Kevin MORTON, Jr., et al., v. Cindy L. SCHLOTZHAUER
No. 72, Sept. Term, 2015
Court of Appeals of Maryland.
August 19, 2016
144 A.3d 592
Thomas N. Yeager (Law Office of Thomas N. Yeager of Chestertown, MD) on brief, for Respondent
Argued before BARBERA, C.J., BATTAGLIA,* GREENE, ADKINS, McDONALD, WATTS, LAWRENCE F. RODOWSKY (Retired, Specially Assigned), JJ.
Opinion by McDONALD, J.
This case is about the procedural and substantive effect that a bankruptcy proceeding may have on the prosecution of a personal injury claim in State court. Our disposition of this case is compelled by the respect we accord a decision of the federal Bankruptcy Court and by our own injunction to interpret our rules “to do justice between the parties.”1
Bankruptcy allows one overcome by debt to obtain a discharge of debts and have, more or less, a fresh start. Part of the price that the debtor must pay is to detail the debtor‘s property interests in the bankruptcy case so that it can be determined what is available for distribution to creditors and what the debtor may retain. Among the property interests that must be listed are personal injury claims of the debtor, although such claims typically are exempted from the bankruptcy estate by operation of bankruptcy and Maryland law and, as a result, remain the debtor‘s property. Failure to list such a claim in the bankruptcy proceeding, however, means that it remains part of the bankruptcy estate.
Respondent Cindy L. Schlotzhauer was involved in a motor vehicle accident with Petitioner Kevin Morton, Jr., who was employed at the time by Petitioner Uni-Select USA, Inc. t/a Kunkel Service Company. Almost three years later, but within the pertinent statute of limitations, she brought this action against Mr. Morton and Uni-Select asserting that she had suffered personal injuries in the accident allegedly as a result of Mr. Morton‘s negligence in the course of his employment.
Between the time of the accident and the filing of this action, Ms. Schlotzhauer happened to file personal bankruptcy and was discharged from her debts. She neglected to list her (then) potential claim for personal injuries as an asset or as exempt property in her bankruptcy petition. It appears to be undisputed that this happened out of ignorance, rather than any deliberate effort to conceal the potential claim. By operation of bankruptcy law, her claim became the property of her bankruptcy estate.
The race ended in a dead heat, more or less. The Bankruptcy Court granted Ms. Schlotzhauer‘s request to re-open and re-vested her with the claim—a decision it ultimately decided was retroactive to the filing of the bankruptcy petition. In a nearly simultaneous ruling, the Circuit Court, unaware of the Bankruptcy Court‘s action, awarded summary judgment to Mr. Morton and Uni-Select on the ground that Ms. Schlotzhauer lacked standing. Ms. Schlotzhauer informed the Circuit Court of the Bankruptcy Court‘s action and asked it to reconsider its award of summary judgment. The Circuit Court declined to do so, without explanation.
The Court of Special Appeals reversed. It held that, even if Ms. Schlotzhauer was not the proper plaintiff under Maryland law at the time she filed her complaint,
For the reasons detailed below, we agree with the Court of Special Appeals.
I Background
A. A Bankruptcy Primer
To understand the unusual procedural path of this case it is helpful to make a brief excursion into bankruptcy law. Luckily for us, most of the applicable bankruptcy principles are not at issue. In its opinion in this case, the Court of Special Appeals provided an excellent summary, which we draw upon liberally as follows:
Debtor‘s Obligation to List Property Interests
When a person files for protection from creditors under federal bankruptcy law, all of the person‘s property, including personal injury claims, become the property of the bankruptcy estate. Those rights become the property of the estate even if the person intentionally, inadvertently, or innocently fails to disclose them to the trustee, the bankruptcy court, and creditors.
Schlotzhauer v. Morton, 224 Md.App. 72, 75-76, 119 A.3d 121 (2015) (citations omitted).
Trustee‘s Rights over Property of Bankruptcy Estate
Generally, the bankruptcy trustee alone may assert the person‘s rights,
including the right to pursue a tort claim for personal injuries, unless the trustee abandons the rights or the bankruptcy court declares them to be exempt from creditor claims. If the rights have not been abandoned or exempted, the bankruptcy trustee retains the sole right to assert them even after the bankruptcy court has closed the bankruptcy case and granted the debtor a discharge.
224 Md.App. at 76, 119 A.3d 121 (citations omitted).
Exemption for Personal Injury Claims
The debtor ... must list all property that the debtor claims as exempt. A party in interest to the bankruptcy proceeding, in turn, may object to the debtor‘s claims for exemptions. If an interested party fails to object within the time allowed, a claimed exemption will exclude the subject property from the estate.
Maryland residents can claim exemptions under state law, including an exemption “from execution on a judgment” that is payable in the event of sickness, accident, injury, or death of any person, including compensation for loss of future earnings.
Id. at 88, 119 A.3d 121 (citations and quotations marks omitted).
Discretion to Reopen Bankruptcy Case to Amend Schedules
Debtors may amend or supplement their schedules as a matter of course before the bankruptcy case closes. In addition, the bankruptcy court has discretion to reopen a case to administer assets, to accord relief to the debtor, or for other cause. The bankruptcy court has discretion to permit a party to perform an act, such as the filing of amended asset schedules, even after the specified period in which the act is required or allowed to be done.
Id. at 88, 119 A.3d 121 (citations and quotation marks omitted).
B. Facts and Procedural History
The Accident
It is undisputed that, on January 4, 2010, Ms. Schlotzhauer was involved in an automobile collision in the parking lot of the Centreville post office with Mr. Morton while he was driving a pickup truck owned by his employer, Uni-Select. The details of that accident are unimportant to the resolution of the issues in this appeal. Suffice it to say, in the complaint that Ms. Schlotzhauer filed some years later to initiate this case, she alleged that Mr. Morton was talking on a cell phone when he backed his truck into her car, resulting in various physical injuries to Ms. Schlotzhauer.
Shortly after the automobile accident, Ms. Schlotzhauer retained counsel, who resolved a claim for property damage to Ms. Schlotzhauer‘s car with Uni-Select‘s insurer and periodically corresponded with the insurer over the course of the next year and a half concerning her injuries, diagnosis, and treatment, evidently in anticipation of pursuing a personal injury claim. However, her counsel did not file suit until the end of 2012, shortly before the three-year statute of limitations would expire.2
The Bankruptcy Case
In the meantime, Ms. Schlotzhauer, with the assistance of a different attorney, had sought relief from various debts in the federal Bankruptcy Court. On October 6, 2010, she filed a voluntary petition in bankruptcy under Chapter 7 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Maryland.3 On the
On January 19, 2011, the Bankruptcy Court granted Ms. Schlotzhauer a discharge from her debts and closed the case.
The Personal Injury Case
On December 26, 2012, Ms. Schlotzhauer initiated this case by filing a complaint in the Circuit Court for Queen Anne‘s County against Mr. Morton and Uni-Select, seeking damages for her injuries. The complaint alleged that the accident was attributable to Mr. Morton‘s negligence and that he was operating his vehicle within the scope of his employment. Mr. Morton and Uni-Select (hereafter, collectively, “Uni-Select“) answered the complaint with a general denial, as well as a number of affirmative defenses.
The parties pursued discovery. In response to an interrogatory, Ms. Schlotzhauer indicated that she had filed for bankruptcy in October 2010. In questioning by defense counsel during a subsequent deposition on July 31, 2013, it emerged that she had not listed her potential personal injury claim arising from the accident as an asset in her bankruptcy petition.
A Question of Ms. Schlotzhauer‘s Standing
On August 23, 2013, Uni-Select moved for summary judgment on the grounds that Ms. Schlotzhauer lacked standing to bring the claim because the cause of action had become property of the bankruptcy estate by the time she filed suit and that only the bankruptcy trustee had the right to pursue the claim. In response, Ms. Schlotzhauer filed an affidavit stating that she had been unaware of the need to include a potential personal injury claim on the schedules attached to her bankruptcy petition and that, upon realizing the need to do so, she had requested that her bankruptcy attorney re-open that case. Ms. Schlotzhauer also asked the Circuit Court to stay its proceedings, pending action by the Bankruptcy Court.
On October 22, 2013, the Circuit Court held a hearing on both Ms. Schlotzhauer‘s motion to stay the proceedings and Uni-Select‘s motion for summary judgment. The Circuit Court postponed ruling on either motion and indicated that it would hold both under advisement, pending developments in the Bankruptcy Court. The court subsequently issued an order stating that it would hold the motions sub curia for 30 days and scheduling a status conference for December 2013.
Ms Schlotzhauer Returns to Bankruptcy Court
In the meantime, Ms. Schlotzhauer had filed a motion in the Bankruptcy Court on September 12, 2013, to re-open her bankruptcy case for the purpose of amending her petition to list the damages and lost wages related to her personal injury claim as exempt property.5
Informing the Circuit Court of the Re-Opened Bankruptcy Case
During a hearing before the Circuit Court on December 5, 2013, Ms. Schlotzhauer‘s counsel informed the Circuit Court of the re-opening of her bankruptcy case and the other developments in that case. He asked the Circuit Court to hold off ruling on Uni-Select‘s summary judgment motion until the court knew what the Bankruptcy Court would do. The Circuit Court then heard argument on whether the personal injury case should be dismissed because Ms. Schlotzhauer lacked standing. In regard to the standing argument, Ms. Schlotzhauer‘s counsel suggested that one option would be to permit the bankruptcy trustee to join the case as a co-plaintiff. The Circuit Court did not rule on any of the motions at the hearing, but indicated that it would issue a decision later.
Simultaneous Rulings in the Bankruptcy Court and Circuit Court
One month later, on January 8, 2014, the Bankruptcy Court and the Circuit Court both ruled on the motions pending before them. There is a certain mirror quality to those rulings—the Bankruptcy Court ruled in favor of Ms. Schlotzhauer‘s effort to amend her schedules to pursue her personal injury action and held that Uni-Select lacked standing to object to the amendment; the Circuit Court ruled in favor of Uni-Select‘s motion for summary judgment and held that Ms. Schlotzhauer lacked standing to pursue the personal injury action. It is evident that neither court was aware of the other court‘s action at the time it ruled.
More specifically, the Bankruptcy Court ruled that the exemption of Ms. Schlotzhauer‘s personal injury claim was allowed as of late November 2013,6 noting that neither the re-appointed trustee nor any creditor had objected to allowance of the amended list of exempt property interests.7 The Bankruptcy Court explicitly stated that it was not purporting to decide the summary judgment motion pending in the Circuit Court. Ms. Schlotzhauer immediately filed a motion asking the Bankruptcy Court to rule that the amended schedules were effective ”nunc pro tunc” as of January 19, 2011—the date that the bankruptcy case had been closed—effectively restoring ownership of the claim to her as of that date.
On the same day that the Bankruptcy Court ruled that Ms. Schlotzhauer‘s personal injury claim was exempt from the bankruptcy estate, the Circuit Court granted Uni-Select‘s motion for summary judgment based on her alleged lack of standing because the claim was part of the
On January 23, 2014, the Bankruptcy Court issued a supplemental order in which it determined that, under federal bankruptcy law, the “cause of action revested back to the Debtor and that revesting in law related back to the date of the filing of the Petition in this bankruptcy case on October 6, 2010.” The Bankruptcy Court again specifically noted that it “has not and does not decide any motion now before the state court in the prosecution of the cause of action, including any motion to dismiss that may be pending in that court action.”
Motion to Alter or Amend Circuit Court Ruling
In January 2014, Ms. Schlotzhauer filed a motion to alter or amend the Circuit Court judgment pursuant to
After a hearing legal argument on the motion on February 25, 2014, the Circuit Court denied the motion in a written order two days later without explaining the reasons for its ruling.
The Appeal
Ms. Schlotzhauer noted a timely appeal to the Court of Special Appeals. The intermediate appellate court vacated the Circuit Court‘s judgment and remanded the case for further proceedings in the trial court. 224 Md.App. 72, 119 A.3d 121 (2015). The Court of Special Appeals held that the Circuit Court had erred in awarding summary judgment to Uni-Select and in not revising that ruling after being informed of the Bankruptcy Court‘s action re-vesting the claim in Ms. Schlotzhauer. The intermediate appellate court reasoned that, even if one concluded that Ms. Schlotzhauer did not own the claim when she filed suit,
Uni-Select then petitioned this Court for a writ of certiorari, which we granted.
II Discussion
Before us, Uni-Select raises two issues. First, it asserts that the Court of Special Appeals reviewed the Circuit Court‘s decision under too strict a standard of review. In its view, the Court of Special Appeals should have deferred to the Circuit Court‘s ruling on the motion to alter or amend the grant of summary judgment. Second, Uni-Select contends that, even if an appellate court reviews the Circuit Court‘s ruling without deference, the revesting of the claim in Ms. Schlotzhauer by the Bankruptcy Court did not relate back to the time she filed the complaint and thus any further prosecution of that claim is now barred by limitations.
A. Standard of Review
Uni-Select argues that the intermediate appellate court—and now this Court—should apply a deferential “abuse of discretion” standard in reviewing the Circuit Court‘s decision in this case. Application of such a standard, in Uni-Select‘s view, would readily result in affirmance of the Circuit Court.
In our view, the standard of review in this case is more nuanced. It has often been said a circuit court‘s decision on a motion for reconsideration, such as a motion to alter or amend a judgment, is “ordinarily discretionary.” E.g., Wilson-X v. Department of Human Resources, 403 Md. 667, 674-75, 944 A.2d 509 (2008). But, at the same time, courts “do not have discretion to apply inappropriate legal standards, even when making decisions that are regarded as discretionary in nature.” Id.; cf. In re Adoption/Guardianship No. 93321055/CAD, 344 Md. 458, 475-76, 687 A.2d 681 (1997) (on appeal of denial of a motion to revise under
It is also notable that, as the introductory clause of
Thus, an error in applying the law can constitute an abuse of discretion, even in the context of a motion for reconsideration made pursuant to
In this case, the ruling to be reviewed is the Circuit Court‘s order, made without explanation, denying Ms. Schlotzhauer‘s motion to alter or amend the award of summary judgment. The Circuit Court had awarded summary judgment based on its understanding that the bankruptcy trustee was the legal owner of the cause of action. Having been informed to the contrary and that the matter had taken a 180-degree turn in the Bankruptcy Court, presumably the Circuit Court did not simply ignore the legal status of the claim—that surely would be an abuse of discretion.
Rather, we presume that the Circuit Court decided, as a matter of law, that the fact that the Bankruptcy Court had re-vested Ms. Schlotzhauer with her claim as of October 6, 2010 did not provide her with a viable claim for purposes of Maryland law as of that date and did not allow her to continue to prosecute that claim in State court. Accordingly, it perceived no reason to reconsider its award of summary judgment, which was itself a legal determination. Thus, giving the Circuit Court the benefit of the doubt as to the basis of its decision, it made a legal determination—the kind that an appellate court typically reviews without deference to a circuit court. In our view, the Court of Special Appeals did not apply an incorrect standard of review when it examined whether the Circuit Court decision was legally correct.
B. Whether the Motion to Alter or Amend Should Have Been Granted
As the Court of Special Appeals noted, the Circuit Court‘s ruling on summary
After being advised of the re-vesting of the claim in Ms. Schlotzhauer effective as of October 6, 2010, for purposes of federal bankruptcy law, the Circuit Court declined to reconsider its ruling. Although the Circuit Court did not explain that decision, it presumably concluded that the Bankruptcy Court‘s action retroactively re-vesting the claim was either without legal effect for purposes of Maryland law or that, to the extent it was, Ms. Schlotzhauer would have to file a new complaint outside the period of limitations. It is that legal conclusion that we now review. In our view, that decision was legally incorrect, whether viewed in the posture of the case at the time the Circuit Court decided the motion to alter or amend or at the time it granted summary judgment.
1. Status of Claim When the Motion to Alter or Amend was Decided
Retroactive Vesting of the Claim in the Bankruptcy Case
As recounted above, by the time the Circuit Court considered the motion under
Effect of Retroactive Re-Vesting on the State Court Action
Uni-Select argues that, even if we recognize the re-vesting of Ms. Schlotzhauer‘s claim as a result of the Bankruptcy Court‘s
Uni-Select does not explain why the re-vesting of the claim did not render the divesting itself a “nullity.” Moreover, Uni- Select‘s argument resolutely ignores the fact that the Bankruptcy Court vested Ms. Schlotzhauer with the claim retroactively—more than two years before she filed suit. Uni-Select thus asks this Court to look to the operation of bankruptcy law when those proceedings initially vested Ms. Schlotzhauer‘s personal injury claim in the bankruptcy trustee effective October 6, 2010, but to avert its eyes from the bankruptcy proceedings when they re-vested that claim in Ms. Schlotzhauer, also effective October 6, 2010. It is not clear to us—and Uni-Select has not articulated a reason—why Maryland law should recognize the divesting of a claim on a particular date as a result of proceedings in Bankruptcy Court, but should not recognize the Bankruptcy Court‘s restoration of that claim as of the same date as a result of the same proceedings.
We can think of no good policy reason to adopt such a contradictory approach. Indeed, the policy reasons underlying the standing requirement, limitations periods, and bankruptcy all counsel in favor of treating the determinations of the Bankruptcy Court consistently. The complaint in the State court case was filed within the
As the Court of Special Appeals noted, Ms. Schlotzhauer‘s situation bears some similarity to that of the plaintiff in Pacific Mortgage and Investment Group, Ltd. v. Horn, 100 Md.App. 311, 641 A.2d 913 (1994). In that case, two lenders started foreclosure proceedings against Ms. Horn after she defaulted on a mortgage. She filed for bankruptcy and sued the lenders for alleged violations of the Maryland Consumer Loan Law, listing the lawsuit as an asset in her bankruptcy schedules. 100 Md.App. at 317, 641 A.2d 913. After the circuit court awarded summary judgment in favor of Ms. Horn, the lenders appealed. They argued that the lower court should have dismissed the claim on the grounds that the claim belonged to the bankruptcy estate and that Ms. Horn lacked standing. Id. at 319, 641 A.2d 913. The Court of Special Appeals rejected that argument, noting that the bankruptcy case had closed in the interim without any effort by the trustee to assert the claim. Id. In the court‘s view, the trustee was deemed to have abandoned the claim and, as a result, the right to pursue the claim was retroactively restored to Ms. Horn. Id. at 319-21, 641 A.2d 913.
As noted above, in Horn, the appellate court concluded that the trustee must have abandoned the claim and, based on federal case law, construed that abandonment to effect a retroactive re-vesting of the claim in Ms. Horn under bankruptcy law. The Maryland court accepted what it believed to be the result under federal bankruptcy law and applied it to the State civil action to affirm the conclusion that Ms. Horn had the requisite standing as of the date she filed her complaint. Id. (citing Barletta v. Tedeschi, 121 B.R. 669, 673-74 (N.D.N.Y.1990)). In this case, our task is easier. We need not construe anything under the bankruptcy law. The Bankruptcy Court itself has held that Ms. Schlotzhauer‘s claim was re-vested in her effective October 6, 2010.
In our view, the Circuit Court, once informed of the re-vesting of Ms. Schlotzhauer‘s claim in the Bankruptcy Court as of a date well before the filing of her complaint, should have decided, as a matter of Maryland law, that she owned the claim as of the date she filed her complaint and, accordingly, that she had standing.
2. Status of the Claim When the Summary Judgment Motion was Decided
The result is no different if we view the Circuit Court‘s decision from its perspective when it awarded summary judgment to Uni-Select. Even if one views the matter from that (inaccurate) perspective, the Circuit Court still committed a legal error. At that time, the court was aware that, at a minimum, the bankruptcy case had been promptly re-opened, that the bankruptcy schedules had been amended
Even if the Bankruptcy Court had not ultimately re-vested Ms. Schlotzhauer with her claim and the bankruptcy trustee had remained the owner of the claim, or if the re-vesting had not been made retroactive, it was inappropriate to dispose of the case by summary judgment on the basis of limitations. As the Court of Special Appeals ably explained in its opinion,13 the Maryland rule concerning the “real party in interest” and its incorporation of the doctrine of relation back would operate to substitute a plaintiff with standing and to toll limitations for that plaintiff.
Real Party in Interest
As the source note to
One is a “real party in interest” with respect to a claim if that person has the right to assert the claim. Ms. Schlotzhauer initially had the right to assert her personal injury claim against Uni-Select. As a matter of federal bankruptcy law, her initial failure to list the claim in her bankruptcy petition meant that it became part of her bankruptcy estate subject to the control of the bankruptcy trustee. Thus, the bankruptcy trustee became the real party in interest at that juncture.
In the absence of the Bankruptcy Court‘s action re-vesting Ms. Schlotzhauer with the claim, the bankruptcy trustee would have remained the real party in interest. Once the Circuit Court believed that the bankruptcy trustee was the real
Relation Back Doctrine
The last sentence of
This Court has applied the relation back doctrine liberally under
Subsequent to Crowe, this Court adopted
An example of substitution appears in Zappone, supra. In that case, an individual plaintiff, the sole shareholder of a corporation, initially filed a complaint on his own behalf alleging fraud, misrepresentation and negligence by the defendant insurance company and related parties. The plaintiff later amended the complaint, after the expiration of the statute of limitations, to include related claims by his company against the insurer. The circuit court dismissed the amended claims in which the company was the sole plaintiff on the basis of limitations. 349 Md. at 56-57, 706 A.2d 1060. This Court reversed that dismissal, holding that the claims asserted by the company in the amended complaint related back to the original complaint. Id. at 68-71, 706 A.2d 1060. The Court noted that the factual allegations underlying those counts had all been included in the original complaint and the operative facts remained the same. Id. at 68-69, 706 A.2d 1060. The amended complaint merely substituted the company for the individual plaintiff as to the particular allegations.
In this case, there is no good reason not to apply the relation back doctrine. Uni-Select had notice of the operative facts of the cause of action within the period of limitations. Ms. Schlotzhauer has not alleged any new causes of actions or different facts. Uni-Select has not pointed to any prejudice it would suffer, other than that the complaint would not be dismissed and that Ms. Schlotzhauer would be able to pursue the claim that she had filed within the period of limitations.19
Uni-Select argues that the relation back doctrine should not apply because there are “no amendments being considered. There are no new claims or legal theories. There are no new parties.” But those circumstances simply point to the fact that it suffers no prejudice or surprise from the operation of the relation back doctrine in this case. Advanced Magnetics, Inc. v. Bayfront Partners, Inc., 106 F.3d 11, 20 (2nd Cir.1997) (“A
III Conclusion
For the reasons set forth above, we hold that:
1. The Circuit Court abused its discretion in denying Ms. Schlotzhauer‘s motion to alter or amend the award of summary judgment in favor of Uni-Select because the Circuit Court failed to take in account the legal effect of the Bankruptcy Court‘s decision to re-vest Ms. Schlotzhauer with her claim against Uni-Select.
2. As a result of the Bankruptcy Court‘s decision to re-vest Ms. Schlotzhauer with her claim against Uni-Select effective October 6, 2010, Ms. Schlotzhauer has standing to prosecute the complaint that she filed on December 27, 2012 within the period of limitations.
3. Even if the retroactive nature of the Bankruptcy Court‘s order were ignored, under
JUDGMENT OF THE COURT OF SPECIAL APPEALS AFFIRMED. COSTS TO BE PAID BY PETITIONERS.