Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 08 CV 46-Harry D. Leinenweber, Judge.
The opinion of the court was delivered by: Rovner, Circuit Judge
Before ROVNER and EVANS, Circuit Judges, and VAN BOKKELEN, District Judge.*fn1
When defendant-appellant Dr. Bruce S. Smith filed a Chapter 7 bankruptcy petition in September 2005, he failed to include appellees Trina Tidwell and Sandra Sterling-Ahlla on his schedule of creditors holding unsecured, non-priority claims. Tidwell and Sterling-Ahlla had sued Smith in state court for sexual assault. Because Smith omitted Tidwell and Sterling-Ahlla from his list of creditors, neither of them was sent notice of his bankruptcy petition. Their counsel learned of Smith's pending bankruptcy only weeks before his discharge and took no action at that time.
Roughly one year after the discharge, Tidwell and Sterling-Ahlla (whom we shall also refer to as the "plaintiffs") filed motions asking the bankruptcy court for leave to proceed with their lawsuits against Smith, along with adversary complaints asking the court to declare their claims against Smith non-dischargeable pursuant to 11 U.S.C. § 523(a)(3)(B) and (a)(6). Following an evidentiary hearing, the court granted their request in part. The court found that Smith had deliberately and fraudulently failed to schedule the plaintiffs' claims and that their counsel had not been put on notice of the bankruptcy in time enough to permit them to seek a declaration of nondischargeability prior to Smith's discharge.
Tidwell v. Smith (In re Smith), 379 B.R. 315 (Bankr. N.D. Ill. 2007). The court therefore granted Tidwell and Sterling-Ahlla leave to proceed with their suits against Smith in state court and reserved judgment as to whether their claims were in fact non-dischargeable pursuant to section 523(a)(6) until such time as they prevailed in the state-court litigation. Smith appealed to the district court, which affirmed the bankruptcy court's decision. Smith v. Tidwell (In re Smith), No. 08 C 46, 2008 WL 4067306 (N.D. Ill. Aug. 27, 2008).
Smith again appeals, contending that the evidence does not support the bankruptcy court's findings that he deliberately omitted Tidwell and Sterling-Ahlla from his schedule of unsecured creditors and that they did not become aware of his bankruptcy in time to seek a declaration of nondischargeability before the bankruptcy proceeding was closed. We agree with the lower courts that the eleventh-hour notice of the bankruptcy that Tidwell and Sterling-Ahlla received did not afford them sufficient time in which to protect their rights before Smith was discharged. Their post-discharge complaints were therefore timely, and we affirm on that basis without reaching the question of whether Smith omitted Tidwell and Sterling-Ahlla from his list of unsecured creditors with fraudulent intent.
Tidwell and Sterling-Ahlla separately filed suit against Smith in the Circuit Court of Cook County, Illinois on December 18, 2003. Each alleged that Smith, a physician specializing in obstetrics and gynecology, had unlawfully engaged in sexual intercourse with her during a routine prenatal examination.
Smith first sought the protection of Chapter 7 in a petition filed on June 24, 2004. By the terms of 11 U.S.C. § 521(1) and Fed. R. Bankr. P. 1007(a)(1), he was required to identify all creditors holding unsecured, non-priority claims on Schedule F of his petition. The clerk of the bankruptcy court in turns sends notice of the filing of a bankruptcy petition to all identified creditors, including those on Schedule F. See Fed. R. Bankr. P. 2002. Smith did not list Tidwell and Sterling-Ahlla by name on that schedule, but he did list their attorney, Darryl Robinson, indicating (incorrectly) that Robinson represented the unidentified plaintiffs in a "medical malpractice claim." Bankr. No. 04-23845, Doc. No. 1 at 6. Robinson, presum-ably, received notice of the petition as a result: the service list for the notice of bankruptcy mailed on June 25, 2004 indicates that he was among those creditors who were served with notice. Id., Doc. No. 5 at 3.*fn2 However, the bankruptcy court dismissed the 2004 petition on the motion of the United States Trustee, who argued that in view of Smith's ongoing employment, substantial income, and unreasonably high monthly expenses, dis-charging his debts pursuant to Chapter 7 rather than funding a repayment plan pursuant to Chapter 13 would amount to a "substantial abuse" of Chapter 7's provisions. See 11 U.S.C. § 707(b). The case was dismissed on November 23, 2004, and the proceeding was closed and the trustee was discharged on January 31, 2005.
After Smith's financial situation deteriorated further with the loss of his job, he filed a second Chapter 7 bankruptcy petition on September 26, 2005. The attorney who prepared Smith's second petition was not the same one who prepared his first petition. However, Smith's new counsel worked for a firm that specializes in bankruptcy, he was experienced with Chapter 7 cases, and he had a copy of the 2004 petition which he referenced in preparing the new petition. The lawsuits filed by Tidwell and Sterling-Ahlla were identified in the Statement of Financial Affairs attached to the 2005 petition, but neither they nor their attorney was listed on Schedule F. The bankruptcy clerk mailed notices to the scheduled creditors on September 27, 2005, indicating that Smith had filed a bankruptcy petition, noting the automatic stay of collection and other actions against the debtor, and setting forth a number of important dates, including that of the creditors' meeting (November 8, 2005), and the deadline for filing a complaint objecting to the discharge of the debtor or to determine the dischargeability of any debt (January 9, 2006). As a result of their omission from Schedule F, neither Tidwell nor Sterling-Ahlla (nor their attorney) received that notice. Prior to December 23, 2005, Smith made no attempt to invoke the automatic stay in the state-court suits filed by Tidwell and Sterling-Ahlla, and he did not otherwise notify the state court, Tidwell, or Sterling-Ahlla of the stay.
Section 523(a)(6) of the Bankruptcy Code exempts from discharge any debt "for willful or malicious injury by the debtor to another entity or to the property of another entity," and because the lawsuits filed by Tidwell and Sterling-Ahlla allege that Smith sexually assaulted them, their claims against Smith are potentially non-dischargeable under that provision. See generally Kawaauhau v. Geiger, 523 U.S. 57, 61-62, 118 S.Ct. 974, 977 (1998); In re Thirtyacre, 36 F.3d 697, 700 (7th Cir. 1994); see also, e.g., In re Fors, 259 B.R. 131, 137 (8th Cir. B.A.P. 2001); Pettey v. Belanger ex rel. Belanger, 232 B.R. 543, 546-47 (D. Mass. 1999). A creditor who holds such a debt is obliged to file a proof of claim and a timely request that the bankruptcy court determine the debt to be non-dischargeable. 11 U.S.C. § 523(c)(1); see also § 523(a)(3)(B); Fed. R. Banker. P. 4007(a). The failure to take that step will result in the discharge of the claim. § 523(c)(1); In re Mendiola, 99 B.R. 864, 866 (Bankr. N.D. Ill. 1989). Bankruptcy Rule 4007(c) allows a creditor sixty days from the first date set for the creditors' meeting in which to file a complaint to determine the dischargeability of a debt. In this case, the creditors' meeting was set for November 8, 2005; therefore, the presumptive deadline for seeking a determination that a debt was non-dischargeable was January 8, 2006 (sixty-one days after the creditors' meeting, as the sixtieth day fell on a Sunday), see 379 B.R. at 321 ¶ 11, although the notice to creditors identified the deadline as January 9, 2006. Because they were omitted from Smith's Schedule F, neither Tidwell nor Sterling-Ahlla received notice of the creditors' meeting, and as of January 9, 2006, they had taken no steps to have their claims against Smith declared non-dischargeable. The creditors' meeting on November 8, 2005, resulted in a no-asset report by the trustee. On January 17, 2006, the bankruptcy court issued a discharge order, and on January 23, 2006, the Chapter 7 proceeding was closed. Pursuant to 11 U.S.C. § 727(b), that order discharged Smith from all prepetition debts except as provided in section 523, which sets forth the various categories of debts which are exempt from discharge. The discharge also operated as an injunction against the commencement or continuation of any action to collect from Smith any debt from which he was discharged as a result of the bankruptcy proceeding. See 11 U.S.C. § 524(a)(2).
Tidwell and Sterling-Ahlla were first placed on notice of Smith's bankruptcy in late December 2005, when the attorneys defending Smith in their lawsuits filed motions asking the state court to transfer the suits to that court's bankruptcy calendar. Copies of these motions were served by fax on Robinson, the attorney representing Tidwell and Sterling-Ahlla, on December 23, 2005, the day after they were filed. Robinson was out of town on December 23, and he remained unaware of the motions until he returned to his office on or about January 4, 2006. Beyond stating generally that Smith had filed a bankruptcy petition and that notice of the bankruptcy had been issued, the motions did not provide any information about the status of the bankruptcy-e.g., when or whether there had been a creditors' meeting or by what date objections to the dischargeability of a debt were due. The state court granted Smith's motion on January 6, 2006, and the two lawsuits were placed on dormant status on the court's bankruptcy calendar.
Just shy of a year later, on December 20, 2006, Tidwell and Sterling-Ahlla filed motions with the bankruptcy court seeking a declaration that Smith's discharge had no effect on their lawsuits and that they were free to proceed against Smith in state court. The motions noted that because Smith had omitted Tidwell and Sterling-Ahlla from his list of unsecured creditors despite knowing of their suits, they remained ignorant of his bankruptcy petition until he asked the state court to transfer their suits to the bankruptcy calendar. The bankruptcy court continued the hearing on the motions in order to allow Tidwell and Sterling-Ahlla to prepare adversary complaints against Smith, which they filed on January 8, 2007. As amended, the complaints alleged that because Smith had committed the intentional tort of sexual assault and was subject to punitive damages, their claims were exempt from discharge pursuant to section 523(a)(6) and that they were entitled to a declaration to that effect. Alternatively, the complaints sought relief under section 727, which in relevant part permits a creditor within one year of the discharge to ask that the discharge be revoked on the ...