Kutrubis v. Bowman (In re Kutrubis)

• Decision Date: 14 February 2013
• Docket Number: Adversary No. 11 A 1879.,No. 12 cv 4042.,12 cv 4042.
• Citation: 486 B.R. 895
• Parties: In re Lambros J. KUTRUBIS, Debtor. Lambros J. Kutrubis, Appellant, v. Gloria Bowman, Appellee.
• Court: U.S. District Court — Northern District of Illinois

486 B.R. 895

In re Lambros J. KUTRUBIS, Debtor.Lambros J. Kutrubis, Appellant,

v.Gloria Bowman, Appellee.

No. 12 cv 4042.

Adversary No. 11 A 1879.

United States District Court,

N.D. Illinois,

Eastern Division.

Feb. 14, 2013.

Gregory L. Stelzer, Michael K. Desmond, William G. Cross, Figliulo & Silverman, P.C., Chicago, IL, for Appellant.

Gloria Bowman, Arlington Hts., IL, pro se.

Memorandum Opinion and Order

SHARON JOHNSON COLEMAN, District Judge.

On March 7, 2012, the United States Bankruptcy Court for the Northern District of Illinois entered a default judgment order denying the debtor, Lambros J. Kutrubis, discharge pursuant to 11 U.S.C. § 727(a)(6)(A) of the creditor Gloria Bowman's unsecured claim of $2,500. On April 3, 2012, the bankruptcy court denied Kutrubis' motion for relief from the March 7, 2012, default judgment. Kutrubis argues on appeal that the judgment of the bankruptcy court is void because the court lacked in personam jurisdiction. For the reasons stated herein, the decision of the bankruptcy court is affirmed.

Background

Kutrubis, a retired Cook County Circuit Court judge, filed a voluntary petition for relief under Chapter 11 of Title 11 of the Unites States Code, 11 U.S.C. § 101, on January 12, 2010. Kutrubis listed total assets worth $2,082,856.56 and total liabilities of $2,494,348.45. Gloria Bowman, Kutrubis' ex-wife's daughter, is identified in Kutrubis' Schedule F as an unsecured creditor in the amount of $11,500.00. On June 8, 2010, Bowman filed a proof of claim against Kutrubis' bankruptcy estate for unsecured claim of $11,500 and a secured claim in the amount of $1,000,000 based on profits of a business venture that was marital property between Kutrubis and Bowman's mother. On December 3, 2010, Kutrubis filed an objection to the Bowman claim on the basis that it was overstated and unsubstantiated. On January 25, 2011, the bankruptcy court disallowedBowman's secured claim entirely, but allowed her an unsecured claim of $2,500. Thereafter, the case was converted from Chapter 11 to Chapter 7 of the Bankruptcy Code.

On May 23, 2011, Bowman filed a “Routine Motion for Order Compelling Production of Documents and Examination Pursuant to Rule 2004 and Rule 30(b)(6) of the Federal Rules of Civil Procedure.” On June 29, 2011, the bankruptcy court ordered Kutrubis to “turnover all documents relating to the 231–233 S. Halsted property in his possession or control from 1994 to the present.” The remainder of the motion was entered and continued until December 27, 2011, when it was denied. Bowman did not take action to enforce the turnover order.

On September 12, 2011, Bowman filed a pro se adversary complaint objecting to the discharge pursuant to 11 U.S.C. § 727(a) and 11 U.S.C. § 523(a). Summons issued in connection with the Adversary Complaint, requiring Kutrubis to answer within 30 days. Bowman filed a Proof of Service Summons Executed on September 20, 2011. She then filed an Amended Adversary Complaint on October 3, 2011, pursuant to Bankruptcy Rule 7015(a)(1)(A). Kutrubis claims that Bowman never served the Amended Adversary Complaint. The bankruptcy court reset the initial October status to December 27, 2011, at which time Bowman requested leave to file a Second Amended Adversary Complaint. The court allowed Bowman to file her Second Amended Adversary Complaint, which she did on January 11, 2012. Bowman's Second Amended Adversary Complaint added a second count seeking denial of Kutrubis' discharge pursuant to 11 U.S.C. § 727(a)(6)(A) based on Kutrubis' alleged failure to comply with the June 29, 2011, Order to turnover documents. At the status hearing on December 27, 2011, the court gave Kutrubis until February 10, 2012, to file a responsive pleading.

Kutrubis contends that he never received service of summons and the Second Amended Adversary Complaint. Bowman asserts that she sent Kutrubis the complaint by First Class Certified U.S. Mail on January 11, 2012. A document titled “Certificate of Service” was filed on February 14, 2012, which is linked to the original summons. Kutrubis did not file an appearance or any responsive pleading. On February 28, 2012, Bowman filed a motion for default judgment, which the bankruptcy court granted on March 7, 2012, denying Kutrubis' discharge under 11 U.S.C. § 727(a)(6)(A) for failing to comply with the court's orders. On March 21, 2012, Kutrubis filed a motion to vacate the judgment pursuant to Federal Rules of Bankruptcy Procedure 9023 and 9024, which incorporate Rules 59(e) and 60(b)(1) of the Federal Rules of Civil Procedure. The court denied the motion. Kutrubis now appeals from the default judgment and the denial of his motion to vacate the default judgment.

Standard of Review

The district court has jurisdiction over appeals from final orders of the bankruptcy court pursuant to 28 U.S.C. § 158(a)(1). A bankruptcy court's legal conclusions and mixed questions of law and fact are reviewed de novo. Mungo v. Taylor, 355 F.3d 969, 974 (7th Cir.2004). Factual findings are reviewed for clear error. Fed. R. Bankr.P. 8013. The clear error standard applies to the review of the bankruptcy court's dischargeability determination. See In re Bonnett, 895 F.2d 1155, 1157 (7th Cir.1989). This court will not reverse the bankruptcy court's determinationsas long as they are “plausible” based on the record, even if this court would have decided differently. Freeland v. Enodis Corp., 540 F.3d 721, 729 (7th Cir.2008). The appellant, Kutrubis, bears the burden of showing clear error. See Hower v. Molding Sys. Eng'g Corp., 445 F.3d 935, 939 (7th Cir.2006).

Discussion

Kutrubis argues that the bankruptcy court erred in entering the default judgment against him and denying his discharge pursuant to 11 U.S.C. § 727(a)(6)(A) because Bowman did not properly serve the Second Amended Adversary Complaint and therefore the bankruptcy court lacked personal jurisdiction over the Kutrubis in the adversary proceeding. Kutrubis also argues that the bankruptcy court erred in denying his discharge under 11 U.S.C. § 727(a)(6)(A) “on account of his disobedience of court orders that were entered in this case” because the court neither identified the specific orders that Kutrubis violated nor found that Kutrubis willfully refused to comply. Lastly, Kutrubis argues that the bankruptcy court abused its discretion when it denied his motion to vacate the default judgment because it did not consider all the requisite elements for denying a motion to vacate pursuant to Rule 59(e) or Rule 60(b)(1).

1. Personal Jurisdiction

Valid service of process is necessary for the court to exercise personal jurisdiction over a defendant. United States v. Ligas, 549 F.3d 497, 500 (7th Cir.2008). A judgment is void where the requirements of service of process are not satisfied. In re Cappuccilli, 193 B.R. 483, 488 (Bankr.N.D.Ill.1996). Bankruptcy Rule 7004 governs the requirements for service of process and incorporates parts of Federal Rule of Civil Procedure 4, but Bankruptcy Rule 7004(b)(9) allows service on a debtor by first class mail. Bankruptcy Rule 7004(b)(9). Proof of actual receipt of the summons and complaint is not required, only that the summons and complaint were mailed to both the debtor and the debtor's attorney. In re Vincze, 230 F.3d 297, 299 (7th Cir.2000). Service is sufficient as long as the summons and complaint are sent to debtor's last address provided by the debtor. Id.

Bankruptcy Rules 7004 and 7005 incorporate Fed.R.Civ.P. 4(c)(1) and Fed.R.Civ.P. 5(a)(2). Rule 5(a)(2) mandates that where a party is in default for failing to appear, a pleading that asserts a new claim for relief against such a party must be served on that party in accordance with Rule 4. Rule 4(c)(1) requires service of a summons with a copy of the complaint. When a new or additional claim for relief is asserted against the same defendant, then a new summons must be served with the amended complaint. Fed.R.Civ.P. 5(a)(2); See, e.g. Blair v. City of Worcester, 522 F.3d 105, 109 (1st Cir.2008).

Here, Kutrubis does not expressly deny receiving a copy of the Second Amended Adversary Complaint. Kutrubis asserts that he was a party in default under Rule 5(a)(2) at the time that Bowman sought to file the Second Amended Complaint because he had not filed an appearance or any responsive pleading. Kutrubis further asserts that the Second Amended Complaint alleged a new claim against him and therefore Bowman was required to execute at new summons. Bowman asserts that she mailed him a copy of the complaint and filed with the court a Certificate of Service on February 14, 2012. However, she did not execute a new summons.

The Second Amended Complaint added Count II, seeking to bar Kutrubis' discharge based on his failure to comply with the bankruptcy court's June 29, 2011, Order directing him to turnover documents. Count II constitutes a new claim based on a different factual predicate and different claim for relief than was previously alleged. Thus, Bowman failed to properly serve Kutrubis pursuant to Rule 5(a)(2). The bankruptcy court accordingly lacked personal jurisdiction over Kutrubis unless he waived his objection to personal jurisdiction. See Insurance Corp. of Ireland, Ltd. v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 704 102 S.Ct. 2099, 2105, 72 L.Ed.2d 492 (1982).

However, personal jurisdiction, unlike subject matter jurisdiction, is a “legal right protecting the individual” and can be waived by the defendant. Id. A party must include the defense of lack of personal jurisdiction or insufficient service of process in its first responsive pleading. Fed.R.Civ.P. 12(h)(1). Otherwise, the defendant waives the defense. Id. “[O]nce the defendant has waived objections based on insufficiency of process and submitted generally to the jurisdiction of the court, the court is powerless to dismiss the suit for lack of personal jurisdiction.” O'Brien v. R.J. O'Brien & Assocs., Inc., 998 F.2d 1394, 1399 (7th Cir....