Central Vermont Public Service Corp. v. Herbert

• Decision Date: 21 August 2003
• Docket Number: Docket No. 02-5060.
• Citation: 341 F.3d 186
• Parties: CENTRAL VERMONT PUBLIC SERVICE CORPORATION, Defendant-Appellant, v. Harold HERBERT and Edith Herbert, Plaintiffs-Appellees.
• Court: U.S. Court of Appeals — Second Circuit

341 F.3d 186

CENTRAL VERMONT PUBLIC SERVICE CORPORATION, Defendant-Appellant, v. Harold HERBERT and Edith Herbert, Plaintiffs-Appellees.

Docket No. 02-5060.

United States Court of Appeals, Second Circuit.

Argued June 23, 2003.

Decided August 21, 2003.

JAMES B. ANDERSON, Ryan, Smith & Carbine, Ltd., Rutland, VT, for Appellant.

MARY P. KEHOE, Lisman, Webster, Kirkpatrick & Leckerling, P.C., Burlington, VT, for Appellee.

Before: WALKER, Chief Judge, STRAUB and POOLER, Circuit Judges.

JOHN M. WALKER, JR., Chief Judge.

Defendant-appellant Central Vermont Public Service Corp. ("CVPS") appeals from the district court's order denying its Fed.R.Civ.P. 60(b)(4) motion. In that motion, CVPS sought relief from a bankruptcy court order permanently enjoining it from pursuing civil claims against the appellees Harold and Edith Herbert ("the Herberts"). After waiting more than four years to challenge the bankruptcy court injunction, CVPS contended that the bankruptcy court order was void for lack of jurisdiction. The district court ruled that the Rule 60(b)(4) motion was untimely and rejected CVPS's jurisdictional argument. Although the district court's untimeliness ruling was in error, we agree that the bankruptcy court at least had an arguable basis for exercising its jurisdiction, and accordingly, we affirm the district court's denial of CVPS's Rule 60(b)(4) motion.

I. BACKGROUND

In 1993, the Herberts purchased the mortgage and security agreements encumbering Pico Ski Resort in southern Vermont. In 1995, they foreclosed against the resort and incorporated it as "Pico Mountain, Inc." (d/b/a Pico Mountain Resort), which they owned and controlled as shareholders, officers, and directors. In July 1996, the Herberts formed two new entities: Sherburne Pass Mountain Properties LLC, to which the Herberts conveyed all of the resort's real estate; and Pico Mountain Operating Company, to which they conveyed all of the resort's personal property assets. Less than one month later, their original company, Pico Mountain, Inc. filed a Chapter 7 petition in bankruptcy, listing no significant assets and $2.7 million in unsecured debts. In December 1996, the Herberts conveyed the resort's real property from Sherburne Pass Mountain Properties, LLC, to Pico Management and conveyed the personal assets of Pico Mountain Operating Company to American Skiing Company. It appears from the appellate record that the Herberts controlled Pico Management, but not American Skiing Company. The December 1996 sales directly and indirectly yielded $2.5 million in benefits to the Herberts, which they did not disburse to the creditors of Pico Mountain, Inc., including CVPS.

In January 1997, CVPS filed a proof of claim in the Pico Mountain, Inc. Chapter 7 proceeding for the cost of the electrical power it had supplied to the resort. Pico Management placed $214,802.79 in escrow to pay the CVPS electrical power bill for utilities. Meanwhile, the trustee of the bankruptcy estate of Pico Mountain, Inc. investigated causes of action against the Herberts for alleged breaches of fiduciary duty toward the debtor. This issue was resolved when the trustee entered into a settlement agreement whereby the Herberts agreed to pay the lesser of $120,000 or thirty percent of the allowed unsecured claims against the debtor. In an adversary proceeding, the trustee sought bankruptcy court approval of the settlement and filed a complaint in that court to enjoin all creditors, including CVPS, from bringing actions against the Herberts "through any derivative or alter ego claim[s] regarding a Pico Mountain, Inc. debt."

On June 16, 1997, the trustee's summons and complaint were served on CVPS. CVPS does not dispute that it failed to enter an appearance or defend against the trustee's action.¹ On October 29, 1997, Bankruptcy Judge Francis G. Conrad approved the settlement and entered an injunction barring creditors of the bankruptcy estate from pursuing any claim, direct or derivative, against the Herberts. Canney v. A.E.I. Music Network (In re Pico Mountain, Inc.), No. 96-10756, Adv. Proceeding No. 97-1036 (Bankr.D.Vt. Oct. 29, 1997). On December 2, 1997, Judge Conrad entered a default judgment against those defendants that had not answered the trustee's complaint, including CVPS, and ordered that the trustee was not required to serve those defendants with copies of the injunction.

CVPS concedes that it learned of the injunction from the Herberts' counsel on December 15, 1997, less than two months after the injunction and less than two weeks after the default judgment was entered against it. Nevertheless, CVPS waited more than four years — until February 13, 2002 — to challenge the injunction by filing a Rule 60(b)(4) motion. This attack on the injunction was prompted by a suit filed by the Herberts in Chittenden Superior Court. That suit seeks to reclaim the moneys that Pico Management had placed in escrow, on the basis that the settlement and the related injunction barred CVPS's claims for those moneys. In its motion papers, CVPS invoked Rule 60(b)(4)'s provision that "the court may relieve a party ... from a final judgment, order, or proceeding [if] the judgment is void," and argued that the injunction was void for lack of subject-matter jurisdiction.

In an oral ruling on June 18, 2002, the bankruptcy court denied the motion as both untimely, citing Beller & Keller v. Tyler, 120 F.3d 21 (2d Cir.1997), and without merit because the bankruptcy court had an arguable jurisdictional basis for its order, citing Nemaizer v. Baker, 793 F.2d 58 (2d Cir.1986). On October 3, 2002, the district court affirmed the bankruptcy court's denial of the motion on both grounds. CVPS now appeals from the judgment of the district court.

II. DISCUSSION

A. Standard of Review

Generally, we review Rule 60(b) motions for abuse of discretion. Lawrence v. Wink, 293 F.3d 615, 623 (2d Cir.2002). However, a district court's ruling on a Rule 60(b)(4) motion is reviewed de novo where "there are no disputes over the subsidiary facts pertaining to [the] issue" of jurisdiction. United States v. Forma, 42 F.3d 759, 762 (2d Cir.1994). "Under Rule 60(b)(4) a deferential standard of review is not appropriate because if the underlying judgment is void, it is a per se abuse of discretion for a district court to deny a movant's motion to vacate the judgment under Rule 60(b)(4)." Jalapeno Prop. Mgmt., LLC v. Dukas, 265 F.3d 506, 515 (6th Cir.2001) (Batchelder, J., concurring) (citations and quotation marks omitted); see also Recreational Properties, Inc. v. Southwest Mortgage Serv. Corp., 804 F.2d 311, 314 (5th Cir.1986) ("[T]he district court has no discretion [in ruling on a 60(b)(4) motion], the judgment is either void or it is not."). Almost every Circuit has adopted de novo review of Rule 60(b)(4) motions, and we know of no Circuit that defers to the district court on a Rule 60(b)(4) ruling. See Vinten v. Jeantot Marine Alliances, S.A., 191 F.Supp.2d 642, 649-50 & nn.12-13 (D.S.C.2002) (collecting cases); see also Page v. Schweiker, 786 F.2d 150, 152 (3d Cir.1986).

B. Timeliness

At the outset, CVPS argues that the district court erred in ruling that the motion was not timely. Even though Rule 60(b) states that "[t]he motion must be made in a reasonable time," courts have been "exceedingly lenient in defining the term `reasonable time,' with respect to voidness challenges. In fact, it has been oft-stated that, for all intents and purposes, a motion to vacate a default judgment as void `may be brought at any time.'" Beller & Keller, 120 F.3d at 24 (quoting 12 James Wm. Moore, et al., Moore's Federal Practice § 60.44[5][c] (3d ed.2003)). We conclude that the district court erred in finding that CVPS's motion was untimely.

C. Bankruptcy Court Jurisdiction to Enter the Underlying Order

CVPS argues that the bankruptcy court's order was void for lack of subject matter jurisdiction. CVPS contends that the bankruptcy court issued a final order in a non-core proceeding without the parties' consent and without a district court's de novo review, and that therefore it exceeded its jurisdiction under Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982) (plurality opinion), and 28 U.S.C. § 157. Where bankruptcy courts have exceeded their jurisdiction in non-core proceedings, we have not hesitated to vacate the bankruptcy court judgment on direct appeal. See, e.g., Orion Pictures Corp. v. Showtime Networks, Inc. (In re Orion Pictures Corp.), 4 F.3d 1095, 1102-03 (2d Cir.1993); see also Cathedral of the Incarnation v. Garden City Co. (In re Cathedral of the Incarnation), 90 F.3d 28, 34 n. 5 (2d Cir.1996); Gallucci v. Grant (In re Gallucci), 931 F.2d 738, 744 (11th Cir.1991).

However, this case comes to us, not on direct appeal, but on appeal from a denial of a Rule 60(b)(4) motion through which CVPS seeks to overturn a final default judgment. Because "final judgments should not be lightly reopened, [Rule 60(b)] may not be used as a substitute for timely appeal.... Since 60(b) allows extraordinary relief, it is invoked only upon a showing of exceptional circumstances." Nemaizer, 793 F.2d at 61-62 (citations omitted). In the context of a Rule 60(b)(4) motion, a judgment may be declared void for want of jurisdiction only when the court "plainly usurped jurisdiction," or, put somewhat differently, when "there is a total want of jurisdiction and no arguable basis on which it could have rested a finding that it had jurisdiction." Id. at 65 (internal quotation marks and citations omitted).

CVPS claims that the bankruptcy court's injunction is void under Marathon because the court lacked jurisdiction to adjudicate pre-petition state law rights. In Marathon, the Supreme Court held that Congress could not constitutionally empower a bankruptcy court, which is not an Article III court, to adjudicate a state breach-of-contract action (based on a pre-petition contract)...