Ferguson v. Zering (In re Zering), Case No. 15–81208

Citation560 B.R. 671
Decision Date02 November 2016
Docket NumberCase No. 15–81208,Adv. Proc. No. 16–9003
CourtUnited States Bankruptcy Courts. Fourth Circuit. U.S. Bankruptcy Court — Middle District of North Carolina
Parties In re: Joseph Edward Zering, Debtor. Kelli Ferguson, Plaintiff, v. Joseph Edward Zering, Defendant.

560 B.R. 671

In re: Joseph Edward Zering, Debtor.

Kelli Ferguson, Plaintiff,
v.
Joseph Edward Zering, Defendant.

Case No. 15–81208
Adv. Proc.
No. 16–9003

United States Bankruptcy Court, M.D. North Carolina, DURHAM DIVISION .

Signed November 2, 2016


560 B.R. 673

John M. Sperati, Smith Debnam Narron Drake Saintsing & Myers, LLP, Raleigh, NC, for Plaintiff.

Samantha K. Brumbaugh, Ivey, McClellan, Gatton & Siegmund, LLP, Greensboro, NC, for Defendant.

MEMORANDUM OPINION

LENA MANSORI JAMES, UNITED STATES BANKRUPTCY JUDGE

THIS MATTER came before the court for hearing on August 25, 2016, after due and proper notice, upon the verified Motion to Set Aside Entry of Default and Default Judgment ("Motion") filed by defendant Joseph Edward Zering ("Debtor"). The Plaintiff did not file an objection or response to the Motion. Samantha Brumbaugh appeared on behalf of the Debtor and John Sperati appeared on behalf of the plaintiff, Kelli Ferguson ("Plaintiff"). Having considered the Motion, the record in this case and the arguments from counsel, for the reasons stated below, the court will grant the Motion.

I. BACKGROUND

The Debtor filed a petition for relief under Chapter 7 of the Bankruptcy Code on November 3, 2015. On the petition, the Debtor listed his residence as 250 Sugar Gum Lane, Apt. # 252, Pinehurst, North Carolina, 28374 ("250 Sugar Gum Lane Property"), and he listed his mailing address as P.O. Box 4120, Pinehurst, North Carolina, 28374 ("Post Office Box"). There

560 B.R. 674

is no United States postal service available at the 250 Sugar Gum Lane Property. On Schedule A, the Debtor listed the 250 Sugar Gum Lane property as well as real property located at 18 Sunset Hill Road in Brookfield, Connecticut ("Connecticut Property"). The Debtor's Statement of Financial Affairs indicated that he vacated the Connecticut Property in November 2014. Also, the Debtor indicated his intent to surrender the Connecticut Property on his Statement of Intent, and the court entered an order granting relief from stay regarding the property on January 4, 2016. In January 2016, the Debtor notified his prior attorney, Michael McCrann, that he would be located in Massachusetts caring for his ailing mother. Mr. McCrann notified the Bankruptcy Administrator of the Debtor's change in location, but Mr. McCrann did not file a notice of change address on the docket.

The Plaintiff filed a complaint commencing the above-captioned adversary proceeding on February 2, 2016 ("Complaint"). In the Complaint, the Plaintiff asserts claims objecting to dischargeability of debt under 11 U.S.C. § 523(a)(2)(A) and 11 U.S.C. § 523(a)(4), incorporating a complaint from a state court proceeding commenced by the Plaintiff in the Superior Court, Judicial District of Danbury, Connecticut as an exhibit. In the state court complaint, the Plaintiff asserted claims arising from a failed business relationship against multiple defendants, including the Debtor: (1) breach of contract and covenant of good faith and fair dealing, (2) promissory estoppel, (3) failure to pay wages in violation of Conn. Gen. Stat. § 31–72, (4) violation of Conn. Gen. Stat. § 42–110a et seq. Connecticut Unfair and Deceptive Trade Practices Act, (5) breach of fiduciary duty, (6) unjust enrichment, (7) breach of personal guarantees, and (8) constructive trust. Docket No. 1, Exhibit A. The Complaint also incorporates a default judgment awarding compensatory damages for amounts due on claims in the amount of $192,507.75, prejudgment interest of $33,688.86, punitive damages pursuant to Conn. Gen. Stat. § 42–110g(a) of $92,363.86, attorney fees as additional punitive damages of $31,561.25, and costs of $1,457.42 for a total judgment amount of $351,579.14.

On February 17, 2016, the Plaintiff filed a certificate of service certifying that service of the summons and Complaint was made on the Debtor by first class United States mail addressed to the Post Office Box. On April 6, 2016, the Plaintiff filed a motion for entry of default as to the Debtor due to his failure to answer or otherwise respond. The clerk did not enter default, and on April 13, 2016 the Plaintiff requested reissuance of the summons in order to serve the Debtor at the physical address for the 250 Sugar Gum Lane Property (Docket No. 7). The clerk reissued a summons, and on April 25, 2016, the Plaintiff filed a certificate of service certifying that service of the Complaint and reissued summons was made on the Debtor by first class United States mail addressed to both the 250 Sugar Gum Lane Property and the Connecticut Property. On June 3, 2016, the Plaintiff filed another request for entry of default. The clerk entered default on June 15, 2016, and the court entered a default judgment on June 21, 2016.

The Debtor now requests that the court set aside both the entry of default and default judgment, asserting that lack of proper service of the Complaint, initial summons, and reissued summons constitutes good cause.

II. LEGAL STANDARD

Federal Rule of Bankruptcy Procedure 7055, incorporating Federal Rule of Civil Procedure 55 by reference, provides that once a default judgment has been entered, the court may set aside the entry

560 B.R. 675

of default for good cause and may set aside the default judgment under Federal Rule of Civil Procedure 60(b), incorporated by reference by Federal Rule of Bankruptcy Procedure 9024. Whether a default judgment should be set aside is in the court's discretion. Aikens v. Ingram , 652 F.3d 496, 501 (4th Cir. 2011). Where a default judgment is at issue, the Fourth Circuit takes a more liberal view of Rule 60(b). Augusta Fiberglass Coatings, Inc., v. Fodor Contracting Corp., 843 F.2d 808, 811 (4th Cir.1988). Courts encourage disposition of matters on the merits. Heyman v. M.L. Mktg. Co. , 116 F.3d 91, 94 (4th Cir. 1997) ; U.S. v. Moradi , 673 F.2d 725, 727 (4th Cir. 1982). "Any doubts about whether relief should be granted should be resolved in favor of setting aside the default so that the case may be heard on the merits." Tolson v. Hodge , 411 F.2d 123, 130 (4th Cir. 1969).

III. RULE 60(B) THRESHOLD FACTORS

To succeed under Rule 60(b), the movant must show that (1) the motion is timely, (2) the movant has a meritorious defense, and (3) the opposing party will not be unfairly prejudiced. Park Corp. v. Lexington Ins. Co. , 812 F.2d 894, 896 (4th Cir. 1987) ; Nat'l Credit Union Admin. Bd. v. Gray , 1 F.3d 262, 264 (4th Cir. 1993). After meeting these three threshold requirements, the movant must then satisfy one of the six grounds for relief enumerated in Rule 60(b).

A. TIMELINESS

Turning to the first of the three threshold requirements, Rule 60(c) provides that a motion "must be made within a reasonable time—and for reasons (1), (2), and (3) no more than a year after the entry of the judgment or order or the date of the proceeding." Here, the court entered the default judgment on June 21, 2016. The Debtor filed his Motion under Rule 60(b) less than six weeks later on July 29, 2016. After a review of the record and the particular circumstances presented here, including that the Complaint, summons, and reissued summons were not mailed to an address at which the Debtor received mail, the court finds that the Motion is timely for the purposes of Rule 60(b).

B. MERITORIOUS DEFENSE

As to the second requirement, the movant must show a meritorious defense. "A meritorious defense requires a proffer of evidence which would permit a finding for the defaulting party or which would establish a valid counterclaim." Augusta , 843 F.2d at 812.

Default judgment was entered against the Debtor on two counts, 11 U.S.C. §§ 523(a)(2)(A) and 523(a)(4). Pursuant to § 523(a)(2)(A) :

(a) A discharge under section 727 ... of this title does not discharge an individual debtor from any debt—

...

(2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by—

(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor's or an insider's financial condition ...

Thus, to establish nondischargeability pursuant to § 523(a)(2)(A), a plaintiff must prove:

(1) the debtor made a representation; (2) at the time the representation was made, the debtor knew the representation was false; (3) the debtor made the false representation with the intention of deceiving the creditor; (4) the creditor relied on such representation; and (5) the creditor sustained the alleged loss and damage as the proximate result of the false representation.
560 B.R. 676

Winston–Salem City Employees' Federal Credit Union v. Casper (In re Casper) , 466 B.R. 786, 793 (Bankr. M.D.N.C. 2012) (Aron, J.); see Nunnery v. Rountree (In re Rountree) , 478 F.3d 215, 218 (4th Cir. 2007). Further, pursuant to § 523(a)(4), a § 727 discharge does not discharge a debtor from any debt "for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny."

In defense of these claims, the Debtor asserts that the Complaint is subject to dismissal for (1) failure to state a claim pursuant to FRCP...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT