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Claim revested through bankruptcy proceeding not subject to dismissal.

Schlotzhauer v. Morton
2015 Md. App. LEXIS 98, *1 (Md. Ct. Spec. App. July 30, 2015)
by Gregory Emrick, Associate
Semmes, Bowen & Semmes (www.semmes.com)

Available at: http://www.mdcourts.gov/opinions/cosa/2015/0049s14.pdf

On January 4, 2010, a car driven by Schlotzhauer was struck by a vehicle operated by Kevin Morton in the parking lot of a post office in Centreville, Maryland. Later that year, on October 6, 2010, Schlotzhauer filed a voluntary petition for Chapter 7 bankruptcy in the United States Bankruptcy Court for the District of Maryland, but failed to list the accident as a potential claim/asset or to request an exemption. Her debts were discharged on January 19, 2011, and the bankruptcy proceeding was closed. After the close of the bankruptcy proceeding, but before the three year statute of limitations, Schlotzhauer filed a personal injury claim against Morton and Uni-Select USA, Morton’s employer (herein jointly referred to as “Uni-Select”).

After the close of discovery Uni-Select moved for summary judgment on the basis that Schlotzhauer did not have standing to assert her claim, as bankruptcy law had vested her bankruptcy trustee with the right to pursue the claim. Schlotzhauer moved the bankruptcy court to reopen her matter so she could file amended schedules and to issue an order exempting her $1.5 million dollars personal injury claim from her assets. While Uni-Select opposed the motion, the Court granted the relief and determined that the right to pursue the claim would revest with Schlotzhauer (31) days after the order. At the same time, the Circuit Court, who was holding the matter sub curia until the resolution by the bankruptcy court, issued an order granting summary judgment on the basis of Schlotzhauer’s lack of standing. Schlotzhauer petitioned the bankruptcy court to issue an order relating her right to the claim back to the date of filing of the original petition in 2010, and also filed a motion for the Circuit Court to reconsider their decision. Uni-Select opposed both motions, but the bankruptcy court found they had no standing and granted the relief. In the Circuit Court, Uni-Select argued that Schlotzhauer had to file a new action because the present was a nullity, but that action would be barred by the statute of limitations. The Circuit Court issued a pro forma denial of the motion for reconsideration. Schlotzhauer appealed the denial of her post-trial motions.

The Court of Special Appeals addressed the question of whether the trial court erred in denying the motion for reconsideration of the order granting summary judgment. In finding that the trial court did err, the Court noted that the trial court’s ruling on the motion for summary judgment was based on the fact that the bankruptcy court had not issued a determination on the status of the personal injury claim asset. This was factually incorrect, as the bankruptcy court had recently issued its order, thereby re-vesting Schlotzhauer with the right to pursue the claim.

The Court further held that even though Schlotzhauer had errantly brought the suit when she did not have standing to do so, she had the right to maintain the suit once she reacquired the claim from the bankruptcy court. When she reacquired the claim, otherwise in the possession of the bankruptcy trustee, she replaced him as the party in interest, and her rights related back to the commencement of the lawsuit. “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.” The bankruptcy court’s second order, relating the exemption back to the date of the petition, definitively determined that, as a matter of federal law, Schlotzhauer owned the claim all along.

The Court of Special Appeals held that the trial court erred by not granting the motion to reconsider the grant of the motion for summary judgment when it was presented with new information regarding the legal status of Schlotzhauer’s right to pursue the claim. The order of the trial court was reversed and the matter was remanded to the trial court for further proceedings.