## United States Court of Appeals FOR THE EIGHTH CIRCUIT

___________ No. 98-1630

___________ In re: James T. Kirwan, * also known as Jim Kirwan; * Shirley M. Kirwan, * * Debtors. *

___________ * * James T. Kirwan, * also known as Jim Kirwan; * Shirley M. Kirwan, * * Debtors - Appellants, * * v. * Appeals from the United States * District Court for the Harry Vanderwerf; * District of South Dakota. Betty Vanderwerf; * David Vanderwerf, * * Creditors - Appellees. *

___________ * * No. 98-1633 *

___________ * * In re: William P. Kirwan, * * Debtor. *

___________ * * William P. Kirwan , *The Honorable Irvin N. Hoyt, United States Bankruptcy Judge. 1 The Honorable Charles B. Kornmann, United States District Judge for the 2 District of South Dakota. 2 * Debtor - Appellant, * * v. * * Harry Vanderwerf; * Betty Vanderwerf; * David Vanderwerf, * * Creditors - Appellees. *

___________ Submitted: December 16, 1998 Filed: January 19, 1999

___________ Before MURPHY, JOHN R. GIBSON, and MAGILL, Circuit Judges.

___________ MURPHY, Circuit Judge. James, Shirley, and William Kirwan filed Chapter 12bankruptcy petitions under 11 U.S.C. § 1201 et seq. , and Harry, Betty, and David Vanderwerf filed claims in both bank ruptcy cases, as well as motions to lift the automatic stay to permit them t o pro ceed with litigation on a fraud claim against the Kirwans. The bankruptcy court 1 granted the Vanderwerfs relief from the automatic stay some time after it had denied their amended proofs of claim for failure to respond to the debtors’ objections, and the district court affirmed. In this consolidated appeal the Kirwans continue to challenge

2 the decision to grant relief to the Vanderwerfs. We affirm.The background facts related to the underlying transactions between the 3 parties are taken from the findings of fact and conclusions of law of the trial court in the state fraud action, Appellees’ App. Tab. 1 ( Vanderwerf v. Kirwan , CIV 96-31 (S.D. Cir. Ct. Nov. 17, 1997) ), and the opinion of the South Dakota Supreme Court. Vanderwerf v. Kirwan , 586 N.W.2d 858 (S.D. 1998)

. 3 James and Shirley Kirwan and their son William were general partners of th e Kirwan Ranch partnership. In 1991 , Kirwan Ranch and David Vanderwerf purchased 3
rea lproperty in South Dakota, taking possession as tenants in common. Davi d Vander werf and his parents, Harry and Betty, provided $83,300 of the total $192,000 purchase price, but only David’s name was to appear on the deed.
The Kirwan Ranch partnership experienced financial difficulties beginning i n 1993. In 1995 the partnership asked David Vanderwerf to execute a quit claim dee d conveying his share of the property to the partnership. The Kirwans told him that the deed would not be recorded, that it would only be used to satisfy the concerns of a potential lender, and that the proce eds of the loan would be used to buy out his interest in th e land. After David signed the deed, however, the Kirwans recorded it. Th e Vanderwerfs soon learned that the partnership had contracted to sell the property t o Ge rald and Leona Kirwan without consulting David, and their attorney arranged a meeting with representatives of the partnership. The partnership agreed at the meeting it would reconvey the property to David if within sixty days it could not secur e fin ancing and reimburse the Vanderwerfs for their investment. The Vanderwerf s threatened to sue after they received nothing during the next sixty days, and Gerald and Leona Kirwan then executed a mortgage on the property to First Western Bank, NA

.

On May 20, 1996 the Vanderwerfs filed a state court action against the thre e Kirwans, alleging fraud in obtaining the quit claim deed, and the Kirwans subsequently fil ed bankruptcy petitions on January 17, 1997. James and Shirley filed jointly ; William petitioned separately. In each case, the Vande rwerfs filed claims and amended4

proofs of claim with the bankruptcy court in March and April which were based o n their expe riences with the Kirwan partnership. The Kirwans objected to the proofs of clai m, and a hearing on their objections was scheduled for May 15, 1997. In th e meantime the Vanderwerfs had filed motions for relief from the automatic stay on May 5, 1997, and a hearing on these motions was set for June 26, 1997. Counsel for th e Vanderwerfs failed to appear at the hearing on May 15 on the debtors’ objections t o thei r amended proofs of claim, and the court entered orders on May 30 in both case s den ying the amended proofs of claim. After the Vanderwerfs appeared at the hearing on Ju ne 26 on their motions to lift the stay, the bankruptcy court heard arguments and then granted them relief from the automatic stay on July 17. The Vanderwerfs late r won a state court judgment on their fraud claim for $103,223.92, compensating the m for their initial investment of $83,300 plus prejudgment interest. The debtors appealed the orders lifting the stay to the federal district court which ruled th at the bankruptcy court had the power to reconsider its prior decision an d consider the motions for relief from stay under 11 U.S.C. § 502(j) and Fed. R. Civ. P. 60(b). The debtors argue on appeal that the bankruptcy court did not have discretion to lift the stay aft

er having issued orders denying the Vanderwerfs’ amended proofs of cla im. They contend that the Vanderwerfs’ failure to make a formal motion under § 502(j) or Rule 60(b) foreclosed the bankruptcy court from granting them relief. The bankruptcy code allows a court to reconsider an allowed or disallowed claim “for cause” and provides th at such claims may be “allowed or disallowed according to the equi ties of the case.” 11 U.S.C. § 502(j). The court’s broad remedial power s extend to deciding the proced ure necessary to invoke them; the court need not wait for a formal motion and may reconsider a claim sua sponte. See In re Yagow , 62 B.R. 73, 78 (Bankr. D.N.D. 1986). Like the district court, we review the bankruptcy cour t decision under § 502(j) only for abuse of discretion. See Halverson v. Estate o f Cameron (In re Mathiason) , 16 F.3d 234, 239 (8th Cir. 1994).At oral argument counsel for the Kirwans was asked whether at the meeting 4 on their objections he had mentioned the Vanderwerfs’ pending motions for relief from stay or the hearing scheduled on them. Counsel could not say that he had. 5 Rule 60 (b), made applicable to bankruptcy cases by Bankruptcy Rule 9024 , allows a cou rt to grant relief from a judgment or order in the case of mistake , inadvert ence, surprise, excusable neglect, newly discovered evidence, or “any othe r reason justifying relief.” See, e.g. , Kieffer v. Riske (In re Kieffer-Mickes, Inc.) , 22 6 B.R. 204, 20 9 (B.A.P. 8th Cir. 1998). This rule may be liberally construed to d o substantia ljustice to allow parties to air meritorious claims in the absence of fault o r pr ejudice. See MIF Realty L.P. v. Rochester Assocs. , 92 F.3d 752, 756-57 (8th Cir

. 1996)

. The grant or denial of relief under Rule 60 is also reviewed for abuse o f discretion. See Design Classics, Inc. v. Westphal (In re Design Classics, In c.) , 788 F.2d 1384, 1386 (8th Cir. 1986).
Ge neral equitable principles govern the exercise of discretion. Courts ma y consider whether delay would prejudice the debtors or other creditors, the reason fo r the de lay and its length and impact on efficient court administration, whether th e creditors acted in good faith, whether clients should be penalized for counsel’s mistake
or neglect, and whether claimants have a meritorious claim. See In re Resource s Reclamation Corp. of Am. , 34 B.R. 771, 774 (B.A.P. 9th Cir. 1983) (interpretin g pr edecessorto Bankruptcy Rule 3008 which grants broad discretion to reconside r claims upon the motion of a party in interest); Fasson v. Magouirk (In re Magouirk) , 693 F.2d 948, 951 (9th Cir. 1982) (commenting on the “excusable neglect” standar d applicable under Rule 60(b)). In light of the circum stances here, the decision to lift the automatic stay was not inappropri ate. It implicitly involved reconsideration of the court’s prior orders. Th e equiti es of the situation favored not enforcing the earlier orders which would hav e prevent ed the Vanderwerfs from proceeding with their fraud action without th e bankruptcy court’s ever considering their motion to lift the stay. The Kirwans had 46

notice of the pending state court acti on before they filed for bankruptcy protection, and they kn ew about the motions to lift the stay. They also knew that a hearing on th e motions was set for

June 26, and they appeared at that time to defend the prior orders. Altho ugh the Vanderwerfs should have appeared at the May 15 hearing on th e Kirwans’ objections to their amended proofs o f claim, there is no hint in the record that this failure was a result of bad fait h. In reaching its decision, the bankruptcy court was entit led to consider the sequence of relevant events and counsel’s inexperience i n bankruptcy matters. The same considera tions also justified the court’s treatment of the motions as invoking its discretionary reconsideration powers even in lieu of a forma l motion. The state fraud action wa s resolved with minimal delay, and considerations of justice favored permitting the Vanderwerfs’ claim to be heard. Because we find that the bankruptcy court did not ab use its discretion in granting relief from the automatic stay and agree with the district court that it was no t inappropriate for the bankruptcy court to reconsider its prior orders, we affirm.

A true copy.

ATTEST:

CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.