Court Opinion

ID: 2718383
Source: CourtListenerOpinion
Date Created: 2014-08-15 21:00:37.771072+00
Date Added: 2024-06-11T10:33:15.531339
License: Public Domain

Case: 13-11666       Date Filed: 08/15/2014       Page: 1 of 16

                                                                                  [PUBLISH]

                  IN THE UNITED STATES COURT OF APPEALS

                            FOR THE ELEVENTH CIRCUIT
                              ________________________

                                    No. 13-11666
                              ________________________

           D.C. Docket Nos. 0:12-cv-61483-KMW; 10-28935-BKC-RBR

In re
GLOBAL ENERGIES, LLC,
                                                                                       Debtor.
                              ________________________
JOSEPH G. WORTLEY,

                                                           Interested Party - Appellant,
                                            versus

CHRISPUS VENTURE CAPITAL, LLC,

                                                  Petitioning Creditor - Appellee.
                              ________________________

                      Appeal from the United States District Court
                          for the Southern District of Florida
                            ________________________

                                     (August 15, 2014)

Before FAY, Circuit Judge, and HODGES ∗ and HUCK, ∗∗ District Judges.

PER CURIAM:

       ∗
          Honorable Wm. Terrell Hodges, United States District Judge for the Middle District of
Florida, sitting by designation.
       ∗∗
           Honorable Paul C. Huck, United States District Judge for the Southern District of
Florida, sitting by designation.
               Case: 13-11666      Date Filed: 08/15/2014      Page: 2 of 16

       Joseph G. Wortley appeals the district court’s judgment affirming the

bankruptcy court’s summary denial of his motion for relief from judgment under

Rule 60(b) of the Federal Rules of Civil Procedure. Wortley asserts that, under

Rule 60(b), new evidence wrongfully withheld by opposing parties,

misrepresentations made by opposing parties, or both, entitled him to relief from

the bankruptcy court’s earlier denial of his motion to dismiss the involuntary

bankruptcy petition filed by Chrispus Venture Capital, LLC.

                                             I.

       Wortley, James Juranitch, and Richard Tarrant shared ownership in Global

Energies, LLC before its bankruptcy. Wortley and Juranitch personally owned

their stakes, while Tarrant held his through Chrispus, the appellee, in which he had

a 93% ownership interest. The three partners formed Global to market a plasma

technology that Juranitch had developed. In mid-2010, business disagreements

undermined that partnership and resulted in Tarrant and Juranitch’s developing a

plan to wrest Wortley’s interest in Global from him by having Chrispus file an

involuntary bankruptcy petition against Global.1 That plan was hatched, or at least

captured, in emails exchanged between Tarrant, Juranitch, and Chrispus’s

       1
         “Although bankruptcy cases often are commenced on the debtor’s own initiative,
Section 303 of the Bankruptcy Code allows creditors in some instances to hale a debtor into
bankruptcy court by filing an involuntary petition.” Trusted Net Media Holdings, LLC v.
Morrison Agency, Inc. (In re Trusted Net Media Holdings, LLC), 550 F.3d 1035, 1040 (11th Cir.
2008) (en banc) (internal quotation marks omitted).
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bankruptcy attorney, Chad Pugatch, in June 2010 (the “June 17–19 emails”).

Writing to Tarrant on June 17, two weeks before Chrispus’s bankruptcy petition

was filed, Juranitch said:

      The following is my humble attempt at presenting a strategy for
      Global Energies/Plasma Power starting next week. If you and Ron
      [Roberts, Chrispus’s primary officer,] agree with the memo, I
      recommend we have Chad Pugatch review it, and add his insight. The
      plan is:

      1. [Tarrant] communicates with [Wortley] on Tuesday when he is
      back, and requests a response on the offer that [Tarrant] extended
      Sunday night, which expired last Tuesday. [Tarrant] gives [Wortley]
      until the end of the business day.

      2. If a meaningful response is received [Tarrant] and [Juranitch] start
      negotiating . . . . A two[-]day window is given to [Wortley] for a
      completed agreement.

      3. If no meaningful response is received from [Wortley], Chrispus
      Ventures files for “Debtor in Possession” rights under Chapter 11 law
      on Wednesday. . . .

             ....

      6. . . . Finally the [new company, Plasma Power LLC] may have to
      stand up to a legal battle from [Wortley] and needs to dot its I’s and
      cross its T’s. . . .

      7. I am not clear how the Debtor in Possession eradicates the $200k
      note to [Wortley] and how [Wortley’s] stock is dissolved. If this is
      accomplished in a bidding war to buy the complete assets of Global
      including the patents by its debtors than [sic] that is clear. If on the
      other hand the Debtor in Possession is to dissolve the company as an
      end game then we need to start spinning Plasma Power at this time. It
      might also become Global Plasma Power etc. I think we need to have
      this memo reviewed and a conference call with [Pugatch] to fill in the
      blanks at this point.
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Wortley’s Mot. for Reh’g. for Newly Discovered Evidence (hereinafter “Wortley’s

Mot. for Reh’g”), Ex. D at 2. Tarrant replied: “I agree in general . . . . I suggest

you and [Roberts] pursue this strategy.” Wortley’s Mot. for Reh’g, Ex. F at 5. On

June 19, Juranitch sent the plan to Pugatch who reviewed it and scheduled a time to

discuss it with Juranitch, Roberts, and Tarrant. No agreement with Wortley was

reached, and Chrispus filed an involuntary bankruptcy petition against Global on

July 1, 2010.

       Wortley took no initial action to oppose the bankruptcy petition and even

approved the appointment of a trustee. He later began to suspect collusion by

Tarrant and Juranitch, particularly when Chrispus showed interest in bidding on

Global’s assets at the bankruptcy sale. Acting on those suspicions, Wortley

moved under 11 U.S.C. § 1112(b) to dismiss the bankruptcy petition as having

been filed in bad faith.2 The bankruptcy court held an emergency evidentiary

hearing; at that point, Wortley could proffer only circumstantial evidence in

support of his motion. Chrispus had not turned over the June 17–19 emails, despite

Wortley’s request for all documents containing communications about Global

       2
         Under 11 U.S.C. § 1112(b), a bankruptcy court may dismiss a case for “cause,” Albany
Partners, Ltd. v. Westbrook (In re Albany Partners, Ltd.), 749 F.2d 670, 674 (11th Cir. 1984);
“cause” includes filing a petition in bad faith, Phoenix Piccadilly, Ltd. v. Life Ins. Co. of Va. (In
re Phoenix Piccadilly, Ltd.), 849 F.2d 1393, 1394 (11th Cir. 1988).
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between Juranitch, Tarrant, and Pugatch.3 Pugatch, a recipient of some of the June

17–19 emails, represented to the bankruptcy court that “all responsive documents”

had been produced. Wortley’s Mot. for Reh’g, Ex. H. He asserted no privilege

that would have allowed Chrispus to withhold the missing emails or put Wortley

on notice that the emails existed.

       Weakening Wortley’s case further was the fact that Tarrant and Juranitch

both gave sworn testimony denying their plan to file an involuntary bankruptcy

petition. When asked under oath whether he had “any conversations with

Juranitch about filing an involuntary [bankruptcy],” Tarrant answered “no.”

Tarrant Dep. at 53. Juranitch similarly testified that he had not learned of

Chrispus’s plan to file an involuntary bankruptcy petition until “shortly after they

filed it or right when they were going to do it.” Juranitch Dep. at 103. Pugatch,

who is a partner in what Wortley admits is a “respected Ft. Lauderdale bankruptcy

firm,” Appellants’s Br. at 24, lent his weight to those statements before the
       3
         In addition to being relevant to Wortley’s claim, the June 17–19 emails were covered by
the description of at least two types of documents that he requested:

       1. All Documents and correspondence between Chrispus and James Juranitch
       which relate to the Debtor. This request specifically includes correspondence
       between [Pugatch] and Juranitch, Tarrant and Juranitch, and Roberts and
       Juranitch.

       2. All Documents and correspondence between Chrispus and James Juranitch
       which relate to Plasma Power LLC. This request specifically includes
       correspondence between [Pugatch] and Juranitch, Tarrant and Juranitch, and
       Roberts and Juranitch.

Wortley’s Mot. for Reh’g, Ex. G at 8.
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bankruptcy court, saying “[t]hroughout the entire process, representatives of

Chrispus . . . [had] the stated purpose of trying to salvage [Global] . . . all with the

goal of saving the monetary investment,” Tr. of Evidentiary Hr’g (Nov. 10,

2010) at 62-63. Pugatch, of course, knew better. He knew Juranitch and Tarrant

sought to “eradicate[]” Wortley’s promissory note and “dissolve[]” his stock.

Wortley’s Mot. for Reh’g, Ex. D at 2. With no direct evidence for his claim,

Wortley asked to withdraw his motion to dismiss, and the bankruptcy court granted

that request without prejudice. Between the time when Wortley filed that motion

and withdrew it, the trustee sold Global’s assets to Chrispus; after the motion to

dismiss was withdrawn, the bankruptcy court approved the sale.

      About a year later, Wortley renewed his motion to dismiss the bankruptcy

case based on new evidence. He had identified emails between Tarrant and

Juranitch that appeared to show that they had colluded to do business without him

before filing for bankruptcy. Those emails were not the ones from June 17–19,

however, because those were still being withheld from Wortley, despite his earlier

discovery requests. Like the evidence that Wortley had proffered earlier, the new

emails, to which Wortley did have access, only circumstantially supported the

claim that Chrispus had filed the involuntary bankruptcy petition in bad faith.

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Finding the evidence to be insufficient to support Wortley’s claims, the bankruptcy

court dismissed his motion with prejudice.4

       Around that same time, in related state-court litigation, Wortley finally

obtained the June 17–19 emails appearing to show both that Juranitch and Tarrant

colluded in filing for involuntary bankruptcy and that they had testified falsely

about that plan in their earlier depositions. Notably, the emails were produced not

by Pugatch—who had received and known of them—but by the attorney who was

defending Tarrant and the others against Wortley’s state-law claims. Wortley then

filed a Rule 60(b) motion for relief in the bankruptcy court based on those newly

discovered emails. The bankruptcy court summarily denied that motion and

decided that no remedy was available to Wortley. As grounds for that denial, the

court noted that Wortley’s evidence of bad faith “doesn’t change anything,” the

issue already had been raised, the “bankruptcy is done,” “Wortley had his day in

court,” and, even if Chrispus had improperly withheld evidence from Wortley, it

would not matter because “[Wortley] knew that [Juranitch, Tarrant, Roberts, and

Pugatch] were all talking.” Tr. of Hr’g on Mot. to Reconsider (May 24, 2012) at

10, 18, 22. On appeal, the district court affirmed and reasoned Wortley’s new

       4
         Wortley appealed the denial of his second motion to dismiss to the district court. That
appeal later was dismissed, apparently because of his failure to file a brief timely. Wortley notes
that an unopposed motion for enlargement of time was pending at the time of the dismissal.
Regardless, the outcome of that appeal or Wortley’s other abandoned appeals does not impact
our decision.
                                                 7
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evidence was insufficient to warrant Rule 60(b) relief. Wortley appeals the

judgment of the district court.

                                          II.

      As the second court to review the judgment of the bankruptcy court, we

review it independently of the district court. Senior Transeastern Lenders v.

Official Comm. of Unsecured Creditors (In re TOUSA, Inc.), 680 F.3d 1298, 1310

(11th Cir. 2012). We review the bankruptcy court’s denial of a motion for relief

from judgment under Rule 60(b) for abuse of discretion. See Frederick v. Kirby

Tankships, Inc., 205 F.3d 1277, 1287 (11th Cir. 2000). If the bankruptcy court

“has made a clear error of judgment, or has applied the wrong legal standard,” we

will conclude that it has abused its discretion in denying a Rule 60(b) motion.

See Ameritas Variable Life Ins. Co. v. Roach, 411 F.3d 1328, 1330 (11th Cir.

2005) (per curiam). Wortley cites two grounds on which he was entitled to relief

under Rule 60(b): first, under Rule 60(b)(2), he had discovered new evidence of the

bad-faith filing; second, under Rule 60(b)(3), he was entitled to relief from the

judgment as a result of fraud, misrepresentation, or misconduct by Chrispus.

Regarding Rule 60(b)(2), Wortley needed to demonstrate that (1) the new evidence

was discovered after the judgment was entered, (2) he had exercised due diligence

in discovering that evidence, (3) the evidence was not merely cumulative or

impeaching, (4) the evidence was material, and (5) the evidence was likely to

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produce a different result. See Waddell v. Hendry Cnty. Sheriff’s Office, 329 F.3d

1300, 1309 (11th Cir. 2003); Branca v. Sec. Benefit Life Ins. Co., 789 F.2d 1511,

1512 (11th Cir. 1986) (per curiam). Wortley’s motion satisfied each of those

criteria.

        The bankruptcy court reached the opposite conclusion by, at least in part,

applying the wrong legal standard to Wortley’s Rule 60(b)(2) motion. Instead of

considering whether the June 17–19 emails were new evidence, the court asked

whether Wortley had presented a new issue in his Rule 60(b)(2) motion. Because

Wortley previously had suspected bad faith by Chrispus and had raised that issue in

his motions to dismiss, the court held that the June 17–19 emails suggesting

collusion did not warrant Rule 60(b)(2) relief. In the court’s words, Wortley “had

his day in court.” Tr. of Hr’g on Mot. to Reconsider (May 24, 2012) at 22. But

parties who request relief under Rule 60(b)(2) are not barred from it simply

because they rely on issues that had been litigated earlier. In fact, in the context of

Rule 60(b)(2) motions, that is commonplace. See, e.g., Branca, 789 F.2d 1511

(granting Rule 60(b)(2) relief, where the movant offered new evidence on the

previously litigated issue of whether an insured man had died); Alpern v. UtiliCorp

United, Inc., 84 F.3d 1525 (8th Cir. 1996) (same, where the previously litigated

issue was whether a company had failed to make required disclosures); Estate of

Kraus v. Comm’r, 875 F.2d 597 (7th Cir. 1989) (same, where the previously

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litigated issue was whether a drafting mistake had occurred in a trust document);

Chilson v. Metro. Transit Auth., 796 F.2d 69 (5th Cir. 1986) (same, where the

previously litigated issue was whether an employee had been unlawfully

discharged). What matters is whether the movant presents new evidence to support

the motion, in addition to satisfying the other criteria of Rule 60(b)(2). See

Waddell, 329 F.3d at 1309. By applying the wrong legal standard to Wortley’s

Rule 60(b)(2) motion, the bankruptcy court abused its discretion. See Ameritas

Variable Life Ins. Co., 411 F.3d at 1330.

      Even if the bankruptcy court’s statements can be construed as applying the

standards of Rule 60(b)(2), it made clear errors of judgment and abused its

discretion in applying those standards. See id. (holding that a court abuses its

discretion by making clear errors of judgment). For example, the bankruptcy

court’s statement that Wortley “knew that [Juranitch, Pugatch, Roberts, and

Tarrant] were all talking” could be construed as a finding that Wortley’s evidence

was not new, that Wortley failed to exercise due diligence in discovering the June

17–19 emails showing those discussions, that the emails were cumulative or

impeaching, or some combination of those three things. Tr. of Hr’g on Mot. to

Reconsider (May 24, 2012) at 22. The court’s statement that Wortley’s evidence

“doesn’t change anything” could likewise be construed as a finding that the

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evidence was neither material nor likely to produce a different result in the

bankruptcy. Id.

         Under any of those possible interpretations of the bankruptcy court’s

statements, however, the court committed clear errors of judgment. First, Wortley

discovered the June 17–19 emails in March 2012, well after the bankruptcy court

denied with prejudice his motion to dismiss the bankruptcy petition. Second,

before March 2012, Wortley did exercise due diligence in trying to discover the

messages and had asked for precisely those types of emails in his initial document

request to Chrispus. Although the email messages were indisputably responsive to

that request, relevant to Wortley’s claims, and nonprivileged, Chrispus did not

produce them. Because they were not listed on a privilege log, Wortley did not

know the messages existed. He tried to obtain the same evidence through

depositions of Juranitch and Tarrant, but both men denied any plan to file a

bankruptcy petition in bad faith, sworn denials that now appear to be blatantly

false.

          All the more troubling is that Pugatch, a sworn officer of the court,

actively obstructed Wortley’s efforts to obtain evidence of the plan to file for

involuntary bankruptcy. He and his associate falsely responded to Wortley’s

November 2010 discovery request by saying that “all non-privileged documents

responsive to [Wortley’s requests]” had been produced. Wortley’s Mot. for

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Reh’g, Ex. H at 3. Clearly, some significant non-privileged and responsive

documents had been withheld. Pugatch also represented Tarrant at the deposition,

where Tarrant falsely testified that he had had no conversations with Juranitch

about filing an involuntary bankruptcy petition. Having participated in the June

17–19 email discussions about the involuntary bankruptcy petition, Pugatch knew

that testimony was false, yet he did nothing to correct it or to remedy the earlier

failure to produce the June 17–19 email messages. The rules regulating attorney

conduct of the Florida Bar required him to do so. See R. Reg. Fla. Bar 4-3.3(a)(2)

(“A lawyer shall not knowingly fail to disclose a material fact to a tribunal when

disclosure is necessary to avoid assisting a criminal or fraudulent act by the

client.”); id. at (a)(4) (“A lawyer shall not knowingly offer evidence that the lawyer

knows to be false. A lawyer may not offer testimony that the lawyer knows to be

false in the form of a narrative unless so ordered by the tribunal. If a lawyer, the

lawyer’s client, or a witness called by the lawyer has offered material evidence and

the lawyer comes to know of its falsity, the lawyer shall take reasonable remedial

measures, including, if necessary, disclosure to the tribunal. A lawyer may refuse

to offer evidence that the lawyer reasonably believes is false.”). In sum, the

parties, who had the evidence that Wortley needed to substantiate his claims,

blocked his access to it and deliberately prevented him from finding it. Wortley

eventually obtained the emails from a different attorney as part of another lawsuit,

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but that does not diminish Wortley’s due diligence or his adversaries’ apparent

malfeasance in the litigation that led to this appeal.

           Third, far from being cumulative or impeaching, the June 17–19 emails

 were direct evidence of the plan and intent of Tarrant and Juranitch to have

 Chrispus file a bankruptcy petition in bad faith. While this court has not settled

 on one test for determining when a bankruptcy petition is filed in bad faith, the

 June 17–19 emails show bad faith by Chrispus under all three recognized tests:

 the improper purpose test, the improper use test, and the test modeled on Rule

 9011 of the Federal Rules of Bankruptcy Procedure. 5 See Gen. Trading, Inc. v.

       5
           Under the improper purpose test, “bad faith exists where the filing of the petition was
motivated by ill will, malice or the purpose of embarrassing or harassing the debtor.” Gen.
Trading Inc., 119 F.3d at 1501. Filing an involuntary bankruptcy petition deliberately to gain
advantage in a business dispute is considered an improper purpose, see Basin Elec. Power Coop.
v. Midwest Processing Co., 769 F.2d 483, 486–87 (8th Cir. 1985), as is filing an involuntary
bankruptcy petition in order to take control of a corporation or its assets, see In re Better Care,
Ltd., 97 B.R. 405, 412 (Bankr. N.D. Ill. 1989). The June 17–19 emails indicate that Chrispus
had both of those purposes in mind, when it filed its involuntary bankruptcy petition.
         Under the improper use test, bad faith exists when a creditor uses a bankruptcy
proceeding to accomplish objectives not intended by the Bankruptcy Code, such as taking over a
debtor corporation and its assets. See Gen. Trading Inc., 119 F.3d at 1501; In re Better Care,
Ltd., 97 B.R. at 411–12. As the June 17–19 emails show, Chrispus used the Bankruptcy Code in
that very way.
         Finally, under the test modeled on Rule 9011 of the Federal Rules of Bankruptcy
Procedure, bad faith exists, where a filing party (1) fails to make a reasonable inquiry into the
facts and the law before filing and (2) files the petition for an improper purpose. Gen. Trading
Inc., 119 F.3d at 1502. The first prong, reasonable inquiry, is an objective one. See id. Based
on the record before us, Chrispus did not make an objectively reasonable inquiry into the law and
facts before filing its petition. A reasonable party would not believe that the Bankruptcy Code
permits it to use a bankruptcy proceeding to rid itself of business partners. See Cedar Shore
Resort, Inc. v. Mueller (In re Cedar Shore Resort, Inc.), 235 F.3d 375, 379 (8th Cir. 2000)
(noting that the Bankruptcy Code’s purpose is “‘to restructure a business’s finances so that it
may continue to operate, provide its employees with jobs, pay its creditors, and produce a return
for its stockholders’”) (quoting H.R. Rep. No. 595 (1975), reprinted in 1978 U.S.C.C.A.N.
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 Yale Materials Handling Corp., 119 F.3d 1485, 1501-02 (11th Cir. 1997). In fact,

 it would be clear error to interpret the emails as showing anything other than that

 Tarrant and Juranitch conspired to have Chrispus file the bankruptcy petition in

 bad faith.

         Fourth, the June17–19 emails were material to Wortley’s claims. As we

 have explained, the messages clearly show that Tarrant, Juranitch, and Chrispus

 acted in bad faith in filing the involuntary bankruptcy petition. Fifth, the June

 17–19 emails were likely to produce a different result on Wortley’s motion to

 dismiss the bankruptcy petition. Under 11 U.S.C. § 1112(b), a bankruptcy court

 is permitted to “dismiss a case for ‘cause,’” Albany Partners, Ltd. v. Westbrook

 (In re Albany Partners, Ltd.), 749 F.2d 670, 674 (11th Cir. 1984), including for

 bad faith on the part of the filer, Phoenix Piccadilly, Ltd. v. Life Ins. Co. of Va.

 (In re Phoenix Piccadilly, Ltd.), 849 F.2d 1393, 1394 (11th Cir. 1988). On that

 basis, the bankruptcy court could and should have dismissed Chrispus’s petition

 for bad faith had the truth been known. Alternatively, the bankruptcy court could

 have revisited Global’s sale, reversed the determination that the sale occurred in

 good faith, and voided the sale. See 11 U.S.C. § 363(m); Fed. R. Civ. P. 60(b)(5),

6179). The second prong, improper purpose, is also satisfied by Chrispus’s filing. As noted,
Chrispus filed the involuntary bankruptcy petition for the improper purpose of prevailing over
Wortley in a business dispute and taking control of Global’s assets while eliminating Wortley’s
interests. See Gen. Trading Inc., 119 F.3d at 1501.
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 (d)(3). By clearly erring in its application of Rule 60(b)(2) under the facts of this

 case, the bankruptcy court abused its discretion.6 See Ameritas Variable Life Ins.

 Co., 411 F.3d at 1330.

       On remand, the bankruptcy court shall grant Wortley’s Rule 60(b)(2)

motion and vacate its order approving the sale of Global’s assets to Chrispus.

This should be without prejudice to any innocent third parties, whose rights and

interests are derived and dependent upon the sale. The bankruptcy court then shall

conduct any hearings necessary in the exercise of all its powers at law or in equity

and issue appropriate orders or writs, including without limitation orders requiring

an accounting and disgorgement, orders imposing sanctions, writs of garnishment

and attachment, and the entry of judgments to ensure that Chrispus, Juranitch,

Tarrant, and Pugatch do not profit from their misconduct and abuse of the

bankruptcy process. The bankruptcy court shall vacate the sanctions imposed

upon Wortley and ensure that he is fully compensated for any and all damages,

including awarding Wortley attorneys’ fees and costs. The only reason that this

court does not impose any of these remedies is that Chrispus, Juranitch, Tarrant,

and Pugatch have not had an appropriate hearing, which will be conducted before

the bankruptcy court.

       6
         Having concluded that the bankruptcy court abused its discretion in denying Wortley’s
Rule 60(b)(2) motion, we need not reach his alternative contention that the bankruptcy court
abused its discretion in denying his request for relief under Rule 60(b)(3).
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REVERSED AND REMANDED WITH INSTRUCTIONS.

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