[1]     

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT August Term 1997

, [5]     

Decided: January 5, 1998

, [6]      IN RE: CLAUDE EMERY, DEBTOR. " />

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In Re Emery, 132 F.3D 892 (2d Cir. 01/05/1998)

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT August Term 1997

No. 275

Docket No. 96-5121

132 F.3d 892, 1998.C02.0000002 <http://www.versuslaw.com>

Decided: January 5, 1998

IN RE: CLAUDE EMERY, DEBTOR.

Before: WINTER, Chief Judge, FEINBERG, Circuit Judge and BAER, District Judge.*fn*

[8]    

Argued: September 12, 1997

[9]    

CITIBANK, N.A., Plaintiff-Appellee, v.

CLAUDE EMERY, Defendant-Appellant.

Appeal from order of United States District Court for the Eastern District of New York, Seybert, J., reversing an order of the Bankruptcy Court, Holland, J., dismissing creditor's suit for revocation of discharge based on creditor's pre-discharge, post-bar date knowledge of alleged fraud.

Affirmed.

RICHARD K. BERNSTEIN, New York, NY, for defendant-appellant.

MARC A. LEBOWITZ, New York, NY (Zeichner Ellman & Krause, Robert M. Brill, Lee A. Weiss, of Counsel), for plaintiff-appellee.

FEINBERG, Circuit Judge:

Defendant Claude Emery appeals from an order of the United States District Court for the Eastern District of New York, Joanna Seybert, J., which reversed the holding of the bankruptcy court, Marvin A. Holland, J., that plaintiff-appellee Citibank, N.A. (Citibank) had failed to state a claim (based upon Emery's alleged fraud) for revocation of Emery's bankruptcy discharge. Citibank had obtained knowledge of the alleged fraud in the period after the bar date for creditors' objections to discharge, but prior to the actual grant of discharge. The principal basis of the bankruptcy court's decision was 11 U.S.C. Section(s) 727(d), which precludes a creditor from seeking revocation of a discharge if it had knowledge of the fraud before the discharge. The district court reversed, finding that Section(s) 727(d) did not bar Citibank's request for revocation under the circumstances of the case. For the reasons stated below, we affirm.

I. Background

Emery filed a petition for relief under Chapter 7 of the Bankruptcy Code on May 16, 1991. Pursuant to 11 U.S.C. Section(s) 341(a), the first scheduled meeting of his creditors commenced on July 12, 1991. Under Bankruptcy Rule 4004(a), Emery's creditors then had 60 days -- or until September 10, 1991 (the Bar Date) -- to object to Emery's discharge. *fn1 Bankruptcy Rule 4004(c) requires that a discharge be granted "forthwith" after a bar date has passed. Despite this requirement, Emery did not actually receive a discharge until November 29, 1991 (the Discharge Date), or 80 days after the Bar Date.

The instant suit arises out of Citibank's claim that Emery attempted to conceal his involvement with certain partnerships and joint ventures. Citibank alleges that Emery made fraudulent representations and omissions both in the schedules filed with his petition and in his responses to creditors at his Section(s) 341 examination. Citibank claims that as a result of Emery's fraud, it did not have sufficient facts as of the Bar Date (September 10, 1991) to frame an objection to discharge.

In early September, Citibank requested Emery's consent to an extension of the Bar Date. When Emery refused, Citibank did not seek an extension from the bankruptcy court pursuant to Bankruptcy Rule 4004(b). See note 1. Citibank did, however, continue to investigate. The district court found that Citibank had at least constructive knowledge of Emery's alleged fraud on or before November 18, 1991, eleven days before the Discharge Date.

On November 25, 1992, Citibank filed a complaint to revoke Emery's discharge pursuant to Section(s) 727(d). *fn2 This was within one year from the Discharge Date (November 29, 1991), which is the limitations period established for Section(s) 727(d) actions by Section(s) 727(e). See note 2. This complaint was dismissed for failure to plead fraud with particularity. Citibank obtained leave to replead and thereafter filed a Second Complaint. Emery moved to dismiss the Second Complaint for failure to state a cause of action. In August 1994, the bankruptcy court granted the motion to dismiss, holding that the plain language of Section(s) 727(d), see note 2, foreclosed relief because Citibank had knowledge of Emery's fraud prior to the Discharge Date, and that Citibank was not entitled to equitable relief because Citibank should have sought an extension of time pursuant to Rule 4004(b) in which to object to discharge under 727(c).

In September 1996, the district court reversed, holding that if knowledge of fraud was obtained in the period after the Bar Date but before the Discharge Date (the Gap Period), the Discharge Date should be imputed back to the Bar Date so that the court's ministerial delay in granting a discharge did not create an unintended period of immunity for fraudulent debtors. The district court also held that for purposes of application of the one-year limitations period of Section(s) 727(e), see note 2, the date that Citibank commenced its proceeding to revoke discharge should also be adjusted back by the same number of days because of the lack of clarity in this area of the law. Emery thereafter appealed to this court.

At oral argument, we expressed doubt as to whether we had jurisdiction over the appeal. Thereafter, at our suggestion, Emery obtained a 1292(b) certification from the district court and we hereby permit the appeal to be taken.

II. Discussion

The issue before us is whether Citibank's proceeding to revoke discharge under Section(s) 727(d) is barred because it acquired knowledge of fraud in the Gap Period. We must also determine whether such knowledge has any effect on the time limit for suit specified by Section(s) 727(e). This appeal grows out of Emery's motion to dismiss for failure to state a claim upon which relief can be granted. Therefore, Citibank's allegations are accepted as true and Citibank is entitled to the benefit of all permissible inferences. H.J. Inc. v. Northwestern Bell Tel. Co.


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