Equity Wont Save Your Tardy Filing Of a Nondischargeability Complaint

By: Aldo A. Caira III

St. John’s Law Student

American Bankruptcy Institute Law Review Staff
 
 
In Anwar v. Johnson, the Ninth Circuit held that the the Federal Rules of Bankruptcy Procedure do not afford a bankruptcy court discretion to retroactively extend the deadline for filing nondischargeability complaints when an attorney’s computer problems cause him to miss the electronic filing date.[1]  In Anwar, two former employees of a corporate debtor sought to file nondischargeability complaints against the two founders, principal shareholders and officers of that corporation who each filed a chapter 7 case.[2] Federal Rule of Bankruptcy Procedure 4007(c) mandates a strict, 60-day time limit for filing a non-dischargeability complaint.[3] On the eve of the deadline, counsel for the former employees did not begin the two-step filing electronic filing process until 9:00 p.m.[4] Due to computer issues, the employees’ attorney did not complete the filing process until after the deadline had passed. The bankruptcy court dismissed the complaints as untimely, finding that it lacked the discretion to grant a retroactive extension under Rule 4007(c).[5] The district court and the Ninth Circuit both affirmed.[6]
 
In finding that the bankruptcy court lacked the equitable power to grant the plaintiffs’ relief from untimely findings, the Ninth Circuit acknowledged that bankruptcy courts derive equitable power from section 105(a) of the Bankruptcy Code.[7] This provision authorizes the court to “issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of [the Bankruptcy Code].”[8] However, the Supreme Court has held that, “whatever equitable powers remain in the bankruptcy courts must and can only be exercised with within the confines of the Bankruptcy Code” and Federal Rule of Bankruptcy Procedure, deadlines included.[9] The Anwar court reasoned that since granting a retroactive extension to the filing deadline would directly conflict with the plain language of Rules 4007(c) and 9006(b)(3), the bankruptcy court could not grant relief in equity.[10] The strict deadline of Rule 4007(c) differs from other deadlines set by the bankruptcy rules where courts may extend deadlines at any time upon a showing of good cause or excusable neglect.[11]  The Supreme Court has not expressly addressed whether Rule’s 4007(c) filing deadline can be retroactively extended for any reason, but has acknowledged the split of authority.[12] On one hand, some courts, like the Ninth Circuit view the Federal Rules of Bankruptcy Procedure’s deadlines as “jurisdictional,” and will enforce strict deadlines even when doing so would lead to a harsh result.[13] On the other hand, other courts, like the Second Circuit, have held that such deadlines are “procedural” and may be extended if equity so requires.[14]  Generally, these courts are lenient as to late filings when it is the court’s own error that caused a claimant to miss a deadline.[15]
 
Anwar illustrates the danger of waiting until the last minute to file pleadings.  Even within Circuits that might be more forgiving under certain circumstances, it is good practice to ensure that there is ample time to meet the deadlines set forth in the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure because the failure to adhere to a known deadline could expose a practitioner to malpractice claims. Indeed, over twenty-one percent of all legal malpractice claims arise from lawyers missing deadlines.[16] While computers in many ways have streamlined private practice and court filing procedure, these systems are not guaranteed to be problem free.
 


[1] Anwar v. Johnson, 720 F.3d 1183 (9th Cir. 2013).
[2] Id. at 1184.
[3] Fed. R. Bankr. P. 4007 (“except as otherwise provided in subdivision (d), a complaint to determine the dischargeability of a debt under § 523(c) shall be filed no later than 60 days after the first date set for the meeting of creditors under § 341(a))(emphasis added). However, Fed. R. Bankr. P. 4007(c) allows for a “for cause” extension so long as the motion is “filed before the time has expired.” The Anwar employees had been previously granted an extension.
[4] Anwar, 720 F.3d at 1185(the deadline for completing the filing was midnight).
[5] Id.
[6] Id. at 1184 (“[w]e conclude that the Rules of Bankruptcy Procedure do not allow retroactive extension of the deadline, and we affirm the judgment of the district court”).
[7] Id. at 1187; see also In re Anwiler, 958 F.2d 925, 927-28 (9th Cir. 1992).
[8] 11 U.S.C.A. § 105(a) (2006).
[9] Norwest Bank Worthington v. Ahlers, 485 U.S. 197, 206 (1988).
[10] Anwar, 720 F.3d at 1184.
[11] In re Casey, 198 B.R. 918, 921 (Bankr. S.D. Cal. 1996).
[12] See Kontrick v. Ryan, 540 U.S. 443, 457 (2004) (“Whether the Rules, despite their strict limitations, could be softened on equitable grounds is [ ] a question we do not reach”).
[13] See In re Alton, 837 F.2d 457, 459 (11th Cir. 1988) (“provisions of F.R.B.P. 4007(c) are mandatory and do not allow the Court any discretion to grant a late filed motion to extend time to file a dischargeability complaint”) (internal quotations omitted).
[14] See In re Benedict, 90 F.3d 50, 54 (2d Cir. 1996) (“the time period imposed by Rule 4007(c) is not jurisdictional and thus is subject to waiver, estoppel, and equitable tolling”); see also In re Welsh, 138 B.R. 630, 631 (Bankr. M.D. Fla. 1992) (reasoning that Rule 4007(c) provision allowing the courts to grant an extension is evidence that the deadline should be treated as procedural rather than jurisdictional).
[15] See In re Themy, 6. F.3d 688, 690 (10th Cir. 1993) (holding that when the court’s own act affirmatively misleads a claimant the court may accept a non-dischargeability complaint after deadline).
[16] Manuel R. Ramos, Legal Malpractice: The Profession's Dirty Little Secret, 47 Vand. L. Rev. 1657, n. 89 (1994)