Opinion
Case No. 11-58025 Adv. Pro. No. 11-2519
03-29-2013
In re: McDAVID McCORVEY and DENISE McCORVEY, Debtors. Clyde Hardesty, Chapter 7 Trustee, Plaintiff, v. Enterprise Mortgage, Inc., et al., Defendants.
Brent A. Stubbins and Mark Stubbins, Attorneys for Plaintiff Luke Daniel Allen Overmeyer, Attorney for Defendants, Chase Home Mortgage Corporation and Mortgage Electronic Registration Systems, Inc.
This document has been electronically entered in the records of the United States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.
_____________
John E. Hoffman , Jr.
United States Bankruptcy Judge
Chapter 7
Judge Hoffman
OPINION AND ORDER DENYING PLAINTIFF'S
MOTION FOR DEFAULT JUDGMENT AND GRANTING
MOTION FOR LEAVE TO FILE ANSWER INSTANTER
This matter is before the Court on the motions for default judgment ("Default Motion") (Docs. 26 & 27) filed by Clyde Hardesty, Chapter 7 trustee ("Trustee"), the response ("Response") (Doc. 38) filed by Chase Home Mortgage Corporation and Mortgage Electronic Registration Systems, Inc. ("MERS") (collectively, "Chase") and the Trustee's reply (Doc. 43). In addition, Chase filed a motion for leave to file answer instanter and an amended motion ("Instanter Motion") (Docs. 37 & 39), to which the Trustee filed an objection ("Objection") (Doc. 42).
I. Jurisdiction
The Court has jurisdiction to hear and determine this matter pursuant to 28 U.S.C. §§ 157 and 1334 and the general order of reference entered in this district. This is a core proceeding. 28 U.S.C. § 157(b)(2).
II. Procedural Background
This adversary proceeding was initiated by the filing of a complaint (Doc. 1) on December 1, 2011 against Chase and Enterprise Mortgage ("Enterprise"), in which the Trustee alleges that a mortgage executed by McDavid McCorvey, debtor, in favor of Enterprise was improperly acknowledged and thus not capable of being recorded under the laws of Ohio. The Trustee also asserts that Chase may have an interest in the property by virtue of an unrecorded assignment from Enterprise. As a result, the Trustee seeks a determination that the mortgage is avoidable under §§ 544 and 547 of the Bankruptcy Code, that the lien may be preserved for the benefit of the estate under § 551 and that the value of the property may be recovered under § 550.
On December 12, 2011, the Trustee filed a certificate of service reflecting that the Complaint and summons were served by certified mail on Chase, to the attention of a "Corporate Officer," on December 3, 2011 (Doc. 2).
On March 12, 2012, the Trustee filed an amended complaint ("Amended Complaint") (Doc. 7), in which he added MERS as a party defendant. On March 19, 2012, the Trustee filed a certificate of service reflecting service of the Amended Complaint and summons by certified mail on Chase, to the attention of a corporate officer, on March 13, 2012 (Doc. 8). Also on March 19, the Trustee filed a certificate of service reflecting service of the Amended Complaint and summons by certified mail on MERS, to the attention of a corporate officer, on March 15, 2012 (Doc. 9).
On April 20, 2012, the Trustee filed a motion for default judgment against Chase (Doc. 12). The motion was denied by the Court for improper service (Doc. 16). On April 25, 2012, the Trustee filed a second motion for default judgment (Doc. 18), which was amended on May 10, 2012 (Doc. 26). The Clerk's office issued a notice of deficient filing as to the motion because it was not filed in the proper electronic format. The Trustee filed a substitute document on May 11, 2012—within the time frame set forth by the Clerk—and the amended motion thus retained its original filing date of May 10, 2012. This amended motion—the Default Motion—is the current motion before the Court. The Default Motion was not served by certified mail addressed to an officer of the insured depository institution as required by Fed. R. Bankr. P. 9014 and 7004(h).
Twenty-one days following the filing of the Default Motion, Chase filed its Response and its Instanter Motion. The Trustee's Objection was filed June 12, 2012.
III. Analysis
The Instanter Motion is based on the "excusable neglect" standard of Fed. R. Civ. P. 6(b), which is incorporated, with modifications, into adversary proceedings by Fed. R. Bankr. P. 9006(b) ("Rule 9006"). Rule 9006(b)(1) states:
Except as provided in paragraphs (2) and (3) of this subdivision, when an act is required or allowed to be done at or within a specified period by these rules or by a notice given thereunder or by order of court, the court for cause shown may at any time in its discretion (1) with or without motion or notice order the period enlarged if the request therefor is made before the expiration of the period originallyFed. R. Bankr. P. 9006(b)(1). In Pioneer Investment Services Co. v. Brunswick Associates Ltd. Partnership, 507 U.S. 380 (1993), the Supreme Court ruled that a court's determination of "excusable neglect" under Rule 9006(b) requires an equitable inquiry, id. at 389, and a "flexible understanding" in accord with the policies underlying the Bankruptcy Code and Rules. Id. "[B]y empowering the courts to accept late filings 'where the failure to act was the result of excusable neglect,' Rule 9006(b)(1), Congress plainly contemplated that the courts would be permitted, where appropriate, to accept late filings caused by inadvertence, mistake, or carelessness, as well as by intervening circumstances beyond the party's control." Id. at 388. The Supreme Court found that the word "neglect" "encompasses both simple, faultless omissions to act and, more commonly, omissions caused by carelessness," id. at 388, and that "excusable neglect" is "a somewhat 'elastic concept,'" id. at 393, which takes into account "all relevant circumstances surrounding the party's omission," including the danger of prejudice, the length of delay and its potential impact on the proceedings, the reason for the delay, including whether it was within the reasonable control of the movant, and whether the movant acted in good faith. Id. at 395.
prescribed or as extended by a previous order or (2) on motion made after the expiration of the specified period permit the act to be done where the failure to act was the result of excusable neglect.
By way of explaining its failure to timely file an answer, Chase states only that "it is as yet unclear why there was an internal delay at Chase and/or MERS in the delivery of the Summons and Complaint to the proper legal department for response." Instanter Motion at 4. Pointing out that Pioneer instructs trial courts to view all relevant surrounding circumstances, Chase argues that here the Trustee will not be prejudiced because there has been no judgment entered, the delay between the required answer date and the date on which the Instanter Motion was filed was minimal, and that Chase has meritorious defenses to the causes of action set forth in the Complaint.
The answer deadlines for Chase and MERS were April 13, 2012 and April 15, 2012, respectively. The Instanter Motion was filed slightly more than six weeks later, on June 1, 2012.
The Trustee counters by arguing that Chase's explanation for its delay in answering does not rise to the level of excusable neglect required by Pioneer or other cases interpreting Pioneer. The Trustee urges the Court to deny Chase's Instanter Motion and to grant the Default Motion.
Where, as here, default judgment has not yet been entered against a defendant, and the Court must determine whether doing so would be appropriate, it is
guided in this circuit by clear authority that [t]rials on the merits are favored in federal courts. . . . Although much of the authority in this circuit is in the context of refusal to set aside a default judgment, the preference for trials on the merits versus default is equally applicable to the trial court's entry of a default judgment without sufficient cause . . . . In the context of Rule 55(c), the Sixth Circuit has said that mere negligence is never enough to justify refusal to set aside a default [but that instead] the defaulting party's failure must be willful, a higher standard than 'careless and inexcusable.'Schoenlein v. Option One Mortg. Corp. (In re Schoenlein), 312 B.R. 600, 603-04 (B.A.P. 6th Cir. 2002) (citations and internal quotation marks omitted). See also Jackson v. Hamilton Cnty. Cmty. Mental Health Bd., 174 F.R.D. 394, 395 (S.D. Ohio 1997) ("In determining whether to . . . grant a default judgment, the court must balance three factors: (1) whether the plaintiff will be prejudiced, (2) whether the defendant has a meritorious defense, and (3) whether the culpable conduct of the defendant led to the default."). "[I]n order to find the conduct of the defendant culpable, the conduct must display either an intent to thwart judicial proceedings or a reckless disregard for the effect of its conduct on those proceedings." Id. (internal quotation marks omitted). Cf. Amari v. Spillan, 2009 WL 5216042, at *3 (S.D. Ohio Dec. 29, 2009) ("Trials on the merits are favored . . . and any doubts as to the propriety of setting aside a default judgment should be resolved in favor of the application, even in a case where the showing is not strong.").
In Schoenlein, the defendant filed its answer and a motion to file its answer instanter one month after the plaintiff filed a motion for default judgment, but some four months prior to the final hearing on the default motion. Here, the delay was less than two months between the filing of the Default Motion and Chase's response.
The Court recognizes that the total time elapsed from the date of service of the first summons on December 3, 2011 to the date of the filing of the Instanter Motion was almost six months, or a total of almost five months from the initial answer deadline date. But the Trustee filed an Amended Complaint on March 13, 2012 and served a new summons on Chase, effectively pushing back the answer deadline by three months.
The Court exercises its discretion not to enter default judgment in this adversary proceeding. There has been no suggestion that Chase's delay was due to "willful" misconduct on its part. Schoenlein, 312 B.R. at 604. Nor does the Trustee contend that Chase has displayed either an "intent to thwart judicial proceedings" or a "reckless disregard for the effect of its conduct on those proceedings." Jackson, 174 F.R.D. at 395. Further, "mere delay is insufficient to establish prejudice," id., and there is no basis for finding that the estate would be prejudiced here by permitting the filing of the answer and proceeding to trial. Finally, the "possibility [exists] that the outcome of the suit after a full trial will be contrary to the result achieved by default." Id. (internal quotation marks omitted).
Guided by the authorities discussed above, the Court declines to enter default judgment against Chase in this adversary proceeding because its delay was not occasioned by willful misconduct. The Court accordingly need not reach the question of whether Chase's neglect here would be deemed excusable under the principles articulated by the Supreme Court in Pioneer.
IV. Conclusion
For the foregoing reasons, the Court GRANTS the Instanter Motion and DENIES the Default Motion. A pretrial conference will be scheduled by separate order.
IT IS SO ORDERED. Copies to: Brent A. Stubbins and Mark Stubbins, Attorneys for Plaintiff Luke Daniel Allen Overmeyer, Attorney for Defendants, Chase Home Mortgage Corporation and Mortgage Electronic Registration Systems, Inc.