In re Shapiro

• Court: U.S. Bankruptcy Court — Eastern District of New York
• Writing for the Court: DOROTHY EISENBERG
• Citation: In re Shapiro, 265 B.R. 373 (Bankr. E.D. N.Y. 2001)
• Decision Date: 11 July 2001
• Docket Number: Bankruptcy No. 898-83382-478. Adversary No. 800-8249-478.
• Parties: In re Michael Stephen SHAPIRO, Debtor. Arnold Wallace and Martin Ingerman, Plaintiffs, v. Michael Stephen Shapiro, Defendant.

265 B.R. 373 (2001)

In re Michael Stephen SHAPIRO, Debtor Arnold Wallace and Martin Ingerman, Plaintiffs, v. Michael Stephen Shapiro, Defendant.

Bankruptcy No. 898-83382-478. Adversary No. 800-8249-478.

United States Bankruptcy Court, E.D. New York.

July 11, 2001.

Macco Hackeling & Stern, LLP, By C. Stephen Hackeling, Esq., Huntington, NY, for Defendant.

Gary M. Kushner, P.C., Carle Place, NY, for Plaintiffs.

MEMORANDUM DECISION DENYING DEFENDANT'S MOTION TO DISMISS COMPLAINT

DOROTHY EISENBERG, Bankruptcy Judge.

Before the court is a motion by Michael Shapiro (the "Debtor" or the "Defendant") to dismiss an adversary proceeding commenced by Arnold Wallace and Martin Ingerman (collectively, the "Plaintiffs") seeking to bar the Debtor's discharge and/or to have their debts deemed nondischargeable. The alleged grounds for dismissal of the complaint are that the Summons and Complaint were mailed to the Debtor at an address other than that listed on the Petition and upon an attorney not listed on the Court record as Debtor's counsel. The Plaintiffs oppose dismissal of the Complaint on various grounds, including the fact that Debtor actually received the Complaint, and the Debtor has suffered no prejudice as a result of the alleged improper service. After reviewing the pleadings and the relevant case law, and given that any defect in service was caused by the Debtor and his counsel, the Court denies the Debtor's motion and schedules a trial for August 13, 2001 at 2 p.m. The following constitutes the Court's findings of fact and conclusions of law pursuant to Fed. R.Bankr.P. 7052.

FACTS

On April 1, 1998 (the "Filing Date") the Debtor filed a voluntary petition under Chapter 7 of the Bankruptcy Code. The Debtor's address is listed on the Petition as 3 Jonwall Court, Dix Hills, New York 11746 ("Dix Hills") and his attorney of record who filed the Petition is Adam Gomerman, Esq., of 807 East Jericho Turnpike, Huntington Station, New York.

Subsequent to the Filing Date, Mr. Gomerman represented the Debtor through the meeting of creditors under § 341 of the Bankruptcy Code, held on May 20, 1998. On June 16, 1998 the Plaintiffs obtained an order of the Court authorizing a Rule 2004 examination of the Debtor. The 2004 examination was adjourned to September 2, 1998. In a September 1, 1998 letter to Gary M. Kushner, Esq., counsel to the Plaintiffs, Mr. Gomerman advised the Plaintiffs that the Debtor was in the process of hiring C. Stephen Hackeling, Esq. of the law firm of Macco Hackeling & Stern, LLP ("MHS") as his new counsel. No formal substitution was ever filed with the Court and MHS appeared as Debtor's counsel in every matter before the Court thereafter. MHS also negotiated and signed several stipulations on behalf of the Debtor which were filed with the Clerk and recorded on the docket as of April 11, 2000 and May 24, 2000.

During the Rule 2004 examination on January 5, 1999, Debtor testified that his address was that as listed on his Petition, Dix Hills. MHS appeared at the examination as counsel. At a continuation of the 2004 examination on February 10, 1999, the Debtor again testified that this was his current address, and again was accompanied by C. Stephen Hackeling, Esq. acting as his counsel. However, on June 30, 1999, at the continuation of the Rule 2004 examination, the Debtor indicated for the first time on the record that his address had changed to 10 Moorewood Drive, Smithtown, New York. Hackeling appeared as counsel at this continuance as well. At the conclusion of the Rule 2004 examination on May 8, 2000, the Debtor stated again that he resided at 10 Moorewood Drive, Smithtown, New York and Debtor presently lives at that address. No official notification of this change of address was ever filed with the Clerk of Court pursuant to Bankruptcy Rule 4002,¹ nor was any official substitution of counsel ever filed with the Court.

On June 30, 2000, Plaintiffs filed this adversary proceeding alleging six causes of action for relief against the Debtor. Causes of Action I, II, and III seek a judgment declaring the debt due from Debtor to Plaintiffs to be nondischargeable pursuant to § 523(a)(2)(B), § 523(a)(2)(A) and § 523(a)(6) of the Bankruptcy Code, respectively. Causes of Action IV, V and VI seek a judgment barring Debtor's discharge pursuant to § 727(a)(4)(A), § 727(a)(3) and § 727(a)(5), respectively.

Service of the Summons and Complaint via first class mail was made on July 7, 2000 by mailing the Summons and Complaint to the Debtor at 10 Moorewood Drive, Smithtown, New York (his actual then-current address) and to his attorney C. Stephen Hackeling of Macco, Hackeling & Stern, LLP at 164 Main Street, Huntington, New York 11743. (This firm's actual address).

On July 27, 2000, Debtor filed an answer asserting general denials of the allegations as well as the affirmative defenses of failure to obtain personal jurisdiction due to improper service and failure to state a cause of action. The answer was served upon Debtor by his own attorney at 10 Moorewood Drive in Smithtown, New York. Pretrial conferences were held on September 5, 2000, December 13, 2000, January 17, 2001, and March 26, 2001. Despite ample opportunity to do so, Defendant never filed a written motion to dismiss the Plaintiffs' complaint on any grounds. Trial was set for May 15, 2001. At trial, Debtor made an oral motion to dismiss based on the Plaintiffs' alleged failure to obtain personal jurisdiction over the Debtor due to improper service. At the hearing, the Court requested the parties to brief the relevant issues raised by the oral motion.

Debtor seeks dismissal of the adversary proceeding and costs and fees based on Plaintiffs' alleged failure to comply with the service requirements of Bankruptcy Rule 7004(b)(9).² Debtor argues that because service was mailed to the Smithtown address and not the Dix Hills address listed on the Petition, service was improper pursuant to Rule 7004(b)(9). Debtor further contends improper service was made upon his attorney, arguing that Rule 7004(b)(9) requires service upon the attorney of record, Mr. Gomerman, and not upon Mr. Hackeling.

Plaintiffs argue several grounds in opposition of the motion to dismiss. First, the Plaintiffs argue that Bankruptcy Rule 7004(b)(9) is not the exclusive method of service and that the general service requirements of Rules 7004(b)(1) and 7004(b)(8) have been satisfied. Plaintiffs also argue that the affirmative defense of improper service has been waived as it was not plead properly in the Debtor's answer. Plaintiffs contend that the Court has discretion to deem Plaintiffs' service proper, and in the alternative, urge this Court to deny the motion to dismiss due to the fact that good cause exists for failing to serve the Summons and Complaint in compliance with Rule 7004(b)(9), and further, that the Debtor will suffer no material prejudice if the motion is denied.

DISCUSSION

This Court must decide whether Bankruptcy Rule 7004(b)(9) is the exclusive method of service available to Plaintiffs when serving a complaint and, if so, whether or not the service chosen by Plaintiffs was proper pursuant thereto. If the Court were to find service improper, the Court must then decide if dismissal of the adversary proceeding is appropriate under the circumstances.

Debtor claims that service under Rule 7004(b)(9) was improper and since this is the only appropriate method of service, proper service was not effected and the complaint must be dismissed. In support of his motion, the Debtor relies on the holding of In re Bloomingdale, 137 B.R. 351 (Bankr.C.D.Cal.1991). The Court in Bloomingdale held that Rule 7004(b)(9) requires the debtors to be served at their address of record for the case and requires service upon the debtor's attorney of record in the case. Bloomingdale, 137 B.R. at 351. However, the facts in Bloomingdale are significantly different than the facts in this case.

In Bloomingdale, creditors filed a dischargeability complaint against the debtor and the debtor then moved to dismiss the complaint due to improper service. Service of the summons and complaint was made on the debtor at her residence and business address. However, no service was made upon the debtor's counsel. There was no change of address and counsel was clearly identified to the Plaintiff. Id. at 352. In the case before this Court, the Plaintiffs were notified that (1) the Debtor was changing counsel and (2) the Debtor's residence had changed post petition. Service was made to both Debtor and his counsel according to the changes made during the course of the proceedings. The Bloomingdale Court held that the rule governing service is very specific in identifying the debtor and the manner of service upon the debtor. Id. at 352. The Court cited In re Amalgamated Insurance Fund, 784 F.2d 926, 930 (9th Cir. 1986) for the axiom that "`fundamental maxims of statutory construction require that a specific statutory section qualifies a more general section and will govern, even though the general provisions, standing alone, would encompass the same subject.'" Id. at 353 (citing Monte Vista Lodge v. Guardian Life Insurance Co. of America, 384 F.2d 126, 129 (9th Cir.1967)).

Bloomingdale went on to hold, however, that dismissal was warranted only because the plaintiff failed to demonstrate "good cause" for failing to comply with Rule 7004(b)(9). Id. at 354. The court noted that Federal Rule of Civil Procedure 4(j) is incorporated into Rule 7004, and dismissal is only appropriate when Plaintiff fails to demonstrate good cause for deviating from applicable service requirements. Id. at 354.³

The Bankruptcy Court in the Southern District of New York has held that service of a complaint on only the debtor and not the attorney was a clear violation of the service requirements of Rule 7004(b)(9). In re Terzian, 75 B.R. 923 (Bankr. S.D.N.Y.1987). In the Terzian case, unlike here, only the debtor was served...