Bankruptcy Case Properly Reopened; Complaint Opposing Discharge Improperly Dismissed

Defendant filed for Chapter 7 bankruptcy in 1982, and her debts were discharged. Plaintiff, who was not listed as a creditor, sued Defendant in Oakland County Circuit Court in 1984 for medical malpractice and obtained a default judgment for $300,000 in 1988. In 1993, after being served with process, Defendant unsuccessfully sought to have the default judgment set aside. Defendant then filed a motion, in 1995, to reopen her bankruptcy to list Plaintiff as a creditor.

The bankruptcy court granted the motion to reopen the bankruptcy, and Plaintiff filed an adversary complaint objecting to discharge. However, Plaintiff failed to serve the complaint, despite a letter of warning from the bankruptcy judge, and the complaint was dismissed.

On appeal to the district court, the reopening of the bankruptcy was affirmed. Even though there was a small distribution of assets to creditors in the original bankruptcy, Plaintiff was not prejudiced because she was given an opportunity to oppose the discharge of her claim in the reopened case, and was thus not irreparably harmed. In addition, Defendant's failure to list Plaintiff as a creditor originally was not from lack of diligence or an avoidance tactic.

However, the dismissal of Plaintiff's adversary complaint was reversed. While the failure to serve the complaint was the fault of an "embarrassing" error by the staff of Plaintiff's attorney, dismissal was too severe a remedy for failure to serve. Absent contumacious conduct, an alternative sanction should be utilized.

Kowalski v. Ramano, Case No 97-73419, April 9. 1998 (Cohn, J.).

This article was prepared by Ronald S. Longhofer, a partner in our Litigation Department, and appeared in the July 1998 edition of the Michigan Bar Journal.