In re Worldwide Web Systems, Inc.

• Decision Date: 22 April 2003
• Docket Number: No. 02-11890.,02-11890.
• Parties: In Re: WORLDWIDE WEB SYSTEMS, INC., d.b.a. Teleware Global Corp., Debtor. D. Omar Valdez, Defendant-Appellant, Worldstar Communications Corporation, Defendant, v. James S. Feltman, Plaintiff-Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

328 F.3d 1291

In Re: WORLDWIDE WEB SYSTEMS, INC., d.b.a. Teleware Global Corp., Debtor D. Omar Valdez, Defendant-Appellant Worldstar Communications Corporation, Defendant, v. James S. Feltman, Plaintiff-Appellee.

No. 02-11890.

United States Court of Appeals, Eleventh Circuit.

April 22, 2003.

COPYRIGHT MATERIAL OMITTED

Ted H. Bartelstone, Hollander & Bartelstone, P.A., Miami, FL, for Valdez.

Paul A. Avron, Berger, Singerman, P.A., Miami, FL, for Feltman.

Appeal from the United States District Court for the Southern District of Florida.

Before CARNES, MARCUS and SUHRHEINRICH^*, Circuit Judges.

MARCUS, Circuit Judge:

This is an appeal from a bankruptcy court order denying a motion to set aside final default judgment entered against Defendants D. Omar Valdez ("Valdez") and Worldstar Communications Corporation ("Worldstar"). The district court affirmed the bankruptcy court's denial, and it is from these orders that Valdez appeals. Worldstar has not appealed to this Court.¹ We agree with the bankruptcy and district courts that Valdez has failed to meet his burden of demonstrating under Fed. R.Civ.P. 60(b)(1) ("Rule 60(b)(1)") that final default judgment should have been set aside for excusable neglect and, accordingly, affirm.

I.

The relevant facts and procedural history are straightforward. This case arose out of the Chapter 11 bankruptcy proceedings of Worldwide Web Systems, Inc. ("Worldwide"). On August 11, 2000, one month after Worldwide filed a Chapter 11 petition, James S. Feltman ("Feltman") was appointed as the trustee for its estate. Soon thereafter, Feltman filed a complaint against Valdez and Worldstar seeking to recover some $1.7 to $1.8 million that was allegedly paid wrongfully to Valdez and Worldstar within one year of the filing of the Chapter 11 petition.

On August 28, 2000, Valdez was served with a summons and complaint at his last known business address, which was on file with the Florida Secretary of State, by first class U.S. mail and certified mail, return receipt requested.² A summons and complaint also were delivered to Michael Schiffrin, Esq., Worldstar's registered agent.³ Neither Valdez nor Worldstar answered or otherwise responded to the complaint. Not surprisingly, default and final default judgments were entered against them on October 13, 2000, and November 2, 2000, respectively.

Throughout December 2000, Feltman served numerous discovery requests in aid of execution on Valdez and Worldstar. Again, neither party responded to any of these requests. By his own admission, Valdez learned of the final default judgment against him on November 11, 2000. On January 4, 2001, Schiffrin filed a Notice of Appearance on behalf of Valdez and Worldstar, and moved the bankruptcy court on January 8, 2001 to set aside the final default judgment. Valdez argued that the final default judgment should be set aside for excusable neglect pursuant to Rule 60(b)(1) and (b)(6), see Fed. R.Civ.P. 60(b)(1), (6) ("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 ... [or] (6) any other reason justifying relief from the operation of the judgment.").⁴ Notably, Valdez did not challenge personal jurisdiction or sufficiency of service of process under Rule 60(b)(4).

The bankruptcy court conducted a hearing on January 23, 2001 affording Valdez the opportunity to appear and be heard, but Valdez did not appear. The court concluded that Valdez and Worldstar failed to present sufficient evidence to satisfy their burden to set aside the final default judgment. Valdez and Worldstar timely filed Notices of Appeal with the district court and again argued that the final default judgment should be set aside for excusable neglect pursuant to Rule 60(b)(1). They also raised for the first time the claim that final default judgment should be set aside as void for lack of proper service of process pursuant to Rule 60(b)(4), see Fed.R.Civ.P. 60(b)(4) ("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:... (4) the judgment is void"). Soon thereafter, the district court concluded that Valdez had not met his burden of demonstrating that the bankruptcy court abused its discretion and affirmed the bankruptcy court's decision.

On appeal, Valdez reprises the same arguments he presented to the district court: that Valdez has demonstrated excusable neglect pursuant to Rule 60(b)(1); and that the final default judgment entered against him is void for lack of proper service of process pursuant to Rule 60(b)(4).

II.

We will reverse the lower court's denial of a motion to set aside a default judgment only for abuse of discretion, see Fla. Physician's Ins. Co. v. Ehlers, 8 F.3d 780, 783 (11th Cir.1993) (citing Gibbs v. Air Canada, 810 F.2d 1529, 1537 (11th Cir. 1987) and Jackson v. Seaboard Coast Line R.R., 678 F.2d 992, 1020 (11th Cir.1982)), and we have cautioned that "appellant cannot prevail simply because the [bankruptcy court] properly could have vacated its order." Solaroll Shade & Shutter Corp. v. Bio-Energy Sys., Inc., 803 F.2d 1130, 1132 (11th Cir.1986) (citing Fackelman v. Bell, 564 F.2d 734, 736 (5th Cir.1977)). Instead, to show an abuse of discretion, the "appellant must demonstrate a justification so compelling that the [lower] court was required to vacate its order." Id. However, there is a strong policy of determining cases on their merits and we therefore view defaults with disfavor. See Ehlers, 8 F.3d at 783 (citing Gulf Coast Fans, Inc. v. Midwest Elecs. Imps., Inc., 740 F.2d 1499, 1510-11 (11th Cir.1984)); see also Seven Elves, Inc. v. Eskenazi, 635 F.2d 396, 401-02 (5th Cir. Unit A Jan.1981) (discussing Rule 60(b) balancing of the desire to preserve the finality of judgments with the desire that judgments reflect the merits of the case).⁵

A.

Valdez argues first that the bankruptcy court abused its discretion and the district court erred in failing to reverse the order denying his motion to set aside default final judgment for excusable neglect under Fed.R.Civ.P. 60(b)(1). To establish mistake, inadvertence, or excusable neglect under Rule 60(b)(1), a defaulting party must show that: "(1) it had a meritorious defense that might have affected the outcome; (2) granting the motion would not result in prejudice to the non-defaulting party; and (3) a good reason existed for failing to reply to the complaint." Ehlers, 8 F.3d at 783 (citing E.E.O.C. v. Mike Smith Pontiac GMC, Inc., 896 F.2d 524, 528 (11th Cir.1990)).

In this case, Valdez has demonstrated neither excusable neglect, nor an abuse of discretion. In the first place, Valdez has not offered anything resembling a meritorious defense. Valdez inexplicably failed to appear at a hearing set by the court to address his claim that the $1.8 million default judgment should be set aside. Instead, he claims in an affidavit only that his meritorious defense is demonstrated by his Answer and Affirmative Defenses to the Complaint. However, these documents amount to little more than general denials offered only at the highest order of abstraction, and we made clear in Solaroll that a moving party cannot satisfy the burden of showing a meritorious defense simply by "asserting a general denial." 803 F.2d at 1133. We also explained that in order to establish a meritorious defense, the moving party "must make an affirmative showing of a defense that is likely to be successful." Id. (citation omitted). Specifically, Valdez has offered nothing to explain what happened to the money that was transferred, nor anything to show that the large financial transfers were not made to him personally by the debtor.

Indeed, other than his general denials, the only evidence Valdez offers is the testimony of his brother, Frank Valdez. Valdez claims the bankruptcy court misinterpreted his brother's testimony as stating that the transfers were made to Valdez himself, whereas the testimony at most indicates that the money was transferred to Worldstar and/or Valdez. After thoroughly reviewing the testimony, we are satisfied that the bankruptcy court reasonably characterized Frank Valdez's testimony as indicating that the money was transferred to Valdez personally.⁶ Moreover, even if the testimony also could be read as indicating the money was transferred to Worldstar, a closely held corporation of which Valdez was the principal, Valdez cannot establish a meritorious defense simply by pointing to an alternate interpretation of this testimony. Quite simply, he has failed to offer anything to affirmatively and specifically show that there was a valid defense that would probably change the outcome of the case.

As to the prejudice prong of a Rule 60(b)(1) motion, Valdez says that Feltman sustained virtually no prejudice by his failure to plead or defend prior to the entry of final default judgment, and that the bankruptcy court failed to give the lack of prejudice its proper weight. In particular, Valdez argues that the existence of "excusable neglect" is "primarily governed by the lack of prejudice," and that it is apparent that any neglect on the part of Valdez and his counsel Schiffrin, while "perhaps evidencing some carelessness was nevertheless excusable." In support, he cites our decision in Cheney v. Anchor Glass Container Corp., 71 F.3d 848 (11th Cir.1996), and argues that because there was "virtually no prejudice" and "no evidence that granting Valdez'[s] Motion would adversely [a]ffect the efficient administration of justice," the bankruptcy court abused its discretion in denying his motion to set aside final default judgment.

Valdez is correct that in Cheney we acknowledged that the Supreme Court in Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd., 507 U.S. 380, 113 S.Ct. 1489...