In re Smith

• Decision Date: 07 December 2007
• Docket Number: No. 07 A 00012.,No. 05 B 40196.,No. 07 A 00011.,05 B 40196.,07 A 00011.,07 A 00012.
• Court: United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Illinois
• Parties: In the Matter of Bruce S. SMITH, Debtor. Trina Tidwell, Plaintiff, v. Bruce S. Smith, Defendant. Sandra Sterling-Ahlla, Plaintiff, v. Bruce S. Smith, Defendant.

379 B.R. 315

In the Matter of Bruce S. SMITH, Debtor.

Trina Tidwell, Plaintiff, v. Bruce S. Smith, Defendant.

Sandra Sterling-Ahlla, Plaintiff, v. Bruce S. Smith, Defendant.

No. 05 B 40196.

No. 07 A 00011.

No. 07 A 00012.

United States Bankruptcy Court, N.D. Illinois, Eastern Division.

December 7, 2007.

Darryl E. Robinson, Westchester, IL, for Plaintiff.

Steven H. Jesser, Northfield, IL, for Defendant.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

JACK B. SCHMETTERER, Bankruptcy Judge.

Defendant Bruce S. Smith ("Smith" or "Debtor") filed his Chapter 7 bankruptcy case to which these Adversary proceedings relate. A discharge order was entered therein on January 17, 2006. Prior to Smith's bankruptcy filing, Plaintiffs Trina Tidwell ("Tidwell") and Sandra Sterling-Ahlla ("Sterling-Ahlla") (collectively "Plaintiffs" or "Creditors") filed separate suits against Debtor in state court each alleging the intentional tort of sexual assault. However, Plaintiffs were not scheduled as creditors in the bankruptcy case, so notice of the bankruptcy was not given to Plaintiffs by the Bankruptcy Clerk ("Clerk of Court" or "Bankruptcy Clerk"). Following Debtor's discharge, Plaintiffs each filed a Motion "to Allow State Court Case to Proceed," more specifically, requesting an order that the discharge did not stay Plaintiffs' state court lawsuits. Those motions were set for status until Plaintiffs filed Adversary Complaints seeking particular relief.

Plaintiffs' Adversary Complaints were then filed, each containing three counts. In Count I, each objects to dischargeability of Defendant's alleged debt pursuant to 11 U.S.C. § 523(a)(6). In Count II, Plaintiffs each objects to Debtor's discharge pursuant to 11 § 727(c)(d)(e) and Rule 7001(4) Fed. R. Bankr.P. In Count III, Plaintiffs each seek to have Debtor's discharge revoked pursuant to 11 U.S.C. § 727(d)(1). Debtor filed Motions to Dismiss for lack of timely filing of objections to discharge and dischargeability. Debtor's Motions to Dismiss were denied by oral ruling on April 10, 2007, because of the possibility under facts presented that the Adversaries would be deemed timely filed.

A consolidated hearing was held on the pending Motions to Allow State Case to Proceed and the Adversary Counts attacking discharge. After considering the evidence and arguments presented by the parties, the following Findings of Fact and Conclusions of Law are made and will be entered, pursuant to which Counts II and III are dismissed, but Count I of each Plaintiffs' Adversary Complaints is deemed timely filed. Plaintiffs will be allowed to prosecute their state court claims to judgment, and Count I in each of remaining Adversary proceedings will be carried on status until those judgments are entered. If Plaintiffs prevail there, they may then return here to seek adjudication in Count I to have the state court judgments declared nondischargeable pursuant to 11 § 523(a)(6).

FINDINGS OF FACT

1. On December 18, 2003, Plaintiffs filed separate lawsuits against Debtor in the Circuit Court of Cook County, Illinois, sounding in intentional tort for sexual assault. Those complaints allege that Debtor, a physician specializing in the area of obstetrics and gynecology, unlawfully engaged in sexual intercourse with Plaintiffs during routine prenatal examinations. (Compl. Ex. A.) Defendant denies those allegations. (Answer ¶¶ 18, 20.)

2. Debtor testified that his employer failed to purchase an insurance "tail rider" extending his medical malpractice insurance coverage. Therefore, the state court cases were and are defended by counsel retained by Debtor's insurance provider under reservation of right to defend without a commitment to pay any judgment. Defendant therefore faces the possibility of large uninsured personal liability in those cases.

3. On June 24, 2004, Debtor filed his first petition for relief under Chapter 7 of the Bankruptcy Code. (Def.'s Ex. 1.) Plaintiffs were listed by name, but by address "in care of" their attorney in the state court proceedings. They were scheduled thereby as unsecured creditors on Schedule F of that petition, and therefore received notice of Debtor's first bankruptcy case from the Clerk.

4. On November 23, 2004, on motion of the United States Trustee, Debtor's first bankruptcy case was dismissed for substantial abuse. (Def.'s Ex. 2.)

5. On September 26, 2005, Debtor filed a second petition for relief under Chapter 7 of the Bankruptcy Code. (Def.'s Ex. 3.) Plaintiffs were not in any way listed as unsecured creditors on Schedule F of that petition on which all such creditors are to be listed. However, Plaintiffs' lawsuits were identified in Debtor's Statement of Financial Affairs along with the suits by other parties not listed in Schedule, F. (Id.)

6. Every Chapter 7 petition contains a Declaration Concerning Debtor's Schedules including Schedule F. Under penalty of perjury, Debtor signed that declaration stating, "I have read the foregoing summary and schedules ... and that they are true and correct to the best of my knowledge, information, and belief." (Id.) However, it is clear that Schedule F was false in that it did not list all known creditors.

7. Debtor testified that he had no intent to mislead Plaintiffs by failing to list them on Schedule F of his bankruptcy petition. He further testified that he is not an expert in bankruptcy and, therefore, did not understand the difference between Schedule F and the Statement of Financial Affairs where the Plaintiffs were named. However, he clearly had knowledge of the serious suits against him in the state court cases and even identified those suits on his Statement of Affairs. Moreover, he has listed Plaintiffs on Schedule F in his first bankruptcy case. Finally, it is doubtful that his insurance will pay any judgment against him and he therefore had a financial incentive to delay or deny notice of his second bankruptcy case to Plaintiffs. On those facts, it is found that the omissions of Plaintiffs on Schedule F were intentional and that Debtor's oath was intentionally false.

8. The attorney who prepared Debtor's bankruptcy petition was knowledgeable and experienced in filling out bankruptcy schedules in Chapter 7 cases. He testified that Plaintiffs were omitted from Schedule F because of his innocent mistake attributable to his heavy workload in anticipation of the Bankruptcy Abuse Prevention and Consumer Protection Act amendments to the Bankruptcy Code that were scheduled to take effect in October of 2005 (after Debtor's second bankruptcy was filed). However, because the Plaintiffs were known creditors identified in the Statement of Affairs and in Schedule F of the first bankruptcy, but were omitted from Schedule F of the second bankruptcy, the Defendant's oath that the Schedules were "true and correct" was false. Moreover, the testimony of Debtor's experienced bankruptcy counsel was that he usually compared the Schedule F of an earlier first case and always read the Statement of Affairs in the second case. His claim that the omission on Schedule F was an innocent mistake was therefore not credible.

9. Because Plaintiffs were not listed on Schedule F of Debtor's second bankruptcy petition, they did not receive notice from the Clerk of Court of the bankruptcy proceedings, or notice of the deadline for objecting to discharge or dischargeability. Under Bankruptcy rules and procedures, listing Plaintiffs' lawsuits in Debtor's Statement of Financial Affairs could not and did not trigger the provisions under Rule 2002 Fed. R. Bankr.P. for notice to these Plaintiffs.

10. On November 8, 2005, the § 341 Meeting of Creditors was held, and the Chapter 7 trustee subsequently filed a No Asset Report.

11. Therefore, pursuant to Rules 4004(a) and 4007(c) Fed. R. Bankr.P., the deadline for filing an objection to discharge under 11 U.S.C. § 727(a) or dischargeability under 11 U.S.C. § 523(a), as computed using Rule 9006(a) Fed. R. Bankr.P., was January 8, 2006.

12. On December 23, 2005, after the second bankruptcy case had been pending for almost ninety days, counsel for Debtor in the state court cases filed in those cases and served by facsimile on Plaintiffs, Debtor's Motions to Transfer those cases to the Bankruptcy Calendar ("Motions"). (Pl.'s Ex. 4.)

13. Prior to December 23, 2005, Debtor made no attempt to invoke the automatic stay in the state court cases or otherwise provide Plaintiffs with any notice of the pending bankruptcy case. The December 23, 2005 Motions referred to a September 27, 2005, Notice of Chapter 7 Bankruptcy, which had provided notice of the automatic stay, but Plaintiffs did not receive that notice because they were not listed on Schedule F of Debtor's bankruptcy petition and no copy was provided with the December 23, 2005 Motions and notices.

14. On December 23, 2005, Plaintiffs' attorney was out of his office on holiday and did not return until January 3, 2006, when he finally read the state court motions and first learned of the bankruptcy case.

15. The administrative assistant of Plaintiffs' attorney testified that she was responsible for incoming facsimiles. She does not recall the December 23, 2005 Motions specifically, but testified that it is her practice to place incoming correspondence in the recipient's incoming mailbox in his office. The administrative assistant is not an attorney, and does not review the substance of incoming correspondence. Based on her knowledge and training, she did not know of the impending deadline for filing objections, or know to alert Plaintiffs' attorney or another attorney in the office of the deadline.

16. The December 23, 2005 Motions and notice constituted the first actual notice to Plaintiffs' counsel of Debtor's bankruptcy case. However, the motion and notice did not provide specific information about the deadline for objecting to discharge or dischargeability, or refer to the previously held meeting of creditors so as to enable Debtor's counsel...