J & B Automotive, Inc. v. Martinez et al

UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
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06/11/06
J & B Automotive, Inc. v. Carlos Martinez, et al.
04-01130
Memorandum Opinion re: [6-1] Motion To Dismiss Adversary Proceeding by Carlos
Martinez, Elizabeth Ann Martinez .
Received on: 2004-12-30 12:31:50.000
2004-12-30 00:00:00.000
2004-12-30 00:00:00.000
James Burke
Case 04-01130-s Doc 16 Filed 12/30/04 Entered 12/30/04 14:09:00 Page 1 of 12

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF NEW MEXICO
In re:
CARLOS MARTINEZ and
ELIZABETH MARTINEZ,
Debtors. No. 7-04-11751 SA
J & B AUTOMOTIVE, INC.,
Plaintiff,
v. Adv. No. 04-1130 S
CARLOS MARTINEZ, et al.,
Defendants.
MEMORANDUM OPINION AND ORDER
GRANTING DEFENDANTS’ MOTION TO DISMISS
This matter is before the Court on Defendants’ Motion to
Dismiss (doc. 6). Defendants are represented by Moore &
Berkson, P.C. (George M. Moore and Arin E. Berkson).
Plaintiff is represented by Steven M. Torres and Ella J.
Fenoglio. For the reasons discussed below, the Court finds
the Motion to Dismiss should be granted. This is a core
proceeding. 28 U.S.C. § 157(b)(2)(I).
FACTS
1. Defendants/Debtors filed their Chapter 7 case on March
11, 2004.
2. The first meeting of creditors was scheduled for April
16, 2004. The deadline for filing dischargeability
complaints was June 15, 2004. See Notice of Chapter 7
Bankruptcy Case, Meeting of Creditors, and Deadlines
(docketed in main bankruptcy case March 12, 2004).
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3. On June 14, 2004, J & B Automotive, Inc. (hereafter
“Plaintiff”) filed an “Objection to Discharge of Debtor”
(“Objection”) as a pleading in the main bankruptcy case.
The Objection states that Plaintiff is a creditor, that
Plaintiff “objects to Debtor’s [sic] discharge on the
grounds of fraud”, and requests that the Court not
discharge its claim on the basis of fraud. The Objection
does not request an extension of time to file a
complaint, nor does it set forth any grounds that would
justify an extension. The Objection does not contain an
adversary caption, and the court file does not contain a
receipt for a filing fee.
4. On June 17, 2004, Plaintiff filed this adversary
proceeding objecting to discharge of its debt.
Defendants move to dismiss because the adversary was not
timely filed under Bankruptcy Rule 4007(c).
DISCUSSION
1. Plaintiff’s complaint seeks to hold a debt
nondischargeable under Sections 523(a)(2)(A), (a)(4), and
(a)(6).
2. Objections to discharge of debts must be filed as
adversary proceedings. See Bankruptcy Rule 7001(6) (A
proceeding to determine dischargeability of a debt is an
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Page -3-
adversary proceeding.); Bankruptcy Rule 4007(a) (Any
creditor may file a “complaint” to obtain a determination
of dischargeability.); Bankruptcy Rule 4007(c) (A
“complaint” to determine dischargeability of a section
523(c) debt (which includes 523(a)(2), (4) and (6) debts)
shall be filed no later than 60 days after the first date
set for the first meeting of creditors.)
3. The Objection did not commence an adversary proceeding.
See, e.g., Karr v. Pankey (In re Pankey), 122 B.R. 710,
712 (Bankr. W.D. Tenn. 1991), aff’d, 145 B.R. 244 (W.D.
Tenn. 1992).
4. Bankruptcy Rule 4007(c) sets forth time limits within
which 523(a)(2) debts must be filed. It also provides
for an extension of time: “[o]n motion of a party in
interest, after hearing on notice, the court may for
cause extend the time fixed under this subdivision. The
motion shall be filed before the time has expired.”
5. Bankruptcy Rule 9006(b)(3) reinforces Rule 4007(c)’s time
restrictions: “The court may enlarge the time for taking
action under Rule[s] ... 3002(c), 4003(b), 4004(a),
4007(c) [and] 8002 ... only to the extent and under the
conditions stated in those rules.” Compare Kontrick v.
Ryan, 540 U.S. 443, 124 S.Ct. 906, 911 (2004)(discussing
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Page -4-
Rule 9006(b)(3)’s restriction of Rule 4004(b)); and
compare Taylor v. Freeland & Kronz, 503 U.S. 638, 643
(1992):
Rule 4003(b) gives the trustee and creditors 30
days from the initial creditors’ meeting to
object. By negative implication, the Rule
indicates that creditors may not object after 30
days “unless, within such period, further time
is granted by the court.” The Bankruptcy Court
did not extend the 30-day period.
6. Bankruptcy Rules 4007 and 9006 are “claim-processing
rules.” Kontrick, 125 S.Ct. at 914. Claim-processing
rules serve three primary purposes:
First, they inform the pleader, i.e., the
objecting creditor, of the time he has to file a
complaint. Second, they instruct the court on
the limits of its discretion to grant motions
for complaint-filing-time enlargements. Third,
they afford the debtor an affirmative defense to
a complaint filed outside the Rules 4004(a) and
(b) limits.
Id. at 917.
7. Thus, Kontrick suggests that the Bankruptcy Court’s
discretion is limited in granting extensions to file
complaints objecting to discharge of a debt. Rules
9006(b)(3) and 4007(c) mandate that motions for extension
of time may only be granted before the time for filing
complaints has run.
8. “Affirmative defense” is defined as “A defendant's
assertion of facts and arguments that, if true, will
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1 Kontrick held that the time limits for filing an
adversary proceeding objecting to the debtor’s discharge were
not “jurisdictional”; i.e., the debtor could forfeit the
affirmative defense of untimely filing by failing to raise it
before the trial court decided the merits of the action
against the debtor. Id. at 917-18. In this adversary
proceeding, Defendants have immediately raised the defense.
2“Whether the Rules, despite their strict limitations,
could be softened on equitable grounds is therefore a question
we do not reach.” Kontrick, 126 S.Ct. at 916 (Emphasis added,
footnote omitted.) Therefore, equitable grounds may be
relevant. However, the mere allegation of the substance of
the complaint; to wit, that Defendant defrauded Plaintiff,
would not in itself constitute such an equitable ground.
See Cablevision Systems Corp. v. Malandra (In re Malandra),
206 B.R. 667, 672 (Bankr. E.D. N.Y. 1997).
Page -5-
defeat the plaintiff's or prosecution's claim, even if
all the allegations in the complaint are true.” Black’s
Law Dictionary (8th ed. 2004). Thus, Kontrick also
suggests that an untimely filing of a dischargeability
complaint is an affirmative defense that will justify
dismissal of the complaint.1
9. Plaintiff argues that Bankruptcy Courts, as courts of
equity, should use their inherent equitable powers to
embrace a liberal and flexible approach when applying the
Bankruptcy Rules2. The Court of Appeals for the Tenth
Circuit has ruled otherwise:
Rules 4004(a) and 4007(c) set a strict sixty-day
time limit within which a creditor may dispute
the discharge of the debtor and the
dischargeability of debts. Rules 4004(b) and
4007(c) provide that this deadline may only be
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3Plaintiff’s citations to Chase Manhattan Bank, N.A. v.
Sturgis (In re Sturgis), 46 B.R. 360 (Bankr. W.D. Okla. 1985)
and In re Kellogg, 41 B.R. 836 (Bankr. W.D. Okla. 1984) are
not to the contrary. In both those cases a motion for
extension of time was timely filed. In both cases the issue
was whether there was sufficient cause such that the motions
should be granted. And, furthermore, in Sturgis the Court
specifically stated that it would have the discretion to grant
a motion for extension “but only if the motion was made before
such time has expired.” 46 B.R. at 362.
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extended for cause, after a hearing, if a motion
is made before expiration of the sixty days.
Finally, Rule 9006(b)(3) provides that a “court
may enlarge the time for taking action under
Rules ... 4004(a) [and] 4007(c) ... only to the
extent and under the conditions stated in those
rules.” Together, these rules prohibit a court
from sua sponte extending the time in which to
file dischargeability complaints. This circuit
has strictly construed such deadlines, holding
that a Chapter 7 creditor with actual notice of
a bankruptcy is bound by the sixty-day limit
even if no formal notice of the deadline is
received.
Themy v. Yu (In re Themy), 6 F.3d 688, 689 (10th Cir.
1993). (Citations omitted.) See also Kontrick, 124
S.Ct. at 916 (Characterizing claim-processing rules as
having “strict limitations.”) The Court therefore will
decline Plaintiff’s invitation to use its inherent
equitable power to extend the time for filing after the
fact.3
10. Plaintiff also argues that the complaint should be
considered timely due to excusable neglect. Even if
Plaintiff had alleged circumstances constituting
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Page -7-
excusable neglect, which he has not done, that doctrine
does not apply in this situation. “Excusable neglect”
appears in Bankruptcy Rule 9006(b)(1), which limits its
application “[e]xcept as provided in paragraphs (2) and
(3).” Rule 9006(b)(3) limits extensions for filing
complaints objecting to dischargeability to those
conditions set forth in Rule 4007(c), which does not
allow untimely motions. See Jones v. Arross, 9 F.3d 79,
81 (10th Cir. 1993). See also Zidell, Inc. v. Forsch (In
re Coastal Alaska Lines, Inc.), 920 F.2d 1428, 1432 (9th
Cir. 1990)(court cannot extend deadline for filing claims
under Rule 3002(c) for excusable neglect); Aspect
Technology of Plano, Texas v. Simpson (In re Simpson),
215 B.R. 885, 886 (10th Cir. B.A.P. 1998)(“Excusable
neglect” is a term used in Bankruptcy Rule 9006(b)(1),
but that rule does not apply to Rule 8002. Extensions of
time under Rule 8002 may only be granted under the terms
and conditions set forth in Rule 8002 itself, pursuant to
Rule 9006(b)(3)). Therefore, the Court cannot apply the
theory of excusable neglect to allow the late filing.
11. Plaintiff also urges the Court to use Section 105(a) to
obtain the result it seeks. That section reads:
The court may issue any order, process, or
judgment that is necessary or appropriate to
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4Possibly, the “harsh consequences” of federal statutes of
limitations may be avoided if the guilty party has
affirmatively concealed facts or if the injured party is
unaware of fraud through no fault of his own. See Taylor, 503
U.S. at 647 (Stevens, J., dissenting.) Neither of these
situations is present here. Plaintiff claimed fraud before
the Rule 4007(c) deadline. See also Million v. Frank, 47 F.3d
385, 389 (10th Cir. 1995)(Equitable tolling may be appropriate
where the defendant has actively misled the plaintiff
respecting the cause of action, or where the plaintiff has in
some extraordinary way been prevented from asserting his
rights.)(Citation and internal punctuation omitted.)
Page -8-
carry out the provisions of this title. No
provision of this title providing for the
raising of an issue by a party in interest shall
be construed to preclude the court from, sua
sponte, taking any action or making any
determination necessary or appropriate to
enforce or implement court orders or rules, or
to prevent an abuse of process.
Plaintiff has not alleged waiver, estoppel or equitable
tolling4. In fact, Plaintiff has not alleged anything
that would suggest that the Court should use section 105,
other than the suggestion that its debt may have been
obtained by fraud. This is insufficient. See In re
Malandra, 206 B.R. at 672 (“Clearly, the mere fact that
the Debtor may have committed an intentional wrong that
could, if properly presented, be declared non-
dischargeable ... is not the sort of equitable
consideration contemplated”, citing In re Benedict, 90
F.3d 50 (2d Cir. 1996)). Compare Themy, 6 F.3d at 90
(court may use Section 105 to correct its own errors);
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Nicholson v. Isaacman (In re Isaacman), 26 F.3d 629, 632-
33 (6th Cir. 1994)(same). And compare Carlisle v. United
States, 517 U.S. 416, 421 (1996):
Federal Rule of Criminal Procedure 45(b)
provides that whereas certain untimely acts may
be accorded the validity upon a showing of
excusable neglect, “the court may not extend the
time for taking any action under Rul[e] 29 ...
except to the extend and under the conditions
stated in [the Rule.]” These Rules are plain and
unambiguous. If, as in this case, a guilty
verdict is returned, a motion for judgment of
acquittal must be filed, either within seven day
of the jury’s discharge, or within an extended
period fixed by the court during that 7-day
period. There is simply no room in the text of
Rules 29 and 45(b) for the granting of an
untimely postverdict motion for judgment of
acquittal, regardless of whether the motion is
accompanied by a claim of legal innocence, is
filed before sentencing, or was filed late
because of attorney error.
See also Landsing Diversified Properties-II v. First
Nat’l Bank and Trust Co. of Tulsa (In re Western Real
Estate Fund, Inc.), 922 F.2d 592, 601 (10th Cir.
1990)(Bankruptcy Court may not exercise equitable powers
of section 105 in a manner that is inconsistent with
other, more specific provisions of the Bankruptcy Code.);
Towers v. Boyd (In re Boyd), 243 B.R. 756, 761-62 (N.D.
Cal. 2000)(Bankruptcy Court may not use 105 to circumvent
Rule 4003's and Rule 9006's clear directives.)
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12. Plaintiff also cites Sheftelman v. Standard Metals
Corporation, 839 F.2d 1383 (10th Cir. 1987), cert.
dismissed 488 U.S. 881 (1988), for the proposition that
the Court can rely on Section 105 to allow the filing to
relate back. Sheftelman, however, permitted bondholders
to file claims and vote on the chapter 11 plan despite
having missed the deadline because they had received no
notice to begin with. Id. at 1386-87.
13. “Deadlines may lead to unwelcome results, but they prompt
parties to act and they produce finality.” Taylor, 503
U.S. at 644. In this case, Plaintiff did not timely file
an adversary proceeding or timely request an extension of
time to file one. Therefore, it cannot now deprive
Defendants of the benefit of their discharge.
14. Although cited by neither party, International State Bank
v. Fresquez (In re Fresquez), 167 B.R. 973 (Bankr. D.
N.M. 1994) allowed relation back of complaint under
Section 727(e). In light of Taylor and Kontrick, the
Court disagrees with the continuing validity of Fresquez.
ORDER
For the reasons set forth above, the Defendants’ Motion
to Dismiss is granted.
IT IS ORDERED that this case is dismissed with prejudice.
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Honorable James S. Starzynski
United States Bankruptcy Judge
I hereby certify that on December 30, 2004, a true and correct
copy of the foregoing was electronically transmitted, faxed,
delivered, or mailed to the listed counsel and/or parties.
Stephen M. Torres
3700 Coors Blvd NW Ste F
Albuquerque, NM 87120-1405
Arin Berkson
PO Box 216
Albuquerque, NM 87103-0216
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