Douglas John Denoce v. Ronald Neff

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
IN RE RONALD NEFF, No. 14-60017
Debtor,
BAP No. 13-1041
DOUGLAS J. DENOCE,
Appellant, OPINION
v.
RONALD NEFF,
Appellee,
DAVID K. GOTTLIEB,
Trustee.
Appeal from the Ninth Circuit
Bankruptcy Appellate Panel
Kirscher, Dunn, and Taylor, Bankruptcy Judges, Presiding
Argued and Submitted March 10, 2016
Pasadena, California
Filed June 9, 2016
Before: Richard R. Clifton, Consuelo M. Callahan,
and Sandra S. Ikuta, Circuit Judges.
Opinion by Judge Ikuta
2 IN RE NEFF
SUMMARY*
Bankruptcy
The panel affirmed the Bankruptcy Appellate Panel’s
decision affirming the bankruptcy court’s summary judgment
in favor of a chapter 7 debtor in a creditor’s adversary
proceeding seeking an exception to discharge on the basis of
a fraudulent transfer of property under 11 U.S.C. § 727(a)(2).
The panel held that § 727(a)(2), which prevents the
bankruptcy court from granting a debtor a discharge if the
debtor improperly transferred property within one year before
the date of the filing of the bankruptcy petition, is not subject
to equitable tolling.
COUNSEL
Douglas John DeNoce (argued), Westlake Village, California,
pro se Appellant.
Michael D. Kwasigroch (argued), Law Offices of Michael
Kwasigroch, Simi Valley, California, for Appellee.
*
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
IN RE NEFF 3
OPINION
IKUTA, Circuit Judge:
Douglas DeNoce, a creditor in Ronald Neff’s Chapter 7
bankruptcy case, appeals the Bankruptcy Appellate Panel’s
(BAP) decision that the exception to discharge found in
11 U.S.C. § 727(a)(2) did not apply to Neff. We agree with
the BAP that § 727(a)(2), which prevents the bankruptcy
court from granting a debtor a discharge if the debtor
improperly transferred property “within one year before the
date of the filing of the petition” in bankruptcy, is not subject
to equitable tolling. We therefore affirm the BAP’s decision.
I
In 2007, Neff, a dentist, treated DeNoce with the surgical
placement of eight dental implants. Those implants failed, as
did the ones from a subsequent surgery to repair the first
implants. DeNoce filed a malpractice action against Neff in
state court in October 2008, and DeNoce was ultimately
awarded a judgment of $310,000.
Neff filed his first bankruptcy petition under Chapter 13
in March 2010. On April 7, 2010, Neff recorded a quitclaim
deed transferring a condominium located on Lake Harbor
Lane in Westlake Village, California, from himself to a
revocable living trust that he had created. Neff’s first Chapter
13 case was dismissed on April 9, 2010, for his failure to
appear at the scheduled meeting of creditors, see 11 U.S.C.
§ 341(a). Neff filed a second Chapter 13 bankruptcy petition
on June 18, 2010. He reported the trust’s ownership of the
Lake Harbor property on the schedule listing personal
4 IN RE NEFF
property,1 but he did not report his recent transfer of it to the
trust on the Statement of Financial Affairs.2 After the
bankruptcy court learned of Neff’s transfer of the Lake
Harbor property to his revocable living trust during his first
Chapter 13 bankruptcy case, Neff recorded a quitclaim deed
transferring the Lake Harbor property back to himself on
August 4, 2010.
In October 2010, DeNoce filed an adversary complaint
alleging that his $310,000 state court judgment was not
dischargeable in Neff’s Chapter 13 bankruptcy because
(among other reasons) Neff had transferred his Lake Harbor
property into his revocable living trust “with intent to hinder,
delay or defraud a creditor,” 11 U.S.C. § 727(a). Neff filed
a motion to dismiss the adversary complaint, and the
bankruptcy court granted the motion as to DeNoce’s § 727(a)
claim without leave to amend, but allowed DeNoce to pursue
other claims against Neff. Neff ultimately voluntarily
dismissed his Chapter 13 case on October 19, 2011.
Neff then filed a third bankruptcy petition, this time under
Chapter 7, on October 24, 2011. In January 2012, DeNoce
again filed an adversary complaint arguing that the court
1
At the time of DeNoce’s bankruptcy proceedings, the applicable form
was Official Form 6B, “Schedule B, Personal Property.” Effective
December 1, 2015, this form has been replaced by Official Form B
106A/B, “Schedule A/B: Property.”
2
Official Form B 7, “Statement of Financial Affairs,” requires the
debtor to list all property transferred to “a self-settled trust or similar
device of which the debtor is a beneficiary” within ten years before the
commencement of the Chapter 13 case. Effective December 1, 2015, this
form has been replaced by Official Form B 107, “Statement of Financial
Affairs for Individuals Filing for Bankruptcy.”
IN RE NEFF 5
should deny Neff a discharge of his debts under 11 U.S.C.
§ 727(a)(2) because Neff fraudulently transferred the Lake
Harbor property. In his answer and subsequent motion for
summary judgment, Neff argued that he had transferred the
Lake Harbor property more than one year before filing his
Chapter 7 petition. Because § 727(a)(2) bars a discharge only
if the improper transfer occurred “within one year before the
date of the filing of the petition,” Neff contended that
§ 727(a)(2) did not prevent a discharge of his debts. In
considering the motion for summary judgment, the
bankruptcy court held that the transfer occurred more than
one year before the Chapter 7 petition was filed and equitable
tolling was not applicable to the one-year period in
§ 727(a)(2). The bankruptcy court granted summary
judgment in favor of Neff on this issue, and it subsequently
denied DeNoce’s motion for reconsideration. DeNoce then
appealed to the BAP, which affirmed the bankruptcy court.
In re Neff, 505 B.R. 255 (B.A.P. 9th Cir. 2014).
II
On appeal, DeNoce challenges the BAP’s decision that
equitable tolling does not apply to § 727(a)(2). He argues
that a court should deem Neff’s transfer of the Lake Harbor
property to have occurred “within one year before the date of
the filing of the petition” for purposes of § 727(a)(2) because
the one-year period was tolled during the pendency of Neff’s
two prior Chapter 13 cases. We have jurisdiction over final
decisions of the BAP under 28 U.S.C. § 158(d), and we
review such decisions de novo, In re Boyajian, 564 F.3d
1088, 1090 (9th Cir. 2009).
6 IN RE NEFF
A
Chapter 7 of the Bankruptcy Code provides for the
liquidation of a debtor’s nonexempt assets, which are then
used to pay creditors in the manner set forth in the Code.
11 U.S.C. §§ 704, 726. A discharge under Chapter 7 releases
the individual debtor from liability for specified debts. 11
U.S.C. § 727. Section 727(a)(2) provides that the “court shall
grant the debtor a discharge, unless . . . (2) the debtor, with
intent to hinder, delay, or defraud a creditor or an officer of
the estate charged with custody of property under this title,
has transferred . . . – (A) property of the debtor, within one
year before the date of the filing of the petition.”
There is no dispute that Neff’s transfer of the Lake Harbor
property took place more than one year before Neff filed his
Chapter 7 petition. Therefore, under the plain language of
§ 727(a)(2), the transfer is no impediment to the court’s grant
of a discharge. DeNoce can prevail on his claim only if the
one-year time period in § 727(a)(2) is subject to equitable
tolling.
“As a general matter, equitable tolling pauses the running
of, or tolls, a statute of limitations when a litigant has pursued
his rights diligently but some extraordinary circumstance
prevents him from bringing a timely action.” Lozano v.
Montoya Alvarez, 134 S. Ct. 1224, 1231–32 (2014) (internal
quotation marks omitted). Although the availability of
equitable tolling “is fundamentally a question of statutory
intent,” the Supreme Court presumes that Congress intended
that equitable tolling would be available “if the period in
question is a statute of limitations and if tolling is consistent
with the statute.” Id. at 1232; see also Young v. United
States, 535 U.S. 43, 49 (2002) (“It is hornbook law that
IN RE NEFF 7
limitations periods are customarily subject to equitable
tolling.” (quoting Irwin v. Department of Veterans Affairs,
498 U.S. 89, 95 (1990) (internal quotation marks omitted)).
The presumption that Congress intended to allow equitable
tolling of a statute of limitations does not apply, however, if
the time period in question is not a statute of limitations.
Lozano, 134 S.Ct. at 1234 (“[W]e have only applied that
presumption to statutes of limitations.”); see also CTS Corp.
v. Waldburger, 134 S. Ct. 2175, 2183 (2014) (distinguishing
between statutes of limitations, which are subject to equitable
tolling, and statutes of repose, which are not).
In determining whether a time period set by federal law
is a statute of limitations, the Court considers the “functional
characteristics” of the statute, that is, whether the time period
at issue serves the policies of a statute of limitations. Lozano,
134 S. Ct. at 1234–35 & n.6. A statute of limitations is
generally “[a] law that bars claims after a specified period;
specifically, a statute establishing a time limit for suing in a
civil case, based on the date when the claim accrued (as when
the injury occurred or was discovered).” Black’s Law
Dictionary 1636 (10th ed. 2014); see also CTS Corp.,
134 S. Ct. at 2182 (holding that “a statute of limitations
creates a time limit for suing in a civil case, based on the date
when the claim accrued”) (quoting Black’s Law Dictionary
1546 (9th ed. 2009)) (internal quotation marks omitted)).
Statutes of limitations serve the policies of “repose,
elimination of stale claims, and certainty about a plaintiff’s
opportunity for recovery and a defendant’s potential
liabilities.” Young, 535 U.S. at 47 (quoting Rotella v. Wood,
528 U.S. 549, 555 (2000) (internal quotation marks omitted));
Lozano, 134 S. Ct. at 1234. By setting a deadline for bringing
a claim, statutes of limitations encourage “plaintiffs to pursue
diligent prosecution of known claims,” CTS Corp., 134 S. Ct.
8 IN RE NEFF
at 2183 (internal quotation marks omitted), and thereby
“protect defendants against stale or unduly delayed claims,”
John R. Sand & Gravel Co. v. United States, 552 U.S. 130,
133 (2008); see also Aloe Vera of Am., Inc. v. United States,
580 F.3d 867, 871 (9th Cir. 2009).
In considering the functional characteristics of federal
statutes that provide a time period in which some action must
be taken, the Court has focused on whether the time period
serves the main goal of a statute of limitations: encouraging
plaintiffs to prosecute their actions promptly or risk losing
rights. In Young, the Court considered the three-year period
in 11 U.S.C. §§ 507(a)(8)(A)(I)3 and 523(a)(1)(A),4 which
provide that a claim by the IRS for tax liabilities is
nondischargeable if the tax return was due within three years
before the bankruptcy petition was filed. Young, 535 U.S. at
46. The Court concluded that the statute encourages the IRS
3
Section 507(a)(8)(A) states:
(a) The following expenses and claims have priority in
the following order: . . . (8) Eighth, allowed unsecured
claims of governmental units, only to the extent that
such claims are for—(A) a tax on or measured by
income or gross receipts for a taxable year ending on or
before the date of the filing of the petition—(i) for
which a return, if required, is last due, including
extensions, after three years before the date of the filing
of the petition.
4
Section 523(a)(1)(A) states:
Exceptions to discharge (a) A discharge under [select
provisions of the Bankruptcy Code] does not discharge
an individual debtor from any debt—(1) for a tax or
customs duty—(A) of the kind and for the periods
specified in . . . 507(a)(8) of this title . . . .
IN RE NEFF 9
to pursue its rights before three years have elapsed, because
if the IRS sleeps on its rights and fails to prosecute its claims
for taxes within three years, it cannot enforce those claims
against bankrupt tax payers. Id. at 47. Because the statute
encourages the IRS to pursue its rights before three years
have elapsed, the Court held that the three-year period “serves
the same basic policies furthered by all limitations provisions:
repose, elimination of stale claims, and certainty about a
plaintiff’s opportunity for recovery and a defendant’s
potential liabilities.” Id. (quoting Rotella, 528 U.S. at 555);
Lozano, 134 S. Ct. at 1234–35 (discussing Young).
Accordingly, the Court held that the three-year period in
§ 507(a)(8)(A)(i) is a statute of limitations presumptively
subject to equitable tolling. Young, 535 U.S. at 47–49.
By contrast, in Hallstrom v. Tillamook County, the Court
concluded that an environmental provision prohibiting a civil
action to be commenced “prior to sixty days after the plaintiff
has given notice of the violation” to the appropriate persons
was not a statute of limitations because it was “not triggered
by the violation giving rise to the action.” 493 U.S. 20, 25,
27 (1989). Thus, the statute did not encourage a plaintiff to
timely file a claim or risk losing rights. And because it was
not a statute of limitations, equitable tolling did not apply. Id.
at 27. Similarly, in Lozano v. Montoya Alvarez, the Court
considered a treaty provision providing that “[w]hen a parent
abducts a child and flees to another country,” that country
must “return the child immediately if the other parent
requests return within one year.” 134 S. Ct. at 1228. The
expiration of the one-year period did not cut off any rights
held by the left-behind parent; it merely allowed a court to
consider the child’s interests as well as the parent’s. Id. at
1234–35. Because the one-year period only addressed policy
issues that were “not the sort of interest addressed by a statute
10 IN RE NEFF
of limitations,” the Court held that it was not a statute of
limitations, and it was therefore not subject to equitable
tolling. Id. at 1235–36.
B
We now turn to the question whether § 727(a)(2)(A) is a
statute of limitations that is subject to the presumption that
equitable tolling is available. To do so, we begin by
considering the “functional characteristics” of § 727(a)(2)(A),
Lozano, 134 S. Ct. at 1235 n.6, and whether this statute serves
the policies of “repose, elimination of stale claims, and
certainty about a plaintiff’s opportunity for recovery and a
defendant’s potential liabilities,” Young, 535 U.S. at 47.
Section 727(a)(2) denies a debtor a discharge from any
claims where the debtor misused the bankruptcy process by,
among other things, transferring assets “with intent to hinder,
delay, or defraud a creditor.” As such, the purpose of this
exception to discharge is to prevent dishonest debtors from
“seeking to abuse the bankruptcy system in order to evade the
consequences of their misconduct.” Hawkins v. Franchise
Tax Bd. of Cal., 769 F.3d. 662, 666 (9th Cir. 2014) (internal
quotation marks omitted). The penalty imposed by this
exception is designed to motivate the debtor to reveal assets
and keep or recover property for the estate. See In re Adeeb,
787 F.2d 1339, 1345 (9th Cir. 1986).
Unlike a statute of limitations, the § 727(a)(2) exception
to discharge is not designed to encourage a specific creditor
to prosecute its claim promptly to avoid losing rights, and it
does not serve the purposes of “repose, elimination of stale
claims,” and certainty. Young, 535 U.S. at 47. While the
statutes considered in Young encouraged the government to
IN RE NEFF 11
file its claims no later than three years after those claims
accrued (in order to ensure the claims would be
nondischargeable in any subsequent bankruptcy), § 727(a)(2)
does not encourage (or require) a creditor to take any action
at all. Because the improper conduct that triggers the one-
year period in § 727(a)(2) may be conducted secretly without
creditors’ knowledge, the one-year period does not give
creditors an opportunity to protect their rights. Cf. Hallstrom,
493 U.S. at 27 (stating that a time period that is not triggered
by any violation giving rise to the plaintiff’s cause of action
is not a statute of limitations subject to equitable tolling). If
anything, the application of § 727(a)(2) detracts from the
goals of statutes of limitations, because by precluding the
discharge of all debts, it provides a windfall to creditors who
have slept on their rights. In short, the one-year time period
does not cut off creditors’ rights, and it addresses policy
issues that are “not the sort of interest addressed by a statute
of limitations,” Lozano, 134 S. Ct. at 1234–35. We therefore
conclude that § 727(a)(2) is not a statute of limitations.
Because § 727(a)(2) is not a statute of limitations, it is not
subject to a presumption of equitable tolling. Without such
a presumption, and without any statutory language suggesting
Congress’s intent to make equitable tolling available, we
conclude that equitable tolling is not applicable. “At the core
of the Bankruptcy Code are the twin goals of ensuring an
equitable distribution of the debtor’s assets to his creditors
and giving the debtor a ‘fresh start.’” Sherman v. SEC (In re
Sherman), 658 F.3d 1009, 1015 (9th Cir. 2011), abrogated on
other grounds by Bullock v. BankChampaign, N.A., 133 S. Ct.
1754 (2013). In enacting § 727(a)(2), Congress chose to
impose a significant penalty—completely depriving a debtor
of a fresh start—only for fraudulent conduct that occurred
“within one year before the date of the filing of the petition.”
12 IN RE NEFF
§ 727(a)(2). By referring to “the petition,” the statutory
language makes clear that the one year period commences
before the filing of the particular petition for bankruptcy in
that case.
DeNoce argues that we should apply equitable tolling
because otherwise a debtor could make an improper transfer
of assets, then file and dismiss successive Chapter 13 cases
until more than a year had passed from the date of the
improper transfer, and finally file a Chapter 7 case, allowing
the debtor to defeat the protection given to creditors under
§ 727(a)(2)(A). We disagree. While Congress could
reasonably have concluded that the debtor should be deprived
of a fresh start if the fraudulent conduct occurred within one
year of the first of a series of bankruptcy filings, nothing in
the language of § 727(a)(2) suggests it chose to adopt that
approach. Recognizing the Bankruptcy Code’s “fresh start”
policy, the Supreme Court “has interpreted exceptions to the
broad presumption of discharge narrowly.” Hawkins,
769 F.3d. at 666. In light of this canon of interpretation, and
in the absence of any statutory language indicating a
congressional intent to make equitable tolling available in this
context, we conclude that Congress did not intend to toll the
one-year period for successive bankruptcy filings.5 In
reaching this conclusion, we agree with the reasoning of the
Fourth Circuit, which concluded that a similar exemption
from discharge, § 727(a)(8), was not a statute of limitations.
5
As we have noted, after the bankruptcy court was advised of the
allegedly fraudulent transfer of the Lake Harbor property, Neff was
required to transfer the property back to himself. As a result, DeNoce and
other creditors have not been deprived of the opportunity to collect against
that asset, and Neff has not gained a windfall.
IN RE NEFF 13
See Tidewater Fin. Co. v. Williams, 498 F.3d 249 (4th Cir.
2007).6
Because the transfer of the Lake Harbor property took
place more than one year before Neff filed his Chapter 7
bankruptcy petition and § 727(a)(2) is not subject to equitable
tolling, Neff was not precluded from discharge of his debts
under § 727(a)(2).7 The bankruptcy court therefore properly
granted summary judgment to Neff on this issue.
AFFIRMED.
6
We disagree with the district court’s reasoning in Womble v. Pher
Partners, 299 B.R. 810 (N.D. Tex. 2003) (affirming the bankruptcy
court’s determination that § 727(a)(2) is a statute of limitations subject to
equitable tolling) aff’d In re Womble, 108 F. App’x 993 (5th Cir. 2004).
Womble concluded that “[t]he similarities between § 507(a)(8)(i), the IRS
three-year provision at issue in Young, and § 727(a)(2)(A) dictate similar
treatment.” Id. at 812. As we have explained, the exemption in
§ 507(a)(8)(i) is aimed at encouraging the timely filing of claims, and
therefore is not analogous to § 727(a)(2)(A), which is aimed at penalizing
improper conduct.
7
Because we decide the case on this basis, we need not address Neff’s
alternative argument that his property was not “transferred” for purposes
of § 727(a)(2)(A) because he transferred the property back to himself
before filing the Chapter 7 petition, see In re Adeeb, 787 F.2d 1339 (9th
Cir. 1986); but see In re Beauchamp, 236 B.R. 727 (B.A.P. 9th Cir. 1999)
aff’d, 5 F. App’x 743 (9th Cir. 2001).