Sunday, June 26, 2011

Recent Decisions regarding Bankruptcy from the First Circuit

 Motion to dismiss for failure to state a claim denied; violations of the stay apply to the state, not protected by sovereign immunity:

ACEVEDO BARRETO v AAA (In re Acevedo Barreto), 2011 Bankr. LEXIS 2194 (Bankr. D.P.R. 6/6/11)Brian K. Tester)(Bankruptcy Judge).  Motion to dismiss complaint is denied.  In this case, Plaintiffs' Third Amended Complaint is sufficient to put Defendant on notice of the alleged misconduct and to establish a plausible prima facie case for violation of an automatic stay under 11 U.S.C. § 362. Plaintiffs enumerate the letters of notice seeking payment sent by Defendant, and ask for $50,000 in damages. Thus, Plaintiffs sufficiently allege liability and do not need to allege the specific type of damages or show a calculation of damages at this time.

In the present case, Plaintiffs filed for bankruptcy, initiating an automatic stay under 11 U.S.C. § 362 against all creditors, including Defendant State Insurance Fund. Because sovereign immunity has been constitutionally abrogated under section 106(a) for section 362 proceedings, and the State is to be treated as any other creditor, this Court finds that Defendant is not entitled to a defense of sovereign immunity from a violation of the automatic stay.

This Court concludes that the Motion to Dismiss for failure to state damages is premature, as liability has not yet been decided. Additionally, Defendant is not entitled to sovereign immunity, which is abrogated under 11 U.S.C. § 106(a)(1). Defendant's Motion to Dismiss is hereby DENIED without prejudice.


Environmental claims discharged in bankruptcy (with no ongoing contamination), monetary and equitable :

GABLE v. Borges Constr., Inc., 2011 U.S. Dist. LEXIS 64281 (D. Mass 6/17/11)(Michael A. Ponsor, District Judge).

Defendant’s motion to dismiss the complaint is granted.  Defendant Tenczar has moved to dismiss all of the claims against him on the ground that Plaintiffs' action is barred because Plaintiffs' previous claims of trespass,  negligence, and nuisance were discharged in his bankruptcy proceeding. In his Bankruptcy Petition, Defendant Tenczar properly listed Plaintiffs as creditors to be discharged, and Plaintiffs indisputably did not object. Plaintiffs counter that they are seeking only equitable relief from Defendant Tenczar in this action and that ongoing pollution is "non-dischargeable."  This riposte is unpersuasive. First, without question, Plaintiffs may not resurrect their previously discharged tort claims against Defendant Tenczar, and thus Counts II, III, and IV must be summarily dismissed with prejudice as against him. See Rederford v. US Airways, Inc., 589 F.3d 30, 36 (1st Cir. 2009) ("Chapter 11 reorganization provides debtors with a fresh start by adjudicating, disallowing, or discharging all claims arising before the debtor is discharged from bankruptcy.").

Plaintiffs' requests for injunctive relief against Defendant Tenczar require more extended scrutiny. Plaintiffs seek an injunction requiring Defendant Tenczar "to restore the abutting property to the condition prior to the Defendant's disposal of 'oil'/solid waste." Defendant Tenczar asserts that such an affirmative order would require him to expend substantial sums on this remediation effort or face contempt of court. Thus, he argues, the relief Plaintiffs seek is not equitable; instead, it is equivalent to a monetary claim dischargeable in bankruptcy. See Rederford, 589 F.3d at 36 (1st Cir. 2009) ("[A] right to an equitable remedy . . . is a 'claim' within the meaning of the Bankruptcy Code, and subject to bankruptcy proceedings, if 'a monetary payment is an alternative for the equitable remedy.'" (quoting Air Line Pilots Ass'n v. Continental Airlines, 125 F.3d 120, 133 (3d Cir. 1997)).

In Ohio v. Kovacs, addressing a similar argument, the Supreme Court held that where "the cleanup order had been converted into an obligation to pay money," the obligation "was dischargeable in bankruptcy." 469 U.S. 274, 283, 105 S. Ct. 705, 83 L. Ed. 2d 649 (1985). Plaintiffs' argument that the order only requires Tenczar not to impede removal of the waste and that there is no requirement that he pay any money was expressly rejected by the Kovacs Court, which recognized that, unless the alleged polluter is actually able personally to do the cleanup, money will have to change hands. Id. at 282 ("'Kovacs cannot personally clean up  the waste he wrongfully released into Ohio waters. He cannot perform the affirmative obligations properly imposed upon him by the State court except by paying money . . . .'" (quoting In re Kovacs, 717 F.2d 984, 987 (6th Cir. 1983)).

The complaint, at least in its present form, does not suggest that Defendant Tenczar is continuing to contaminate the property currently — only that he is not repairing what he has already done. Nor is there any indication that the Commonwealth of Massachusetts or any regulatory body is pursuing him for any such ongoing violation. The complaint, in essence, protests Mr. Tenczar's past action, and this claim was discharged.

For the foregoing  reasons the claims against Defendant Tenczar will be dismissed with prejudice. New claims may be offered, of course, in any amended complaint if Defendant Tenczar commits new acts, or in some way impedes remediation of his past acts through efforts that require no payment of money by him.


Motion to vacate default judgment denied; Pro se litigant held to the same standard as others for void judgments, excusable neglect and extraordinary circumstances:

BALDIGA v. Bowdring (In Re: CYPHERMINT, INC.),
2011 U.S. Dist. LEXIS 62504 (D. Mass. 6/10/11) (F. Dennis Saylor IV, District Judge).
  Default judgment in the amount of $500,000 was entered against defendant Arthur Feather following his failure to appear in court. Feather now moves to vacate the judgment under Fed. R. Civ. P. 60(b)(1), (4), and (6) and requests a trial on the issue concerning him. For the following reasons, the motion will be denied.

I am writing to follow up on our phone conversation from last week. As I indicated on the phone, we had filed a motion with the Court to deny Mr. Barboza's conduit defense, which would decisive on how we proceed with the issue that concerns you at the trial that starts on March 15th. The District Court held a hearing this afternoon at which hearing the Judge denied the Trustee's motion to exclude Mr. Barboza's conduit defense. As such, the claim that concerns you has not been dropped.
Feather acknowledges receiving this e-mail.
 
Although other circuit courts have adopted a liberal approach to granting Rule 60(b) motions, the First Circuit has taken a "harsher tack." Davila-Alvarez v. Escuela de Medicina Universidad Central del Caribe, 257 F.3d 58, 64 (1st Cir. 2001). "Because Rule 60(b) is a vehicle for extraordinary relief, motions invoking the rule should be granted only under exceptional circumstances." Id. (quoting Torre v. Continental Ins. Co., 15 F.3d 12, 14-15 (1st Cir. 1994)) (internal quotation marks omitted). "The rule must be applied so as to recognize the desirability of deciding disputes on their merits, while also considering the importance of finality as applied to court judgments." Davila-Alvarez, 257 F.3d at 64 (internal citations and quotation marks omitted). While the above principles govern Rule 60(b) relief generally, "the precise contours of the applicable standard will depend on the particular subsection involved and the nature of the underlying judgment from which relief is sought." United States v. Kayser-Roth Corp., 272 F.3d 89, 95 (1st Cir. 2001). Here, defendant advances theories under Rule 60(b)(1), (4), and (6). The Court considers each in turn.

A.  Excusable Neglect under Rule 60(b)(1)

Rule 60(b)(1) requires a showing of "excusable neglect" in order to obtain relief from final judgment. Under this standard, the Court is permitted, "where appropriate, to accept late filings caused by inadvertence, mistake, or carelessness, as well as by intervening circumstances beyond the party's control. In making that determination, the Court must consider the length of delay, the reason for delay, whether the movant acted in good faith, and prejudice to the opposing party. Of all the factors, "the excuse given for the late filing must have the greatest import. While prejudice, length of delay, and good faith might have more relevance in a closer case, . . . . At the end of the day, the focus must be upon the nature of the neglect. 
The United States Supreme Court outlined the standard for "excusable neglect" in Pioneer Inv. Serv. Co. v. Brunswick Assocs., 507 U.S. 380, 388, 113 S. Ct. 1489, 123 L. Ed. 2d 74 (1993). Although that standard arose under the bankruptcy code, courts in the First Circuit have consistently applied it when conducting an analysis under Rule 60(b)(1). The standard for excusable neglect is a "demanding" one. The litigant has a responsibility to understand the procedural rules affecting his or her case, and "ignorance of the rules, or mistakes construing the rules do not usually constitute 'excusable' neglect."  The litigant, once on notice of the claim against him, likewise has a responsibility to inquire into the status of the case, and mistakes or errors that could have been corrected by such inquiry also do not normally qualify as "excusable neglect." A litigant's "duty of attending to the case is not automatically excused by personal tragedy or emotional upheaval.

Pro se litigants are normally held to the same standard. This is especially true where there is no indication that the pro se litigant lacks capacity to participate in court proceedings.
Defendant makes two primary contentions. First, he contends that he lacked notice of the trial, as well as all proceedings before the District Court. Second, he contends that he did not understand that the trial could affect his rights. Although the Court has some sympathy for defendant, these reasons do not rise to the level of "excusable neglect" under the law of this circuit.

As a starting point, the Court notes that defendant elected to proceed pro se in this matter, although he is not indigent. He was within his rights to proceed pro se, but by doing so he accepted considerable risk. Among other things, he ran the risks that he would not understand what was occurring in the case, and how it might affect him; that he would not be able to communicate his positions to the Court in a timely and effective manner; and that he would not receive adequate notice of proceedings that affected him.

10 The Court also notes that defendant did almost nothing to monitor the progress of the case. There is no dispute that he was capable of following matters more closely; indeed, his first act upon learning of the default judgment was to access and examine the docket electronically. Defendant lives in California, and the Court was using an address (that he had supplied) that was not his. There was an obvious risk that critical mailings might be lost or mishandled, and defendant compounded this risk by ignoring the case for long stretches of time.

In any event, defendant was indisputably aware that proceedings had been initiated against him. In fact, he filed an answer, responded to discovery requests, and successfully opposed a motion for summary judgment in Bankruptcy Court before the transfer.
returned.

B.  Void Judgments under Rule 60(b)(4).

Defendant next contends that the judgment is void and should be set aside under Rule 60(b)(4). In support, he asserts that the bankruptcy code bars entry of judgment against him.
Fed. R. Civ. P. 60(b)(4) provides relief from void judgments. "A void judgment is from its inception a legal nullity" and must be set aside. The concept of void judgments, however, is "narrowly construed." There are only two ways that a judgment can be void:

A judgment is void, and therefore subject to relief under Rule 60(b)(4), only if the court that rendered judgment lacked jurisdiction or in circumstances in which the court's action amounts to a plain usurpation of power constituting a violation of due process.
Defendant contends that the judgment is void because it is against the law as set forth in the bankruptcy code. But errors of law do not void a judgment. United Student Aid Funds, 130 S. Ct. at 1377 ("A judgment is not void . . . simply because it is or may have been erroneous."); accord Boch, 909 F.2d at 661-62. The Court therefore cannot set  [*33] aside the judgment for this reason.

Although defendant does not make this argument, judgments may also be void when "a violation of due process [] deprives a party of notice or the opportunity to be heard.” Due process requires notice reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections." Actual notice is not required. Here, it is undisputed that defendant knew of the suit against him and that he knew of the trial before it took place. It is also undisputed that he took no action, beyond a phone call to the opposing party every couple of months, to keep himself informed of matters or to ensure that he was receiving all pertinent communications. Under the circumstances, the Court finds that defendant's due process rights were not violated, even if he did not receive actual notice of plaintiff's motion for default judgment—a proposition that is itself subject to some doubt, as noted above.

C.  Extraordinary Circumstances under Rule 60(b)(6)

Finally, defendant contends that  [*34] he is entitled to relief under Rule 60(b)(6) because he did not receive a preferential transfer. This argument may be quickly dismissed. Rule 60(b)(6) is a catch-all provision that provides relief for "any other reason." Fed. R. Civ. P. 60(b)(6). However, with the exception of rare circumstances, Rule 60(b)(6) relief is normally unavailable unless defendant has shown that he is "faultless in the delay." Ungar, 599 F.3d at 85, 86 n.5, 87 (Although fault is not a "categorical bar" to relief, "a willful defaulter faces uphill climb in making the requisite showing of exceptional circumstances."); Claremont Flock, 281 F.3d at 299. Under the circumstances discussed above, the Court cannot find that defendant is faultless in the delay or that he is otherwise entitled to exceptional relief. See Claremont Flock, 281 F.3d at 299-300 (pro se litigant was denied relief under 60(b)(6) where he failed to update his address with the Court and erroneously believed that the case was over). Accordingly, the Court will not set aside the judgment.


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