At least in the Eleventh Circuit, a delay of more than two years in effecting service of a complaint wasn’t fatal because the plaintiff was diligently attempting to complete service.
The September 23 opinion by Circuit Judge Stanley Marcus proves that in litigation, like in war, anything that can go wrong will go wrong. Sometimes, the courts will ride to the rescue if the equities align.
The creditor won a judgment of almost $15 million in state court for recovery of a fraudulent transfer. The judgment debtor also pleaded guilty to a one-count criminal complaint and was sentenced to six months in prison for the same actions.
Around the time the debtor went to prison, he hired a bankruptcy lawyer and filed a chapter 7 petition. The fee disclosure filed on the bankruptcy court’s docket said that the lawyer would not defend adversary proceedings.
The judgment creditor filed a timely complaint to declare the judgment nondischargeable as a willful and malicious injury under Section 523(a)(6).
The judgment creditor personally served the debtor in prison within 28 days of the filing of the complaint.
Bankruptcy Rule 7004(g) also requires serving a debtor’s counsel “[i]f the debtor is represented by an attorney.” However, the plaintiff did not serve the debtor’s lawyer, relying on the disclosure that the lawyer would not defend adversary proceedings.
Following the debtor’s failure to answer, the debtor moved for default, but the debtor objected, raising the failure to serve his counsel. The plaintiff responded by serving the summons and complaint on the debtor’s counsel. However, the plaintiff used the same summons that had been issued months earlier. The summons was therefore stale.
On another motion for default, debtor’s counsel opposed, raising insufficiency of service of process by serving a stale summons.
The bankruptcy court denied the dismissal motion, reasoning that the court had jurisdiction because the debtor had been properly served and the docket indicated that the lawyer would not be representing the debtor.
The bankruptcy court ordered the debtor to answer, but he did not. The debtor told the bankruptcy judge that he lacked the funds for defense and that he did not object to entry of default.
The bankruptcy court entered judgment by default, and the debtor appealed. The district court reversed but remanded for the bankruptcy court to decide whether there were grounds to extend the time for service.
On remand, the bankruptcy court found discretion to extend the time for service under Rule 4(m), made applicable by Bankruptcy Rule 7004(a)(1). The plaintiff then obtained a fresh summons and properly served both the debtor and counsel.
The creditor once again won a judgment by default. The debtor appealed, but the district court affirmed, as did the Eleventh Circuit under Rule 4(m).
If service is not made within 90 days, the rule says that the court “must dismiss without prejudice” or “order that service be made within a specified time.” Citing Eleventh Circuit precedent, Judge Marcus said that the rule gives discretion to extend the time for service even in the absence of good cause.
Judge Marcus therefore reviewed for abuse of discretion.
Judge Marcus said that the delay in service for more than two years “does seem like a long time.” On the other hand, the appellate standard requires examining the bankruptcy court’s “reasons for exercising its discretion.”
With regard to the two-year delay, Judge Marcus said, “It is not as if [the plaintiff] was sitting on his hands.” To the contrary, the plaintiff was litigating, and the bankruptcy court initially agreed with the plaintiff.
The defendant’s repeated failure to answer the complaint, Judge Marcus said, “suggests” that the failure to serve the lawyer initially “did not cause [the defendant] any prejudice.” Further, the disclosure that the lawyer would not defend an adversary proceeding made it “plain that the bankruptcy court did not make any clear error of judgment in granting an extension.”
“[M]ost importantly,” Judge Marcus said, the bankruptcy court acted within its discretion because dismissal for improper service “would amount to a dismissal with prejudice because the statute of limitations on [the plaintiff’s] non-dischargeable debt claim had expired.”
In sum, Judge Marcus affirmed the judgment, saying that the bankruptcy court “acted well within its considerable discretion.”
At least in the Eleventh Circuit, a delay of more than two years in effecting service of a complaint wasn’t fatal because the plaintiff was diligently attempting to complete service.
The September 23 opinion by Circuit Judge Stanley Marcus proves that in litigation, like in war, anything that can go wrong will go wrong. Sometimes, the courts will ride to the rescue if the equities align.
The creditor won a judgment of almost $15 million in state court for recovery of a fraudulent transfer. The judgment debtor also pleaded guilty to a one-count criminal complaint and was sentenced to six months in prison for the same actions.
Around the time the debtor went to prison, he hired a bankruptcy lawyer and filed a chapter 7 petition. The fee disclosure filed on the bankruptcy court’s docket said that the lawyer would not defend adversary proceedings.