Kontrick, Andrew v. Ryan, Robert (01/14/2004)

Questions presented: Whether the deadlines established by Bankruptcy Rule 4004 for objecting to a debtor's discharge in bankruptcy are jurisdictional, and therefore unwaivable?

BY RACHEL GREEN, MEDILL NEWS SERVICE

Buried in a decade-long bankruptcy battle between two Chicago-based plastic surgeons is a simple question of procedure: Can bankruptcy judges consider claims filed by creditors after the 60-day cutoff? Are the deadlines absolute, or can they be waived?

Andrew Kontrick filed for bankruptcy in 1997, after he and business partner, Robert Ryan, dissolved their practice in the early 1990s. Ryan listed himself as a creditor in Kontricks case within the 60-day guideline. A bankruptcy judge in Cook County extended filing deadlines in the case through January 1998 at Kontricks request.

On May 6, 1998, more than three months after the deadline, Ryan filed an amended complaint without a court-approved extension, alleging Kontrick was diverting his paychecks to his wifes bank account. Based on this information, Ryan moved for summary judgment.

Ryan's attorney James Figliulo said this information had been previously available and was alluded to in other documents. He said the amended complaint was meant to refocus the courts attention to this detail.

In fact, this information had been available for more than four years before Ryan revised his complaint. During initial arbitration between the two doctors in 1992, Kontrick testified that he switched his paychecks to his wifes name because Ryan and his lawyer were harassing him for payment.

"What prompted this change were the ridiculous maneuvers that you and your client, [Dr. Ryan] have put me through in order to collect money which you dont have coming to you," Kontrick testified. "I felt this was a way of protecting myself."

The bankruptcy judge ruled in favor of Ryan, awarding him nearly $520,000. Kontrick appealed to the district court, arguing that bankruptcy rules are jurisdictional, and their deadlines cannot be waived. Consequently, Kontrick argued, Ryans amended complaint should have been dismissed.

Ryan countered that bankruptcy rules are statues of limitations, and their deadlines are recommended but not required guidelines for judges. The court accepted this rationale and Kontrick lost his appeal.

Kontrick then appealed to the 7th Circuit Court of Appeals, based on the same argument. Writing the unanimous opinion for the three-judge panel, Judge Kenneth Ripple concluded that the bankruptcy provision in question, Rule 4004, is subject to waiver, and that Kontrick waived his objection to timeliness.

"The timeliness issue was not presented to the bankruptcy court until after it had ruled on the question of whether a discharge ought to be refused," Ripple wrote in July 2002.

Ripple conceded that appeals courts nationwide are split when interpreting these rules. "The texts of these bankruptcy rules yield no definitive answer to the question of whether the time limitations contained in these rules are jurisdictional in nature."

Other circuit courts, including the 5th, 10th and 11th circuits, have ruled that bankruptcy rules are jurisdictional. But the 2nd, 4th and 7th have ruled that these timelines can be waived.

On Aug. 27, 2002, the full 7th Circuit Court of Appeals denied Kontrick's petition for a rehearing en banc, and on April 28, 2003, the U.S. Supreme Court accepted review in the case.

The issue at stake before high court involves Article 1; Section 8 of the U.S. Constitution, which requires Congress to provide uniform federal bankruptcy laws:

"The Congress shall have power to lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defense and general welfare of the United States; but all duties, imposts and excises shall be uniform throughout the United States."

Figuilo said he believes the Supreme Court accepted the case in an effort to clear the haze surrounding bankruptcy procedure.

"Courts throughout the different districts have decided this issue differently, and the Supreme Court wants to have a single ruling that would provide unified guidance to bankruptcy courts and other courts regarding this issue," Figuilo said.

On Jan. 14, 2004, the Court unanimously sided with Ryan, holding that a debtor forfeits the right to be automatically discharged from a debt under Bankruptcy Rule 4004 if he fails to object to a creditor's late filing. Justice Ruth Bader Ginsburg wrote the Court's unanimous opinion.