rst time that the bankruptcy court lacked jurisdiction over the claim raised in the untimely amended complaint upon which the bankruptcy court had based its decision. In denying that motion, the bankruptcy court held that Rule 4004(a)'s time bar was not jurisdictional and that the debtor had waived any untimeliness claim by failing to raise it before the court reached the merits. Both the district and circuit courts affirmed.
The Supreme Court's opinion characterizes the time limitations in Bankruptcy Rules 4004 and 9006(b)(3) as claim-processing rules that do not delineate what cases bankruptcy courts are competent to adjudicate. Kontrick v. Ryan, 124 S.Ct. at 914. The debtor's jurisdictional argument was not that the bankruptcy court actually lacked subject-matter jurisdiction; rather, the argument was that the term jurisdiction was used as a shorthand to indicate a nonextendable time. Kontrick v. Ryan, 124 S.Ct. at 914 (Citing Transcript of Oral Argument 9-10). With respect to the debtor's argument that the Rules time bar is so binding as to permit it being raised, like true jurisdictional arguments, at any time in the litigation, the Court distinguished between rules governing subject-matter jurisdiction and what it calls a claim-processing rule. The Court acknowledged that its prior opinions and those of other courts had frequently been less than meticulous in its use of the term jurisdictional. Kontrick v. Ryan, 124 S.Ct. at 915. And, the Court admonished that clarity would be facilitated if courts and litigants used the label, jurisdictional, not for claim-processing rules, but only for prescriptions delineating the classes of cases (subject-matter jurisdiction) and the persons (personal jurisdiction) falling within a court's adjudicatory authority. Kontrick v. Ryan, 124 S.Ct. at 915.
Specifically looking at Rules 4004(a) and 9006(b)(3), the Court outlined three purposes of those Rules: (1) to inform the objecting creditor of the time within which to file a complaint; (2) to instruct the court on its discretionary limits for enlarging that time; and (3) to afford an affirmative defense to a complaint filed outside the time limit set forth in Rule 4004(a) and (b). The Kontrick case involved the third purpose.
The Court assumed that had the debtor timely asserted the untimeliness of the complaint, the debtor would have prevailed, although the debtors timely motion could have been met by equitable arguments from the creditor to support an untimely filing. The Court did not address the validity of an equitable exception to an untimely filing since that was not an issue in the case. The focus of the opinion is on the sole question, whether Kontrick forfeited his right to assert the untimeliness of Ryan's amended complaint by failing to raise the issue until after that complaint was adjudicated on the merits. Kontrick v. Ryan, 124 S.Ct. at 918. The Court agreed with the Seventh Circuits application of FED. R. CIV. P. 8(c), a rule generally requiring that time bar defenses must be raised in an answer or responsive pleading. See FED. R. BANKR. P. 7008(a), incorporating FED. R. CIV. P. 8(c). Kontrick did not do that, nor did he ask the bankruptcy court to strike the untimely amended complaint's new allegation. The ordinary application of the Bankruptcy and Civil Procedure Rules would result in loss of a defense that is not itself timely raised. Only lack of subject-matter jurisdiction is preserved post-trial. Kontrick v. Ryan, 124 S.Ct. at 918 (citing FED. R. CIV. P. 12(h)(3)). In closing, the Court held: No reasonable construction of complaint-processing rules, in sum, would allow a litigant situated as Kontrick is to defeat a claim, as filed too late, after the party has litigated and lost the claim on the merits. Kontrick v. Ryan, 124 S.Ct. at 918.
So, we now know that Rule 4004, and Rule 4007 by implication, does not impose subject-matter jurisdictional limits on the bankruptcy court's authority to hear untimely filed complaints concerning objections to discharge or to the dischargeability of debts.
What is not answered?
The Court's opinion specifically says that the case involves no issue of equitable tolling or any other equity-based exception. Kontrick v. Ryan, 124 S.Ct. at 916. And, the opinion's footnote 11 cites some of the conflicting lower-court opinions on whether Rules 4004(a) and 4007(c) are subject to equitable exceptions. Thus, such opinions as the Sixth Circuit's Nardei v. Maughan (In re Maughan), 340 F.3d 337 (6th Cir. 2003) (discussed in the November 2003 Adviser article cited above), that permit equitable tolling of the discharge and dischargeability time limits are still controversial.
Moreover, footnote 12 of the Kontrick opinion says that it does not suggest that a debtor and a creditor may stipulate to the assertion of time-barred claims when such an accommodation would operate to the detriment of other creditors. Kontrick v. Ryan, 124 S.Ct. at 914 n. 12. Here, the footnote cites as an example Community Bank v. Dollar (In re Dollar), 257 B.R. 364, 366 (Bankr. S.D. Ga. 2001), where the debtor and one creditor attempted to stipulate to the substitution of an untimely 523(a)(6) cause of action for a timely 727(a)(2) claim, the result of which would be harmful to other creditors that might benefit by a general discharge denial.
Litigation will continue on the trial and appellate levels as to those case-specific reasons why an untimely filed discharge complaint may nevertheless proceed to litigation on equitable grounds. But, in light of the Kontrick holding that the rules do not impose subject-matter jurisdictional limits on the trial court, there is less reason to expect outright rejection of such arguments.