USCA1 Opinion
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
No. 97-1014
IN RE LUDLOW HOSPITAL SOCIETY, INC.,
Debtor
DAVID J. NOONAN, TRUSTEE,
Plaintiff, Appellant,
v.
SECRETARY OF HEALTH AND HUMAN SERVICES,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Frank H. Freedman, Senior U.S. District Judge]
Before
Torruella, Chief Judge,
Cyr, Senior Circuit Judge,
and Boudin, Circuit Judge.
Claudia
J.
Reed, with whom David
J.
Noonan and Cohen,
Rosenthal P.C. were on brief for appellant.
Jeffrey
Clair, Attorney, Appellate Staff Civil Division,
Department of Justice, with whom Frank
W.
Hunger, Assistant
Attorney General, Donald
K.
Stern, United States Attorney, and
William
Kanter, Attorney, Appellate Staff Civil Division,
Department of Justice, were on brief for appellee.
August 13, 1997
CYR, Senior
Circuit
Judge. David J. Noonan, chapter 7
trustee ("the Trustee") for Ludlow Hospital Society, Inc. ("the
Hospital"), appeals a district court judgment vacating two
bankruptcy court orders entered pursuant to Bankruptcy Code S 105,
11 U.S.C. S 105(a). The challenged orders purportedly extended the
one-year regulatory deadline imposed by the Secretary, United
States Department of Health and Human Services ("HHS"), for
hospitals formerly participating in the Medicare program to sell
their capital assets and claim supplemental reimbursement from HHS
for certain capital-asset depreciation credits. As we conclude
that the bankruptcy court exceeded its equitable powers under
Bankruptcy Code S 105, we affirm the district court judgment.
I
BACKGROUND
Until it closed on February 17, 1995, the Hospital had
participated in the Medicare program, receiving annual HHS reim-
bursements for inpatient operating costs, as well as capital-asset
depreciation credits, relating to its provision of services to
Medicare recipients. Participating hospitals which retain
ownership of the capital assets used to provide services to their
Medicare recipients are entitled to periodic reimbursement for
estimated actual depreciation on those assets, as determined under
accepted accounting practices. See 42 U.S.C. S 1395x(v)(1)(O)(ii)
(Medicare statute authorizing HHS Secretary to implement regula-
2
tions detailing asset-depreciation methodologies).
Upon its closure, the Hospital's participation in the
Medicare program terminated as well. HHS administrative regula-
tions allow a one-year post-termination period within which
hospitals that previously participated in the Medicare program must
sell their Medicare-related capital assets as a precondition to
recapturing any pretermitted capital-asset depreciation credits
from HHS. See 42 C.F.R. S 413.134(f)(3). Thus, a hospital which
has closed would be eligible for further depreciation reimburse-
ments from HHS on a Medicare-related capital asset which was sold
within one year after its closure for less than its depreciated
basis.
At the time, HHS regulations allowed hospitals forty-five
days after their withdrawal from the Medicare program to submit a
The HHS depreciation methodology is similar to that utilized
for federal tax purposes. For example, a CAT scanner worth
$1,000,000, with an estimated useful life of 25 years, might
receive an HHS depreciation reimbursement of $40,000 per year over
a 25-year period. See generally 42 C.F.R. S 413.134(a)-(d).
On the same day, the Hospital filed a voluntary chapter 7
petition.
Under our hypothetical,
see supra note 1, if a hospital held
the Medicare-related capital asset for ten years, its depreciated
basis would be $600,000, since HHS already would have reimbursed
the hospital $40,000 per annum for estimated depreciation during
the ten-year period, for a total of $400,000. The "depreciated
basis" would be $600,000 its $1 million original cost, less
$400,000 in estimated depreciation. Were the asset to sell for
only $500,000, therefore, S 413.134(f)(3) would permit the hospital
to apply for the $100,000 shortfall between the depreciated basis
($600,000) and the actual sale price ($500,000).
3
final report outlining all reimbursable Medicare costs incurred
prior to their withdrawal. See id. S 413.24(f) (1994). An
administrative extension could be obtained from HHS on a showing
that hospital operations had been "significantly affected due to
extraordinary circumstances over which the [hospital] ha[d] no
control, such as flood or fire." Id. S 413.24(f)(2)(ii) (1994).
The HHS regulations likewise allow hospitals a three-year period
within which to reopen and amend a final cost report which was
timely filed. See id. S 405.1885. Without opposition from the
government, the Trustee obtained two extensions of the forty-five-
day filing deadline from the bankruptcy court and the Hospital's
final cost report was submitted to HHS within the extended
deadline.
The Trustee proceeded to attempt to sell the Hospital's
capital assets, anticipating that the sale price might not equal
their depreciated basis, see supra notes 1 & 3, and that the
chapter 7 estate might therefore claim supplemental Medicare reim-
bursements under the aforementioned HHS capital-asset-depreciation-
adjustment provision. See id. S 413.134(f)(3). It soon became
apparent, however, that the capital assets could not be sold by
February 17, 1996, the first anniversary of the Hospital's closure
and the deadline for realizing a depreciation-adjustment reimburse-
Although the first motion for extension was not served on the
government, an Assistant United States Attorney verbally assured
the Trustee that the government would not oppose the extension.
Two months later, the Trustee served the second motion on the
government, but the bankruptcy court granted it without awaiting a
response from the government.
4
ment under 42 C.F.R. S 413.134(f)(3).
Therefore, on February 8, 1996, the Trustee sought
equitable relief from the bankruptcy court under Bankruptcy Code S
105(a), extending the one-year period for selling the Hospital's
capital assets beyond the original February 17 deadline, in order
not to forfeit the potential depreciation-adjustment claim. The
Secretary objected, on the grounds that 42 C.F.R. S 413.134(f)(3)
itself permits neither exceptions nor extensions and that the
bankruptcy court accordingly lacked the equitable power to engraft
an exception, pursuant to Bankruptcy Code S 105(a), which would
bestow "substantive rights" upon the chapter 7 estate not autho-
rized under the HHS regulations.
The bankruptcy court granted the extension over the
Secretary's objection. It relied upon the equitable powers con-
ferred by Bankruptcy Code S 105(a), reasoning that: (1) in the
special context of bankruptcy proceedings, the rigid one-year HHS
deadline for selling capital assets was unreasonable, since a
newly-appointed trustee may require more time to marshal estate
assets; (2) strict compliance with the one-year HHS deadline would
result in a "windfall" to HHS and deprive the Hospital of valuable
assets (
viz., depreciation-adjustment reimbursements), to which it
would otherwise be "entitled;" (3) an extension would not harm HHS,
as the Trustee would not be allowed to file a depreciation-
Since the Trustee was unable to consummate a sale within the
initial extension period, the court later granted the Trustee
another extension.
5
adjustment reimbursement claim based on the appraised value of the
capital assets after February 17, 1996; and (4) HHS was estopped
from contesting the bankruptcy court order, as it had acquiesced in
two previous extensions of the
forty-five-day period for filing the
final cost report, see 42 C.F.R. S 413.24(f); supra note 4.
The district court vacated the bankruptcy court order on
intermediate appeal and the Trustee appealed. Meanwhile, the
Trustee consummated a sale of the capital assets and submitted a
reimbursement claim to HHS, estimated at between $300,000 and
$1,000,000.
II
DISCUSSION
A. Equitable Estoppel
The Trustee first insists that HHS is estopped from
claiming that the bankruptcy court lacked authority, under
Bankruptcy Code S 105(a), to extend the one-year filing deadline
prescribed in S 413.134(f)(3), since the government had acquiesced
in two earlier bankruptcy court extensions of the forty-five-day
deadline for filing the Hospital's final cost report.
The Trustee
We review the equitable estoppel ruling under a mixed stan-
dard, assessing the legal conclusion de novo and all factual
findings for clear error. See Granite
State
Ins.
Co. v. Smart
Modular
Techs.,
Inc., 76 F.3d 1023, 1028 (9th Cir. 1996); Marine
Transp.
Servs.
Sea-Barge
Group,
Inc. v. Python
High
Performance
Marine Corp., 16 F.3d 1133, 1138 (11th Cir. 1994); A.C. Auckerman
Co. v. R.L.
Chaides
Constr.
Co., 960 F.2d 1020, 1028 (Fed. Cir.
1991).
As a threshold matter, HHS contends that the bankruptcy court
lacked subject matter jurisdiction to declare the one-year HHS
deadline inoperative, because Congress has established an exclusive
6
essentially suggests that the verbal assurances from government
counsel,
see
supra note 4, that there would be no opposition to the
two extensions of the forty-five-day period for filing the final
cost report, coupled with HHS acquiescence thereto, make this an
"unusual" case in which equitable estoppel may be invoked against
the government. The Trustee argues that the district court erred
in ruling that he needed to show that the government had engaged in
"affirmative misconduct," since the United States Supreme Court has
never embraced lower court decisions which require such proof where
a party seeks monetary recoveries (
i.e., invading the public fisc).
See
Schweiker v.
Hansen, 450 U.S. 785, 788 (1981);
Akbarin v.
INS,
669 F.2d 839, 842 (1st Cir. 1982). According to the Trustee, HHS
should be estopped even assuming its earlier acquiescence was
administrative/judicial appeals process governing HHS reimburse-
ments, see 42 U.S.C. S 1395ii (incorporating mutatis mutandi S
405(h) of the Social Security Act, which provides that no HHS
decision "shall be reviewed by any person, tribunal, or governmen-
tal agency except as herein provided," and that "[n]o action
against [HHS] shall be brought under section 1331 or 1346 of Title
28 to recover on any claim arising under this subchapter"), a
process which the Trustee has yet to exhaust. See Heckler v.
Ringer, 466 U.S. 602, 614-17 (1984) (barring all pre-exhaustion
actions by courts where both "the standing and substantive basis"
for the claim arise under the Medicare statute). On the other
hand, the Trustee argues that S 405(h) plainly bars pre-exhaustion
judicial review only in those courts whose jurisdiction arises
under 28 U.S.C. SS 1331 and 1346, whereas bankruptcy court
jurisdiction in the instant case arises under 28 U.S.C. S 1334. As
the jurisdictional issue is problematic,
compare,
e.g.,
In re Town
& Country Home Nursing Servs., Inc.
, 963 F.2d 1146, 1155 (9th Cir.
1991),
with
In re Upsher Labs., Inc.
, 135 B.R. 117, 119-20 (Bankr.
W.D. Mo. 1991), and the merits of the Trustee's appeal are not,
see
infra, we elect to bypass the jurisdictional issue at this time.
See
Institut Pasteur
v.
Cambridge Biotech Corp.
, 104 F.3d 489, 492
(1st Cir.) ("appellate court may bypass jurisdictional questions
where appeal would falter on merits even assuming jurisdiction"),
cert.
denied, 65 U.S.L.W. 3741 (U.S. June 27, 1997) (No. 96-1698).
7
erroneous or inadvertent, as long as the Trustee reasonably relied
to his detriment on the government's assurances. We conclude that
the bankruptcy court erred.
All the authorities relied upon by the Trustee predated
Office of Personnel Mgt.
v.
Richmond, 496 U.S. 414, 420-22 (1990),
in which the Supreme Court unequivocally observed that, at a bare
minimum, its earlier precedents abjured any application of the
doctrine of estoppel absent a showing of "affirmative misconduct"
by the government. See,
e.g.,
LaFlower v.
United States
, 849 F.2d
8, 11-12 (1st Cir. 1988);
United States
v.
Ven-Fuel, Inc.
, 758 F.2d
741, 761 (1st Cir. 1985). The evidence adduced by the Trustee came
up well short of the Richmond benchmark.
First and foremost, the Trustee and the bankruptcy court
never afforded HHS itself a meaningful opportunity to respond to
the S 413.24(f) extension motions; the first motion was never
served on either the government or HHS, and the second motion was
allowed by the bankruptcy court before HHS could file a formal
response. See supra note 4. Second, the Trustee reads far too
much into the oral assurances given by the Assistant United States
Attorney (AUSA) in March 1995, who simply stated that the govern-
ment did not intend to oppose extension of the forty-five-day
deadline. As there was no mention or suggestion that any deadline
extensions were to be predicated on Bankruptcy Code S 105(a),
however, there can have been no implicit concession that the
extensions the Trustee was seeking were within the equitable power
of the bankruptcy court under Bankruptcy Code S 105(a).
8
Moreover, the government's ready acquiescence to the two
earlier
forty-five-day extensions is hardly remarkable, given that
the HHS regulations themselves permit HHS to grant such extensions
in various extenuating circumstances. See 42 C.F.R. S
413.24(f)(2)(ii) (hospital may obtain extension of 45-day deadline
if its operations are "significantly affected due to extraordinary
circumstances over which the [hospital] has no control, such as
flood or fire");
id. S 405.1885 (hospital may be allowed to reopen
and amend final cost report for up to three years). Whereas the
one-year deadline prescribed in 42 C.F.R. S 413.134(f)(3) is
subject to no such exceptions.
We therefore conclude that the Trustee reasonably could
not have relied upon the oral assurances received from the AUSA
regarding a regulatory deadline ( viz., S 413.24(f)), materially
distinct from the one-year deadline prescribed in 42 C.F.R. S
413.134(f)(3), as a basis for inferring a blanket government
concession relating to the bankruptcy court's equitable power to
override HHS regulatory deadlines. The estoppel claim accordingly
fails.
B. Administrative Deadline Extensions
Under Bankruptcy Code Section 105(a)
These same principles likewise encumber any application of the
law-of-the-case doctrine in these circumstances. See
Knapp Shoes,
Inc. v. Sylvania
Shoe
Mfg.
Corp., 72 F.3d 190, 197-98 (1st Cir.
1995) (noting that law-of-the-case doctrine applies only to sequen-
tial rulings on same issue).
Following an intermediate appeal, we review de novo the
conclusions of law made by the district court. See LaRoche v.
Amoskeag Bank
(
In re LaRoche
), 969 F.2d 1299, 1301 (1st Cir. 1992).
9
The Trustee next contends that section 105(a) empowers
the bankruptcy court to "harmonize" the Medicare statute, and its
implementing regulations, with the Bankruptcy Code.
He points out
that whereas Code provisions are designed generally to facilitate
chapter 7 estate-property recoveries for the benefit of unsecured
creditors,
see,
e.g., Bankruptcy Code S 363(f) (allowing chapter 7
trustee to sell property "free and clear" of liens), the one-year
HHS deadline for hospitals to conduct capital-asset sales through
a chapter 7 trustee, see 42 C.F.R. S 413.134(f)(3), arbitrarily
undermines efforts to preserve and maximize creditor recoveries by
working a hypertechnical forfeiture of the depreciation-adjustment
credit to which the debtor Hospital was otherwise entitled.
The Trustee thus characterizes the thrust of the chal-
lenged filing deadline as an unfair administrative effort to reduce
HHS's monetary exposure to a minimum. As the Trustee sees it, even
assuming that any such administrative aim comported with congres-
sional intent, see, e.g., Northwest Hosp., Inc. v. Hospital Serv.
Corp., 687 F.2d 985, 995 (7th Cir. 1982) (invalidating HHS
regulation imposing "blanket disallowance" rule which did not serve
purposes of Medicare statute), whatever legitimate purpose is
served by the HHS deadline is as well served by the equitable
Its interpretation of Bankruptcy Code S 105(a) presents a pure
question of law as well. See In re Jarvis, 53 F.3d 416, 418 (1st
Cir. 1995).
Section 105(a) provides, in pertinent part: "The court may
issue any order, process, or judgment that is necessary or
appropriate to carry out the provisions of this title." 11 U.S.C.
S 105(a).
10
remedy fashioned by the bankruptcy court under section 105(a):
allowing the Trustee to file the S 413.134(f)(3) claim but
employing the appraised value of the Hospital's capital assets at
the one-year anniversary of its closure, rather than the sale price
obtained after the one-year period expired. Thus, according to the
Trustee, the bankruptcy court's harmonization of legitimate Code
objectives and Medicare program concerns avoided any inequitable
result while precluding a "windfall" to HHS.
Section 105(a) empowers the bankruptcy court to exercise
its equitable powers where "necessary" or "appropriate" to
facilitate the implementation of other Bankruptcy Code provisions.
See supra note 10. Although expansively phrased, section 105(a)
affords bankruptcy courts considerably less discretion than first
meets the eye, and in no sense constitutes "'a roving commission to
do equity.'" Chiasson v.
J. Louis Matherne & Assocs.
(
In re Oxford
Mgt., Inc.
), 4 F.3d 1329, 1334 (5th Cir. 1993) (citation omitted).
See In
re
Lapiana, 909 F.2d 221, 224 (7th Cir. 1990); Donovan v.
Bundy (In
re
Donovan), 183 B.R. 700, 708 (Bankr. W.D. Pa. 1995)
(same). Instead, the equitable discretion conferred upon the
bankruptcy court by section 105(a) "is limited and cannot be used
in a manner inconsistent with the commands of the Bankruptcy
Code." In re Plaza de Diego Shopping Ctr., Inc.
, 911 F.2d 820, 824
(1st Cir. 1990). These limitations have been variously described.
First, Bankruptcy Code S 105(a) may not be invoked to
alter substantive debtor rights defined under the applicable
nonbankruptcy law. See, e.g., Bird v. Carl's
Grocery
Co. (In
re
11
NWFX,
Inc.), 864 F.2d 593, 596 (8th Cir. 1988) ("An 'equitable
setoff' such as that fashioned by the bankruptcy court in the
present case is not a proper use of the bankruptcy court's
equitable powers because it creates new substantive rights for the
parties . . . ."); see also In re Continental Airlines Corp., 907
F.2d 1500, 1509 (5th Cir. 1990) (holding that S 105(a) does not
permit substantive modifications of labor agreement).
Following along these lines, the Secretary asserts that
the Hospital's substantive right to claim a capital-asset deprecia-
tion-adjustment credit was automatically extinguished because no
capital-asset sale occurred within the one-year period prescribed
in S 413.134(f)(3), and that an extinguished right cannot be
resurrected under section 105(a). See In
re
Chicago,
Milwaukee,
St. Paul & Pac. R.R.
, 791 F.2d 524, 528 (7th Cir. 1986) ("The fact
that a [bankruptcy] proceeding is equitable does not give the judge
a free-floating discretion to redistribute rights in accordance
with his [or her] personal views of justice and fairness, however
enlightened those views may be."). The maxim relied upon by the
Secretary reveals less than the complete picture, however, unless
its application is attuned to the particular context.
Congress quite obviously intended to invest debtor
estates and their representatives with certain rights, some of
which
may
augment prepetition rights possessed by the debtor under
nonbankruptcy law. See
Johnson v.
First Nat'l Bank of Montevideo
,
719 F.2d 270, 273 (8th Cir. 1983) (noting: "[W]here Congress has
enacted bankruptcy legislation which conflicts with state law,
12
state law must yield."). But since section 105 itself is not a
source of new substantive rights, the bankruptcy court may invoke
section 105(a) only if the equitable remedy utilized is demon-
strably necessary to preserve a right elsewhere provided in the
Code. See Norwest
Bank
Worthington v. Ahlers, 485 U.S. 197, 206
(1988) ("[W]hatever equitable powers remain in the bankruptcy
courts must and can be exercised within the confines of the
Bankruptcy Code"; "[u]nder this section, a court may exercise its
equitable power only as a means to fulfill some specific Code
provision."); Official Unsecured Creditors' Comm. v. Stern (In re
SPM
Mfg.
Corp.), 984 F.2d 1305, 1311 (1st Cir. 1993) ("[S]ection
105(a) [does not] authorize courts to create substantive rights
that are otherwise unavailable under the Code, or to expand the
contractual obligations of parties.");
In re Dillon
, 194 B.R. 533,
536 (Bankr. S.D. Fla. 1996).
In this vein, the Trustee argues, the Hospital was
entitled to the deadline extensions granted by the bankruptcy court
since this is the sort of "technical" accommodation that tends to
maximize the overall value of the chapter 7 estate, hence fits
within the penumbra if not the express terms of Bankruptcy
Code S 363. We need not address the two maxims mentioned above,
Bankruptcy Code S 363 provides, in relevant part:
The trustee, after notice and hearing, may
use, sell, or lease, other than in the ordi-
nary course of business, property of the
estate.
11 U.S.C. S 363(b)(1). The Trustee interprets the quoted provision
13
however, as there is a sounder foundation for the district court's
conclusion. See Baybank-Middlesex v. Ralar
Distribs.,
Inc., 69
F.3d 1200, 1202 (1st Cir. 1995) (court of appeals may affirm
district court on any ground disclosed in the record);
Max Sugarman
Funeral
Home,
Inc. v. A.D.B.
Investors, 926 F.2d 1248, 1253 n. 9
(1st Cir. 1991) (same).
The bankruptcy court may not utilize section 105(a) if
another, more particularized Code provision
here, section 108(b)
impedes the requested exercise of equitable power. See In
re
Fesco Plastics Corp., 996 F.2d 152, 154 (7th Cir. 1993) ("By the
same token, when a specific Code section addresses an issue, a
court may not employ its equitable powers to achieve a result not
contemplated by the Code."); Landsing Diversified Props. v. First
Nat'l Bank & Trust Co.
(
In re Western Real Estate Fund, Inc.
), 922
F.2d 592, 601 (10th Cir. 1990) ("[A] bankruptcy court's supplemen-
tary equitable powers [under S 105(a)] may not be exercised in a
manner that is inconsistent with the other, more specific provi-
sions of the Code."),
modified
on
other
grounds, 932 F.2d 898 (7th
Cir. 1991); Continental
Airlines, 907 F.2d at 1509; Levit v.
Ingersoll
Rand
Fin.
Corp., 874 F.2d 1186, 1198 n. 10 (7th Cir.
1989) (same);
Carter v.
Peoples Bank & Trust Co.
(
In re BNW, Inc.
),
201 B.R. 838, 847 (Bankr. S.D. Ala. 1996) ("When the Bankruptcy
Code establishes a right explicitly, a bankruptcy court cannot
as necessarily implying that a trustee has the right "to liquidate
property of the Debtor's estate at any time and under any circum-
stances that would prove beneficial to the Debtor's estate," unless
other provisions of S 363 expressly prohibit the Trustee's choice
of timing or circumstances.
14
expand or contract that right implicitly through use of equitable
powers."); 2 Lawrence P. King, Collier on Bankruptcy, q 105-5 (15
ed. 1996) (S 105 does not "override explicit mandates of other
sections of the Bankruptcy Code or mandates of other state and
federal statutes.") (citations omitted);
see
also,
e.g.,
Chiasson,
4 F.3d at 1334 ("This [payment] order effectuated an impermissible
substantive alteration of the Code's provisions."). Unfortunately,
however, by focusing exclusively on the two principles first
discussed above, the parties managed to parry the legitimate
concerns harbored by the bankruptcy court regarding the dissonant
theme reflected in section 108(b), to which we now turn.
Bankruptcy Code S 108(b) states:
Except as provided in subsection (a) of this
section, if applicable nonbankruptcy law, an
order entered in a nonbankruptcy proceeding,
or an agreement fixes a period within which
the debtor or an individual protected under
section 1201 or 1301 of this title may file
any pleading, demand, notice, or proof of
claim or loss, cure a default, or perform any
other similar act, and such period has not
expired before the date of the filing of the
petition, the trustee may only file, cure, or
perform, as the case may be, before the later
of
(1) the end of such period, including
any suspension of such period oc-
curring on or after the commencement
of the case; or
(2) 60 days after the order for relief.
11 U.S.C. S 108(b) (emphasis added). The bankruptcy court
considered, sua sponte, whether section 108(b) precluded its
reliance on section 105(a) as authority for extending the one-year
15
regulatory deadline imposed by the HHS regulation.
It received no
aid from the parties, however, as the Trustee and the Secretary
agreed below that (i) section 108(b) was inapposite because the
Trustee was not seeking an extension to
file
a
proof
of
claim, and
(ii) section 108(b) applies to "filing deadlines" only. The
parties likewise noted that 42 C.F.R. S 413.134(f)(3) merely
requires the Trustee to consummate a capital-asset sale by the
first anniversary of the Hospital's closure, not that the Trustee
need have filed the S 413.134(f)(3) depreciation-adjustment claim
within the one-year period. The cramped construction accorded
section 108(b) by the parties cannot stand.
Under its plain terms, as abundantly indicated, inter
alia, by its inclusion of the generic phrase "cure a default,"
section 108(b) is not restricted to trustee initiatives that may be
characterized as "filings." For one thing, a "cure" for a default
need involve no "filing" at all, depending on the particular
circumstances. Yet more importantly, section 108(b) also contains
the catchall phrase: or "perform any other similar act." See
Autoskill,
Inc. v. National
Educ.
Support
Systs., 994 F.2d 1476,
1484 (10th Cir. 1993) ("Although S 108(b) does not specifically
There is no dispute that the Medicare statute and the HHS
regulation qualify as "applicable nonbankruptcy law" under S
108(b). See
Gladwell v.
Harline (
In re Harline
), 950 F.2d 669, 674
(10th Cir. 1991) ("Sections 108(a), (b) & (c) all use the phrase
'applicable nonbankruptcy law,' and courts have held that phrase
in these subsections refers to federal law.") (collecting cases);
Eagle-Picher Indus., Inc. v. United States, 937 F.2d 625, 639-40
(D.C. Cir. 1991) (Federal Tort Claims Act is "applicable
nonbankruptcy law" under S 108(b)).
16
refer to notices of appeal, the statute includes a broad catchall
extending the time in which a debtor or trustee may 'perform any
other similar act' in addition to the steps listed."); In re G-N
Partners, 48 B.R. 462, 467 (Bankr. D. Minn. 1985) ("[T]hat S 108(b)
is 'broader' than the listed items 'is obvious from its reading.'")
(citation omitted).
Thus, the pertinent inquiry in construing section 108(b)
in the present context is whether all the undertakings expressly
enumerated in it share some common characteristic. We think the
answer is evident, since each undertaking enumerated in section
108(b) contemplates the exercise of a right, or the performance of
a duty, prescribed by nonbankruptcy law in the prepetition
environment encountered by the debtor, failing which any related
prepetition legal right would be forfeit.
Moreover, even assuming the term "similar," as used in
section 108(b), see supra p. 15, were less than unambiguous, its
legislative history is clear beyond cavil. Section 108(b) was
designed to "permit the trustee, when he steps into the shoes of
the debtor, an extension of time for filing an action
or
doing
some
other
act
that
is
required
to
preserve
the
debtor's
rights." H.R.
Rep. No. 95-595, at 318 (1977), reprinted in 1978 U.S.C.C.A.N.
5963, 6275;
see
also S. Rep. No. 95-989, at 30 (1978),
reprinted
in
1978 U.S.C.C.A.N. 5787, 5816 (same). See 1 Lawrence P. King,
Collier
on
Bankruptcy q 108.03, at 108-6 (15th ed. 1991) (noting
that Congress included S 108(b) "so that the trustee could take the
necessary steps to preserve for the estate rights which might
17
otherwise be barred");
accord
First Nat'l Fidelity Corp.
v.
Perry,
945 F.2d 61, 65 (3d Cir. 1991) (holding that extension of time for
exercising state-law right to redeem foreclosed property from 3 to
5 years would contravene S 108(b)(2), which limits extensions to 60
days);
Counties Contracting & Constr. Co.
v.
Constitution Life Ins.
Co., 855 F.2d 1054, 1058 n.4 (3d Cir. 1988) (holding that S 108(b)
pertains to payment of insurance policy premium during grace
period, "an act necessary to continue the policy in effect");
Whispering
Bay
Campground,
Inc. v. Fagan ( In
re
Whispering
Bay
Campground,
Inc.), 850 F.2d 443, 445-46 (8th Cir. 1988) (same;
redemption rights under Minnesota law).
The outer reaches of section 108(b), in relation to
contractual time limitations other than "filing" deadlines, remain
in sharp dispute. Compare, e.g., Good
Hope
Refineries,
Inc. v.
Benavides, 602 F.2d 998, 1002-03 (1st Cir. 1979) (holding that
neither Bankruptcy Act S 11(e) nor its successor, Bankruptcy Code
S 108(b), afforded trustee 60-day extension to exercise option
contract),
with
In re Santa Fe Dev. & Mortgage Corp.
, 16 B.R. 165,
167-68 (B.A.P. 9th Cir. 1981) (holding that S 108(b) extends
"option contract" for 60 days). These disputes are no less likely
where, as here, the deadline is fixed not by contract but by
"applicable . . . law" (viz., the Medicare statute), but involves
something more than a paper filing.
In all likelihood the applicability of section 108(b)
will be decided on a case-by-case basis until the provision is
clarified by Congress or the Supreme Court. Regulatory deadlines
18
are clearly embraced by section 108(b)'s reference to "applicable
nonbankruptcy law," and section 108(b) cannot be wholly limited to
paper filings, since it refers to default cures. For the present
we are satisfied that the one-year sale requirement is sufficiently
linked to an ongoing HHS proceeding to invoke section 108(b) and
that no pertinent consideration makes its application inappropri-
ate.
In the present context, an indispensable undertaking to
preserve the Hospital's prepetition right to claim a capital-asset-
depreciation adjustment from HHS was the sale of its capital
assets, and the applicable HHS regulations unconditionally fixed
the deadline for doing so at one year from the date the Hospital
ceased its participation in the Medicare program. Accordingly,
under the plain terms of section 108(b), the fact that the Trustee
would have had to take a further step after the sale, in order to
preserve the right of the chapter 7 estate to any such adjustment
(i.e., file a formal S 413.134(f)(3) claim with HHS), was altogeth-
er immaterial in the present circumstances because both undertak-
ings were necessary to protect the Hospital from an irremediable
forfeiture of its rights under the applicable nonbankruptcy law.
Thus, although section 108(b) obviously allows the
trustee in bankruptcy a sixty-day grace period unavailable to the
prepetition debtor, it just as plainly bespeaks a legislative
intent to cut off the extension period, either at 60 days from the
filing of the chapter 7 petition or upon the expiration of any
remaining prepetition period, whichever occurs later. See, e.g.,
19
In the present context, an indispensable undertaking to
preserve the Hospital's prepetition right to claim a capital-asset
depreciation adjustment from HHS was the sale of its capital
assets, and the applicable HHS regulations unconditionally fixed
the deadline for doing so at one year from the date the Hospital
ceased its participation in the Medicare program. Accordingly,
under the plain terms of section 108(b) the fact that the Trustee
would have had to take a further step after the sale, in order to
preserve the right of the chapter 7 estate to any such adjustment
(i.e., file a formal S 413.134(f)(3) claim with HHS), was altogeth-
er immaterial in the present circumstances because both undertak-
ings were necessary to protect the Hospital from an irremediable
forfeiture of its rights under the applicable nonbankruptcy law.
Thus, although section 108(b) obviously allows the
trustee in bankruptcy a sixty-day grace period unavailable to the
prepetition debtor, it just as plainly bespeaks a legislative
intent to cut off the extension period, either at 60 days from the
filing of the chapter 7 petition or upon the expiration of any
remaining prepetition period, whichever occurs later. See, e.g.,
Johnson, 719 F.2d at 277-78 (holding that bankruptcy court cannot
use S 105(a) to extend period for redeeming property under state
law, a matter within S 108(b)'s ambit).
We allow, however, that S 108(b) may not invariably bar
relief; for example, where a more specific Code provision unambigu-
ously provides an extension incompatible with the 60-day provision
in S 108(b)(2). See,
e.g.,
Moody v.
Amoco Oil Co.
, 734 F.2d 1200,
1215 (7th Cir. 1984) ("We hold, however, that section 108(b) does
not apply to curing defaults in executory contracts. Section 365
20
The Trustee complains, nevertheless, that it is unrealis-
tic to expect a newly appointed trustee to marshal estate assets
within sixty days of the petition, let alone sell all the capital
assets. Even though this may well be a compelling policy consider-
ation, however, Congress nonetheless surely envisioned that it
might be difficult to meet the sixty-day deadline imposed by
section 108(b)(2) in some circumstances. Yet it chose to legislate
no exception.
Furthermore, the Trustee has not alleged that HHS was
responsible for any delay in selling the Hospital's capital assets.
Compare Johnson, 719 F.2d 270, 274-75 ("There is no claim that
[appellant] or any other party was guilty of any wrongdoing which
adversely affected the debtors' ability to redeem the property
within the statutory period. '[E]quity is available to protect
property rights of the innocent debtor from the wrongful acts of
other persons; however, equity does not extend to situations in
which the debtor is simply unable to make the required payment
specifically governs the time for curing defaults in executory
contracts, and thus, it controls here."). The Trustee argues that
S 363(b) is such a Code provision, because its aim is to maximize
the recoveries realized from sales of estate assets. See supra
note 11. Nevertheless, it is undisputed that S 363(b) provides no
express extension which could be thought to trump S 108(b)(2).
Furthermore, the extension sought by the Trustee had nothing to do
with facilitating a sale of estate assets, as distinguished from
preserving to the debtor a right in other property ( viz., HHS
depreciation allowances) which happened to hinge on the timely
occurrence of a sale of capital assets. On this collateral matter,
Congress left S 363 conspicuously silent.
Competing policy considerations were at work here as well.
Thus, for example, S 108(b)(2) affords contingent obligors of a
chapter 7 estate like HHS a modicum of finality.
21
within the prescribed time.'") (citation omitted),
with
Otoe County
Nat'l Bank
v.
Easton (
In re Easton
), 882 F.2d 312, 315-16 (8th Cir.
1989) (departing from Johnson holding where "bad faith" has been
demonstrated).
Although chapter 7 creditors may be deprived of potential
recoveries unless the trustee is able to sell a capital asset in
time to preserve the debtor estate's right to a postpetition
capital-asset depreciation adjustment from HHS, we are not at
liberty "to redistribute rights in accordance with [our] personal
views of justice and fairness." Chicago,
Milwaukee,
St.
Paul
&
Pac. R.R.
, 791 F.2d at 528.
See
Heyman v.
M.L. Marketing Co.
, 1997
WL 324382, at *5 (4th Cir. June 16, 1997) (No. 95-2929) ("Bankrupt-
cy filings often result in procedural confusion. Congress antici-
pated this confusion and made allowances for it. Among other
provisions, 11 U.S.C. S 108(b) provides trustees with at least
sixty days to take control of a case and to make appropriate
filings."). Rather, once Congress has weighed the competing policy
concerns affecting the scope of relief available under section
108(b), see supra note 14, we must abide its legislative decision
unless it infringes a constitutional mandate. See Pressimone v.
Commissioner (In re Pressimone), 39 B.R. 240, 246 (N.D.N.Y. 1984)
("Courts [invoking S 105(a)] . . . have expressed a laudable
concern for the rehabilitation of debtors . . . [but] in so doing
. . . have independently weighed the competing policy objectives at
stake, thereby substituting their own judgment for that of
Congress."). In the present circumstances, therefore, the
22
appropriate recourse for trustees in bankruptcy institutionally
overburdened by a S 413.134(f)(3) deadline, or for the creditor
interests adversely affected thereby, is not through 11 U.S.C. S
105(a), but congressional amendment of section 108(b), or a rule-
making modification to 42 C.F.R. S 413.134(f)(3), see id. S
1395x(v)(1)(O)(ii).
23
III
CONCLUSION
Since Bankruptcy Code S 105(a) affords the bankruptcy
court no equitable power to extend the one-year HHS deadline
imposed by 42 C.F.R. S 413.134(f)(3), and its extension is
impermissible under Bankruptcy Code S 108(b) as well, the district
court judgment is affirmed. The parties shall bear their own
costs.
SO ORDERED.
24