371, or 476 of the Bankruptcy Act, in a case commenced within six years before the date of the filing of the petition."⁴ In other words "[s]ection 727(a)(8) precludes a debtor from obtaining multiple Chapter 7 discharges more frequently than at six year intervals." In re Williams, 333 B.R. at 74.

In this case, the Bankruptcy Court decided that equitable tolling does not apply to the limitations period set forth in 11 U.S.C. 727(a)(8).

Equitable tolling is not applicable here because § 727(a)(8) does not define a limitations period for Tidewater, a creditor, to assert its claim. Rather, § 727(a)(8) defines a condition that the Debtor was required to satisfy in order to qualify for a benefit, namely, a discharge of her debts. By restricting how often a debtor may obtain a discharge, Section 727(a)(8) does not prescribe a period certain within which creditors rights may be enforced.

In re Williams, 333 B.R. at 73. Judge Derby noted that allowing equitable tolling in this case would "have the court apply § 727(a)(8) in a manner that could vary its effect on individual creditors depending on the date their claims arose." Id. at 74. As a result, Judge Derby found that "[t]he imposition of equitable tolling is inconsistent with the plain text of § 727(a)(8), and it would alter the statute's plain meaning by converting it to a limitations period for assertions of rights by creditors." Id. at 75. Finally, Judge Derby pointed out that "[e]ven if equitable tolling was potentially applicable, which the court has found it is not, it would not be appropriate to apply equitable tolling based on Tidewater's own inaction." Id. at 75.

On appeal, Tidewater argues that the limitations...