In the Matter of Citron Investment Corporation and Josef A. Citron, Bankrupts-Appellants v. Marie Wells Emrich, Applicant-Appellee

We allowed an interlocutory appeal pursuant to 28 U.S.C. § 1292 (b) to review an order of the district court affirming a referee’s denial of bankrupts’ motion to dismiss appellee’s application to determine the dischargeability of a debt under Section 17 of the Bankruptcy Act, 11 U.S.C. § 35 .

The facts are undisputed. Appellee’s predecessor in interest, her deceased husband, discovered facts in July, 1967, which gave rise to a cause of action for an alleged conversion. Suit was filed against the bankrupts on October 26, 1967, in Los Angeles County Superior Court, but neither the deceased husband nor appellee ever filed an At-Issue memorandum in the action, or took any other steps to bring the case to trial. The bankrupts did not move to dismiss the suit, and it remained pending in the state court on August 23, 1971, when bankrupts filed their petitions in bankruptcy. On November 23, 1971, appellee filed an application to determine the dis-chargeability of the debt in the bankruptcy court, alleging that the debt was nondischargeable under § 17(a)(8) because the alleged conversion had been malicious.

The state statute of limitations on ap-pellee’s claim against bankrupts had…