Summary
finding that the loss of an advantageous ruling was not sufficiently prejudicial to deny relief under 60(b)
Summary of this case from Stitzel v. GuariniOpinion
Bankruptcy No. 04-12751DWS.
December 16, 2004
MEMORANDUM OPINION
Before the Court is the "Motion of Steffa Metals Co., Inc. to Set Aside Order and Judgment pursuant to Rules 9014[sic] and 7055 of the Federal Rules of Bankruptcy Procedure and Rules 55(c) and 60(b) of the Federal Rules of Civil Procedure" (the "Set Aside Motion"). After notice and an evidentiary hearing and in consideration of the memoranda of law submitted by the parties, the Motion is granted for the reasons set forth below.
I use the title of the motion as filed, though given that Steffa seeks to invoke Rule 60(b) of the Federal Rules of Civil Procedure, I have assumed that Steffa meant to cite to Federal Rule of Bankruptcy Procedure 9024, which makes Rule 60(b) applicable here.
BACKGROUND
On July 12, 2004 I entered an Order (the "July 12 Order") after a hearing on the Debtor's Motion for Contempt accepting the uncontradicted testimony of the Debtor that Steffa Metals Co. Inc. ("Steffa") had violated the automatic stay of § 362(a) by seizing Debtor's vehicles on two occasions and refusing to return them notwithstanding knowledge of Debtor's bankruptcy protection. Doc. No. 31. Steffa neither answered nor appeared to refute the allegations. The Debtor broadly testified as to lost business income in an amount of $2,400 per month and sought damages in excess of $100,000. Given the conclusory nature of his testimony which by reason of Steffa's absence was not probed on cross examination, I was not convinced that the evidence was credible. In the least, it was not clear whether the testimony of lost income had accounted for the costs of generating it. Accordingly, the July 12 Order did not quantify the damages resulting from the stay violations, but rather ordered Debtor to file an Affidavit accounting for his costs. The Affidavit was filed on August 6th and served on Steffa and again no response was forthcoming from it. Accordingly, an Order was entered on August 20, 2004 stating:
And pursuant to the July Order, Debtor filing an Affidavit regarding his alleged damages from the loss of an income producing vehicle seized by Steffa Metals ("Steffa") in violation of the automatic stay of § 362(a);
And the Affidavit now stating that the alleged loss of income of $2,400 was net of expenses, not gross as his testimony had caused to me conclude;
And the Affidavit having been served on Steffa and no response having been made although no notice of an objection procedure was provided;
The Order noted in footnote that "Steffa did not respond to the Motion or appear at the hearing, and a further hearing was not contemplated. However, neither was it contemplated that Debtor would change the basis of his claim for damages."
And the Affidavit being made under oath and as it is intended to supplement (and appears to contradict) his sworn testimony, it shall be understood that it is made under penalty of perjury;
It is hereby ORDERED:
1. Judgment is entered against Steffa in the amount of $64,700 consisting of (1) $7,000 representing the value of the three vehicles seized and not returned and (2) $57,600 consisting of lost business income of $2,400 for 24 months.
2. Debtor shall serve a copy of this Order and the July Order on Steffa which may request a hearing on the issue of damages relating to the lost business income only. If no such hearing is requested by Steffa's filing a request with this Court by September 15, 2004, the judgment shall be final. Pending the finality of the judgment, Debtor is stayed from taking any action to enforce it.
On August 25, 2004, the Set Aside Motion was filed. The motion was framed as a motion to set aside the entire judgment as it was clear from the order that only that portion relating to lost business income was contemplated to be the subject of further review before being made final. By agreement the Set Aside Motion was heard on October 5, 2004 with a briefing scheduled to follow. The following facts have been proven in support thereof.
On October 18, 2004 this bankruptcy case was dismissed but jurisdiction over the Set Aside Motion was retained.
Steffa is under contract with the City of Philadelphia (the "City") to tow abandoned vehicles for the City. Pursuant to that contract, it was directed by the Philadelphia Police Department ("Police") to tow certain vehicles owned by Debtor based on Police notices that they were parked on the public highway. It did so on or about May 1, 2000 and again in November 2002. On December 23, 2002 Debtor filed suit in the Court of Common Pleas of Philadelphia against Steffa, the City, the Philadelphia Parking Authority ("PPA") and the Police alleging a wrongful seizure. Steffa retained John DeVirgilis, Esquire ("DeVirgilis") to represent it in the defense of these claims. The state court suit was removed to the United States District Court for the Eastern District of Pennsylvania on May 13, 2003 where DeVirgilis continued to appear as Steffa's counsel. That action was terminated by agreement on September 23, 2003 as to Steffa and the City. However, it continued against other parties until dismissed by an Order supported by an eleven page Memorandum on February 6, 2004.
Debtor disputes their location, an issue not before me.
The first car seizure occurred on May 1, 2000 during Debtor's first bankruptcy case, a Chapter 13 proceeding ultimately dismissed. The second seizure occurred in November 2002 during Debtor's third bankruptcy case, another Chapter 13 case which was also dismissed. On April 13, 2003 Debtor filed a fourth petition, his third under Chapter 13. During that case on November 13, 2003 and after the civil action had been terminated, Debtor filed a motion for contempt ("First Contempt Motion") against Steffa, the PPA and the Philadelphia Traffic Court (the "Court") for violating the automatic stay based on the seizure and/or failure to release Debtor's vehicles. Steffa referred the First Contempt Motion to DeVirgilis who contacted Ronald Daugherty, Esquire ("Daugherty") who represented the City respondents. While Daugherty then filed an objection to that Contempt Motion on behalf of PPA, the Court and Steffa, Exhibit Steffa B, the January 8, 2004 hearing thereon was not held as the pending bankruptcy case was contemporaneously dismissed on motion of the Chapter 13 trustee.
The court may take judicial notice of its dockets. Fed.R.Evid. 201.
On February 27, 2004, the Debtor commenced his fifth bankruptcy case, his fourth Chapter 13 petition and filed therein a contempt motion on May 26, 2004 alleging the same facts against the same parties (the "Second Contempt Motion"). Steffa faxed a copy of the motion once again to DeVirgilis assuming he would take care of it as he did before. On receipt of this Court's July 12 Order, Exhibit Steffa C, Steffa learned that this assumption was erroneous since it expressly found that Steffa neither answered nor appeared. Steffa's subsequent phone calls to DeVirgilis were not returned. On August 6 Debtor filed the Affidavit as ordered and certified service on Steffa. While there was no objection procedure contemplated by the July 12 Order, service of the Affidavit was notice to Steffa that Debtor had completed the record precedent to entry of the judgment. With no response from Steffa, the August 20 Order quoted above was entered. On August 23rd, Steffa retained new counsel to seek relief from the July 12 and August 20 Orders and an opportunity to respond on the merits. The Set Aside Motion was promptly filed on August 26, 2004.
In this case Daugherty had filed an answer for the City respondents only and the claims against these parties were withdrawn or unsupported at the hearing.
DISCUSSION
The parties agree that the applicable standard for resolution of this contested matter is Rule 60(b) of the Federal Rules of Procedure, made applicable in bankruptcy cases by Fed.R.Bankr.P. 9024. Specifically, Steffa invokes subsection (1) of the Rule, which allows the Court to set aside a judgment on the grounds of inadvertence or excusable neglect. Needless to say, the parties differ as to whether Steffa's conduct falls within the conduct contemplated to support relief under this Rule.
Rule 60(b) provides in pertinent part:
(b) Mistakes; Inadvertence; Excusable Neglect; Newly Discovered Evidence; Fraud. Etc. On motion and upon such terms as are just, the court may relieve a party or a party's legal representative from a final judgment, order or proceeding for the following reasons: (1) mistake, inadvertence, surprise or excusable neglect. . . .
Steffa also pleads Rule 55(c) dealing with defaults. As an evidentiary hearing was held in this matter, albeit one at which Steffa did not appear, the Order entered on the record made was not by application to the court for default judgment. Thus, I do not find Rule 55 (c) applicable. In any event, the Third Circuit has opined that the same standard is applicable under both Rules.Feliciano v. Reliant Tool Co., 691 F.2d 653, 656 (3d Cir. 1982) (noting that Rule 55(c) allows for relief from default judgments in accordance with Rule 60(b)).
Before addressing this contested matter, I must clarify what is and what is not at issue. The August 20 Order made clear that by filing a timely request for a hearing, Steffa would have the opportunity to challenge the Debtor's claim for lost business income which had not been proven at the hearing and was undermined by the Affidavit which raised issues as to Debtor's credibility. The Set Aside Motion fulfills that requirement.
Steffa, however, seeks to set aside my findings of liability for a stay violation as well as the imposition of damages of $7,000 for the seized vehicles which is based thereon. Steffa invokes Rule 60(b)(1), arguing that it should be given a liberal construction and that any doubt should be resolved in favor of setting aside the judgment. It relies on Feliciano v. Reliant Tool Co., 691 F.2d 653, 656 (3d Cir. 1982), which sets forth a three factor test for deciding a Rule 60(b) motion as follows: (1) whether the plaintiff will be prejudiced; (2) whether the defendant has a meritorious defense and (3) whether the failure to respond was the result of culpable conduct on the defendant's part. Id. Debtor, while not disputing the relevant factors to be applied, argues for a more stringent standard contending that relief from a judgment is extraordinary and may be granted only upon a showing of exceptional circumstances. Debtor contends that "some justification for error beyond a failure on the part of the client or his attorney to exercise due care must be shown." Memorandum of Law in Opposition to Set Aside Motion at 2 (unnumbered).
Notably both parties fail to recognize that the United States Supreme Court articulated the meaning of "excusable neglect" inPioneer Investment Services v. Brunswick Assoc. Ltd. Partnership, 507 U.S. 380, 113 S.Ct. 1489 (1993) and the Third Circuit Court of Appeals has applied its teachings repeatedly in the context of Rule 60(b)(1) proceedings. E.g., George Harms Construction Co., Inc. v. Chao, 371 F.3d 156, 163 (3d Cir. 2004); In re Cendant Corporation Prides Litigation, 235 F.3d 176, 181 (3d Cir. 2000). The Circuit Court reiterated that:
The cases cited by Debtor which predate Pioneer and articulate a more stringent test are therefore inapposite, and the one post-Pioneer case he cited actually found excusable neglect where the debtor's attorney misunderstood his procedural responsibilities in failing to respond to the trustee's objection to exemption which was thereafter sustained by default. In re Smoinikar, 200 B.R. 640, 642 (Bankr. D. Minn. 1996).
The Court recognized that while Pioneer involved a Bankruptcy Rule, subsequent courts have held that its interpretation of excusable neglect extends to other federal procedural rules and applied its broad construction of the "excusable neglect" in adjudicating a Rule 60(b) motion.
Under Pioneer, the determination whether a party's neglect is "`excusable' is essentially an equitable one, in which courts are to take into account all relevant circumstances surrounding a party's failure to file." Chemetron Corp. v. Jones, 72 F.3d 341, 349 (3d Cir. 1995) ( citing Pioneer, 507 U.S. at 395, 113 S.Ct. 1489). The Supreme Court identified, without limitation, these factors to consider: "the danger of prejudice . . ., the length of the delay and its potential impact on judicial 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."
Harms, 371 F.3d at 163-64 ( quoting Pioneer, 507 U.S. at 395, 113 S.Ct. 1498). Pioneer recognized that "excusable neglect" encompasses both "simple, faultless omissions to act and more commonly, omissions caused by carelessness." 507 U.S. at 388, 113 S.Ct. at 1495.
I begin by applying the Pioneer factors. With regard to the first factor, I see no danger of prejudice to the Debtor by granting the Set Aside Motion. The August 20 Order stayed any execution on the judgment, so Debtor is suffering no additional delay. The Set Aside Motion falls within the August 20 Order's deadline of September 15. Thus the Court would have scheduled and Debtor would have incurred the costs of another hearing on the issue of damages in any case. Moreover, the Third Circuit Court of Appeals has made clear that the additional costs and delays associated with vacating a judgment "`rarely serves to establish the degree of prejudice sufficient to prevent the opening of a default judgment.' Instead, one must assert `loss of available evidence, increased potential for fraud or collusion, or substantial reliance upon the judgment.'" In re O'Brien Environmental Energy, Inc., 188 F.3d 116, 127 (3d Cir. 1999) ( quoting Feliciano v. Reliant Tooling Co., 691 F.2d 653, 656-57 (3d Cir. 1982)). Debtor has made no such assertion in response to the Set Aside Motion.
Ironically, granting the Set Aside Motion will decrease the potential for fraud or collusion. As a result of the evidence elicited in connection with the Set Aside Motion, it is clear that Debtor was not forthright with the Court when he testified in support of his Second Sanction Motion. There was no disclosure of the District Court litigation against Steffa which was dismissed by agreement nor of the opinion of Judge Padova that recited from Debtor's own pleading the following facts: (1) Debtor owned and operated a tow truck and delivery business but then his driver's license was suspended; (2) Debtor challenged the suspension of his license in state court and lost; (3) the Commonwealth Court reversed and ordered restoration of his license, which was never done; (4) Debtor was issued numerous driving and parking citations for driving with a suspended license; and (5) as a result of those citations, the City and Steffa entered onto his property and seized Debtor's vehicles. Had these facts been revealed, I would have questioned whether there was a stay violation since it could be, as Steffa now argues, that it was acting as the City's agent in furtherance of state police powers, which is expressly excepted from the operation of the automatic stay under 11 U.S.C. § 362(b).
Nor is Debtor's loss of an advantageous ruling on the stay violation sufficient prejudice, for "it is always prejudicial for a party to have a case reopened after it has been closed advantageously by an opponent's default [or failure to defend]. But we do not think that is the sense in which the term `prejudice' is used in Pioneer." Id. ( quoting Pratt v. Philbrook, 109 F.3d 18, 22 (1st Cir. 1997)).
As to the second factor, the length of delay from when Steffa's response to the Second Contempt Motion was due (June 10, 2004) to the date it actually filed the Set Aside Motion (August 26, 2004) was less than three months. Courts have granted relief underPioneer for far longer delays. E.g. Chemetron Corp. v. Jones, 72 F.3d 341, 349 (3d Cir. 1995) (remanding to determine excusable neglect where motion to file late claim occurred two years after plan was confirmed); Greyhound Lines, Inc. v. Rogers (In re Eagle Bus Mfg.), 62 F.3d 730, 739 (5th Cir. 1995) (finding excusable neglect where delay was six to eight months). Significantly, Steffa's delay will not affect judicial proceedings. Debtor has no bankruptcy case which will be affected, and the August 20 Order contemplated another hearing on damages in any case if Steffa responded by September 15, which it did.
Admittedly, the third factor weighs against Steffa. There is no evidence that Steffa's failure to respond to the Second Contempt Motion was caused by factors outside of its control. Steffa requested DeVirgilis who represented it in connection with the exact same motion in Debtor's prior bankruptcy case as well as the non-bankruptcy litigation to handle the matter. In the prior case, DeVirgilis contacted Daugherty, the City's attorney who filed an answer on behalf of the City respondents and Steffa. In this case Daugherty pled only for the City defendants and then resolved the motion with Debtor's counsel. While it is arguably reasonable for Steffa after alerting DeVirgilis to the renewed motion to conclude that he would handle the motion in the same manner as before, it was not reasonable for Steffa to fail to communicate with him to verify that he had done so. Even more significantly, Steffa's continued inaction after receipt of this Court's Order of July 12 reciting its failure to appear at the hearing and the subsequent service on Steffa of the supplemental Affidavit on August 6 is directly attributable to Steffa and unsatisfactorily explained. It knew shortly after July 12, if not before, that DeVirgilis had done nothing since no one appeared for it at the hearing. The July 12 Order, which gave Steffa another bite at the apple since it required the supplemental Affidavit to be filed before damages would be awarded against it, surprisingly still did not elicit a response beyond three calls to DeVirgilis on July 14, July 21, and August 9. Motion ¶¶ 21. On August 23, 2004, not having heard from DeVirgilis for over one month after first contacting him, Steffa finally retained new counsel. By then the Court's judgment, signed on August 20, was entered.
Presumably if a party is the respondent in a contempt action, it would understand that its attorney would be contacting it about defending the motion prior to the hearing and or expect to receive a copy of some pleading filed with the Court to respond to the motion. Moreover, Steffa bears the burden of any failure of its counsel. Pioneer, 5607 U.S. at 396, 113 S. Ct. at 1499. The Supreme Court held that the neglect of the clientand its counsel must be excusable. Id. at 397; 113 S. Ct. at 1499. As Steffa has presented no evidence as to why DeVirgilis failed to file a response, it has failed to meet the third prong of Pioneer without regard to its own conduct.
On this record, however, I cannot find that Steffa's delay resulted from any bad faith on its part. Upon receipt of the Second Contempt Motion, Steffa promptly forwarded it to DeVirgilis. Perhaps it should have been more diligent in following up with DeVirgilis, and certainly it should have acted with more haste after receiving the July 12 Order, but this delay appears to stem from at worst a cavalier carelessness, not any deviousness or willfulness. To the contrary, Steffa had no tactical advantage to gain by its failure to respond to the Second Contempt Motion. Moreover, Steffa's good faith (if not good sense) is evidenced by its repeated and fruitless attempts to contact DeVirgilis and the fact that the Set Aside Motion was filed almost immediately after new counsel was retained.
Ultimately, I am guided by the admonition of the Supreme Court that the determination of excusable neglect is at bottom an equitable one. Only Steffa's failure to satisfactory explain its delay in filing, something that was within its control, weighs against it. However, the Supreme Court has expressly rejected focusing solely upon the movant's culpability and reason for delay. 507 U.S. at 395 n. 13; 113 S. Ct. at 1498. As inPioneer, I find that the lack of prejudice to the Debtor or to efficient judicial administration, combined with the good faith of Steffa and its new counsel weigh in favor of granting relief from the July 12 and August Orders. "To be sure, were there any evidence of prejudice to the petitioner or to judicial administration in this case or any indication at all of bad faith," the result might be different.Id. at 398; 113 S. Ct. at 1500. In the absence of such evidence, however, I conclude that Steffa's failure to file a timely response to the Second Contempt Motion or otherwise respond was, under all the circumstances, excusable neglect within the confines of Pioneer. For the foregoing reasons, the Set Aside Motion is granted. Further proceedings in this matter shall be addressed by the Order accompanying this Memorandum Opinion.
ORDER
AND NOW, this 16th day of December 2004, upon consideration of the "Motion of Steffa Metals Co., Inc. ("Steffa") to Set Aside Order and Judgment pursuant to Rules 9014 and 7055 of the Federal Rules of Bankruptcy Procedure and Rules 55(c) and 60(b) of the Federal Rules of Civil Procedure" (the "Motion"), after notice and an evidentiary hearing, and for the reasons stated in the accompanying Memorandum Opinion;
It is hereby ORDERED that:
1. The Motion is GRANTED. The Orders of July 12, 2004 and August 20, 2004 are VACATED;
2. A hearing on Debtor's Motion For Contempt Violation of the Automatic Stay shall be held on JANUARY 27, 2005 at 4:00 p.m. in the Robert N.C. Nix, Sr. Federal Courthouse, 2nd floor, 900 Market Street, Courtroom #3, Philadelphia, PA; and
3. On or before January 17, 2005 Debtor shall file a memorandum of law responding to Steffa's legal defenses.