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The Security National Bank of Sioux City, IA v. Vera T. Welte Testamentary Trust

Summarizing by Amir Shachmurove

In re: Louis N. Delloso

Case Type:
Case Status:
No. 22-2532 (3rd Circuit, Jul 10,2023) Published
The U.S. Court of Appeals for the Third Circuit affirmed a bankruptcy court's order denying a creditor's motion to reopen a chapter 7 case five years after closure. The deadlines for the creditor to ask the bankruptcy court either to revoke or to except a debt from the debtor's discharge based on prepetition fraud had long passed and the bankruptcy court could not extend them under the doctrine of equitable tolling or through use of 11 U.S.C. § 105(a). Further, the bankruptcy court properly considered creditor could pursue relief against the debtor's company in pending state court litigation.
Procedural context:
After the bankruptcy court denied the creditor's motion to reopen, the parties jointly asked that court to certify a direct appeal to the Third Circuit. The Third Circuit accepted the appeal and evaluated whether the Bankruptcy Rules setting deadlines to pursue relief under 11 U.S.C. § 523(a)(2), (4), and (6) and 11 U.S.C. § 727(d)(1) are subject to equitable tolling or could be extended under 11 U.S.C. § 105(a).
Creditor Strategic Funding Source, Inc. d/b/a Kapitus obtained a prepetition state court judgment for $776,600.25 against Debtor Louis N. Delloso and his company, Greenville Concrete. Debtor filed a chapter 7 bankruptcy petition in the U.S. Bankruptcy Court for the District of Delaware in March 2016 and scheduled the unsecured judgment debt to Creditor. The bankruptcy court granted Debtor a discharge in July 2016 and closed the case in August 2016. In November 2021, Creditor moved to reopen Debtor's chapter 7 case, stating it recently had learned Debtor transferred assets prepetition to a new business he owned, Bari Concrete, that "appeared to operate as a mere continuation of Greeneville." Creditor's motion to reopen explained it already had filed suit against Bari in New York state court to collect on the judgment against Debtor and Greenville. If the bankruptcy court granted the motion to reopen, Creditor explained, it intended to seek relief against Debtor under 11 U.S.C. § 523(a)(2), (4) and (6) or 11 U.S.C. § 727(d)(1). Creditor asked the court "to exercise its discretion under 11 U.S.C. § 350 to reopen the case for cause, reappoint a trustee, and administer a previously undisclosed asset—[Debtor's] purported ownership interest in Bari Concrete." The bankruptcy court denied Creditor's motion, concluding (1) reopening would be futile as Creditor's efforts to seek relief under § 523(a) and § 727(d)(1) would be time-barred and the court could not extend the deadlines under the doctrine of equitable tolling based on the Supreme Court's decision in Nutraceutical Corp. v. Lambert, 139 S. Ct. 710 (2019); and (2) Creditor could seek appropriate relief in an alternate forum (the New York state court action) and thus had “no need to reopen a long-closed bankruptcy case."

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