Cutuli v. Elie (In re Cutuli)

13 F.4th 1342

IN RE: Gregory Lee CUTULI, Debtor.

Gregory Lee Cutuli, Plaintiff - Appellant,

v.Mehrdad Elie, Defendant - Appellee.

No. 20-14515

United States Court of Appeals, Eleventh Circuit.

September 23, 2021

Kevin Christopher Gleason, Florida Bankruptcy Group, LLC, Hollywood, FL, for Plaintiff-Appellant.

Allonn Emanuel Levy, Monique Jewett-Brewster, Hopkins & Carley, San Jose, CA, Paul A. Avron, Berger Singerman, LLP, Boca Raton, FL, for Defendant-Appellee.

Before JILL PRYOR, LUCK, and MARCUS, Circuit Judges.

MARCUS, Circuit Judge:

Gregory Cutuli, a Chapter 7 debtor, appeals the district court's order affirming the bankruptcy court's final default judgment in an adversary proceeding brought by Mehrdad Elie. The bankruptcy court declared that a $14,814,107.48 million California fraudulent transfer judgment Cutuli owed to Elie was not dischargeable in Cutuli's bankruptcy. On appeal, Cutuli challenges the district court's decision to extend Elie's deadline for effecting proper service on Cutuli and his attorney pursuant to Federal Rules of Bankruptcy Procedure 7004(f) and 7004(g). After careful review, we affirm.

The essential facts are found in the procedural history of this case, which we'll review at some length. Cutuli and Elie were business partners whose relationship deteriorated into a series of disputes. Eventually, a California court awarded Elie a $14,814,107.48 million fraudulent transfer judgment against Cutuli (the "California Judgment"). Separately, in connection with a bankruptcy case involving his wife, Cutuli pleaded guilty to one count of conspiracy to fraudulently transfer or conceal property in contemplation of a bankruptcy in violation of 18 U.S.C. § 371. He was sentenced to six months in a federal prison in Miami. In June 2017, either shortly before or during his incarceration, Cutuli retained counsel and filed for Chapter 7 bankruptcy in the United States Bankruptcy Court for the Middle District of Florida. According to a fee disclosure statement Cutuli's counsel filed on the bankruptcy docket, the scope of the engagement with counsel that Cutuli had paid for was limited: it did not include "[p]rosecution or defense of adversary proceedings." The bankruptcy docket listed a Plant City, Florida address for Cutuli.

On September 15, 2017, Elie filed an adversary proceeding for a judgment declaring that the debt arising from the California Judgment was non-dischargeable pursuant to 11 U.S.C. § 523(a)(6). Two days later, Elie attempted mail service of a summons and copy of the complaint at Cutuli's Plant City address. But Cutuli was incarcerated, so he did not receive service. Elie learned of the defect and requested a new summons; Cutuli was personally served with the summons and complaint in prison on September 27. All of this took place well within Federal Rule of Civil Procedure 4(m) ’s ninety-day post-complaint time limit for service on the defendant, as well as within United States Bankruptcy Court for the Middle District of Florida Local Rule 7001-1(c)’s shorter twenty-eight-day period. See Fed. R. Bankr. P. 7004(a)(1) (Federal Rule of Civil Procedure 4(m) applies to adversary proceedings).

When Cutuli failed to respond to the complaint, Elie moved for default. Cutuli's bankruptcy attorney appeared and objected on the ground that Elie had not served Cutuli's attorney in addition to serving Cutuli himself as required by Federal Rule of Bankruptcy Procedure 7004(g). See Fed R. Bankr. P. 7004(g) ("If the debtor is represented by an attorney, whenever service is made upon the debtor under this Rule, service shall also be made upon the debtor's attorney ....") So Elie served the summons and complaint on Cutuli's attorney on December 14, 2017. But the summons Elie mailed had been issued back in September, and Federal Rule of Bankruptcy Procedure 7004(e) requires service within seven days after the summons issues (in this case, by October 2).

Thus, Cutuli, through his bankruptcy counsel, filed a motion to dismiss on grounds of insufficient process and insufficient service of process. See Fed R. Civ. P. 12(b)(4)–(5) ; Fed. R. Bankr. P. 7012(a).

Cutuli claimed that the staleness of the summons when it was sent to his attorney rendered service insufficient, which he said was "a jurisdictional defect." Cutuli's counsel noted in the motion that he was "[m]aking a limited appearance for the purposes of asserting" insufficient process and insufficient service of process, a limitation he further confirmed to the bankruptcy court at the hearing on the motion to dismiss. In response, Elie stressed that he had properly served Cutuli, and that any defect in his service upon Cutuli's counsel did not deprive the court of jurisdiction. At a hearing, the bankruptcy court denied the motion to dismiss, reasoning that the fee disclosure "indicat[ed] that counsel would not be representing [Cutuli] in any adversary proceedings" and that, in any event, Cutuli's counsel had in fact received a copy of the complaint. The court ordered Cutuli to answer the complaint.

Cutuli declined to answer, and Elie again moved for default. Cutuli appeared without counsel at the motion hearing, and the court asked him whether he intended to answer the complaint and "defend [him]self." Cutuli responded, "I didn't file a response. I didn't have the money to fight the case." He also said he did not intend to object to the entry of default. The clerk entered default and the bankruptcy court granted default judgment to Elie.

Cutuli appealed, and the district court reversed the default judgment. The district court concluded that Elie's failure to serve Cutuli's counsel with a fresh summons rendered his service of process defective, which in turn deprived the bankruptcy court of personal jurisdiction over Cutuli. Cutuli v. Elie (In re Cutuli), 389 F. Supp. 3d 1051, 1057–59 (M.D. Fla. 2019). Therefore, the bankruptcy court had lacked the power to enter its default judgment. However, the district court remanded for the bankruptcy court to "determine whether to extend the time within which Elie must effect service of process." Id. at 1059. Elie appealed the reversal, but the Court of Appeals dismissed for lack of appellate jurisdiction because the district court's order was not final: it required the bankruptcy court to exercise significant discretion on remand. Cutuli v. Elie (In re Cutuli), No. 19-13274-HH, 2019 WL 6482445, at *1 (11th Cir. Nov. 22, 2019).

Back in the bankruptcy court, Elie filed a motion to extend the time for service of process, which the court granted on two independent grounds. First, Federal Rule of Civil Procedure 4(m) provides that the court "must extend the time for service for an appropriate period" "if the plaintiff shows good cause for the failure" to serve on time. Fed. R. Civ. P. 4(m) (emphasis added). The bankruptcy court concluded that good cause existed because "most of" Elie's continuing service delay was "attributable to" the bankruptcy court's own errors. The bankruptcy court, based on Cutuli's apparent statement at the default hearing that he would not contest the lawsuit, had entered default judgment in favor of Elie. Elie had no reason to resume efforts to effect proper service; he was entitled to rely on the bankruptcy court's rulings in his favor. To the bankruptcy court, this reasonable reliance was good cause for the service delay and mandated an extension.

Alternatively, the court held that even without good cause, it would exercise its discretion under Rule 4(m) to grant an extension. See Fed R. Civ. P. 4(m) (providing that when a defendant is not timely served, the court must dismiss the action "or order that service be made within a specified time") (emphasis added); Horenkamp v. Van Winkle & Co., 402 F.3d 1129, 1132 (11th Cir. 2005) (" Rule 4(m) grants discretion to the district court to extend the time for service of process even in the absence of a showing of good cause."). Elie had tried to effect service; in fact, he had properly served Cutuli. And Cutuli had caused confusion concerning the need for service on his attorney by way of the disclosure stating that his attorney would not represent him in adversary proceedings and by appearing without counsel at the default hearing. Finally, denying an extension and dismissing the case would effectively operate as a final adjudication in favor of Cutuli, because the statute of limitations on non-dischargeability claims had already run. See Fed. R. Bankr. P. 4007(c) (providing that these kinds of claims must be filed no later than sixty days after the first date set for the meeting of creditors). Weighing these circumstances, the bankruptcy court held that "the equities lie with allowing this adversary proceeding to proceed and be adjudicated on the merits," and ordered Elie to effect service of process within twenty-one days.

Elie obtained a fresh summons and properly served both Cutuli and his attorney within the twenty-one-day window. Yet again, Cutuli did not answer or defend the action, and Elie successfully moved for default judgment. Cutuli appealed to challenge the bankruptcy court's decision to extend the time for service. The district court affirmed on the ground that the extension "was within the bankruptcy court's sound discretion and is a just result." The court principally relied on the fact that the statute of limitations would transform any dismissal for improper service into a judgment against Elie with prejudice, which "would have created a windfall for Cutuli, wiping away a multi-million-dollar judgment -- all because of a stale summons when Cutuli never even sought to defend once properly served." Cutuli appealed to this Court.

When, as here, the district court has affirmed the bankruptcy court, we conduct an independent review of the bankruptcy court's order. L. Sols. of Chi. LLC v. Corbett, 971 F.3d 1299, 1304 (11th Cir. 2020). In addition to requiring the bankruptcy court to extend the time limit for service when there is good...