Neary v. Webb

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re No. 03-40883 TD
Chapter 7
MAXINE WEBB,
Debtor.
___________________________/
SARA L. KISTLER, Acting A.P. No. 04-4389 AT
United States Trustee,
Plaintiff,
vs.
MAXINE WEBB,
Defendant.
___________________________/
MEMORANDUM OF DECISION
Plaintiff Sara L. Kistler (the “UST”), the Acting United
States Trustee, moves to amend the complaint filed in the above-
captioned adversary proceeding (the “Complaint”) to add a claim
objecting to the debtor’s discharge. At the same time, she moves
for summary judgment on the amended claim. Defendant Maxine Webb,
the above-captioned debtor (the “Debtor”), opposes both motions.
For the reasons stated below, the motions will be granted.
Signed: August 26, 2005
________________________________________
LESLIE TCHAIKOVSKY
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
August 26, 2005
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 04-04389 Doc# 22 Filed: 08/26/05 Entered: 08/26/05 14:38:49 Page 1 of 8

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1The Debtor complains that the Trustee failed to act
diligently in reopening the case, having learned about the South
Shore Litigation in July 2003 and not having moved to reopen the
chapter 7 case until January 2004. This delay has not been
explained. However, the Court does not believe that it affects
the issues in this case.
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SUMMARY OF FACTS AND PROCEDURAL HISTORY
The Debtor filed a voluntary petition seeking relief under
chapter 7 of the Bankruptcy Code on February 13, 2003. She failed
to disclose a pending lawsuit (the “South Shore Litigation”) in
her bankruptcy schedules. In addition, at a meeting of creditors,
despite having attended a trial setting conference in the South
Shore Litigation only a few weeks before, at which time the case
was set for trial, the Debtor testified under oath that she was
not a party to any pending litigation. The chapter 7 trustee (the
“Trustee”) did not learn about the South Shore Litigation until
after the Debtor had received her discharge and the case had been
closed.
After learning about the South Shore Litigation, the Trustee
moved to reopen the chapter 7 case and filed a notice of possible
dividends.1 A few months later, the Trustee filed and served a
notice of intent to settle the South Shore Litigation for $10,000.
Before the time had expired for objecting to the settlement, the
Debtor moved to convert the case to chapter 13 and to set aside
her chapter 7 discharge. Since a chapter 7 debtor has an absolute
right to convert the case to chapter 13 at any time; see 11 U.S.C.
§ 706(a); the motion was necessarily granted.
Case: 04-04389 Doc# 22 Filed: 08/26/05 Entered: 08/26/05 14:38:49 Page 2 of 8

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However, the UST immediately filed a motion to re-convert the
chapter 13 case to chapter 7. The Debtor filed a chapter 13 plan.
The UST objected to confirmation of the plan. Ultimately, an
evidentiary hearing was conducted on both confirmation of the plan
and the motion to re-convert the case. Based on the evidence
presented at that hearing, the Court concluded that the Debtor had
acted culpably in failing to schedule the South Shore Litigation
and testifying at the meeting of creditors that she was not a
party to any pending litigation. Consequently, in December 2004,
the Court ordered the case converted back to chapter 7. A new
deadline was set for objecting to the Debtor’s discharge.
On December 30, 2004, prior to the expiration of the new
deadline, the UST commenced the above-captioned adversary
proceeding. The Complaint asserted two claims for relief: (1) a
declaration that the Debtor had waived her discharge and (2)
revocation of the Debtor’s discharge. Thereafter, the UST filed
a motion for summary judgment on these claims. The Debtor opposed
the motion, contending that she had not waived her discharge and
that the deadline for filing an action to revoke her discharge had
expired.
At the conclusion of the hearing, the Court denied the UST’s
motion for summary judgment. It agreed with the Debtor that there
was a distinction between a waiver of her discharge and her
agreement that her discharge could be set aside. A waiver of her
discharge would have been permanent and would eliminated her right
to obtain a discharge in the converted chapter 13 as well as in
Case: 04-04389 Doc# 22 Filed: 08/26/05 Entered: 08/26/05 14:38:49 Page 3 of 8

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2Moreover, the UST would be unable to assert a claim for
revocation of the Debtor’s discharge, if she were to receive
one, in the re-converted case. Section 727(d)(1) of the
Bankruptcy Code requires that the party requesting denial of the
discharge not know of the fraud prior to the entry of the
discharge. See 11 U.S.C. § 727(d)(1).
4
the re-converted chapter 7 case. Her agreement to set aside her
discharge was specific to the discharge that had been granted in
her original chapter 7 case. The Court concluded that the UST’s
claim for revocation of the Debtor’s discharge could not be
granted because the Debtor had set aside her discharge. Thus,
there was not yet any discharge to be revoked.2
Thereafter, the UST filed a motion to amend the Complaint to
add a claim for denial of the discharge. She contended that the
claim related back to the date the Complaint was filed because it
was based on the same conduct as the revocation claim. See Fed.
R. Civ. Proc. 15(c), made applicable to this proceeding by Fed. R.
Bankr. Proc. 7015. The UST also moved for summary judgment on the
amended claim, contending that collateral estoppel and the law of
the case doctrine compelled denial of the Debtor’s discharge. The
Debtor opposed both motions, based solely on the contention that
the claim was time barred, even if it did relate back to the date
the Complaint was filed. She contended that no new deadline for
objecting to her discharge arose in the re-converted case. The
contested motion was heard on August 18, 2005 and was taken under
submission.
DISCUSSION
Case: 04-04389 Doc# 22 Filed: 08/26/05 Entered: 08/26/05 14:38:49 Page 4 of 8

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There is no dispute that, based on the Court’s findings and
conclusions at the evidentiary hearing on the motion to re-convert
the case to chapter 7, the UST is entitled to judgment on a claim
seeking to deny the Debtor’s discharge provided the claim is not
time barred. There is also no dispute that the claim for denial
of the Debtor’s discharge relates back for limitations purposes to
the date the Complaint was filed. The claim for denial of the
Debtor’s discharge is based on the same conduct upon which the
claim for revocation of her discharge was based. The only issue
is whether claim was time barred as of December 30, 2004 because
no new deadline for objecting to the Debtor’s discharge arose in
her re-converted chapter 7 case.
The Debtor contends that no new deadline arose when her case
was converted back to chapter 7. She relies for this contention
on Fed. R. Bankr. Proc. 1019(2). Rule 1019(2)provides, in
pertinent part, that: “a new time period [for filing a complaint
objecting to discharge] shall not commence if a chapter 7 case had
been converted to a chapter...13 case and thereafter reconverted
to a chapter 7 case and the time for filing...a complaint
objecting to discharge...expired in the original chapter 7 case.”
The Debtor received a discharge in her original chapter 7 case.
She would not have received the discharge if the time for
objecting to her discharge had not expired. Thus, the plain
language of the rule supports the Debtor’s position.
The UST contends that Rule 1019(2) was not intended to apply
to a chapter 7 case in which the debtor had agreed to set aside
Case: 04-04389 Doc# 22 Filed: 08/26/05 Entered: 08/26/05 14:38:49 Page 5 of 8

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her discharge. She argues that Rule 1019(2) applies to a chapter
7 case which is converted to another chapter after expiration of
the deadline for filing objections to discharge but before a
discharge has been entered. If the case is converted after the
discharge is entered and then is re-converted, the appropriate
remedy would be to seek revocation of the discharge. However, by
setting aside her discharge, the Debtor deprived interested
parties of this remedy.
The Court concludes that the UST’s motion to amend should be
granted, albeit for a slightly different reason. The Court cannot
disregard the plain language of Rule 1019(2). However, the Court
concludes that, by agreeing to set aside her chapter 7 discharge,
the Debtor implicitly waived the benefit of this rule. It would
be meaningless for a debtor to agree that, upon conversion of her
case to chapter 13, her chapter 7 discharge could be set aside, if
she did not also intend to agree that, if the case were re-
converted to chapter 7, a new deadline for objecting to the
chapter 7 discharge would commence.
The UST also filed a motion for summary judgment on the
amended claim. This is procedurally improper since she has not
yet filed an amended complaint nor filed a proposed amended
complaint. Rule 56 of the Federal Rules of Civil Procedure permit
a motion for summary judgment to be filed no sooner than 20 days
after the claim is filed. However, the Debtor raised no objection
to this procedure or to the UST’s right to summary judgment if
the claim were not time barred. She based her objection solely
Case: 04-04389 Doc# 22 Filed: 08/26/05 Entered: 08/26/05 14:38:49 Page 6 of 8

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on the argument that the claim was untimely filed. In addition,
she expressed dissatisfaction with the delay in bringing this
matter to resolution and an intention to file an appeal if the
Court ruled adversely to her. For this reason, the Court will
grant the UST’s motion for summary judgment as well as the motion
to amend.
CONCLUSION
The UST’s motion to amend the Complaint to assert a claim for
denial of the Debtor’s chapter 7 discharge and for summary
judgment on that claim is hereby granted. The UST is hereby
directed to submit a proposed form of order and judgment in
accordance with this decision.
END OF DOCUMENT
Case: 04-04389 Doc# 22 Filed: 08/26/05 Entered: 08/26/05 14:38:49 Page 7 of 8

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COURT SERVICE LIST
Margaret H. McGee
United States Department of Justice
Office of the United States Trustee
1301 Clay St., Ste. 690N
Oakland, CA 94612-5217
Maxine Webb
7618 Ney Ave.
Oakland, CA 94605
Case: 04-04389 Doc# 22 Filed: 08/26/05 Entered: 08/26/05 14:38:49 Page 8 of 8