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Law Office of William M. McVay v. Szeg

October 3, 2006


The opinion of the court was delivered by: Ambrose, Chief District Judge.

Bkcy. Court No. 05-28355-JAD

Adversary No. 05-3096



Before the Court is an appeal from an Order of the Bankruptcy Court dated April 19, 2006 ("April Order"), which vacated a previous Order of the same court dated December 8, 2005 ("December Order").

In addition to the present proceeding, also pending between the parties is a civil action filed at Allegheny County Court of Common Pleas docket GD 04-7510, in which the present Appellants have asserted against the present Appellees, inter alia, a claim for tortious interference with a contract for legal representation. In that action, defended under a reservation of rights by their insurance carrier, Appellees filed a Motion for Summary Judgment. Subsequently, they filed for Chapter 7 bankruptcy.

In July of 2005, with the Motion for Summary Judgment still pending in the state court, Appellants filed a Motion for relief from the automatic stay imposed by the bankruptcy filing, seeking to proceed with the state court action. In connection with the Motion, Appellants averred that they intended to pursue their tortious interference claim in state court, in order to liquidate the claim. In opposing the Motion, Appellants sought to limit the relief from stay to permit the state court action to proceed with respect to the extent of insurance proceeds available.

The Bankruptcy Court, per Judge McCullough, held a hearing on Appellants' Motion for relief from the stay. On September 1, 2005, Judge McCullough entered two Orders. The first, in pertinent part, permitted Appellants to proceed in the state action to "seek recovery from insurance proceeds only - No claims against the estate," and the second provided as follows:

[T]he portions of the Motion for Relief from the Automatic Stay asserting that the claim is non-dischargeable pursuant to 11 U.S.C. §523; and, that the Bankruptcy Petition was filed in bad-faith are dismissed without prejudice to McVay's right to file objections to discharge in the Bankruptcy Court.

In the meantime, Appellees' Motion for Summary Judgment was still pending in state court. The parties argued that Motion in state court on September 13, 2005, and the court took it under advisement. The record indicates that the Motion remains outstanding at this time.

In October of 2005, Appellants commenced an adversary proceeding in the Bankruptcy Court, by way of a Complaint objecting to discharge. The Complaint discussed the pendency of the state court action, incorporated the allegations set forth in the state court action, and stated that the "currently unliquidated debt" should not be discharged in bankruptcy. Appellees filed an Answer to the Complaint, incorporating their Answer to the state court action, denying that they were a creditor of Appellants, and denying that they committed any tortious conduct. Appellees' Answer also cited to the summary judgment issues pending in state court.

Subsequently, on December 6, 2005, Appellees filed in the Bankruptcy Court a Motion to withdraw their Answer to the Complaint objecting to discharge. The Motion stated that counsel had been informed to "do nothing further to defend" in the adversary proceeding. This followed a letter from Appellees to their then-counsel, directing him to refrain from further work on the adversary proceeding.

The Motion also stated as follows:

The debtors' attorney is therefore requesting that the answer filed on behalf of the defendants be withdrawn and this Honorable Court can therefore grant the relief requested by the plaintiff herein.

Accordingly, on December 7, 2005, the Court granted the Motion, decreeing that the Answer be withdrawn. Then, on December 8, 2005, the Court signed the proposed Order that was attached to Appellants' Complaint.*fn1 In so doing, the Court did not complete the blanks left open for dollar amounts. Instead, it drew a line through each of those blanks. The Order read, in pertinent part, as follows:

1. Judgment is found in favor of the Plaintiff, the law Offices of William McVay and William W. McVay, Esquire, in the amount of $--.

2. The Defendant Judith and Charles F. Szeg's debt to the the amount of $-- is declared to be nondischargealbe pursuant to 11 U.S.C. ยง523(a)(6), and Plaintiff['s]... claim ...

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