Opinion
NOT FOR PUBLICATION
Argued and Submitted at Pasadena, California: May 20, 2010
Appeal From The United States Bankruptcy Court for the Central District of California. Bk. No. LA 08-25451-SB. Honorable Samuel Bufford, Bankruptcy Judge, Presiding.
Appellant Ram Saxena argued Pro se.
Before MARKELL, JAROSLOVSKY [ and DUNN, Bankruptcy Judges.
Hon. Alan Jaroslovsky, United States Bankruptcy Judge for the Northern District of California, sitting by designation.
This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may have (see Fed. R. App. P. 32.1), it has no precedential value. See 9th Cir. BAP Rule 8013-1.
INTRODUCTION
Appellant Ram Saxena, M.D. (" Saxena"), commenced an involuntary chapter 7 bankruptcy against appellee Yunes Abud Nabilsi (" Nabilsi"). After holding four status conferences, the bankruptcy court dismissed Saxena's involuntary petition on two grounds: (1) untimely service of process, and (2) lack of evidence in support of the merits of the petition.
Unless specified otherwise, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. § § 101-1532, all " Rule" references are to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037, and all " Civil Rule" references are to the Federal Rules of Civil Procedure.
On appeal from the dismissal order, we disagree with both of the bankruptcy court's grounds for dismissal. Nabilsi waived the defects in service by appearing at all four hearings on the involuntary petition, by orally acknowledging receipt of the summons and petition, and by repeatedly attempting to orally argue the merits of the petition. In short, Nabilsi engaged in a course of conduct in the litigation inconsistent with the assertion of an objection to the court's personal jurisdiction over him. Given that Nabilsi waived the service defects, the first basis for the court's dismissal - untimely service of process - must fail.
The second basis for dismissal - lack of evidence to support the petition - also is problematic. Although Nabilsi appeared in the proceeding, he never filed any written response to the involuntary petition. Consequently, the bankruptcy court should have taken steps to enter the order for relief based on Nabilsi's default rather than purporting to try the merits. In addition, the court never indicated that the merits of the involuntary petition were to be tried at the final status hearing. To the contrary, the bankruptcy court had told the parties that the sole purpose of that hearing would be to consider service and proof of service issues. The court had also stated that, if the petition survived the service issues, the court would further continue the matter for a later hearing to take evidence and consider the merits of the petition. Thus, the court's dismissal based on Saxena's failure to present evidence in support of the merits of the petition at the service issues hearing raised due process concerns.
These concerns, however, need not be addressed. Despite appearing and attempting to argue the merits, Nablisi failed to ever contest the petition's allegations in writing, as required by Rule 1013, and thus the court should have entered an order for the relief requested in the petition.
Accordingly, we must REVERSE the dismissal order and REMAND to allow the bankruptcy court to enter an order for relief against Nabilsi.
On December 30, 2009, a motions panel of this court issued an order waiving the requirement that Saxena as appellant file formal excerpts of record, but the BAP did require Saxena to submit copies of the transcripts from the four hearings held in the bankruptcy court on the involuntary petition. In addition to the transcripts provided, we have exercised our discretion to independently review the bankruptcy court's electronic docket, and the imaged documents attached thereto. See O'Rourke v. Seaboard Sur. Co. (In re E.R. Fegert, Inc.), 887 F.2d 955, 957-58 (9th Cir. 1989); Atwood v. Chase Manhattan Mrtg. Co. (In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003).
Saxena alleges that he is a creditor of Nabilsi, arising from a $50,000 loan Saxena claims he made to Nabilsi in connection with a joint business venture between the two parties. Saxena further claims that his wife lent Nabilsi an additional $25,000. According to Saxena, Nabilsi has not repaid the money lent.
On September 19, 2008, Saxena commenced an involuntary bankruptcy against Nabilsi by filing an involuntary chapter 7 petition pursuant to § 303(b), naming Nabilsi as the alleged debtor. Saxena is the only petitioning creditor on the petition.
Saxena claims that his wife also is a petitioning creditor, but Saxena's wife did not sign the petition. In any event, the number of petitioning creditors does not change the outcome of this appeal.
For some reason that is not apparent, the bankruptcy court did not issue a summons pursuant to Rule 1010(a) until January 26, 2009. Three days later, on January 29, 2009, Saxena filed a return of service. The related proof of service suggests that Saxena personally served Nabilsi on January 28, 2009, 130 days after the filing of the petition.
On March 3, 2009, the bankruptcy court held its first hearing on the involuntary petition, and both parties appeared pro se. At first, the court apparently believed that Saxena had not filed his return of service. However, after consulting the docket, the court located the docket entry referencing Saxena's filing of the return of service, and the court concluded that the summons and petition had been served.
The parties' comments at the March 3 hearing indicate that the bankruptcy court, prior to the hearing, issued a written tentative ruling suggesting that the matter might be dismissed based on Saxena not having submitted proof of service. However, neither party has provided us with a copy of this tentative ruling, nor is it available for us to review on the bankruptcy court's electronic docket.
Both parties argued at the hearing. For his part, Nabilsi admitted that he received notice of his need to appear at the March 3 hearing. Nabilsi also made statements indicating that he had received service of the summons and petition. Further, Nabilsi attempted to argue the merits. He argued that there were insufficient grounds for an involuntary bankruptcy, including noting that there was only a single petitioning creditor. Nabilsi also argued that the bankruptcy case would adversely affect his ability to repay Saxena, and that outside of bankruptcy, he was willing to repay Saxena over time.
The bankruptcy court fended off both Nabilsi's and Saxena's attempts to argue the merits. The bankruptcy court told Nabilsi that, if he desired to challenge the sufficiency of the petition, he needed to file a motion to dismiss, and the court told Saxena that he needed to submit in writing, in advance of the next hearing, his evidence in support of the involuntary petition, or the petition would be dismissed. The bankruptcy court set the next hearing for April 7, 2009.
On April 7, 2009, Saxena was represented by counsel, but Nabilsi again appeared pro se. The main accomplishment of the April 7, 2009 hearing was its continuance to May 19, 2009, ostensibly for the purpose of enabling the parties to discuss settlement. The continuance also might have been a tacit concession to the fact that, at the time of the second hearing, neither party had filed any papers in support of their respective positions. As the April 7 hearing was concluding, Nabilsi again attempted to orally argue for dismissal of the petition on the merits. The court again told Nabilsi that any such motion needed to be filed in writing, and Nabilsi again indicated that he would do so.
By the time of the May 19, 2009, hearing, the matter had regressed back to the issue of service. Even though the bankruptcy court had concluded at the March 3 hearing that Saxena had filed his return of service, and had established service of the summons and the petition, the bankruptcy court apparently issued a tentative ruling in advance of the May 19 hearing suggesting that the petition might be dismissed based on a failure to timely serve the summons and petition.
According to the bankruptcy court:
The tentative ruling is to dismiss because you have not served the summons and the involuntary petition within the time limit required by the law. . . . What you have to do is file proof that you served it within the time limits.
Hrg. Transcript (5/19/09) at 2:13-2:17; 3:12:14.
Neither party has provided us with a copy of the tentative ruling for the May 19 hearing, nor is it available for us to review on the bankruptcy court's electronic docket. The court did not identify at the hearing what particular time limit it was applying. Presumably, it was following Central District of California Local Bankruptcy Rule 1010-1, which apparently gives the bankruptcy court discretion to sua sponte dismiss if the summons and petition are not served within 120 days, as set forth in Civil Rule 4(m).
At the May 19 hearing, even though the court and Saxena spent their time discussing the sufficiency of service, Nabilsi for his part again argued the merits:
Your Honor, he from the beginning have no grounds to even file this, and his attorney indicated to the Court the last time that we were here, indicating that they didn't think that this matter belonged here, and I really think that it shouldn't be dragged on anymore. He doesn't have anymore -- he's the only creditor, and we are not in any financial problems except in the fact that the merchandise that was purchased with the money that he loaned us is still sitting in our premises and we have not been able to sell it. As a result, I cannot pay him right this moment, but I am willing to pay him. I, respectfully, like to see that when this case is dismissed, he only has one creditor, not three, and the amount owed has no limits. Therefore, I don't -- the note does not do. I would respectfully ask you to dismiss the case today if it's possible.
Hrg. Transcript (5/19/09) at 5:1-5:16.
The court again told Nabilsi to put his merits arguments in writing. Meanwhile, after Saxena complained about his counsel's failure to appear, the court agreed to continue the hearing, this time to June 2, 2009. The court further specified that, if Saxena or his counsel did not file proof of timely service of the summons and petition in advance of the June 2 hearing, the petition would be dismissed. The court made clear that the purpose of the June 2 hearing was to resolve the issue of the timeliness of service, and that if that issue was resolved in Saxena's favor, an evidentiary hearing would be set in late June or early July.
Neither party filed any papers after the May 19 hearing. At the June 2 hearing, Nabilsi once again argued that the petition should be dismissed on the merits:
You indicated the last time that I was here that he --if the case did not have any merits, that you'd be willing to dismiss it. This gentleman has only one --he's only one creditor. He wants to do an involuntary bankruptcy on a small business that is owned by a family, and it would be a great hardship for us to have him do that. I respectfully request that you dismiss the case on the ground that there's no merit to him getting an involuntary bankruptcy.
Hrg. Transcript (6/2/09) at 1:7-1:15.
After a colloquy with Saxena regarding his failure to file any papers showing timely service, the court stated that the petition would be dismissed based on Saxena having not presented evidence in support of the merits of the petition:
Well, there is no -- no evidence before the Court that the Debtor has fewer than 12 creditors, and this is the fourth hearing on this matter. It's time to dismiss it. The case is dismissed.
Hrg. Transcript (6/2/09) at 6:23-7:2. While at the precise moment of ruling the court focused on the merits of the petition, a fair reading of the entire transcript of the June 2, 2009 hearing, especially when read in conjunction with the transcript from the May 19, 2009 hearing, leads us to construe the court's ruling as dismissing the petition on two independent grounds: (1) untimely service of process; and (2) lack of evidence in support of the merits of the petition.
On June 5, 2009, the bankruptcy court entered its order dismissing the involuntary petition for the reasons stated on the record, and Saxena timely appealed.
JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. § § 1334 and 157(b)(2)(A) and (O), and we have jurisdiction under 28 U.S.C. § 158.
ISSUES
1. Did the bankruptcy court properly dismiss the petition based on untimely service of process?
2. Did the bankruptcy court properly consider the merits of the involuntary petition, and properly dismiss the petition based on Saxena's failure to submit evidence in support of the merits of the petition, or should it have entered an order for relief as requested in the involuntary petition?
STANDARDS OF REVIEW
Construction of rules of procedure and the Bankruptcy Code presents questions of law that we review de novo. Litton Loan Serv'g, LP v. Garvida (In re Garvida), 347 B.R. 697, 703 (9th Cir. BAP 2006); Ruvacalba v. Munoz (In re Munoz), 287 B.R. 546, 550 (9th Cir. BAP 2002).
Issues regarding the sufficiency of service of process also are reviewed de novo. Rubin v. Pringle (In re Focus Media), 387 F.3d 1077, 1081 (9th Cir. 2004).
DISCUSSION
Even reading Saxena's appeal brief in the most favorable possible light, he has not challenged on appeal either ground the bankruptcy court gave for its dismissal. To the extent his brief is comprehensible, Saxena only argues on appeal why he thinks, given his perception of the merits, the order for relief should have been entered.
Even though Saxena did not raise on appeal any issues relating to the propriety of the dismissal, appellate courts have discretion to consider arguments not raised in appeal briefs where the issue " is purely one of law and either does not depend on the factual record developed below, or the pertinent record has been fully developed." Vasquez v. Holder, 602 F.3d 1003, 1010 n.6 (9th Cir. 2010) (quoting United States v. Berger, 473 F.3d 1080, 1100 n.5 (9th Cir. 2007)). Here, the propriety of the bankruptcy court's dismissal, on either of the grounds relied upon by the bankruptcy court, sufficiently meets these criteria: these are predominantly legal questions that require no further development of a factual record for their correct determination. Accordingly, we will exercise our discretion to consider the issues discussed below.
The facts in the record regarding sufficiency of service and waiver of service are undisputed. These two issues require us to consider the undisputed facts in light of the correct legal standard. Such consideration has been held to present a mixed question of law and fact. Murray v. Bammer (In re Bammer), 131 F.3d 788, 792 (9th Cir. 1997), abrogated in part on other grounds by, Kawaauhau v. Geiger, 523 U.S. 57, 118 S.Ct. 974, 140 L.Ed.2d 90 (1998). In any event, we believe it appropriate to exercise our discretion to consider these issues in light of the absence of any factual dispute or the need for further factual development of the record.
A. Dismissal based on service defects.
There apparently were two defects in Saxena's service of the summons and petition. One arose from the fact that Saxena himself personally served the petition, and the other arose from the fact that Saxena served the summons 130 days after he filed the petition. We must determine whether the bankruptcy court properly dismissed the petition on the basis of defective service. But before we make that determination, we must first identify the relevant procedural rules that govern the service of the summons and the involuntary petition.
1. Applicable procedural rules.
The procedural rules governing involuntary petitions generally mirror adversary proceeding procedures, which in turn generally mirror the Federal Rules of Civil Procedure. See Mason v. Integrity Ins. Co. (In re Mason), 709 F.2d 1313, 1318 (9th Cir. 1983). As stated in Mason:
The procedure on a petition for an order for relief has many of the attributes of " adversary proceedings" governed by Part VII of the Bankruptcy Rules. In turn, the rules governing adversary proceedings are derived largely from the Federal Rules of Civil Procedure. In a proceeding on an involuntary petition, the rules contemplate a procedure much like any other lawsuit: the petition for relief is treated as a complaint which must be answered by the debtor to avoid default . . . .
Id . (citations omitted). But the bankruptcy rules only selectively incorporate aspects of federal civil procedure. Furthermore, procedural requirements can be weakened or strengthened in the process of incorporation.
Rule 1010(a) directs that involuntary petitions, and their corresponding summonses, should be served " in the manner provided for service of a summons and complaint by Rule 7004(a) or (b)." In relevant part, Rule 7004(a)(1) specifies that, when the plaintiff elects to serve a defendant by personal service, such service must be made by a person at least 18 years old, who is not a party to the lawsuit.
Rule 7004(a)(1) also makes Civil Rule 4(m) applicable in adversary proceedings. Civil Rule 4(m) provides that, if the plaintiff fails to serve a summons and complaint within 120 days of the filing of the complaint, the court either must dismiss or must order that service be made within a specified time. Rule 4(m) further provides that, if the plaintiff shows good cause for the delay, the court must grant an extension of time for service.
However, unlike Rule 7004(a)(1), Rule 1010(a) does not on its face make Civil Rule 4(m) applicable to the service of involuntary petitions. The final sentence of Rule 1010(a) supports the notion that Civil Rule 4(m) is inapplicable to involuntary petitions. The final sentence of Rule 1010(a) states that Civil Rule 4(l) applies; it would have been easy enough for the drafters to expressly reference Civil Rule 4(m) at the same time, but they did not do so.
Alternately, if Rule 1010(a) had broadly incorporated Rule 7004(a), by stating that Rule 7004(a) " applies" to involuntary petitions, it would have been easy for us to conclude that Civil Rule 4(m) was meant to apply to involuntary petitions, because Rule 7004(a) expressly incorporates Civil Rule 4(m). However, instead of using broad language indicating the wholesale incorporation of Rule 7004(a), Rule 1010(a) more narrowly provides that service of the summons and petition shall be served " in the manner provided for service of a summons and complaint by Rule 7004(a) or (b)." The advisory committee notes accompanying Rule 1010(a) indicate that the purpose of Rule 1010(a)'s incorporation of Rule 7004(a) and (b) was to delineate methods of service. The only discussion in the advisory committee notes of the issue of timing of service is in relation to Rule 1010(a)'s express application of Rule 7004(e) - which does not include any firm deadline for service akin to that found in Civil Rule 4(m).
Apparently on account of the omission of Civil Rule 4(m) from the procedures made applicable to involuntary petitions, the Local Bankruptcy Rules for the Central District of California (" Local Bankruptcy Rules") provide:
L BR 1010-1. INVOLUNTARY PETITIONS
The court may dismiss an involuntary petition sua sponte if the petitioner fails to (a) serve the summons and petition within the time allowed by FRBP 7004; (b) file a proof of service of the summons and petition with the court; or (c) appear at the status conference set by the court.
Local Bankruptcy Rule 1010-1 is less than crystal clear, but this local rule apparently makes the 120-day service deadline from Civil Rule 4(m) applicable to involuntary petitions. While the parts of Civil Rule 4(m) permitting and/or requiring the court to extend the 120-day service deadline are not explicitly incorporated into Local Bankruptcy Rule 1010-1, the local rule on its face makes dismissal permissive rather than mandatory. In most instances, in the process of exercising its discretion under Local Bankruptcy Rule 1010-1, a bankruptcy court presumably would want to consider the propriety of extension of the 120-day deadline in the same manner that a district court would need to consider such extension under Civil Rule 4(m).
Saxena's delay in service might not have been entirely due to his own inaction. The record reflects that Saxena served the summons and the petition two days after the bankruptcy court issued the summons, and that the bankruptcy court did not issue the summons until 128 days after the petition was filed. Cf. Abdel-Latif v. Wells Fargo Guard Servs., Inc., 122 F.R.D. 169, 174 (D.N.J. 1988) (stating that good cause for extending the 120-day deadline may exist when there is delay in issuance of a summons due to factors beyond the plaintiff's control, and citing 4A C. Wright & A. Miller Federal Practice & Procedure § 1086 (1987)). However, there is no indication in the record that Saxena offered any evidence tending to show that the delay in issuance of the summons was due to factors beyond his control.
As alluded to previously, Saxena contravened the service rules in two ways. First, the record establishes that Saxena himself personally served Nabilsi, in violation of Rule 7004(a)(1). Second, Saxena did not serve the summons and petition within 120 days, apparently in violation of Local Bankruptcy Rule 1010-1.
We now turn to the issue of whether Nabilsi waived the service defects.
2. Nabilsi waived the service defects.
Notwithstanding the defects in Saxena's service of the summons and petition, we must determine whether Nabilsi waived the defects. Ineffective or insufficient service of process can prevent a federal court from acquiring personal jurisdiction over a defendant. See In re Focus Media, 387 F.3d at 1081. A judgment or order entered against a defendant is void where the court lacks personal jurisdiction over the defendant. Thomas P. Gonzalez Corp. v. Consejo Nacional De Produccion De Costa, 614 F.2d 1247, 1255-56 (9th Cir. 1980).
Because of the voidness of judgments and orders entered in the absence of personal jurisdiction, defendants generally do not waive a personal jurisdiction argument if they do not take any action at all in the litigation from which the judgment or order arose. See id. (affirming order vacating default judgment, even though defendants did nothing in response to complaint, because court lacked personal jurisdiction over the defendants).
However, defendants can waive objections concerning the sufficiency of service when they do take action in response to a complaint. For instance, if a defendant files an answer or a responsive motion under Civil Rule 12(b) but does not raise in those papers any objections regarding the sufficiency of service, those objections are considered waived under the plain language of Civil Rule 12. See Civil Rule 12(b) and (h)(1); Peterson v. Highland Music, Inc., 140 F.3d 1313, 1318 (9th Cir. 1998); Roberts v. Erhard (In re Roberts), 331 B.R. 876, 881-82 (9th Cir. BAP 2005), aff'd, 241 Fed.Appx. 420 (9th Cir. 2007); McCurdy v. American Bd. of Plastic Surgery, 157 F.3d 191, 195 (3d Cir. 1998).
Failure to raise the service defects in either an answer or a responsive motion is not the only way to waive such objections. A defendant also may waive them " as a result of a course of conduct pursued . . . during litigation." Peterson, 140 F.3d at 1318. In other words, even when Civil Rule 12(h)(1) is inapplicable because the defendants filed no answer or response to the complaint, a defendant can waive its objections and defenses concerning the adequacy of service by engaging in a course of conduct in the litigation inconsistent with a claim that the court lacks personal jurisdiction over the defendant. See Trustees of Central Laborers' Welfare Fund v. Lowery, 924 F.2d 731, 732-33 (7th Cir. 1991); Broadcast Music, Inc. v. MTS Enterprises, Inc., 811 F.2d 278, 281 (5th Cir. 1987). See generally In re Focus Media, 387 F.3d at 1082-84 (holding that counsel's and defendant-client's activity in underlying bankruptcy case established that counsel was " impliedly authorized" to accept service on behalf of his client, thereby defeating client's insufficient service arguments).
MTS Enterprises is particularly instructive. In litigation against a corporation and two of its shareholders, all three defendants were represented by the same counsel, who duly received notice of all relevant matters taking place in the litigation, but there was an issue as to whether the two shareholders had been formally served with process. Counsel attended a pretrial conference on behalf of all three defendants, participated in settlement negotiations on behalf of all three defendants, and moved to withdraw as counsel for all three defendants. The two shareholders never responded to the plaintiff's complaint, and the first time the shareholders' counsel raised the service issue was at a hearing on the plaintiff's motion for entry of default judgment. After the bankruptcy court entered the default judgment against the shareholders and denied the shareholders' motion to vacate the default judgment under Civil Rule 60(b), the shareholders appealed.
The MTS Enterprises court rejected the shareholders' argument on appeal regarding plaintiff's failure to properly serve them. The MTS Enterprises court acknowledged that a lack of personal jurisdiction would render the default judgment void, and acknowledged that there was no waiver under Civil Rule 12(h)(1) because the shareholders never filed any sort of responsive pleading. The MTS Enterprises court nonetheless concluded that the shareholders had waived the service defects:
The Federal Rules do not in any way suggest that a defendant may halfway appear in a case, giving plaintiff and the court the impression that he has been served, and, at the appropriate time, pull failure of service out of the hat like a rabbit in order to escape default judgment. To countenance this train of events would elevate formality over substance and would lead plaintiffs to waste time, money, and judicial resources pursuing a cause of action. Indeed, that waste would result here if we void the district court's judgment for lack of service of process. Nor is there any indication in the record that appellants, the two shareholders of the corporate defendant, were unaware of the suit against them. . . . Thus, we hold that [the shareholders] . . . through the actions of their counsel, voluntarily appeared in this case and waived the defense of insufficiency or failure of service of process.
Id. at 281.
The nature and extent of Nabilsi's conduct, here, is comparable to that of the shareholders in MTS Enterprises. By the time of the bankruptcy court's dismissal of Saxena's petition, over four months had elapsed since service of the summons and the petition, so there was ample time for Nabilsi to give some indication of his desire to contest the court's personal jurisdiction, but Nabilsi never did so. More importantly, Nabilsi participated in all four of the hearings before the bankruptcy court on the involuntary petition, and he gave every indication at these hearings that he considered the court to have personal jurisdiction over him. He repeatedly raised arguments at these hearings based on the merits of the involuntary petition.
Additionally, in our case, as in MTS Enterprises, the responding party had ample notice of the litigation. Here, Nabilsi admitted in open court that he received notice of the initial hearing and made further statements indicating that he received the summons and complaint notwithstanding any service defects.
In both MTS Enterprises and in the appeal before us, personal jurisdiction is not complicated by the attempted invocation of longarm jurisdiction. Both MTS Enterprises and our case only involve defective service issues. At least one circuit court has opined that, when the issue of personal jurisdiction only implicates a problem of defective service, waiver by conduct requires less of a showing. Datskow v. Teledyne, Inc., 899 F.2d 1298, 1303 (2d Cir. 1990) (" . . . this is not a case where a defendant is contesting personal jurisdiction on the ground that longarm jurisdiction is not available. We would be slower to find waiver by a defendant wishing to contest whether it was obliged to defend in a distant court.").
We recognize that we are dealing with service of a summons and an involuntary bankruptcy petition, rather than with service of a summons and complaint, and that the court here ultimately dismissed the petition based on the insufficient service of process. However, we conclude that the similarity of the conduct of the responding parties is key, and that our analogy to MTS Enterprises is apt and appropriate. The Federal Rules of Bankruptcy Procedure impose a duty on alleged debtors to expeditiously come forward with any objections and defenses they have to an involuntary petition filed against them. See § 303(h); Rules 1011, 1013. This duty is analogous to what is required of defendants in ordinary federal civil litigation. Further, there is no difference in the harm that alleged debtors can cause when they act in the litigation as if the court has personal jurisdiction over them, from the harm a defendant causes when it keeps arguments regarding service defects in its hip pocket while arguing the merits of the case. In both contexts, such conduct can lead to a waste of judicial resources and needless incurrence of legal costs by the parties.
Accordingly, we hold that, through his course of conduct in the litigation, Nabilsi waived any defects in service of the summons and the petition.
3. Impact of waiver on dismissal based on service defects.
In light of Nabilsi's waiver of the service defects, the bankruptcy court erred when it dismissed the petition based on those defects. Roberts and McCurdy, supra, support this conclusion. In both Roberts and McCurdy, the trial court was faced with a failure to timely serve a summons and complaint in violation of Civil Rule 4(m). On appeal, both Roberts and McCurdy concluded that the defendants' failure to raise the service defects in their first responsive pleading waived the service defects pursuant to Civil Rule 12(h)(1). In ruling that the district court erred in dismissing the complaint based on untimely service, the McCurdy court explained that the Civil Rule 12(h)(1) waiver had primacy over the violation of Civil Rule 4(m):
On its face, the language of Rule 4(m) appears to be inconsistent with Rule 12's waiver scheme. It provides that where service is not effected on a defendant within 120 days of the filing of the complaint, the court " upon motion or on its own initiative . . . shall dismiss the action without prejudice as to that defendant." Fed.R.Civ.P. 4(m). The district court here concluded that an objection to the timeliness of service was governed by the " clear, mandatory time requirements set forth in the Rule, " so that Rule 4(m) effectively overrides the waiver provisions of Rule 12(h). Though an arguably plausible resolution, courts and commentators addressing the apparent tension between Rules 4(m) and 12(h) have unanimously concluded that Rule 4(m) does not trump Rule 12(h) and that an objection that service is untimely under Rule 4(m) is subject to waiver by the defendant if not made in compliance with Rule 12.
McCurdy, 157 F.3d at 194-95 (citations omitted). Accord, Roberts, 331 B.R. at 881-82.
Admittedly, neither Civil Rule 4(m) nor Civil Rule 12(h)(1) are directly implicated in our appeal. Rather, we are presented here with a similar tension between violation of the deadline for service imposed by Local Bankruptcy Rule 1010-1, and the waiver of service defects by course of conduct as recognized in Peterson, Lowery and MTS Enterprises.
But the difference in applicable rules does not justify a different result. Indeed, the facially-binding nature of Civil Rule 4(m), which gave the McCurdy court pause, is absent here; rather, the bankruptcy court's dismissal under Local Bankruptcy Rule 1010-1 was purely discretionary. In the face of purely discretionary grounds for dismissal, the bankruptcy court should have given primacy to Nabilsi's waiver of the service defects.
Accordingly, the bankruptcy court erred when it dismissed the petition based on untimely service of process.
B. Dismissal on the merits.
Section 303(h) directs the bankruptcy court to hold trial weighing the merits of the involuntary petition only if the alleged debtor (or another interested party) has contested the petition. See also 2 Collier on Bankruptcy ¶ 303.20[2] (Alan N. Resnick & Henry J. Sommer, eds., 15th ed. rev. 2010) (" Importantly, section 303(h) provides that if a petition is not timely controverted, the order for relief will be entered.").
Section 303(h) provides in full:
The bankruptcy rules further flesh out the requirements of the statute. In relevant part, Rule 1011(b) provides: " Defenses and objections to the petition shall be presented in the manner prescribed by Rule 12 F.R.Civ.P. and shall be filed and served within 21 days after service of the summons . . . ." Rule 1013(a) reiterates the direction in § 303(h) that the bankruptcy court may consider the merits of the petition only if the petition has been timely contested.
On December 1, 2009, a minor amendment to Rule 1011(b) took effect, which amendment changed the time to respond from 20 days to 21 days.
Here, material issues regarding the merits of the petition are evident in the record: issues regarding both the sufficiency of the allegations contained in the petition and regarding whether Saxena at trial could meet his evidentiary burden as to the alleged grounds for entry of the order for relief. For instance, the petition on its face did not contain the requisite allegation that Nabilsi was a person against whom an order for relief could be entered, as contemplated by § 303(a) and Official Form B5. Further, the parties' statements at the hearings suggested that there was a factual issue regarding the overall number of Nabilsi's creditors, which is relevant for determining whether the involuntary petition required only one petitioning creditor, or a minimum of 3 petitioning creditors. See § 303(b).
But the above-referenced merits issues only properly could come into play if Nabilsi timely contested the petition, by filing an answer or responsive motion. See § 303(h); Rules 1011, 1013; see also In re Mason, 709 F.2d at 1314 (explaining that the defense regarding the number of petitioning creditors was not jurisdictional and was waived by alleged debtor's failure to timely file an answer raising the defense); Dahl v. Key (In re Key), 209 B.R. 737 (10th Cir. BAP 1997) (reversing bankruptcy court dismissal of petition based on alleged debtor's failure to timely contest petition).
In particular, Rule 1013(b) states that:
If no pleading or other defense to a petition is filed within the time provided by Rule 1011, the court, on the next day, or as soon thereafter as practicable, shall enter an order for the relief requested in the petition.
In sum, because Nabilsi never filed a written response to the petition, the bankruptcy court should not have considered the merits of the petition; rather, it should have taken steps to enter the order for relief based on Nabilsi's default. Accordingly, the bankruptcy court erred when it dismissed the petition based on Saxena's failure to submit evidence in support of the merits of the petition.
Because we are reversing the dismissal order on other grounds, we need not reach the constitutional issue of whether Saxena's due process rights were violated. See Meinhold v. Dept. of Defense, 34 F.3d 1469, 1474 (9th Cir. 1994).
CONCLUSION
For the reasons set forth above, the bankruptcy court erred when it dismissed Saxena's petition. Therefore, the order of dismissal is REVERSED, and this matter is REMANDED for entry of the order for relief against Nabilsi.
(h) If the petition is not timely controverted, the court shall order relief against the debtor in an involuntary case under the chapter under which the petition was filed. Otherwise, after trial, the court shall order relief against the debtor in an involuntary case under the chapter under which the petition was filed, only if (1) the debtor is generally not paying such debtor's debts as such debts become due unless such debts are the subject of a bona fide dispute as to liability or amount; or
(2) within 120 days before the date of the filing of the petition, a custodian, other than a trustee, receiver, or agent appointed or authorized to take charge of less than substantially all of the property of the debtor for the purpose of enforcing a lien against such property, was appointed or took possession.