Restructuring

Contributed by Erika del Nido
Although the Court opened with a joke — “I love deadlines. I love the whooshing sound they make as they fly by” — the United States Court of Appeals for the Ninth Circuit in Anwar v. Johnson was dead serious in its conclusion that the Federal Rules of Bankruptcy Procedure do not afford a bankruptcy court with discretion to retroactively extend the deadline for filing nondischargeability complaints.

Background
In Anwar, two former employees of the debtor sought to object to the dischargeability of debts owed to them by the former founders, principal shareholders, and officers, who had filed a voluntary petition as individuals under chapter 7 of the Bankruptcy Code. The employees intended to allege that the debts owed to them were obtained by fraud, and as such, were excepted from discharge pursuant to section 523(c) of the Bankruptcy Code. Rule 4007(c) of the Federal Rules of Bankruptcy Procedure provides a 60-day deadline for filing complaints seeking to deny dischargeability of debts pursuant to section 523(c) of the Bankruptcy Code. The Arizona bankruptcy courts (where the debtor’s bankruptcy case was pending) have established a local rule mandating the use of an electronic filing system, and Rule 9006(a)(4)(A) provides that the filing deadline for electronic filings is midnight on the relevant deadline set by the court. The employees’ counsel experienced technical problems while filing the nondischargeability complaint and filed the complaint approximately half an hour after midnight on the date of the deadline. The debtors moved to dismiss the complaint as untimely. The bankruptcy court held that it lacked the discretion to grant a retroactive extension of the filing deadline established pursuant to Rule 4007(c), and the district court affirmed.
The Ninth Circuit’s Analysis
On appeal, the court held that the bankruptcy court correctly concluded that Rule 4007(c) does not afford the bankruptcy court with discretion to retroactively extend the filing deadline for nondischargeability complaints. Although motions to extend the deadline may be filed, they must be filed before the deadline expires. Furthermore, Rule 9006(b)(3) provides that the deadline may be extended “only to the extent and under the conditions stated in FRBP 4007(c) itself.” The court acknowledged that “[c]onsistent with the plain language of FRBP 4007(c) and 9006(b)(3), we have repeatedly held that the sixty-day time limit for filing nondischargeability complaints under 11 U.S.C. § 523(c) is ‘strict’ and, without qualification, ‘cannot be extended unless a motion is made before the 60–day limit expires.’”
The court also concluded that the bankruptcy court did not have the equitable power to grant the requested relief. Because the bankruptcy court’s equitable powers “can only be exercised within the confines of the Bankruptcy Code,” and a retroactive extension of the deadline “would conflict with the plain language of FRBP 4007(c) and 9006(b)(3), the bankruptcy court could not rely on its equitable powers to do so.” Next, the court held that the local rules, including rules providing relief in connection with untimely electronic filings, do not justify retroactive extension of the deadline because such rules must be consistent with the Bankruptcy Code. Finally, the court held that a model rule of bankruptcy procedure providing for relief in connection with untimely electronic filings cannot override the expiration of the deadline because it is “only an advisory template” and “has no legal force and cannot trump the Federal Rules of Bankruptcy Procedure.”
Conclusion
The court held that the deadline for the nondischargeability complaint could not be retroactively extended because “neither the federal rules, local rules, nor model rules of bankruptcy procedure
gave the bankruptcy court authority to relieve [claimants] from the consequences of [the] untimely filing.” Attorneys should beware that, in the eyes of the Ninth Circuit, the Bankruptcy Rules rule!