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In re Kontrick

July 08, 2002

IN RE: ANDREW J. KONTRICK, DEBTOR-APPELLANT.


Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 00 C 5736--Harry D. Leinenweber, Judge.

Before Harlington Wood, Jr., Ripple and Rovner, Circuit Judges.

The opinion of the court was delivered by: Ripple, Circuit Judge.

ARGUED JANUARY 10, 2002

Dr. Andrew Kontrick filed a Chapter 7 bankruptcy petition on April 4, 1997. Dr. Robert Ryan, a judgment creditor, then filed an adversary proceeding objecting to Dr. Kontrick's discharge. Ruling on summary judgment, the bankruptcy court denied Dr. Kontrick discharge under 11 U.S.C. § 727(a)(2)(A). The district court affirmed the bankruptcy court's decision. Dr. Kontrick now appeals and raises three objections to the bankruptcy court's decision. First, he argues that Dr. Ryan's complaint was untimely. Second, he argues that the bankruptcy court incorrectly concluded that he had waived his objection to the timeliness of Dr. Ryan's complaint and, further, that he could not have waived such an objection because Federal Rule of Bankruptcy Procedure 4004(a)'s time limit is jurisdictional and not subject to waiver. Finally, Dr. Kontrick contends that the bankruptcy court improperly granted summary judgment because there is a genuine issue of material fact about his intent in transferring his paychecks to his wife in the year before bankruptcy. For the reasons set forth in this opinion, we affirm the judgment of the district court.

I.

A. Facts

Dr. Ryan and Dr. Kontrick, both cosmetic and plastic surgeons, were business associates. Each was a 50% shareholder in a professional corporation that Dr. Ryan had established. Dr. Kontrick had begun as an employee of the corporation and then, in 1989, he became part-owner. The association of the two physicians in this arrangement was a short and unhappy one. A variety of disputes, the details of which are not material to this appeal, arose. These disagreements were heard in two separate arbitrations. In the first, commenced in January 1992, Dr. Ryan was awarded $47,157.81 plus interest, expenses and attorneys' fees. Dr. Kontrick paid a total of $65,261.32 in satisfaction of this first arbitration. The second arbitration, commenced in October 1992, resulted in a 1995 award to Dr. Ryan of $519,324.42, including punitive damages, costs, expenses and attorneys' fees. The Circuit Court of Cook County entered a judgment on the award; the Illinois Appellate Court later reversed the punitive damages award and reduced the prejudgment interest rate. See Ryan v. Kontrick, 710 N.E.2d 11 (Ill. App. Ct. 1999).

During the first arbitration, Dr. Ryan filed a citation to discover Dr. Kontrick's assets. In an ensuing deposition, Dr. Kontrick was asked about his family finances, including his decision to remove his name from the family checking account. Dr. Kontrick testified that personal expenses were paid from that account, now only in his wife's name, and admitted that "[i]t used to be my personal account. I don't have that account anymore." R.16-1, Ex.7 at 7-8; see id. at 10-11, 17-19. He continued: "What prompted this change was the ridiculous maneuvers that you and your client [Dr. Ryan] have put me through in order to collect money which you don't have coming to you." Id. at 9. Dr. Kontrick further elaborated, stating that "there are just thousands and thousands of thieves out there that are ready to come after you on any pretense and rob you of whatever belongings you might have. So I felt this was a way of protecting myself." Id. at 12. In Dr. Kontrick's view, this arrangement would protect him from people who were "more than willing to take your money on some pretense or some technicality that they push through some court and all kinds of wranglings. As you know, this is exactly what went on." Id. To protect himself from individuals, whom he identified as former patients who have suffered "some perceived wrong," Dr. Kontrick divested himself of his personal wealth, transferring much of it to his wife and daughter. See id. at 13-14. As part of this effort to insulate his assets from potential judgment creditors, Dr. Kontrick removed his name from the family checking account, leaving his wife as the sole signatory; he continued to deposit his paychecks into that account. See id. at 17-19. Summing up his approach to his finances, Dr. Kontrick testified that "I felt that to have any sort of assets that could possibly be taken away from me would be foolish. So I basically divested myself of everything." Id. at 29-30.

B. Bankruptcy Court Proceedings

Dr. Kontrick filed for bankruptcy in April 1997. On January 13, 1998, Dr. Ryan, after having been granted three extensions of time, filed his adversary complaint objecting to Dr. Kontrick's discharge. This adversary complaint included four counts (I-IV) objecting to discharge under 11 U.S.C. §§ 727(a)(2)-(5) and three counts (V-VII) seeking a determination of the nondischargeability of Dr. Kontrick's debts to Dr. Ryan under 11 U.S.C. §§ 523(a)(2), (4) & (6). Dr. Ryan filed an amended complaint on May 6, 1998, without a court-approved extension, which included for the first time the specific allegation that Dr. Kontrick had violated § 727(a)(2)(A) by taking his name off of a family checking account ("family account") and continuing to deposit his paychecks into the account. *fn1 Dr. Kontrick answered the amended complaint on June 10, 1998; in his answer, Dr. Kontrick admitted the transfers to the family account but denied violating § 727(a)(2)(A).

In March 1999, Dr. Ryan moved for summary judgment on all counts. Appended to his motion was a statement of facts pursuant to Local Bankruptcy Rule 402 ("402 M statement"). In August 1999, Dr. Kontrick filed a motion to strike portions of Dr. Ryan's 402 M statement. Dr. Kontrick maintained that "Ryan's 402 M statement contains an array of material that is not tied to anything alleged in the complaint." R.10-1, Ex.12 at 2. In this motion, Dr. Kontrick quoted Dr. Ryan's amended complaint for the purpose of comparing the allegations in the amended complaint with the facts claimed in the 402 M statement. Dr. Kontrick also filed a cross-motion for summary judgment.

The bankruptcy court granted Dr. Ryan's motion for summary judgment on Count I. The court also granted in part and denied in part Dr. Kontrick's motion to strike. The court found that, because Dr. Kontrick continued to place his paycheck into the family account, there was a transfer within one year of bankruptcy, as required by § 727(a) (2)(A). Further, the court reasoned that, although "[g]enerally, the question of intent will prevent the granting of summary judgment . . . here, the Debtor's intent is clear." Bankr. Op. at 14. "Kontrick, during the deposition pursuant to the citation to discover assets, freely admitted he transferred the bank account to Carolyn [his wife] to prevent his creditors from attaching the funds." Id. at 14-15. Therefore, the court concluded, Dr. Kontrick had made transfers within one year of bankruptcy with the "intent to hinder, delay, or defraud his creditors" within the meaning of § 727(a)(2)(A). The court denied discharge and then dismissed the remaining counts in Dr. Ryan's complaint.

Dr. Kontrick filed a motion to reconsider the bankruptcy court's decision. He argued that he had objected to the timeliness of Dr. Ryan's amended complaint and that the family account claim was improperly considered because it was untimely under Bankruptcy Rule 4004(a). In denying the motion to reconsider, the bankruptcy court held that Dr. Kontrick had waived an objection to the timeliness of the family account claim.

C. District Court Proceedings

Dr. Kontrick appealed the bankruptcy court's decision to the United States District Court for the Northern District of Illinois. Dr. Kontrick submitted that the bankruptcy court had erred in finding that he had waived his Rule 4004(a) objection and that, even if he had failed to raise the objection, it could not be waived because Rule 4004(a) is jurisdictional and thus not subject to equitable doctrines such as waiver. Dr. Kontrick also contended that the bankruptcy court erred in granting summary judgment because there was a genuine issue of material fact about his intent in transferring his paycheck to his wife's account in the year before bankruptcy.

The district court rejected all of Dr. Kontrick's arguments. First, the court concluded that Rule 4004(a) was not jurisdictional; it was more like a statute of limitations and could be waived. Second, the court determined, that, although Dr. Kontrick had mentioned that the amendment was late in his motion to strike, he did not raise the issue in his responsive pleading and thus had waived it. Finally, the court agreed with the bankruptcy court that Dr. Kontrick's deposition ...


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