In re Thomas A. GREENE, aka Radiator Service, Inc., and Bobby Jean Greene, Debtors. MBNA America, Appellant, v. Jeffry G. Locke, Trustee, Appellee.
No. 98-16539
United States Court of Appeals, Ninth Circuit.
July 12, 2000
223 F.3d 1064
O‘SCANNLAIN, HAWKINS, and WARDLAW, Circuit Judges.
Fred S. Hjelmeset, Law Offices of Reidun Stromsheim, San Francisco, CA, for appellee.
Opinion by Judge O‘SCANNLAIN; Dissent by Judge HAWKINS
O‘SCANNLAIN, Circuit Judge:
How do we count the time within which a preferential transfer in bankruptcy occurs when the 90th day before the filing date of the petition falls on a Saturday?
I
On February 29, 1996, Thomas A. Greene and Bobby Jean Greene (collectively, “the Greenes“) tendered a check for $21,998.71 to MBNA America (“MBNA“). The check cleared the Greenes’ bank on March 8, 1996, which was a Friday. On June 7, 1996, the Greenes filed a petition for relief under Chapter 7 of the Bankruptcy Code. On August 29, 1996, Jeffry G. Locke, trustee of the Greenes’ bankruptcy estate (“the Trustee“), filed a complaint against MBNA in bankruptcy court, seeking to recover the Greenes’ payment to MBNA as a preferential transfer capable of being avoided by the Trustee under
The Trustee appealed to the district court. In determining whether the Greenes’ payment to MBNA fell within the 90-day preference period, the district court counted backward from June 7, 1996, and concluded that the 90th day was March 9, 1996, a Saturday. Because the 90th day fell on a non-business day, the district court counted back to the previous
MBNA filed this timely appeal.4
II
This case requires us to answer two closely related questions. First, we must determine whether
A
We begin our analysis, as we must, with the governing provisions of the Bankruptcy Code and Rules. Section 547 of the Bankruptcy Code provides, subject to exceptions not relevant here, as follows:
(b) [T]he trustee may avoid [i.e., rescind and recover for the bankruptcy estate] any transfer of an interest of the debtor in property—
(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owed by the debtor before such transfer was made;
(3) made while the debtor was insolvent;
(4) made—
(A) on or within 90 days before the filing date of the petition . . .
(5) that enables such creditor to receive more than such creditor would receive if—
(A) the case were a case under chapter 7 of this title;
(B) the transfer had not been made; and
(C) such creditor received payment of such debt to the extent provided by the provisions of this title.
As the Supreme Court made clear in Rake v. Wade, 508 U.S. 464, 471, 113 S.Ct. 2187, 124 L.Ed.2d 424 (1993), with respect to interpretation of the Bankruptcy Code, “[w]here the statutory language is clear, our ‘sole function . . . is to enforce it according to its terms.‘” (citation omitted); see also Gardenhire v. United States Internal Revenue Service (In re Gardenhire), 209 F.3d 1145, 1148 (9th Cir.2000) (“Close adher-
B
The Trustee attempts to avoid the plain language of the preference statute by invoking
In computing any period of time prescribed or allowed by these rules . . . or by any applicable statute, the day of the act, event, or default from which the designated period of time begins to run shall not be included. The last day of the period so computed shall be included, unless it is a Saturday, a Sunday, or a legal holiday . . . in which event the period runs until the end of the next day which is not one of the aforementioned days.
To evaluate the Trustee‘s argument, we must determine whether
In determining what statutes are “applicable” and, hence, to be construed in light of Rule 9006(a), it is necessary to consider the scope of the rules themselves. Rule 1001 provides that the Bankruptcy Rules “govern procedure in cases under title 11 of the United States Code.” . . . It follows, then, that Rule 9006(a) does not provide a general rule of statutory construction which the courts are bound to apply to all time periods mentioned in any statute that
may come before the court, nor does the rule apply to time periods mentioned in other documents, such as contracts.
10 Collier on Bankruptcy ¶ 9006.03 (Lawrence P. King ed., 15th ed. rev.2000). We also take note of the Advisory Committee Notes to Rule 9006, which explain that Rule 9006(a) “governs the time for acts to be done and proceedings to be had in cases under the Code and any litigation arising therein.” Fed. R. Bankr. P. 9006(a) advisory committee‘s note (emphases added).
Applying the foregoing observations about Rule 9006(a) to the case before us, we conclude that
We recognize that several courts have either applied or suggested the applicability of Rule 9006(a) or its predecessor to the preference period of
In finding Rule 9006(a) inapplicable to calculation of the 90-day preference period, we draw support from the Sixth Circuit‘s carefully reasoned decision in Smith v. United States (In re Smith), 96 F.3d 800 (6th Cir.1996). The issue in Smith was whether the bankrupt plaintiff‘s tax debt to the federal government was dischargeable in bankruptcy. Under
The Sixth Circuit rejected Smith‘s argument, and in doing so offered an insightful analysis of Rule 9006(a) and its true purpose:
We do not believe that Rule 9006 can be put to the purpose Smith proposes. The Rule contemplates a deadline given to a party to take some action. . . . The reason for the rule is to encourage courts to read the Code‘s sometimes draconian catalogue of time limits in a manner that is fair to the party against whom the time limit is running, i.e., to guarantee that no party is shortchanged by an unfortunately-positioned weekend or holiday.
What Smith asks us to do with Rule 9006 is quite different. Here we are not dealing with bankruptcy procedural rules but with the legal status of a debt at the time of the filing of the petition. There is no claim that Smith did not have adequate time to accomplish something. . . . For these reasons, the district court correctly held that Rule 9006 did not apply [to the two-year period of
§ 523 ].
Id. (emphases added).
The analysis of our sister circuit, rejecting an attempt to apply Rule 9006(a) to a statute quite similar to
C
Even if
We reach this conclusion based on the persuasive reasoning offered by the Bankruptcy Appellate Panel in Research Group 80-21 v. Kendall (In re Bergel), 185 B.R. 338 (9th Cir. BAP 1995), which we now adopt in part as set forth below:
In order to resolve [whether Rule 9006(a) may be used to extend the 90-day preference period of
§ 547(b)(4)(A) ], we must determine whether the “90 day” element of§ 547(b) is procedural or substantive. If it is merely procedural, then Rule 9006(a) would allow the 90 days to be extended, as argued by the trustee. If, however, it is a substantive element of§ 547(b) , then28 U.S.C. § 2075 precludes its extension beyond 90 days.A substantive element differs from a procedural requirement for an act to be done such as the filing of a complaint or a motion prior to a certain deadline. In fact, unlike a complaint or motion that must be filed with the court while the clerk‘s office is open, a transfer can occur at any time.
With this question in mind, we will now discuss the above referenced cases [cited] by the [parties]. [W]e conclude that none of those cases are dispositive, because they all involve situations in which affirmative acts were required to
be performed, i.e., In re Butcher, 829 F.2d 596, 601 (6th Cir.1987) (filing a complaint); In re Victoria Station, Inc., 840 F.2d 682 (9th Cir.1988) (filing a motion); and Hart v. United States, 817 F.2d 78 (9th Cir.1987) (filing a complaint). Therefore, the time requirements in those cases were clearly procedural. However, we agree with the reasoning of In re Enterprise Fabricators, Inc., 36 B.R. 220 (Bankr.M.D.Tenn.1983), which involved the identical issue before us, namely the trustee‘s substantive rights under
§ 547(b)(4) .It is clear that the power to avoid any preferential transfer within 90 days before the date the petition was filed is a substantive element of a cause of action under
§ 547(b) . Section 547(b) does not require any affirmative act by the trustee. Rather, it creates a statutory period in which certain transfers are voidable by the trustee.We therefore hold that the use of Rule 9006(a) to extend the preference period beyond the limitations set forth in
§ 547(b)(4)(A) is an impermissible enlargement of the trustee‘s substantive right to avoid transfers. . . .
Id. at 341 (emphases added) (footnotes omitted).
The Bergel court‘s analysis of the distinction between substantive and procedural elements is firmly grounded in the Rules Enabling Act as interpreted by the Supreme Court. In Hanna v. Plumer, 380 U.S. 460, 85 S.Ct. 1136, 14 L.Ed.2d 8 (1965), the Court explained that in determining whether a rule is substantive or procedural for purposes of the Act, the controlling inquiry is “whether a rule regulates procedure—the judicial process for enforcing rights and duties recognized by the substantive law and for justly administering remedy and redress for disregard or infraction of them.” Id. at 464, 85 S.Ct. 1136 (quoting Sibbach v. Wilson & Co., 312 U.S. 1, 14, 61 S.Ct. 422, 85 L.Ed. 479 (1941)). The Hanna Court contrasted such procedural rules, which are valid even if they have some “incidental” impact upon litigants’ rights, with substantive rules that impermissibly “operate to abridge, enlarge or modify the rules of decision by which [a] court will adjudicate [a litigant‘s] rights.” Id. at 465, 85 S.Ct. 1136 (quoting Mississippi Publ‘g Corp. v. Murphree, 326 U.S. 438, 446, 66 S.Ct. 242, 90 L.Ed. 185 (1946)) (emphasis added).
Under the Hanna analysis, the timing of a transfer between two private parties is not procedural because it is independent of “the judicial process for enforcing rights and duties recognized by the substantive law.” Id. at 464, 85 S.Ct. 1136. Rather, the statutory mandate that a transfer, in order to be avoidable, be made “on or within 90 days before the filing date of the petition” is a “rule[ ] of decision” by which a court will adjudicate a bankruptcy trustee‘s substantive right to avoid a transfer. In other words, the preference statute‘s transfer timing requirement does not affect “the process of enforcing litigants’ rights,” but instead determines the existence of “the rights themselves.” Burlington Northern R.R. Co. v. Woods, 480 U.S. 1, 8, 107 S.Ct. 967, 94 L.Ed.2d 1 (1987). Applying Rule 9006(a) to
Noting that changes to procedural rules “may and often do affect the rights of litigants,” Hanna, 380 U.S. at 465, 85 S.Ct. 1136, the Trustee argues that applying Rule 9006(a) to extend the preference period does not violate the Rules Enabling Act because any effect upon substantive rights is, according to the Trustee, “minimal.” What the Trustee fails to recognize, however, is that the difference between substance and procedure is not one of degree, but of kind. For purposes of the Rules Enabling Act, a procedural rule is one that governs “the judicial process
In sum, because Bankruptcy Rule 9006(a) does not, and in any event cannot, apply to extend the 90-day period of
III
MBNA offers an additional argument to support reversal of the district court. MBNA contends that even if Rule 9006(a)
A great deal of ink has been spilt over the rather difficult and obscure question of whether preference periods should be calculated by counting backward or forward, and the courts that have struggled with the issue have reached divergent results.10 Our conclusion as to the inapplicability of Rule 9006(a) felicitously renders this messy dispute irrelevant. Under our decision, a 90-day period is a 90-day period.11 The only inquiry made relevant by the terms of the statute is whether the transfer took place “within 90 days before the date of the filing of the petition,” and the answer to this question remains the same regardless of whether one counts forward from the transfer date or backward from the bankruptcy filing date. See Levinson v. Security Sav. Bank, SLA (In re Levinson), 128 B.R. 365, 368 (Bankr. S.D.N.Y. 1991) (explaining that “[w]hether one counts forward from the transfer date, or backward from the petition date, is signifi-
In essence, our holding avoids introduction of a “useless step[ ]” into the preference period analysis, namely, determination of whether to employ a forward or a backward count; “we slice [this] off with Occam‘s Razor and leave a more functional rule.” Bonded Fin. Servs., Inc. v. European Am. Bank, 838 F.2d 890, 894 (7th Cir. 1988). That our interpretation of
IV
Section 547(b)(4) of the Bankruptcy Code requires that a transfer, in order to be avoidable as a preference, must take place “within 90 days before the date of the filing of the petition.” Although this requirement might be described as “technical” and “arbitrary,” these qualities do not by themselves render it “procedural.” “Procedural” and “technical,” while often found in each other‘s company, should not be confused and are by no means synonymous. Accordingly, we reiterate that, despite its technical aspect, the timing requirement of
The plain language of
REVERSED and REMANDED.
MICHAEL DALY HAWKINS, Circuit Judge, dissenting:
This is an issue about which reasonable minds can differ. I take a different view than the majority because I believe that the rule established today will make the job of bankruptcy trustees measurably more difficult. I also think that some entirely meritorious claims against those who engage in fraudulent transfers will be lost as a result.
The majority concludes that Rule 9006(a) cannot be used to extend the preference period because
Even the appellant in this case appears to concede that section 547(b) is an “applicable statute.” MBNA has argued only that application of Rule 9006(a) to the preference period would violate the Rules Enabling Act, not that section 547(b) is not an “applicable statute.” The majority has raised this issue on its own. And while the majority‘s analysis is certainly plausible, I do not find it strong enough to overcome the consensus among the courts that section 547(b) is an “applicable statute” under Rule 9006(a).
The majority argues that section 547(b) is different because it does not require any affirmative act by the trustee, but rather creates a statutory period within which certain transfers are avoidable. I find this distinction unpersuasive. Rule 9006(a) and Federal Rule of Civil Procedure 6(a) ensure that parties will not be frustrated by an inconveniently placed weekend or holiday. And like the trustee in this case, a party can be frustrated by an inconveniently placed weekend or holiday regardless of whether he is required to perform an affirmative act.
The majority also argues that unlike the filing of a complaint or motion, a transfer can occur at any time, including a weekend. But under Barnhill v. Johnson, 503 U.S. 393, 396, 112 S.Ct. 1386, 118 L.Ed.2d 39 (1992), a transfer does not occur until the check is honored by the debtor‘s bank. Thus, unless a debtor‘s bank is open on a weekend, it is unlikely that transfers will occur between Friday and Monday.
I would reverse the summary judgment grant and remand, through the district court, back to the bankruptcy court to resolve the Trustee‘s claim on the merits.