In re: Rick St. George
16-8018
| 6th Cir. | Apr 17, 2017Background
- Debtor Rick St. George filed Chapter 7 on September 23, 2014; the first creditors’ meeting was October 30, 2014 and was adjourned twice for document production.
- The U.S. Trustee (UST) extensively questioned the debtor at the 341 meeting and sought a first 60‑day extension to object to discharge on December 10, 2014 (unopposed); court granted extension to February 27, 2015.
- On February 23, 2015 the UST moved under Rule 2004 for further examination and filed a second motion to extend the Rule 4004 deadline another 75 days; debtor opposed the second extension.
- At the March 24, 2015 hearing the bankruptcy court criticized the UST’s lack of diligence but granted only a short extension to April 3, 2015; the UST filed its adversary complaint on April 2, 2015.
- After an evidentiary hearing, the bankruptcy court denied the debtor’s discharge under 11 U.S.C. § 727(a)(3) and (a)(5); debtor appealed both the extension order and the discharge denial.
- The Sixth Circuit BAP reversed: it held the bankruptcy court abused its discretion in granting the second extension because the UST failed to show cause, and therefore the discharge denial was vacated and the adversary was to be dismissed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the bankruptcy court abused its discretion in granting UST's second extension under Fed. R. Bankr. P. 4004(b) | UST: Additional time was needed because recently produced documents raised further concerns and a 2004 exam was necessary | Debtor: UST was not diligent; extension was untimely and unsupported | Reversed — court abused discretion: UST failed to show cause (lack of diligence) |
| Whether the bankruptcy court properly applied Rule 4004(b) factors (diligence, notice, complexity, debtor cooperation, collateral proceedings) | UST: Case atypical (large retainer) and newly produced documents justified extension | Debtor: No evidence of complexity or bad faith by debtor; UST had notice and failed to act timely | Reversed — only tenuous complexity, no proof of debtor bad faith, and UST lacked diligence |
| Whether failure to show cause for extension requires vacatur of subsequent discharge denial | UST: Merits of § 727 claims justified denial regardless of timing | Debtor: Extension error deprived debtor of finality; adversary should be dismissed | Reversed — extension error required reversal of judgment and remand to dismiss adversary |
| Standard of review for extension decision | UST: Discretionary factual/legal decision should stand | Debtor: Court should correct abuse of discretion where findings are clearly erroneous | Held: Abuse of discretion review; here court found abuse because UST relied on inaction and produced no evidence |
Key Cases Cited
- Midland Asphalt Corp. v. United States, 489 U.S. 794 (Sup. Ct.) (definition of a final order for appeals)
- Soberay Mach. & Equip. Co. v. MRF Ltd., Inc., 181 F.3d 759 (6th Cir.) (definition of abuse of discretion)
- In re Eagle‑Picher Indus., Inc., 285 F.3d 522 (6th Cir.) (standard that appellate review asks whether reasonable persons could agree with trial court)
- In re M.J. Waterman & Assocs., Inc., 227 F.3d 604 (6th Cir.) (discretionary review framework for bankruptcy decisions)