Rule 4004(a) of the Federal Rules of Bankruptcy Procedure generally provides that a party challenging a debtor's discharge must file a complaint asserting the grounds for the challenge no later than 60 days after the first date set for the meeting of creditors. In Kontrick v. Ryan,² the Supreme Court held that once a bankruptcy court has adjudicated the merits of an objection to a debtor's discharge, the debtor forfeits any previously unasserted right to challenge the complaint on the ground that it was untimely under the Rule.

On the narrow question presented, Kontrick resolves a split of authority as to whether the time limit prescribed by Rule 4004 is "jurisdictional" and thus not subject to waiver. More broadly, Kontrick reasserts a fundamental principle of federal jurisprudence: "Only Congress may determine a lower federal court's subject-matter jurisdiction." In so doing, the Court cautions against overuse of the term "jurisdictional" with important implications for litigants and the lower federal courts.

Factual and Procedural Background

The petitioner, Dr. Andrew Kontrick, and the respondent, Dr. Robert Ryan, were partners in a cosmetic and plastic surgery practice. After disagreements arose regarding their professional relationship, Kontrick and Ryan entered into two separate arbitrations, each of which resulted in an award in favor of Ryan. Kontrick satisfied the first award but failed to satisfy the second. Thereafter, the Cook County Circuit Court entered a judgment in Ryan's favor.

During the arbitration process, Ryan filed a citation to discover Kontrick's assets. In a subsequent deposition, Kontrick testified that sometime during 1992 and 1993 Kontrick removed his name from a checking account (family account) that he owned with his wife. Thereafter, Kontrick continued to regularly deposit his paychecks into the family account, and Kontrick's wife continued to pay their expenses from that account.

On April 4, 1997, Kontrick filed a chapter 7 bankruptcy petition in the U.S. Bankruptcy Court for the Northern District of Illinois. On April 13, 1998, Ryan filed an adversary complaint objecting to Kontrick's discharge pursuant to Bankruptcy Rule 4004(a), which provides that in "a chapter 7 liquidation case a complaint objecting to the debtor's discharge under §727(a) of the Code shall be filed no later than 60 days after the first date set for the meeting of creditors under §341(a)." A court may extend the time to file such a complaint for cause.³ Failure to file a complaint objecting to discharge within the prescribed period may be grounds for denial of the objection.

In his complaint, Ryan objected to the discharge of Kontrick's debt pursuant to Code §§727(a)(2), (3) and (4)⁴ and sought a determination that Kontrick's debt to Ryan was non-dischargeable pursuant to Code §§523(a)(2), (4) and (6).⁵ Ryan alleged that Kontrick had transferred property (namely his paychecks) within one year of Kontrick's filing of the bankruptcy petition with the intent to defraud his creditors. Ryan, however, allegedly failed to make specific mention of the family account in the complaint.

On May 6, 1998, with leave of the bankruptcy court—but without a court-authorized extension under Rule 4004(b)—Ryan filed an amended complaint. There, Ryan specifically cited both the family account and the manner in which Kontrick allegedly had violated §727(a)(2)(A) (family account claim). Kontrick answered the amended complaint on June 10, 1998. In his answer, Kontrick admitted to the transfers but denied violating §727(a)(2)(A). Notably, Kontrick failed to raise the timeliness of Ryan's family account claim in his answer.

In March 1999, Ryan moved for summary judgment on all counts. In response, Kontrick cross-moved to strike portions of Ryan's summary judgment filings on the ground that they contained "new" allegations, but did not address the timeliness of the family account claim.

On Feb. 25, 2000, the bankruptcy court granted Kontrick's motion to strike in part, awarded summary judgment to Ryan on the family account claim, and dismissed all other remaining claims. Based on Kontrick's earlier testimony, the bankruptcy court concluded that Kontrick had transferred his property with the intent to hinder, delay or defraud his creditors. In response, Kontrick moved for reconsideration, asserting for the first time that the bankruptcy court lacked jurisdiction over the family account claim. Specifically, Kontrick asserted that Bankruptcy Rules 4004(a) and (b) and 9006(b)(3) establish mandatory, unalterable time limits that he labeled "jurisdictional" in nature.

On June 8, 2000, the bankruptcy court denied the reconsideration motion. The bankruptcy court held first that Rule 4004's complaint filing instructions are not jurisdictional. Second, the court held that Kontrick waived the right to assert the untimeliness of the amended complaint by failing to raise the point before the court reached the merits of Ryan's objections to discharge.⁶ On subsequent appeal, both the U.S. District Court for the Northern District of Illinois⁷ and the U.S. Court of Appeals for the Seventh Circuit⁸ affirmed. Subsequently, the Supreme Court granted certiorari to resolve the division of opinion on whether Rule 4004 is jurisdictional.⁹

The Petitioner's Arguments

In Kontrick's brief filed with the Supreme Court, he argued that the deadline set by Rule 4004 is "mandatory and jurisdictional and thus cannot be waived."¹⁰ In support of his argument, Kontrick relied on the language of Rule 9006(b)(3), which provides that the time limitations of Rule 4004(a) may be enlarged, other than for excusable neglect, "only to the extent and under the conditions stated" therein.¹¹ Kontrick also referred to the legislative history of Rule 9006(b)(3), and argued that

Rule 4004...is patterned after Federal Rules of Civil Procedure 6(b). Other federal rules, such as Criminal Rule 45(b) and Appellate Rule 26(b), are also modeled on Rule 6(b). The rules based on Rule 6(b) have long been construed as unambiguous deadlines that may not be altered by equitable defenses. Indeed, in United States v. Robinson, 361 U.S. 220, 228 (1960), this Court observed that when Rule 45(b) was adopted, it "must be presumed" that the drafters were aware of the established precedent construing Rule 6(b) as "mandatory and jurisdictional." The same may be said for Rules 4004 and 9006(b).¹²

During oral argument, however, Kontrick conceded that Rules 4004 and 9006(b)(3) are not "properly labeled 'jurisdictional' in the sense of describing a court's subject-matter jurisdiction."¹³ Instead, Kontrick maintained "that the rules have the same import as provisions governing subject-matter jurisdiction." Because a litigant may raise subject-matter jurisdiction at any time in a civil action, Kontrick argued that a debtor may also raise a 4004 limitations defense at any time, including after the bankruptcy court had adjudicated the matter on the merits.¹⁴

The Respondent's Arguments

In Ryan's brief filed with the Court, he contended that Rule 4004(a) prescribes a time that is not jurisdictional in nature. He argued that if a complaint is not timely, the debtor is obliged to assert this as an affirmative defense at a proper point in the proceeding and that, like other defenses, it may be waived if not timely raised.¹⁵ In support of his position, Ryan looked to the text of the Bankruptcy Rules and the overall structure of the governing statutory scheme.

First, Ryan cited Bankruptcy Rule 9030, which provides that the Rules "shall not be construed to extend or limit the jurisdiction of the courts or the venue of any matter therein." Ryan also looked to the jurisdictional and rule-authorization provisions of Title 28. Ryan argued that the express limitations on the Court's rule-making authority under 28 U.S.C. §2075 demonstrate that Rule 4004(a) should not be construed to restrict the scope of the jurisdictional provisions of 28 U.S.C. §157(b), which govern the bankruptcy court's jurisdiction over discharge objections and contain no timeliness requirement.¹⁶

Ryan also examined how, under Rule 4004, a debtor may raise a limitations defense. Bankruptcy Rule 4004(d) provides that an adversary "proceeding commenced by a complaint objecting to discharge is governed by Part VII of these rules." In turn, Bankruptcy Rule 7008(a) governs the general rules of pleadings. It provides, in relevant part, that Rule 8(c) of the Federal Rules of Civil Procedure apply to adversary proceedings. Under Rule 8(c), a responsive pleading, such as an answer, must set forth any affirmative defenses, including those based on statutes of limitations. As Ryan explained, a "litigant's failure to timely assert an affirmative defense that a limitations period bars the claim of his or her opponent has traditionally constituted waiver of that defense."¹⁷

In addition to the text of the Bankruptcy Rules and the overall structure of the governing bankruptcy scheme, Ryan relied on Article III, §1 of the Constitution to make clear that Rule 4004 is not jurisdictional. As Ryan stated, "Article III, §1 of the Constitution grants Congress the power to determine the jurisdiction of the lower federal courts. Congress has, pursuant to 28 U.S.C. §§1334 and 157, prescribed the jurisdiction of the federal courts in bankruptcy matters." Section 1334 and certain provisions of §157 incorporate timeliness requirements. As noted, however, §157(b), which applies to objections to discharge, does not.¹⁸ "Where defenses, such as waiver, have historically been applied to the assertion of limitations periods, their availability is presumed unless the relevant statute expressly preclude[s] such defenses."¹⁹

The Court's Analysis

Ruling unanimously in favor of Ryan, the Court began its analysis by stating that "[o]nly Congress may determine a lower federal court's subject-matter jurisdiction." Writing for the Court, Justice Ginsberg explained that Congress established the bankruptcy courts' subject-matter jurisdiction in Title 28. And while certain of the provisions of that title contain time constraints, the "provision conferring jurisdiction over objections to discharge" codified in 28 U.S.C. §157(b) "contains no timeliness condition." Similarly, the Court agreed with Ryan's reliance on Rule 9030: "It is axiomatic that [court-enacted rules] do not create or withdraw federal jurisdiction."²⁰

Further, the Court examined the "critical difference between a rule governing subject-matter jurisdiction and an inflexible claim-processing rule." While "a court's subject-matter jurisdiction cannot be expanded to account for the parties' litigation conduct, a claim-processing rule, on the other hand, even if unalterable on a party's application, can nonetheless be forfeited if the party asserting the rule waits too long to raise the point." Thus, the Court held that "a debtor forfeits the right to rely on Rule 4004 if the debtor does not raise the Rule's time limitation before the bankruptcy court reaches the merits of the creditor's objection to discharge."

Implications

The implications of Kontrick are at least three-fold. First, Kontrick brings to the forefront an examination of what properly constitutes subject-matter jurisdiction. As the Court explained:

[c]ourts, including this Court...have been less than meticulous in [using the term "jurisdictional"]; they have more than occasionally used the term "jurisdictional" to describe emphatic time prescriptions in rules of court. "Jurisdiction," the Court has aptly observed, is a word of many, too many, meanings.... Clarity would be facilitated if courts and litigants used the label "jurisdictional" not for claim-processing rules, but only for prescriptions delineating the classes of cases (subject-matter jurisdiction) and the persons (personal jurisdiction) falling within a court's adjudicatory authority.

Second, from a more pragmatic perspective, the decision restricts strategic behavior. To be certain, were Rule 4004 considered jurisdictional and thus nonwaivable, a less-than-scrupulous litigant might play an expensive "wait-and-see" game—waiting until after a Rule 4004 objection is adjudicated on its merits at the expense of its adversary and the court—before raising a limitations defense.

Third, Kontrick curtails use of the label "jurisdictional" to restrict the adjudicative authority of the bankruptcy courts. On occasion, appellate courts have reversed bankruptcy or district court decisions on the premise that the lower courts have overstepped their "jurisdictional" bounds, even though that conclusion cannot be justified by reference to the provisions of 28 U.S.C. §§1334 and 157 or traditional jurisdictional doctrines.²¹ In light of Kontrick, decisions of this kind are unsound, and conclusions regarding the subject-matter jurisdiction of the bankruptcy courts should be based on the relevant statutory texts and established jurisdictional doctrines.

Footnotes

¹ G. Eric Brunstad Jr. served as co-counsel for the respondent in the Kontrick case. He is a partner at Bingham McCutchen LLP, and the Macklin Fleming Visiting Lecturer of Law at the Yale Law School, where he teaches courses on bankruptcy law and secured transactions. Mary Weil is an associate at Bingham McCutchen LLP practicing in the area of bankruptcy law. Return to article

² 124 S. Ct. 906 (2004). Return to article

³ Fed. R. Bankr. P. 4004(b); see 11 U.S.C. §727(a) (enumerating grounds for denying a discharge to a chapter 7 debtor). Return to article

⁴ Section 727(a)(2)-(4) provides that a court may deny a debtor a discharge where, among other things, a debtor intentionally defrauds his creditors. Return to article

⁵ Section 523(a) enumerates those debts excepted from discharge. Return to article

⁶ As the Court notes, "[a]though jurists often use the words interchangeably, forfeiture is the failure to make the timely assertion of a right[;] wavier is the intentional relinquishment or abandonment of a known right." Kontrick v. Ryan, 124 S.Ct. 906, 917 n.13 (2004) (internal quotations omitted). Return to article

⁷ 2001 WL 630676 (N.D. Ill. Mar. 31, 2001). Return to article

⁸ 295 F.3d 724 (7th Cir. 2002). Return to article

⁹ 538 U.S. 998 (2003). Return to article

¹⁰ Brief of Petitioner at *i; Kontrick v. Ryan, 295 F.3d 724 (7th Cir. 2002) (No. 02-819). Return to article

¹¹ Fed. R. Bankr. P. 9006(b)(3); Petitioner's Brief at *7-*8 (No. 02-819). Return to article

¹² Petitioner's Brief at *8 (No. 02-819). Return to article

¹³ 124 S.Ct. 906, 915 (2004); Trans. of Oral Arg., 2003 WL 22657160, at *7-*8 ("[W]e're not dealing with subject-matter jurisdiction, we're talking about jurisdiction as a shorthand for time."). Return to article

¹⁴ Trans. of Oral Arg., 2003 WL 22657160, at *8. Return to article

¹⁵ Brief of Respondent at *i, 10; Kontrick v. Ryan, 295 F.3d 724 (7th Cir. 2003) (No. 02-819). Return to article

¹⁶ Id. at *8-*9; see 28 U.S.C. §2075 (authorizing the Court to prescribe rules and forms for practice in bankruptcy cases that shall not abridge, enlarge or modify any substantive right); 28 U.S.C. §157(b)(1) (granting bankruptcy judges the authority to hear and determine "all cases under Title 11 and all core proceedings arising under Title 11, or arising in a case under Title 11"); 28 U.S.C. §157(b)(2)(J) (core proceedings include "objections to discharge"). Return to article

¹⁷ Respondent's Brief at *11-*12 (No. 02-819). Return to article

¹⁸ Id. at *14-*15. Return to article

¹⁹ Id. at *11-*12. Return to article

²⁰ Internal quotations omitted. Return to article

²¹ FCC v. NextWave Personal Communications Inc. (In re NextWave Personal Communications Inc.), 200 F.3d 43 (2d Cir. 1999), is typical. Without examining, or even citing, the jurisdictional statutes accompanying the bankruptcy court, the court concluded that the bankruptcy court lacked "jurisdiction" to adjudicate a fraudulent transfer claim. The court's analysis is expressly contrary to the express, relevant provisions of §§1334 and 157, which established the bankruptcy court's subject-matter jurisdiction. Return to article