Schlotzhauer v. Morton

ARTHUR, J. This appeal concerns an intersection of federal bankruptcy law and Maryland civil procedure. The appeal specifically concerns the identity of the real party in interest and the effect of the statute of limitations, including the doctrine of relation back, when a person has been divested of the right to pursue a tort claim because of a bankruptcy filing, but later reacquires that right by operation of bankruptcy law. When a person files for protection from creditors under federal bankruptcy law, all of the person’s property, ⁷⁶ including personal injury claims, become the property of the bankruptcy estate. See 11 U.S.C. § 541 (a); see also Adams v. Manown, 328 Md. 463, 477 , 615 A.2d 611 (1992); Bowie v. Rose Shanis Fin.

Servs., LLC, 160 Md.App. 227, 235 , 862 A.2d 1102 (2004); Pacific Mortgage and Inv. Group, Ltd. v. Horn, 100 Md.App. 311, 319 , 641 A.2d 913 (1994). 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 the creditors. See Adams, 328 Md. at 478 , 615 A.2d 611 ; Bowie, 160 Md.App. at 246-47 , 862 A.2d 1102 .

Generally, the bankruptcy trustee alone may assert that person’s rights, including the right to pursue a tort claim for personal injuries, unless the trustee abandons the rights (see 11 U.S.C. § 554 ; Horn, 100 Md.App. at 319-21 , 641 A.2d 913 ) or the bankruptcy court declares them to be exempt from creditor claims. 11 U.S.C. § 522 (b); Bowie, 160 Md.App. at 249 , 862 A.2d 1102 . 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. See, e.g., Adams, 328 Md. at 478 , 615 A.2d 611 ; Bowie, 160 Md.App. at 246-47 , 862 A.2d 1102 . In this case, appellant Cindy Schlotzhauer filed for bankruptcy protection a few months after she suffered personal injuries in an automobile accident.

In her bankruptcy filings, however, Schlotzhauer neither disclosed her personal injury claim nor asserted that it was exempt from the claims of her creditors. Consequently, her bankruptcy trustee did not abandon the claim, and the court did not declare it to be exempt. Instead, even after the bankruptcy court discharged her debts and closed her case, the claim remained the property of her estate, which her trustee alone could assert. After emerging from bankruptcy, Schlotzhauer asserted the personal injury claim in the Circuit Court for Queen Anne’s County.

Her adversaries, appellees Kevin Morton Jr. and Uni-Select USA, Inc. (collectively “Uni-Select”), moved for ⁷⁷ summary judgment on the ground that she had no right to assert the claim because it belonged to her bankruptcy trustee. Schlotzhauer responded by promptly returning to the bankruptcy court, reopening her case, disclosing the personal injury claim, and obtaining a ruling that the claim was exempt from the claims of her creditors and had been revested in her. Nonetheless, on the same day that the bankruptcy court docketed the ruling in which it declared the claim to be exempt and to have been revested in Schlotzhauer, the circuit court, which was unaware of the bankruptcy court’s decision, granted Uni-Select’s motion for summary judgment. In a motion to alter or amend, Schlotzhauer apprised the circuit court both of the bankruptcy court’s decision and of a subsequent decision in which the bankruptcy court ruled that the personal injury claim had been revested in her by operation of federal bankruptcy law before she even commenced this case.

After the circuit court denied the motion to alter or amend, Schlotzhauer took this timely appeal. Question Presented Schlotzhauer asks this Court to consider five interrelated questions, of which it is necessary only to consider one: Did the circuit court err in denying Schlotzhauer’s motion to alter or amend the court’s judgment? Because we answer that question in the affirmative, we reverse the judgment. 1 ⁷⁸ Factual and Procedural History A. The Underlying Complaint and Initial Bankruptcy Proceedings On January 4, 2010, a car driven by Schlotzhauer collided with another vehicle in the parking lot of a post office in Centreville, Maryland. On October 6, 2010, Schlotzhauer filed a voluntary petition for Chapter 7 bankruptcy in the United States Bankruptcy Court for the District of Maryland.

On the schedules accompanying her petition, Schlotzhauer did not list any potential claim arising from the automobile accident as an asset, nor did she claim an exemption for that asset. On January 19, 2011, the bankruptcy court granted Schlotzhauer a discharge from her debts and closed the case. Nearly three years after the automobile accident, on December 27, 2012, Schlotzhauer filed a complaint against Uni-Select in Circuit Court for Queen Anne’s County. Uni-Select answered and elected for a jury trial.

The answer included a general denial of the allegations in Schlotzhauer’s complaint and asserted that the complaint failed to state a cause of action upon which relief may be granted, as well as several affirmative defenses. 2 ⁷⁹ B. Motion for Summary Judgment and Reopening of Bankruptcy Case After discovery, which included a deposition of Schlotzhauer both about the merits of the case and her bankruptcy, Uni-Select moved for summary judgment on August 23, 2013. In its motion, Uni-Select asserted that Schlotzhauer had not scheduled her claim in the bankruptcy case and that her bankruptcy trustee had not abandoned it. Uni-Select also asserted that Schlotzhauer’s bankruptcy trustee alone could prosecute the claim and that Schlotzhauer had no “standing.” Promptly thereafter, on September 12, 2013, Schlotzhauer moved the bankruptcy court to reopen her Chapter 7 case so that she could file amended schedules that disclosed the personal injury claim and obtain a declaration that the claim was exempt from the claims of her creditors. Uni-Select moved to intervene in the bankruptcy case to oppose the reopening of the case.

Meanwhile, Schlotzhauer opposed Uni-Select’s motion for summary judgment and moved the circuit court to stay its decision until the bankruptcy court had ruled. On October 24, 2013, the bankruptcy court ordered that the bankruptcy case be reopened for the filing of amended schedules of assets. On that same date, Schlotzhauer filed the amended schedules, listing her claim for “personal injury damages” with the value of $1.5 million and claiming that the property was exempt pursuant to section ll-504(b)(2) of the Courts and Judicial Proceedings Article. 3 Uni-Select opposed the amended schedules. ⁸⁰ Schlotzhauer promptly notified the circuit court that she had reopened the bankruptcy case, and she requested a stay of the circuit court proceedings. On October 29, 2013, the circuit court ordered that Schlotzhauer’s motion to stay and Uni-Select’s motion for summary judgment would be held sub cuña for 30 days, “to permit [the] parties to address matters of bankruptcy jurisdiction and to permit [the] parties to supplement their motions[.]” At a motions hearing held on December 5, 2013, Schlotzhauer requested, as an alternative remedy, that the court permit the bankruptcy trustee to be added as a co-plaintiff.

C. The Bankruptcy Court’s Initial Ruling The bankruptcy court issued its ruling regarding Schlot-zhauer’s amended schedules at a hearing on January 7, 2014. The court held, first, that Uni-Select lacked standing to object to the amendment of the schedules in Schlotzhauer’s bankruptcy case, because Uni-Select was not a creditor or otherwise affected by the distribution of the bankruptcy estate. In the absence of any valid objection to the amended schedules, the bankruptcy court concluded that Schlotzhauer’s exemption “became allowed 31 days after the Debtor’s Amended Schedule C was filed[,]” i.e., on November 26, 2013. “After the allowance of the exemption, [the asset] belonged and belongs to the Debtor.” The bankruptcy court’s written order was docketed the next day, January 8, 2014. D. Circuit Court’s Summary Judgment Order and Opinion Although the bankruptcy court had just ruled that Schlot-zhauer had reacquired the personal injury claims as of November 26, 2013, and thus had the right to assert them as of that date, the circuit court reached a contrary conclusion on ⁸¹ the same day that the bankruptcy court’s order was docketed.

Unaware of the bankruptcy court’s near-simultaneous decision that the claims had been revested in Schlotzhauer, the circuit court granted Uni-Select’s motion for summary judgment on the “threshold jurisdictional issue” that Schlotzhauer lacked “standing.” On the merits, the court phrased the issue as: “who owns the cause of action and is entitled to pursue that cause of action to judgment.” Relying primarily on Bowie v. Rose Shanis Financial Services, LLC, 160 Md.App. 227 , 862 A.2d 1102 (2004), a case in which the plaintiff had neither scheduled his claim, nor requested an exemption, nor obtained a determination that the claim was exempt from creditor claims as Schlotzhauer had, the circuit court reasoned “[t]he Plaintiffs Bankruptcy Estate currently owns this cause [of] action.” The court further reasoned that the mere reopening of the bankruptcy case did not “cure the issue of standing” on its own, but that Schlotzhauer “must wait until the owner of the cause of action,” the trustee, “makes a decision whether to pursue that action.” The court admitted that Schlotzhauer’s request for a stay had “some foundation in common sense,” but concluded that a stay was not required. In a footnote in the final paragraph of the opinion, the court addressed whether to “dismiss the action without prejudice, and then allow the Bankruptcy Estate to pursue the claim.” The court reasoned that, because the three-year statute of limitations had already expired, “an amended complaint would be barred at this point.” But see Md. Rule 2-201 (providing that joinder or substitution of real party in interest has “same effect as if the action had been commenced in the name of the real party in interest”). On the same day that the court issued its opinion and order, Schlotzhauer filed a line, notifying the court that the bankruptcy court had confirmed the exemption and decreed that the claim had been revested in her as of November 26, 2013. ⁸² E. The Reconsideration Motions In an apparent response to the circuit court’s statement that limitations would bar her from asserting her claims unless she could show that she owned her claim when she first filed suit in December 2012, Schlotzhauer asked the bankruptcy court to reconsider its decision that she had reacquired her claims only as of November 26, 2013, the thirtieth day after the court had accepted her amended schedules. She specifically asked the bankruptcy court to order that the amended schedules were effective nunc pro tunc on January 19, 2011, the date on which she was originally discharged from bankruptcy.

At about the same time, on January 16, 2014, Schlotzhauer moved, pursuant to Maryland Rule 2-534, to alter or amend the order granting summary judgment against her. In the motion, Schlotzhauer asked the court to vacate the summary judgment and to hold the case open until the bankruptcy court had finally resolved the date on which she had reacquired her claim. F. The Bankruptcy Court’s Second Decision On January 24, 2014, before the circuit court ruled on the motion to alter or amend, the bankruptcy court reconsidered its conclusion about the effective date of an exemption contained in a schedule that is filed after the commencement of a bankruptcy case. Quoting In re OBrien, 443 B.R. 117, 131 (Bankr.W.D.Mich.2011), the bankruptcy court concluded that, “ ‘[rjegardless of when an exemption is subsequently claimed by a debtor in the case, it must relate back’ ... to the date of the petition”—ie., to the date on which the debtor filed for bankruptcy protection. “Accordingly,” the court concluded that “upon the allowance of the exemption” that Schlotzhauer claimed in her amended schedules, “the cause of action revest-ed back to the Debtor and that revesting in law related back to the date of filing of the Petition in this bankruptcy case on October 6, 2010.” In other words, as a matter of federal bankruptcy law, when the bankruptcy court allowed the exemption that Schlotzhauer had claimed in her amended schedules, it was as though she had owned her claims all along. 4 ⁸³ With the bankruptcy court’s second ruling in hand, Schlot-zhauer supplemented her motion to alter or amend.

As a consequence of the bankruptcy court’s ruling, she argued, the ground for summary judgment no longer existed: the bankruptcy court had determined that she, and not (as the circuit court said) her trustee, owned her claims when she first filed this case. G. The Circuit Court Ruling on the Post-Judgment Motion At a hearing on February 25, 2014, Uni-Select did not dispute that Schlotzhauer had “reacquired the right to bring this cause of action” through the bankruptcy court. Instead, Uni-Select contended that “she would necessarily have to file a new suit, a separate lawsuit, which would necessarily be barred by the statute of limitations.” Uni-Select reiterated its position that the original complaint “was a nullity and [the circuit court] lacked subject matter jurisdiction to do anything with it, other than dismiss it.” On February 27, 2014, the circuit court issued an order stating only that Schlotzhauer’s motion to alter or amend the judgment was denied. Schlotzhauer then noted a timely appeal on March 18, 2014.

Standard of Review Maryland Rule 2-534 permits parties to invoke the court’s revisory power: Motion to Alter or Amend a Judgment—Court Decision In an action decided by the court,[ 5 ] on motion of any party filed within ten days after entry of judgment, the court may ⁸⁴ open the judgment to receive additional evidence, may amend its findings or its statement of reasons for the decision, may set forth additional findings or reasons, may enter new findings or new reasons, may amend the judgment, or may enter a new judgment.... Pursuant to this Rule, the circuit court “has broad discretion whether to grant motions to alter or amend filed within ten days of the entry of judgment,” and “[i]ts discretion is to be applied liberally so that a technicality does not triumph over justice.” Benson v. State, 389 Md. 615, 653 , 887 A.2d 525 (2005) (citing Maryland Bd. of Nursing v. Nechay, 347 Md. 396, 408 , 701 A.2d 405 (1997)). An appellate challenge to a court’s ruling on a Rule 2-534 motion is typically limited in scope. Cent.

Truck Ctr., Inc. v. Cent. GMC, Inc., 194 Md.App. 375, 397 , 4 A.3d 515 (2010) (quoting In re Julianna B., 179 Md.App. 512, 558 , 947 A.2d 90 (2008), vacated, 407 Md. 657 , 967 A.2d 776 (2009)). “In general, the denial of a motion to alter or amend a judgment is reviewed by appellate courts for abuse of discretion.” RRC Northeast, LLC v. BAA Maryland, Inc., 413 Md. 638, 673 , 994 A.2d 430 (2010) (citing Wilson-X v. Dep’t of Human Res., 403 Md. 667, 674-75 , 944 A.2d 509 (2008)). “The relevance of an asserted legal error, of substantive law, procedural requirements, or fact-finding unsupported by substantial evidence, lies in whether there has been such an abuse.” Wilson-X, 403 Md. at 676 , 944 A.2d 509 . Nevertheless, a “court’s discretion is always tempered by the requirement that the court correctly apply the law applicable to the case.” Arrington v. State, 411 Md. 524, 552 , 983 A.2d 1071 (2009); see In re Adoption/Guardianship No. T97036005, 358 Md. 1, 24-25 , 746 A.2d 379 (2000) (abuse of discretion where trial judge’s decision with respect to discretionary matter “was based on an error of law”); Guidash v. Tome, 211 Md.App. 725, 735 , 66 A.3d 122 (2013) (abuse of discretion occurs when court “makes a decision based on an incorrect legal premise”); Brockington v. Grimstead, 176 Md. ⁸⁵ App. 327, 359, 933 A.2d 426 (2007) (“an exercise of discretion based upon an error of law is an abuse of discretion”). Consequently, in appeals from the denial of a post-judgment motion, reversal is warranted in cases where there is both an error and a compelling reason to reconsider the underlying ruling.

E.g. Williams v. Hous. Auth. of Baltimore City, 361 Md. 143, 153 , 760 A.2d 697 (2000) (holding that it is abuse of discretion not to strike judgment and allow further proceedings where judgment was “based on a clear mistake” later brought to court’s attention); Wormwood v. Batching Sys., Inc., 124 Md.App. 695, 700-01 , 723 A.2d 568 (1999) (holding that circuit court abused discretion in denying motion for reconsideration where appellant brought court’s attention to legal error previously made by court); Garliss v. Key Fed. Savings Bank, 97 Md.App. 96, 104-05 , 627 A.2d 64 (1993) (holding that circuit court abused discretion in denying motion to alter or amend that “should have alerted” hearing judge that movant was entitled to credit against judgment). When a party requests that a court reconsider a ruling solely because of new arguments that the party could have raised before the court ruled, the court has almost limitless discretion not to consider those argument.

Steinhoff v. Sommerfelt, 144 Md.App. 463, 484 , 798 A.2d 1195 (2002). By contrast, when a party makes a prompt and timely request that a court reconsider a ruling because of a development that the party could not have raised before the court ruled, the court can and should reconsider its decision. See, e.g., Knish v. Stine, 347 F.Supp.2d 682, 685-86 (D.Minn.2004) (reconsidering dismissal of habeas corpus petition for lack of jurisdiction and deciding petition on merits because of intervening appellate decision that implicitly rejected premise of court’s earlier decision); Morrow v. Harkleroad, 258 F.Supp.2d 418, 419 (W.D.N.C.2003) (amending judgment and opinion to accommodate intervening change in law, which occurred when appellate court vacated earlier opinion on which court had relied); Quinones-Ruiz v. United States, 873 F.Supp. 359, 361-62 (S.D.Cal.1995) (reconsidering grant of summary judgment, ⁸⁶ and entering summary judgment against party who had prevailed in earlier ruling, because of intervening change in controlling law that occurred when appellate court announced new rule that affected case). 6 In the instant case, the circuit court properly exercised its discretion to consider the impact of the bankruptcy court’s orders. See In re Adoption/Guardianship of Joshua M., 166 Md.App. 341, 356 , 888 A.2d 1201 (2005) (holding “that Rule 2-534 accords the trial court discretion to consider admissible evidence of facts occurring after the date of entry of judgment when those facts are directly related to relevant facts arising between the date of trial and the date of entry of judgment”).

The circuit court scheduled a hearing even though a hearing is typically not required for a motion to reconsider the grant of summary judgment. See Md. Rule 2—311(f); see also Lowman v. Consol. Rail Corp., 68 Md.App. 64, 75 , 509 A.2d 1239 (1986). Furthermore, the hearing transcript reflects that the court accepted the evidence of the post-judgment developments and considered the parties’ written arguments regarding the effect of the bankruptcy court’s decisions.

The court specifically directed the parties to address the potential curative effect of the bankruptcy court’s orders. Uni-Select did not object to the consideration of “post-judgment” evidence, but instead maintained that the circuit court’s ruling was legally correct even in light of the outcome of the bankruptcy proceedings. Although the circuit court did not elaborate when it denied Schlotzhauer’s post-judgment motion, the circumstances establish that the court credited the argument that Uni-Select was legally entitled to judgment even if Schlotzhauer had been ⁸⁷ revested with the right to assert her claim as of the date of her bankruptcy petition in 2010. See Wormwood, 124 Md.App. at 701 , 723 A.2d 568 (inferring from comments by court and arguments made by appellee that dismissal and denial of reconsideration rested on resolution of legal question).

To the extent that the court’s ruling depended upon this purely legal determination, the scope of appellate review necessarily broadens. See Harrison-Solomon v. State, 216 Md.App. 138, 146 , 85 A.3d 310 (2014) (in reviewing denial of motion to alter or amend for overall abuse of discretion, explaining that “[t]o the extent that our decision involves ... questions of law, our review is de novo ”); U.S. Life Ins. Co. of New York v. Wilson, 198 Md.App. 452, 463-64 , 18 A.3d 110 (2011) (noting that, even though some arguments were raised on motion for reconsideration of summary judgment order, “[f]or all intents and purposes ... we are reviewing all aspects of the summary judgment decision de novo ”). Consequently, the focus of our review shifts.

The central question becomes: after the circuit court exercised its discretion to consider the bankruptcy court’s rulings concerning when Schlotzhauer reacquired her claim, was the court correct in ruling that Uni-Select was still entitled to summary judgment? Discussion A. As a Matter of Federal Bankruptcy Law, Schlot-zhauer Owned the Claim as of the Date of Summary Judgment A petition for bankruptcy, when filed by a debtor such as Schlotzhauer, “creates an estate ... comprised of all ... property,” including “all legal or equitable interests of the debtor in property at the commencement of the case.” 11 U.S.C. § 541 (a)(1). This definition encompasses all kinds of tangible and intangible assets, including personal injury claims and including property that may be exempt under state law. See, e.g., In re Orso, 283 F.3d 686, 691 (5th Cir.2002); In re Wischan, 77 F.3d 875 , 877 (5th Cir.1996); Tignor v. Parkinson, 729 F.2d 977, 980 (4th Cir.1984).

The estate is represent ⁸⁸ ed by a trustee, who has the capacity to file suit to assert the debtor’s claims. See 11 U.S.C. § 323 . The debtor must file a schedule of assets and liabilities at the time of the petition ( 11 U.S.C. § 521 (a)(l)(B)(i); Fed. R. Bankr.P. 1007) and must list all property that the debtor claims as exempt. 11 U.S.C. § 522(l). A party in interest to the bankruptcy proceeding, in turn, may object to the debtor’s claims for exemptions.

Fed. R. Bankr.P. 4003(b)(1). “If an interested party fails to object within the time allowed, a claimed exemption will exclude the subject property from the estate[.]” Schwab v. Reilly, 560 U.S. 770, 775 , 130 S.Ct. 2652 , 177 L.Ed.2d 234 (2010). 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.” CJP § 11—504(b)(2); see In re Dobbins, 249 B.R. 849 , 851-52 & nn. 3-4 (Bankr.D.Md.2000). Debtors may amend or supplement their schedules as a matter of course before the bankruptcy case closes. Fed. R. Bankr.P. 1009(a).

In addition, the bankruptcy court has discretion to reopen a case “to administer assets, to accord relief to the debtor, or for other cause.” 11 U.S.C. § 350 ; see Fed. R. Bankr.P. 5010; In re Thompson, 16 F.3d 576, 581 (4th Cir.1994). 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. Fed. R. Bankr.P. 9006(b)(1) (“the court for cause shown may at any time in its discretion for cause shown ... on motion made after the expiration of the specified period permit the act to be done where the failure to act was the result of excusable neglect”). It was pursuant to these provisions that the bankruptcy court permitted Schlotzhauer to reopen her bankruptcy case, file amended schedules, and claim an exemption for her cause of action ⁸⁹ against Uni-Select. 7 In granting summary judgment in Uni-Select’s favor on January 8, 2014, the circuit court asserted that the bankruptcy court had “not taken any action” yet and that the cause of action “currently” belonged to the bankruptcy estate.

Unbeknownst to the circuit court, however, the bankruptcy court had just ruled that, after the allowance of the exemption, which took effect on November 26, 2013, the claim “belonged and belongs” to Schlotzhauer. In light of the bankruptcy court’s clear ruling on this principle of federal bankruptcy law, the circuit court’s contrary conclusion was legally incorrect, as was the accompanying grant of summary judgment. When Schlotzhauer brought the error to the circuit court’s attention, therefore, it was obligated to revisit its ruling and to consider the consequences of its unintended error. See Williams, 361 Md. at 153 , 760 A.2d 697 ; Wormwood, 124 Md.App. at 701 , 723 A.2d 568 ; see also Garliss, 97