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Summarizing by Shane Ramsey


Summarizing by Amir Shachmurove

Milby v. Templeton

Case Type:
Case Status:
16-60022, 16-60023 (9th Circuit, Nov 21,2017) Published
Affirmed the BAP's decision (i) reversing the Bankruptcy Court's dismissal of the estate's fraudulent transfer claims as being time-barred, and (ii) affirming the Bankruptcy Court's dismissal of other fraudulent transfer claims as such transfers were not made by the debtor.
Procedural context:
The Bankruptcy Court dismissed the estate's fraudulent transfer claims under Section 544(b) and Cal. Civil Code §§ 3439.04(a)(1), (2) and 3439.05 as being time-barred under § 546(a)(1), and dismissed other fraudulent transfer claims based on such transfers were made by non-debtors. On appeal, the BAP reversed the dismissal of the time-barred claims holding that equitable tolling could apply, and affirmed the dismissal of claims based on transfers not made by the debtor. The Ninth Circuit affirmed.
Debtor filed a chapter 7 petition on September 22, 2011. The two-year statute under §546(a)(1) to file avoidance claims expired on September 22, 2013. Within a week of this deadline, creditors Cresswell and Patricia Templeton informed the trustee of certain transfers that may be fraudulent. The trustee decided not to pursue such claims; however, the trustee did timely file a complaint to avoid other transfers. In August 2014, the Templetons requested the trustee appoint them to pursue the estate’s claims concerning the transfers disclosed a year earlier. With the trustee’s support, the Court approved the Templeton’s appointment to pursue such claims on behalf of the estate. A day after such approval, the Templetons filed an avoidance action against the defendants asserting claims for actual and constructive fraud, among others. The defendants moved for summary judgment contending the fraudulent transfer claims were barred by the two-year limitations period. The Templetons argued that equitable tolling applied based on the debtor’s misconduct including (i) failure to disclose the transfers in her schedules, and (ii) failure to cooperate with the trustee. The Bankruptcy Court ruled that equitable tolling did not apply because the estate had the opportunity to file the avoidance claims before the limitations period expired and failed to do so. The Court also found that certain alleged transfers were not transfers of “an interest of the debtor in property,” as required to state a claim under §544(b), and dismissed claims based on such transfers. As to those alleged transfers that did qualify under §544(b), the Court dismissed the claims as being time-barred. On appeal, the BAP held that the Court erred in its analysis of the estate’s diligence after discovery of the transfers, that equitable tolling could apply, and reversed the Court’s dismissal of claims based on the limitations period. The BAP affirmed the Court’s dismissal of claims based on transfers that failed to qualify under §544(b). The parties cross-appealed to the Ninth Circuit. In a not-so-gentle manner (“[n]either the bankruptcy court nor the BAP correctly applied our law on equitable tolling.”), the Panel explained the doctrine of equitable tolling. A litigant that seeks equitable tolling mush establish (i) that he has pursued his rights diligently, and (ii) that extraordinary circumstances prevented his timely filing. Agreeing with the Bankruptcy Court’s findings on the debtor’s misconduct, the Panel found that the second element was satisfied. Addressing the first element, the Panel explained that diligence after an extraordinary circumstance is lifted, though not determinative, is “illuminating” as to a litigant’s overall diligence. And diligence before the extraordinary circumstance ends carries more weight than diligence afterwards. Applying these measures, the Panel determined that the estate satisfied the diligence element. Though approximately a year had passed from the discovery of the transfers to the commencement of the action, the circumstances warranted a finding that the estate was diligent, and therefore Templeton’s action was timely filed. The Panel also affirmed the dismissal of claims based on transfers made by the non-debtor defendants for the same reasons expressed in the BAP’s opinion, i.e., the transfers alleged could not support a claim under §544(b).
Kim McLane Wardlaw, Jay S. Bybee, Circuit Judges, and Harvey Bartle III, District Judge

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