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#2215 signed 5-10-96



In Re:



NO. 93-40663-7







ADV. NO. 95-7126


The proceeding is before the Court on the motion of defendant Braunsdorf, Carlson, and Clinkinbeard, P.A., to dismiss Count I of the plaintiff-trustee's complaint against it. The defendant appears by counsel Joseph I. Wittman. The trustee appears by counsel John T. Houston. The Court has reviewed the pleadings and is now ready to rule.

An involuntary bankruptcy case was commenced against the debtor and related companies in April 1993. The trustee alleges the debtor transferred $9,500 to the defendant by check on June 15, 1993. An order for relief was entered on November 17, 1993, and the trustee was appointed two days later. The trustee alleged in his complaint that he first learned of the transfer on November 16, 1995, but indicates in one of his briefs only that he learned of it some time after the debtor filed its Schedule of Assets and Liabilities and Statement of Financial Affairs on March 17, 1994. The trustee filed the complaint commencing this proceeding on November 16, 1995, and amended it the next day. A summons was mailed on November 22, and an alias summons was mailed to a different address on January 8 or 9, 1996. Count I of the three-count complaint seeks, pursuant to 11 U.S.C.A. §549, to avoid the alleged $9,500 postpetition transfer to the defendant.

The defendant based its motion to dismiss Count I on the ground the trustee's action to avoid the alleged postpetition transfer had to be brought within two years of the date of the transfer, pursuant to 11 U.S.C.A. §549(d)(1). The trustee responded by invoking the doctrine of equitable tolling, arguing the two-year limit did not start running until the debtor filed its schedules in March 1994, making the complaint timely.

The defendant concedes equitable tolling can apply to the §549(d)(1) limit, and the Court agrees. See Holmberg v. Armbrecht, 327 U.S. 392, 396-97 (1946); Olsen v. Zerbetz (In re Olsen), 36 F.3d 71, 73 (9th Cir. 1994) (§549(d) can be equitably tolled); Smith v. Mark Twain Nat'l Bank, 805 F.2d 278, 293-94 (8th Cir. 1986) (equitable estoppel may toll §549(d)). The parties agree two major facets of equitable tolling are: (1) action by the debtor or defendant which impeded the trustee's discovery of the transfer; and (2) reasonable diligence by the trustee to discover the transfer. See Miller v. Lane (In re A.J. Lane & Co.), 167 B.R. 729, 731 (Bankr.D. Mass 1994); Solow v. First of America Bank (In re Papa's Market Cafe), 162 B.R. 519, 524-25 (Bankr.N.D.Ill. 1993); Armstrong v. Pedie (In re Dakota Drilling), 135 B.R. 878, 888-89 (Bankr. D.N.D. 1991). The defendant contends the trustee failed to exercise reasonable diligence, relying on the trustee's activities solely as revealed by the court file. The trustee responds with assertions of the debtor's and the defendant's actions which impeded discovery of the transfer, and assertions of his own actions in addition to those shown by the court file. While the Court might be able to decide on a motion to dismiss whether and to what extent equitable tolling should be applied if the facts were agreed upon, the parties here have raised factual questions which the Court cannot resolve simply on the basis of the pleadings submitted. The parties will have to present evidence or a stipulation before the Court can decide the matter.

The Court also wishes to raise a question about the trustee's theory of the application of equitable tolling in this case. He contends the two-year period fixed by §549(d)(1) did not begin running until he was appointed, relying on a statement in the Dakota Drilling case that, "equity dictates that the two-year statute of limitations period begin to run only after the trustee knew or should have known of the transfer." 135 B.R. at 888. However, Dakota Drilling began as a chapter 11 case, and the trustee was trying to avoid a postpetition transfer of an asset the debtor had not disclosed on its schedules; presumably the debtor did not report the transfer either. Id. at 880 & 888-89. In a voluntary case, the debtor is obliged to file schedules of its assets and liabilities with its petition or shortly thereafter, Fed. R. Bankr. P. 1007, and a chapter 11 debtor is required to file reports of its disbursements and other operations of its business, §1107(a); §1106(a)(1); §704(8); Fed. R. Bankr. P. 2015(a)(5). In an involuntary case, by contrast, in the absence of a court order to the contrary, the debtor is free to operate its business and use, acquire, or dispose of property as if no case had been filed against it, §303(f), and is not obliged to file any schedules until 15 days after an order for relief is entered against it, Fed. R. Bankr. P. 1007(c). Thus, in Dakota Drilling, from the date of its petition, the debtor violated its duty to disclose its ownership of the property, and later violated its duty to report its transfer of the property. These actions supported the court's decision to toll the §549(d)(1) time limit from the date of the petition until the appointment of the trustee. Here, however, so far as the Court is aware, the debtor had no obligation to report its payment to the defendant at least until the order for relief was entered five months after the transfer occurred. The trustee's theory seems to ask the Court to apply equitable tolling to start the time period over rather than to toll it only during the time the debtor was allegedly concealing the transfer. The parties should consider the propriety of this theory when they present to the Court their evidence and further arguments on this matter.

For these reasons, the Court concludes the defendant's motion to dismiss must be denied because the limitations defense cannot be resolved without the presentation of evidence or the submission of agreed facts. If it has not yet done so, the defendant should now file its answer to the complaint. The parties should determine whether they wish to present their evidence on equitable tolling at the trial on the entire complaint, or at some separate, earlier time, and inform the Court of their wishes at the pretrial that is to be, or has been, scheduled to be held in June.


Dated at Topeka, Kansas, this _____ day of May, 1996.




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