Let’s say you file for Chapter 7 bankruptcy. One of your creditors comes along and sues, demanding that their debt survive the bankruptcy. Maybe they’ve got a good reason, maybe not. Either way, they file the adversary proceeding in bankruptcy against you.
Your lawyer is served with the adversary proceeding in bankruptcy and gets in touch to plan a strategy for defending the action. You load up on the defenses and your lawyer files the Answer on your behalf.
Then, A Flash Of Realization
A few weeks later your lawyer decides to ask you when you got the adversary proceeding complaint. You tell him or her that you never got it – at least, not that you can recall. You tear through the pile of unopened mail on the table, check out the nooks and crannies of your desk, even turn over your briefcase to find the envelope.
But it’s not there. You never got served. The papers went to your lawyer, but never got to you.
It’s Too Late To Do Anything About It
Jeffrey Ramson filed a Chapter 13 bankruptcy case in Manhattan, which he ultimately converted to a Chapter 7 case. Donald Scott, one of his creditors, filed an adversary proceeding in bankruptcy seeking to deny Mr. Ramson a discharge of debt under 11 U.S.C. § 523(a)(4) (“for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny”). Ramson filed an answer, denying the material allegations of the complaint, and raising a defense that Scott lacked jurisdiction over him. The Answer did not assert that the summons and complaint were improperly served.
His lawyer, Stuart Gelberg, filed the Answer and then later filed a motion to dismiss the complaint. His reason? Suddenly, he realized that the summons and complaint were never served on Mr. Ramson.
Let’s Talk About Service
In order to sue someone, you’ve got to have personal jurisdiction over them. The way you do that in bankruptcy court is to make sure an adversary proceeding summons and complaint is served in accordance with FED. R. BANKR. P. 7004 and FED. R. CIV. P. 4. Yesh Diamonds v. Yashaya (In re Yashaya), 403 B.R. 278, 282 (Bankr. E.D.N.Y. 2009).
According to Rule 7004(b)(9), service may be made “[u]pon the debtor, after a petition has been filed by or served upon the debtor and until the case is dismissed or closed, by mailing a copy of the summons and complaint to the debtor at the address shown in the petition or to such other address as the debtor may designate in a filed writing.” FED. R. BANKR. P. 4007(b)(9). Rule 7004(g) states that “[i]f the debtor is represented by an attorney, whenever service is made upon the debtor under this Rule, service shall also be made upon the debtor’s attorney . . . .” FED. R. BANKR. P. 4007(g). Therefore, in order for there to be proper service over the defendant in an adversary proceeding, plaintiff must serve both the defendant and defendant’s attorney. In re Shapiro, 265 B.R. 373, 376–77 (Bankr. E.D.N.Y. 2001) (citing In re Terzian, 75 B.R. 923 (Bankr. S.D.N.Y. 1987)).
Remember, you don’t need to hire a guy in a trenchcoat to stalk someone outside their office, leaping from the shadows to pounce on them and scream, “You’re served, sucker!” For the most part, you just drop a copy into the mailbox and that’s good enough (there are some things you need to do after that, but let’s leave the technicalities to another day).
So What If Service Is Improper?
You get 120 days to serve the summons and complaint once you file the adversary proceeding in bankruptcy. And if you don’t then the court—on motion or on its own after notice to the plaintiff—must dismiss the action without prejudice against that defendant or order that service be made within a specified time. But if the plaintiff shows good cause for the failure, the court must extend the time for service for an appropriate period. If the plaintiff does not serve the summons and the complaint on the defendant and defendant’s attorney, the court may dismiss the case without prejudice absent a showing of good cause. In re Rand, 144 B.R. 253, 256 (Bankr. S.D.N.Y 1992).
Sounds simple, right? Well, maybe not. See, the New York bankruptcy court ruled in Ramson’s case that the failure to raise the defense in the Answer stripped Ramson of the ability to get the complaint dismissed for improper service. Under FED. R. CIV. P. 12(h)(1)(B), a party waives certain defenses, including insufficient process, by “failing to either: (i) make it by motion under this rule; or (ii) include it in a responsive pleading.”
In other words, the court has to dismiss the case for lack of proper service or order that service be made within a specified time – unless the defendant has filed an Answer. In such case, the court can take a hands-off approach to the issue in favor of the defendant (here, Mr. Ramson) bearing the burden.
One More Reason For A Clear Dialog Between The Bankruptcy Lawyer And Client
Your bankruptcy lawyer can’t read your mind. If there are legal pleadings filed in your bankruptcy case he or she may assume that you got a copy. Maybe it’s a good assumption to make, maybe not – either way, sometimes your lawyer may jump to the conclusion because he or she got a copy in the mail. And here, maybe Ramson’s lawyer should have asked the question.
In addition, you’ve got to be an active participant in your own bankruptcy case. If your bankruptcy lawyer calls to tell you that he or she got a motion and you’ve never heard of it before, say something. This is your bankruptcy case, not just a proceeding in which you are a passive bystander.
Take the time to talk with your lawyer. It will serve you well every time.