Tiffany O'Shea, LLC et al v. Schrag

Filing 47

Opinion and Order - The decision of the Bankruptcy Court is REVERSED and the case is REMANDED with instructions to reinstate Tiffany's complaint. Signed on 12/5/11 by Judge Michael H. Simon. (mja)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON
PORTLAND DIVISION

In re:

JOHN A. SCHRAG,
Debtor.

United States District Court
Case No.: 3:11-cv-01072-SI
Bankruptcy Case
No.: 11-30664-tmb7

TIFFANY & O'SHEA, LLC, in its capacity
as successor personal representative of the
estate of Rose Marie Schrag; LINDA L.
BOELENS, individually and as trustee of the
Linda L. Boelens Trust; and SUSAN A.
DION, individually and as trustee of the Susan
A. Dion Trust,
Plaintiffs,
v.

JOHN A. SCHRAG,
Defendant.

KATHRYN M. PRATT
Pratt Law Office LLC
18292 SW Santoro Dr.
Beaverton, OR 97007
Of Attorneys for Plaintiff-Appellant

OPINION AND ORDER

MATTHEW A. ARBAUGH
Field Jerger LLP
621 SW Morrison St., Ste. 1225
Portland, OR 97205
Of Attorneys for Defendant-Appellee

SIMON, District Judge,

In a Chapter 7 bankruptcy proceeding, a creditor has "60 days after the first date set for
the meeting of creditors" to file a complaint objecting to the debtor's discharge. Fed. R. BIatcy.
P. ("Rule") 4004(a). Creditor-Appellants Tiffany & O'Shea, LLC, Linda Boelens, and Susan
Dion (collectively "Tiffany") filed a complaint opposing Debtor-Appellee John A. Shrag's
("Schrag") discharge petition one hour and 23 minutes after the 60-day deadline. Schrag moved
to dismiss Tiffany's complaint as untimely. In response, Tiffany maintained that technical
problems with the court's electronic filing system caused the delay. The Bankruptcy Court
conducted its own "independent investigation" of the electronic filing system and decided that
the delay was attributable to Tiffany, not the court. Accordingly, it granted Schrag's motion and
dismissed Tiffany's complaint.
On appeal to this court, pursuant to 28 U.S.C. § 158(a)(1), Tiffany contends that the
Bankruptcy Court's "independent investigation" impermissibly introduced evidence into the
proceeding and that such evidence was factually incorrect. Tiffany also contends that Local R.
BIatcy. P. ("Local Rule") 5005-4(f)(2) permits a party to obtain relief from untimely filings
when the delay is attributable to the court's electronic filing system, not to the filing party. The
court agrees. The decision of the Bankruptcy Court dismissing Tiffany's complaint is, therefore,
reversed. On remand, the Bankruptcy Court is ordered to reinstate Tiffany's complaint.

OPINION AND ORDER - Pg. 2

BACKGROUND
On January 31,2011, Schrag filed a voluntary petition for Chapter 7 bankruptcy. ER 9.
Pursuant to 11 U.S.C. § 341(a), within a "reasonable time" after the debtor's filing, the United
States trustee "shall convene and preside at a meeting of creditors." The trustee held the
"meeting of the creditors" on March 1, 2011, and Tiffany, through its attorney, attended. ER 2526,30. The Federal Bankruptcy Rules of Procedure require a creditor to file a complaint
objecting to a debtor's discharge "no later than 60 days after the first date set for the meeting of
creditors under § 341(a)." Rule 4004(a). The Bankruptcy Court announced that the deadline to
file an objection to Schrag's discharge was May 2,2011. 1 ER 30.
On May 2, 2011, Bruce Orr, Tiffany's attorney, "began the filing process for the
adversary complaint before midnight[.]" ER 67. The Bankruptcy Court for the District of Oregon
requires attorneys to file all documents electronically through the court's Case Management /
Electronic Case Filing ("CMlECF") system? Local Rule 5005-4(b)(1). Use ofCMlECF "does
not alter the filing deadline" and electronic filing "must be completed before midnight Pacific
time to be considered filed on that day." Local Rule 5005-4(f)(1). Orr "believed [he] had enough
time for the electronic filing process to be completed by midnight[.]" ER 67.
The most recent version of the CMlECF user manual at that time, published by
Administrative Office of the United States Courts in June 2010, recommended that parties "use
the most recent version of any browser." ER 91. Orr was using the Firefox web browser, version

Because the 60th day fell on a Saturday, the court's announced deadline of May 2,
2011, actually fell 62 days after the meeting of the creditors. See Rule 9006(a)(1)(C) ("if the last
day is a Saturday, Sunday, or legal holiday, the period continues to run until the end of the next
day that is not a Saturday, Sunday, or legal holiday").
2

The CMlECF system "is the Federal Judiciary's comprehensive case management
system for all bankruptcy, district and appellate courts. CMlECF allows courts to accept filings
and provide access to filed documents over the Internet." See http://www.pacer.gov/cmecf/.
OPINION AND ORDER - Pg. 3

4.0.1. ER 67. As he attempted to file the complaint, Orr "encountered problems with the

CMIECF system." Those problems forced him to restart the filing process and to "backtrack
several times within the ... filing process before I could finally accomplish the filing[.]" ER 67.
Orr completed the filing at 1:23 a.m. on May 3, 2011, one hour and 23 minutes past the deadline.
ER67,75.
Tiffany did not immediately move for relief. Instead, on May 20,2011, Schrag moved to
dismiss Tiffany's complaint as untimely. ER 17-18. Tiffany responded to Schrag's motion on
June 16,2011. ER 58-65. On the same day, it filed a separate motion, pursuant to Local
Rule 5005-4(t)(2), asking the Bankruptcy Court to deem its filing as timely. ER 55-56. Local
Rule 5005-4(t)(2) permits a party "whose filing is untimely due to a technical failure of a courtcontrolled aspect of the CMlECF system" to seek "appropriate relief from the court."
Tiffany argued that its filing was delayed because of a "system-wide technical problem
with the ECF system[.]" ER 59 (capitalization removed). In particular, it explained that in May
2011, the CMlECF system had undisclosed "compatibility issues" with the version of the Firefox
web browser that Orr was using, which was Firefox version 4.0.1. ER 60,67. On June 3, 2011,
one month after he filed Tiffany's complaint, Orr received an e-mail from the Bankruptcy
Court's CM/ECF system. ER 67-68. The e-mail, attached as an exhibit to Tiffany'S response,
stated in part:
ECF users are advised NOT TO UPGRADE to version 4.x or 5.x of the Firefox browser.
The Firefox browser versions 4.x and 5.x are not fully compatible with the court's ECF
system. Several issues involving electronic filing have been reported .... The
recommended version of Firefox for use with ECF is 3.6.18[.] ER 77.

OPINION AND ORDER - Pg. 4

According to Orr, until he received this e-mail, he "was not aware that the upgrade to [Firefox
version 4.0.1] caused incompatibility problems with the ECF system." ER 67-68. Orr further
explained that he "had used Firefox without incident ... in the past[.]" ER 68.
The Bankruptcy Court granted Schrag's motion to dismiss during a June 27,2011,
telephone conference. During the call, the Bankruptcy Court explained:
I asked our Clerk's Office about - about ... Firefox 4 ... who checked with the
Administrative Office of the U.S. Courts, and the Administrative Office programmers
looked into our - into our matter, and they tested our [system] using Firefox 4. They had
no problems filing [a] case.
They looked at our [transaction] log and verified two facts that we'd noted. One,
other users were filing documents successfully in [CMlECF] before and after midnight.
Therefore, our system was definitely operational. And the Court itself was not running
any huge jobs that would have slowed the system or created any particular problems. And
this Court has received no reported issues with Firefox 4 or with case openings. ER
147-48.
The Bankruptcy Court concluded that Tiffany's late filing was the fault of Tiffany's counsel, not
a technical problem with the CMlECF system: "I don't think that there was a technical failure. I
think there was a failure of Mr. Orr to get the complaint filed in a timely manner[.]" ER 149. The
Bankruptcy Court did not address the June 3, 2011, e-mail Orr received from the CM/ECF
system. After the call, the Bankruptcy Court signed an order prepared by Schrag's counsel
stating that after "considering ... its own independent investigation," Schrag's motion to dismiss
was granted and Tiffany's motion for relief was denied. ER 158.

STANDARD OF REVIEW
The court reviews the Bankruptcy Court's finding of fact for clear error and the
Bankruptcy Court's conclusions oflaw de novo. In re Schwarzkopf, 626 F.3d 1032, 1035 (9th
Cir. 2010).

III

OPINION AND ORDER - Pg. 5

DISCUSSION
Pursuant to 28 U.S.C. § 158(c)(1)(A), the appellant may elect to have an appeal heard by
the District Court instead of the Bankruptcy Appellate Panel. Tiffany elected to appeal to this
court. Doc. #1, pg. 25.

A.

The Bankruptcy Court's Findings
The Bankruptcy Court made a factual finding that a "technical failure" was not

responsible for Tiffany's untimely filing. ER 149. Tiffany contends that the Bankruptcy Court's
fmding was based on its own investigation, not on evidence submitted by the parties: The
Bankruptcy Court "conducted [its] own investigation in this matter and interjected facts ... into
the case." Appellant's Br. 12. The Bankruptcy Court's statements during the hearing on June 27,
2011, make clear that it obtained evidence on its own: The Bankruptcy Court contacted the court
clerk, who apparently contacted information technology staff. ER 147-48. Those staff apparently
reviewed computer logs and ran tests. ER 147-48. The Bankruptcy Court then relied on that
information to reach its decision.

It is a basic principle of jurisprudence, enshrined in common law and statute, that the
court may not introduce its own evidence into a proceeding. Quercia v. United States, 289 U.S.
466,470 (1933) Qudge "may not ... add to" evidence); United States v. Berber-Tinoco, 510 F.3d
1083, 1091 (9th Cir. 2007), cert. denied, 555 U.S. 850 (2008) ("the judge may not actually
testify in the proceeding or interject facts (excluding facts for which proper judicial notice is
taken)"); Fed. R. Evid. 605 ("presiding judge may not testify as a witness at the trial"); 28 U.S.C.
§ 455(b)(1) Qudge must recuse herself if she has "personal knowledge of disputed evidentiary
facts concerning the proceeding"). The Bankruptcy Court's "independent investigation"

OPINION AND ORDER - Pg. 6

impermissibly violated that principle. 3 Courts are the arbiters of the questions of law and fact
presented by the parties, not self-directed investigative agencies: "Our adversary system is
designed around the premise that the parties know what is best for them, and are responsible for
advancing the facts and arguments entitling them to relief." Castro v. United States, 540 U.S.
375,386 (2003) (Scalia, J., concurring in part and concurring in judgment).
Nonetheless, Schrag argues that the Bankruptcy Court "merely relayed [its] knowledge of
how [it] actually functions." Appellee's Br. 2 (emphasis omitted). "To reverse," he contends,
would "place form over substance." Appellee's Br. 2. Schrag's argument has no basis in law.
The prohibition on independent judicial investigation is one that has been, and must be,
scrupulously followed. The common practice, when a case calls for evidence from the court, is
for the parties to obtain evidence by calling court administrative staff to testify. See, e.g., United
States v. Buchanan, 213 F .3d 302, 309 (9th Cir. 2000) (noting that "the government called the
jury clerk to testify about the procedures used to assemble jury venires in the district"); United
States v. Ramirez, 884 F.2d 1524, 1526-27 (Ist Cir. 1989) (discussing testimony of district
court's chief deputy clerk and jury clerk); Shuman v. Wolff, 791 F.2d 788, 790-91 (9th Cir.1986)
(discussing testimony of district court clerk).
The Bankruptcy Court's fact-finding process was clearly erroneous and its findings are
reversed. The remaining relevant factual record consists of Orr's declaration, a section from the

CMlECF user manual, and the e-mail fromCMlECF sent on June 3, 2011. ER67-68,77, 91. This

3

The court's "independent investigation," moreover, demonstrates some of the
reasons why independent judicial investigation is inappropriate: The parties did not themselves
have a chance to question information technology staff. The court-obtained evidence was not
introduced into the record. The court did not establish a foundation for the staff s purported
knowledge. See United States v. Lewis, 833 F.2d 1380, 1386 (9th Cir. 1987) (court's "reliance on
... facts known to uudge] from his personal experience[] denied the government the opportunity
to test the basis for the court's opinion").
OPINION AND ORDER - Pg. 7

evidence is sufficient for this court to find that Orr began the filing process before midnight; that
Orr was using version 4.0.1 of the Firefox browser; that the CM/ECF user manual stated that
"any browser" was compatible; and that the CMlECF system sent a notice on June 3, 2011 about
compatibility problems with Firefox version 4.0.1. Based on that evidence, the court finds that
Tiffany's untimely filing is attributable not to Tiffany but rather to a technical problem with the
court's CMIECF system.

B.

Relief Pursuant to Local Rule 5005-4(f)(2)
Rule 4004(a) provides in part that "[i]n a chapter 7 case, a complaint, or a motion under

§ 727(a)(8) or (a)(9) of the Code, objecting to the debtor's discharge shall be filed no later than

60 days after the first date set for the meeting of creditors under § 341 (a)." Rule 4004(b)(1)
allows the court to extend "for cause the time for filing a complaint objecting to discharge," but
requires that "the motion shall be filed before the time has expired.,,4 By their plain terms, the
Rules are "strict": "Bankruptcy Rules 4004(a) and 4007(ci set a strict sixty day time limit within
which a creditor may dispute the discharge of the debtor and the dischargeability of the debts."

In re Anwiler, 958 F.2d 925,927 (9th Cir. 1992). Though strict, Rule 4004(a) is not
4

Rule 4004(b)(2), which is not applicable to present case, provides in part:

A motion to extend the time to object to discharge may be filed after the time for
objection has expired and before discharge is granted if (A) the objection is based on
facts that, if learned after the discharge, would provide a basis for revocation under
§ 727(d) of the Code, and (B) the movant did not have knowledge of those facts in time
to permit an objection.
5

Rule 4007(c) is not at issue in the instant case. It provides:

Except as otherwise provided in subdivision (d), a complaint to determine the
dischargeability of a debt under § 523(c) shall be filed no later than 60 days after the first
date set for the meeting of creditors under § 341(a). The court shall give all creditors no
less than 30 days' notice of the time so fixed in the manner provided in Rule 2002. On
motion of a party in interest, after hearing on notice, the court may for cause extend the
time fixed under this subdivision. The motion shall be filed before the time has expired.
OPINION AND ORDER - Pg. 8

jurisdictional. Kontrickv. Ryan, 540 U.S. 443, 454 (2004) (deadline in Rule 4004(a) does not
"delineate what cases bankruptcy courts are competent to adjudicate").
Local Rule 5005-4(f)(2) pennits a party to request relief when a filing "is untimely due to
a technical failure of a court-controlled aspect of the ECF system." Tiffany contends that, under
the circumstances, this rule pennits relief. Schrag, however, argues that Local Rule 5005-4(f)(2)
cannot override Rule 4004(a), which is "inflexible." Appellee's Br. 8. Absent "a pre-deadline
request," Schrag argues, the District Court "has no discretion to extend the deadline even for a
short amount oftime." Appellee's Br. 10. Thus, the court must decide whether Local
Rule 5005-4(f)(2) provides an exception to Rule 4004(a)'s "strict" deadline. The court concludes
that it does.
"Local rules are 'laws of the United States.'" Marshall v. Gates, 44 F.3d 722, 724 (9th
Cir. 1995) (quoting United States v. Hvass, 355 U.S. 570, 575 (1958». District courts may adopt
any rule that is "not inconsistent with the federal rules or Acts of Congress." United States v.

Warren, 601 F.2d 471,473 (9th Cir. 1979); Fed. R. Civ. P. 83(a)(1) (a "local rule must be
consistent with-but not duplicate-federal statutes and rules"). In the event that a local rule
conflicts with a federal rule, the local rule "cannot be enforced." Pradier v. Elespuru, 641 F.2d
808,810 (9th Cir. 1981). The court, however, is under an "obligation to construe local rules so
that they do not conflict with the federal rules[.]" Marshall, 44 F.3d at 725.
In this case, the local rule does not conflict with Rule 4004(a). Rule 4004(a) forbids a

party from objecting to a debtor's discharge more than sixty days after the § 341(a) meeting of
the creditors. Local Rule 5005-4(f)(2) does not pennit either a party to circumvent or the court
to extend that deadline; rather, it pennits the court to correct a court-caused error where a filing
would have otherwise been timely. Thus, for a party to obtain relief pursuant to Local

OPINION AND ORDER - Pg. 9

Rule 5005-4(1)(2), it must establish that, but for the court-caused technical problem, it would
have completed the filing on time. Given that restriction, Local Rule 5005-4(1)(2) does not grant
an objecting-party any flexibility that Rule 4004(a) forbids. In all cases, the objecting-party must
correctly follow filing procedures within the deadline. In the rare circumstance where a party has
attempted to meet Rule 4004(a)'s deadline and correctly followed the court's prescribed
electronic filing procedures, but has, nonetheless, encountered a court-caused technical problem,
Local Rule 5005-4(1)(2) offers a limited avenue for relief. In such circumstances, the Bankruptcy'
Court may deem that the filing was made within the deadline. See Phoenix Global Ventures, LLC
v. Phoenix Hotel Associates, Ltd., 422 F.3d 72, 74 (2nd Cir. 2005) (holding that district court
may "deem the motion made on the date that the motion would have been filed but for failure to
comply with requirements of the electronic filing system").
This approach is consistent with the Ninth Circuit's opinion in In re Anwiler, 958 F.2d
925 (9th Cir. 1992). In that case, a bankruptcy court sent creditors a notice stating the wrong
deadline for filing objections. A creditor, relying on that notice, filed his complaint after the
deadlines in Rules 4004(a) and 4007(c). The bankruptcy court dismissed the complaint as
untimely. The Bankruptcy Appellate Panel reversed and the Ninth Circuit affirmed the Panel.
Id. at 926. The Ninth Circuit began its analysis by noting that 11 U.S.C. § 105(a) grants
bankruptcy courts a measure of equitable power: "The court issue any order, process or judgment
that is necessary or appropriate to carry out the provisions of this title." That equitable power, the
Ninth Circuit found, "would be meaningless if courts were unable to correct their own mistakes."
Id. at 929. As such, the Ninth Circuit concluded that the bankruptcy court should have relied on

OPINION AND ORDER - Pg. 10

11 U.S.C. § 105(a) to permit the creditor's "complaint to proceed in spite of its untimely filing.,,6
Id.

During its analysis, the Ninth Circuit found that the "intent behind the rules [4004(a) and
4007(s)] is not circumvented by allowing an untimely complaint to stand when a party relied on
a court document sent before the deadline had expired." Id. Importantly, the Ninth Circuit did not
hold that 11 U.S.C. § 105(a) granted the Bankruptcy Court the power to enlarge the time in
which to file a complaint under Rules 4004(a) or 4007(c) after the deadline had passed. Instead,
it merely permitted the courts to "correct their own mistakes." Local Rule 5005-4(£)(2) operates
in a similar fashion. Neither Local Rule 5005-4(£)(2) nor In re Anwiler establish that a
bankruptcy court may extend the deadline set forth in Rule 4004(a) after it has passed. Both
allow the court, however, in a narrow set of circumstances, to correct court-caused mistakes.
Further confirmation that Local Rule 5005-4(£)(2) does not conflict with Rule 4004(a) is
found in Rule 9006(a)(3). As Tiffany points out, Local Rule 5005-4(£)(2) is essentially a more
specific derivation of Rule 9006(a)(3). Appellant's Br. 21. Rule 9006(a)(3), which applies to
"any time period specified in these rules," enlarges the time for filing when "the clerk's office is
inaccessible." The Bankruptcy Panel has held that Rule 9006 may alter deadlines set forth in
Rule 4004(a). In re Burns, 102 B.R. 750, 752 (9th Cir. BAP 1989). In addition, the Advisory
Committee Notes to the 2009 Amendments to Rule 9006(a)(3) make clear that Rule 9006(a)(3) is
intended to cover the failure of a court's electronic filing system: "The text of the rule no longer
refers to 'weather or other conditions' as the reason for the inaccessibility ofthe clerk's office.
The reference to 'weather' was deleted from the text to underscore that inaccessibility can occur

6

Although In re Anwiler possibly establishes an alternate basis for Tiffany to
request relief, Tiffany states that it is not seeking relief pursuant to 11 U.S.C. § 105(a).
Appellant's Reply Br. 5.
OPINION AND ORDER - Pg. 11

for reasons unrelated to weather, such as an outage of the electronic filing system." Thus, Local
Rule 5005-4(f)(2) explicitly provides for what Rule 9006(a)(3) implicitly permits.
The Bankruptcy Court and Schrag maintain that an unpublished Bankruptcy Appellate
Panel decision, In re Wright, No. CC-09-1388-DuMkJa, 2010 WL 6259968 (9th Cir. BAP June
10,2010), compels the opposite result. ER 147; Appellee's Br. 4 (In re Wright is "absolutely onpoint"). The court disagrees. In In re Wright, the creditor's complaint was untimely not because
of a technical failure attributable to the court but because the creditor attempted to file his
complaint in the wrong system. Id. at *4 ("the record tends to establish that the complaint was
untimely because [the creditor's] attorney tried to file it in the wrong system"). Here, the
evidence establishes that the error lay with the court, not the creditor.
Schrag also contends that another case, In re Santos, 112 B.R. 1001 (9th Cir. BAP 1990),
establishes that a "request for an extension of the [Rule 4004(a)] deadline must be filed prior to
the expiration of the deadline." Appellee's Br. 7. In In re Santos, the Bankruptcy Appellate Panel
held that the doctrines of equitable tolling and equitable estoppel could not provide relief to a
creditor who filed an objection beyond the deadlines established in Rules 4004(a) and 4007(c).
The Panel noted, during its discussion, that the "Ninth Circuit, and this Panel have consistently
held that a bankruptcy court has no discretion to grant relief from the filing deadline unless a
motion for extension oftime is filed within the 60 day period established by [Rule 4004(a)]."
Id at 1007. Schrag relies on this quote to contend that "if there was no pre-deadline request[,] the
court cannot grant an extension of the deadline." Appellee's Br. 9.
In re Santos is inapposite here. Local Rule 5005-4(f)(2) does not permit the Bankruptcy

Court discretion to grant relief from Rule 4004(a)'s filing deadline. Rather, as explained above, it
allows the Bankruptcy Court to deem that a filing was made in a timely manner when a court-

OPINION AND ORDER - Pg. 12

caused technical problem delayed an otherwise timely finding. Moreover, in In re Santos the
creditor filed late because he relied on a statement made by the debtor's attorney. 122 B.R. at
1003 . The Panel addressed only the applicability of equitable tolling and equitable estoppel to
those circumstances. It did not consider the different factual and legal circumstances present in
the instant case, where the court, not another party, caused the delay.
Thus, based on this court's determination, supra, that Tiffany's filing was made untimely
by a court-caused technical problem, Local Rule 5005-4(f)(2) permitted Tiffany to apply for
relief. The court concludes that relief is appropriate. Accordingly, the court reverses the decision
of the Bankruptcy Court and remands the case with an order to reinstate Tiffany's complaint.

CONCLUSION
The decision of the Bankruptcy Court is REVERSED and the case is REMANDED with
instructions to reinstate Tiffany's complaint.
IT IS SO ORDERED.
Dated this

50-

day of December, 2011

~J1c{i?

Michael H. Simon
United States District Judge

OPINION AND ORDER - Pg. 13