Court Opinion

ID: 3022035
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:25:59.263154+00
Date Added: 2024-06-11T18:16:28.703104
License: Public Domain

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,                    *
                                        *
            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 12 bankruptcy petitions under
11 U.S.C. § 1201 et seq., and Harry, Betty, and David Vanderwerf filed claims in both
bankruptcy cases, as well as motions to lift the automatic stay to permit them to
proceed with litigation on a fraud claim against the Kirwans. The bankruptcy court1
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 court2 affirmed. In this consolidated appeal the Kirwans continue to challenge
the decision to grant relief to the Vanderwerfs. We affirm.

      1
       The Honorable Irvin N. Hoyt, United States Bankruptcy Judge.
      2
        The Honorable Charles B. Kornmann, United States District Judge for the
District of South Dakota.

                                           2
       James and Shirley Kirwan and their son William were general partners of the
Kirwan Ranch partnership.3 In 1991, Kirwan Ranch and David Vanderwerf purchased
real property in South Dakota, taking possession as tenants in common. David
Vanderwerf 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 in
1993. In 1995 the partnership asked David Vanderwerf to execute a quit claim deed
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 proceeds of the loan would be used to buy out his interest
in the land. After David signed the deed, however, the Kirwans recorded it. The
Vanderwerfs soon learned that the partnership had contracted to sell the property to
Gerald 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 secure
financing and reimburse the Vanderwerfs for their investment. The Vanderwerfs
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 three
Kirwans, alleging fraud in obtaining the quit claim deed, and the Kirwans subsequently
filed bankruptcy petitions on January 17, 1997. James and Shirley filed jointly;
William petitioned separately. In each case, the Vanderwerfs filed claims and amended

      3
        The background facts related to the underlying transactions between the
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
proofs of claim with the bankruptcy court in March and April which were based on
their experiences with the Kirwan partnership. The Kirwans objected to the proofs of
claim, and a hearing on their objections was scheduled for May 15, 1997. In the
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 the
Vanderwerfs failed to appear at the hearing on May 15 on the debtors’ objections to
their amended proofs of claim, and the court entered orders on May 30 in both cases
denying the amended proofs of claim. After the Vanderwerfs appeared at the hearing
on June 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 later
won a state court judgment on their fraud claim for $103,223.92, compensating them
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 that the bankruptcy court had the power to reconsider its prior decision and
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 after having issued orders denying the Vanderwerfs’ amended proofs of
claim. 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 that such claims may be “allowed or disallowed according to
the equities of the case.” 11 U.S.C. § 502(j). The court’s broad remedial powers
extend to deciding the procedure 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 court
decision under § 502(j) only for abuse of discretion. See Halverson v. Estate of
Cameron (In re Mathiason), 16 F.3d 234, 239 (8th Cir. 1994).

                                             4
       Rule 60(b), made applicable to bankruptcy cases by Bankruptcy Rule 9024,
allows a court to grant relief from a judgment or order in the case of mistake,
inadvertence, surprise, excusable neglect, newly discovered evidence, or “any other
reason justifying relief.” See, e.g., Kieffer v. Riske (In re Kieffer-Mickes, Inc.), 226
B.R. 204, 209 (B.A.P. 8th Cir. 1998). This rule may be liberally construed to do
substantial justice to allow parties to air meritorious claims in the absence of fault or
prejudice. 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 of
discretion. See Design Classics, Inc. v. Westphal (In re Design Classics, Inc.), 788 F.2d
1384, 1386 (8th Cir. 1986).

       General equitable principles govern the exercise of discretion. Courts may
consider whether delay would prejudice the debtors or other creditors, the reason for
the delay and its length and impact on efficient court administration, whether the
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 Resources
Reclamation Corp. of Am., 34 B.R. 771, 774 (B.A.P. 9th Cir. 1983) (interpreting
predecessor to Bankruptcy Rule 3008 which grants broad discretion to reconsider
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” standard
applicable under Rule 60(b)).

       In light of the circumstances here, the decision to lift the automatic stay was not
inappropriate. It implicitly involved reconsideration of the court’s prior orders. The
equities of the situation favored not enforcing the earlier orders which would have
prevented the Vanderwerfs from proceeding with their fraud action without the
bankruptcy court’s ever considering their motion to lift the stay.4 The Kirwans had

      4
       At oral argument counsel for the Kirwans was asked whether at the meeting
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
notice of the pending state court action before they filed for bankruptcy protection, and
they knew about the motions to lift the stay. They also knew that a hearing on the
motions was set for June 26, and they appeared at that time to defend the prior orders.
Although the Vanderwerfs should have appeared at the May 15 hearing on the
Kirwans’ objections to their amended proofs of claim, there is no hint in the record that
this failure was a result of bad faith. In reaching its decision, the bankruptcy court was
entitled to consider the sequence of relevant events and counsel’s inexperience in
bankruptcy matters. The same considerations also justified the court’s treatment of the
motions as invoking its discretionary reconsideration powers even in lieu of a formal
motion. The state fraud action was 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 abuse its discretion in granting
relief from the automatic stay and agree with the district court that it was not
inappropriate for the bankruptcy court to reconsider its prior orders, we affirm.

      A true copy.

             ATTEST:

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

                                            6