Without actual notice, due process won’t allow a trustee to extend the two-year deadline for filing avoidance actions, even when the trustee hasn’t been able to identify the defendants.
In his February 8 opinion, Bankruptcy Judge Wayne Johnson of Riverside, Calif., said that the trustee must raise equitable tolling after filing a complaint, if the defendant argues that the complaint was untimely.
Defendants Unknown
The two-year deadline for filing avoidance actions under Section 546(a)(1)(A) was fast approaching. The debtor had been no help to the trustee in identifying the defendants in avoidance actions. Indeed, the debtor had lost his discharge for having concealed assets.
Unable to initiate avoidance actions before the deadline, the trustee filed a motion based on equitable tolling for an extension of time to file complaints under Sections 546 and 549. The trustee filed the motion ex parte, because he could not serve potential defendants whom he could not identify.
Judge Johnson saw “no basis in law . . . for such [an ex parte] motion,” in part because the Bankruptcy Rules “contain no rule to extend statutory deadlines such as the ones in sections 546 & 549.”
On the other hand, he said, “bankruptcy courts have the power to apply the doctrine of equitable tolling to excuse the filing of complaints after statutory deadlines . . . in appropriate circumstances.”
Were he to have extended the deadline without notice to the defendants, Judge Johnson said he would have “deprive[d] them of that opportunity and that would be fundamentally unfair,” citing decisions from bankruptcy courts in Pennsylvania and Connecticut.
Fairness aside, the show-stopper was the Due Process Clause. Citing the Ninth Circuit, Judge Johnson said, “Any order issued without proper notice is void at least with respect to the party who never received notice.” Had he granted the deadline-extension motion without notice, he said that “the resulting order could not bind the very parties against whom the trustee seeks relief (future defendants in adversary proceedings) because the trustee has not served them.”
Denying the extension motion, Judge Johnson was careful to say,
[T]he court does not hold that equitable tolling is inapplicable. To the contrary, the court makes no ruling regarding whether or not equitable tolling should apply. If the trustee files a complaint after the statutory deadline and a defendant objects based on timeliness, the trustee may certainly raise the doctrine of equitable tolling.
Without actual notice, due process won’t allow a trustee to extend the two-year deadline for filing avoidance actions, even when the trustee hasn’t been able to identify the defendants.
In his February 8 opinion, Bankruptcy Judge Wayne Johnson of Riverside, Calif., said that the trustee must raise equitable tolling after filing a complaint, if the defendant argues that the complaint was untimely.
Defendants Unknown
The two-year deadline for filing avoidance actions under Section 546(a)(1)(A) was fast approaching. The debtor had been no help to the trustee in identifying the defendants in avoidance actions. Indeed, the debtor had lost his discharge for having concealed assets.
Unable to initiate avoidance actions before the deadline, the trustee filed a motion based on equitable tolling for an extension of time to file complaints under Sections 546 and 549. The trustee filed the motion ex parte, because he could not serve potential defendants whom he could not identify.