Court Opinion

ID: 2978441
Source: CourtListenerOpinion
Date Created: 2015-09-22 18:25:40.428762+00
Date Added: 2024-06-11T13:16:47.123284
License: Public Domain

ELECTRONIC CITATION: 2009 FED App. 0008P (6th Cir.)
                            File Name: 09b0008p.06

            BANKRUPTCY APPELLATE PANEL OF THE SIXTH CIRCUIT

In re: DAVID D. BROWN and                      )
       JACQUELINE M. BROWN,                    )
                                               )
                  Debtors.                     )
_____________________________________          )
                                               )
J. JAMES ROGAN, TRUSTEE,                       )
                                               )
                    Appellant,                 )
                                               )
       v.                                      )      No. 09-8007
                                               )
COUNTRYWIDE HOME LOANS, INC.,                  )
                                               )
                    Appellee.                  )
                                               )

                     Appeal from the United States Bankruptcy Court
                           for the Eastern District of Kentucky
                     Case No. 07-51329; Adversary Case No. 08-5076

                                 Argued: August 18, 2009

                         Decided and Filed: September 17, 2009

  Before: BOSWELL, RHODES, and SHEA-STONUM, Bankruptcy Appellate Panel Judges.
                            ____________________

                                       COUNSEL

ARGUED: Ryan R. Atkinson, ATKINSON, SIMMS & KERMODE, PLLC, Lexington, Kentucky,
for Appellant. Amanda P. Thompson, TAYLOR, THOMPSON & BRANNON, PLLC, Lexington,
Kentucky, Nathan L. Swehla, LERNER, SAMPSON & ROTHFUSS, Cincinnati, Ohio, for Appellee.
ON BRIEF: Ryan R. Atkinson, ATKINSON, SIMMS & KERMODE, PLLC, Lexington, Kentucky,
for Appellant. Amanda P. Thompson, TAYLOR, THOMPSON & BRANNON, PLLC, Lexington,
Kentucky, Nathan L. Swehla, LERNER, SAMPSON & ROTHFUSS, Cincinnati, Ohio, for Appellee.
                                      ____________________

                                            OPINION
                                      ____________________

        MARILYN SHEA-STONUM, Bankruptcy Appellate Panel Judge. In this appeal, J. James
Rogan (“Trustee”) seeks reversal of the bankruptcy court’s order vacating a default judgment entered
against Countrywide Home Loans, Inc. (“Countrywide”) pursuant to Federal Rule of Civil Procedure
60(b)(6). For the following reasons, we conclude that the bankruptcy court abused its discretion in
vacating the default judgment, and reverse its order.

                                      I. ISSUE ON APPEAL

        The dispositive issue on appeal is whether the bankruptcy court abused its discretion in
setting aside the default judgment against Countrywide pursuant to Federal Rule of Civil Procedure
60(b)(6) in the absence of a showing of “extraordinary circumstances.”

                    II. JURISDICTION AND STANDARD OF REVIEW

        The Bankruptcy Appellate Panel has jurisdiction to decide this appeal. The United States
District Court for the Eastern District of Kentucky has authorized appeals to the Panel, and neither
party has timely elected to have this appeal heard by the district court. 28 U.S.C. §§ 158(b)(6),
(c)(1). A final order of the bankruptcy court may be appealed as of right pursuant to 28 U.S.C.
§ 158(a)(1).

        While the bankruptcy court’s order vacating the default judgment was interlocutory, it
became reviewable by this Panel when the bankruptcy court subsequently granted summary
judgment in favor of Countrywide. See Tetro v. Elliott Popham Pontiac, Oldsmobile, Buick, and
GMC Trucks, Inc., 173 F.3d 988, 993 (6th Cir. 1999) (“[A]n appeal from a final judgment generally
brings up all prior interlocutory orders and rulings that were not reviewable until the entry of a final

                                                  -2-
judgment.”)1 The granting of relief under Rule 60(b)(6) is reviewed for an abuse of discretion.
Geberegeorgis v. Gammarino (In re Geberegeorgis), 310 B.R. 61, 64 (B.A.P. 6th Cir. 2004). “An
abuse of discretion occurs only when the [trial] court relies upon clearly erroneous findings of fact
or when it improperly applies the law or uses an erroneous legal standard.” Kaye v. Agripool, SRL
(In re Murray, Inc.), 392 B.R. 288, 296 (B.A.P. 6th Cir. 2008).

       An abuse of discretion is defined as a definite and firm conviction that the court
       below committed a clear error of judgment. The question is not how the reviewing
       court would have ruled, but rather whether a reasonable person could agree with the
       bankruptcy court’s decision; if reasonable persons could differ as to the issue, then
       there is no abuse of discretion.

Mayor and City Council of Baltimore, Md. v. W. Va. (In re Eagle-Picher Indus., Inc.), 285 F.3d 522,
529 (6th Cir. 2002)(internal quotation marks and citations omitted).

                                           III.   FACTS

       On March 19, 2007, David and Jacqueline Brown (“Debtors”) executed a promissory note
in the principal amount of $206,000 and granted First Liberty Financial Group, LLC (“First Liberty”)
a mortgage on real estate located at 721 Mill Ridge Road, Lexington, Kentucky 40514 to secure
payment on the note. First Liberty subsequently assigned the note and mortgage to Countrywide.
The mortgage was duly filed for record in the Fayette County Clerk’s Office on March 29, 2007.

       On July 12, 2007, the Debtors filed a voluntary petition for relief under chapter 7 of the
Bankruptcy Code. On June 23, 2008, the chapter 7 Trustee filed an adversary complaint against
Countrywide in which he alleged that the mortgage was avoidable pursuant to 11 U.S.C. § 544(a).2

       1
         Prior to the granting of summary judgment in favor of Countrywide, the Trustee filed a
Notice of Appeal from the order vacating the default judgment. That appeal was dismissed on the
grounds that it was interlocutory.
       2
        The Debtors’ signatures on the mortgage were witnessed and acknowledged by K. Michael
Slaughter. The Trustee asserts that the acknowledgment on the mortgage was defective because
Slaughter’s notary bond did not contain a notarized statement from his surety as required by
Kentucky Revised Statute § 423.010. Therefore, he asserts that pursuant to Kentucky law he may

                                                  -3-
The bankruptcy court issued summons to Countrywide ordering that it respond to the complaint
within 30 days of the issuance of the summons, August 8, 2008.3 The Trustee served Countrywide
with the complaint and summons by certified mail on July 18, 2008. No response to the complaint
was filed by Countrywide. The Trustee filed a motion for default judgment on August 11, 2008.
The bankruptcy court entered a default judgment against Countrywide on August 12, 2008.

       On October 6, 2008, fifty-nine days after its response to the Trustee’s complaint was due,
Countrywide entered an appearance in the adversary proceeding. On October 21, 2008, seventy-
three days after its response was due, Countrywide filed a motion to vacate the default judgment
pursuant to Federal Rule of Civil Procedure 60(b)(1), (4) and/or (6). In support of its motion,
Countrywide asserted that pursuant to the Federal Rules of Civil Procedure, the default judgment
was prematurely entered, that the Trustee would not be prejudiced if the default judgment were
vacated, that it had a meritorious defense, and finally, that no culpable conduct of Countrywide led
to the default. It asserted that its change of statutory agent “around the time” the complaint was
served, “may have resulted in some delay in getting the Complaint properly routed in order to retain
counsel . . . .” (J.A. at 94.) Countrywide did not offer evidence of any kind in support of its motion,
nor did it allege any facts constituting “exceptional circumstances” which would entitle it to relief
under Rule 60(b)(6).

       On November 13, 2008, the bankruptcy court held a hearing on Countrywide’s motion to
vacate the default judgment. At the hearing, Countrywide abandoned any arguments it may have had
for relief from the default under Rule 60(b)(1), and specifically stated that it was moving for relief
under subsections (4) and (6) only. (J.A. at 262.) At the conclusion of the hearing, the bankruptcy
court dismissed Countrywide’s argument under subsection (4), and granted the motion pursuant to
Rule 60(b)(6).4 In so doing, the court stated:

avoid the mortgage as a bona fide purchaser because it is not recordable, and it failed to provide
constructive notice.
       3
       First Liberty and K. Michael Slaughter were also named as defendants. First Liberty timely
answered the complaint. A default judgment was entered against Slaughter.
       4
         Countrywide argued that pursuant to Rule 60(b)(4), the default judgment should be vacated
as void because it was prematurely entered. Citing to Federal Rule of Civil Procedure 12(a)(1),

                                                  -4-
               The Court will grant the motion to vacate the order under Rule
               60(b)(6). I don’t think 60(b)(4) applies. . . . Countrywide has not
               offered any particular reason why they can’t seem to get their act
               together, didn’t get their act together in this case. But, it does appear
               that there is a meritorious defense and maybe a winning defense. And
               there will not be prejudice to the plaintiff in this case because the case
               is ongoing.

               And with respect to culpable conduct and whether or not that’s
               applicable here, we just don’t know. The switch of service of process
               agents may have, in fact, contributed to the problem that’s before the
               Court today. But, I think it’s a matter of, in this case, because the
               really driving concern is the question of the likelihood of a
               meritorious defense in this case.

(J.A. at 263-64.)

       The bankruptcy court then entered summary judgment in Countrywide’s favor upholding the
validity and enforceability of its mortgage, and dismissing the Trustee’s claims against all remaining

Countrywide asserted that it had twenty days after being served with the summons and complaint
within which to file its answer, and that pursuant to Federal Rule of Civil Procedure 5(b), service
was complete upon mailing of the complaint. (In fact, under Federal Rule of Bankruptcy Procedure
7012, the time period for serving the defendant’s answer is within 30 days of the issuance of the
summons.) Additionally, because the service was accomplished by mail, an additional three days
are to be added to the prescribed 20 days. Fed. R. Civ. Proc. 6(e). Therefore, Countrywide asserted
that it had until August 11, 2008, to respond to the Trustee’s complaint, and because the Trustee had
“improperly filed his Motion for Default Judgment against [Countrywide] on August 11, 2008 . . .
the proper time period for [Countrywide] to answer the Complaint was improperly shortened.” (J.A.
at 85.)

        The default judgment was not, however, entered until August 12, 2008, after Countrywide’s
time period to respond had expired. Additionally, Countrywide did not move to vacate the default
judgment pursuant to Rule 60(b)(4) until 72 days after it was entered. No explanation for this delay
was even attempted by Countrywide. “Rule 60(b) plainly states that a motion seeking relief from
a final judgment must be filed ‘within a reasonable time.’ FED. R. CIV. P. 60(b).” Days Inns
Worldwide, Inc. v. Patel, 445 F.3d 899, 903 (6th Cir. 2006). Unlike subject matter jurisdiction,
personal jurisdiction and due process objections can be waived by a party’s failure to timely act. Id.
at 905. Even if we were to assume that the timing of the default judgment violated due process, the
judgment would be merely voidable, not void, and could be set aside upon timely application to the
court. Id. at 906-07. In any event, Countrywide abandoned its argument under subsection (4) before
this Panel as it did not address it in its brief, and counsel for Countrywide confirmed at oral argument
that Countrywide sought relief here under Rule 60(b)(6) only.

                                                  -5-
defendants.5 The Trustee’s timely appeal of both the order granting summary judgment, and the
order vacating the earlier default judgment followed.

                                       IV.     DISCUSSION

       Federal Rule of Civil Procedure 60(b), made applicable to bankruptcy proceedings by Federal
Rule of Bankruptcy Procedure 9024, sets forth six reasons that justify granting relief from a final
judgment or order:

               (b) Grounds for Relief from a Final Judgment, Order, or
               Proceeding. On motion and just terms, the court may relieve a party
               or its legal representative from a final judgment, order, or proceeding
               for the following reasons:

               (1) mistake, inadvertence, surprise, or excusable neglect;

               (2) newly discovered evidence that, with reasonable diligence, could
               not have been discovered in time to move for a new trial under Rule
               59(b);

               (3) fraud (whether previously called intrinsic or extrinsic), or
               misconduct by an opposing party;

               (4) the judgment is void;

               (5) the judgment has been satisfied, released or discharged; it is based
               on an earlier judgment that has been reversed or vacated; or applying
               it prospectively is not longer equitable; or

               (6) any other reason that justifies relief.

Fed. R. Civ. P. 60(b).

       5
         The Trustee and First Liberty filed cross motions for summary judgment prior to
Countrywide filing its motions for partial summary judgment. No hearing was held on the motions
and the judgment granting Countrywide’s summary judgment dismissed the claims against First
Liberty.

                                                  -6-
       As the party seeking to invoke Rule 60(b), Countrywide bears the burden of establishing that
its prerequisites are satisfied. McCurry v. Adventist Health System/Sunbelt, Inc., 298 F.3d 586, 592
(6th Cir. 2002). It is significant that Countrywide abandoned its arguments under 60(b)(1) and
60(b)(4) because, while Rule 60(b)(6) authorizes a court to grant relief from a judgment for “any
other reason that justifies relief,” such relief is applied “‘only in exceptional or extraordinary
circumstances which are not addressed by the first five numbered clauses of the Rule.’” Blue
Diamond Coal Co. v. Trustees of the UMWA Combined Benefit Fund, 249 F.3d 519, 524 (6th Cir.
2001) (quoting Olle v. Henry & Wright Corp., 910 F.2d 357, 365 (6th Cir. 1990)); see also, Pioneer
Inv. Serv. Co. v. Brunswick Assocs. Ltd. P’ship., 507 U.S. 380, 393, 113 S. Ct. 1489 (1993); Hopper
v. Euclid Manor Nursing Home, Inc., 867 F.2d 291, 294 (6th Cir. 1989). This is because “almost
every conceivable ground for relief is covered” under the other subsections of Rule 60(b). Olle v.
Henry & Wright Corp., 910 F.2d 357, 365 (6th Cir. 1990). Further, Rule 60(b)(6) is applied only
“as a means to achieve substantial justice when ‘something more’ than one of the grounds contained
in Rule 60(b)’s first five clauses is present.” Hopper, 867 F.2d at 294. That “‘something more’,
then, must include unusual and extreme situations where principles of equity mandate relief” coupled
with a showing that if relief is not granted extreme and undue hardship will result. Olle, 910 F.2d
at 365; see also Frontier Ins. Co. v. Blaty, 454 F.3d 590, 597 (6th Cir. 2006).

       In evaluating Countrywide’s motion for relief from the default judgment, rather than
determine whether “extraordinary circumstances” justifying relief under Rule 60(b)(6) existed, the
bankruptcy court applied the factors to be considered when a defendant invokes 60(b)(1). See
Waifersong, Ltd. v. Classic Music Vending, 976 F.2d 290, 292 (6th Cir. 1992) (factors to be
considered under 60(b)(1) are whether culpable conduct of the defendant led to the default, whether
the defendant has a meritorious defense, and whether the plaintiff will be prejudiced). Clause (6)
and clauses (1) through (5) of Rule 60(b) are, however, mutually exclusive. Mallory v. Eyrich, 922
F.2d 1273, 1281 (6th Cir. 1991). Countrywide did not, in fact, present a valid basis for relief under
Rule 60(b)(6). Countrywide contends that the bankruptcy court correctly granted relief because:

               It would be an exceptional circumstance to allow the Trustee to
               obtain default judgment against [Countrywide], which extinguishes
               [Countrywide’s] property interests, based upon claims that have been
               previously decided against this same Trustee in the same Court

                                                 -7-
               below. It is reasonable that the Bankruptcy Court would invoke its
               discretion in providing relief to [Countrywide] under Rule 60(b)(6)
               to accomplish justice, and allow the case to proceed on the merits in
               light of the defenses presented by [Countrywide].

(Appellee’s Br. at 16.) The existence of a meritorious defense, and the avoidance of Countrywide’s
mortgage, simply do not present the exceptional circumstances required for relief under Rule
60(b)(6). Countrywide did not offer any evidence in support of its motion for relief. Nor did
Countrywide allege any facts demonstrating “unusual or extreme circumstances,” or how “extreme
and undue hardship” would result from failure to vacate the default judgment, or any other facts
which would trigger relief under Rule 60(b)(6). Thus, in the absence of any such evidence, the
bankruptcy court abused its discretion in setting aside the default judgment pursuant to Rule
60(b)(6).

                                      V. CONCLUSION

       For the foregoing reasons, the order of the bankruptcy court setting aside the default
judgment against Countrywide is REVERSED, and the order granting summary judgment in favor
of Countrywide is VACATED.

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