Siding with the Eleventh Circuit and following the majority of courts, Bankruptcy Judge Julie A. Manning of Bridgeport, Conn., disagreed with two of her colleagues in the district when she held that Bankruptcy Rule 9006(b) permits a bankruptcy court to extend the statutes of limitations in Sections 108(a), 546(a), and 549(d).
An individual debtor filed a chapter 11 petition alongside two corporations that he controlled. The cases were jointly administered. Five months later, a chapter 11 trustee was appointed.
In her February 15 opinion, Judge Manning said that the chapter 11 trustee had been “more than reasonably diligent” in pursuing potential causes of action against numerous third parties. She recounted how the trustee had obtained 15 orders granting Rule 2004 examinations. She said that the trustee’s diligence was shown by a docket with 2,900 entries and “more than 250 associated adversary proceedings.”
However, Judge Manning said that “the Trustee received no books and records from the Individual Debtor and no cooperation from the Individual Debtor. The Individual Debtor filed incomplete or inaccurate schedules and statement of affairs and did not comply with his duties under the Bankruptcy Code.”
In addition, Judge Manning said that “the Trustee has faced ceaseless recalcitrance, obstruction, and flagrant disregard of court orders by the Individual Debtor, his family members, his associates and employees, and entities the Trustee alleges he controls since the Trustee’s appointment.”
To top it off, Judge Manning said that she had “entered at least eight orders holding the Individual Debtor, his daughter . . . and entities allegedly controlled by the Individual Debtor in contempt for failure to turn over assets and discovery abuse.” They remain in contempt, she said, and called noncompliance “extraordinary.”
Unable to have completed his investigations with the approach of the two-year anniversary of filing, the trustee filed a motion under Rule 9006(b) to extend the statutes of limitations under Sections 108(a), 546(a), and 549(d). Several potential defendants objected.
Jurisdiction
The objectors argued that an extension of the statutes was beyond the power of the bankruptcy court under Stern v. Marshall and that there was no Article III case or controversy.
Judge Manning held that Stern did not to apply because “the Motion to Extend Deadlines does not require that this Court finally determine the merits of any avoidance action. Rather, it requires the Court to determine as a matter of equity whether the statute[s] of limitations contained in sections 108(a), 546(a), and 549(d) of the Bankruptcy Code may be extended.”
With regard to the Article III objection, Judge Manning found that there “is presently a case or controversy” because “the time limits contained in sections 108(a), 546(a), and 549(d) of the Bankruptcy Code are in effect” and “there are undoubtedly estate causes of action completely unknown to [the trustee].”
Rule 9006(b) and Statutes of Limitations
Having found jurisdiction and power, Judge Manning turned to the merits regarding the ability of Rule 9006(b) to extend statutes of limitations.
“[W]hen an act is required or allowed to be done at or within a specified period by these rules . . . ,” Rule 9006(b) says that “the court for cause shown may at any time in its discretion (1) . . . order the period enlarged if the request therefore is made before the expiration of the period originally prescribed or as extended by a previous order or (2) on motion made after the expiration of the specified period permits the act to be done where the failure to act was the result of excusable neglect.”
The first question was whether Sections 108(a), 546(a), and 549(d) were statutes of limitations or statutes of repose, because the Collier treatise says that Section 108(a) only applies to statutes of limitations, not statutes of repose.
Previously, two different bankruptcy judges in Connecticut had found Rule 9006(b) incapable of extending statutes of limitations under Sections 108(a), 546(a), and 549(d). The only court of appeals to rule on the issue, the Eleventh Circuit, held to the contrary, along with a majority of lower courts. See International, Inc. v. Northern (In re International Administrative Services, Inc.), 408 F.3d 689 (11th Cir. 2005).
Judge Manning agreed with the majority that “sections 108(a), 546(a), and 549(d) are subject to extension under principles of equity.”
Next, Judge Manning analyzed whether Rule 9006(b) permits an equitable extension of statutes of limitations. She agreed with the Eleventh Circuit, which she characterized as holding “that a bankruptcy court has the discretion under Rule 9006(b) to enlarge the period of time to bring avoidance actions set forth in section 546(a), notwithstanding the omission of ‘statute’ from the text of Rule 9006(b), because Rule 9006(b) governs the filing of adversary proceedings pursuant to Rules 7001 and 7003.”
To the contrary, the objectors relied on the Bankruptcy Rules Enabling Act, 28 U.S.C. § 2075, which says, “Such rules shall not abridge, enlarge, or modify any substantive right.” Judge Manning dismissed the argument, saying, “Limitations periods are not, generally, substantive.” She held “that the Rules Enabling Act does not preclude Rule 9006(b) from providing a mechanism for extending the statutes of limitations set forth in sections 108(a), 546(a), and 549(d).”
Having decided that Rule 9006(b) “could provide a mechanism to extend the statutes of limitations,” Judge Manning asked whether the trustee had shown “cause.”
Reciting how “the Trustee has faced ceaseless recalcitrance, obstruction, and flagrant disregard of court orders,” Judge Manning found cause and granted the motion to extend the statutes under Rule 9006(b).
The trustee also wanted Judge Manning to equitably toll the running of the statutes. She denied the motion in that regard, “without prejudice to the Trustee raising equitable tolling or other equitable arguments in response to a defense that an adversary proceeding commenced by the Trustee is time-barred.”
Siding with the Eleventh Circuit and following the majority of courts, Bankruptcy Judge Julie A. Manning of Bridgeport, Conn., disagreed with two of her colleagues in the district when she held that Bankruptcy Rule 9006(b) permits a bankruptcy court to extend the statutes of limitations in Sections 108(a), 546(a), and 549(d).
An individual debtor filed a chapter 11 petition alongside two corporations that he controlled. The cases were jointly administered. Five months later, a chapter 11 trustee was appointed.
In her February 15 opinion, Judge Manning said that the chapter 11 trustee had been “more than reasonably diligent” in pursuing potential causes of action against numerous third parties. She recounted how the trustee had obtained 15 orders granting Rule 2004 examinations. She said that the trustee’s diligence was shown by a docket with 2,900 entries and “more than 250 associated adversary proceedings.”