Based on Supreme Court authority, the Third Circuit held that the deadline for objecting to dischargeability of a debt cannot be extended by equitable tolling.
The July 10 opinion by Circuit Judge Marjorie Rendell tells us that Bankruptcy Rule 4007(c) is inflexible and that the deadline for objecting to dischargeability can only be extended by a motion filed before the deadline.
The opinion is notable because Judge Rendell is one of the most authoritative among circuit judges when it comes to bankruptcy law.
Five Years Late
The individual debtor owned a business, filed a chapter 11 petition in 2016, and promptly received a discharge in a no-asset case. Among the discharged debts was a judgment for almost $800,000. The judgment creditor did not file an objection to discharge or to dischargeability of the debt and did not file a claim, because none was required. No other creditors objected to discharge.
In 2021, five years after discharge, the judgment creditor learned that the debtor, before filing bankruptcy in 2016, had allegedly fraudulently conveyed the assets from a business he owned to a new company that he had not disclosed and that continued the old company’s business. The judgment creditor sued the new company in state court.
The judgment creditor also filed a motion asking Bankruptcy Judge Craig T. Goldblatt of Delaware to reopen the bankruptcy case, and to extend the deadline for him to file a complaint attacking the dischargeability of the debt under Section 523(a)(2), (4) and (6).
The deadline for objecting to dischargeability was in 2016, 60 days after the meeting of creditors. The creditor therefore argued that Judge Goldblatt should invoke equitable tolling, thereby permitting him to file the dischargeability complaint five years late.
Judge Goldblatt declined to reopen the case, in an opinion that Judge Rendell called “rigorous and well-reasoned.” Judge Goldblatt concluded that reopening the case would be futile because equitable tolling would not permit filing a tardy dischargeability complaint in view of Nutraceutical Corp. v. Lambert, 139 S. Ct. 710 (2019).
No Equitable Tolling Under Nutraceutical
Judge Rendell agreed with the reading of Nutraceutical and affirmed Judge Goldblatt’s holding that equitable tolling is inapplicable to a tardy dischargeability complaint.
Nutraceutical was not a bankruptcy case. It involved Federal Rule 23(f) and the time limitation for filing an appeal from an order denying class certification. The Supreme Court acknowledged that Rule 23(f) was a claims-processing rule, but the justices reversed the Ninth Circuit, which had held that the deadline was subject to equitable tolling because the rule was not jurisdictional.
The Supreme Court held that the preclusion of equitable tolling does not depend on whether the rule is jurisdictional. Instead, the Court held:
Where the pertinent rule or rules invoked show a clear intent to preclude tolling, courts are without authority to make exceptions merely because a litigant appears to have been diligent, reasonably mistaken, or otherwise deserving.
Given the clarity of Rule 23(f), Judge Rendell said that “the Supreme Court readily concluded that equitable tolling was unavailable despite the rule’s nonjurisdictional character.” She proceeded to apply Nutraceutical to the governing bankruptcy rules.
Bankruptcy Rule 4007(c) requires the filing of a dischargeability complaint within 60 days of the first meeting of creditors, and Rule 9006(b)(3) permits an enlargement of time under Rule 4007(c), but “only to the extent and under the conditions stated in those rules.”
Turning again to Rule 4007(c), it says that a motion for an extension “shall be filed before the time has expired.”
Judge Rendell said that the rule provides only one exception for the dischargeability deadline: The motion for an extension must have been filed before the deadline. She therefore held that the rules “evince a clear intent that other exceptions to the time limit requirement, including equitable tolling, do not apply.”
Based on the rules, Judge Rendell held that the creditor’s motion for an extension of time for a dischargeability complaint “is clearly time-barred.” The creditor nonetheless contended that several lower court decisions outside of the Third Circuit have allowed equitable tolling to extend the time for a dischargeability complaint.
Judge Rendell said that the cases proffered by the creditor either preceded Nutraceutical “or are founded on a mistaken view . . . that the nonjurisdictional character of the bankruptcy rules ends the inquiry.”
Finally, the creditor argued that Section 105(a) overrides the rules because the section allows the court to issue “any order” that is “appropriate to carry out the provisions of” the Bankruptcy Code. The creditor cited Marrama v. Citizens Bank of Massachusetts, 549 U.S. 365 (2007), for “the sweeping proposition that a bankruptcy court’s inherent powers to address fraud extend to tolling the limitations period under Rules 4007(c) and 9006(b),” Judge Rendell said.
Countering, Judge Rendell said that the Supreme Court’s later decision in “Law v. Siegel, 571 U.S. 415 (2014), made clear that Marrama does not support the broad proposition that courts have unfettered authority carry out the provisions of the Bankruptcy Code” and means that a bankruptcy court “may not contravene specific statutory provisions.”
Upholding denial of the motion to reopen the bankruptcy case, Judge Rendell held “that [Bankruptcy Judge Goldblatt] was correct in concluding that Rules 4007(c) and 9006(b), read together, express an intent that tolling is unavailable.”
Based on Supreme Court authority, the Third Circuit held that the deadline for objecting to dischargeability of a debt cannot be extended by equitable tolling.
The July 10 opinion by Circuit Judge Marjorie Rendell tells us that Bankruptcy Rule 4007(c) is inflexible and that the deadline for objecting to dischargeability can only be extended by a motion filed before the deadline.
The opinion is notable because Judge Rendell is one of the most authoritative among circuit judges when it comes to bankruptcy law.