Opinion
CASE NO. 07-20188 JPK ADVERSARY NO. 09-2068
06-09-2011
In re: HEARTLAND MEMORIAL HOSPITAL, LLC and Robert Handler, Debtor. DAVID ABRAMS, not individually but solely as the Liquidating Trustee and court-appointed manager of Heartland Memorial Hospital, LLC, Plaintiff, v. HAROLD E. COLLINS, KAREN BRIGGS, MARK EFRUSY, VIJAY GUPTA, RAMON HALUM, ALLEN HILL, HILTON HUDSON, PAUL JONES, JOHN KNIAZ, SHAUN KONDAMURI, RANDALL C. MORGAN, JR., JAGDISH PATEL, VIJAY PATEL, DAVID RAY, ALFRED SHARP, JEFFREY YESSENOW, WRIGHT CAPITAL PARTNERS, LLC, and LEROY J. WRIGHT Defendants.
Chapter 11
ORDER CONCERNING TRUSTEE'S MOTION FOR ORDER
AUTHORIZING ISSUANCE OF, AND EXTENDING THE TIME
TO SERVE, ALIAS SUMMONSES ("MOTION")
On May 26, 2010, following the initial preliminary pre-trial conference in this adversary proceeding, the court entered its Order Regarding Further Proceedings Following Initial Preliminary Pre-Trial Conference (record #103). Paragraph 2 of this order stated that by May 28, 2010, "the plaintiff shall file a motion seeking leave of the court to issue alias summonses with respect to any defendant with respect to which that action is deemed necessary by the plaintiff". Paragraph 3 of the order provided that any party objecting to the motion provided for by paragraph 2 was to file a separate objection by June 11, 2011.
The plaintiff ("Abrams") filed the Motion on May 28, 2010 (record #105). On June 11, 2010, the defendant Harold E. Collins ("Collins") filed his response to the Motion, together with a memorandum in support of his response (record #110). On June 18, 2010, the defendants Vijay Gupta, Shaun Kondamuri, Jagdish Patel, and David Ray filed their response to the Motion (record #116). By order entered on October 27, 2010 (record #129), the court scheduled oral arguments on the Motion and the responses thereto, and provided Abrams with an opportunity to file a written response to the foregoing defendants' objections to the Motion by November 12, 2010, which response was filed on November 12, 2010 (record #134). Oral arguments were held on December 2, 2010, but nothing of significance was added to the record with respect to the Motion or the objections at that hearing.
In entering this order, the court provisionally determines that actions asserted by the plaintiff David Abrams, as Liquidating Trustee, ["Abrams"] are not within the court's "core proceedings" jurisdiction as provided for by 28 U.S.C. § 157(b), but rather constitute "proceedings . . .related to a case under title 11" under 28 U.S.C. § 157(a). The court's jurisdiction is thus defined as that imparted in "related to" proceedings. Pursuant to 28 U.S.C. § 1334(b), 28 U.S.C. § 157(a), and N.D.Ind.L.R. 200.1(a)(1), this court has jurisdiction to fully administer "related to" proceedings to the fullest extent provided for by 28 U.S.C. § 157(c)(1). The parties in this case have not consented to this court's exercise of final judgment authority in this adversary proceeding. However, the court determines that ruling on the Motion does not constitute a final order or judgment within the restrictions provided for by 28 U.S.C. § 157(c)(1); that the court has complete jurisdiction to enter an order determining the Motion itself; and that the procedure provided for by that statute for submission of proposed findings of fact and conclusions of law to the district court is not applicable with respect to final determination of the Motion.
The Motion seeks essentially two different forms of relief. The first is a simple request for issuance of alias summonses by the court. The second is a request that the court determine that Rule 4(m) of the Federal Rules of Civil Procedure should be invoked at this time to extend the period for service of process by the plaintiff upon the objecting defendants. The objectants all contest the Motion on the basis that Rule 4(m) of the Federal Rules of Civil Procedure [incorporated into adversary proceedings by Fed.R.Bankr.P. 7004(a)(1)], will not be effective to save the plaintiff from dismissal of his action against them due to failure to comply with the time limitations for effective service of process stated in that rule.
A brief procedural history of this case is in order. This adversary proceeding was initiated by a complaint filed on February 28, 2009. Summonses were issued by the Clerk's Office. On November 16, 2009, Abrams filed his "Plaintiff's Motion for Order Authorizing Issuance of Alias Summonses" (record #33). This motion requested the issuance of alias summonses with respect to the defendants Harold Collins, Mark Efrusy, Vijay Gupta, Allen Hill, Hilton Hudson, Paul Jones, Shaun Kondamuri, Randall C. Morgan, Jr., Jagdish Patel, David Ray, Alfred Sharp, Wright Capital Partners LLC and Leroy J. Wright. The problem sought to be addressed by this motion was assertions made by various of the defendants that the original service of process upon them was ineffective because although a copy of the complaint was served, it was not accompanied by a summons. Abrams asserted in the motion that service of process, including both the summons and the complaint, was effectively made originally upon all of the defendants, but requested issuance of alias summonses so that any issue of ineffective service of process could be removed from the case. This motion was granted by the court's order entered on November 20, 2009 (record #36), and alias summonses were issued by the Clerk's Office on November 20, 2009. A return/certificate of service regarding service of the alias summonses was filed as record #53 on December 8, 2009. Unfortunately, this certificate of service evidenced service of the alias summonses outside of the 10-day time frame then provided for service by Fed.R.Bankr.P. 7004(e) (the summonses, issued on November 20, 2009, were not served until December 8, 2009).
The initial summonses in the case were issued by the clerk on February 28, 2009 (record #2), and the return/certificate of service filed by the plaintiff with respect to service of those summonses and a copy of the complaint on all of the defendants was filed on March 9, 2009, stating the mailing of summons and complaint with respect to all of the defendants for whom summonses were issued on March 5, 2009. In the motions to dismiss which they filed in this case, Collins, Gupta, Kondamuri, Jagdish Patel and David Ray asserted that they did not receive a summons with this initial service of process. There is thus a situation in which Abrams asserts, and a return/certificate of service filed as record #3 states, that service of process of both a summons and complaint was timely made upon all of the defendants referred to in that return of service. The foregoing defendants, who now object to the Motion, asserted that they did not receive a copy of the summons initially, although all admit that they received a copy of the complaint. Collins has admitted that he did receive the alias summons, and there is nothing in the record which establishes that the other defendants did not receive the first alias summons (the affidavits which they filed in support of their motions to dismiss are all dated prior to the date of issuance of those summonses).
In the Motion now before the court, Abrams again seeks the issuance of alias summonses so that there is no question about effective service of process upon the present objectants. The objectants oppose the Motion on the basis that they have not been effectively served previously, and that any extension of time to provide for effective service upon them should be denied under Fed.R.Civ.P. 4(m).
As noted above, the second prong of Abrams' Motion is a request pursuant to Fed.R.Civ.P. 4(m) that the period of service of process be extended beyond the original 120-day limit because the plaintiff has demonstrated good cause for an extension, or alternatively, because circumstances justify the court's exercise of discretion under that rule to extend the time limitation for service of process. Abrams has thus placed the issue of Rule 4(m) before the court.
A related motion filed by Abrams is for the court to grant him leave to file a second amended complaint, a motion which the court has granted by a separate order. The assertions made by the objecting defendants to the instant Motion were made in motions to dismiss which they filed in response to the plaintiff's first amended complaint. Because the court has authorized the filing of a second amended complaint, these motions will be mooted, and that mooting causes the Rule 4(m) matter to not be before the court by means of assertions advanced by the defendants in their respective motions to dismiss.
The first request of Abrams' Motion is that the court issue alias summonses. As applicable to this case, Fed.R.Bankr.P. 7004(e) stated:
The rule was amended by 2009 amendments, effective December 1, 2009, which replaced the 10-day limitation with a 14-day limitation. Whether or not the 14-day limitation is applied is immaterial in this case with respect to service of the alias summonses.
(e) Summons: time limit for service within the United States
Service made under Rule 4(e), (g), (h)(1), (i), or (j)(2) F. R. Civ. P. shall be by delivery of the summons and complaint within 10 days after the summons is issued. If service is by any authorized form of mail, the summons and complaint shall be deposited in the mail within 10 days after the summons is issued. If a summons is not timely delivered or mailed, another summons shall be issued and served. This subdivision does not apply to service in a foreign country. (emphasis supplied)The language of the foregoing rule is mandatory, and no discretion is left to the court to refuse a request to issue an alias summons; El Gee Lighting, Inc. v. Usatch, 155 B.R. 596 (Bankr. S.D. Fla. 1993); See, Norm's Furniture Sales, Inc. v. Latuch, 1991 WL 133413 (Bankr. D.Vt. 1991). Thus, the request of the Motion that alias summonses be issued will be granted.
That leaves us with considerations under Rule 4(m). That rule states:
(m) Time Limit for Service. If a defendant is not served within 120 days after the complaint is filed, 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. This subdivision (m) does not apply to service in a foreign country under Rule 4(f) or 4(j)(1).The manner of construction and application of the foregoing rule has been well-stated by several decisions of United States Bankruptcy Courts in the Northern District of Illinois. In In re Menges III, 337 B.R. 191, 193-94 (Bankr. N.D.Ill. 2006), the following is stated:
The Bankruptcy Rules also limit the time for service. Under Rule 7004(e), service must be made "within 10 days after the summons is issued." Fed. R. Bankr.P. 7004(e). If service is not made in that time, the summons is stale, and another summons must be issued. Under Rule 4(m) of the Federal Rules, meanwhile, a provision that applies in bankruptcy, service of the summons and complaint must be made on a defendant "within 120 days after the filing of the complaint." Fed.R.Civ.P. 4(m) (made applicable by Fed. R. Bankr.P. 7004(a)). If service is not made in that time, Rule 4(m) says, the court "shall dismiss the action without prejudice ... or direct that service be effected within a specified time." Id.In In re Flaherty, 432 B.R. 742, 751-754 (Bankr. N.D.Ill. 2010), the following discussion was put forward:
Despite this seemingly categorical admonition, Rule 4(m) goes on to allow the time for service to be extended if the plaintiff can show "good cause" for the delay. Id.; see also Troxell v. Fedders of N. Am., Inc., 160 F.3d 381, 382-83 (7th Cir.1998). "Good cause" for purposes of the rule means "a valid reason for delay, such as the defendant's evading service." Coleman v. Milwaukee Bd. of Sch. Dirs, 290 F.3d 932, 934 (7th Cir.2002). If good cause is shown, the rule makes clear, the time for service must be extended. Panaras v. Liquid Carbonic Indus. Corp., 94 F.3d 338, 340 (7th Cir.1996) (noting that court has "no choice" but to extend the time for service where there is good cause for the delay).
And even if no good cause is shown, the Seventh Circuit has repeatedly held that the court in its discretion may nevertheless extend the time for service. See Coleman, 290 F.3d at 934; Troxell, 160 F.3d at 383; Panaras, 94 F.3d at 340-41. The exercise of this residual discretion is warranted, the Coleman decision suggests, if the circumstances at least demonstrate that the failure to achieve service is the result of "excusable neglect." See Coleman, 290 F.3d at 934; cf. Kadlecek v. Ferguson (In re Ferguson), 204 B.R. 202, 209-10 (Bankr.N.D.Ill.1997) (analyzing the question before Coleman under the "excusable neglect" standard under Bankruptcy Rule 9006(b)(1)). Coleman also suggests that "the balance of hardships" alone may warrant a finding of excusable neglect. See Coleman, 290 F.3d at 934.
Rule 4(m), incorporated here by Bankruptcy Rule 7004(a), requires service to be made within 120 days of the filing of the complaint. Fed.R.Civ.P. 4(m). If service is not completed within 120 days, the Rule provides that:the court—on motion or on its own after notice to the plaintiff—shall 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.Id. The plaintiff bears the burden of establishing good cause. Geiger v. Allen, 850 F.2d 330, 333 (7th Cir.1988). For purposes of Rule 4(m), "[g]ood cause means a valid reason for delay, such as the defendant's evading service." Coleman v. Milwaukee Bd. of Sch. Dirs., 290 F.3d 932, 934 (7th Cir.2002). If good cause is shown, the time for service must be extended. Panaras v. Liquid Carbonic Indus. Corp., 94 F.3d 338, 340 (7th Cir.1996). If good cause cannot be shown, the decision to grant an extension or dismiss the action without prejudice is left to the discretion of the court. Ligas, 549 F.3d at 501; Troxell v. Fedders of N. Am., Inc., 160 F.3d 381, 382-83 (7th Cir.1998); Panaras, 94 F.3d at 340. The exercise of this discretion is warranted if the circumstances establish that the failure to complete service is the result of "excusable neglect." Menges v. Menges (In re Menges), 337 B.R. 191, 193-94 (Bankr.N.D.Ill.2006) (citing Coleman ). Satisfaction of a balancing-of-hardships test may justify a finding of excusable neglect. Id. at 194. In the present case, the complaint was filed on September 28, 2009. The 120-day window, therefore, closed on January 26, 2010, one day before the Defendants filed their second motion to quash. Because the Plaintiff served the summons and complaint himself in violation of the rules governing service, as discussed above, he plainly did not accomplish service within the time prescribed by Rule 4(m). The Court must first decide, then, whether the Plaintiff has demonstrated good cause for his failure to effect proper service in a timely manner. Good cause requires a showing of good faith on the part of the plaintiff and a reasonable excuse for noncompliance. Floyd v. United States, 900 F.2d 1045, 1047 (7th Cir.1990); Geiger, 850 F.2d at 333. Although the Plaintiff here may have acted in good faith, he has not offered any reasonable excuses. Rather, he states that any errors related to service were "the result of inadvertence or lack of familiarity with [the] rules of bankruptcy procedure." Pl. Resp., Aff. ¶ 30. The Plaintiff also blames counsel for the Defendants, stating that the attorney failed to advise him that he could not serve the summons himself because he was a party to the adversary. Id. ¶ 27.
Inadvertent failure to serve process within the time permitted does not constitute good cause. Geiger, 850 F.2d at 333; Wei v. Hawaii, 763 F.2d 370, 372 (9th Cir.1985); Dreier v. Love (In re Love), 232 B.R. 373, 378 (Bankr.E.D.Tenn.1999). Further, "[f]ailure to read a rule is the antithesis of good cause. Ignorance may be an explanation but is not an excuse." Tuke v. United States, 76 F.3d 155, 156 (7th Cir.1996); see also Menges, 337 B.R. at 194 (quoting Tuke); Kadlecek v. Ferguson (In re Ferguson), 204 B.R. 202, 210 (Bankr.N.D.Ill.1997). " '[T]o hold that complete ignorance ... constitutes good cause for untimely service would allow the good cause exception to swallow the rule.' " Kersh v. Derozier, 851 F.2d 1509, 1512 (5th Cir.1988) (discussing Rule 4(j), the predecessor to Rule 4(m)). As for the Plaintiff's attempt at holding the Defendants' attorney responsible for lack of timely service, counsel for the Defendants had no obligation to inform the Plaintiff of the applicable rules. See Ferguson, 204 B.R. at 209. The Plaintiff has not met his burden of showing good cause.
Absent a good-cause showing, the Court must consider whether a permissive extension of time is warranted. FN9 That is, the Court must determine whether the circumstances in this case establish that the Plaintiff's failure to achieve service was the result of "excusable neglect." Congress has given courts few "guideposts" in deciding what kinds of neglect are "excusable" in the context of service of process. Love, 232 B.R. at 380. The Advisory Committee Note to Rule 4(m), however, provides that "[r]elief may be justified ... if the applicable statute of limitations would bar the refiled action, or if the defendant is evading service or conceals a defect in attempted service." Fed.R.Civ.P. 4(m), Advisory Comm. Note, 1993 Amendments; see also Panaras, 94 F.3d at 341. Additionally, in deciding whether a party's neglect of a deadline is excusable, the United States Supreme Court has considered "the danger of prejudice to the debtor, the length of the delay and its potential impact on judicial proceedings, the reason for the delay, ... and whether the [party] acted in good faith." Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd. P'ship, 507 U.S. 380, 395, 113 S.Ct. 1489, 123 L.Ed.2d 74 (1993); see also Coleman, 290 F.3d at 934; Love, 232 B.R. at 380-81 (quoting Pioneer ).
FN9. The Defendants contend in error that dismissal of the adversary proceeding is mandatory under Rule 4(m) because the Plaintiff has not shown good cause.Taking into consideration all of the circumstances in the matter at
bar, the Court finds that the Plaintiff's failure to properly serve the Defendants pursuant to Rule 4(m) was the result of excusable neglect. First, the Court is satisfied that the Plaintiff did not act in bad faith when he failed to serve both the Defendants and their attorney within the period required by the Rule. Although he made several attempts at service and the defects were many, the Plaintiff tried to correct and re-serve upon learning of the deficiencies in process. While his efforts were not, ultimately, successful, the Court does not find that the Plaintiff exhibited a lack of respect or intentional or blatant disregard for the rules or the Court's schedule. Rather, the errors in the attempted service can be attributed in substantial part to the termination of employment by the Plaintiff's formal paralegal who usually served complaints and executed the related certificates of service. See Pl. Resp., Aff. ¶¶ 18, 19. Additionally, the delay in service was not a lengthy one. Indeed, there was little inactivity on the part of the Plaintiff and no corresponding impact on judicial proceedings. Thus, it is not surprising that the Defendants have shown no prejudice from the delay in service—no actual harm to their ability to defend the adversary on the merits as a consequence of the delay. Indeed, having been served with the complaint and summons on the Plaintiff's previous attempts at service, the Defendants and their able attorney had actual notice of the Plaintiff's claims. Moreover, the Defendants did not file their second motion to quash until the 121st day after the filing of the complaint, raising the suggestion that they knew of the defect in service and were waiting until after the expiration of the time allowed under Rule 4(m) before filing their motion. Finally, a dismissal without prejudice under Rule 4(m) would effectively be a dismissal with prejudice in this case. Such an outcome would result because the Plaintiff filed his complaint on the last possible day permitted under the Code. Thus, the Plaintiff's cause of action against the Defendants would be time-barred if dismissal were granted. See Baermann v. Ryan (In re Ryan), 408 B.R. 143, 159-60 (Bankr.N.D.Ill.2009).
Abrams vigorously asserts that service of both the summons and complaint was initially properly effected on all defendants, as evidenced by the record #3 return/certificate of service. The objectants vigorously contend that they did not receive a summons, but none of them asserts that they did not receive a copy of the complaint. It is undisputed that the second attempt at service was ineffective in terms of the time frame in which it was accomplished. However, none of the objectants has asserted in the record that he did not receive a copy of the summons on the second go round.
The parties have all suggested that an evidentiary hearing may be necessary to determine which version of the initial service of summons and complaint is accurate. The court deems this to be an ineffective use of its time and of the parties' time, and the court makes no determination as to whether or not a copy of the summons was initially served upon any of the objectants pursuant to the record #3 return/certificate of service. For the purposes of the Motion, the court will hypothesize that the defendants are correct, and that inadvertently a copy of the summons was not initially served upon any of them by the plaintiff. It is absolutely clear that any failure to serve summons upon the defendants - either initially or pursuant to the second attempt - was not done in bad faith, and was the result of an error. However, upon the hypothesis that the initial summons was not properly served, any inadvertence in omitting it from the "service package" provided to each defendant would not constitute "good cause", under the foregoing hypothesis and standards, under the standards stated in cases previously cited in this decision. The same is true with respect to the alias summonses. The failure to serve both the original and the alias summonses in a timely manner is clearly the result of the plaintiff's neglect. This circumstance does not establish "good cause" for the untimely service of the original and alias summonses.
However, the court determines that any failure - if indeed there was one - with respect to service of the initial summonses on any of the objecting defendants was the result of excusable neglect. Additionally, the court finds that the balance of hardships is totally in favor of the plaintiff. No defendant disputes that he received a copy of the complaint shortly after the case was initiated. No other defendant in this action has raised any failure to timely receive summons as a defense or a reason to dismiss the complaint against him/it. Without determining what, if any, statute of limitations may apply to claims asserted by Abrams against any of the objecting defendants, the court is comfortable in saying that dismissal of this action against the objecting defendants pursuant to Rule 4(m) may result in Abrams' inability to file another complaint against them in relation to the matters addressed by this adversary proceeding. The objecting defendants have also been involved in this litigation from the time at which any other defendant first appeared in the action or filed an answer, and they all clearly had notice of the commencement of this case shortly after it was filed. The court thus determines that there is no actual prejudice to any of the objecting defendants if the Motion is granted, so that effective service of process upon them can once and for all be effected, without the additional delay and time expenditure necessary to have an evidentiary hearing on the effectiveness of initial service.
The court thus determines that on the adopted assumption that summonses were not initially served on the objecting defendants, the plaintiff has not established "good cause" for extension of the 120-day period for service of process under Rule 4(m), but the court also determines that even based on the foregoing assumption, its discretion to extend that limitation should be exercised with respect to the Motion.
IT IS ORDERED that the Motion is granted.
IT IS FURTHER ORDERED that the Clerk of the Court shall issue alias summonses with respect to the defendants Harold E. Collins, Vijay Gupta, David Ray, Shaun Kondamuri and Jagdish Patel, and that the plaintiff shall effect service of the alias summonses, together with a copy of the original complaint, the first amended complaint, and the second amended complaint upon those defendants within 14 days of the date of the Clerk's issuance of the alias summonses.
Perhaps technically service of process should include only the original complaint. However, the original complaint has now been supplanted by two amended complaints. All three complaints are to be served to preclude any hyper technical contentions as to which complaint should be served with this batch of alias summonses.
IT IS FURTHER ORDERED that the plaintiff shall file a certification of service, evidencing compliance with the immediately preceding paragraph, within 7 dyas of service. Dated at Hammond, Indiana on June 9, 2011.
J. Philip Klingeberger, Judge
United States Bankruptcy Court
Distribution:
Attorneys of Record