Wednesday, June 20, 2001
Ninth Circuit Rules:
Excusable Neglect Rules Apply to Nondischargeability Proceedings
By a MetNews Staff Writer
The excusable neglect provisions of the bankruptcy rules, providing for an extension of time to file and serve papers, apply to nondischargeability proceedings, the Ninth U.S. Circuit Court of Appeals ruled yesterday.
The ruling overturns bankruptcy court and appellate panel decisions granting a motion to dismiss filed by the president of a car dealer that sold a prize 1950 Ferrari.
The buyer of the car, Yoji Oyama, sued Michael Sheehan of European Auto Sales & Restoration, Inc., alleging European Auto failed to live up to its agreement to restore the car. Restoration instead was completed in Japan, and Oyama now enters the car in historical events.
Sheehan wound up in bankruptcy court, where Oyama petitioned to find Sheehan’s debt nondischargeable. But Oyama’s lawyer failed to have the complaint served on Sheehan within the 120-day period provided in Rule 4(m) of the Federal Rules of Civil Procedure.
The original mail service was defective because it was not made within 10 days of issuance of the summons, and a timely second summons and complaint was properly served on Sheehan’s lawyer but not on Sheehan himself, as required by statute, until six days after the 120-day period prescribed by Rule 4(m) elapsed.
Oyama argued that there was good cause for the failure of timely proper service. His lawyer said the problem was due in part to the illness of his secretary, who had breast cancer.
“[S]ecretaries are often the ones who follow the rules or are supposed to follow the rules for service,” Oyama’s lawyer explained. “[S]erious illness by the sole secretary and extended trial appearances and trial scheduling by both lawyers in the office” caused the error, he said.
The bankruptcy judge found that there was no good cause under Rule 4(m) to extend the time period and that the excusable neglect provisions of Bankruptcy Rule 9006(b) did not apply to nondischargeability proceedings.
Sheehan argued that the excusable neglect provision of Rule 9006(b) could not apply to Rule 4(m), which carries its own time period. He also noted that Oyama’s counsel failed to file a written motion under Rule 9006(b).
But Judge A. Wallace Tashima said the rule must be read as supplementing each other, and not contradictory. He also noted that the bankruptcy judge, although he said on the record that it was improper for Sheehan to argue the 9006(b) defense if it was not in his papers, ruled on the oral motion.
“Thus, the court effectively recognized the motion and denied it on the merits,” Tashima said.
In dissent, Judge Warren J. Ferguson called the finding that the bankruptcy judge recognized and denied a Rule 9006(b) motion “baffling,” since no written motion was presented as the rule require.
“Unfortunately for counsel, he did not successfully defend against the motion to dismiss in bankruptcy court,” the judge said. “He compounded his failure to properly serve the debtor with a poor choice of legal tactics when he consciously chose not to make a Rule 9006(b) motion.”
Ferguson also criticized the majority opinion for failing to justify its ruling with any finding of unusual circumstances for the failure to effectuate proper service.
“The noble profession of lawyering has degenerated to the point where there is extreme public criticism of its practices,” the judge said.
“This deterioration will continue as long as the judiciary permits it,” he said. “Allowing an attorney to hide behind the serious illness of his secretary and excusing procedural errors simply because of a busy schedule can only further undermine the dignity of the profession.”
The case is In re Sheehan, 99-56391.
Copyright 2001, Metropolitan News Company