Defendant Knowledge No Substitute for Service of Complaint

Rule 4(m) of the Federal Rules of Civil Procedure requires dismissal without prejudice or service by a date specific unless a summons and complaint is served within 120 days of the filing of the complaint. The court may extend the time for service "if the plaintiff shows good cause for the failure." In In re Dyer, 330 B.R. 271 (Bankr. M.D. Fla. 2005), Chief Bankruptcy Judge Paul M. Glenn, relying upon AIG Managed Market Neutral Fund v. Askin Capital Management, L.P., 197 F.R.D. 104, 108 (S.D.N.Y. 2000), held that in making the "good cause" determination the court should look at whether the plaintiff had (a) moved for an extension of time in which to serve under Fed. R. Civ. P. 6, (b) acted with substantial diligence and good faith and (c) failed to effect service due to "some minor neglect." "When the failure is due to the plaintiff's inadvertence or half-hearted efforts, however, no good cause should be found." Actual knowledge of the case (as opposed to service of the complaint) is not equivalent to showing good cause. The court then considered whether to dismiss or set a specified date for service for the dischargeability complaint at issue. The court considered: (a) whether the statute of limitations would bar a refiled action, (b) whether the defendant attempted to evade service or to conceal defects in service, (c) whether the defendant would be prejudiced by the extension of time to effect service and (d) whether the defendant had actual notice of the claims asserted in the complaint. In this case, dismissal was appropriate where there was a bar to refiling after the plaintiff took no action to effect service for months after receiving notice of the consequences of such a failure, and the debtor/defendant had filed her case more than 19 months earlier with the resulting prejudice of the "delay in receiving all of the benefits of her discharge."

Lessee's Argument Considered Collateral Attack on Confirmation Order

In In re Optical Technologies Inc., 425 F.3d 1294 (11th Cir. 2005), the debtor had entered into pre-petition leases as lessor and then assigned those leases to finance companies. As a result, the leases were technically between non-debtors. A plan was confirmed that modified these pre-petition leases to the benefit of the assignee. The plan also provided for a release and a waiver of claims and defenses by lessees against the assignee and enjoined the lessees from prosecuting any claims against the assignees. The lessees scheduled as creditors were served with the disclosure statement, a summary of the plan and the order that set the confirmation hearing but failed to appear at the confirmation hearing. Some lessees claimed that some of the leases had expired pre-petition and thus the plan could not modify leases that were no longer in effect. Other lessees argued that they were not given sufficient information or notice that the plan would modify the leases. The bankruptcy court, expressing concerns about the notice to the lessees, rejected the assignee's res judicata argument and granted summary judgment that the modifications were not binding upon the lessees. On appeal, the district court reversed, holding that the confirmation order was res judicata and rendered the lessees' defenses as collateral attacks on the confirmation order. Finding that the confirmation order was not a "plain usurpation of power" and rejecting the due process and expired lease arguments, the district court held that the lease modifications contained in the plan were binding upon the lessees. The Eleventh Circuit affirmed the district court, holding that the due process notice requirement had been satisfied and any argument that the plan did not apply even to leases that allegedly expired pre-petition was an impermissible collateral attack on the confirmation order.

Totality of the Circumstances Justified Dismissal of Ch. 13

In In re Sullivan, 326 B.R. 204 (BAP 1st Cir. 2005), the issue was whether a chapter 13 bankruptcy case could be dismissed based on the debtor's bad faith. The debtor had previously filed three other chapter 13 bankruptcy cases, which were all dismissed by either the debtor or the bankruptcy court, based on the debtor's failure to propose a confirmable plan. In dismissing the debtor's fourth bankruptcy case, the bankruptcy court found that it was appropriate to dismiss a chapter 13 case based on bad faith applying a totality-of-the-circumstances analysis. In determining whether it was appropriate to uphold the bankruptcy court's decision, the Bankruptcy Appellate Panel (BAP) held that there are two stages where the debtor must exercise good faith – at the filing of the petition and in proposing a plan. In affirming the dismissal, the BAP held that the bankruptcy judge had appropriately applied the totality-of-the-circumstances test in dismissing the debtor's case based on bad faith.

Miscellaneous

• In re Douglas, 330 B.R. 245 (Bankr. S.D. Cal. 2005) (once court determines that debt is actually in nature of support, there is no "unusual circumstances exception" to dischargeability determination and court should simply enter order excepting debt from discharge);
• In re Duncan, 331 B.R. 70 (Bankr. E.D.N.Y. 2005) (pre-petition consent judgment resolving suit for debtor's violation of obligations as alleged fiduciary under ERISA was entitled to preclusive effect in subsequent non-dischargeability proceeding);
• In re Earned Capital Corp., 331 B.R. 208 (Bankr. W.D. Pa. 2005) (bankruptcy court had post-confirmation core jurisdiction over state court claim brought by investors in a Ponzi-type scheme for alleged malpractice by accountants during bankruptcy case);
• In re Carnes, 331 B.R. 229 (Bankr. W.D. Pa. 2005) (as a hypothetical purchaser of real property under §544(a)(3), the trustee is deemed to have conducted a title search of real property, paid value for property and perfected his interest in property as of the date of the commencement of the bankruptcy case);
• GBL Holding Co. Inc. v. Blackburn/Travis/Cole Ltd., 331 B.R. 251 (N.D. Tex. 2005) (action by pre-petition prospective purchaser of chapter 11 debtor's property seeking to compel specific performance was rendered moot after bankruptcy court granted trustee's motion to sell property free of interest of prospective purchaser);
• In re Ottawa River Steel Co., 331 B.R. 340 (Bankr. N.D. Ohio 2005) (nothing in Bankruptcy Rules prevents court from delaying date for order of relief after the filing of an involuntary petition even if it affects commencement of two-year statute of limitations on avoidance actions);
• In re Payne, 331 B.R. 358 (N.D. Ill. 2005) (federal income tax return filed after IRS had already assessed tax for tax year in question still qualified as a "return" under §523(a)(1)(B)(i) where return was complete on its face and was accompanied by a good-faith offer by a financially troubled debtor/taxpayer to settle tax debt);
• In re Kreisler, 331 B.R. 364 (Bankr. N.D. Ill. 2005) (noncompliance with Fed. R. Bankr. P. 3001(e)(2), governing transfer of claims, resulted in prejudice to unsecured creditors and constituted cause to equitably subordinate alleged secured claim);
• In re Lary, 331 B.R. 493 (Bankr. M.D. Ga. 2005) (three-day notice required by Fed. R. Bankr. P. 7055 prior to entry of judgment by default not given where motion for entry of default filed on Thursday and default judgment signed on Sunday);
• In re Starzer, 331 B.R. 444 (Bankr. E.D. Cal. 2005) (conservator of person and estate of judgment creditor created a fiduciary relationship under California law).
• In re Ybarra, 424 F.3d 1018 (9th Cir. 2005) (post-petition award of attorney fees and costs in favor of chapter 7 debtor's former employer arising out of unsuccessful pre-petition state court lawsuit that was prosecuted post-petition found nondischargeable as post-petition obligation);
• In re McClelland, 332 B.R. 90 (Bankr. S.D.N.Y. 2005) (counterclaims asserted by debtor against pre-petition attorneys are not subject to jury trial on issues of alleged negligence and legal malpractice);
• In re Mirant Corp., 332 B.R. 139 (Bankr. N.D. Tex. 2005) (discount rate chosen to reduce claim to present value should be the risk of nonperformance at the time of the contract and should not be determined on the basis of risks associated with dealing with debtors post-petition or after confirmation);
• In re Fuzion Technologies Group Inc., 332 B.R. 225 (Bankr. S.D. Fla. 2005) (as a matter of law, in pari delicto defense does not apply to action brought by chapter 7 trustee against law firm that represented debtor/corporation pre-petition in claim related to alleged failure to render appropriate advice with respect to whistleblower letter concerning CEO); and
• In re Edgewater Medical Ctr., 332 B.R. 166 (Bankr. N.D. Ill. 2005) (because the receiver and custodian who filed the bankruptcy petition on behalf of the debtor would not have been subject to the affirmative defenses of in pari delicto, dual agency or ratification under applicable state law, debtor granted summary judgment as to such defenses in suit against former management companies and their sole general partner).