Dierschke, Matter of, 92-1303

• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)
• Citation: 975 F.2d 181
• Docket Number: No. 92-1303,92-1303
• Parties: 27 Collier Bankr.Cas.2d 1462, 24 Fed.R.Serv.3d 588 In the Matter of Marvin A. DIERSCHKE, d/b/a Marvin Dierschke Farms, and Janis L. Dierschke, d/b/a Marvin Dierschke Farms, Debtors. Brian DIERSCHKE, Appellant, v. Walter O'CHESKEY, Trustee, and Tom L. Tippens, Appellees. Summary Calendar.
• Decision Date: 19 October 1992

Page 181

975 F.2d 181 27 Collier Bankr.Cas.2d 1462, 24 Fed.R.Serv.3d 588 In the Matter of Marvin A. DIERSCHKE, d/b/a Marvin Dierschke
Farms, and Janis L. Dierschke, d/b/a Marvin
Dierschke Farms, Debtors.
Brian DIERSCHKE, Appellant,
v.
Walter O'CHESKEY, Trustee, and Tom L. Tippens, Appellees. No. 92-1303
Summary Calendar. United States Court of Appeals,
Fifth Circuit. Oct. 19, 1992.
Rehearing Denied Nov. 19, 1992.

Page 182

Billy Warren Boone, Abilene, Tex., for appellant, debtors.

John Charles Sims, Sims, Kidd, Hubbert & Wilson, Lubbock, Tex., for appellee Walter O'Cheskey.

Stephen D. Beam, Jonathan R. Davis, Shannon, Porter, Johnson, Pfluger & Davis, Weatherford, Okl., for appellee Tom L. Tippens.

Appeal from the United States District Court for the Northern District of Texas.

Before POLITZ, Chief Judge, DUHE and DeMOSS, Circuit Judges.

POLITZ, Chief Judge:

Brian Dierschke appeals a decision of the district court denying him relief from entry of a default and the subsequent judgment by default by the bankruptcy court. The district court affirmed. Finding neither error nor abuse of discretion we affirm.

Background

This case arises out of a voluntary bankruptcy proceeding involving Dierschke's parents. The trustee and a creditor ¹ commenced

Page 183

an adversarial proceeding against Dierschke exactly one year after a reorganization plan had been confirmed by the bankruptcy court. This proceeding involved an alleged series of fraudulent transfers between Dierschke and his parents prior to the filing of their bankruptcy proceedings. ² Both Dierschke and his lawyer were served with a copy of the complaint and the summons. No responsive pleadings were filed.

More than two months later, plaintiffs filed a request for entry of default and moved for a default judgment. The clerk entered the default on January 9, 1991. Thereafter, a notice of hearing on damages and attorney's fees was issued. Dierschke responded with an array of motions, including a motion to set aside the default. After a hearing the bankruptcy court found "that the failure to answer was willful" and denied the motion. ³ Following a second hearing the bankruptcy court entered judgment by default for $98,000 in damages and awarded $5000 in attorney's fees.

Upon appeal to the district court Dierschke presented multiple issues which distill to complaints about (1) the bankruptcy court's failure to set aside the default, (2) the entry of the judgment by default, (3) the denial of trial by jury, and (4) the award of attorney's fees. The district court affirmed in all respects. This appeal followed.

Analysis

Initially we note that the entry of the default was proper. ⁴ The sole issue is whether the court erred in not allowing Dierschke relief therefrom. On appeal we review that decision for abuse of discretion.

Bankruptcy Rule 7055 provides that Federal Rule 55 applies to adversary proceedings. Rule 55 provides that "[f]or good cause shown the court may set aside an entry of default," and the judgment subsequently rendered thereon. We are mindful that "good cause" is not susceptible of precise definition, and no fixed, rigid standard can anticipate all of the situations that may occasion the failure of a party to answer a complaint timely. At the outset it is important, however, to recall that courts " 'universally favor trial on the merits' " ⁵ and that the decision to set aside a default is committed to the sound discretion of the trial court, a discretion that obviously is not unlimited. ⁶

As have other courts, we have found it useful to consider three factors in assessing good cause in this default setting. In United States v. One Parcel of Real Property, ⁷ we stated:

In determining whether to set aside a default decree, the district court should consider whether the default was willful, whether setting it aside would prejudice the adversary, and whether a meritorious defense is presented.

The bankruptcy court found that Dierschke's failure to answer was intentional, noting that "[t]he plain and simple fact is that Mr. Dierschke chose to play games with this court." The court did not make any finding on the record as to the remaining factors identified in One Parcel of Real Property, although the court entertained argument on these.

We perceive a variance among our circuit colleagues as to whether the court must consider and note its disposition of all three factors on the record. Decisions of three

Page 184

circuits may be read to require such consideration by the trial court. ⁸ Others have treated the factors in the disjunctive. ⁹ We find the latter course more persuasive.

The three factors identified in One Parcel of Real Property are not talismanic. Courts have been careful to avoid treating them as though they were exclusive, ¹⁰ relying on such other factors including whether: (1) the public interest was implicated, ¹¹ (2) there was a significant financial loss to the defendant, ¹² and (3) the defendant acted expeditiously to correct the default. ¹³ Whatever factors are employed, the imperative is that they be regarded simply as a means of identifying circumstances which warrant the finding of "good cause" to set aside a default. That decision necessarily is informed by equitable principles. ¹⁴ We conclude that when the court finds an intentional failure of responsive pleadings there need be no other finding.

We review the record to determine if the bankruptcy court's acting on Dierschke's culpable conduct suffices. The factual determination--that the failure to answer was intentional--is reviewed under the clearly erroneous standard. ¹⁵ Dierschke explained his failure to answer by stating that he was involved...