California Court Dismisses Adversary Complaint as Untimely

Bankruptcy trustees often handle multiple cases at one time and are expected to keep track of the unique facts and pleadings of each case. If a trustee hastily files a pleading in the wrong case, it may negatively affect their rights, as demonstrated in a recent ruling issued by a California court. If you need assistance managing your debts and are interested in learning more about bankruptcy, it is in your best interest to meet with a California bankruptcy lawyer as soon as possible.

Procedural Background of the Case

It is alleged that the debtor filed a chapter 7 bankruptcy petition in July 2019, and a chapter 7 trustee was appointed shortly after. Two years later, on the last day to institute section 108(a) and 546(a) actions, the trustee filed multiple complaints in which he set forth both bankruptcy and non-bankruptcy claims against third parties. One of the claims he filed was an adversary complaint against the appellant to avoid transfers and seek damages for breach of contract and unjust enrichment; however, he filed it under the wrong docket number,

Reportedly, the trustee did not take any action to remedy his mistake for three months. Specifically, he dismissed the incorrectly filed complaint and filed an amended complaint under the correct docket number. The appellant moved to dismiss the adversary proceeding on the grounds that it was time-barred. The court granted the appellant’s motion, and the trustee appealed.

Dismissal of Adversary Proceedings

The primary issue on appeal was whether the bankruptcy court erred in dismissing the trustee’s adversary proceeding. The trustee argued that the court placed form over function and that his filing of the original complaint, albeit in the wrong case, related back to the original pleading or equitably tolled the statute of limitations. The court rejected both arguments and affirmed the dismissal of his complaint.

With regard to the trustee’s relation back claim, the court noted that there was no original pleading for the amended filing to relate back to when the original pleading was dismissed. Instead, the trustee filed a second complaint in a different case; as such, there could not be any relation back. Further, equitable tolling did not apply because it generally only applies where a claimant has actively pursued their judicial remedies by filing a defective pleading within the statute of limitations or where they have been coerced or tricked by their opponent’s misconduct in allowing the deadline to pass. The court found that the trustee failed to establish either grounds for allowing equitable tolling. Thus, it affirmed the dismissal of his complaint.

Talk to a Dedicated California Bankruptcy Attorney

Bankruptcy trustees must comply with any applicable procedural rules or requirements, and if they fail to do so, it can have adverse consequences. If you have overwhelming debts and questions about whether bankruptcy is a good option for you, you should talk to an attorney. Matthew D. Roy is a dedicated California bankruptcy lawyer with the skills and resources needed to help you seek your desired outcome, and if you hire him, he will work tirelessly on your behalf. You can reach Mr. Roy through the form online or by calling (916) 361-6028 to set up a conference.