Summary
ruling that a request for the imposition of a new automatic stay "requires the initiation of an adversary proceeding [pursuant to Bankruptcy Rule] 7001, and a showing as to the prerequisites to the entry of an injunction"
Summary of this case from In re FlynnOpinion
Case No. 03-22430.
July 21, 2004
MEMORANDUM OPINION
Introduction
Lori A. Schlarman (the "Trustee"), as trustee of the bankruptcy estate of Sandra Dianne Jarman (the "Debtor"), is before the court on the Motion to Reinstate Automatic Stay as to Real Property of the Estate that she filed in this case on April 29, 2004. Having considered the motion, the response filed by Union Federal Bank of Indianapolis ("Union Federal"), and the arguments of counsel, the court will sustain the Trustee's motion.
Factual and Procedural Background
On September 10, 2003 the Debtor filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code. The Trustee was appointed interim trustee on September 16, 2003, and became designated permanent trustee at the Section 341(a) meeting of creditors conducted on October 29, 2003. At the hearing on her motion, the Trustee stated that Union Federal's mortgage was untimely recorded during the preference period. The assignment a copy of which is attached to Union Federal's proof of claim indicates that the mortgage was recorded on July 8, 2003, which was 41 days after the date on the Promissory Note and the date the mortgage was executed and 64 days before this case was commenced. The Trustee also stated that she did not learn about the delay in recording until some time after the meeting of creditors.
On March 8, 2004, Union Federal filed a motion seeking relief from the automatic stay and abandonment of certain real property located at 1544 Butler Court #303, Florence, Kentucky (the "Property"). That same day, a copy of the motion was served on the Trustee. Pursuant to and in accordance with Local Rule 4001-1, the motion included a notice that parties in interest had 15 days within which to file a written objection or the movant would submit a proposed order sustaining the motion. No response was timely filed, and an order sustaining Union Federal's motion was entered March 29, 2004. As indicated above, the Trustee filed the motion presently before the court on April 29, 2004.
Discussion
The Trustee's motion may not be treated as one seeking the imposition of a new automatic stay, because such equitable relief requires the initiation of an adversary proceeding, F.R.Bankr.P. 7001(7), and a showing as to the prerequisites to the entry of an injunction. E.g., Wedgewood Inv. Fund, Ltd. v. Wedgewood Realty Group, Ltd. (In re Wedgewood Realty Group, Ltd.), 878 F.2d 693, 700-01 (3d Cir. 1989) (citing Grundy Nat'l Bank v. Looney (In re Looney), 823 F.2d 788, 792-93 (4th Cir. 1987); Explorer Drilling Co. v. Martin Exploration Co. (In re Martin Exploration Co.), 731 F.2d 1210, 1214 (5th Cir. 1984)); Zahn Farms v. Key Bank (In re Zahn Farms), 206 B.R. 643, 645 (B.A.P.2d Cir. 1997); Stacy Fuel Sales, Inc. v. Ira Phillips, Inc. (In re Stacy), 167 B.R. 243, 248 (N.D. Ala. 1994); Chrysler Capital Corp. v. Official Comm. of Unsecured Creditors (In re Twenver, Inc.), 149 B.R. 950, 953-54 (Colo. 1993); Prudential Ins. Co. of Am. v. Ryan Place Joint Venture, 93 B.R. 471, 474 n. 9 (N.D. Tex. 1988); In re Parker, 154 B.R. 240, 243 (Bankr. S.D. Ohio 1993); see, e.g., State Bank v. Gledhill (In re Gledhill), 76 F.3d 1070, 1079 (10th Cir. 1996). Nor may the motion be treated as one seeking to alter or amend the order granting Union Federal relief from the automatic stay and abandoning the Property because Rule 59 of the Federal Rules of Civil Procedure, made applicable in bankruptcy cases by Rule 9023 of the Federal Rules of Bankruptcy Procedure, requires that the motion be filed within 10 days after entry of the order. F.R.Bankr.P. 9023; Fed.R.Civ.P. 59(b). It appears, therefore, that Rule 60(b)(1) of the Federal Rules of Civil Procedure, as made applicable in bankruptcy cases by Rule 9024 of the Federal Rules of Bankruptcy Procedure, is the only avenue of relief available to the Trustee. See In re Gledhill, 76 F.3d at 1079-80.
The burden of proof is on the Trustee: "A party seeking relief from judgment under Rule 60(b) must show that its case comes within the provisions of the Rule." Lewis v. Alexander, 987 F.2d 392, 396 (6th Cir. 1993) (citing Miller v. Owsianowski (In re Salem Mortgage Co.), 791 F.2d 456, 459 (6th Cir. 1986)). Whether neglect is "excusable" depends on the equities of the case, "taking account of all relevant circumstances surrounding the party's omission," including "the danger of prejudice to the debtor, the length of the delay and its potential impact on judicial proceedings, the reason for the delay, including whether it was within the reasonable control of the movant, and whether the movant acted in good faith." Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd. P'ship, 507 U.S. 380, 395 (1993). In the Sixth Circuit, the issues that must be addressed in determining whether to grant relief from an order or judgment under Rule 60(b) are "(1) Whether culpable conduct of the defendant led to the default, (2) Whether the defendant has a meritorious defense, and (3) Whether the plaintiff will be prejudiced." Waifersong, Ltd. v. Classic Music Vending, 976 F.2d 290, 292 (6th Cir. 1992) (citing United Coin Meter Co. v. Seaboard Coastline R.R., 705 F.2d 839, 845 (6th Cir. 1983)). These are not factors to be weighed: "It is only when the [movant] can carry this burden [of demonstrating that the order was the result of mistake, inadvertence, surprise, or excusable neglect] that he will be permitted to demonstrate that he can also satisfy the other two factors: the existence of a meritorious defense and the absence of a substantial prejudice to the plaintiff should relief be granted." Id. "A party's conduct is culpable if it `display[s] either an intent to thwart judicial proceedings or a reckless disregard for the effect of its conduct on those proceedings.'" Williams v. Meyer, 346 F.3d 607, 613 (6th Cir. 2003) (quoting Amernational Indus. v. Action-Tungsram, Inc., 925 F.2d 970, 978 (6th Cir. 1991) (quoting INVST Fin. Group, Inc. v. Chem-Nuclear Sys., Inc., 815 F.2d 391 (6th Cir. 1987))).
The Trustee has made a sufficient showing of a meritorious defense to Union Federal's motion, see INVST Fin. Group, Inc., 815 F.2d at 398-99, and that Union Federal would not be prejudiced by the relief the Trustee seeks in that it apparently has not foreclosed on the Property, see Berthelsen v. Kane, 907 F.2d 617, 621 (6th Cir. 1990) (citing INVST Fin. Group, Inc., 815 F.2d at 398). The threshold inquiry — the existence of mistake, inadvertence, surprise, or excusable neglect — is more difficult, particularly in that the Trustee has not offered a specific reason for failing to respond to Union Federal's motion. Nevertheless, the court cannot find that the Trustee either intended to thwart judicial proceedings or recklessly disregarded the effect of its conduct on those proceedings. Accordingly, the Trustee's failure was not culpable, and she is entitled to relief under Rule 60(b)(1).
Conclusion
For the foregoing reasons, the court will enter a separate order sustaining the Trustee's motion.
ORDER
Consistent with the Memorandum Opinion this day entered,
IT IS HEREBY ORDERED that the Motion to Reinstate Automatic Stay as to Real Property of the Estate that Lori A. Schlarman, as trustee of the bankruptcy estate of Sandra Dianne Jarman, filed in this case on April 29, 2004 is SUSTAINED.
This is a final order.