In re Hooton

• Decision Date: 18 April 1985
• Docket Number: Bankruptcy No. 83-04500,Adv. No. 84-0149.
• Citation: 48 BR 575
• Parties: In re Madison H. HOOTON, Sr. and Marian P. Hooton, Debtors. Madison H. HOOTON, Sr. and Marian P. Hooton, Plaintiffs, v. CENTRAL SOYA COMPANY, INC., Defendant.
• Court: U.S. Bankruptcy Court — Northern District of Alabama

48 B.R. 575 (1985)

In re Madison H. HOOTON, Sr. and Marian P. Hooton, Debtors Madison H. HOOTON, Sr. and Marian P. Hooton, Plaintiffs, v. CENTRAL SOYA COMPANY, INC., Defendant.

Bankruptcy No. 83-04500, Adv. No. 84-0149.

United States Bankruptcy Court, N.D. Alabama.

April 18, 1985.

Thomas J. Knight, Anniston, Ala., for plaintiff-debtor.

Richard P. Carmody, Birmingham, Ala., for defendant Central Soya.

FINDINGS, CONCLUSIONS, AND ORDER BY THE COURT ON PLAINTIFFS' COMPLAINT

L. CHANDLER WATSON, Jr., Bankruptcy Judge.

The above-styled case is pending before this Court under title 11, United States Code, chapter 11, having been commenced in this Court by a voluntary petition filed August 22, 1983, and having been re-referred to the bankruptcy court by the district court after July 10, 1984. The above-styled adversary proceeding was commenced on behalf of the debtors, by a complaint filed in said case on March 15, 1984. The debtors remain in possession of the assets of the estate in this case. The defendant is a judgment creditor of the debtors.

The defendant's response to the complaint was a motion to dismiss, coupled with an answer. The motion to dismiss asserted that the complaint failed "to state a cause of action upon which relief can be granted." It listed the following three grounds for that conclusion:

1. Plaintiffs have failed to allege that a transfer was made within one year of the date of the filing of the petition.

2. Plaintiffs have failed to allege that any such transfer was made with actual intent to hinder, delay or defraud creditors of the Plaintiffs.

3. Plaintiffs have failed to allege that the Plaintiffs were insolvent on the date of any such transfers or became insolvent as a result of such transfers.

Before the motion to dismiss was heard, the defendant had filed a motion for summary judgment, supported by an affidavit and various documents. At the hearing on the motion to dismiss the complaint, the Court indicated that the debtors would be given an opportunity to amend the complaint, which was done. Thereafter, the Court held a hearing on both motions and, later, held a continued hearing on both motions. The motions were, at that time, taken under advisement by the Court for rulings thereon.

The debtors alleged in their complaint that the subject matter of this adversary proceeding was:

1. A claim against the defendant which is a setoff or counterclaim against the claim of the defendant; and

2. "A proceeding under federal bankruptcy law to declare certain liens held by the said creditor null and void. . . ."

Findings of Fact—

The facts involved in this adversary proceeding are not in dispute and are found, from the statements of counsel, the pleadings, and the documents attached to the pleadings, as follows:

1. The defendant in this adversary proceeding, having brought suit against the debtors and their two children, in the United States District Court for the Northern District of Alabama, recovered a judgment against the debtors and said two children, in the sum of $818,652.13 on August 12, 1982;

2. This judgment was entered by order of a judge of that court on August 11, 1982, reciting that the judgment was to be entered on the basis of a "Stipulation to Entry of Judgment;"

3. A certificate of judgment by the clerk of that court, dated August 25, 1982, shows a partial satisfaction of $300,000.00, leaving an unsatisfied balance of $518,652.13;

4. During the period of August 30 through October 6, 1982, said certificate of judgment was filed for record in the office of the Probate Judge of Randolph, Tallapoosa, and Clay Counties, Alabama, respectively; and

5. At the commencement of this bankruptcy case, at least a substantial portion of said judgment remained unpaid and a substantial portion of the tangible property of the debtors' respective estates was located in one or more of said counties.

Conclusions by the Court—

This bankruptcy case is but one of four related chapter 11 cases. Such a case is pending for each of the two children of the debtors in the instant case, and a chapter 11 case is pending for a business partnership comprised of the four individual debtors.

The instant adversary proceeding is but one of three which are pending between said debtors (or some of them) and the defendant, Central Soya Company, Inc. All of the adversary proceedings evidence a common dispute concerning said judgment and the potential liens upon various property of the debtors or other property, as well as the enforceability of such liens in these chapter 11 cases.

Code of Alabama, § 6-9-210 (1975) permits the owner of any judgment, entered in any court of the State of Alabama or of the United States held in this state, to file a certificate of such judgment in the office of the judge of probate of any county in Alabama. Said Code, in § 6-9-211, further provides that, upon the filing of such certificate, the judgment "shall be a lien in the county where filed on all property of the defendant which is subject to levy and sale under execution. . . ." One may wonder to what effect, but the latter section further states: "no insolvency proceedings or declaration of insolvency shall affect or impair such lien, except bankruptcy proceedings instituted within four months after the filing of the said certificate of judgment for record as provided by law....."

The plaintiffs' complaint, in its first aspect, alleges that the defendant's federal court judgment was for an amount substantially in excess of any debt actually owed by the debtors to the plaintiff in that action (defendant here) and that the judgment resulted in the debtors' abandonment "of a substantial and valuable claim for unlawful overcharges by the defendant." This aspect of the complaint is heightened by further allegations that the debtors "were subject to substantial and oppressively burdensome litigation . . ., ... were unable to meet the inordinate and overpowering burden of litigation expense . . . with a multinational corporation, and . . . were forced to succumb to the judgment . . . without a reasonable equivalent exchange of any kind."

This attack upon the judgment cannot succeed. Rule 60(b), Fed.R.Civ.P., provides that the court which renders a judgment may, on motion and upon such terms as are just, relieve a party from the judgment "for the following reasons: . . . (3) fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party; . . . or (6) any other reason justifying relief from the operation of the judgment. . . ." None of the other grounds stated appears relevant to the circumstances of this adversary proceeding. The debtors, of course, are not seeking relief from the judgment by a motion in the United States district court for this district;¹ but Rule 60 additionally states the following: "this rule does not limit the power of a court to entertain an independent action to relieve a party from a judgment. . . ." The Advisory Committee note to subdivision (b) of Rule 60, states that the "independent action to obtain relief from a judgment . . . may or may not be begun in the court which rendered the judgment."

The bankruptcy court, thus, may entertain this independent action (adversary proceeding) by which the defendants (plaintiffs here) seek to obtain relief from the judgment of the United States district court.² Their efforts fail, however, because no sufficient ground for such relief is alleged, and it does not appear that any such ground could be alleged which has any reasonable prospect for being proved.

It appears to the bankruptcy judge that the grounds for relief from the judgment, in an independent action for relief, would be analogous to those recited in Rule 60. No circumstances are alleged which would support the catch-all provision: "(6) any other reason justifying relief from the operation of the judgment." This leaves the ground of fraud, misrepresentation, or other misconduct of an adverse party.

The allegations of the complaint appear to hint at each of these three grounds. If fraud is relied upon, the debtors have failed to deal successfully with the requirements of Bankr.R. 7009, making applicable Fed.R. Civ.P. 9, which requires that "in all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." The debtors' complaint contains no sufficient allegations to sustain a ground of "fraud" for their being relieved from the effect of the judgment.

As to "misrepresentation," the complaint alleges that the judgment was "for an amount substantially in excess of any debt actually owed." That averment is consistent with an absence of the debtors' reliance upon any "misrepresentation," because (even if true) there is no allegation that the debtors were not then as aware of the overstatement of the claim as they are now. If the debtors paid no heed to the misrepresentation, surely the misrepresentation alone would not justify granting them relief from the judgment stipulated to by them. Furthermore, this allegation appears to be an effort to relitigate this issue and runs afoul of the doctrine of res judicata.

A charge of "other misconduct of an adverse party" would have to find its support in the debtors' allegations concerning "the inordinate and overpowering burden of litigation expense . . . with a multinational corporation." If this were a sufficient ground for relief from a judgment, no large corporation, such as General Motors Corporation, could obtain a judgment against a defendant with small resources and have any confidence that the judgment would not be set aside, no matter how impeccable were the conduct of the plaintiff in the case. The allegation by the plaintiffs that "the judgment resulted in the abandonment . . . of a substantial and valuable claim for unlawful overcharges" adds nothing to the virility of the complaint. The latter allegations appear to be...