We’ve previously written on various cases in which parties have sought to save or revive late filed pleadings by arguing those pleadings “relate back” to previously filed documents with varying degrees of success.  See No Proof of Claim, No Problem: Bankruptcy Court Finds Declaration to Be Effective as Informal Proof of Claim and Avoid the Statute of Limitations on Avoidance Actions: Relate-Back!  In a recent decision, In re Lui, the Ninth Circuit Court of Appeals again addressed this issue and held that a creditor’s objection to confirmation of a debtor’s chapter 13 plan in which the creditor announced her intention to object in the future to the dischargeability of her claim was not sufficient to save such objection when the creditor failed to file the complaint on time.
In Lui, a judgment creditor brought an adversary proceeding against the debtor seeking a determination that the creditor’s claim (which was based on a promissory note that the debtor failed to repay on real estate) was non-dischargeable pursuant to section 523(c) of the Bankruptcy Code on the grounds that the debt was obtained through fraud. The debtor, however, was able to have the complaint dismissed by the bankruptcy court because the complaint was filed outside of the 60-day time period proscribed under Bankruptcy Rule 4007(c).
Pursuant to Bankruptcy Rule 4007(c), a complaint objecting to the dischargeablity of a debt of an individual under section 523(c) of the Bankruptcy Code is required to be filed “no later than 60 days after the first date set for the meeting of creditors under §341(a).” In Lui, the 341 meeting was held on August 27, 2012, so the deadline to file dischargeablity complaints was October 26, 2012. The judgment creditor, however, filed her complaint on November 16, 2012. The judgment creditor argued that her complaint should be deemed timely because it related back to a pleading she previously (timely) filed objecting to confirmation of the debtor’s chapter 13 plan of reorganization. In that pleading, the creditor objected to confirmation of the debtor’s plan on the grounds that the plan did not provide for arrears and ongoing payments to junior lienholders on real property. The judgment creditor maintained that her confirmation objection should serve as a timely filed complaint because, within that objection, the judgment creditor stated that she believed the debt underlying her proof of claim was incurred through fraud and was, therefore, non-dischargeable under section 523(a)(2) of the Bankruptcy Code. The judgment creditor concluded her plan objection by announcing that she “intends to file an adversary proceeding on this issue.”
Ultimately, however, the bankruptcy court, the Bankruptcy Appellate Panel for the Ninth Circuit, and the Ninth Circuit Court of Appeals each disagreed with the judgment creditor and ruled in favor of the debtor.
In the bankruptcy context, “where a party files a timely document that substantially complies with the federal pleading rules for an adversarial complaint (but is technically deficient for some reason), and then files an untimely adversarial complaint correcting these deficiencies, the untimely complaint may be deemed as timely.” Federal Rule of Civil Procedure 9(b) requires allegations for fraud “be specific enough to give defendants notice of the particular misconduct…so that they can defend against the charge and not just deny that they have done anything wrong.” Federal Rule of Civil Procedure 8 requires that “the complaint’s factual allegations, together with all reasonable inferences, state a plausible claim for relief.”
In affirming the previous decisions of the lower courts, the Ninth Circuit stated that “the touchstone of Rule 8, in the bankruptcy context, is whether the timely document gave the debtor fair notice of the claim in question” and, therefore, the court was charged with determining whether the earlier document was “clearly aimed” at requesting the same relief requested by the untimely adversarial complaint. To that end, the Court of Appeals found that the judgment creditor’s plan confirmation objection was not sufficient to revive her untimely complaint. First, the Court of Appeals held that the confirmation objection primarily consisted of conclusory statements and allegations and, therefore, left out “crucial parts” to sufficiently or plausibly allege fraud. Second, and more importantly, the Court of Appeals found that the confirmation objection was “clearly aimed” at defeating confirmation of the debtor’s plan and not contesting whether the judgment creditor’s claim could be discharged. Specifically, the Court of Appeals found that the confirmation objection asserted, among other things, that the debtor’s plan did not provide her with distributions of a value equal to the amount of her allowed claim and did not provide for arrears and/or ongoing payment to junior lienholders, which were challenges to the plan’s fairness and not to the dischargeability of a claim. The Court of Appeals held that “just because [the judgment creditor] asserts at the end of the objection that she intends to file an adversary proceeding for fraud, the objection cannot be said to have given fair notice of the claims in the untimely complaint.” The Court went on to further state that the judgment creditor’s assertion that she planned to file an adversary complaint in the future “shows she understood that the objection could not stand in for an adversarial complaint and that it would not fairly put [the debtor] on notice that the objection was operating as an adversarial complaint.”
Accordingly, the Court of Appeals affirmed the decisions of the lower courts and dismissed the judgment creditor’s complaint.
Take care to observe and abide by court-imposed deadlines. Reservations of rights language or announcements of future intentions are all well and good, but, as the Ninth Circuit held, they may not be sufficient to revive an untimely complaint. We are all on notice.