Sandoval v. Century Bank

1The Court has subject matter and personal jurisdiction
pursuant to 28 U.S.C. §§1334 and 157(b); this is a core
proceeding pursuant to 28 U.S.C. §157(b)(2)(F); and these are
findings of fact and conclusions of law as may be required by
Rule 7052 F.R.B.P.
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF NEW MEXICO
In re:
MAGDALENO M. SANDOVAL,
Debtor. 	No. 7-11-10086 SS
MAGDALENO M. SANDOVAL,
Plaintiff,
v 	Adv. No. 11-1137 S
CENTURY BANK,
Defendant.
MEMORANDUM OPINION ON MOTION TO DISMISS
This matter is before the Court on Defendant Century Bank’s
(“Bank”) Motion to Dismiss (“Motion”) (doc 4). 	Plaintiff is
represented by his attorney Gerald R. Velarde. 	Bank is
represented by its attorney Scheuer, Yost & Patterson, PC
(Christopher M. Grimmer). 	This adversary proceeding is a
complaint by the Debtor to recover an exempted preferential
transfer under section 547 1. 	The Motion argues that the
complaint was filed too late. 	For the reasons set forth below,
the Court agrees with position advanced in the Motion and will
grant the Motion.
The parties filed the following stipulated facts in
connection with Bank’s Motion (doc 8):
1. 	Defendant Century Bank (“Century Bank”) caused Writs of
Garnishment of Debtor/Plaintiff Magdaleno M. Sandoval’s
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2 In fact, relying on §522(d)(5), Sandoval in Schedule C
claimed exempt $8,125 of the total value of the garnishments of
$13,500. 	Doc 9 at 8. 	The complaint stated the amount at issue
was estimated at $13,971.03 and sought to recover the entire
amount. 	For purposes of this decision, the discrepancy between
what the docket shows and what the parties stipulated to is not
relevant.
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(“Sandoval”) bank account(s) with First National Bank of Santa
[Fe] to be issued in the following New Mexico State District
Court cases: Century Bank v. Magdaleno Sandoval, Cause No. D-
0101-CV-200902742; Century Bank v. Magdaleno Sandoval, Cause No.
D-0101-CV-200903095; and Century Bank v. Magdaleno Sandoval,
Cause No. D-0101-CV-200903162.
2. 	The Writs of Garnishment were served on First National Bank
of Santa Fe on October 14, 2010.
3. 	Pursuant to the December 7, 2010, Judgments on Writ of
Garnishment, Claim of Exemption and Order to Pay entered in the
State District Court cases, the sum of $13,596.03 was paid to
Century Bank by First National Bank of Santa Fe on or about
December 10, 2010 (the “Garnished Funds”). 	The payments were
made from the bank accounts in the name of Sandoval.
4. 	Sandoval filed a voluntary Petition under Chapter 7 of Title
11 of the United States Code on January 11, 2011. 	(Doc 1).
5. 	In Schedule C filed January 25, 2011, Sandoval claimed that
the Garnished Funds were exempt property. 	(Doc. 9). 	No
objection was filed to the exemption claim. 2
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6. 	On February 11, 2011, the Chapter 7 Trustee filed her Report
of No Distribution in Sandoval’s bankruptcy. 	(Doc. 14).
7. 	The Trustee did not attempt to pursue a preference action
against Century Bank or otherwise attempt to avoid the transfer
of the Garnished Funds to Century Bank.
8. 	Sandoval did not object to the Chapter 7 Trustee’s Report of
No Distribution.
9. 	On April 18, 2011, a Discharge of Debtor (doc 16) and a
Final Decree (doc 17) were entered and filed in Sandoval’s
bankruptcy.
10. 	On August 25, 2011, Sandoval filed a Complaint to Avoid and
to Recover Preferential Transfer against Century Bank (the
“Adversary Proceeding”). 	The Adversary Proceeding is numbered
and styled as follows: Magdaleno M. Sandoval v. Century Bank,
Adversary No. 11-1137s.
11. 	On September 14, 2011, Century Bank filed its Motion to
Dismiss Sandoval’s Complaint to Avoid and to Recover Preferential
Transfer in the Adversary Proceeding. 	(Doc 4).
12. 	On October 11, 2011, Sandoval filed his Motion to Reopen
Case in the bankruptcy case. 	(Doc 20).
13. 	On October 14, 2011, an Order Authorizing Reopening of Case
was filed in the bankruptcy case. 	(Doc 21).
ISSUE
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3For the purpose of this motion to dismiss, the Court will
assume that Debtor could prove all the statutory elements of a
preferential transfer.
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The only issue before the Court is whether the adversary
proceeding is subject to dismissal by virtue of the statute of
limitations. 3
DISCUSSION
First, the Court will set out the statutory and bankruptcy
rule framework that governs this adversary proceeding.
Bankruptcy Code section 522(l) provides:
The debtor shall file a list of property that the
debtor claims as exempt under subsection (b) of this
section. 	If the debtor does not file such a list, a
dependent of the debtor may file such a list, or may
claim property as exempt from property of the estate on
behalf of the debtor. 	Unless a party in interest
objects, the property claimed as exempt on such list is
exempt.
11 U.S.C. § 522(l). 	The time to object is fixed by Bankruptcy
Rule 4003, which provides in part:
[A] party in interest may file an objection to the list
of property claimed as exempt within 30 days after the
meeting of creditors held under § 341(a) is concluded
or within 30 days after any amendment to the list or
supplemental schedules is filed, whichever is later.
The court may, for cause, extend the time for filing
objections if, before the time to object expires, a
party in interest files a request for an extension.
Fed.R.Bankr.P. 4003(b)(1).
Bankruptcy Code section 522(h) provides:
The debtor may avoid a transfer of property of the
debtor ... to the extent that the debtor could have
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4Section 522(b) provides, in part:
(b)(1) Notwithstanding section 541 of this title, an
individual debtor may exempt from property of the
estate the property listed in either paragraph (2) or,
in the alternative, paragraph (3) of this subsection.
...
(2) Property listed in this paragraph is property that
is specified under subsection (d)...
(3) Property listed in this paragraph is--
(A) ... any property that is exempt under Federal law,
other than subsection (d) of this section, or State or
local law that is applicable on the date of the filing
of the petition...
Debtor claimed exemptions under paragraph (2), i.e., the federal
exemptions. 	See Case 7-11-10086, doc 9, p.8 (Schedule C).
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exempted such property under subsection (g)(1) of this
section if the trustee had avoided such transfer, if--
(1) such transfer is avoidable by the trustee under
section ... 547 ... of this title ... ; and
(2) the trustee does not attempt to avoid such
transfer.
11 U.S.C. § 522(h). 	Subsection (g)(1) in turn provides:
Notwithstanding sections 550 ... of this title,
the debtor may exempt under subsection (b) 4 of this
section property that the trustee recovers under
section ... 550 ... of this title, to the extent that
the debtor could have exempted such property under
subsection (b) of this section if such property had not
been transferred, if--
(1)(A) such transfer was not a voluntary transfer of
such property by the debtor; and
(B) the debtor did not conceal such property; or
(2) ... .
11 U.S.C. § 522(g)(1). 	Section 522(I) makes it clear that when a
debtor uses an avoidance power under section 522, he is subject
to all limitations imposed on a trustee in using that power:
If the debtor avoids a transfer or recovers a setoff
under subsection (f) or (h) of this section, the debtor
may recover in the manner prescribed by, and subject to
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the limitations of, section 550 of this title, the same
as if the trustee had avoided such transfer, and may
exempt any property so recovered under subsection (b)
of this section.
11 U.S.C. § 522(i)(1).
Section 546(a), Limitations on avoiding powers, states, in
relevant part:
(a) An action or proceeding under section 544, 545,
547, 548, or 553 of this title may not be commenced
after the earlier of--
(1) the later of--
(A) 2 years after the entry of the order for
relief; or
(B) 1 year after the appointment or election of
the first trustee under section 702, 1104, 1163,
1202, or 1302 of this title if such appointment or
such election occurs before the expiration of the
period specified in subparagraph (A); or
(2) the time the case is closed or dismissed.
11 U.S.C. § 546(a)(Emphasis added). 	Section 550, Liability of
transferee of avoided transfer, provides, in relevant part:
(a) ... to the extent that a transfer is avoided under
... 547 ... of this title, the trustee may recover, for
the benefit of the estate, the property transferred,
or, if the court so orders, the value of such
property...
(f) An action or proceeding under this section may not
be commenced after the earlier of--
(1) one year after the avoidance of the transfer
on account of which recovery under this section is
sought; or
(2) the time the case is closed or dismissed.
11 U.S.C. § 550 (Emphasis added). 	Therefore, the issue can be
rephrased as whether either section 546(a)(2) or section
550(f)(2) are defenses to Debtor’s recovery. 	The Court views
this as a statutory construction case.
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The well known starting place in statutory interpretation
cases are the statutes themselves:
[I]n interpreting a statute a court should always turn
first to one, cardinal canon before all others. We have
stated time and again that courts must presume that a
legislature says in a statute what it means and means
in a statute what it says there. ... When the words of
a statute are unambiguous, then, this first canon is
also the last: judicial inquiry is complete.
Connecticut Nat’l Bank v. Germain, 503 U.S. 249, 253-54
(1992)(Citations and internal quotation marks omitted.) 	And
“when the statute's language is plain, the sole function of the
courts' -at least where the disposition required by the text is
not absurd- is to enforce it according to its terms.” 	Hartford
Underwriters Ins. Co. v. Union Planters Bank, N.A., 530 U.S. 1, 6
(2000)(citing United States v. Ron Pair Enterprises, Inc., 489
U.S. 235, 241 (1989)). 	See also 62 Cases, More or Less, Each
Containing Six Jars of Jam v. United States, 340 U.S. 593, 596
(1951)(Congress expresses its purpose through words. 	The Court’s
task is to construe what Congress has written and not add to it
or subtract from it or to delete or to distort.); Burlington
Northern, Santa Fe Railway Co. v. Lohman, 193 F.3d 984, 985 (8 th
Cir. 1999), cert. denied, 529 U.S. 1098 (2000)(“The rules of
statutory construction dictate that words should not be supplied
to a statute when the words are purposefully omitted or when
adding words would defeat the purpose of the statute.”)
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Therefore, the first step in this adversary proceeding is to
determine whether the language at issue is plain and unambiguous.
Robinson v. Shell Oil Co., 519 U.S. 337, 340 (1997). 	The
plainness or ambiguity of a statute can be determined by
reference to the language itself, the specific context in which
the language is used, and the broader context of the statute as a
whole. 	Id. (citing Estate of Cowart v. Nickols Drilling Co., 505
U.S. 469, 477 (1992) and McCarthy v. Bronson, 500 U.S. 136
(1991)). 	The Court finds that sections 546(a)(2) and 550(f)(2)
are plain and unambiguous.
First, section 546 is entitled “Limitations on avoiding
powers” and subsection (a) clearly states that preference actions
“may not be commenced after ...” ... (2) “the time the case is
closed or dismissed.” 	Neither the statute itself, or any other
statute, limit section 546 to actions brought by a trustee;
rather, it is a limitation on the avoiding power itself.
Therefore, a debtor cannot argue that his or her use of the
avoiding power has different limitations on it than would a
trustee’s use. 	Nor does the statute itself, or any other
statute, revive the statute of limitations if the case is
reopened. 	Section 546(a)(2) is clear and unambiguous: actions to
avoid preferences may not be filed after the case is closed.
Second, section 550 is entitled “Liability of transferee of
avoided transfer.” 	This section lists the rules that apply when
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Page -9-
a trustee is successful in avoiding, among other things, a
preference. 	Section 550(a). 	It describes the liability of
initial transferees and their transferees, makes exception for
transferees that take for value and in good faith without
knowledge, and liability of insiders. 	Sections 550(a), (b) and
(c) and (e). 	The trustee is entitled to only a single
satisfaction. 	Section 550(d). 	Most important for this adversary
proceeding, however, section 550(f) requires that the action to
recover on the avoided preference must be brought before “the
time the case is closed or dismissed.” 	Section 550 is worded as
applying to “the trustee.” 	Section 522(i), quoted above, makes
it clear, however, that the debtor is subject to the same
limitations as the trustee when attempting to recover under
section 550. 	Neither the statute itself, or any other statute,
revive the statute of limitations if the case is reopened.
Section 550(f)(2) is clear and unambiguous: actions to collect on
avoided preferential transfers may not be filed after the case is
closed. 	See Phimmasone v. American General Finance (In re
Phimmasone), 249 B.R. 681, 682-83 (Bankr. W.D. Va. 2000):
The Debtor argues that the reopening of her case
removes her attempt to recover the garnished wages from
the statute of limitations embodied in § 550(f).
However, the plain language of the statute prohibits
the recovery of an avoidable or avoided transfer once
the case is closed. 	§ 550(f)(2) does not prohibit
recovery actions “while the case is closed.” 	Rather,
it prohibits actions for recovery under the section
after “the time the case is closed ...” 	Thus, the
statute runs once the case is closed. 	To read § 550 as
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the Debtor urges would remove § 550(f)(2) as any
barrier to actions to recover avoided transfers. 	Under
the Debtor's theory of the statute, a debtor or trustee
would merely need to move for reopening of the case
less than one year from the time the transfer was
avoided in order to avoid the bar of § 550(f)(2). 	If
read as the Debtor urges, § 550(f)(2) would only
prohibit actions to recover avoided transfers while a
case was closed. 	Such a reading is contrary to the
statute's plain language.
See also Mullen v. Kalil (In re Mullen), 337 B.R. 744, 749
(Bankr. D. N.H. 2006). 	The Mullen court noted that there are
reported cases that allow actions that would be subject to
section 546(a)(2) to be pursued after reopening a case: e.g.,
Gross v. Petty (In re Petty), 93 B.R. 208, 212 (9 th Cir. BAP
1988); White v. Boston (In re White), 104 B.R. 951, 955 (S.D.
Ind. 1989); Dwyer v. Peebles (In re Peebles), 224 B.R. 519, 520-
21 (Bankr. D. Mass. 1998); and Decker v. Voisenat (In re
Serrato), 214 B.R. 219, 226 (Bankr. N.D. Cal. 1997). 	The Mullen
court observed that all of these cases involved undisclosed or
concealed assets. 	Mullen, 337 B.R. at 749. 	All the cited cases
had been based upon a theory that if assets were undisclosed
there could never be a proper “closing” of the case that would
trigger the statutes of limitations to run. 	Id. 	In Mullen,
however, the debtor had disclosed the asset and the trustee was
aware of it but failed to act. 	Id. 	Therefore, the case had been
“fully administered” and the case had been properly and finally
closed, barring the resurrection of any avoidance actions.
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In the case before the Court, the preference action was
disclosed and exempted. 	Closure of the case prevents Debtor from
now filing to avoid the preference and filing to recover the
preference once it would have been avoided.
Debtor makes several arguments that the Court should
address. 	First, he argues that until the case actually closed
the Debtor would be unable to determine if the Trustee had
attempted to avoid the transfer. 	See 11 U.S.C. § 522(h)(2).
But, under section 522(l) and Fed.R.Bank.P. 4003(b)(1), one month
after the creditors meeting the garnished funds were “exempt.”
Russell v. Kuhnel (In re Kuhnel), 495 F.3d 1177, 1180 (10 th Cir.
2007)(Rule 4003(b) prevents objections to exemptions made after
time specified in rule, citing Taylor v. Freeland & Kronz, 503
U.S. 638, 642 (1992)). 	At that point, the Trustee had no claim
to them, nor could Bank object to the Debtor’s standing to
recover.
Debtor also argues the “properly closed” cases noted in
Mullen. 	The Court finds that these cases are not persuasive.
For one reason, these courts are adding a word to a statute that
is not there and that changes the operation of the statute. 	This
is not the Court’s function. 	See, e.g., 62 Cases, More or Less,
340 U.S. at 596 (“It is for us to ascertain [Congress’ intent]-
neither to add nor to subtract, neither to delete nor to
distort.”).
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Statutes of limitations, which “are found and approved
in all systems of enlightened jurisprudence,” 	Wood v.
Carpenter, 101 U.S. 135, 139, 25 L.Ed. 807 (1879),
represent a pervasive legislative judgment that it is
unjust to fail to put the adversary on notice to defend
within a specified period of time and that “the right
to be free of stale claims in time comes to prevail
over the right to prosecute them.” 	Railroad
Telegraphers v. Railway Express Agency, 321 U.S. 342,
349, 64 S.Ct. 582, 586, 88 L.Ed. 788 (1944). 	These
enactments are statutes of repose; and although
affording plaintiffs what the legislature deems a
reasonable time to present their claims, they protect
defendants and the courts from having to deal with
cases in which the search for truth may be seriously
impaired by the loss of evidence, whether by death or
disappearance of witnesses, fading memories,
disappearance of documents, or otherwise.
United States v. Kubrick, 444 U.S. 111, 117 (1979) (ending string
citations omitted). 	“Statutes of limitations are not simply
technicalities. 	On the contrary, they have long been respected
as fundamental to a well-ordered judicial system.” 	Board of
Regents of the University of the State of New York v. Tomanio,
446 U.S. 478, 487 (1980). 	“If Congress explicitly puts a limit
upon the time for enforcing a right which it created, there is an
end of the matter. 	The Congressional statute of limitation is
definitive.” 	Holmberg v. Armbrecht, 327 U.S. 392, 395 (1946).
Congress desired a bankruptcy court system which would
“operate efficiently and quickly.” 	H.R.REP. No. 595,
95th Cong. 1st Sess. 13 (1977), U.S. Code Cong. &
Admin. News 1978, pp. 5787, 5974. 	Congress considered
speed and efficiency “essential” because “delay only
operates to devalue assets, hinder financial
rehabilitation, and prevent the exercise of rights.”
Id.
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Gibbons v. Haddad (In re Haddad), 68 B.R. 944, 953 (Bankr. D.
Mass. 1987). 	Sections 546(a)(2) and 550(f)(2) are congressional
statutes of limitations that are an integral part of the
Bankruptcy Code and should not be ignored to reach a “better”
result.
It goes without saying that statutes of
limitations often make it impossible to enforce what
were otherwise perfectly valid claims. 	But that is
their very purpose, and they remain as ubiquitous as
the statutory rights or other rights to which they are
attached or are applicable. 	We should give them effect
in accordance with what we can ascertain the
legislative intent to have been. 	We doubt that here we
have misconceived the intent of Congress ... . 	But if
we have, or even if we have not but Congress desires a
different result, it may exercise its prerogative to
amend the statute so as to effect its legislative will.
Kubrick, 444 U.S. at 125.
The second reason the Court finds the “properly closed”
cases unpersuasive is that the fiction of a “properly closed”
case is unnecessary. 	In all of those cases there was fraud or
concealment. 	Under a long line of Supreme Court cases beginning
with Bailey v. Glover, 88 U.S. 342, 348 (1874) and continuing
through Holmberg, 327 U.S. at 397, to the present in Holland v.
Florida, ___ U.S. ___, 130 S.Ct. 2549, 2563 (2010) the Court has
recognized that federal statutes of limitations do not run if a
plaintiff has been injured by fraud and remains in ignorance of
it without any fault or want of diligence or care on his part,
the bar of the statute does not begin to run until the fraud is
discovered, though there be no special circumstances or efforts
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on the part of the party committing the fraud to conceal it from
the knowledge of the other party. 	Holmberg, 327 U.S. at 397.
Instead of finding cases improperly closed, a concept not defined
by the Code or Rules, the courts could have examined whether the
statutes of limitations had been tolled by fraud. 	See, e.g.,
Redmond v. Kopp (In re Kopp), 383 B.R. 179, 186 (Bankr. D. Kan.
2008)(Fraud is “cause” to reopen a case, reappoint the trustee
and restore the trustee’s avoidance powers.)
Finally, the Court finds that Debtor did not allege in the
complaint or the response to the Motion any equitable
considerations that would have tolled the running of any statutes
of limitations. 	This adversary proceeding must be dismissed.
CONCLUSION
For the reasons set forth above, the Court finds that the
Motion to Dismiss is well taken. 	A separate order will be
entered dismissing this adversary proceeding.
Honorable James S. Starzynski
United States Bankruptcy Judge
Date Entered on Docket: 	March 19, 2012
Copies to:
Gerald R Velarde
2531 Wyoming Blvd NE
Albuquerque, NM 87112-1027
Christopher M Grimmer
Scheuer, Yost & Patterson, PC
PO Box 9570
Santa Fe, NM 87504-9570
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