United States Court of Appeals

For the First Circuit

No. 01-9014

IN RE: THE HOME RESTAURANTS, INC.,

Debtor.

____________________

BANCO BILBAO VIZCAYA ARGENTARIA,

Defendant, Appellant,

v.

FAMILY RESTAURANTS, INC., AND HECTOR CUEVAS CUEVAS,

Plaintiffs, Appellees,

WIGBERTO LUGO MENDER,

Defendant, Appellee.

APPEAL FROM THE BANKRUPTCY APPELLATE PANEL

OF THE FIRST CIRCUIT

Before

 Torruella, Circuit Judge,

Coffin, Senior Circuit Judge,

and Selya, Circuit Judge.

Wanda I. Luna-Martinez, with whom Montanez & Alicea Law

Offices was on brief, for appellant.

Ramon Torres Rodriguez for plaintiffs-appellees.

Wigberto Lugo Mender for defendant-appellee.

April 2, 2002
1 The court's default judgment resolved two separate claims

against the Bank for the costs of preserving or disposing of

property of the debtor in which the Bank had a security interest.

See infra p. 3. The original complaint was filed by Family

Restaurants, Inc. and its president, Hector Cuevas, who had

subleased restaurant premises to the debtor, The Home Restaurants,

Inc. Plaintiffs (whom we at times refer to collectively as

"Cuevas") named both the Bank and the bankruptcy trustee, as

representative of the debtor, as defendants. The trustee, in turn,

filed cross-claims against the Bank. Cuevas sought reimbursement

for rent and related costs; the trustee sought, in addition, the

cost of electricity and a contractor's services.

The Bank never responded to the cross-claims, and the court

described its judgment in favor of the trustee as "a simple default

judgment." Although the Bank filed an answer to the complaint, it

took no further action until after the default judgment was

entered. The court termed the default judgment for plaintiffs "a

sanction for [the Bank's] repeated failure to comply with orders of

the Court."

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COFFIN, Senior Circuit Judge. Appellant Banco Bilbao Vizcaya

Argentaria ("the Bank"), a creditor in a Chapter 7 bankruptcy

proceeding, claims that the bankruptcy court wrongly refused to

grant it relief, under Fed. R. Civ. P. 60(b) and Fed. R. Bankr.

P. 9024, from a default judgment totaling $24,506.55.1 The

Bankruptcy Appellate Panel for the First Circuit ("BAP") affirmed

the bankruptcy court's ruling, and we likewise find no reversible

error.

Although this case reaches us by way of the BAP, we are

charged with direct review of the bankruptcy court's decision. See

In re Healthco Int'l, Inc., 132 F.3d 104, 107 (lst Cir. 1997). We

consider that court's conclusions of law de novo and scrutinize its

factual findings for clear error. Id. Absent legal error, we

review the court's refusal to set aside a default judgment under

Rule 60(b) only for abuse of discretion. See Claremont Flock Corp.
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v. Alm, 281 F.3d 297, 299 (lst Cir. 2002); Key Bank of Maine v.

Tablecloth Textile Co., 74 F.3d 349, 352 (lst Cir. 1996). 

The Bank's appeal has three primary prongs, two of which

challenge the bankruptcy court's legal authority to order the

default. It argues that the court lacked jurisdiction to address

appellees' claims in light of the United States Supreme Court's

decision in Hartford Underwriters Ins. Co. v. Union Planters Bank,

N.A., 530 U.S. 1 (2000), and lacked authority to grant the default

judgment without examining the merits of appellees' claims in a

hearing. The Bank also contends that the court abused its

discretion in ordering a default judgment in the circumstances of

this case.

We briefly dispose of each of these contentions.

A. Jurisdiction.

In their complaint, plaintiffs relied on section 506(c) of the

Bankruptcy Code to demand reimbursement of rent and other costs

incurred at the restaurant premises while property in which the

Bank had a security interest remained there. See 11 U.S.C. §

506(c). The section provides that "[t]he trustee may recover from

property securing an allowed secured claim the reasonable,

necessary costs and expenses of preserving, or disposing of, such

property to the extent of any benefit to the holder of such claim."

Id. In Hartford Underwriters, which was decided about one month

after the bankruptcy court's challenged ruling, the Supreme Court

held that only a trustee, and not an administrative claimant, is a

proper party to seek recovery under section 506(c). See 530 U.S.
2 In Count Two of his cross-claims, the trustee asked that the

Bank be obliged to pay any "rent and preservation costs [that] are

due to plaintiff."

3 The court unquestionably had subject matter jurisdiction;

both the claims and cross-claims were within the bankruptcy court's

core jurisdiction. See 28 U.S.C. § 157(b)(2) (A), (O) (core

proceedings include "matters concerning the administration of the

estate" and "other proceedings affecting the liquidation of the

assets of the estate," with exceptions not relevant here).

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at 14. As the BAP observed, that decision overruled First Circuit

precedent allowing such a claim by "third parties who equitably

come to stand in the trustee's shoes," see In re Parque Forestal,

Inc., 949 F.2d 504, 511 (lst Cir. 1991). The Bank contends that

Hartford Underwriters requires reversal of the bankruptcy court's

judgment in favor of Cuevas, a third-party claimant.

Although Hartford Underwriters would appear to negate Cuevas's

standing to bring a section 506(c) claim, it does not require us to

disturb the bankruptcy court's judgment. The rents and related

costs awarded to Cuevas also were incorporated within the crossclaims filed by the trustee, who unquestionably had standing to

pursue such relief.2 We are thus satisfied that the bankruptcy

court's judgment was consistent with the principles espoused in

Hartford Underwriters.

3

B. Lack of Hearing. 

The Bank contends that the district court could not grant

judgment on the merits without a hearing to determine whether the

claims and cross-claims were meritorious. To the contrary, it is

precisely the right to contest liability that a party gives up when

it declines to participate in the judicial process. See Franco v.
4 Rule 55(b)(2) states:

If, in order to enable the court to enter judgment or to

carry it into effect, it is necessary to take an account

or to determine the amount of damages or to establish the

truth of any averment by evidence or to make an

investigation of any other matter, the court may conduct

such hearings or order such references as it deems

necessary and proper and shall accord a right of trial by

jury to the parties when and as required by any statute

of the United States.

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Selective Ins. Co., 184 F.3d 4, 9 n.3 (lst Cir. 1999) ("A party who

defaults is taken to have conceded the truth of the factual

allegations in the complaint as establishing the grounds for

liability . . . ."); Brockton Savings Bank v. Peat, Marwick,

Mitchell & Co., 771 F.2d 5, 13 (lst Cir. 1985) ("[T]here is no

question that, default having been entered, each of [plaintiff's]

allegations of fact must be taken as true and each of its [] claims

must be considered established as a matter of law.").

A hearing may be required, however, to set damages when the

amount is in dispute or is not ascertainable from the pleadings.

See Fed. R. Civ. P. 55(b)(2);4 Ortiz-Gonzalez v. Fonovisa, 277 F.3d

59, 64 (lst Cir. 2002); HMG Property Investors v. Parque Indus. Rio

Canas, 847 F.2d 908, 919 (lst Cir. 1988). Here, there was no

uncertainty about the amounts at issue; the complaint and crossclaims contained specific dollar figures, and the court also

requested and received affidavits from appellees. The court's

order to show cause allowed the Bank the opportunity to respond to

appellees' claims before entry of judgment, but the Bank failed to

do so.
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Where a court has jurisdiction over the subject matter and

parties, the allegations in the complaint state a specific,

cognizable claim for relief, and the defaulted party had fair

notice of its opportunity to object, the court has the discretion

to order a default judgment "without a hearing of any kind," HMG

Property Investors, 847 F.2d at 919. By the same token, the court

may choose to hold a hearing to "establish the truth of any

averment" in the complaint. See Fed. R. Civ. P. 55(b)(2);

Quirindongo Pacheco v. Rolon Morales, 953 F.2d 15, 16 (lst Cir.

1992) (per curiam). There was no abuse of the court's discretion

in this case.

C. Relief from the Default Judgment. 

As noted earlier, a court's refusal to set aside a default

judgment is reviewed for abuse of discretion. See supra p. 2. On

this issue, we find it unnecessary to add to the well reasoned

decisions of the bankruptcy court and BAP. See Lawton v. State

Mut. Life Assur. Co. of America, 101 F.3d 218, 220 (lst Cir. 1996).

Their assessments of the Bank's conduct and its asserted

justifications suffice to explain why no such abuse occurred here.

Affirmed.