Late And Incomplete Notice Of Bankruptcy Filing Is Insufficient To Bar Creditor
TIDWELL v. SMITH (September 23, 2009)
When Dr. Bruce Smith filed a bankruptcy petition in 2004, plaintiffs had separate lawsuits pending against him in state court. Smith listed neither of them on his creditors schedule, although he did list their attorney. That petition was dismissed, however, and a second petition filed a year later listed neither the plaintiffs nor their attorney. Plaintiffs' claims were potentially non-dischargeable because they were based on an alleged sexual assault. Plaintiffs never received notice of the petition. However, in late December, just a few weeks before the deadline for objecting to the discharge, Smith's lawyers in the state court cases filed motions asking for transfers to the bankruptcy calendar. The motions were received in plaintiffs' lawyer's office on December 23. He was out of town and did not actually see them until January 4 of the next year, five days before the deadline. The motions provided very little information about the bankruptcy, other than its filing. The deadline came and went. The bankruptcy court entered an order of discharge. Almost a year later, plaintiffs sought relief from the bankruptcy court. After taking testimony, the court concluded that plaintiffs could proceed against Smith in state court. In doing so, the court specifically found that the omission of plaintiffs from the schedule was deliberate and that the notice, albeit received before the final discharge, was too late. The district court affirmed the decision of the bankruptcy court. Smith appeals.
In their opinion, Judges Rovner and Evans and District Judge Van Bokkelen affirmed. The Court first declined to even consider Smith's challenge to the finding of deliberateness. The bankruptcy court declined to grant relief under section 727, which requires fraud. Instead, it granted relief under section 523, which only requires that the debt was unscheduled and the creditors did not have notice. With respect to the notice, the Court agreed that it was untimely. Notice must be reasonably calculated to inform an interested party of the action and provide a reasonable time to respond. Given the timing of the notice as well as its content, the Court concluded that the service of the state court motions was insufficient.
