Equitable Tolling & Nondischargeability Filing Deadline (In re Osborn)

By: Donald L Swanson

I recently published this linked article on equitable tolling of a deadline for filing a dischargeability complaint or a motion to extend that deadline:

• Equitable Tolling & Due Process for Dischargeability Deadlines (TL90108 v. Ford).

Here’s another opinion on that same subject with an unusual set of facts In re Osborn, Case No. 24-40202, Nebraska Bankruptcy Court (decided July 9, 2024; Doc. 90).  What follows is a summary of this fascinating Nebraska opinion.

Facts

On March 8, 2024, Debtor files a voluntary Chapter 12 bankruptcy petition. And June 3, 2024, is set as the deadline for filing (i) a dischargeability complaint against Debtor, or (ii) a motion to extend that filing deadline.

Here’s a chronology of what happens on June 3, 2024 (the last day for filing the complaint or a motion to extend):

• at 3:42 p.m. Creditor’s counsel calls Debtor’s counsel to request an extension of the deadline.
• at 3:49 p.m. Debtor’s counsel responds by email with, “How about that extension until 8/2/2024?” 
• at 4:01 p.m. Debtor’s counsel provides a template by email;
• at 4:34 p.m. Creditor’s counsel returns the modified template by email for final review, but this document is not filed (one problem is that the Pacer account of Creditor’s attorney is not linked to the Nebraska Bankruptcy Court’s CM/ECF system);
• at 5:06 p.m. Creditor’s counsel emails to Debtor’s counsel, “Would you be willing to file this if I changed the caption to you and your firm?”
• at 5:17 p.m. Debtor’s counsel declines saying, “I’d prefer I’d [sic] the creditor file this. Is this a question of filing credentials?”
• Creditor’s counsel immediately responds with, “I think we have an ECF issue,” but Debtors’ counsel does not reply; and
• at 7:08 p.m. Creditor’s counsel emails back, “If I change it to a stipulation and proposed order, would you be willing to file it?”—this email is sent again at 7:23 p.m.

Here’s a chronology of what happens on the next day (June 4, 2024), after expiration of the deadline to file a complaint or a motion to extend:

• at 9:15 a.m. Debtor’s counsel responds, “Yes,” and Creditor’s counsel emails back a stipulation and proposed order;
• at 2:59 p.m. Debtors’ counsel backs away from the “Yes” with an email saying, “Last I knew you were going to send over stipulation and order based on an email request I received last night at 7:24. I responded quickly that I would file it when I received the proposal, though it seems my ‘yes’ response wasn’t sent, or doesn’t appear to be sent until, according to my records, at 9:15 this morning…which is odd as I wasn’t in my office then. …. The deadline was yesterday and the SOL expired at midnight and that presents an issue. Before addressing that issue, does my summary of the emails above match what you have?”
• at 3:45 p.m. Creditor’s counsel, not to be deterred, responds with an email attaching a redlined stipulation draft, saying, “Unless you believe this misrepresents our agreement, we will file the stipulation this afternoon”; and
• at 4:10 p.m. Debtor’s counsel objects by email saying, “I will need to speak with my client. I am not trying to jam anyone up here, but the deadline is expired, and I don’t think a verbal agreement to extend meets the code’s and rule’s requirement that the extension has to be by court order or the request has to be made before the expiration of the deadline.”

Two days later, on March 6, 2024, Creditor files a motion to extend the deadline for filing the dischargeability complaint.

The Bankruptcy Court ultimately denies Creditor’s Motion.  Here is a summary of its rationale.

Bankruptcy Rules

Under Fed.R.Bankr.P. 4007(c), a complaint objecting to discharge or seeking to determine the dischargeability of certain debts must be filed “no later than 60 days after the first date set for the meeting of creditors.”

That deadline may be extended for cause, but the motion to extend must be filed before the time for filing the complaint expires:

• Rule 4004(b)(1) says, “the court may for cause extend the time to object to discharge”; and
• Rule 4004(b)(2) says a motion to extend that deadline, “shall be filed before the time has expired.”

Such deadline may be enlarged “only to the extent and under the conditions stated” in Rules 4004 and 4007—see Fed.R.Bankr.P. 9006(b)(3); and see Kontrick v. Ryan, 540 U.S. 443 (2004).

Equitable Tolling

Creditor says the deadline should be equitably tolled. That’s because, in the Eighth Circuit, Bankruptcy Rules 4004 and 4007 are “analogous to statutes of limitation” and are subject to equitable tolling.

The plaintiff bears the burden of justifying both equitable tolling and the duration of that tolling.

According to the U.S. Supreme Court, equitable tolling “might be appropriate”:

1. when a claimant received inadequate notice;
2. when a motion for appointment of counsel is pending and equity would justify tolling the statutory period until the motion is acted upon;
3. where the court has led the plaintiff to believe that she had done everything required of her; or
4. when affirmative conduct on the part of the defendant has lulled the plaintiff into inaction.

Id. (citing Baldwin Cty. Welcome Ctr. v. Brown, 466 U.S. 147 (1984)).

Items two and three on that list are clearly not implicated here, says the Bankruptcy Court, and Creditor did not establish the other two grounds for equitable tolling. That’s because:

• Creditor had adequate notice—(i) Creditor retained counsel on May 8, 2024, almost a month before the deadline expired, and (ii) Creditor’s counsel began working on the case no later than May 24, 2024, when they reached out to Debtor’s counsel; and
• Creditor’s failure to timely file a complaint or a motion to extend was not caused by Debtor—(i) Debtors’ counsel agreed to the joint motion to extend and provided an acceptable form, and (ii) it was up to Creditor’s counsel to follow through and file the motion.

Further, the Bankruptcy Court also declines to invoke equitable tolling because Creditor did not act diligently to preserve its rights:

• federal courts typically extend equitable relief only sparingly—we have allowed equitable tolling where, (i) claimant has actively pursued judicial remedies by filing a defective pleading during the statutory period, or (ii) claimant has been induced or tricked by an adversary’s misconduct into allowing the deadline to pass;
• we have been much less forgiving where the claimant fails to exercise due diligence in preserving legal rights; and
• Creditor  did not act diligently—Creditor did not offer any contrary evidence, and too many questions remain unanswered, such as: (i) Why did counsel not enter an appearance immediately when retained, which would have revealed the linkage problem? (ii) Why did counsel wait until the final hour to request an extension? (iii) What action, if any, did counsel take after not receiving a response from Debtor’s counsel about filing a stipulation? (iv) What steps, if any, did counsel take to try to link the account the day the motion was due? (v) If steps were taken, were any difficulties encountered?
• Creditor relies solely on the agreement to extend—but that agreement does not excuse, remedy, or explain the overall lack of diligence, since Creditor’s counsel waited until the end of the business day on the last possible day and did so at its own peril.

Conclusion

Very interesting!

** If you find this article of value, please feel free to share. If you’d like to discuss, let me know.