Court Opinion

ID: 4323834
Source: CourtListenerOpinion
Date Created: 2018-10-24 15:01:39.162422+00
Date Added: 2024-06-11T14:19:31.954397
License: Public Domain

By order of the Bankruptcy Appellate Panel, the precedential effect
                        of this decision is limited to the case and parties pursuant to
                    6th Cir. BAP LBR 8024-1(b). See also 6th Cir. BAP LBR 8014-1(c).

                                         File Name: 18b0004n.06

                      BANKRUPTCY APPELLATE PANEL
                                     OF THE SIXTH CIRCUIT

 IN RE: PAUL E. BONFIGLIO; PAMELA S. BONFIGLIO,               ┐
                                                              │
                                                               >        No. 18-8004
                                                              │
                                                              ┘

                      On Appeal from the United States Bankruptcy Court
                          for the Northern District of Ohio at Toledo.
                           No. 17-30356—John P. Gustafson, Judge.

                              Decided and Filed: October 24, 2018

    Before: BUCHANAN, DALES and HUMPHREY, Bankruptcy Appellate Panel Judges.

                                        _________________

                                              COUNSEL

ON BRIEF: Matthew A. Taulbee, GERNER & KEARNS, CO., LPA, Florence, Kentucky, for
Appellant.
                                        _________________

                                              OPINION
                                        _________________

       BETH A. BUCHANAN, Bankruptcy Appellate Panel Judge. Appellant-Creditor SRP
2012-4 LLC (“SRP”) failed to timely oppose the motion of debtors Paul and Pamela Bonfiglio to
avoid its lien, and the bankruptcy court entered an order avoiding the lien. Arguing that its
failure to oppose the lien avoidance was an excusable litigation mistake, SRP timely sought
relief from that order under Federal Rule of Civil Procedure 60(b) (“Rule 60(b)”).           The
bankruptcy court rejected the excuse, and entered an order denying relief under Rule 60(b) (the
“Order”). SRP now appeals from the Order, arguing that the bankruptcy court abused its
discretion in making its determination to deny SRP’s request for Rule 60(b)(1) relief by focusing
 No. 18-8004                                      In re Bonfiglio                                        Page 2

exclusively on SRP’s culpability, and failing to consider other relevant factors, such as whether
relief would prejudice the opposing party and whether SRP had a meritorious claim. For the
reasons that follow, the Panel affirms.

                                            ISSUE ON APPEAL

        Appellant SRP presents one issue1 on appeal: “Whether the bankruptcy court committed
an abuse of discretion in failing to evaluate [SRP]’s Motion for Relief from Judgment under Fed.
R. Civ. P. 60(b).”

                         JURISDICTION AND STANDARD OF REVIEW

        The Bankruptcy Appellate Panel of the Sixth Circuit (“Panel”) has jurisdiction to decide
this appeal. The United States District Court for the Northern District of Ohio has authorized
appeals to the Panel and none of the parties has timely elected to have the appeal heard by the
district court.

        A bankruptcy court’s final order may be appealed as of right pursuant to 28 U.S.C.
§ 158(a)(1). For purposes of appeal, an order is final if it “‘ends the litigation on the merits and
leaves nothing for the court to do but execute the judgment.’” Midland Asphalt Corp. v. United
States, 489 U.S. 794, 798, 109 S. Ct. 1494 (1989) (citation omitted). An order denying relief
pursuant to Rule 60(b) is a final order. Peake v. First Nat’l Bank & Trust Co. of Marquette,
717 F.2d 1016, 1020 (6th Cir. 1983); Schwab v. Oscar (In re SII Liquidation Co.), 517 B.R. 72,
73 (B.A.P. 6th Cir. 2014).

        However, “‘an appeal from denial of Rule 60(b) relief does not bring up the underlying
judgment for review.’” Peake, 717 F.2d at 1020 (further citation omitted). Instead, the ruling
denying relief from judgment pursuant to Rule 60(b) is within the sound discretion of the
bankruptcy judge and reviewed for “abuse of discretion.” Id.; SII Liquidation Co., 517 B.R. at
74. Therefore, the Panel will affirm the ruling unless the Panel has “‘a definite and firm
conviction that the court below committed a clear error of judgment in the conclusion it reached

        1Originally,    the Appellant set forth several issues on appeal (see Appellant’s Designation of Record and
Statement of Issues to be Presented on Appeal, Bankr. No. 17-30356, ECF No. 65), but, subsequently, limited the
issues to one in its brief.
 No. 18-8004                                In re Bonfiglio                                Page 3

upon a weighing of the relevant factors.’” SII Liquidation Co., 517 B.R. at 74 (citation omitted).
“‘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.’” Id. (quoting Behlke v. Eisen (In re Behlke),
358 F.3d 429, 438 (6th Cir. 2004)).

                                              FACTS

       Debtors Paul and Pamela Bonfiglio (together the “Bonfiglios”) filed a joint chapter
13 bankruptcy petition on February 14, 2017. Appellant SRP held an $88,167.40 secured claim
in their bankruptcy case based on a note and mortgage (the “Mortgage”) encumbering the
Bonfiglios’ real estate at 2452 Westbrook Drive, Toledo, Ohio 43613 (the “Property”).

       On the same date that they filed their petition, the Bonfiglios filed their original chapter
13 plan (“Original Plan”) which sought to “strip the second mortgage to [SRP] . . . as this
mortgage lien was discharged in a prior Chapter 7 case . . . .” (Original Chapter 13 Plan, Bankr.
No. 17-30356, ECF No. 4, ¶ 13). SRP filed an objection to the Original Plan on the grounds that
the adversary proceeding, initiated in an attempt to avoid SRP’s lien in the prior chapter 7
bankruptcy case, was dismissed and SRP’s lien remained intact. SRP requested that confirmation
of the Original Plan be denied.

       On July 25, 2017, the bankruptcy court held a confirmation hearing at which it was
determined that the Bonfiglios would file an amended chapter 13 plan within seven days to
correct the mortgage stripping language. (Proceeding Memo, Bankr. No. 17-30356, ECF No.
29). The confirmation hearing was continued to September 12, 2017.

       The Bonfiglios filed an amended chapter 13 plan (“Amended Plan”) on July 27, 2017
(Amended Chapter 13 Plan, Bankr. No. 17-30356, ECF No. 30). The Amended Plan included a
provision to strip SRP’s lien but, this time, based on the lien’s alleged status as a wholly
unsecured second mortgage due to the “value of the [Property] being less than the balance due on
the first mortgage to Huntington National Bank . . . .” (Id., ¶ 13).
 No. 18-8004                                   In re Bonfiglio                                       Page 4

        In order to defend against the avoidance of its Mortgage lien, SRP proceeded to obtain
two appraisals of the Property showing values in excess of Huntington National Bank’s first
mortgage claim.2 Upon review of an appraisal report from SRP, the Bonfiglios sought to
continue the September 12, 2017 confirmation date so that they could obtain their “own
appraisal; to compare estimates and possibly settle this matter” with SRP (Motion to Continue
Confirmation Hearing, Bankr. No. 17-30356, ECF No. 34). The bankruptcy court granted the
Bonfiglios’ request and the confirmation hearing was continued to November 7, 2017.

        On November 1, 2017, the Bonfiglios filed a Motion to Avoid Mortgage Lien on Real
Estate (“Motion to Avoid”). In the Motion to Avoid, the Bonfiglios requested the avoidance of
SRP’s Mortgage lien against the Property as wholly unsecured based on the value of the Property
being less than the amount owed to the first mortgage holder, Huntington National Bank. Soon
after the filing of the Motion to Avoid, the Bonfiglios filed another motion to continue the
confirmation hearing so that it could be “continued to the same date set for Debtors’ Motion to
Avoid Mortgage Lien on Real Estate with [SRP].” (Motion to Continue Confirmation Hearing,
Bankr. No. 17-30356, ECF No. 38). The request was granted and the confirmation hearing was
continued to December 5, 2017.

        Although settlement negotiations and discussions over conflicting appraisal valuations
were ongoing between counsel for SRP and the Bonfiglios, SRP did not respond to or oppose the
Bonfiglios’ Motion to Avoid.           Noting the failure of SRP to file a timely objection, the
bankruptcy court entered an order (“Order to Avoid Mortgage Lien”) on November 27, 2017
avoiding SRP’s lien and ordering that SRP’s claim be treated as an unsecured claim (Order,
Bankr. No. 17-30356, ECF No. 41).

        On December 4, 2017, SRP filed a Motion for Relief from Order to Avoid Mortgage Lien
(“Motion for Relief”) requesting that the bankruptcy court vacate the Order to Avoid Mortgage
Lien pursuant to Federal Rule of Bankruptcy Procedure 9024 and Rule 60(b)(1). (Motion for
Relief, Bankr. No. 17-30356, ECF No. 44). In the Motion for Relief, SRP argued that it made an

        2The appraisals are attached to SRP’s Motion for Relief from Order to Avoid Mortgage Lien (Appraisals,
Bankr. No. 17-30356, ECF No. 44, Exs. A and B).
 No. 18-8004                              In re Bonfiglio                                 Page 5

excusable litigation mistake, that the Bonfiglios would not be prejudiced by granting the Motion
for Relief, and that SRP had a meritorious claim for valuation that should be heard on the merits.

       In support of its claim of an excusable litigation mistake, SRP provided the affidavit of
SRP counsel Patricia Johnson (“Ms. Johnson”) detailing the ongoing negotiations between
herself and the Bonfiglios’ counsel, Gordon Barry (“Mr. Barry”), as well as her belief that an
agreed order to schedule a valuation hearing was forthcoming (Affidavit of Patricia L. Johnson,
Bankr. No. 17-30356, ECF No. 44, Ex. C).          In the affidavit, Ms. Johnson stated that on
November 3, 2017, she emailed Mr. Barry asking that he respond to a prior settlement offer from
SRP to treat $15,000 of its claim as secured. She followed up with a November 6, 2017 phone
call to Mr. Barry. During the conversation, they discussed settlement and also the possibility of
an agreed order for a valuation hearing on the Bonfiglios’ Motion to Avoid. Mr. Barry indicated
that his clients could not afford SRP’s $15,000 offer but counteroffered to treat $5,000 of SRP’s
claim as secured. Ms. Johnson memorialized the conversation in a November 6, 2017 email to
Mr. Barry asking that he put the counteroffer in writing. In the email, Ms. Johnson also stated,
“if you are drafting an agreed order to continue the valuation hearing due to the pending motion
to avoid the lien, please draft and send over as I also agree that the matter should be continued
while we work out a mutual resolution.” (Id., attached email dated November 6, 2017). Mr.
Barry did not put the counteroffer in writing but followed up with a November 6, 2017 email
indicating that Mr. Bonfiglio would be willing to convert to chapter 7 and pay SRP $100 per
month over five years. Based on these communications, Ms. Johnson attested to her belief that
she and Mr. Barry would be submitting an agreed order scheduling a valuation hearing on the
Motion to Avoid. Ms. Johnson attested that she did not object to the Motion to Avoid, “because
I believed that due to the negotiations between myself and attorney Barry, as well as, the
discussion to agree to a valuation hearing date, the matter would either be resolved prior to a
decision by the Court on the Debtor’s Motion, or I would have an opportunity to argue my
client’s value of the property at an agreed upon hearing date.” (Id., Ex. C). However, it was
conceded in the Motion for Relief that no agreed order to schedule a valuation hearing was ever
submitted (Motion for Relief, Bankr. No. 17-30356, ECF No. 44, p. 5).
 No. 18-8004                               In re Bonfiglio                                 Page 6

       The bankruptcy court held a combined hearing on confirmation and SRP’s Motion for
Relief on January 17, 2018 (Transcript of January 17, 2018 Hearing, Bankr. No. 17-30356, ECF
No. 71). At the hearing, the bankruptcy judge indicated that he reviewed the communications
between Ms. Johnson and Mr. Barry and asked Ms. Johnson whether the parties reached an
agreement on value during the negotiations. She indicated that the parties did not reach an
agreement. Because no resolution or agreement was reached, the bankruptcy court concluded
that SRP provided no valid basis to grant relief from judgment. On January 18, 2018, the
bankruptcy court entered an order denying SRP’s Motion for Relief “[b]ased upon the reasons
stated on the record at the hearing[.]” (Order, Bankr. No. 17-30356, ECF No. 52). SRP filed a
timely Notice of Appeal from the Order on February 1, 2018.

                                          DISCUSSION

       Rule 60(b)(1), made applicable in bankruptcy cases by Federal Rule of Bankruptcy
Procedure 9024, permits a court to relieve a party from a final judgment or order for “mistake,
inadvertence, surprise, or excusable neglect[.]” Fed. R. Civ. P. 60(b)(1). “In determining
whether relief is appropriate under Rule 60(b)(1), courts consider three factors: ‘(1) culpability—
that is whether the neglect was excusable; (2) any prejudice to the opposing party; and
(3) whether the party holds a meritorious underlying claim or defense.’” Yeschick v. Mineta, 675
F.3d 622, 628 (6th Cir. 2012) (quoting Flynn v. People’s Choice Home Loans, Inc., 440 F.
App’x. 452, 457-58 (6th Cir. 2011)). “Culpability is ‘framed’ by the specific language of the
rule; i.e. a party demonstrates a lack of culpability by demonstrating ‘mistake, inadvertence,
surprise, or excusable neglect.’” Williams v. Meyer, 346 F.3d 607, 613 (6th Cir. 2003) (citation
omitted). “And because Rule 60(b)(1) ‘mandates’ such a demonstration, ‘[i]t is only when the
[party seeking relief] can carry this burden that he will be permitted to demonstrate that he also
can satisfy the other two factors: the existence of a meritorious defense and the absence of
substantial prejudice to the [other party].’” Id. (citation omitted). See also Yeschick, 675 F.3d at
628-29.

       On appeal, SRP argues that the bankruptcy court abused its discretion in denying its
Motion for Relief by focusing on SRP’s lack of a valid excuse for failing to respond to the
Motion to Avoid without considering the other two factors that, according to SRP, favored
 No. 18-8004                               In re Bonfiglio                                 Page 7

granting it relief. However, the bankruptcy court was not required to examine the other two
factors of prejudice to the opposing party and whether SRP held a meritorious claim or defense,
unless SRP first demonstrated a lack of culpability—i.e. that its neglect was excusable. See
Williams, 346 F.3d at 613.

       Consequently, the Panel turns its attention to whether the bankruptcy court abused its
discretion in determining that SRP’s actions or inactions did not constitute excusable neglect. In
assessing whether excusable neglect exists, the Sixth Circuit relies on the principle that clients
are held accountable for their attorneys’ actions and omissions so that the proper focus is on
whether the neglect of the party or its counsel is excusable. Yeschick, 675 F.3d at 629.

       With respect to the conduct of counsel, “‘case law consistently teaches that out-and-out
lawyer blunders—the type of action or inaction that leads to successful malpractice suits by the
injured client—do not qualify as ‘mistake’ or ‘excusable neglect’ within the meaning of Rule
60(b)(1).’” Barron v. Univ. of Mich., 613 F. App’x. 480, 487 (6th Cir. 2015) (citing McCurry ex
rel. Turner v. Adventist Health Sys./Sunbelt, Inc., 298 F.3d 586, 595 (6th Cir. 2002)).
Furthermore, “strategic miscalculation[s]” and “misinterpretation[s] of the law” do not warrant
relief from judgment under Rule 60(b). McCurry, 298 F.3d at 593. In other words, an attorney
may not choose a litigation strategy and then use a Rule 60(b) motion “‘as a technique to avoid
the consequences of decisions deliberately made yet later revealed to be unwise.’” Id. at 594
(citation omitted). “Rather, the uniform decisions of this and other circuits establish that [Rule
60(b)(1)] does not permit litigants and their counsel to evade the consequences of their legal
positions and litigation strategies, even though these might prove unsuccessful, ill-advised, or
even flatly erroneous.” Id. at 595.

       In this case, SRP characterizes its failure to respond to the Motion to Avoid as a litigation
mistake. SRP’s counsel, Ms. Johnson, attested that she did not respond “because I believed that
due to the negotiations between myself and attorney Barry, as well as, the discussion to agree to
a valuation hearing date, the matter would either be resolved prior to a decision by the Court on
the Debtor’s Motion, or I would have an opportunity to argue my client’s value of the property at
an agreed upon hearing date.” (Affidavit of Patricia L. Johnson, Bankr. No. 17-30356, ECF No.
44, Ex. C). However, Ms. Johnson admitted at the hearing that no resolution of the parties’
 No. 18-8004                                In re Bonfiglio                                  Page 8

valuation dispute was reached during the response time. It was further conceded in SRP’s
Motion for Relief that no agreed order to schedule a valuation hearing was ever submitted to the
bankruptcy court (Motion for Relief, Bankr. No. 17-30356, ECF No. 44, p. 5).

        Without such a resolution, agreed order, or, at the very least, a request for an extension of
time filed in the bankruptcy case, SRP simply was not relieved of the obligation to respond to the
Motion to Avoid. See Cacevic v. City of Hazel Park, 226 F.3d 483, 490-91 (6th Cir. 2000)
(finding no abuse of discretion in district court’s withholding of Rule 60(b) relief based on a
failure to respond to a motion for summary judgment when the party seeking relief failed to
inform the court of an informal agreement between the parties or to request an extension); Rice v.
Consol. Rail Corp., 67 F.3d 300, 1995 U.S. App. LEXIS 32118, at *12, 1995 WL 570911, at *4
(6th Cir. Sept. 27, 1995) (unpublished) (finding no abuse of discretion in denying Rule 60(b)
relief to plaintiffs because “even though plaintiffs believed that defendant’s motion would not be
ruled upon until after the conclusion of discovery, this in no way negated their obligation to
respond to the motion”).

        Whether viewing SRP’s failure to respond to the Motion to Avoid as a strategic
misjudgment or an “out-and-out” blunder, the Sixth Circuit makes clear that a trial court acts
within its discretion in refusing to treat such a litigation mistake as excusable neglect.

                                          CONCLUSION

        The bankruptcy court did not abuse its discretion in concluding that SRP failed to
demonstrate excusable neglect warranting relief from judgment pursuant to Rule 60(b)(1).
Furthermore, the bankruptcy court acted within its discretion to deny relief without reaching the
remaining factors of prejudice to the opposing party or whether SRP held a meritorious claim or
defense. Accordingly, the Panel AFFIRMS the bankruptcy court’s Order denying SRP’s Motion
for Relief.