One Year Time Period For §727(e) Revocation Of Discharge Cannot Be E...

http://www.georgiabankruptcyblog.com/files/2017/02/revoke-221x300.png 221w, http://www.georgiabankruptcyblog.com/files/2017/02/revoke-40x54.png 40w, http://www.georgiabankruptcyblog.com/files/2017/02/revoke-80x109.png 80w, http://www.georgiabankruptcyblog.com/files/2017/02/revoke-160x217.png 160w, http://www.georgiabankruptcyblog.com/files/2017/02/revoke-320x434.png 320w, http://www.georgiabankruptcyblog.com/files/2017/02/revoke.png 350w" sizes="(max-width: 111px) 100vw, 111px" />In In re Anzo, Ch. 7 Case No. 14-22766-jrs (Bankr. N.D. Ga. January 30, 2017) (click here for .pdf of opinion), the debtor had been granted a discharge on September 29, 2015 and the case was closed on the same date.  Almost a year later, on September 27, 2016 (two days prior to the deadline to file a complaint to revoke discharge) a creditor filed a Motion to Extend Time to file a complaint to revoke the debtor’s discharge pursuant to 11 U.S.C. §727(e).  The creditor subsequently filed a Motion to Reopen the case two days later, on September 29, 2016.  As support for the two Motions, the creditor alleged “the possibility of fraud” in the related Chapter 11 case of a business in which the debtor was a member.  The creditor requested that the personal Chapter 7 case be reopened and he be given the opportunity to investigate whether there was fraudulent activity to support revocation of the debtor’s discharge.  Judge Sacca denied both Motions.

In the absence of binding authority in the Eleventh Circuit, Judge Sacca first addressed the issue of whether the deadlines of §727(e) could be equitably tolled, and compared this subsection with the statute of limitations found in 11 U.S.C. §546(a).

This Court, however, finds that Section 727(e) is distinguishable from Section 546(a) in its clear incorporation of equitable tolling because Section 727(d)(1) specifically contemplates fraud on part of the debtor and a creditor who has no knowledge of the fraud. “Congress had the opportunity to provide for further relief for such parties but instead made a conscious choice to limit revocation to one year, presumably in favor of finality and the fresh start principle.” In re Underwood, No. 13-5138, 2013 WL 4517905, at *3 (Bankr. N.D. Ga. Aug. 15, 2013). When reading Section 727(d)(1) and Section 727(e)(1), it appears Congress already contemplated the circumstances equitable tolling is designed to remedy … By providing a certain limitation period within the text of the statute, Congress must have intended a creditor’s right to terminate at a certain date.

With language that expresses Congress’ intention of finality, Section 727(e) is treated as a statute of repose rather than a statute of limitations... A statute of repose and statute of limitations serve different purposes: a statute of limitations ensures a party brings an action in a timely manner before evidence or witnesses are lost, while a statute of repose provides a fresh start or freedom from liability “provid[ing] absolute protection to certain parties from the burden of indefinite potential liability.” Galbraith Eng’g Consultants, Inc. v. Pochucha, 290 S.W.3d 863, 866 (Tex. 2009)… Section 727(e) implicates subsection (d) which allows for revocation only after a final order for a discharge. As such, the time limits in Section 727(e) serve to ensure that after a definite period of time, the final order cannot be revoked, bringing the challenges to a debtor’s discharge to an end. On the other hand, Section 546(a) involves the commencement of avoidance actions rather than the revocation of a final order and provides a time limit within which an avoidance action can begin. Therefore, as a statute of repose that Congress has specifically contemplated, Section 727(e) cannot be equitably tolled… Because it is not a statute of limitations, the deadline is firm and not subject to equitable tolling… As such, bankruptcy courts “have no authority to create equitable exceptions to [such a] jurisdictional requirement.” Bowles v. Russell, 551 U.S. 205, 214 (2007).

The Court also noted that Federal Rule of Bankruptcy Procedure 9024 unambiguously prohibits an extension of time to file a revocation action.

Rule 9024, which makes Federal Rule of Civil Procedure 60 applicable, states that F.R.Civ.P. 60 applies in all cases under the Bankruptcy Code except “a complaint to revoke a discharge in a chapter 7 liquidation case.” The rule further states that a complaint to revoke a discharge is timely if “filed only within the time allowed by § 727(e) of the Code.” As such, the deadlines already provided in the Bankruptcy Code for revocation actions cannot be extended and are strictly governed by Section 727(e).

The Court next addressed the issue of whether a Chapter 7 discharge can be revoked for alleged conduct that took place in another related case, as argued by the moving creditor and another creditor who appeared at the hearing in support of the Motions.  Section 727(a)(7) provides that a discharge may be denied for certain acts that took place in a related case.  However, revocation under §727(e) only applies to conduct that falls within §727(d).  Thus, a revocation complaint may not be brought for alleged conduct in a related case, as described in §727(a)(7).

Finally, the Court addressed the creditor’s argument that the Motion to Reopen and Motion to Extend Time (both filed prior to the one year deadline) effectively counted as a de facto revocation complaint, and put the debtor on notice of the allegations.   Because the statutory construction of §727(e) and Rule 7001(4) mandated that a revocation action be filed as an adversary proceeding, the filing of the Motions would not satisfy those requirements.  Further, any subsequent adversary complaint for revocation would not “relate back” to the Motions and satisfy the Code and Rules.

For a pleading to relate back to the date of an original pleading, Rule 7015 must be satisfied. Rule 7015, incorporating F.R.Civ.P. 15, establishes that an amendment can relate back to the original pleading when (1) the law provides the applicable statute of limitations allows relation back and (2) the amendment asserts a claim or defense that arose from the “conduct, transaction, or occurrence set out—or attempted to be set out” in the original pleading. The Eleventh Circuit has held in order for a claim to relate back, the timely filed claim must arise from the same set of facts and not from separate conduct or occurrence in “both time and type.” Farris v. United States, 333 F.3d 1211, 1215 (11th Cir. 2003). Further, blanket statements are insufficient to anchor a new claim with the originals asserted. In Matter of Thompson, 2016 WL 7131476, at *11. Here, the Motion contains no specific conduct, transaction, or occurrence as required to satisfy the relation back requirements. Rather, the Motion contains statements like “potentially fraudulent activity and concealment of personal assets.” Consequently, this blanket statement, with no specific allegations or facts, is not sufficient to satisfy Rule 7015 and F.R.Civ.P. 15. And, as previously mentioned, if the Motion did adequately set forth facts to revoke the discharge, then there would be no grounds to extend the time to file a complaint to do so because it could have been timely filed.

Here, we do not have a request to revoke a discharge that was improperly brought by motion instead of a complaint, but rather merely a motion to extend to the time to file a complaint to revoke a discharge which did not contain specific allegations of fraud, but a request for more time to investigate to determine if a complaint should be filed.

Based on the above, the Court denied the creditor’s Motion to Reopen the case, and the Motion to Extend Time to file revocation complaints.

• Scott represented the debtor in this Chapter 7 case.

Scott Riddle’s practice focuses on bankruptcy and litigation. Scott has represented Chapter 7 and 11 debtors, creditors, creditor committees, trustees, court-appointed receivers and other interested parties in bankruptcy cases and bankruptcy litigation.  For more information, click here.