In re Maloy

• Citation: 195 BR 517
• Decision Date: 05 February 1996
• Docket Number: Bankruptcy No. 92-31220.
• Parties: In re Mark E. MALOY, Debtor.
• Court: United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Middle District of Georgia

195 B.R. 517 (1996)

In re Mark E. MALOY, Debtor.

Bankruptcy No. 92-31220.

United States Bankruptcy Court, M.D. Georgia, Athens Division.

February 5, 1996.

Barry Gordon Irwin, Athens, Georgia, for Debtor/Movant.

Arthur L. Phillips, Phillips & Phillips, Macon, Georgia, for Respondent.

William M. Flatau, Chapter 7 Trustee, Macon, Georgia.

MEMORANDUM OPINION

JAMES D. WALKER, Jr., Bankruptcy Judge.

Mark E. Maloy ("Debtor") filed a Motion To Reopen Chapter 7 Case. This is a renewed motion following this Court's order of December 15, 1994, denying a previous motion to reopen which had been filed on May 5, 1994. This Motion To Reopen Chapter 7 Case was filed on December 15, 1995.

The findings of fact set out in the December 15, 1994 order are adopted for the purpose of this order with the exception that the order of dismissal of the case captioned as Mark E. Maloy vs. Arthur L. Phillips, Phillips, Davis & Donner, a Georgia Partnership, arising in the United States District Court for the Middle District of Georgia, Case Number 93-CV-98-ATH (WDO) has been reversed and remanded by the Eleventh Circuit in Case Number 94-9238, decided September 15, 1995.¹ The uncertainty posed to this Court by the pendency of the appeal in considering the previous motion to reopen has now been resolved.

In its decision, the Eleventh Circuit determined that the statute of limitations was a bar to the assertion of the section 1692e(11) claim. The decision also held that an additional claim might lie under section 1692g of the FDCPA, 15 U.S.C.A. § 1601, et seq. This claim, according to the Eleventh Circuit opinion, arose on November 18, 1992, five days following the mailing of the first debt collection letter. This date, as the Court's previous findings of fact indicate, falls one day after Debtor filed the Chapter 13 case in this Court. Debtor's Chapter 13 case was converted to Chapter 7 and then concluded by a Final Decree on September 13, 1993. Debtor then filed the action in District Court on November 15, 1993. The Eleventh Circuit has determined that the action was timely filed by Debtor as to that second claim.

This second Motion To Reopen Case requires that this Court revisit the question of what relief could be accorded to Debtor if the bankruptcy case is reopened. The cause of action under section 1692e(11) appears to be lost to Debtor and any trustee that might be appointed to serve in this case if it is reopened. The claim under section 1692g had not "ripened" until after Debtor's bankruptcy case was filed. For the purpose of determining whether this claim is property of the estate under 11 U.S.C. § 541, the Circuit Court has determined that the claim did not arise until after this case was filed. Such claims accruing to a Chapter 13 debtor post-petition are property of the bankruptcy estate. 11 U.S.C. § 1306(a)(1).

Analysis beyond this point becomes very problematical. Debtor did not list the claim as an asset of the estate either in the Chapter 13 case or in the Chapter 7 case after conversion. After the bankruptcy case was closed, Debtor filed the action in District Court in his own name on November 15, 1993. Next, almost six months later, Debtor made his first motion to reopen the bankruptcy case.

There appear to be three aspects to consider. The first aspect is the benefit to Debtor. The second aspect is the prejudice to Respondent, Arthur L. Phillips, the defendant in the District Court action. The third aspect is the benefit to other creditors.

As to the first and second aspects, it appears to the Court that any benefit to Debtor would have to come as a detriment to Mr. Phillips. If the failure to reopen this case causes Debtor's claim in District Court to fail, that would be a detriment to Debtor and a benefit to Mr. Phillips. Avoiding this detriment to Debtor is the primary reason Debtor seeks to reopen this Chapter 7 case. The question is whether the detriment of reopening the case as to Mr. Phillips would be fairly incurred.

Reference is made to the Court's findings of fact when it considered the previous motion as follows:

Debtor now asserts a claim against Mr. Phillips under FDCPA. Such claim was never disclosed as an asset of the schedules in the Chapter 13 case. Further the claim was never disclosed in the schedules which were required to be filed following the conversion of the case from Chapter 13 to Chapter 7. Debtor\'s attorney showed that he was aware of the claim as early as December, 1992. On January 13, 1993, Debtor\'s attorney wrote to Mr. Phillips and demanded a settlement of this claim. The bankruptcy case was pending for about nine months following that letter with no amendment by Debtor disclosing the existence of the asset or setting the asset aside as exempt. Debtor\'s attorney characterized this omission as an error on his part.

The benefit and detriment are difficult to calculate. Further reference is made to the Court's previous order as follows:

It was established by stipulation from the parties that during the pendency of the District Court case the defendant, Mr. Phillips, made a judicial estoppel argument. He contended that Debtor was judicially estopped from asserting the claim because of his failure to list the claim in the schedules in his bankruptcy case. The District Court, however, concluded that the claim was barred by the statute of limitations.

The judicial estoppel argument was not a factor in the District Court's decision since the statute of limitations determination was more immediate. Now, upon remand to the District Court, the argument may become significant. While there is no way for this Court to gauge the significance of this argument, it does seem possible that the argument would not be available to Mr. Phillips if Debtor is permitted to reopen this case and amend his schedules.

In that connection, there is a related concern which was expressed in this Court's Order on Motion For Reconsideration, entered March 8, 1995, in response to Debtor's Motion For Reconsideration. Reference is made to that order as follows:

The Debtor has said that upon reopening of the case that an amendment to the schedules would be filed. The filing of such amendments would be urged thereafter in the District Court in opposition to the defense of judicial estoppel. All that interaction between the Bankruptcy Court and the District Court as to a case which is pending in the District Court appears to be inappropriate. As was noted in the Court\'s opinion of December 15, 1994, "If there is to be some significance to the reopening of this case and the amending of the schedules, the District Court judge is well able to conclude that such an amendment should be permitted and that the amendment, if permitted, would be persuasive in response to the defense of judicial estoppel." To permit this case to be reopened solely for the purpose of amending the schedules so as to equip the Debtor with new arguments to assert in the District Court is an inappropriate function of the Bankruptcy Court.

It was Debtor's choice, either by act or omission of his attorney, to fail to schedule this asset. Respondent, Mr. Phillips, urges that the motion be denied and implies in his argument that he would be prejudiced with any other result. The most significant fact in this case seems to be Debtor's choice to pursue this action in his own name following the Final Decree in the bankruptcy case. It is understandable that something could be overlooked such as a creditor or an asset which should have been listed in a bankruptcy case. It often happens that bankruptcy cases are reopened for the purpose of adding such matters.

In this case, however, Debtor and his attorney made a conscious determination to try to capitalize on the value of an asset without having previously made that asset available to his creditors in the bankruptcy case. It was not until Respondent, Mr. Phillips, made the judicial estoppel argument that the necessity of listing that asset in the bankruptcy case became apparent to Debtor. While the timing of that argument is unknown to this Court, it must be noted that the first motion to reopen this case came almost six months after the filing of Debtor's case in the District Court. If there is to be some benefit to Debtor from reopening the case, it should not be made available only after the value of full, complete and honest disclosure first becomes beneficial to Debtor's interest. The proper time for that disclosure had passed.

At the time the action was filed in the District Court, Debtor and his attorney knew that the Chapter 7 trustee had never considered this asset for administration. The omission might be excusable if the necessity for listing the asset was brought to Debtor's attention by some external event, such as often happens when a debtor fails to list a creditor. In this case, Debtor and his attorney seem to have been oblivious to the necessity for listing this asset in the Chapter 7 case. That fact coupled with Debtor's obvious intention to realize the benefit of the asset after the bankruptcy was closed does not suggest the requisite good faith on the part of a debtor which must precede the reopening of a bankruptcy...