Opinion
Case No. 13-14290
10-01-2014
In Re JOCELYN MARIE PRIVETT Debtor
Chapter 13
ORDER DENYING MOTION FOR RELIEF FROM STAY AND MOTION TO VACATE AND MOTION FOR LEAVE
I. Introduction
Presently before the Court is the motion for relief from stay filed by the creditors Innerwood & Co. LLC ("Innerwood") and Hueber Bros., Inc. (Doc. 12), Innerwood's motion to vacate the order granting the objection to Claim 7 ("Motion to Vacate") (Doc. 40), Innerwood's motion for leave to file a late response to the objection to Claim 7 (Doc. 41), and the responses thereto.
II. Jurisdiction
The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334(b) and the General Order of Reference entered in this district. This is a core proceeding arising under 28 U.S.C. § 157.
III. Facts
On September 16, 2013, the Debtor filed a petition for relief under chapter 13 of the Bankruptcy Code (Doc. 1). On October 4, 2013, the creditors Innerwood and Hueber Bros., Inc. filed a motion for relief from the automatic stay so that the parties could return to ongoing state court proceedings to liquidate and determine the debt that the Debtor owes to the creditors. See Doc. 12. A response to the motion for relief was filed by the Debtor on October 11, 2013, (Doc. 15). On August 22, 2014, an affidavit in support of the motion for relief was filed with the Court (Doc. 63).
On January 30, 2014, Innerwood filed an unsecured unliquidated claim in the amount of $881,926.00 (Claim 7-1). On February 20, 2014, the Debtor filed an objection to the proof of claim filed by Innerwood ("Objection") because the claim was submitted by the president of Innerwood and not an attorney and because the proof of claim does not comply with the documentation requirements of Federal Bankruptcy Rule 3001(c) since the claim amount is highly exaggerated (Doc. 35). On March 27, 2014, an order was entered by the Court on a default basis granting the Objection (Doc. 36).
On April 3, 2014, Innerwood filed the Motion to Vacate and the motion for leave to file a late response to the Objection. In the Motion to Vacate, Innerwood requested that the order granting the Objection be vacated because Innerwood inadvertently failed to file a response to the Objection and because the Objection should be decided on the merits and not on a default basis (Doc. 40). On April 10, 2014, the Debtor filed a response to the Motion to Vacate in which the Debtor asserted that Innerwood failed to show it was entitled to relief from an order pursuant to Federal Rule of Civil Procedure 60(b) (Doc. 46). On August 13, 2014, the Debtor filed a supplemental memorandum in support of its objection to the Motion to Vacate (Doc. 58), on August 14, 2014, Innerwood filed a memorandum in support of the Motion to Vacate (Doc. 59), and on August 22, 2014, the Debtor filed a second supplemental memorandum in support of its objection to the Motion to Vacate (Doc. 62).
IV. Motion to Vacate
A motion for relief from a judgment or order under Federal Rule of Civil Procedure 60(b), made applicable to these proceedings by Federal Rule of Bankruptcy Procedure 9024, provides that "[o]n motion and just terms, the court may relieve a party . . . from a final judgment, order, or proceeding for the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect; . . . or (6) any other reason that justifies relief." Fed. R. Civ. P. 60(b); In re Gundrum, 509 B.R. 155, 159 (Bankr. S.D. Ohio 2014). When a 60(b) motion is brought to set aside a default judgment, bankruptcy courts must find that one of the grounds under Rule 60(b) are met and must consider the equitable factors as to good cause for setting aside a default judgment under Federal Rule of Civil Procedure 55. In re Sterling Rubber Products Co., 337 B.R. 729, at *5 (B.A.P. 6th Cir. 2006). The equitable factors as to whether there is good cause to set aside an entry of a judgment or order by default are "(1) whether [the] plaintiff will be prejudiced if the judgment is vacated; (2) whether the defendant had a meritorious defense; and (3) whether culpable conduct of the defendant led to the default." In re Sterling Rubber Products Co., 337 B.R. 729, at *5 (B.A.P. 6th Cir. 2006) (citing United Coin Meter Co. v. Seaboard Coastline RR., 705 F.2d 839, 845 (6th Cir. 1983)).
In relevant part Rule 55 provides that "[t]he court may set aside an entry of default for good cause, and it may set aside a default judgment under Rule 60(b)." Fed. R. Civ. P. 55(c).
Relief from a judgment or an order under Rule 60(b)(1) may be granted because of mistake, inadvertence, surprise, or excusable neglect. Relief under Rule 60(b)(1) is "intended to provide relief to a party in only two instances: (1) when the party has made an excusable litigation mistake or an attorney in the litigation has acted without authority; or (2) when the judge has made a substantive mistake of law or fact in the final judgment or order." Cacevic v. City of Hazel Park, 226 F.3d 483, 490 (6th Cir. 2000) (quoting Yapp v. Excel Corp., 186 F.3d 1222, 1231 (10th Cir. 1999)). When a party seeks to vacate a default judgment under Rule 60(b)(1), the moving party "must first and foremost demonstrate that the default did not result from his culpable conduct" and "[o]nly if the moving party makes this showing may the [] court proceed to consider the other United Coin Meter factors." Weiss v. St. Paul Fire & Marine Ins. Co., 283 F.3d 790, 794 (6th Cir. 2002).
In addition to relief from a judgment or order under Rule 60(b)(1), relief may be granted under Rule 60(b)(6) because of "any other reason that justifies relief." However, relief under Rule 60(b)(6) is only warranted in "exceptional or extraordinary circumstances" which are unaddressed by Rule 60(b)(1)-(5). Liljeberg v. Health Servs. Acquisition Corp., 486 U.S. 847, 863, 108 S.Ct. 2194, 100 L.Ed.2d 855 (1988); Olle v. Henry & Wright Corp., 910 F.2d 357, 365 (6th Cir. 1990). "'Exceptional [or extraordinary] circumstances' under Rule 60(b)(6) means 'unusual and extreme situations where principles of equity mandate relief' coupled with a showing that 'absent relief, extreme and undue hardship will result.'" Valvoline Instant Oil Change Franchising, Inc. v. Autocare Associates, Inc., 173 F.3d 857, 1999 WL 98590, at *3 (6th Cir. 1999) (quoting Olle v. Henry & Wright Corp., 910 F.2d 357, 365 (6th Cir. 1990)).
In this case, it appears to the Court that in the Motion to Vacate, Innerwood seeks relief from the order granting the Objection pursuant to Rule 60(b)(1) because Innerwood inadvertently failed to file a response to the Objection and under Rule 60(b)(6) because the Objection should be decided on the merits and not on a default basis. As to relief under 60(b)(1), Innerwood, as the moving party, bears the burden of showing that the entry of the order granting the Objection on a default basis was not due to its culpable conduct. See Weiss v. St. Paul Fire & Marine Ins. Co., 283 F.3d 790, 794 (6th Cir. 2002). In the Motion to Vacate and the memorandum in support of the Motion to Vacate, Innerwood merely asserts that it inadvertently failed to file a response to the Objection. See Docs. 40 and 59. No other evidence or explanation was offered to the Court. Since no evidence has been offered to the Court showing that default did not result from Innerwood's culpable conduct, the Motion to Vacate because of inadvertence is hereby DENIED.
In addition to seeking relief from the order granting the Objection pursuant to Rule 60(b)(1) because of inadvertence, Innerwood also seeks relief under Rule 60(b)(6). Relief under Rule 60(b)(6) in this instance is unobtainable because the grounds asserted in the Motion to Vacate appear to be those addressed in Rule 60(b)(1). Specifically, Innerwood's assertion that the order granting the Objection should be vacated in the interest of justice since the Objection should be decided on the merits, is encompassed within its argument that the failure to file a response to the Objection was inadvertent. Accordingly, Innerwood's request for relief pursuant to Rule 60(b)(6) because of extraordinary circumstances is hereby DENIED.
V. Motion for Relief from the Automatic Stay
Section 362 of the Bankruptcy Code provides that relief from the automatic stay can be granted for cause including lack of adequate protection. 11 U.S.C. § 362(d)(1). Because "cause" as used in § 362(d)(1) is undefined, bankruptcy courts determine whether discretionary relief is appropriate on a case by case basis. In re Laguna Associates Ltd. P'ship, 30 F.3d 734, 737 (6th Cir. 1994). In determining whether there is cause for relief from the automatic stay to allow pending litigation in a nonbankruptcy forum to proceed, the Sixth Circuit Court of Appeals has "indicated that courts should consider a variety of factors, including judicial economy, trial readiness, the resolution of preliminary bankruptcy issues, the creditor's chance of success on the merits, the cost of defense or other potential burden to the bankruptcy estate, and the impact of the litigation on other creditors." In re Williams, 2012 WL 2974914, at *2 (Bankr. W.D. Tenn. July 20, 2012) (citing Garzoni v. K-Mart Corp. (In re Garzoni), 35 Fed. Appx. 179, 181 (6th Cir.2002)). In this case the Court has reached the conclusion that relief from the automatic stay should not be granted. The Court finds that the cost of defense will be an unwarranted burden on the bankruptcy estate, and will necessarily have an adverse impact on other creditors. The mtion for relief from the automatic stay is denied.
VI. Objection to Claim 7 of Innerwood
With the Motion to Vacate being denied, the motion for leave to file a late response to the Objection is hereby DENIED as moot.
VII. Conclusion
For the reasons stated above, the Motion to Vacate, the motion for relief, and the motion for leave to file a late response to the Objection are hereby DENIED. Copies to: Default List
This document has been electronically entered in the records of the United States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.
Dated: October 1, 2014
/s/_________
Burton Perlman
United States Bankruptcy Judge