A Flatfooted Mistake Isn’t Remedied by Equity or Relation Back, BAP Says

Neither relation back nor equitable tolling is a second layer of malpractice insurance for filing a complaint in the wrong case just before the statute runs, as demonstrated in an opinion by the Ninth Circuit Bankruptcy Appellate Panel.

 

A chapter 7 trustee waited until the last day to file a complaint seeking to set aside fraudulent transfers of almost $400,000. The complaint named all of the right parties, but while the trustee’s attorney filed the complaint in the correct court, the attorney filed the complaint on the docket of the wrong debtor. 

 

The clerk issued a summons, but the trustee never served the summons and complaint.

 

The court clerk noted the mismatch between the names on the complaint and the case under which it was filed. The clerk sent the trustee’s counsel a notice to withdraw the complaint and refile the complaint in the correct case.

 

Three months after the original filing, the trustee’s counsel filed a new complaint in the correct case and withdrew the incorrectly filed complaint “without prejudice.”

 

Days after the trustee served the correctly filed second summons and complaint, the defendant filed a motion to dismiss, contending that the two-year statute of limitations had run under Section 546(a)(1)(A). After the bankruptcy court dismissed the second complaint, the trustee appealed to the BAP.

 

On appeal, the trustee conceded that his second complaint was time-barred absent “relation back” or application of the doctrine of equitable tolling. Neither theory passed muster, because the BAP affirmed in an unsigned, nonprecedential memorandum opinion on August 19.

 

Relation Back

 

Relation back is a concept under Federal Rule 15(c)(1)(B) made applicable in bankruptcy cases by Bankruptcy Rule 7015. An otherwise untimely complaint can relate back to the date of the original pleading “when the claim arises out of the same conduct, transaction, or occurrence set forth in the original pleading,” the BAP said, citing Ninth Circuit authority.

 

In the case on appeal, there was no “original pleading,” the BAP said, because the original complaint had been withdrawn.

 

Furthermore, the new complaint could not relate back to the original complaint because it was not an amendment of the first complaint, the BAP said. Rather, it was a separate complaint commencing a new action.

 

The BAP held that the bankruptcy court correctly ruled that Rule 15 would not permit late filing of the new complaint.

 

Equitable Tolling

 

Again quoting the Ninth Circuit, the BAP said that equitable tolling requires the trustee to prove “(1) that he has been pursuing his rights diligently, and (2) that some extraordinary circumstances stood in his way.” The BAP added how the Ninth Circuit has said more recently “that there must be a causal relationship between the extraordinary circumstance and the late filing.”

 

In the case on appeal, there was no external force or extraordinary circumstances that prevented the timely filing of the complaint. “Rather,” the BAP said, “the untimely filing was the result of a mistake.”

 

In addition to proof of extraordinary circumstances, the Ninth Circuit also requires a showing of diligence. On that score, the BAP said that “the trustee has failed to provide any analysis of his diligence.”

 

Because the trustee had shown neither extraordinary circumstances nor diligence, the BAP upheld the bankruptcy court’s ruling that equitable tolling did not apply and affirmed dismissal of the complaint.