UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF KENTUCKY

CORBIN DIVISION

IN RE:

DOUGLAS O'NEIL ARNETT

DEBTOR CASE NO. 87-00177

MEMORANDUM OPINION

This matter is before the Court on the debtor's Application to Reopen, filed herein on August 27, 1991. Pursuant to 11 U.S.C. '350(b), a case may be reopened "to administer assets, to accord relief to the debtor, or for other cause." The debtor seeks to reopen his case for the purpose of scheduling omitted debts. In particular he seeks to add the United States Department of the Interior Office of Surface Mining and Reclamation Enforcement ("OSMRE") and the Commonwealth of Kentucky Natural Resources and Environmental Protection Cabinet ("the Cabinet") to Schedule A-3. The record in this case reveals that the debtor filed his pro se Chapter 7 petition in this Court on May 26, 1987. A notice of no assets was given on June 5, 1987. The first meeting of creditors was set for June 25, 1987, making August 24, 1987 the last day to file a complaint objecting to discharge of the debtor or to determine the dischargeability of any debt. The debtor was discharged on February 8, 1990. The final report in this case was filed on June 26, 1990. No distribution was made. The case was closed on July 7, 1990. As stated above, the debtor filed his Application to Reopen on August 27, 1991, more than a year after his case was closed.

The debtor has stated in his brief in support of the Application to Reopen that the debt to the Cabinet is a $47,500.00 civil penalty. The Cabinet has filed with its brief herein a copy of the Order of the Secretary of the Cabinet dated August 6, 1986, which assessed a civil penalty of $47,500.00 against the debtor and Gabriel Energy and a copy of the Partial Summary Judgment entered by the Franklin Circuit Court on February 25, 1991, awarding the Cabinet that sum. The debtor disputes notice of the original Order of the Secretary of the Cabinet of August 6, 1986. The record indicates that a civil suit was filed by the Cabinet and the debtor was served with a summons on June 20, 1989 and chose to litigate the matter in the Franklin Circuit Court (Kentucky) and only after a Partial Summary Judgment was entered against him on February 26, 1991, did he file this Application to Reopen on September 19, 1991. Thus, approximately 15 months lapsed after the debtor indisputably had notice of the Cabinet's claim before the debtor chose to seek to reopen of his case. Debtor also chose to file an action against the Cabinet in the Clay Circuit Court (Kentucky) on July 11, 1991 seeking injunctive relief and damages allegedly resulting from the Cabinet's issuance of a permit to Gabriel Energy Corporation.

The debtor also states that OSMRE claims a civil penalty in the amount of $112,500.00 against Gabriel Energy Corporation. The debtor has been the owner and president of this company, and apparently fears the assessment of personal liability for this penalty. There is nothing in the record, however, to demonstrate that the debtor has had a penalty in that amount, or any other amount, assessed against him by the United States. The debtor states that his company (Gabriel) filed an action on January 29, 1981 against James Watt, Secretary of the Interior, to determine if a federal mining permit was required as contended by OSMRE. That litigation ended unsuccessfully for the debtor's company in 1985, some 18 months prior to the filing of the debtor's bankruptcy.

The rule in the Sixth Circuit concerning the reopening of cases in order to amend schedules to include omitted creditors is found in In re Rosinski, 759 F.2d 539 (6th Cir. 1985). Therein the Court stated that the debtor could be prevented from amending her schedule "only if her failure to include the creditor on the original schedule can be shown to have prejudiced him in some way or to have been a part of a scheme of fraud or intentional design." Id, at 541.

The Rosinski court observed that the bankruptcy court below had decided that the debtor could not amend her schedule because the creditor in question had not had adequate notice of the bankruptcy. The Court determined, however, that the key issue in the case was harm to the creditor rather than notice. In that regard, the Court held that "[u]nder the Code, only the creditors' right to participate in a dividend and to obtain a determination of dischargeability are of such importance that their lost [sic] mandates exception of a late scheduled debt from discharge." Id, at 542.

In a more recent case, In re Soult, 894 F.2d 815 (6th Cir. 1990), the Court followed Rosinski, finding that that case puts the Sixth Circuit in the "camp" that holds that "in a no-asset case where no fraud is involved and where the creditor was omitted through mistake or inadvertence, a bankruptcy court has the equitable power to allow the schedule of debts to be amended after the expiration of the claims period.... Rosinski teaches that 'other cause' can be found when the failure to schedule a debt was simply inadvertent and did not prejudice the creditor in any way." Id, at 817. The Soult court held that a debtor could reopen his case to add a creditor if the failure to schedule that creditor was "negligent, but not willful, reckless, or fraudulent." At 818. Therefore, while the debtor may amend his schedules if the conditions set out in Rosinski and Soult are met, "the courts are unanimous in denying a motion to reopen where a debtor's failure to include a creditor on the original schedule was part of a scheme of fraud or intentional design." In re Smith, 68 B.R. 897 (Bkrtcy.N.D.Ill. 1987), citing In re Gray, 57 B.R. 927 (Bkrtcy.D.R.I. 1986). The Smith court set out three factors to be considered in determining whether "debtors seeking to reopen and amend have engaged in fraud, intentional design, or reckless disregard for the accuracy of schedules...(1) when the debtor first had knowledge of the claim at issue; (2) the length of the delay before the debtor moved to reopen the case to amend schedules; and (3) the debtor's excuse for the omission." At 900.

In the case at bar, the debtor first had knowledge of the Cabinet's claim when the Order assessing the civil penalty against him was entered on August 6, 1986, nearly a year before he filed his bankruptcy petition. The debtor states that he did not schedule this penalty as a debt because summary judgment was not entered against him by the Franklin Circuit Court until February 26, 1991. However, 11 U.S.C. '101(5) provides that a "claim" includes a "right to payment, whether or not such right is reduced to judgment..." The debtor filed his bankruptcy petition pro se and continues to represent himself. Parties who appear pro se are held to the same standards as practicing attorneys. The debtor was therefore charged with the knowledge that the Cabinet had a claim against him in the amount of $47,500.00 at the time he filed his bankruptcy petition, and that he should have scheduled it as a debt. Assuming that the debtor did not receive notice of the August 6, 1986 penalty at that time, it is clear that he waited some 15 months after being sued (and served) by the Cabinet to move to reopen the proceeding.

Finally, the debtor waited more than a year and a half after his case was closed to move to reopen it. He has therefore failed to demonstrate, according to the three factors set out in Smith, that he should not be found to have shown reckless disregard for the accuracy of the schedules. He clearly knew of the Cabinet's claim long before he moved to reopen, he has no good reason for failing to schedule that debt, and he waited more than a year and a half to move to reopen his case.

As far as any claim of the United States is concerned, the debtor has not demonstrated that there is such a claim. He makes vague reference to a civil penalty assessed against Gabriel Energy, and to ongoing attempts to obtain judgment against him, but does not provide any record of any claim against him personally. The same logic and reasoning applies to any potential OSMRE claim since it is clear the debtor knew or should have known of such claims in his litigation predating his bankruptcy by some four years. Debtor offered no reason for failing to schedule such claim in his original schedules. This Court will not reopen a case on the basis of the debtor's fear of something that might happen to him in the future. In conclusion, in consideration of all of the above, it is the opinion of this Court that the debtor's Application to Reopen Case No. 87-00177 should be OVERRULED.

Entered this ____ day of November, 1991.

By the Court -

_________________________

Judge

Copies to:

Douglas O'Neil Arnett

J. Alec Mackenzie, Esq.

John Austin, Esq.

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