DeNoce v. Neff (In re Neff)
DeNoce v. Neff (In re Neff), 505 B.R. 255 (9th Cir. BAP 2014): In a published decision the U.S. Bankruptcy Appellate Panel of the Ninth Circuit ("BAP") affirmed a bankruptcy court’s order granting a debtor partial summary judgment against a denial of discharge complaint that alleged debtor should be denied a discharge because debtor had, within 1 year before debtor filed bankruptcy, made a fraudulent transfer of some of debtor’s property, and had made that transfer with an actual intent to hinder, delay, or defraud creditors. the BAP held that the one-year "lookback period" of Bankruptcy Code 11 USCn 727(a)(2)(A) is not a "statute of limitations", which would be subject to equitable tolling; but instead is a "statute of repose", and as such, was NOT subject to equitable tolling. In addition, the BAP held that the doctrine of continuing concealment is not applicable where the debtor conceals a transfer of property but does not attempt to conceal debtor’s interest in the property.
Facts
On March 4, 2010, Appellee Ronald Neff (the "Debtor") filed his first chapter 13 petition. Shortly thereafter, on April 7, 2010 the Debtor recorded a quitclaim deed (the "Transfer") transferring certain real property (the "Subject Property") from himself to a revocable trust (the "Trust"). Two days later, the Debtor’s bankruptcy case was dismissed. The Debtor filed his second chapter 13 petition on June 18, 2010 and reported on his Schedule B that the Subject Property was owned by the Trust but did not disclose the Transfer in his Statement of Financial Affairs. The second bankruptcy case was dismissed on November 14, 2011.
On October 24, 2011, the Debtor filed a third bankruptcy case, this time under chapter 7. Appellant Douglas DeNoce ("Appellant") filed a complaint to deny the Debtor’s discharge under 11 U.S.C. § 727(a)(2) (the "Complaint") alleging the Transfer was fraudulent and done with the intent to avoid paying creditors. The Debtor answered, denying Appellant’s allegations and asserting, among other things, that the Complaint was barred by the applicable statute of limitations.
The Debtor moved for partial summary judgment under section 727(a)(2)(A) on the grounds that the Transfer was made more than one year prior to the filing of the chapter 7 petition. Appellant argued that the statute of limitations should be equitably tolled during the chapter 13 cases. The bankruptcy court granted partial summary judgment in favor of the Debtor holding that the one-year "lookback period" of section 727(a)(2)(A) is not subject to equitable tolling because it is a "statute of repose" and not a "statute of limitations." Appellant moved for reconsideration, and the bankruptcy court denied the reconsideration motion. The bankruptcy court reasoned that the one-year period in section 727(a)(2)(A) was similar to the period in section 727(a)(8) rather than the statute of limitations periods found in section 523(a)(1)(A) and section 507(a)(8)(A). Appellant timely appealed to the BAP.
BAP’s Holding and Analysis
In dealing with this matter of first impression, the BAP analyzed the decisions in Womble v. Pher Partners, 299 B.R. 810 (N.D. Tex. 2003), aff’d on other grounds, 108 F. App’x 993 (5th Cir. 2004) and Tidewater Fin. Co. v. Williams, 498 F.3d 249 (4th Cir. 2007). In Womble, the district court held that the one year period in section 727(a)(2)(A) is a statute of limitations that can be equitably tolled. In so holding, the Womble court relied on Young v. United States, 535 U.S. 43 (2002) for its reasoning that the one year lookback period in section 727(a)(2)(A) was similar to the three year statute of limitations set forth in section 507(a)(8)(A) because both statutes reference "the date of the filing of the petition" and therefore "dictate[d] similar treatment." In re Womble, 299 B.R. at 812.
The BAP disagreed with Womble because sections 523 and 727 serve two entirely different purposes. The purpose of section 523 is to except certain specified debts of a debtor from discharge but the purpose of section 727 is to deny the discharge of all debts based upon a debtor’s wrongful conduct without trying to protect an individual creditor’s claim from being discharged due to inaction. In short, creditors are not the intended beneficiaries of section 727.
In Tidewater, the issue was whether the lookback period in section 727(a)(8) was a statute of limitations subject to equitable tolling. The Tidewater court disagreed with Womble and questioned the applicability of Young in cases under section 727. The Tidewater court found that section 727(a)(8) does not contain the two required characteristics for a limitations period: (1) it does not prescribe a period of time within which a plaintiff must pursue a claim, and (2) the time period does not commence when a claimant has a complete and present claim for relief. Tidewater, 498 F.3d at 256. The BAP found the reasoning in Tidewater persuasive and concluded that section 727(a)(8) and section 727(a)(2) share two important similarities – (1) neither expressly provides for tolling and (2) neither contains the two required characteristics for a limitations period. Accordingly, the BAP affirmed the bankruptcy court finding that section 727(a)(2)(A) is a statute of repose not subject to equitable tolling.
The BAP also rejected the Appellant’s argument that the doctrine of "continuing concealment" was applicable because "concealment" focuses on the debtor’s intent to conceal any interest in transferred property, not whether the debtor intended to conceal the transfer. Hughes v. Lawson, 122 F.3d 1237, 1240 (9th Cir. 1997). Although the Debtor did not initially disclose the Transfer, no "concealment" of his interest in the Subject Property occurred within the meaning of the doctrine because the Debtor did nothing to change the title of his interest in the Subject Property in the year before he filed his Chapter 13 petition.
Commentary
The opinion provides an excellent analysis of the different purposes of Sections 523 and 727. It also provides a useful discussion regarding the distinction between a statute of limitations and a statute of repose, a difference which can sometimes be obscure. The BAP’s examination of the two required characteristics for a limitations period provides a helpful roadmap for practitioners.
This analysis is from the CA State Bar Insolvency Law Committee e-newsletter of 8/14/14