Allowing relief under Rule 60(b)(6) requires a “diligent, conscientious client.” Neither defendant met that test. Indeed, their argument can best be described as a desperate hindsight effort to shift their responsibility to their lawyer; it verges on the frivolous+++++++++++++++++++++++++++++

Home > 9th Circuit Case Updates > Claimant May Not Argue Merits of Underlying Claim Objection After 10-Day Period for Appeal Has Expired > September 25, 2006 | Posted By Sheppard Mullin Comments / Questions ( 0 ) | Share Link

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Claimant May Not Argue Merits of Underlying Claim Objection After 10-Day Period for Appeal Has Expired

On August 14, 2006, the Ninth Circuit Court of Appeals, Bankruptcy Appellate Panel, held in United Student Funds, Inc. v. Wylie (In re Wylie), 2006 Bankr. Lexis 2088 (9th Cir. BAP 2006), that a claimant filing a motion to reconsider an order sustaining a claim objection, after the 10-day period for appeal, was not entitled to revisit the merits of its claim. Instead, the claimant was limited to the narrow grounds enumerated in FRCP 60(b), which generally require a showing that events subsequent to the entry of the judgment make its enforcement unfair or inappropriate, or that the party was deprived of a fair opportunity to appear and be heard in connection with the underlying dispute.

On May 20, 2005, claimant United Student Funds, Inc. ("USF") had filed a proof of claim in the amount of $8,617.66, based on a student loan that debtor Heather Wylie received while attending college (the "Claim"). The Debtors objected to the Claim, contending that the amount due was $860.48 rather than $8,617.66 (the "Objection"). Despite admitting that it had received the Objection, USF failed to file a written response or request a hearing within the required period. Even though USF failed to respond to the Objection, the bankruptcy court set a hearing on the Objection, and caused to be served on Debtors and USF a notice of the hearing. USF failed to appear at the hearing, and the bankruptcy court entered an order sustaining the Objection. More than 10 days after the entry of the order, USF filed a motion for reconsideration of the order sustaining the Objection, which argued the merits of the Claim. The bankruptcy court denied the motion for reconsideration without reaching the merits of the Claim.

In affirming the bankruptcy court, the BAP noted that USF had failed to respond to the Objection in a timely fashion and failed to establish an excuse for this failure. Further, because the Debtors admitted that the Claim is nondischargeable, an adversary proceeding was not required to challenge the amount of the Claim.

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FRCP 60(b)(1) = Mistake , inadvertence or excusable neglect

In Surety Ins. Co. of California v. Williams, 729 F.2d 581, 582 (8th Cir.1984), this court held that the defendants' claim that their attorney lacked authority to agree to a settlement agreement, though conclusory in nature, was sufficient to state a ground for relief under Rule 60(b). The court stated that "[a]lthough an attorney is presumed to possess authority to act on behalf of the client, 'a judgment entered upon an agreement by the attorney may be set aside on affirmative proof that the attorney had no right to consent to its entry.' " Surety Ins. Co. of California, 729 F.2d at 582-83 (citing Bradford Exchange v. Trein's Exchange, 600 F.2d 99, 102 (7th Cir.1979)).

9

In Surety Ins. Co., counsel for the defendants agreed to settle their case prior to trial. The court entered a judgment in accordance with the settlement agreement. After the defendants learned of the settlement, they filed a Rule 60(b) motion to vacate the judgment. They claimed that they were unaware of the court's judgment and their attorney's consent to that judgment. The defendants further asserted that their attorney had acted contrary to their specific instructions in agreeing to such a judgment. The present action presents a similar situation. The Holts assert that their attorney agreed to a settlement holding them personally liable for a judgment without first explaining to them the significance of such an arrangement and without receiving their express consent. Moreover, since they were not in court when the agreement was entered in the record, they could not object until after they had reviewed the settlement documents.

10 "An attorney of record may not compromise, settle, or consent to a final disposition of his

client's case without express authority."2 Turner v. Burlington Northern R.R. Co., 771 F.2d 341, 345 (8th Cir.1985). The rules for determining whether an attorney has been given authority by a client to settle a case are the same as those which govern other principal-agent relationships. Id. at 345; Edwards v. Born, Inc., 792 F.2d 387, 389 (3rd Cir.1986). Once it is shown, however, as in the present action, that an attorney has entered into an agreement to settle a case, the party who denies that the attorney was authorized to enter into the settlement has the burden to prove that authorization was not given. Turner, 771 F.2d at 346. This is a heavy burden. Id.11

Because the motion to vacate the judgment stated a cognizable claim under Rule 60(b), the district court erred in summarily denying the motion without any type of evidentiary hearing. Accordingly, we vacate the order denying defendants' motion and remand this case for an evidentiary hearing and the entry of whatever order the district court thereafter deems appropriate.312

DUMBAULD, Senior District Judge, concurring.

13

I concur in the remand, for an evidentiary hearing to establish whether Sunlite's attorney "possessed actual, implied, or apparent authority to consent to the judgment," but solely because

I think we are bound to do so by Surety Ins. Co. of California v. Williams, 729 F.2d 581, 582-83 (8th Cir.1984), and other Eighth Circuit cases.

14 In my opinion it is toying with the court, an affront and impediment to the due administration

of justice, for parties to attempt to worm their way out of a reasonable settlement made in open court.115

Parties employing counsel in litigation are subject to the normal rules of the law of agency. They should know that settlement by the assent of the parties themselves is a favored method of disposition of cases, better than submission to a third party such as a judge or jury, who though objective and impartial may not understand the concerns of the parties as well as they do themselves.

16 Hence the parties should know that their counsel must be authorized at all times to make an

appropriate settlement. Litigants must keep their counsel currently informed of the terms upon which they are agreeable to the disposition of pending litigation.217

This is especially true in the case at bar, where the settlement was sanctioned by a proceeding in open court. The Holts should have been present at this important stage of their case, rather than absent, if they thought their counsel incapable of conveying with precision the terms of their authorization to settle. As a consequence of their indifference they are inflicting an imposition on the district court to thresh old straw.3+++++++++++++++++++++++++++++++++++++++++

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FindLaw Caselaw United States US 2nd Cir. AMERICAN ALLIANCE INSURANCE CO LTD v. EAGLE INSURANCE

COMPANY

United States Court of Appeals,Second Circuit.

AMERICAN ALLIANCE INSURANCE CO LTD v. EAGLE INSURANCE COMPANY

AMERICAN ALLIANCE INSURANCE CO., LTD., Plaintiff-Appellee, v. EAGLE INSURANCE COMPANY, Defendant-Appellant.

No. 1251, Docket 95-7322.

Argued March 26, 1996. -- August 07, 1996

Before:  NEWMAN, Chief Judge, PARKER, Circuit Judge, and NICKERSON,District Judge.*

Evan H. Krinick, Uniondale, N.Y. (Christine M. Metzner, Rivkin, Radler & Kremer, Uniondale, N.Y., on the brief), for defendant-appellant.Robert Goodman, Tell, Cheser & Breitbart, New York City, for plaintiff-appellee.

 This appeal requires the Court to clarify the definition of “excusable neglect,” as used in Rule 60(b) of the Federal Rules of Civil Procedure, for purposes of a motion to vacate a default judgment.   Eagle Insurance Co. (“Eagle”) appeals from the August 18, 1994, judgment of the District Court for the Southern District of New York (Robert W. Sweet, Judge) ordering Eagle to pay $424,997 to American Alliance Insurance Co., Ltd. (“American”).   We conclude that “excusable neglect” is to be construed generously in the context of an attempt to vacate a default judgment and that Eagle satisfied that criterion.   We therefore reverse and remand.

Facts

On February 14, 1991, a fire damaged a commercial garage in New York City. The building was owned by Michael Feidelson, who was insured by American.   Shimoe Brake & Wheel, Inc. (“Shimoe”), which leased the garage space in the building, was insured by Eagle.   Coverage under the Eagle policy was to run from September 7, 1990, to September 7, 1991.   However, Shimoe paid only $900 toward a premium of at least $2,341.   Eagle claims that, on January 14, 1991, DCW Auto Agency, Inc., the managing agent for Eagle's commercial garage liability policies, mailed a notice of cancellation to Shimoe, Feidelson, and ASE Corp., Shimoe's broker.   Evidence of actual mailing is in dispute.

American paid $322,264 to Feidelson pursuant to its policy.   In September 1992, American, as subrogee of Feidelson, brought an action against Shimoe in New York state court.   Eagle was notified of this action and declined to defend Shimoe on the ground that it had cancelled its policy with Shimoe.   Shimoe never answered the complaint, and a default judgment was entered against it on February 24, 1994.

On May 27, 1994, American commenced the instant lawsuit in the District Court, seeking to collect from Eagle the state court default judgment entered against Shimoe.   American served the summons and complaint on the New York State Department of Insurance, which on June 1, 1994, mailed the summons and complaint to Eagle's main office in Lynbrook, New York.   The summons and complaint were then forwarded to Eagle's Uniondale office.

Customarily, a pleading clerk for Eagle's in-house counsel, Isserlis & Kurtz, would log pleadings when received in the Uniondale office, obtain an extension of time to answer, and assign the action to an attorney.   In this case, however, the summons and complaint were accidentally removed from the pleading clerk's desk and placed in the file of a related case before they had been logged.

On June 8, 1994, American sent to Eagle at its Lynbrook office a copy of a letter to the District Court, requesting that the action be reassigned from White Plains, where it was originally but mistakenly filed, to Foley Square.   On July 6, 1994, a notice of reassignment of the case to Judge Sweet was served by mail on Eagle at its Lynbrook address.   Eagle acknowledges that it received the July 6 notice, but asserts that its attorneys were not alerted to the action because the managing attorney, upon determining that no response to the notice was required, merely forwarded it to the file as she customarily did with the hundreds of letters she received daily.

A pretrial conference was held on July 13, 1994.   There is no evidence that Eagle was informed of this conference.   Though no default had been entered, as contemplated by Fed.R.Civ.P. 55(a), the docket entries reflect that the pretrial conference authorized the plaintiff to file a motion for a default judgment.   That motion was promptly made, and a default judgment was entered on August 18, 1994.   Eagle did not become aware of this lawsuit until September 6, 1994, when it received a restraining notice freezing its bank account.   On September 27, 1994, Eagle moved, by an order to show cause, to vacate the default judgment and for leave to serve an answer.

The District Court denied the motion on the ground that Eagle had failed to show excusable neglect.   While accepting Eagle's explanation that the summons and complaint had mistakenly been placed in the wrong file, the Court found that Eagle had not presented evidence of adequate procedural safeguards that would ordinarily prevent such an error.   In addition, the Court found that Eagle had failed to present a meritorious defense to the suit because Eagle had not established that the notice of cancellation had been mailed to all insureds and to their brokers, as required by New York insurance law.

Discussion

 Preliminarily we note that the entry of a default judgment in this case is procedurally flawed by lack of compliance with the requirement of Rule 55(a) that the clerk enter a default, a step that affords the defaulted party an opportunity to move, pursuant to Rule 55(c), to vacate the default, at least in those instances where the defaulted party becomes aware that a default has been entered.   A motion to vacate a default is subject to a less rigorous standard than applies to a Rule 60(b) motion to vacate a default judgment.   See Meehan v. Snow, 652 F.2d 274, 276 (2d Cir.1981).   Nevertheless, we will review the District Court's denial of the motion to vacate the default judgment under the standards applicable to a Rule 60(b) motion, rather than a Rule 55(c) motion, recognizing, however, that Eagle's motion is made in the default judgment context.

 Fed.R.Civ.P. 60(b) provides:

(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;․

In the default judgment context, courts generally examine three criteria to determine whether to vacate a judgment:  “(1) whether the default was willful;  (2) whether defendant has a meritorious

defense;  and (3) the level of prejudice that may occur to the non-defaulting party if relief is granted.”  Davis v. Musler, 713 F.2d 907, 915 (2d Cir.1983).

A. “Willfulness”

With regard to the first criterion, this Court has never stated whether “willfulness” requires a showing of deliberate default or bad faith on the part of the defaulting party, or whether mere carelessness or negligence will be deemed sufficient to deny vacatur of a default judgment.

1. Variance among circuits.   Other circuits are divided as to the meaning of “willful” conduct in the context of default judgments.   The Third Circuit has held that a Rule 60(b)(1) motion to vacate will be denied only on a showing of “culpable conduct,” defined as “actions taken willfully or in bad faith.”  Gross v. Stereo Component Systems, Inc., 700 F.2d 120, 123-24 (3d Cir.1983).   The Third Circuit requires more than the “gross-almost willful-neglect” occurring in the well-named Gross case, which resulted from the complete breakdown in communication between the two law firms representing one party in the action.   The Sixth Circuit has expressly followed the Third in requiring some showing of “culpable conduct.”  United Coin Meter Co.,

Inc. v. Seaboard Coastline Railroad, 705 F.2d 839, 844-45 (6th Cir.1983).   Although declining to define that phrase precisely, see Shepard Claims Service, Inc. v. William Darrah & Associates, 796 F.2d 190, 195 (6th Cir.1986), the Sixth Circuit has stated that “[t]o be treated as culpable, the conduct of a defendant must display either an intent to thwart judicial proceedings or a reckless disregard for the effect of its conduct on those proceedings.”   Id. at 194.

Several other circuits, in contrast, expressly refuse to vacate default judgments occurring as a result of attorney carelessness.   See Johnson v. Gudmundsson, 35 F.3d 1104, 1117 (7th Cir.1994) (“The touchstone of our analysis has been ‘excusable neglect,’ meaning that we will grant relief only ‘where the actions leading to the default were not willful, careless, or negligent.’ ”);   CJC Holdings, Inc. v. Wright & Lato, Inc., 979 F.2d 60, 64 (5th Cir.1992) (focus on “neglect or culpable conduct ․ more consistent with rule 60(b)” than focus on “willful[ness]”);  Davis v. Safeway Stores, Inc., 532 F.2d 489, 490 (5th Cir.1976) (per curiam) (failure of insurance company to communicate with defendant three weeks after receiving copy of complaint suggests “absence of minimal internal procedural safeguards” and is not excusable neglect);  Baez v. S.S. Kresge Co., 518 F.2d 349, 350 (5th Cir.1975) (delay due to numerous forwardings not excusable neglect), cert. denied, 425 U.S. 904, 96 S.Ct. 1495, 47 L.Ed.2d 754 (1976);  Gibbs v. Air Canada, 810 F.2d 1529, 1537-38 (11th Cir.1987) (misplacement of complaint by mail clerk not excusable neglect).   The Tenth Circuit has also stated that “[c]arelessness by a litigant or his counsel does not afford a basis for relief under Rule 60(b)(1),” albeit in a case in which the party failed to provide any explanation for its previous lawyer's failure to answer the motion to dismiss.  Pelican Production Corp. v. Marino, 893 F.2d 1143, 1146 (10th Cir.1990).

2. Second Circuit precedent.   Though we have elaborated little on the “willfulness” standard identified in Davis, this Court has recently implied that it will look for bad faith, or at least something more than mere negligence, before rejecting a claim of excusable neglect based on an attorney's or a litigant's error.   In Brien v. Kullman Industries, Inc., 71 F.3d 1073, 1078 (2d Cir.1995), we concluded that the defendant had not willfully defaulted where he had failed to file an answer because he was mistaken as to the appropriate timing for filing the answer and because he had received the incorrect docket number from the clerk's office.   We contrasted this situation to one in which we had found willfulness where the defendant “ ‘admit[ted] he deliberately chose not to appear in the action because he faced possible indictment upon return to New York.’ ” Id.

Though American and the District Court relied on many prior decisions of this Court, none denied motions to vacate because of mere administrative or clerical error.1  However, we have refused to vacate a judgment where the moving party had apparently made a strategic decision to default.   See United States v. Erdoss, 440 F.2d 1221 (2d Cir.), cert. denied, 404 U.S. 849, 92 S.Ct. 83, 30 L.Ed.2d 88 (1971);  Dal International Trading Co. v. Sword Line, Inc., 286 F.2d 523 (2d Cir.1961);  Benton v. Vinson, Elkins, Weems & Searls, 255 F.2d 299 (2d Cir.), cert. denied, 358 U.S. 885, 79 S.Ct. 123, 3 L.Ed.2d 113 (1958).   And we found inexcusable an attorney's decision to wait until the eve of trial to inform the Court that he would be unavailable to try the case the next day.   See Schwarz v. United States, 384 F.2d 833, 835-36 (2d Cir.1967).   However, counsel who so “ignored his responsibility” to the Court, id. at 836, could readily be found culpable under the more stringent, bad faith construction of the willfulness standard.

 3. The “willfulness” standard in the default judgment context.   We see no reason to expand this Court's willfulness standard to include careless or negligent errors in the default judgment context.   As the Fifth Circuit noted, “the basic purpose of default judgment is to protect parties from undue delay-harassment,” Baez, 518 F.2d at 350.   Strong public policy favors resolving disputes on the merits.   Although courts have an interest in expediting litigation, abuses of process may be prevented by enforcing those defaults that arise from egregious or deliberate conduct.  Rule 60(b) expressly contemplates that some types of “neglect” are “excusable.”   The subjective inquiry into willfulness effectively distinguishes those defaults that, though due to neglect, are excusable, from those that are not.2  At the same time, we recognize that the degree of negligence in precipitating a default is a relevant factor to be considered, along with the availability of a meritorious defense and the existence of prejudice, in determining whether a default judgment should be vacated and whether failure to do so exceeds allowable discretion.   See Wagstaff-EL v. Carlton Press Co., 913 F.2d 56 (2d Cir.1990) (default judgment properly vacated upon weighing of all relevant factors).   Gross negligence can weigh against the party seeking relief from a default judgment, though it does not necessarily preclude relief.

 In this case, the parties agree that Eagle's failure to answer the complaint was due to a filing mistake by its in-house counsel's clerk.   Though the two notices that were mailed should have alerted Eagle to the lawsuit, these notices were routinely filed by an office manager who assumed that the case had been assigned and was being diligently handled by a staff attorney.   The misfiling went unnoticed for two months.   Such conduct, though grossly negligent, as the District Judge found, was not willful, deliberate, or evidence of bad faith, though it weighs somewhat against granting relief.

B. “Meritorious Defense”

 To satisfy the criterion of a “meritorious defense,” the defense need not be ultimately persuasive at this stage.  “A defense is meritorious if it is good at law so as to give the factfinder some determination to make.”   Anilina Fabrique de Colorants v. Aakash Chemicals and Dyestuffs, Inc., 856 F.2d 873, 879 (7th Cir.1988).

 Eagle has presented a meritorious defense-the claim that it does not insure Shimoe because the policy was cancelled due to nonpayment of premium before the fire occurred.   The District Court, however, required conclusive evidence that the cancellation was mailed to all parties necessary to effectuate the cancellation.   However, the District Court was not the trier of fact on this issue and should not have required such evidence in order to permit Eagle to present its defense.

C. “Prejudice”

The District Court did not consider the question of whether American would suffer any prejudice from having to prosecute its claim against Eagle after a lengthy delay.   American, however, does not attempt to uphold denial of the motion to vacate on the ground of prejudice.

Conclusion

 Although the denial of a motion for relief from a default judgment is reviewed only for abuse of discretion, “we may reverse its exercise even where the abuse of discretion is not glaring.”  Brien, 71 F.3d at 1077.   This limitation reflects the strong preference for resolving disputes on the merits.   Id.  In this case, there is an absence of willfulness, though the gross negligence weighs somewhat against the defaulted party;  on the other hand, the presentation of a meritorious defense and the lack of prejudice to American weigh heavily in favor of Eagle.   On balance, we conclude that the District Court's allowable discretion was exceeded.   The decision of the District Court to deny the motion to vacate is reversed, and the case is remanded for further proceedings.

FOOTNOTES

1.   District courts in this Circuit, however, have held that attorney or client carelessness does not constitute excusable neglect.   See Insurance Co. of North America v. S/S “Hellenic Challenger”, 88 F.R.D. 545 (S.D.N.Y.1980) (client adjuster lost summons and complaint);  Aberson v. Glassman, 70 F.R.D. 683 (S.D.N.Y.1976) (attorney never informed client of deposition date);  Robinson v. Bantam Books, Inc., 49 F.R.D. 139 (S.D.N.Y.1970) (summons and complaint forwarded six times before reaching attorney).

2.   We recognize that this construction of “excusable neglect” is more lenient than our interpretation of that phrase for purposes of granting an extension of time to file a notice of appeal under Fed. R.App. P. 4(a)(5).   See, e.g., Weinstock v. Cleary, Gottlieb, Steen & Hamilton, 16 F.3d 501, 503 (2d Cir.1994) (attorney's good faith misunderstanding of operation of rules not excusable neglect);  Bortugno v. Metro-North Commuter Railroad, 905 F.2d 674, 676 (2d Cir.1990) (failure to file timely notice of appeal not excusable although clerk of court failed to mail notice of judgment).   A less rigorous construction is appropriate for a lawsuit yet to be contested on its merits.++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

Traditionally, we have held that relief from a judgment of default should be granted where the defaulting party acts with reasonable diligence in seeking to set aside the default and tenders a meritorious defense. Central Operating Co. v. Utility Workers of America,491 F.2d 245, 254 (4th Cir. 1974); Consolidated Masonry & Fireproofing, Inc. v. Wagman Construction Corp.,383 F.2d 249, 251 (4th Cir. 1967). Whether a party has taken "reasonably prompt" action, of course, must be gauged in light of the facts and circumstances of each occasion and the exercise of discretion by the trial judge will not be disturbed lightly. Further, all that is necessary to establish the existence of a "meritorious defense" is a presentation or proffer of evidence, which, if believed, would permit either the Court or the jury to find for the defaulting party. See Central Operating Co. v. Utility Workers of America,491 F.2d 245, 252 n.8 (4th Cir. 1974).

These requisites effectuate important policies inhering in our system of justice. Balanced against the manifest preference

[ 673 F.2d 728 ]

for trials on the merits are our interests in finality and repose, and our concern lest an already-burdened judicial system be compromised by frivolous and unnecessary proceedings.

Additionally, justice also demands that a blameless party not be disadvantaged by the errors or neglect of his attorney which cause a final, involuntary termination of proceedings. In Chandler Leasing Corp. v. Lopez,669 F.2d 919 (4th Cir. 1982), we recently referred to this policy in reversing an involuntary dismissal with prejudice for failure to obtain local counsel. Finding that the plaintiff bore no personal responsibility for the failure to obtain local counsel, no prejudice to the defendant, the lack of a history of dilatory action by the plaintiff, and the availability of sanctions less drastic than dismissal with prejudice, we reversed the trial court. Although Chandler Leasing dealt with involuntary dismissal, its concern for distinguishing between the fault of counsel and the fault of a party personally requires similar treatment of default judgments.

It is beyond cavil that there was no delay here once the default was discovered. Instead, counsel immediately filed for relief. Furthermore, while the instant facts may tend to uphold the Government's libel of the carpets, we cannot say that appellant will be unable to vindicate his claim, either by showing conclusively that these carpets were household goods or by establishing another defense. Finally, doubt as to this matter, or as to the propriety of giving relief generally, must be resolved in appellant's favor since the record clearly discloses he bears no personal responsibility for the failure to answer punctually or to appear at the pre-trial conference. The defaults, if any, rest upon his counsel. In the circumstances, we believe that since the District Court is permitted to impose less severe sanctions, it was not justified in refusing all relief.

The judgment is reversed and the cause remanded for proceedings not inconsistent with this opinion.+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

United States Court of Appeals,Ninth Circuit.

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LATSHAW v. TRAINER WORTHAM COMPANY INC

Elizabeth Albright LATSHAW, Plaintiff-Appellant, v. TRAINER WORTHAM & COMPANY, INC., a corporation;  Robert J. Vile, a natural person, Defendants-Appellees.

No. 03-57230.

Argued and Submitted Oct. 20, 2005. -- July 06, 2006

Before PREGERSON, CLIFTON, and BYBEE, Circuit Judges.

Harry Steinberg (argued), Lester Schwab Katz & Dwyer, LLP, New York, NY, for the plaintiff-appellant.Robert D. Weber (argued), DLA Piper Rudnick Gray Cary U.S. LLP, Los Angeles, CA, for the defendants-appellees.

Plaintiff Elizabeth Latshaw appeals the district court's denial of her motion under Rule 60(b) of the Federal Rules of Civil Procedure for relief from a judgment.   The judgment resulted from her acceptance of an offer of judgment under Rule 68 of the Federal Rules of Civil Procedure.   Latshaw argues that she accepted the offer under coercion from and based upon fraud by her counsel, who allegedly gave her erroneous legal advice and threatened to resign from the case if Latshaw did not accept the offer.   We are not persuaded and affirm the decision of the district court.   Generally speaking, Rule 60(b) is not intended to remedy the effects of a deliberate and independent litigation decision that a party later comes to regret through second thoughts or subsequently-gained knowledge that corrects prior erroneous legal advice of counsel.   The district court's refusal to relieve Latshaw from her decision was not an abuse of discretion.++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

98 F.3d 572

36 Fed.R.Serv.3d 660

Thomas D. CASHNER, Plaintiff-Appellant-Cross Appellee,

v. FREEDOM STORES, INC

United States Court of Appeals,

Tenth Circuit.

Oct. 16, 1996.

1

On January 18, 1994, Defendants filed in the district court a motion pursuant to Fed.R.Civ.P. 60(b) for relief from the court's earlier orders incorporating and then enforcing the settlement agreement. Rule 60(b) provides that the court may relieve a party from a final judgment or order for any one of five enumerated grounds, including "mistake," or "for any other reason justifying relief from the operation of the judgment." Fed.R.Civ.P. 60(b).

9

On August 30, 1994, the district court granted Defendants' motion on two grounds. First, it found that the motion should be granted "for 'mistake' because defendant Leonard Melley, Sr., was mistaken as to the terms of the Stipulation for Settlement and never intended to agree to the interpretation of Paragraph 2.D. that I have given to the language of paragraph 2.D." The court found that Melley had "misunderstood the meaning" of the paragraph. Second, the court found that the motion should be granted on the ground of impossibility of performance. It found "that the defendants simply do not generate sufficient accounts receivable to enable the defendants to comply with my interpretation of paragraph 2.D. of the stipulation of settlement." The court noted that it earlier had found plaintiff entitled to attorneys' fees and costs incurred with respect to enforcing the agreement, and invited plaintiff to file again for such relief. Cashner accordingly moved for attorneys' fees, and the court awarded him $10,000 in attorneys' fees and costs incurred in connection with the motions to enforce and to vacate the settlement agreement.

10

After the stipulation was set aside, the case was tried and a judgment was entered in favor of the Defendants on all counts. Cashner now appeals the district court's action in setting aside the settlement agreement under Rule 60(b). Defendants cross-appeal the award of attorneys' fees to Cashner.

II.

11

We have jurisdiction under 28 U.S.C. § 1291 to review an order granting a Rule 60(b) motion, when, after granting the motion, the district court has entered a final decision resolving the

litigation on the trial court level. Stubblefield v. Windsor Capital Group, 74 F.3d 990, 994 (10th Cir.1996). We review the grant of a Rule 60(b) motion only for an abuse of discretion. Oklahoma Radio Assocs. v. F.D.I.C., 987 F.2d 685, 697 (10th Cir.1993). However, in determining whether a district court abused its discretion, we are mindful that "[r]elief under Rule 60(b) is extraordinary and may only be granted in exceptional circumstances." Bud Brooks Trucking, Inc. v. Bill Hodges Trucking Co., 909 F.2d 1437, 1440 (10th Cir.1990).

Rule 60(b) provides, in relevant part:

12

On motion and upon such terms as are just, the court may relieve a party ... from a final judgment, order, or proceeding for the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect; ... or (6) any other reason justifying relief from the operation of the judgment. The motion shall be made within a reasonable time, and for reasons (1), (2), and (3) not more than one year after the judgment, order, or proceeding was entered or taken.

13

Fed.R.Civ.P. 60(b). The district court granted relief based on both subsection (1) and subsection (6). We may affirm if relief was appropriate on either ground, see Pelican Prod. Corp. v. Marino, 893 F.2d 1143, 1146 (10th Cir.1990), and therefore we examine each provision in turn.

A. Rule 60(b)(1)

The district court granted relief under Rule 60(b)(1) "mistake" on the grounds that "defendant Leonard Melley, Sr. was mistaken as to the terms of the Stipulation for Settlement and never intended to agree to the interpretation of paragraph 2.D. that I have given to the language of paragraph 2.D." Melley, the court found, had "misunderstood the meaning" of the paragraph "and believed that he had agreed to an entirely different manner of settling the plaintiff's claims." Cashner protests that such a "mistake" is not of the sort contemplated by Rule 60(b)(1). We agree.

Rule 60(b)(1) provides:

15

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;

16

Although earlier versions of this rule limited mistake to mistake of a party, the 1946 Amendment removed that restrictive qualification so that judicial mistakes are included within the scope of Rule 60(b). See Fed.R.Civ.P. 60(b) advisory committee notes; 7 Moore, Federal Practice p 60.22, pg. 60-186.

17

However, Rule 60(b) is not intended to be a substitute for a direct appeal. Morris v. Adams-Millis Corp., 758 F.2d 1352, 1356-57 (10th Cir.1985). Thus, as a general proposition, the "mistake" provision in Rule 60(b)(1) provides for the reconsideration of judgments only where: (1) a party has made an excusable litigation mistake or an attorney in the litigation has acted without authority from a party, or (2) where the judge has made a substantive mistake of law or fact in the final judgment or order. 7 Moore, Federal Practice p 60.22, pgs. 60-175-179 (listing some of the litigation mistakes which are appropriate for Rule 60(b)(1) relief); see also Thompson v. Kerr-McGee Refining Corp., 660 F.2d 1380, 1384-85 (10th Cir.1981) (trial court did not abuse its discretion in vacating, pursuant to Rule 60(b)(1), dismissal for want of prosecution when plaintiff's failure timely to obtain attorney of record was in reliance on attorney's statement that this would not be necessary), cert. denied, 455 U.S. 1019, 102 S.Ct. 1716, 72 L.Ed.2d 137 (1982); Security Mut. Cas. Co. v. Century Cas. Co., 621 F.2d 1062, 1067 (10th Cir.1980) (recognizing that Rule 60(b)(1) can be used to correct judicial error of substantive law on a theory of mistake of law but holding that a 115 day delay in filing such a motion was unreasonable); Rocky Mountain Tool & Machine Co. v. Tecon Corp., 371 F.2d 589, 597 (10th Cir.1966) (allowing court to modify interest award under Rule 60(b) even though such relief would have been untimely under Rule 59).18

If the mistake alleged is a party's litigation mistake, we have declined to grant relief under Rule 60(b)(1) when the mistake was the result of a deliberate and counseled decision by the party. "Generally speaking, a party who takes deliberate action with negative consequences ... will not be relieved of the consequences [by Rule 60(b)(1) ] when it subsequently develops that the choice was unfortunate." 7 Moore, Federal Practice p 60-22, p. 60-182. Similarly, Rule 60(b)(1) relief is not available for a party who simply misunderstands the legal consequences of his deliberate acts. In Otoe County Nat'l Bank v. W & P Trucking, 754 F.2d 881, 883-84 (10th Cir.1985), a defendant failed to answer a complaint because he mistakenly believed that further proceedings against him had been stayed. He attempted to challenge the resulting default judgment entered against him on the basis of "mistake." We held that the district court did not abuse its discretion when it held that the defendant had failed to show "mistake" for purposes of Rule 60(b)(1) because the defendant's failure to answer was "an informed choice based on the advice of his co-defendant's counsel." Id. at 883. Similarly, in Cessna Finance Corp. v. Bielenberg Masonry, 715 F.2d 1442 (10th Cir.1983), we held that the trial court did not abuse its discretion in denying a Rule 60(b)(1) motion to set aside a default judgment when the defendant, a guarantor of a corporation's debt, erred, as an error of law, in concluding without the assistance of independent counsel that he would not be liable because his co-defendant, the corporation, had filed bankruptcy proceedings. We concluded that the defendant's decision not to defend was a conscious decision which precluded him from relief under Rule 60(b)(1). See also Andrulonis v.

United States, 26 F.3d 1224, 1235 (2d Cir.1995); Hoffman v. Celebrezze, 405 F.2d 833, 837 (8th Cir.1969).

19

We also have held that Rule 60(b)(1) is not available to allow a party merely to reargue an issue previously addressed by the court when the reargument merely advances new arguments or supporting facts which were available for presentation at the time of the original argument. Van Skiver v. United States, 952 F.2d 1241, 1243 (10th Cir.1991) ("revisiting the issues already addressed is not the purpose of a motion to reconsider and advancing new arguments or supporting facts which were otherwise available for presentation when the original summary judgment motion was briefed is likewise inappropriate."), cert. denied, 506 U.S. 828, 113 S.Ct. 89, 121 L.Ed.2d 51 (1992). Rather, those kinds of arguments must be addressed within the context of a Rule 59 motion. For other examples of the kinds of party mistakes that have been held not to state a claim under Rule 60(b)(1), see 11 Charles A. Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure, § 2858 at pp. 278-291.

20

By contrast, the kinds of mistakes by a party that may be raised by a Rule 60(b)(1) motion are litigation mistakes that a party could not have protected against, such as the party's counsel acting without authority of the party to that party's detriment. See Thompson v. Kerr-McGee Refining Corp., 660 F.2d 1380, 1384-85 (10th Cir.1981) (granting relief under Rule 60(b)(1) when litigation had previously been dismissed because of reliance upon attorney's advice that no appearance was necessary); Surety Insur. Co. of Calif. v. Williams, 729 F.2d 581, 582-83 (8th Cir.1984) ("[A] judgment entered upon an agreement by the attorney may be set aside on affirmative proof that the attorney had no right to consent to its entry") (internal quotation marks omitted). Rule 60(b)(1) relief has also been granted upon a showing of a party's excusable failure to comply with procedural rules. Wallace v. McManus, 776 F.2d 915, 917 (10th Cir.1985) (per curiam) (finding "excusable neglect" under Rule 60(b) when a pro se prisoner let an appeal deadline lapse after notice of the entry of judgment was sent to her former attorney rather than to her).2

21

Here, it is not at all clear that Melley is truly arguing party litigation mistake as defined above.

22

. Rule 60(b)(1) is not available to provide relief when a party takes deliberate action upon advice of counsel and simply misapprehends the consequences of the action. 7 Moore, Federal Practice, p 60-22, p. 60-182; Otoe County Nat'l Bank, 754 F.2d at 883-84. See also Thompson v. Kerr-McGee Refining Corp., 660 F.2d. at 1385; Surety Insur. Co. of Calif. v. Williams, 729 F.2d at 583.

However, when Rule 60(b)(1) is used to challenge a substantive ruling by the district court, we have required that such a motion be filed within the time frame required for the filing of a notice of appeal. That is, we have construed the requirement in Rule 60(b)(1) that "the motion shall be filed within a reasonable time" in this situation to be contemporaneous with the time constraints for taking a direct appeal. Van Skiver v. U.S., 952 F.2d 1241, 1244 (10th Cir.1991) ("relief may be granted under Rule 60(b)(1) on a theory of mistake of law, when ... the Rule 60(b) motion is filed before the time to file a notice of appeal has expired.") (citing Morris v. Adams-Millis Corp., 758 F.2d 1352, 1358 (10th Cir.1985)). See, also Thompson v. Kerr-McGee Refining Corp., 660 F.2d at 1385 (indicating that Rule 60(b) motions to vacate mistakes of law are governed by the thirty day appeals deadline).

24

However, in any event, to the extent that Melley's Rule 60(b)(1) motion asserts judicial mistake, it was not filed "within a reasonable time." The Rule 60(b)(1) motion was not filed within the 30 day appeal time; thus, Melley's Rule (60)(b)(1) motion asserting judicial mistake was not timely filed. See Van Skiver, 952 F.2d at 1244.

Therefore, however Melley's Rule 60(b)(1) motion is interpreted, he has failed to state a claim for relief under that rule.

B. Rule 60(b)(6)

Clause (6) of Rule 60(b) provides that relief may be granted for "any other reason justifying

We have sometimes found such extraordinary circumstances to exist when, after entry of judgment, events not contemplated by the moving party render enforcement of the judgment inequitable. See, e.g., Zimmerman v. Quinn, 744 F.2d 81, 82-83 (10th Cir.1984) (upholding 60(b)(6) modification of stipulated judgment to allow the receiving party to escape tax liability for the transferred amount for a one year period when both parties had expected funds transfer to occur within sixty days and it did not occur for almost eighteen months); State Bank v. Gledhill (In re Gledhill), 76 F.3d 1070, 1081 (10th Cir.1996) (upholding 60(b)(6) relief and agreeing with bankruptcy court's conclusion that "the circumstances of the case had changed significantly since" the judgment). Here, however, there has been no showing of an unanticipated intervening change of circumstances. The only event not contemplated by Defendants was that the district court would disagree with their proffered interpretation of the settlement agreement, and that is not the kind of intervening event contemplated by Rule 60(b)(5). "[T]he broad power granted by clause (6) is not for the purpose of relieving a party from free, calculated and deliberate choices he has made. A party remains under a duty to take legal steps to protect his own interests." 11 Charles A. Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure § 2864, p. 359 (citing Ackermann v. United States, 340 U.S. 193, 198, 71 S.Ct. 209, 211-12, 95 L.Ed. 207 (1950)).

The Supreme Court held that Ackermann had made a considered and free choice not to appeal, and "cannot be relieved from such a choice because hindsight seems to indicate to him that his decision not to appeal was probably wrong.... There must be an end to litigation someday." 340

U.S. at 198, 71 S.Ct. at 211-12. Like Ackermann, Defendants made a free, counseled, deliberate choice whose consequences in hindsight are unfortunate. Relief under Rule 60(b)(6) is appropriate when circumstances are so "unusual or compelling" that extraordinary relief is warranted, or when it "offends justice" to deny such relief. Pelican Prod., 893 F.2d at 1147. We find nothing sufficiently "unusual or compelling" about making a bad bargain to warrant relief under Rule 60(b)(6). See Schwartz v. United States, 976 F.2d 213, 218 (4th Cir.1992) (affirming district court's refusal to grant Rule 60(b)(6) relief on grounds of mutual mistake from judgment entered pursuant to settlement agreement; "We find no meaningful distinction from a motion asking for relief from a decision not to appeal, as in Ackermann, and one that asks for relief from a decision to settle."), cert. denied, 507 U.S. 919, 113 S.Ct. 1280, 122 L.Ed.2d 673 (1993).

We recognize that "[t]he district court has substantial discretion in connection with a Rule 60(b) motion." Pelican Prod., 893 F.2d at 1146. However, it is an abuse of discretion to grant relief where no basis for that relief exists. Defendants have alleged only a unilateral mistake as to the meaning of the stipulation terms that led to their entering into an improvident bargain. "Stipulated judgments negotiated in open courts are not to be easily set aside. Such judgments are as final as those entered following trial." V.T.A., Inc. v. Airco, 597 F.2d 220, 226 (10th Cir.1979). Were we to affirm the grant of Rule 60(b) relief here, we would "upset the delicate balance between the finality of judgment and justice that Rule 60(b) seeks to maintain." Id. The district court's grant of Defendants' Rule 60(b) motion is therefore reversed.++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

Relief from Default Judgment

1) Did the defaulting Party engage in culpable conduct

2) Whether defaulting Party has meritous defense

3) Whether there is prejudice to the non-defaulting party

District Court is free to deny if any of these three factors exist = disjunctive

Incorrect Legal Advise not ground for doe relief from Judgment

Feeny v. AT &E

The district court's grant of summary judgment was the functional equivalent of a default judgment against Mitan, because it granted judgment without discussing the merits of the claim, based solely on Mitan's failure to reply. Federal Rule of Civil Procedure 60(b)(1) permits a district court to grant a defaulting party relief from judgment because of that party's "mistake, inadvertence, surprise, or excusable neglect." We review a district court's ruling on a 60(b)(1) motion for abuse of discretion. Union Pacific R.R. Co. v. Progress Rail Servs. Corp., 256 F.3d 781, 782 (8th Cir.2001).

5

The determination of excusable neglect "is at bottom an equitable one, taking account of all relevant circumstances surrounding the party's omission." Pioneer Inv. Servs. Co. v. Brunswick Assoc. Ltd. P'ship, 507 U.S. 380, 395, 113 S.Ct. 1489, 123 L.Ed.2d 74 (1993). The relevant circumstances include "the danger of prejudice to [the non-moving party], 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." Id. The existence of a meritorious defense is also a relevant factor. Union Pacific, 256 F.3d at 782-783; Johnson v. Dayton Elec. Mfg. Co., 140 F.3d 781, 784 (8th Cir.1998).

6

The district court's analysis focused exclusively on the reason for Mitan's default and concluded, correctly in our view, that Mitan's failure to respond to the motion for summary judgment was due to his own neglect in failing to check his mail. When evaluating a motion to set aside a default judgment, however, courts must do more than simply determine whether the movant had a satisfactory reason for his neglect. Union Pacific, 256 F.3d at 783. The text of the rule, which provides that certain "neglect" will be "excusable," contemplates that the courts are "permitted, where appropriate, to accept late filings caused by inadvertence, mistake, or carelessness." Pioneer, 507 U.S. at 388, 113 S.Ct. 1489. Whether the movant had a good reason for delay is a key factor in the analysis, Lowry v. McDonnell Douglas Corp., 211 F.3d 457, 463 (8th Cir.2000), but even without a satisfactory explanation, relief may be required where other equitable considerations weigh strongly in favor of setting aside the default judgment. Union Pacific, 256 F.3d at 783.+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

Robb v. Norfolk & western ry. Co.

Subsequently, the plaintiff's attorney filed a motion for relief from the judgment under Rule

60(b)(1), noting that he had reached an agreement with opposing counsel for an extension of

time in which to file his responsive brief, and arguing that his failure to notify the court of this

agreed-upon extension amounted to “excusable neglect.” The trial judge denied the Rule 60(b)

(1) motion, stating his belief that he lacked discretion to grant the motion because of what he

classified as a “hard and fast” rule in this circuit that attorney negligence can never be considered

“excusable neglect.”   However, the Supreme Court in Pioneer Inv. Servs. Co. v. Brunswick

Assocs. Ltd. Partnership, 507 U.S. 380, 113 S.Ct. 1489, 123 L.Ed.2d 74 (1993), underscored the

equitable nature of a court's “excusable neglect” determination and clarified that “excusable

neglect” could “encompass situations in which the failure to comply with a filing deadline is

attributable to negligence.”  Id. at 394, 113 S.Ct. at 1497.   Consistent with Pioneer, we remand

this case to the district judge in order that he might exercise his discretion in ruling on the

plaintiff-appellant's Rule 60(b)(1) motion.+++++++++++++++++++++++++++++++++++++++

+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

FRCP 60(b)(2) Newly Discovered Evidence

1) Evidence was discovered after trial

2) movant exercised due diligence to discover new evidence

3) evidence is not merely cumulative or impeaching

4) evidence is material

5) evidence would probably produce a different result

Thermacor Process L.P. v. BASF Corp. We find this argument unconvincing.   The email makes

no affirmative representation that the product was able to withstand continuous temperatures of

366 degrees and spikes up to 400 degrees.   Instead, it indicates only that BASF pursued

development of a high-temperature foam, believed it created a product capable of meeting

Thermacor's needs, and then offered that product to test, as evidenced by the email's reference to

a “trial.”   Moreover, even if the email could be read as representing that BASF was “done”

developing a high-temperature foam, such representation would not be false.   The only term

used to qualify the product was “hi-temp,” and deposition testimony reflects that a foam is

considered “high-temperature” if it performs at temperatures above 250 degrees.   Thus, the

email could only guarantee viability at temperatures above 250 degrees, and Thermacor's post-

failure heat testing confirmed that the foam was able to withstand continuous temperatures as

high as 290 degrees.   Given this information, the email alone cannot be construed as false or as

an affirma II. Rule 60(b) Motion

 Thermacor filed a Rule 60(b) motion on March 4, 2008 and perfected its appeal from the

February 7, 2008 judgment on March 6, 2008.   Though a perfected appeal divests the district

court of jurisdiction, the district court may still consider and deny a Rule 60(b) motion.  

Shepherd v. Int'l Paper Co., 372 F.3d 326, 329 (5th Cir.2004) (requiring a district court to seek

leave from the appellate court if it wishes to grant the motion).   The district court's denial of

Thermacor's request for relief under Rule 60(b)(2) for “newly discovered evidence” is reviewed

under an abuse of discretion standard.  Crutcher v. Aetna Life Ins. Co., 746 F.2d 1076, 1082

(5th Cir.1984).7

 Rule 60(b)(2) provides that a court may relieve a party from final judgment based on “newly

discovered evidence that, with reasonable diligence, could not have been discovered in time to

move for a new trial under Rule 59(b).”  Fed.R.Civ.P. 60(b).  To obtain Rule 60(b)(2) relief, a

movant must demonstrate:  “(1) that it exercised due diligence in obtaining the information;  and

(2) that the evidence is material and controlling and clearly would have produced a different

result if present before the original judgment.”  Hesling v. CSX Transportation, Inc., 396 F.3d

632, 639 (5th Cir.2005).  “A judgment will not be reopened if the evidence is merely cumulative

or impeaching and would not have changed the result.”  Id. at 640.

 In its Rule 60(b) motion, Thermacor offered, as new evidence, deposition testimony by Chris

LaCarte, a BASF representative with knowledge of research, development, and marketing high-

temperature foam products.   LaCarte's deposition was taken on February 6, 2008, the day

before the summary judgment ruling.  Thermacor has offered no evidence that it acted with due

diligence to obtain the transcript prior to February 22nd, nor has any evidence been provided that

LaCarte's deposition could not have been obtained prior to responding to BASF's summary

judgment motion.   Nor did Thermacor ever move to postpone summary judgment response (or

ruling) until after transcription of the deposition.

Moreover, LaCarte's testimony provides nothing more than impeachment evidence, which generally does not support relief from judgment.   See Hesling, 396 F.3d at 639-40.   Lacarte testified that he was not involved in formulation, design, testing, or communication with any of BASF employees regarding the high-temperature spray foam at issue.   This testimony does nothing more than contradict the testimony of Williams and Patterson, who testified that LaCarte had been involved in formulating and rating the product.   It provides no evidence as to what BASF represented to Thermacor, what Thermacor relied upon, or how Thermacor met its obligation to test end-use suitability.   Based upon LaCarte's own testimony that he was not involved with the product or the transaction with Thermacor, the district court did not abuse its discretion by denying the motion after determining the evidence was immaterial.

CONCLUSION

Thermacor failed to provide evidence to create a genuine fact issue as to whether BASF falsely represented its product, thus summary judgment was properly granted.   Thermacor was also unable to show that the evidence offered to support its Rule 60(b) motion was material and could not have been obtained earlier with due diligence, thus the motion was properly denied.

+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

Jones v. Aero/Chem Corp., 921 F. 2d 875 - Court of Appeals, 9th Circuit 1990

878 a. Newly Discovered Evidence.

In deciding the Rule 59 motion, both parties argued and the district court applied the test borrowed from cases considering motions under Rule 60(b)(2) for relief from judgment based upon newly discovered evidence. See 11 C. Wright & A. Miller, Federal Practice and Procedure: Civil § 2859 (1973) ("The same standard applies to motions on the ground of newly discovered evidence whether they are made under Rule 59 or Rule 60(b)(2)."); 7 J. Moore & J. Lucas, Moore's Federal Practice ¶ 60.23[4] (2d ed. 1987) (distinction between evidence warranting Rule 59 and Rule 60(b)(2) relief is one of degree rather than kind; Rule 60(b)(2), allowing a more belated attack on a judgment, may require a stronger showing); Coastal Transfer Co. v. Toyota Motor Sales, U.S.A., 833 F.2d 208, 211-12 (9th Cir.1987).

Under this test the movant must show the evidence (1) existed at the time of the trial, (2) could not have been discovered through due diligence, and (3) was "of such magnitude that production of it earlier would have been likely to change the disposition of the case." Coastal Transfer, 833 F.2d at 211. We review the district court's determination under this standard for abuse of discretion. Id.

The court determined Jones met the first two requirements, but did not satisfy the third. The court concluded it was not likely the documents would have changed the outcome because they only corroborated testimony by Jones' expert. They would have been of de minimis value in light of the theory of defect Jones presented at trial: the Curb 20 was too sensitive in the locked position or moved too easily from the locked to the fire position.

Whether knowledge of the newly revealed correspondence would likely have affected the jury's verdict is a close question. Contrary to the district court's view, we think the letters do more than merely corroborate plaintiff's expert testimony; they demonstrate knowledge by Athea of a potential design problem. An admission by the company engineer that the valve was "too sensitive" is substantively different than testimony to that effect by the plaintiff's own hired expert.

However, the letters are not equivalent to a "smoking gun," as Jones argues. Rather than dictating a different result, they would likely have led Jones to prepare and present a different case — taking additional depositions, presenting other witnesses, and arguing a different theory of defect to the jury. Althea, too, would have defended differently. We are not persuaded,

however, that the district court abused its discretion in concluding Jones failed to establish the outcome likely would have been different.++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

Coastal Transfer Co. v. Toyota Motor Sales, USA, 833 F. 2d 208 - Court of Appeals, 9th Circuit 1987

The court reasoned, first, that "the revised testimony of [Coastal's] retained expert ... does not appear to be `new' evidence within the meaning of Rule 59 [because] Coastal Transfer has possessed the information upon which Walters bases his opinion since before defendants moved for summary judgment." Second, the court stated that Coastal had failed to exercise the requisite due diligence in attempting to discover Walters' mistake

Kansas City Area Transp. Auth. v. State of Mo., 640 F. 2d 173 - Court of Appeals, 8th Circuit 1981

This motion was properly denied by the district court because the Authority did not demonstrate,

as required by Fed.R.Civ.P. 60(b), that this was "newly discovered evidence which by due

diligence could not have been discovered in time to move for a new trial under rule 59(b)."

Exhibits 1 and 3 contained information which was clearly available to the Authority at the time

of its motion for summary judgment. Exhibit 2 was a report which was not issued until January

of 1980 (apparently a few days after the district court opinion), but was a study with which the

Authority was familiar prior to its filing both the lawsuit and the motion for summary judgment.

[3] The district court has not abused its discretion in denying the motion to set aside the

judgment. See Engelhard Industries, Inc. v. Research Instrumental Corp., 324 F.2d 347 (9th Cir.

1963).

Englehard

Since the petition was addressed to the discretion of the trial court [George P. Converse & Co. v. Polaroid Corp., 242 F.2d 116 (1st Cir. 1957)], Engelhard was obliged to show not only that this evidence was newly discovered or unknown to it until after the hearing, but also that it could not with reasonable diligence have discovered and produced such evidence at the hearing. But Engelhard made no showing of any kind. Indeed from our examination of three of the four affidavits (the other was not made part of the record on appeal) it clearly appears that whatever facts they contain were readily available to and were known by Engelhard well in advance of the hearing.[5] In sum, we conclude that the district court did not err in granting summary judgment with respect to Engelhard's claims based on infringement.

Jones v. Aero/Chem Corp., 921 F. 2d 875 - Court of Appeals, 9th Circuit 1990

b. Misconduct.

The test to be applied when discovery misconduct is alleged in a Rule 59 motion must be borrowed from cases interpreting Rule 60(b)(3), just as the test applied to a Rule 59 motion alleging newly discovered evidence is borrowed from Rule 60(b)(2).[3]

Under Rule 60(b)(3), the movant must,

(1) prove by clear and convincing evidence that the verdict was obtained 879*879 through fraud, misrepresentation, or other misconduct.

(2) establish that the conduct complained of prevented the losing party from fully and fairly presenting his case or defense. Although when the case involves the withholding of information called for by discovery, the party need not establish that the result in the case would be altered.

Bunch v. United States, 680 F.2d 1271, 1283 (9th Cir.1982) (citation omitted). Moreover, as the court said in Anderson v. Cryovac, Inc., 862 F.2d 910 (1st Cir.1988):

Failure to disclose or produce materials requested in discovery can constitute "misconduct" within the purview of this subsection. See Rozier v. Ford Motor Co., 573 F.2d 1332, 1339 (5th Cir.1978). "Misconduct" does not demand proof of nefarious intent or purpose as a prerequisite to redress.... The term can cover even accidental omissions — elsewise it would be pleonastic, because "fraud" and "misrepresentation" would likely subsume it.... Accidents — at least avoidable ones — should not be immune from the reach of the rule.

Id. at 923. The court in Anderson found misconduct within the meaning of Rule 60(b)(3) because plaintiffs demonstrated (1) they exercised due diligence in their discovery requests, (2) defendant knew, or was charged with knowledge, of the missing document, and had constructive (if not actual) possession of it; and (3) defendant did not divulge the document's existence. Id. at 928.

Regardless of whether there was misconduct, Athea argues this court should find the letters cumulative, corroborative and of de minimis value under the Rule 60(b)(3) test of "full fair opportunity to present one's case" based on the district court's finding to that effect under the Rule 60(b)(2) "different outcome" test. We disagree. If Jones is able to demonstrate misconduct, the district court must make a fresh determination whether Jones has demonstrated "substantial interference" by showing "the material's likely worth as trial evidence or by elucidating its value as a tool for obtaining meaningful discovery." Id. at 926. As noted earlier, the letters were much more than merely corroborative or cumulative evidence. And, further, as we also have noted, evidence that was merely cumulative under the "different outcome" test, may have substantially interfered with Jones' ability to fully and fairly present her case — for example, concealment of Athea's statement the valve was too sensitive may have "precluded inquiry into a plausible theory of liability." Id. at 925. Additionally, Jones may be able to benefit from a presumption of substantial interference if she can demonstrate the misconduct was sufficiently knowing, deliberate or intentional. See generally id. at 923-27 (summarizing the applicable standards and burdens of proof).

It does not appear the district court considered the alleged misconduct in deciding Jones' Rule 59 motion; the district court did not hold a hearing to determine whether there had been misconduct, either knowing or accidental, nor did it make findings on this issue.[4] We therefore remand to the district court for appropriate proceedings to determine whether Jones can meet her burdens under the Rule 60(b)(3) standard as applied to this Rule 59 motion.[5]

I. Clear and Convincing Evidence of Misconduct

Plaintiff must establish misconduct by clear and convincing evidence. To be entitled to a hearing on the issue, plaintiff must at least make some preliminary showing, which, if believed, would show her ability to demonstrate misconduct.

Plaintiff does not appear to have made such a showing with respect to defendant's failure to produce Smith's letters. Despite the majority's reading of Anderson v. Cryovac, Inc., 862 F.2d 910 (1st Cir.1988), as defining misrepresentation (and hence misconduct) very broadly, misrepresentation still retains at least some requirement of fault. Indeed, the Anderson court apparently considered only those discovery responses "so ineptly researched or lackadaisical" 881*881 as qualifying as misrepresentations. Id. at 923.

+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

Anderson v. Cryovac, Inc., 862 F. 2d 910 - Court of Appeals, 1st Circuit 1988

III. THE UNDISCLOSED EVIDENCE AND THE ENSUING APPEAL

We now reach the second of the plaintiffs' two appeals, No. 88-1070. During the pendency of the original appeal, certain previously undisclosed evidence surfaced. Plaintiffs learned serendipitously that Riley had commissioned Yankee Environmental Engineering and Research Services, Inc. (Yankee) to make a hydrogeologic investigation of the tannery property in 1983. Yankee was to determine (1) the direction of groundwater flow at the tannery; (2) whether groundwater contamination was present there; and (3) whether the tannery contributed to contamination found at Rileyco's two production wells. The resulting report (Report),[8] based on field research conducted during mid-1983, was never produced in pretrial discovery.

The court made four salient findings: (1) the Report was relevant and within the ambit of plaintiffs' pretrial discovery request; (2) defense counsel had defaulted in their obligation to furnish the Report during discovery; (3) the nondisclosure resulted from "a lapse of judgment" rather than fraud or deliberate misrepresentation, id. at 20; and (4) plaintiffs had not been prevented from fully and fairly presenting their case.

A. Rule 60(b)(3).

We start with basics. Plaintiffs' motion to upset the judgment was brought under Fed.R.Civ.P. 60(b) and was therefore addressed to the district court's sound discretion. When Rule 60(b) is in play, we ordinarily defer to the trial judge's more intimate knowledge of the case. For us to act, there must be an abuse of discretion. United States v. Ayer, 857 F.2d 881, 886 (1st Cir.1988); Rivera v. M/T Fossarina, 840 F.2d 152, 156 (1st Cir.1988); Pagan v. American Airlines, Inc., 534 F.2d 990, 993 (1st Cir.1976). Under this standard, we reverse only if it plainly appears that the court below committed a meaningful error in judgment. See, e.g., In re San Juan Dupont Plaza Hotel Fire Litigation, 859 F.2d 1007, 1019 (1st Cir.1988) (delineating standard).

In relevant part, Rule 60 states:

On motion and upon such terms as are just, the court may relieve a party ... from a final judgment, order, or proceeding for the following reasons: ... (3) fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party....

Fed.R.Civ.P. 60(b)(3).[9] Failure to disclose or produce materials requested in discovery can constitute "misconduct" within the purview of this subsection. See Rozier v. Ford Motor Co., 573 F.2d 1332, 1339 (5th Cir.1978). "Misconduct" does not demand proof of nefarious intent or purpose as a prerequisite to redress. For the term to have meaning in the Rule 60(b)(3) context, it must differ from both "fraud" and "misrepresentation." Definition of this difference requires us to take an expansive view of "misconduct." The term can cover even accidental omissions — elsewise it would be pleonastic, because "fraud" and "misrepresentation" would likely subsume it. Cf. United States v. One Douglas A-26B Aircraft, 662 F.2d 1372, 1374-75 n. 6 (11th Cir.1981) (to avoid redundancy, "misrepresentation" in Rule 60(b)(3) must encompass more than false statements made with intent to deceive). We think such a construction not overly harsh; it takes scant imagination to conjure up discovery responses which, though made in good faith, are so ineptly researched or lackadaisical that they deny the opposing party a fair trial. Accidents — at least avoidable ones — should not be immune from the reach of the rule. Thus, we find ourselves in agreement with the Fifth Circuit that, depending upon the circumstances, relief on the ground of misconduct may be justified "whether there was evil, innocent or careless, purpose." Bros. Inc. v. W.E. Grace Manufacturing Co., 351 F.2d 208, 211 (5th Cir.1965), cert. denied, 383 U.S. 936, 86 S.Ct. 1065, 15 L.Ed.2d 852 (1966).

Once we leave the starting gate, the borders of the course blur. The concept of misconduct seems mutable: not every instance of nondisclosure merits the same judicial response. The text of Rule 60(b)(3) gives precious little guidance as to how a court should ascertain the existence of misconduct, weigh its effect, and ultimately determine when to set aside a verdict. Our sister circuits have set some guideposts along the track: the moving party must demonstrate misconduct — like fraud or misrepresentation — by clear and convincing evidence, and must then show that the misconduct foreclosed full and fair preparation or presentation of its case. See, e.g., In re M/V Peacock, 809 F.2d 1403, 1404-05 (9th 924*924 Cir.1987) (Kennedy, J.); Harre v. A.H. Robins Co., 750 F.2d 1501, 1503 (11th Cir.1985); Stridiron v. Stridiron, 698 F.2d 204, 207 (3d Cir.1983); Square Construction Co. v. Washington Metropolitan Area Transit Authority, 657 F.2d 68, 71 (4th Cir.1981); Rozier, 573 F.2d at 1339. Another well-sculpted

marker points out that misconduct need not be result-altering in order to merit Rule 60(b)(3) redress. See Wilson v. Thompson, 638 F.2d 801, 804 (5th Cir.1981); Rozier, 573 F.2d at 1339; Seaboldt v. Pennsylvania Railroad Company, 290 F.2d 296, 299 (3d Cir.1961); see also Bunch v. United States, 680 F.2d 1271, 1283 (9th Cir.1982) (when information withheld in discovery, aggrieved party need not establish that outcome would have been different).[10]

We are in general concert with these authorities, but find it necessary to place our own gloss upon the subject. Verdicts ought not lightly to be disturbed, so it makes very good sense to require complainants to demonstrate convincingly that they have been victimized by an adversary's misconduct. And as with other defects in the course of litigation, the error, to warrant relief, must have been harmful — it must have "affect[ed] the substantial rights" of the movant. Fed.R.Civ.P. 61.[11] Moreover, since parties ought not to benefit from their own mis-, mal-, or nonfeasance, uncertainties attending the application of hindsight in this area should redound to the movant's benefit. See generally Minneapolis, St. Paul, & Sault Ste. Marie Ry. Co. v. Moquin, 283 U.S. 520, 521-22, 51 S.Ct. 501, 502, 75 L.Ed. 1243 (1931) (litigant who engages in misconduct "will not be permitted the benefit of calculation, which can be little better than speculation, as to the extent of the wrong inflicted upon his opponent").

Our chief refinement of the conventional "full and fair preparation and presentation" standard is to delineate more exactly how the value of the suppressed evidence should be weighed. By definition, lack of access to any discoverable material forecloses "full" preparation for trial since the material in question will be missing. Yet concealed evidence may turn out to be cumulative, insignificant, or of marginal relevance. If that be the case, retrial would needlessly squander judicial resources. The solution, we believe, is that before retrial is mandated under Rule 60(b)(3) in consequence of discovery misconduct, the challenged behavior must substantially have interfered with the aggrieved party's ability fully and fairly to prepare for and proceed at trial. Accord Carson v. Polley, 689 F.2d 562, 586 (5th Cir.1982); cf. Wilson v. Volkswagen of America, Inc., 561 F.2d 494, 504 (4th Cir.1977) (imposition of default judgment as sanction under Fed.R.Civ.P. 37 should be confined to flagrant cases where failure to produce "materially affect[s] the substantial rights of the adverse party" and is "prejudicial to the presentation 925*925 of his case"), cert. denied, 434 U.S. 1020, 98 S.Ct. 744, 54 L.Ed.2d 768 (1978); Telectron, Inc. v. Overhead Door Corp., 116 F.R.D. 107, 132 (S.D.Fla.1987) (similar).

Under a substantial interference rule as we envision it, a party still need not prove that the concealed material would likely have turned the tide at trial. Substantial impairment may exist, for example, if a party shows that the concealment precluded inquiry into a plausible theory of liability, denied it access to evidence that could well have been probative on an important issue, or closed off a potentially fruitful avenue of direct or cross examination. See, e.g., Seaboldt v. Pennsylvania Railroad Company, 290 F.2d at 299 (new trial justified where sequestered information "would have made a difference in ... counsel's approach to the testimony of several

witnesses"). Substantial interference may also be established by presumption or inference. That possibility, however, brings to the fore the utility of some further embellishments.

Although we agree that the existence of misconduct in the Rule 60(b)(3) sense does not depend upon a demonstration of nefarious intent or purpose, see supra, the actor's intent is not immaterial. Nondisclosure comes in different shapes and sizes: it may be accidental or inadvertent, or considerably more blameworthy (though still short of fraud or outright misrepresentation). In the case of intentional misconduct, as where concealment was knowing and purposeful, it seems fair to presume that the suppressed evidence would have damaged the nondisclosing party. See Nation-Wide Check Corp. v. Forest Hills Distributors, Inc. 692 F.2d 214, 217-19 (1st Cir.1982) (deliberate nonproduction or destruction of relevant document is "evidence that the party which has prevented production did so out of the well-founded fear that the contents would harm him"); accord Marquis Theatre Corp., 846 F.2d at 89-90; Knightsbridge Marketing v. Promociones y Proyectos, 728 F.2d 572, 575 (1st Cir.1984); Commercial Ins. Co. v. Gonzalez, 512 F.2d 1307, 1314 (1st Cir.), cert. denied, 423 U.S. 838, 96 S.Ct. 65, 46 L.Ed.2d 57 (1975). It seems equally logical that where discovery material is deliberately suppressed, its absence can be presumed to have inhibited the unearthing of further admissible evidence adverse to the withholder, that is, to have substantially interfered with the aggrieved party's trial preparation. See Alexander v. National Farmers Organization, 687 F.2d 1173, 1205-06 (8th Cir.1982) (where documents deliberately destroyed, court should draw factual inferences adverse to party responsible); Telectron, Inc., 116 F.R.D. at 134 (where destruction motivated by "flagrant bad faith," conduct "warrant[ed] the inference that the destroyed documents would have been harmful to [destroyer]"; resultant unavailability "must therefore be seen as prejudicial to [innocent party's] interest in pursuing the full and fair litigation of its claims"); National Association of Radiation Survivors v. Turnage, 115 F.R.D. 543, 557 (N.D.Cal.1987) ("Where one party wrongfully denies another the evidence necessary to establish a fact in dispute, the court must draw the strongest allowable inferences in favor of the aggrieved party.").

The presumption, if it arises, should be a rebuttable one. It may be refuted by clear and convincing evidence demonstrating that the withheld material was in fact inconsequential. We are keenly aware of the stringency of this standard, yet we believe it to be an appropriate antidote for deliberate misconduct. A party who is guilty of, say, intentionally shredding documents in order to stymie the opposition, should not easily be able to excuse the misconduct by claiming that the vanished documents were of minimal import. Without the imposition of a heavy burden such as the "clear and convincing" standard, spoliators would almost certainly benefit from having destroyed the documents, since the opposing party could probably muster little evidence concerning the value of papers it never saw. As between guilty and innocent parties, the difficulties created by the absence of evidence should fall squarely upon the former.

926*926 Where the documents have been intentionally withheld but not destroyed, the threshold becomes easier to climb. In such situations, the documents themselves may constitute clear and convincing proof that no prejudice inured. Cf. Eaton Corp. v. Appliance Valves Corp., 790 F.2d 874, 878 (Fed.Cir.1986) (where destroyed documents had earlier been produced in discovery and plaintiff unable to show that they bore significantly on liability issue, destruction was harmless). Of course, the actual documents are not the only proof of harmlessness which could be clear and convincing. Even when documents have been destroyed, it is possible to present evidence of their general nature and contents, and to decide whether they would likely have been irrelevant or cumulative. See, e.g., Allen Pen Co. v. Springfield Photo Mount, 653 F.2d 17, 24 (1st Cir.1981).

Conversely, where the nondisclosure was accidental — as opposed to knowing or purposeful — there seems less reason for an adverse presumption. See Coates v. Johnson & Johnson, 756 F.2d 524, 551 (7th Cir.1985) (where documents were destroyed routinely, not in bad faith, loss would not support inference that defendant's agents were conscious of weak case); Soria v. Ozinga Bros., Inc., 704 F.2d 990, 996 n. 7 (7th Cir.1983) (where incomplete recording "due to the admittedly informal nature of the company's policy rather than willful destruction of existing records, it would be unfair to create an evidentiary presumption against the company"); Vick v. Texas Employment Comm'n, 514 F.2d 734, 737 (5th Cir.1975) (mere negligence leading to destruction of records does not sustain inference that party believed its case lacked merit); Ina Aviation Corp. v. United States, 468 F.Supp. 695, 700 (E.D.N.Y.) (no illation that missing evidence unfavorable "where the destruction of evidence is unintentional or where failure to produce evidence is satisfactorily explained"), aff'd, 610 F.2d 806 (2d Cir.1979); cf. United States v. Mora, 821 F.2d 860, 869 (1st Cir.1987) (in assessing explanation for delay in presenting tapes for sealing, court should consider whether delay was caused "deliberately or inadvertently").

While parties who are substantially prejudiced by their opponents' misconduct may make a case for a new trial even absent malicious intent, the burden of showing substantial interference in that circumstance should rightfully rest with the movant. Yet the movant, we suggest, need only carry that devoir of persuasion by a preponderance of the evidence, since the considerations which lead us to impose a heightened burden of proof on one who deliberately destroys or withholds discovery materials are lacking when the default is unintentional and the burden of proof is, therefore, to be hefted by the withholdee.

To summarize, in motions for a new trial under the misconduct prong of Rule 60(b)(3), the movant must show the opponent's misconduct by clear and convincing evidence. Next, the moving party must show that the misconduct substantially interfered with its ability fully and fairly to prepare for, and proceed at, trial. This burden may be shouldered either by establishing the material's likely worth as trial evidence or by elucidating its value as a tool for obtaining

meaningful discovery. The burden can also be met by presumption or inference, if the movant can successfully demonstrate that the misconduct was knowing or deliberate. Once a presumption of substantial interference arises, it can alone carry the day, unless defeated by a clear and convincing demonstration that the consequences of the misconduct were nugacious. Alternatively, if unaided by a presumption — that is, if the movant is unable to prove that the misconduct was knowing or deliberate — it may still prevail as long as it proves by a preponderance of the evidence that the nondisclosure worked some substantial interference with the full and fair preparation or presentation of the case.

In our view, this methodology strikes an acceptable balance between the need to preserve the finality of judgments and the need to enforce discovery rules against those who would seek unfair advantage by withholding information. It does not handcuff the nisi prius court; rather than requiring 927*927 mechanistic decision making, the protocol which we have delineated envisions that the trial judge will make a series of record-rooted judgment calls in exercising his informed discretion under Rule 60(b)(3) — judgment calls of the sort district courts are uniquely equipped to essay. And because weighing the relevant factors remains primarily a task for the district court, we will ordinarily defer to its assessment of the situation, absent error of law or manifest abuse of discretion.+++++++++++++++++++++++++++++++++++++++++

Bankruptcy Trustee Has The Exclusive Right To Assert Legal Claims On Behalf Of The Bankruptcy Estate

In Estate of Spirtos v. Estate of Spirtos, No. 03-56405 (9th Cir. April 12, 2006), the Ninth Circuit joins the 2nd, 4th, 5th, 6th, 8th, and 11th circuits by holding that 11 U.S.C. § 323 vests the bankruptcy trustee with the exclusive right to assert legal claims on behalf of the bankruptcy case. In Spirtos, family member creditors of the deceased debtor filed RICO claims against nearly everyone in the bankruptcy, including the chapter 7 and U.S. trustees, alleging a joint conspiracy to conceal assets belonging to the bankruptcy estate. The district court dismissed the creditors' action for lack of standing.

 

On appeal, the Ninth Circuit noted that Bankruptcy Code section 323 gives the trustee the capacity to sue on behalf of the estate. The Court further acknowledged that, under some circumstances, a trustee may authorize others to bring suit on the estate's behalf. However, the Ninth Circuit held that the right to bring suit belongs to the trustee in the first instance, not creditors. The creditors argued that such a rule is not logical, particularly when a creditor also sues the trustee. The Court reasoned that a creditor may either seek abandonment of the claim as property of the estate or seek removal of the trustee for malfeasance under Bankruptcy Code section 324(a). In sum, because the creditors had not received authorization to sue from the

trustee, the Ninth Circuit affirmed the dismissal of the RICO claims for lack of standing to sue on behalf of the estate. ++++++++++++++++++++++++++++++++++++++++++++

Duties of the Bankruptcy TrusteeText Size:

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In both chapter 7 and chapter 13 bankruptcy cases, the bankruptcy trustee is responsible for accounting for property received, investigating the financial affairs of the debtor, examining and objecting to proofs of

claim, opposing the debtor's discharge if appropriate, sending required notices related to domestic support obligations, if applicable, furnishing information to parties in interest and reporting on the

administration of the case.

Trustee ResponsibilitiesIn the course of administering or overseeing the debtor's estate (the debtor's property or assets), the

trustee first investigates the assets of the estate, which typically includes holding the meeting of creditors and questioning the debtor at that meeting.

If there are assets of the estate that are neither exempt nor abandoned, the trustee must:

Collect that property from the debtor or any other entity holding the property Convert it into cash, usually by sale of the property

Be accountable for that propertyThe trustee must normally give 20 days notice to parties in the case of the intent to sell the property. Any

party, including the debtor, may object within specified time limits under the Bankruptcy Code to the proposed sale, which may be a private sale or a sale by public auction. If an asset is partially exempt, the debtor's exemption should be paid in cash from the sales proceeds before distribution of any proceeds to

creditors. If appropriate, the trustee may object to the debtor's claim that particular property is exempt. However, trustees are discouraged from liquidating or selling small amounts of nonexempt property that won't bring in enough money when sold to produce a significant payment to unsecured creditors, which

are those creditors whose debts are not secured by the debtor's assets.

The gathering of estate property isn't limited to items of tangible property, but may include acting upon rights of the debtor, which may in turn result in assets being added to the estate, such as filing lawsuits,

including proceedings to exercise the trustee's power to avoid preferences, fraudulent transfers, and other avoidable transfers of property of the debtor.

Once the estate's property has been liquidated i.e., converted to cash, the trustee must preserve the assets and then distribute them to creditors. To do so, the trustee is required to review the proofs of claim that are filed by creditors and object to those that are improper. The trustee must then make distributions

to creditors whose claims are proper, in the order specified in the Bankruptcy Code.

Chapter 7 Bankruptcies The chapter 7 trustee has the duty to administer the chapter 7 case and to represent the interests of

unsecured creditors in the case. In the course of doing so, the trustee first investigates the assets of the estate, an investigation that typically includes holding the meeting of creditors and questioning the debtor at that meeting. In addition, section 704(a)(10), added by the 2005 amendments to the Bankruptcy Code, requires the trustee to provide certain notices in cases in which there is a claim with respect to the debtor

for a domestic support obligation.

In the vast majority of consumer chapter 7 cases, there are no nonexempt assets or other assets to liquidate. In those cases, the trustee:

Conducts the meeting of creditors Investigates the debtor's assets, right to a discharge, and exemptions

Sends required notices related to domestic support obligations, if applicable, and, ensures that the statement of intention provisions are followed

The trustee then files a report stating that no assets have been found and, once the deadline for objections to discharge has passed and the debtor receives a discharge, the case is closed.

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Bankruptcy trustees

A bankruptcy trustee is a person nominated by the United States bankruptcy Trustee. The United States Bankruptcy court approves this person and he takes charge and administers the proceeding of the debtor?s case during bankruptcy proceedings.

Background of the U.S. Trustee Program The United States Trustee Program, which was established as a pilot effort from 18 districts by the Bankruptcy Reform Act during the year 1978. Later it was expanded to more than 21 Regions nation wide.

This program, was funded by the Trustee System Fund of United States, which go its source from the fee paid by the parties and businesses invoking Federal bankruptcy protection.

The United States Trustee Program:

The United States Trustee is a part of the Department of Justice that is committed in promoting and protecting the integrity of the Federal bankruptcy system. This trustee also plays an important role in the speedy and economical resolution of the entire cases file in the bankruptcy court.This trustee also helps the private creditors to identify and investigate bankruptcy frauds and abuse with the United States Attorneys.

Specific Responsibilities of the U.S. Trustees may include:

The Trustee is responsible for appointing and supervising private trustees.To take legal action and check for fraud and abuse. To send references for investigation at appropriate timeTo ensure bankruptcy estates are administered efficiently.To Review disclosure statements and applications for the retention of professionals To Advocate matters relating to the Bankruptcy Code and rules of procedure in court U.S. Trustee Program Mission Statement:

The Executive Office for U.S. Trustees provides general policy and legal guidance to the debtors and also oversees the Program's substantive operations, and handles administrative functions.

THE NATIONAL ASSOCIATION OF BANKRUPTCY TRUSTEES

The National Association of Bankruptcy Trustees was formed during 1982 in order to address the needs of the trustees and to promote an effectiveness of the bankruptcy system. The trustees representing Chapter 7 distribute approximately $1.5 billion dollars each year to creditors and administer covering more that a million cases annually. There are more than 1,200 panel trustees in the country who are receiving new cases on a day to day basis, three quarters of whom are NABT members, together with hundreds of associate members, including judges, United States Trustees (USTs)2, auctioneers, appraisers, insurance agents, bankers, attorneys, and accountants who frequently work with trustees.

Filing for bankruptcy is the very last resort for people overburdened by debts and unable to clear them. The decision to file bankruptcy is a grave one and it is recommended not to make such a decision in haste. Many people choose this option without finding out the available alternatives to bankruptcy.

General functions of trustee

The trustee is responsible for the distribution of the bankrupt?s estate. He is also responsible for carrying out functions and manages the bankrupt?s estate.

The trustee is responsible to furnish the official receiver the bankrupt?s official documents and records and provide any further assistance if in case of any need.The bankrupt's estate shall vest in the trustee immediately on his appointment taking effect or, in the case of the official receiver, on his becoming trustee. The trustee can apply to the court for imposing charges in the property consisting of an interest dwelling in the house.

Powers of trustee

The trustee can allow the bankrupt to perform the following activity with the permission of the creditors' committee or the court, to :

To superintend the management of his estate or any part of it,

To carry on his business (if any) for the benefit of his creditors, or

To assist in administering the estate in such manner and on such terms as the trustee may direct.

Acquisition by trustee of control

The trustee appointed by the court for a particular bankruptcy case shall take possession of all the books, important papers and records belonging to the bankrupt or under his control.The trustee can exercise any possession of stocks or shares in a company or ship or any other document that is transferable to the same extent as the bankrupt might exercise if he has not become bankrupt.

Liability of trustee

Where on an application under this section the court is satisfied -

The trustee of a bankrupt's estate has misapplied or retained, or become accountable for, any money or other property comprised in the bankrupt's estate, or

The bankrupt's estate has suffered any loss in consequence of any duty by a trustee of the estate in the carrying out of his functions the court may order the trustee, for the benefit of the estate, to repay, restore or account for money or other property together with interest at such rate as the court thinks just) or, as the case may require, to pay such sum by way of compensation in respect of the misfeasance or breach of fiduciary or other duty as the court thinks just. This is without prejudice to any liability arising apart from this section

An application under this section may be made by the official receiver, the Secretary of State, a creditor of the bankrupt or the bankrupt himself.

But the leave of the court is required for the making of an application if it is to be made by the bankrupt or if it is to be made after the trustee has had his release.

Where -

The trustee seizes or disposes of any property which is not comprised in the bankrupt's estate, and

At the time of the seizure or disposal the trustee believes, and has reasonable grounds for believing, that he is entitled (whether in pursuance of an order of the court or otherwise) to seize or dispose of that property,

The trustee appointed by the bankruptcy court is not liable for the loss or damage of the items seized or disposal. He will be liable only in the case when the damaged is caused by the negligence of the trustee

The only issue before the appellate courts was whether the bankruptcy court had

exclusive jurisdiction over the state-law claims related to services rendered in the

bankruptcy case. The Second Circuit affirmed the district court’s rejection of the debtor’s

contention “that the disposal of his estate limited the bankruptcy court’s jurisdiction,”

and it agreed that “a bankruptcy court retains postconfirmation jurisdiction to interpret

and enforce its own orders.”[16] The court began its discussion by quoting an opinion

out of the Fifth Circuit faced with a similar question to that in Baker, which stated

That the bankruptcy court has some kind of jurisdiction over this

malpractice action against court-appointed professionals is not in doubt.

But what the court can do with its jurisdiction depends first on whether the

malpractice case is a “core” bankruptcy matter or one that is “related to”

[a bankruptcy proceeding]. If the suit...is merely related to bankruptcy,

the bankruptcy court was required to abstain from hearing it. 28 U.S.C. §

1334(c)(2). If, however, the controversy lies at the core of the federal

bankruptcy power, the bankruptcy law permits but does not require

abstention.[17]

Further, the Second Circuit recognized that a bankruptcy court has the ability to review

the conduct of the attorneys that it has appointed in a bankruptcy proceeding and held

that adjudication of the malpractice and other claims were an “essential part of

administering the estate,” thereby implicating the bankruptcy court’s “core” jurisdiction.

[18] The claims existed because of the bankruptcy case, and this inextricable link

rendered mandatory abstention pursuant to 28 U.S.C. § 1334(c)(2) inapplicable. Quite

simply, the debtor’s “claims against [Counsel] ‘would have no existence outside of the

bankruptcy.’”[19]       +++++++++++++++++

Frauds

The Consumer and Commercial Fraud Section oversees federal criminal prosecution of offenses such as:

Consumer fraud, including telemarketing fraud, sweepstakes and premiums fraud, fraud by businesses against customers

Securities fraud, including embezzlement by brokers, insiders trading, and false statements or promises to investors

Investment fraud in investments other than securities, stocks and bonds, including franchise fraud, business investments and fictitious charity solicitations

Computer fraud, including use of the internet to commit fraud Copyright, trademark and trade secret fraud Insurance fraud, including fictitious accidents, false medical claims and fraud insurance

companies against policy holders Bankruptcy fraud, including diversion of assets by trustees or debtors and false

statements to the bankruptcy court Commercial fraud, including fraud against businesses and large thefts of funds by

corporate insiders

In addition to laws prohibiting specific unlawful activity, broad federal statutes protect against fraud, making any fraudulent scheme a federal crime if the United States mail or a courier service is used in its commission, or if interstate wire transfers, telephone calls, fax transmissions, e-mails or other interstate communications are used in the fraud.

If anyone has information regarding frauds, please call the U.S. Attorney's Office, Fraud Section, at (215) 861-8570. Peter Schenck is the Chief of the Fraud Section. The FBI and the U.S. Postal Inspection Service may also be contacted at the telephone numbers previously listed.

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The Financial Fraud and Public Corruption Unit includes securities, commodities  and

investor fraud, public corruption, bank fraud and embezzlement, mortgage fraud, tax fraud,

health care fraud, bankruptcy fraud and Foreign Corrupt Practices Act violations.