Summary
The Ninth Circuit held that a bankruptcy court must apply a liberal, rather than strict, interpretation of “excusable neglect” when considering a creditor’s motion to file an untimely complaint challenging the dischargeability of an individual debt. The court reversed and remanded for reconsideration under standards applicable to Bankruptcy Rule 924 and Federal Rule of Civil Procedure 60(b), without deciding the merits of the creditor’s neglect claim or dischargeability objection.
Topics
Practice areas
Questions Presented
- What standard governs a bankruptcy court's determination of excusable neglect on a motion under Bankruptcy Rules 404 and 906(b)(2) to file an untimely complaint objecting to the dischargeability of an individual debt?
- Did the bankruptcy court err by applying the strict excusable-neglect standard used for late notices of appeal rather than the more liberal standard associated with Bankruptcy Rule 924 and Federal Rule of Civil Procedure 60(b)?
Holdings
- A motion for leave to file an untimely complaint challenging the dischargeability of an individual debt must be evaluated under the more liberal excusable-neglect standards applied under Bankruptcy Rule 924 and Federal Rule of Civil Procedure 60(b), rather than the strict standard applicable to late notices of appeal under Bankruptcy Rule 802.
- The bankruptcy court erred by treating Fasson's motion as analogous to a late appeal and applying the strict Bankruptcy Rule 802 standard without considering prejudice, the merits-related context, or other relevant excusable-neglect factors.
Key quotations
“We hold that the bankruptcy court erred in applying a strict construction of the term “excusable neglect,” and remand for reconsideration of the motion under the proper standard.” (948)
“We hold that the determination as to the existence of excusable neglect in failing to file a complaint challenging the discharge-ability of an individual debt should be evaluated under the standards applied to Bankruptcy Rule 924 and Fed.R.Civ.P. 60(b).” (952)
Factual background
In April 1980, James and Katharine Magouirk filed a voluntary bankruptcy petition and scheduled an unsecured debt of $87,644.47 owed to Fasson Corporation. The bankruptcy court's notice set July 16, 1980, as the deadline for complaints determining the dischargeability of individual debts and August 13, 1980, as the deadline for objections to a general discharge. Fasson's counsel misread or misrecorded the notice, and Fasson filed its dischargeability complaint on August 11, believing that the August 13 deadline applied. After the complaint was dismissed as untimely, Fasson sought leave to file late, attributing the delay to counsel's excusable neglect.
Procedural history
The Magouirks filed a voluntary bankruptcy petition and Fasson was listed as an unsecured creditor. Fasson filed its dischargeability complaint after the applicable deadline because its counsel misread the notice of deadlines. The bankruptcy court denied Fasson's motion for permission to file late, and the bankruptcy appellate panel affirmed. The Ninth Circuit reversed and remanded for reconsideration under the proper excusable-neglect standard.
Remand instructions
The bankruptcy court must reconsider Fasson's motion for leave to file the untimely dischargeability complaint under the liberal excusable-neglect standard applicable under Bankruptcy Rule 924 and Federal Rule of Civil Procedure 60(b), considering relevant factors such as prejudice, delay, control, good faith, and counsel's mistake.