Opinion
No C 01-1507 VRW
March 20, 2002
ORDER
Appellant David Lal seeks review of the bankruptcy court's decision denying Lal's Rule 60(b)(6) motion requesting that the bankruptcy court vacate a previous revocation judgment against Lal. For the reasons that follow, the court AFFRIMS the bankruptcy court ruling.
I
On April 1, 1998, a California state court entered a default judgment against Lal in favor of Lal's former business partner, Mark Kharmats, for over one million dollars. See Lal Supp Excerpts (Doc # 15) at 21. On April 17, 1998, Lal filed Chapter 7 bankruptcy in United States Bankruptcy Court. See Sims Excerpts (Doc # 13), Exh G at 50. The court granted Lal a bankruptcy discharge, clearing Lal's outstanding debts including the amount owed to Kharmats pursuant to the default entry. See Lal Excerpts (Doc # 10) at 120.
Subsequently, the trustee in bankruptcy, Charles Sims, discovered that Lal had failed to disclose certain assets as required by the bankruptcy court. See id at 68-69; Sims Excerpts (Doc # 13), Exh M at 335-36. Specifically, Lal had concealed his interest in the "DeRouen Note" (Note). See Lal Excerpts (Doc # 10) at 70; Sims Excerpts (Doc # 13), Exh M at 335-36. At first, Lal excluded the note entirely from his list of assets. See Lal Excerpts (Doc # 10) at 68; Sims Excerpts (Doc # 13), Exh G at 54- 57. When Sims discovered the note, Lal maintained that the note had no value. See Lal Excerpts (Doc # 10) at 68. Lal also failed to disclose that he received interest payments on the note. See id at 70. Though Lal claimed that the note had no value, Sims was able to sell Lal's interest in the note for twenty-five thousand dollars. See Sims Excerpts (Doc # 13), Exh N at ¶ 2.
Sims filed an action to revoke Lal's bankruptcy discharge because Lal had fraudulently concealed the note. See Sims Excerpts (Doc # 13), Exh A at ~ 6. After an evidentiary hearing, the court concluded that Lal had fraudulently concealed the note and funds earned from the note. See Lal Excerpts (Doc # 10) at 70. Under Bankruptcy Code § 727, this concealment made Lal ineligible to receive a bankruptcy discharge. See id. The bankruptcy court revoked Lal's discharge in February 2000. See Sims Excerpts (Doc # 13), Exh H at 178-79.
The revocation judgment is dated both February 18, 2000, and February 22, 2000, see Sims Excerpts (Doc # 13) at 178. The court will assume, as Sims concedes, see Sims Br (Doc # 12) at 1, that the Rule 60(b) motion was filed within the one year time limit.
After the bankruptcy court revoked Lal's discharge of debts, on August 2, 2000, the San Mateo superior court entered a default judgment against Lal in favor of Kharmats for over one million dollars. See Lal Excerpts (Doc # 10) at 84-85.
Lal had ten days to file a notice of appeal after entry of the revocation judgment. FBR 8002(a). Lal did not appeal the judgment. On February 20, 2001, Lal filed a motion under Rule 60(b) to vacate the revocation judgment. See Sims Excerpts (Doc # 13), Exh J at 182. Lal argued for relief under Rule 60(b)(1) and (2), claiming that excusable neglect and newly discovered evidence justified relief from the court's judgment revoking bankruptcy discharge. See Sims Excerpts (Doc # 13), Exh J at 182-83. Lal argued that, in the alternative, the court should grant relief from the judgment on Rule 60(b)(6) grounds for "other reason justifying relief." See Lal Excerpts (Doc # 10) at 19. Lal argued that to decide his 60(b)(6) motion, the court should apply a fairness standard and balance Lal's wrong, concealing the note, against the consequences of the penalty that he received, liability for Kharmats claim. See id at 12. Lal claimed that allowing the revocation judgment to stand would be unfair because the assets that he had concealed, which Lal claims amounted to $793, were worth far less than the debt he was consequently obligated to pay, over one million dollars. See id at 12. Lal added that because he no longer held the note or funds earned from the note, his wrongful act had been undone, rendering the revocation judgment unsupportable. See id at 16.
The bankruptcy court did not impose the balancing standard that Lal argued was required. Rather, the court asserted that to set aside a judgment under Rule 60(b)(6), the judgment must have been erroneous. See id at 25. The bankruptcy court judge repeatedly asked Lal to explain how the revocation judgment was erroneous. See id at 15, 16. Lal conceded that the revocation judgment was correct and admitted that the facts on which the court based the judgment had not changed. See id. The court concluded that revoking Lal's bankruptcy discharge was correct under § 727 and denied Lal's motion. See id at 25.
II
Both parties agree that the court reviews the Bankruptcy Court's decision to deny the motion for reconsideration for an abuse of discretion. See In re Nunez, 196 B.R. 150, 155 (9th Cir BAP 1996). Under the abuse of discretion standard, a reviewing court may not reverse unless it has a "definite and firm conviction that the court below committed a clear error of judgment in the conclusion it reached upon weighing of the relevant factors." Kayes v Pacific Lumber Co, 51 F.3d 1449, 1464 (9th Cir 1995). The reviewing court can find clear error only if the lower court did not apply the correct legal standard or if it its decision rested on a "clearly erroneous finding of material fact." Id.
Under Federal Rule 60(b)(6), the court may order relief for "any other reason [than those expressly set forth in (1)-(5)] justifying relief from the operation of the judgment." FRCP 60(b)(6). Although the language of Rule 60(b)(6) appears broad, in Klapprott v United States, 335 U.S. 601 (1949), and Ackermann v United States, 340 U.S. 193 (1950), the Supreme Court articulated a strict standard for FRCP 60(b)(6) motions filed more than one year after entry of judgment. Specifically, the Supreme Court held that the movant must demonstrate both (1) an erroneous judgment and (2) extraordinary circumstances to be entitled to relief.
Lal contends that this strict standard does not apply to motions filed within one year of judgment. See Lal Br (Doc # 9) at 8. Lal citesPatapoff v Collstedt's Inc, in which the Ninth Circuit reversed the lower court's denial of a timely Rule 60(b)(6) without requiring extraordinary circumstances. 267 F.2d 863, 865-66 (9th Cir 1959). In more recent years, however, the Ninth Circuit has required extraordinary circumstances to allow relief under FRCP 60(b)(6) even when the motion was filed within one year of the judgment. See, e g, Maraziti v Thorpe, 52 F.3d 252, 254 (9th Cir 1995); United States v RGB Contractors, Inc, 21 F.3d 952, 956 (9th Cir 1994).
Without deciding whether extraordinary circumstances are required for relief, however, the court concludes that the bankruptcy court correctly denied Lal's 60(b)(6) motion. In order to obtain relief from a judgment under 60(b)(6), a party must demonstrate that the original judgment was erroneous. United States v State of Washington, 98 F.3d 1159, 1164 (9th Cir 1996). As Judge Kozinski noted:
Rule 60(b) is only a time-shifting provision; it does not confer independent authority on federal courts to set aside past judgments. Or, to put it differently, Rule 60(b) authorizes setting aside a judgment only for reasons that would have prevented entry of the judgment in the first place, had the reasons been known at the time judgment was entered.
Id at 1164 (Kozinski, concurring). The bankruptcy judge recognized this:
THE COURT: The specific question is this. If I has a trial today —
MR AVILA: Yes, Your Honor.
THE COURT: — and I had the same evidence in front of me as the last trial, plus the evidence that there was a — let's say its's a pre-petition —
THE [sic] AVILA: Okay.
THE COURT: — default judgment against the Debtor for 1.2 million dollars, how would that additional fact yield a different decision under Section 727?
MR AVILA: Given your hypothetical, the answer — you are right, Your Honor — would not yield a different result.
Lal Excerpts (Doc # 10) at 16. Through his counsel Mr Avila, Lal conceded that the additional evidence provided in support of the 60(b)(6) motion "would not yield a different result." The bankruptcy court therefore found that there were no grounds to revisit the revocation judgment and denied Lal's 60(b)(6) motion.
Lal was exposed to liability in excess of one million dollars as a result of the revocation judgment, Lal's argument that the revocation judgment should be vacated because this amount is disproportionate to the value of the note which Lal concealed must fail. The effect of the revocation on Lal's exposure to liability for past debt does not make the revocation judgment erroneous. Lal admitted that he concealed the note from the trustee and the bankruptcy court. See Sims Excerpts (Doc # 10) at 12-13. Lal argued that the fact that he repaid the $800 in interest to the bankruptcy estate was a changed circumstance that allowed FRCP 60(b) (6) relief. As the bankruptcy court recognized, however, Lal repaid this money to satisfy the revocation judgment. See Lal Excerpts (Doc # 10) at 17. As Lal conceded, this does not undo the original fraudulent transfer. See id. Thus, Lal failed to show that the revocation judgment was, in hindsight, erroneous. The court finds that the bankruptcy court properly denied Lal's 60(b)(6) motion.
III
In his late-filed reply brief, Lal makes two new arguments: First, that the principle of res judicata "forcefully argues for restoration of Appellant Lal's Chapter 7 discharge as to the alleged Kharmats' $1,216,800 Pac-Fed debt and resulting August 4, 2000 State Court Default Judgment." Reply Br (Doc # 14) at 17. Second, Lal argues that vacating the revocation judgment on the condition that he waive discharge of all debt except the Kharmats judgment is an appropriate punishment for his fraudulent behavior. See id at 18. Advancing new arguments in a reply brief is improper. Eberle v City of Anaheim, 901 F.2d 814, 818 (9th Cir 1990). Filing a reply brief late without leave of court is improper. See Civil LR 6-1(b). In any event, because Lal did not raise theses issues in his opening brief, they are waived. See Omega Environmental, Inc v Gilbarco, Inc, 127 F.3d 1157, 1167 (9th Cir 1997). Even if the court were to look to the merits of these arguments, it finds no reason why revocation of Lal's discharge is not appropriate.
IV
In conclusion, the court finds that the bankruptcy court did not abuse its discretion in denying Lal's motion for relief from the revocation judgment. The bankruptcy court's decision is hereby AFFIRMED.
The clerk is directed to close the file and terminate all pending motions.
IT IS SO ORDERED.