ILC-EBulletin: Ninth Circuit rules that a CM/ECF outage did not excuse appellant’s failure to file a timely appeal or motion for reconsideration
Dear constituency list members of the Insolvency Law Committee, the following is a case update analyzing a recent case of interest:
Each year, December 1 is the date on which new and amended federal rules and forms become effective. Sometimes, this requires local bankruptcy courts to take automated systems offline. That is again the case this year. In the Central District of California, CM/ECF, PACER and certain other automated systems will not be available from 1:00 p.m. on Thursday, November 30, 2017, until 8:30 a.m. on Friday, December 1, 2017.
The scheduled outage calls to mind the cautionary tale of Hsu v. MTC Financial, Inc. (In re Hsu), 692 Fed.Appx. 888 (9th Cir. June 30, 2017). In that case, the Ninth Circuit ruled that a scheduled CM/ECF outage did not excuse a party’s failure to file a timely notice of appeal or motion for reconsideration. To read the Ninth Circuit’s unpublished memorandum, click here: http://bit.ly/2naUZJJ.
On June 26, 2015, and after two failed bankruptcies of her own (to prevent/delay foreclosure proceedings), Li Hsiu-Chu Hsu purported to convey her Pasadena residence to her daughter, Tzu Ling Hsu (the “Debtor”). On July 1, 2015 – the day before a scheduled foreclosure sale – the Debtor filed a chapter 11 petition. Based thereupon, the foreclosing trustee, MTC Financial Inc. (“MTC”), postponed the foreclosure sale for a few days, to July 7, 2015. Allegedly unable to confirm the validity of the conveyance, MTC went forward with the sale and the property was purchased for $4.2 million.
Within a few days, MTC realized that it had made a mistake. Attempting to remedy MTC’s error, the buyer and MTC each filed a motion for relief from stay, requesting that the court annul the automatic stay retroactive to the Debtor’s petition date. On November 13, 2015, the bankruptcy court entered orders granting both motions. This relief had the effect of validating the post-petition foreclosure sale.
The deadline for the Debtor to appeal or seek reconsideration of the orders granting relief from stay was Monday, November 30, 2015 (after the Thanksgiving holiday weekend). During the week leading up to November 30, the bankruptcy court sent out at least two notices advising CM/ECF users that CM/ECF would be unavailable from 4:00 p.m. on November 30 through 9:00 a.m. on December 1. A final notice was sent out the morning of the scheduled outage.
The Debtor did not file an appeal or motion for reconsideration before CM/ECF was taken offline. Instead, on December 1, 2015 (at approximately 11:18 p.m.), the Debtor electronically filed two motions for reconsideration (one for each order). The bankruptcy court denied the motions and the Debtor filed notices of appeal on December 15, 2015.
In the district court, MTC and the buyer filed motions to dismiss the appeals. They argued, among other things, that the appeals were not timely filed because the deadline to file an appeal or motion for reconsideration was November 30, but the Debtor’s motions for reconsideration were not filed until December 1. The Debtor argued that because her attorney was required by local bankruptcy rules to file documents electronically, and because CM/ECF was unavailable during the late afternoon and evening of November 30, the time for her to appeal or seek reconsideration was extended to December 1. See Fed. R. Bankr. P. 9006(a)(4) (for electronic filing, “last day” ends at midnight in the court’s time zone), (3) (when clerk’s office is inaccessible, “last day” for filing is extended to the first accessible day that is not a weekend or legal holiday). The district court ultimately agreed with MTC and the buyer, and dismissed the appeals as untimely.
NINTH CIRCUIT’S REASONING
The Ninth Circuit affirmed the district court’s orders dismissing the appeals. The court reasoned that while there is ordinarily mandatory electronic case filing, the local bankruptcy court’s rules were clear that despite the CM/ECF outage the “Debtor’s proper recourse . . . was to file a paper hard copy by November 30 at midnight, not to wait another day as if the clerk was ‘unavailable’ under the Federal Rules of Bankruptcy Procedure.” The court pointed to the Central District of California bankruptcy court’s Court Manual, which stated that, when there is a CM/ECF outage, a litigant should file a hard copy manually at the filing window “whenever it is essential that a particular document be filed by a particular date.” Because the Debtor did not do so, her appeal was untimely and the district court lacked jurisdiction to hear the appeal.
We often rely on the ability to electronically file documents after business hours, up until the clock strikes twelve. Most of the time, as long as a filer acts diligently (e.g., serves the document on time, emails a copy to all parties who would otherwise be served via Notice of Electronic Filing, and files it electronically as soon as CM/ECF service resumes), a CM/ECF outage should not prove fatal (especially if it is unscheduled). But when filing a notice of appeal, motion for reconsideration, complaint, proof of claim, or other document that absolutely must be filed by a particular date, a CM/ECF outage on the last day for filing can have disastrous consequences.
In most situations, a bankruptcy court may extend the time for a party to file an appeal if the party (a) requests the extension in a motion filed within 21 days after the deadline, and (b) shows excusable neglect. Fed. R. Bankr. P. 8002(d)(1). Whether missing a filing deadline due to a scheduled, publicized CM/ECF outage constitutes “excusable neglect” is debatable. Regardless, the bankruptcy court could not have extended the deadline in the Hsu case because the order appealed from granted relief from the automatic stay. See Fed. R. Bankr. P. 8002(d)(2).
These materials were written by John N. Tedford, IV, of Danning, Gill, Diamond & Kollitz, LLP, in Los Angeles, California (firstname.lastname@example.org). Editorial contributions were provided by ILC member Michael W. Davis of Brutzkus Gubner Rozansky Seror Weber LLP in Woodland Hills, California (email@example.com).
Thank you for your continued support of the Committee.
Insolvency Law Committee
Radmila A. Fulton
Law Offices of Radmila A. Fulton
Marcus O. Colabianchi
Duane Morris LLP
Rebecca J. Winthrop
Norton Rose Fulbright US LLP
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