Huddleston v. Whelan (In re Whelan)

• Decision Date: 16 February 2018
• Docket Number: Adversary No. 16–4013,Case No. 15–41659
• Citation: 582 B.R. 157
• Parties: IN RE: Leo Edward WHELAN, xxx-xx-xxxx, Debtor Bill Huddleston, Plaintiff v. Leo Edward Whelan, Defendant
• Court: U.S. Bankruptcy Court — Eastern District of Texas

582 B.R. 157

IN RE: Leo Edward WHELAN, xxx-xx-xxxx, DebtorBill Huddleston, Plaintiff

v.Leo Edward Whelan, Defendant

Case No. 15–41659

Adversary No. 16–4013

United States Bankruptcy Court, E.D. Texas, Sherman Division.

Signed February 16, 2018

Leo Edward Whelan, Dallas, TX, pro se.

David K. Sergi, Sergi and Associates P.C., San Marcos, TX, Mark Stromberg, Stromberg Stock, Dallas, TX, for Plaintiff.

Gary Lee Hach, Grapevine, TX, for Defendant.

MEMORANDUM OF DECISION

THE HONORABLE BILL PARKER, CHIEF UNITED STATES BANKRUPTCY JUDGE

Before the Court for consideration is a Motion for Relief from Judgment filed by the Debtor–Defendant, Leo Edward Whelan (the "Defendant") pursuant to Rule 60 of the Federal Rules of Civil Procedure, made applicable to this bankruptcy adversary proceeding by Fed. R. Bankr. P. 9024, and the objection filed thereto by the Plaintiff, Bill Huddleston (the "Plaintiff"). Based upon the Court's consideration of the pleadings, the evidence submitted by the parties, and the applicable law, the Court concludes that the Defendant's Motion for Relief from Judgment should be denied. This memorandum of decision disposes of all issues pending before the Court.¹

Factual and Procedural Background

With the assistance of retained counsel, the Defendant, Leo Edward Whelan, filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code on September 17, 2015 in the Sherman Division of this Court. The Debtor's filing of his voluntary petition invoked the automatic stay under 11 U.S.C. § 362(a) which, among other things, precluded the continued prosecution of a certain state court lawsuit brought by Bill Huddleston against the Debtor, his oil and gas company, and his company's agents before the 134th Judicial District Court in and for Dallas County, Texas under cause no. DC–13–00712 and styled Bill Huddleston v. WEXCO Resources, LLC, Leo Whelan, Bryson Wallace, and Jourdan Wallace (the "State Court Litigation"). The State Court Litigation sought through various remedies the recovery of approximately $641,134 from WEXCO arising from the execution of an agreement and alleged that the corporate veil of WEXCO should be pierced and Whelan held personally liable for the unpaid bonus amount² under the agreement because Whelan had allegedly utilized the corporation to perpetrate a fraud.

On February 5, 2016, the Plaintiff filed a complaint against the Defendant seeking: (1) to deny the entry of any discharge order pursuant to 11 U.S.C. § 727(a)(3) and (a)(4) ; or alternatively, to declare the indebtedness owed to the Plaintiff by the Defendant nondischargeable pursuant to 11 U.S.C. § 523(a)(2)(A) and (a)(6).³ A summons was issued by the Court on February 9, 2016 and delivered to the Plaintiff for delivery.⁴ Having subsequently received no proof that the complaint and summons were timely served, this Court entered on a sua sponte basis an Order Regarding Service of Adversary Complaint Upon Defendant, Leo Edward Whelan on April 20, 2016 in which the Court demanded that the Plaintiff either file appropriate proof that the complaint had been properly served within seven days of the issuance of the original summons or otherwise proceed to obtain and effectuate timely service of a new summons.⁵ The Plaintiff procured a new summons from the Court on April 29, 2016 and promptly served the summons and complaint upon the Defendant on that same date pursuant to Fed. R. Bankr. P. 7004(b)(1).

On July 20, 2016, having noted that no answer had been timely filed to the Plaintiff's complaint by the Defendant despite proper notice, the Court sua sponte issued its Entry of Default by Court wherein default was entered against the Defendant and the Plaintiff was ordered to submit a motion for default judgment within 21 days of the entry of the order.⁶ Despite his lack of appearance in the adversary, the Defendant was served with the Entry of Default.⁷ In substantial compliance with the Entry of Default, the Plaintiff subsequently filed his Motion for Default Judgment on August 12, 2016. The motion was accompanied by documentary evidence, deposition and affidavit testimony from the State Court Litigation, and accompanying declarations.⁸ The Motion for Default Judgment was also served upon the Defendant despite his prior failure to appear or to respond in any manner to the adversary proceeding.⁹ He filed no objection or other response to the Motion for Default Judgment.

In its review of the Motion for Default Judgment, the Court noted that the entry of a default did not automatically entitle the Plaintiff to a judgment on all requested relief and, upon its review of the admitted facts and supplementary evidentiary materials, the Court determined that, notwithstanding the default of the Defendant, the Plaintiff had failed to demonstrate an entitlement to a denial of the Debtor's discharge under the referenced subsections of § 727(a). However, as to the alternative request in the complaint for a determination of the dischargeability of the particular debt which the Plaintiff alleged was owed to him by the Defendant, the complaint contained well-pleaded allegations regarding fraudulent inducement of a contract which, if assumed to be true, would be sufficient to prevail on a claim for damages under Texas law.¹⁰ Thus, this Court entered its Default Judgment Determining Debt to be Nondischargeable on August 29, 2016 wherein, in light of the admitted facts arising from the default and the supplemental evidentiary submissions,¹¹ the Court determined that the Plaintiff was entitled to a default judgment in the referenced amount of $641,134.50, plus pre-judgment interest, attorneys' fees, and court costs, and that such indebtedness should be declared nondischargeable under 11 U.S.C. § 523(a)(2)(A). All other relief sought by the complaint, including the objection to the Defendant's discharge, was denied.¹²

For months after the entry of the default judgment, no further action accrued in this adversary proceeding, save for the Plaintiff's action to procure a writ of execution on the judgment.¹³ Finally, 364 days after the entry of the default judgment, the Defendant filed his Motion for Relief from Judgment.¹⁴ Upon the filing of a timely objection by the Plaintiff¹⁵ and after the conclusion of an evidentiary hearing on the motion, the Court took the matter under advisement. This decision disposes of all issues pending before the Court.

Discussion

Rule 55(c) of the Federal Rules of Civil Procedure, as incorporated into adversary proceedings in bankruptcy cases by Rule 7055 of the Federal Rules of Bankruptcy Procedure, allows a bankruptcy court to "set aside a final default judgment under Rule 60(b)."¹⁶ FED. R. CIV. P. 55(c). "[R]elief under Rule 60(b) is considered an extraordinary remedy ... the desire for a judicial process that is predictable mandates caution in reopening judgments." Pettle v. Bickham (In re Pettle) , 410 F.3d 189, 191 (5th Cir. 2005). Thus, the scope of review under Rule 60(b) is narrower than it would be in a direct appeal. Aucoin v. K–Mart Apparel Fashion Corp. , 943 F.2d 6, 8 (5th Cir.1991). It allows a trial court to "correct obvious errors or injustices," Fackelman v. Bell, 564 F.2d 734, 736 (5th Cir.1977), but it "may not be used to provide an avenue for challenges of mistakes of law that should ordinarily be raised by timely appeal." Pryor v. U.S. Postal Serv. , 769 F.2d 281, 286 (5th Cir. 1985). Thus, "[t]he extraordinary relief afforded by Rule 60(b) requires that the moving party make a showing of unusual or unique circumstances justifying such relief." Id. It is "an extraordinary remedy that should be used sparingly." Templet v. Hydrochem, Inc., 367 F.3d 473, 479 (5th Cir. 2004).

Timeliness

Even in cases in which extraordinary circumstances might be otherwise demonstrated, Rule 60 requires that such a motion be filed "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." FED. R. CIV. P. 60(c)(1). What constitutes a reasonable time "depends on the particular facts of the case in question," McKay v. Novartis Pharm. Corp. , 751 F.3d 694, 702 n.5 (5th Cir. 2014), and "[t]imeliness ... is measured as of the point in time when the moving party has grounds to make a Rule 60(b) motion, regardless of the time that has elapsed since the entry of judgment." Clark v. Davis , 850 F.3d 770, 780 (5th Cir.), cert. denied , ––– U.S. ––––, 138 S.Ct. 358, 199 L.Ed.2d 266 (2017). In other words, a Rule 60(b) movant is required to articulate a "good reason for his failure to take appropriate action sooner." Id.

The Defendant contends that he has met this timing requirement because his motion was filed on the 364th day after the entry of the judgment. However, a motion filed under Rule 60(b) is not considered timely solely because it is filed within the one-year time limit. As the Seventh Circuit observed, Rule 60(b)"does not provide that grounds (1), (2), and (3) may be raised at leisure up to one year. The "reasonableness" requirement of Rule 60(b) applies to all grounds; the one-year limit on the first three grounds enumerated merely specifies an outer boundary." Planet Corp. v. Sullivan , 702 F.2d 123, 125–26 (7th Cir. 1983). "Although the fact that a motion was made barely within the one-year time limit gives the court the power to entertain it, as the delay in making the motion approaches one year there should be a corresponding increase in the burden that must be carried to show that the delay was ‘reasonable.’ " Amoco Overseas Oil Co. v. Compagnie Nationale Algerienne de Navigation, 605 F.2d 648, 656 (2d Cir. 1979) (emphasis in original). See also, Peltz v. Com Servs., Inc. (In re USN Commuc'ns, Inc.) , 288 B.R. 391, 396–97 (Bankr. D. Del. 2003) ; F.D.I.C. v. Nick Julian Motors (In re Nick Julian Motors) , 148 B.R. 22, 26–27 (Bankr. N.D. Tex. 1992). Further, as examined in a Southern District of Texas case on timing facts similar to...