EL ECTRONI C CI TATI ON: 2012 FE D App. 0001P (6th Cir.) File Na me: 12b0001p.06
BA NK RU P TC Y A P P ELLA TE P AN EL OF THE SI XT H C IR CU IT
I n re: KRI STI

N E. GOU RL AY, ) ) D e b t o r
. )

_____________________________________ ) ) ) KRI STI N E. GOU RL AY, ) ) Plaintiff - Appellee , ) No. 11-8066 ) v
. ) ) SAL L I E MAE, I

NC., ) ) De fe nd ant - Ap pe lla

nt. ) )

Appea l from the United States B ankruptc y Court for the Easter

n District of Kentucky Case No. 11- 50870; Adv. No. 11-5036
Dec ided and F iled: Febr

uary 21, 2012
B e fo re : HA RRI S, PR EST ON , a nd SHE A- STO NU M, B ank ru ptc y Ap pe llate Pane l Judg e s.

____________________ CO UN SEL
O N B RI E F: Wil liam J . Clarke, L ouisvill e, Ke ntucky , for Appe llant. J ohn M. Sim ms, ATKI NSON, SI MMS & KERMODE PL L C, L exington, Kentucky , for Appe llee.

____________________ OP IN ION

____________________ ARTHUR I . HARRI S, Bankr uptcy Appellate Pane l J udg e. Ch ap t er 7 debtor Kr istin E. Gourlay (“D ebtor” ) instituted an adver sary proce eding ag ainst Sallie Mae, Inc. (“S allie Mae ”) pursuant to 11 U.S .C. § 523(a) (8) seeking to deter mine the dischar g eability

of her student loan. The- 2-

bankruptc y

court e ntere d a def

ault judgme nt ag ainst Sallie Mae, and Sallie Mae filed a mot ion to set aside the judg ment. The ba nkruptcy court de nied Sallie Mae’ s motion t o set aside the judgme nt, and Sallie Mae timely

appea led the cour

t’s order denying its motion.

I. ISS UE ON AP P EAL
Th e iss ue pr e se nte d by thi s a pp e a l is wh e the r the ba

nk ru ptc y c ourt a bu se d it s d isc re tio n in denying Sallie Ma e’s motion to se t a side a defa ult judg ment under Rule 60( b)(1) of the F eder al Rules of Civil P roce dure, ma de applica ble to this adver sary proce eding under Fede ral Rul e of B ankruptc y Procedur e 9024.
II. JU RI SDI CT ION AND STANDARD OF RE VI EW
Th e B ank ru ptc y Ap pe llate Pane l of the Sixth Cir c uit ha s jur isd ic tio n to de c ide thi s a pp e a l. The United States District Court for the Easter

n District of Ke ntucky

has authoriz ed appeals to the Pane l, an d ne ith e r part

y ha s time ly e le c te d to hav e thi s app e a l hea rd by the dis tr ic t c ourt . 2 8 U .S. C. § 158(b)( 6) and ( c)( 1). A final order of t he bankruptcy court may

be appe aled a s of rig ht pursuant to 28 U.S.C. § 158(a)(1) . For purposes of a

ppeal, a n order is final if it “e n d s t h e l i t i gation on the merits and leaves not hing for the court to do but execute the judgme nt.” Midland Asphalt Cor p. v. United States , 489 U.S. 79 4 , 7 9 8 , 109 S.Ct . 1484, 1497 (1989) ( citations omitt ed). “ An orde r denying a motion to s et aside a

defa ult judgment is a fina l order.” In re Ba sk e tt , 219 B.R. 754, 757 (B .A.P. 6th Ci r. 1998) ( citations omitt ed).
Th e g ra nti ngof re lie f un de r F e de ra l Rul e of Civ il Pr oc e dure 60 (b ) is re vie we d fo r a n a bu se of discre tion. In re Fe rro Corp. Derivative Litigati on , 511 F.3d 611, 623 ( 6th Cir. 2008) (citations omitted). “A c ourt abuses its discre tion whe n it c ommits a clea r err or of judg ment, such as a pply ing the incorr ect lega l standard, misapply ing the corr ect leg al standar d, or re ly ing upon c lear ly err oneous finding s of fa ct.” Id. (citations om itted). An abuse of di scre tion will be found w here the re viewing

c ourt ha s a de fi nit e and

fi rm c on vic tio n th a t th e c ourt be low c omm itt e d a c le ar e rr or of jud g me nt. PCFS Financial v. Spragin ( In re Nowak

), 586 F .3d 450, 454 (6th Cir. 2009) (c itation and internal quotation marks omitted). “The question is not how the review ing c ourt would have ruled, but rather whether a re asonable person c ould ag ree with the bankruptc y court’s decision; if re asonable persons could diffe r as to the issue, then the re is no abuse of discre tion.” Id. (citation omitted).- 3- III . F AC TS
On May 19 , 201 1, De bto r ins tit

ute d an a dv e rs ary pr oc e e din g a g a ins t Sall ie Ma e se e kin g to deter mine the di schar g eability of her student loan under 11 U.S.C. § 523(a)(8) . At the time of filing her c omplaint, Debtor owe d Sallie Mae a pprox i mately

$25,495.06. On May

23, 2011, the ba nk ru ptc y c ourt iss ue d a su mmo ns , wh ic h De bto r’ s c ouns e l ma ile d to Sa lli e Ma e by c e rt if ie d ma il on J une 6, 2011. On June 8, 2011, “S. Wi lliams,” who Sallie Mae believes i s a part-time employ ee named Steven Williams, signed the c ertified mail rec eipt for the summons and complaint. On J une 28, 2011, Debtor filed an aff idavit of service attesting that the summons, complaint, and order f or trial wer e sent by

cer tified mail to “J ohn (Jack) F. Remondi, Pre sident & Chief Oper ating Offic er, Sallie Mae, 12061 B luemont Way , Reston, VA 20190-5684.” (Adv. Proc. D oc. #5.)
Under Fe dera l Rule of Ba

nkruptcy Procedur e 7 0 1 2 , S allie Mae ’s answe r to Debtor’ s
c omp l a i n tw a s d

u e b y Jun e 2 2 , 2 0 1 1

. O nJun e 3 0 , 2 0 1 1 , D e b t o r f i l e d h e r M o t i o nf

o r D e f a u lt J udg ment re q u es ting that he r student loan debt be discharg ed. The bankruptc y court re jected De bto r’ s o ri g ina l mo tio n f or imp ro pe r se rv ic e on Sa lli e Ma e . D e bto r r e fi le d h e r M oti on fo r D e fa ult J udg ment with proper service on J uly 6, 2011, and the ba

nkruptcy court e ntere d a def

ault judgme nt ag ainst Sallie Mae on Jul y 8, 2011.
On J uly 26, 2011, Sallie Mae filed its mot i o n t o s et asi de the de fault judg ment, and on Aug ust 4, 2011, Debtor filed he r objec tion. After he aring arg ument, the bankr uptcy court de nied S al l i e M ae ’s m o t i o nan d

ex p l ai n edi t s re as o n i n g:
The Co u rt h a s lo o k e d c ar e f u ll y a t th is r e c o r d an d h a s r e v ie w e d the briefs a nd the authorities cited by t he par ties, does find that the co mp l ai n ti nt h i s m at t er

wa s p ro p er l y

s e r v e d a n d

t h atS al l i e M ae 's internal proc essing brea kdown is insufficient to o v er come the require ments of Rule 60(d) [ sic ]

. I t 's not excusable neg lect and the defe ndant has not shown why it's not culpa

ble for ha

ving not responde d to the complaint proper ly serve d. I n a d d it io n , Ru le 6 0 ( a ) a p p li e s to c le r ic a l mi s ta

k e s in the rec ord, not sub s t antive mistakes of the parties, a nd there fore the Court is g oin g to o ve rr

ule the mot ion t o set a sid e the de fa ult judgme nt and would ask Mr. Simms to tender an order in t hat re g ard.- 4-

(Tra nscript Pag e 9, L ines 7-19). O n September 20, 2011, the bankruptc y co u rt issued its order denying Sallie Ma e’s motion to set aside the de fault judg ment, and on October 4, 2011, Sallie Mae timely filed its notice of a

ppeal.
IV . D ISC USS ION
Sa lli e Ma e make s se ve ra l argument s on app eal a s to ho w t he ba nk ru ptc y c ourt a bu se d it s dis c re tio n in de nying Sa lli e Ma e ’s mot ion to s e t a sid e the de fa

ult jud g me nt. F ir st, Sa lli e Ma e a sse rt s that, even absent a showing of ex cusable neg lect, the judgme nt must be set aside be cause Debtor’ s conclusory

alleg ations in the adver sary complaint do not entitle Debtor to a judg ment deter mining that her student loan de bts are disc harg eable under 11 U .S.C. § 523( a)( 8). Second, Sallie Mae

a sse rt s th a t it s f

a ilure to time ly ans we r De bto r’ s c omp la int wa s n ot t he re su lt o f c ulp a

ble c on du c t, that Debtor w ould not be prejudice d if the def ault judgme nt were set aside, a nd t h at i t had a meritorious defe nse. Third, Sallie Mae asser ts that the judgme nt must be set aside be cause Debtor did not comply

with L ocal Rule 7007-1( a) by failing to notice her motion for a hear ing. A nd fourth, Sallie Mae c ontends that the summons and complaint wer e not prope rly serve d. For the re asons that follow, the Panel a ffirms the or der of the bankr uptcy court.
A. Sa lli e Ma e is pa st the de ad lin e to ha v e a mi

sta k e of law re c on sid

e re d un de r Fe der al

Ru le

o f C i vi l P r o ce d u r e 6 0 (b)(1

).
Sa lli e Ma e a sse rt s that its fa ilure to ans we r the c omp la int did no t e nti tle De bto r t o a

de fa ult judgme nt beca

use the c omplaint co nta in e d only a conc lusory

alleg ation of nondischar g eability under § 5 23 (a )( 8) . T he Sixth Cir c uit pe rm its re c on sid e ra tio n of a po int of law und e r R

ule 60 (b )( 1) on ly when r el ief fr om judgment is soug ht within the normal time for taking an appe al. See B arrier v. Beav er , 712 F.2d 231, 234 ( 6th Cir. 1983) (“This Court is persua ded that the be tter view is to allow

re c on sid e ratio n o f a

po int of law und e r R

ule 60 (b )( 1) wh e n r e lie f f ro m judg me nt i s so ug ht w ith in the no rm a l ti me for taki ngan a pp e a l.” ); se e als o 11 Charles Ala n Wright & Arthur R. Miller, Fe de ra l P ra c tic e an d P ro c e du re § 2858 (2d ed

. 2 011) (in g ener al, re lief base d on an er ror of the

c ourt is d e nie d w he n th e Ru le 60 (b )( 1) mot ion is m a de a ft e r t

he tim e fo r a

pp e a l ha s r

un ). Thus , when the nor

mal time for takingan appe al has not expired and a court is f ace d with a motion to set

a sid e a de fa ult jud g me nt, the c ourt

re ma ins fr e e to u se the “ mis tak e [of law]” langua g e of

Rul e 60(b)( 1), without requiringthe movant to demonstrate “ excusable neg lect.”- 5-

Whil e Sallie Mae is co rr ect that a trial court must independe ntly deter mine whether

a pl ai n t iff’s we ll-pleade d alleg ations entitle the plaintiff to the re lief beingsoug ht, Bills v. Aseltine , 52 F.3d 596, 601 ( 6th Cir. 1995), the t ime for seeking rec onsideration of suc h a point of law unde r Rule 60(b)(1) is before the normal ti me for taking a n appea l has expired. I n this case, the ba nkruptcy court e ntere d the def

ault judgme nt on J uly

8, 2011. Fe dera l Rule of Ba nkruptcy Procedur e 8002(a ) require s that “[t] he notice of appea l shall be filed with t h e cl er k wi t h i n 1 4 day s of the date of the entry of the judgme nt . . . .” When Sallie Mae filed its motion to set aside the judg ment on J uly 26, 2011, it was four da

y s past the dea d l i n e t o ap peal. The ref ore, Sallie Mae is not entitl ed to have a purported le g al er

ror of the bankr uptcy court re considere d under Rule 60( b)(1)

. B. Theba nk

ru ptc yc ou rt d id n ot a bu se its dis c re tio n in re je c tin g Sa lli e Ma e ’s ar

gu me nt t ha t it s failure to ti mely answer D ebtor’s com plaint w as due to ex cusable ne glect

. Sallie Mae a

rg ued befor e the bankruptc y court that the defa ult judgment ag ainst it should be set asid e p u r s u an t to F e d e r a l Ru le o f Ci v il Pr o c e d u r e 6 0 ( b ) ( 1 ) b e c a

u s e it s f a il u r e to ti me ly f

ile an
ans wer was no t the re su lt o f c ulp a ble c on du c t, D e bto r w ou ld n ot b e pr e jud ic e d if

the de fa ult judgme nt was set aside , and it had a meritorious defe nse. (Adv. Proc. Doc . #11-1.) The g rounds for setting a side a de fault j udg ment are set forth in Fe dera l Rule of C ivil P roce dure 55( c) w hich is made applicable to bankruptc y proce eding s by Fe dera l Rule of Ba

nkruptcy Procedur e 7055. Rule 55(c ) provides that “[t]he court m ay set aside a

n entry of def ault for g ood cause , and it may set aside a defa ult judgment under

Rule 60(b).” Fe d. R. Civ. P roc. 55( c).

I t is imp or

tant t o d ist inguis h b e tw e e n a n e ntr y of de fa ult and a defaul t ju dg me nt, be c a us e
once a n entry of def ault has ripene d into a defa ult judgment a stric ter standa rd of r eview applies for setting a side the def

ault. Da ssa ult

Syst emes , SA v . Ch ild

re ss , 663 F.3d 832, 839 ( 6th Cir. 2011) (c i t i n g O.J. Distrib., Inc. v. Horne ll Brewing Co., Inc. , 340 F.3d 345, 352 (6th Cir. 2003)). Once a defa ult judgment has be en ente red, as it was here, the bankruptc y court’s discretion to set aside the judgme nt is “circumsc ribed by public polic y fa v o ri n g finality of judg ments and termination of lit ig a tio n. Rul e 60 (b ) r e fl e c ts this pu bli c po lic y by re qu ir ing g re a te r spe c if ic ity fr om a mov ingpa

rt y befor e a court will se t aside a de fault judg ment.” W aifersong, Ltd. Inc. v. Classic Music Vending , 97 6 F .2 d 2 90 , 2 92 (6 th C ir . 1 99 2) . F e de ra l Ru le of Civ il Pr oc e dure 60 (b ) p ro vid e s in p e rt ine nt p a rt :- 6- (b) Gr ound s for Relief f rom a F inal Ju dgm ent, Order , or P roce eding. On motion and just terms, the court may relieve a par ty or its leg al repr esentative from a final judg ment, order , or pr oc e e din g fo r t

he fo llo wi ngre a so ns : ( 1 ) mis ta ke , in a dv e rt e nc e , s u r p r i se , o r e xcu sa ble neg lect[.]
Fe d. R. Civ. P roc. 60( b)(1)

. The de cision to set aside a de fault judg ment is l ef t t o the discre tion of the trial judg e. Howeve r, in United Coin Me ter Co. v. Seaboard Coastline R.R. , 705 F.2d 839 (6th Cir. 1983), the Six th Circuit set fo rt h t h re e fa ctors which are to be consider ed under Rule 55(c) and Rule 60(b) : (1) whe ther the pla intiff will be prejudice d; (2) whe ther the defe ndant has a meritorious defe nse; and (3) whe ther c ulpable conduc t of the def endant led to the de fault. U n it e d Co in M e te r , 7 0 5 F. 2 d at 8 4 5

. S i n ce d ec i d i n g United Coin Meter , the Six th Circuit has further explained that while the fa ctors to be consider ed under

Rule 55(c) and Rule 60(b) are simil ar: [T] he methodolog y

for c onsidering these fa ctors and the weig ht to be acc orded the m depends on whether the cour t is confronted by

an entr y of defa ult or a defa

ult judgment. When aske d to set aside an e ntry of de fa ult , a court

c on sid e rs the fi rs t f

a c tor , d e fe nd ant’ s c ulp a

bil ity , in the gene ral contex t of determining whether a petitioner i s deser ving of equitable relief

. But when it is a judgment the de fenda nt is seeking to avoid, the spec ific re quirements of Rule 60( b) nar row the sc ope of the cour t’ s e qu ita ble inq uir y . Wh e n r e lie f i s so ug ht u nd e r R ule 60(b)( 1), the c ulpability

fac tor is fra med in terms of “ mistake, inadver tence , surprise, or excusable neg lect.” Fu rth e rm or e, wh ileit may beargued that

the three fac tors are to be “balanced” by the c ou rt i n d

e te rm ini ng

whe the r to se t as idean e ntr yof d e fau lt, b a l a n c i n g i s d e m o n s tr a b l

yi n a p p r o p r i a t e w h e n a c o u r t

i n iti all y procee ds, as in the instant case, unde r Rule 60(

b) ( 1)

. Th a t is be c a

us e the ru le mand a te s th a t a

de fe nd ant c ann ot b e re lie ve d o f a de fa ult judgme nt unless he ca

n demonstrate that his defa ult wa s the product of mistake, inadve rtenc e, surpr ise, or excusable neg lect. It is o nly whe n th e de

fe nd an t can c arry

thi s b ur de n th at h e will

be pe rm itt e d to demonstrate that he can also satisfy the o t h er t wo factors: the existenc e of a meri t o r i ous defense and theabsenceof substanti al prejudice to the plaintiff should r elief be granted. Manufacturers’ I

nd. Relations Ass’n v. East Akron Casting Co. , 58 F. 3 d 204, 209 (6th Cir. 1995) (e mp h as i s i no ri gi n al ) ( qu o t i n g W aifersong, Ltd. Inc. , 976 F.2d at 292).- 7-

Sallie Mae a

rg ues that its fa ilure to f

ile a timely answe r is not due to culpable c onduct, but rathe r is the re sult of excusable neg lect. In i t s affidavit in support of its mot ion to set aside the defa ult jud gm en t , S allie Mae attests that the offic e to which De btor mailed the summons and

c omp la int wa s in pre pa

ratio n to move to a

ne w l oc a tio n, on ly

on e e mpl oy e e wa s le ft

re ma ini ngin the mail room at the time the summons and complaint wer e si g ned for, from a policy perspe ctive the mail should have bee n forwa rded to the nam e t h at it was addre ssed to, and ag ain from a policy pe rs pe c tiv e the c omp la int sh ou ld h a ve be e n fo rw ard e d to Sa lli e Ma e ’s B ank ru ptc y L iti g a tio n U nit

. Sallie Mae a sserts in its brief that De btor’s plea ding ne ver r eac hed the r esponsible i n d i v i d u al or depar tment due to the “state of uphea val” that Salli e M ae ’s office was in while moving to a new loc a tio n a nd its ma il ro om be ing “ un de rs ta ff e d” ; he nc e , it argue s that the se c ir c ums tanc e s make its fa ilure to t ime ly

ans we r t he c omp la int

a ttr ibuta ble to e xcu sa

ble ne g le c t.
I n Jinks v . AlliedSignal, Inc. , 250 F.3d 381 (6th Cir. 2001), t he S ix th Circuit discussed how the interpre tation of “e x cusab l e n eglec t” by the Supreme Court in Pioneer I nv. Serv ices Co. v. Br un swi c k As so c iat es Ltd . P ar tne rsh ip , 50 7 U. S. 38 0, 11 3 S.Ct

. 14 89 (1 99 3) , w ou ld a pp ly to R ule 60(b)( 1): Although Pi on e e r interpre ted “e x cusa b l e neg lect” in the c ontext of

Rule 9006(b)(1) of the F eder al Rules of B ankruptc y Procedur e, the Cou rt a na l y

z e d t h e t e r m a s i ti s u s e d

i na v ar i e t y o f f e d e r a l r u l e s, inc lud ingRul e 60 (b )( 1) . T he Court de te rm ine d th a t “ ne g le c t” mus t b e gi v en i t s o r d i n a ry

m ea n i n g, wh i ch wo u l d

i n cl u d e “ l at e f

i l i n gs cause d by

inadver tence , mistake, or ca

rele ssness, as we ll as by intervening circ umstances bey ond the par ty ’s control.” Pi on e e r then cou n s el s that whether

the “ne g lect” w as excusable involves a n equitable de termi n at i o n that takes into ac count (1) the dang er of prejudice to the other pa

rty , (2 ) the leng th of delay , (3) its potential impact on judicial proc eeding s, (4) the r eason f or the del ay , and (5) whe ther the mova

nt acted in g ood faith.

. . . . More a ppropriate ly , Pi on e e r stands for the pr oposition t hat a district court should consider

the five f

actor s enumera

ted above in case s wher e proc edu ra l d ef

au l th as p re v en t edt h e c o u rt fr o m co n s i dering the tr ue me ri ts o f a

pa rt y ' s c la im.
Jinks , 250 F.3d at 386 (internal c itations omi tted).- 8-

I n an a ly zing wh e the r exc us a

ble ne g le c t exists fo r t

he purp os e s o f a

Rul e 60 (b )( 1) mot ion

to set aside a

defa ult judgment, the Fi fth and Eleve nth Circuits have re quired a showing of minimal internal safeguards designe d to make sure t hat process rea ches the appropr iate per sonnel and a ction is taken. See Sloss I

n d u s t r i es Corp. v. Eurisol , 4 88 F .3 d 9 22 , 9 25 (1 1th Cir . 2 00 7) (“ Our R

ule 60(b)( 1) ca ses have consistent l y held that wher e interna l proce dural saf eg uards a re missing , a defe ndant does not have a ‘g ood rea son’ for f

ailing to r espond to a c omplaint.”); Ro ge rs v . H ar tfo rd Life and Acc. Ins. Co. , 167 F.3d 933, 939 (5th Cir. 1999) (affirming a finding of no excusable neg lect wher e a la ck of minimum internal safe g uards wa s at least a pa rtial ca use of the de fenda

nt’s failure to respond); se e als o Gibbs v. Air Canada , 810 F .2 d 152 9, 15 37 (1 1th Cir . 1 98 7) (“ De fa

ult that is

cause d by the movant' s failure to establish minim um proce dural saf egua rd s for de termining that

ac t i o ni nre s p o n s e to a s u m m o n s an d co mp l ai n ti s b ei n g t ak en d o es n o tco n s t i tu t e d ef au l tt h ro u gh excusable neg lect.”) , cited with appr oval in Ro ge rs , 1 67 F .3 d at 93 9; Baez v. S.S. KresgeCo. , 518 F.2d 349, 350 (5th Cir. 1975) (complaint forwa rded by defe ndant to its counsel and lost in the mail did not constitute ex cusable neg lect bec ause of failure to establish minim um proce dural safe g uards) , cited with appr oval in Ro ge rs , 167 F.3d at 939. I n his concurr ing opinion in Park Corp.

v
. Le x in g to n Ins. Co. , 812 F.2d 894, 898 ( 4th Cir. 1987), J udg e Ha y nsworth eloquently

stated the imp or tanc e that r e a so na

ble int e rn a l c on tr ols pla

y in d e te rm ini nge xcu sa

ble ne g le c t:
The best of sy stems some times suf fer s an occa sional breakdown. When it does, the neg lect should be treated as e x cusable , but sloppy ha nd lin g o f pap e rs by

wh ic h le g a l a c tio ns are c omm e nc e d is inexcusable. I n this case, Rule 60(b) relief was proper ly denied not beca use o f t h e l o s s of the pape rs and not bec ause the loss was unexplained but beca

use [the defe ndant] made no showing that it had in place r easona

ble interna l controls desig ned to pre vent or discove r su c h lo sse s. Park Corp. , 812 F.2d at 898.

I n Owens-Illinois, Inc. v . T & N Lt d. , 191 F.R.D. 522 (E .D. Tex 2000), the cour t found minimal int erna l proce dural saf eg uards pr esent whe re the defe ndant presented evidence that it had

a sy ste m in

pla c e , a lth ou g h n ot w ri tte n, wh ic h a llo we d it to r e sp on d to ov e r 2 00 ,0 00 laws uit s. Owens-Illinois, Inc. , 191 F.R.D. at 527-28. Specifica lly , the cour t det er m i n ed that the e vidence prese nted to the cour

t showed that the mislaid complaint was the result of an isolated huma n err or, rathe r than a

product of a

prolong ed and sy stemi c fa i l u re to establish minim um proce dural- 9-

safe g uards: (1) the def

endant’ s sy stem was re liable bec ause it allowe d the def endan t t o ti me ly answe r thousands of complaints each y ear ; (2) ordina rily an employ ee w ould have f axed the rec eived complaint to the appropr iate attorney s and verifie d the rec eipt of the fax ; and (3) the proce dures we re
no t f oll ow e d in

that pa rt ic ula r c a se be c a

us e the a tto rn e y ha

pp e ne d to be in t

he of fi c e on the da y in qu e s ti o nan d

to o k th e c o mp la in t v ia

h an d d elivery

. Id. at 528. Fur ther, the c ourt noted that “no sy stem can pr ovide for e very possible c ontinge ncy , nor does the la w re quire [the defe ndant] to have a fool-pr oof sy stem.” Id

. I n this case, the ba

nkruptcy court did not abuse its discre tion in concluding that Sallie Mae’s actions do not constitute ex cusable neg lect. In contra st with the defenda nt in Owens-Illinois, Inc. :

C Salli e M ae did not present evide nce indicating that it takes spe cial steps to re ceive and ha nd le imp or

tant m a il.

C Sallie Mae did not prese nt evidence indi ca t i n g t h at i t takes steps to safe g uard the proce ss of transfe rringimportant mail once re ceive d.

C Sallie Mae attests that from a policy perspe ctive, the mail should have been forwa rded to the a

ppropriate person a

nd to its Ba

nkruptcy L itigation Unit; however , Sallie Mae doe s not articulate w hat its actual policy is or if it has one.

C The lost complaint appea rs to be the pr oduct of a

n i n t er n al decision to reduc e the mail room staff at its principal off ice to only

one par t-time employ ee w eeks be fore the ef fec tive date of its move, as communicated to the Kentucky Secre tary of State.
I n short, it is uncle ar whether Sallie Ma e (1) had no rea sonable policy in place to se e that important mail was deliver ed to the appropriate personnel or ( 2) simply failed to a

pprise the ba

nkruptcy court of that pol icy in its Rule 60(b) moti on. Either way , the bankruptcy court did not abuse its discretion in re je c tin g Sa lli e Ma e ’s argume nt that the fa ilure to tim e ly ans we r D e bto r’ s c omp la int wa s d ue to

e xcu sa ble ne g le c t.
C. A party in default that has not appeared is not entitled to furt her notice unde r Rule 5( a) ( 2) of the Fede ral Rules of Civil Procedure.
Sallie Ma e asser

ts tha t the bankruptc y court abused its discr etion in denying its motion to set aside the default judgment because Salli e Mae was denied the procedura l protec tion g rante d to it by L ocal Rule 7007-1( a) of Standing Order 09-03 of t he United St ates B ankruptc y Court for the Ea stern District of Ke ntucky . L ocal Rule 7007-1( a) pr ovides that a motion in an adver sary proce eding pending in the L exington division “sha ll include a cer tificate indicating that eac h party to the motion- 10-

has bee n g iven at lea st fourtee n (1 4 ) d ay s ’ n o t i ce of the hea ring on the motion by

service of the mot ion in a mann e r p e rm itt e d b y

Rul e [700 5] of the F e de ra l Rule s of B ank ru ptc y Pr oc e dure .” Sa lli e Ma e argue s th a t it

is e nti tle d to re lie f b e c a

us e De bto r’ s mo tio n f

or de fa ult jud g me nt d id n ot c on ta in the ce rtificate require d by L ocal Rule 7007-1( a).
Sallie Mae’ s relianc e on L ocal Rule 7007-1( a) is misplace d beca use the rule is not int ended to modify Rule 5 of t he Feder al Rules of Civil P roce dure. F eder al Rule of Civil P roce dure 5( a)( 2), which is ma de applicable to ba nkruptcy proce eding s by Fe dera l Rule of Ba nkruptcy Procedur e 7005, state s in pe rt ine nt p art

tha t “ [n]o s e rv ic e is requi re d o n a pa rt y wh o is in d e fa

ult fo r f a ili ngto appea r.” F urthermor e, it would be inappr opriate to interpr et L ocal Rule 7 0 0 7 -1(a ) in a manne r inconsistent with Rul e 5 of the Fe dera l Rules of Civil Procedur e. See Fe d. R. Civ. P . 83(a) (1) ( “A loc a l r ule mus t be co ns ist e nt wit h– bu t not dup lic a te –f

e de ra l sta tut e s and

ru le s .
. . .” ); Le v itt-S

te in v. Citigroup, Inc ., 284 F. App’ x 114, 117 (5th Cir. 2008) (relying on Rule 5(a) (2) to re ject ar g ument that lo we r c ourt

a bu se d it s d isc re tio n in de nyingde fe nd ant’ s Ru le 60 (b ) m oti on wh e re pla int if

f d id

no t f oll owa loc a l r ule re qu ir ingmot ion s f

or de fa ult jud g me nt t o b e se rv e d by c e rt if ie d ma il)

. Whil e the bankr uptcy court did not make a

n officia l entry

of def ault on the re cord, the Affidavit of Service fi le d o n J un e 28 , 2 01 1, ind ic a te d th a t Sa lli e Ma e wa s in de fa ult wh e n D e bto r m ov e d f

or a de fa ult judgme nt. Accor dingly , Sallie Mae wa s not e ntitled to notice of a hear ing on D ebtor’s motion for defa ult judgment.
D. De bto r p ro

pe rly se rv e d th e su mm on s a nd c om pla int

. Sallie Mae asserts that it was not proper ly serve d beca use the summons and complaint we re
a d dr e s s e d t o “ J o h n( J a c k ) F

. R e m o n d i , P r e s i d e n t & C h i e f O p e r a t i n g O f

f i c e r , 1 2 0 6 1 B l u e m o n tW a y, Reston, VA 20190-5684,” who ac tual l y wo rks at a loc ation differ ent from the one to which the

cer tified mail was sent. Unde r Fe dera l Rule of Ba nkruptcy Procedur e 7004(b) (3), se rvice may be made “ [u] pon a domesti c or f oreig n corpor ation or upon a pa rtnership or othe r unincorpor ated

a s s o c i a t i o n , b y

m a i l i n g a c o p y o f t h e s u m m o n s an d c o mp l a i n t t o t h e a t t e n t i o no f ano f f i c e r
. . . . ” In this case, De btor addre ssed the summons and complaint to J ohn Remondi, Chief Operating Of fice r of Sallie Mae, who cer

tainly qualifies as a

n “off icer ” under

Fe dera l Rule of Ba

nkruptcy Procedur e 7004(b)( 3).- 11-

Fur ther, ther e is no provision in the Fe dera l Rules of Ba nkruptcy Procedur e that re quires an office r to be ser

ved any wher e other

than the cor

poration’s principal office . Kentucky Revised Statut e § 1 4A .6 -010( 1) (c ) r e qu ir e s th a t “ (1 ) [e ]ac h e nti ty and e a c h f or e ig n e nti ty

a uth or ize d to transac t business in thi s Commonwealth shall deliver to the Secr etar y of State for

filing a n annual

re po rt that se ts f or th .

. . (c ) [t]he a dd

re ss o f i ts p ri nc ipa l of

fi c e [.]” On

the date tha

t Sa lli e Ma e ’s ma il room employ ee sig ned for the ce rtified mail addr essed to “12061 B luem o n t W ay , Reston, VA 20190-56 8 4 , ” t h at location was listed in Sallie Mae’ s annual re port and Statement of Cha ng e of Principal Off

ice Address form as i ts eff ective principal office. I t was S allie M ae’ s internal dec ision to h a ve its c hie f o pe ratin g of fi c e r w or k at a loc a ti on ot her th an it s li ste d p ri nc ipa l a dd re ss. Acc ording ly , Debtor pr operly serve d the summons and complaint.
V. CO NC LU SION
For the fore g oing r easons, the or der of the bankr uptcy court is AF FI RMED.