In re Krautheimer

Decision Date18 June 1997
Docket NumberBankruptcy No. 94 B 20027 JJC,Adversary No. 94-5039A JJC.
Citation210 BR 37
PartiesIn re Fred KRAUTHEIMER, Debtor. Philip D. RUPERT, Jr., Plaintiff, v. Fred KRAUTHEIMER, Defendant.
CourtU.S. Bankruptcy Court — Southern District of New York



Harris, Beach & Wilcox, L.L.P. by Daniel J. McGuire, Rochester, NY, for Plaintiff.

Fred Krautheimer, Tarrytown, NY, pro se.


JOHN J. CONNELLY, Bankruptcy Judge.

In this Chapter 7 case defendant/debtor Fred Krautheimer ("Krautheimer") moves to vacate this Court's order dated October 20, 1994 ("October 20 order") in favor of plaintiff/creditor Philip D. Rupert, Jr. ("Rupert") under Federal Rule of Civil Procedure 60(b)(6). The October 20 order, following a decision from the bench based upon collateral estoppel, granted summary judgment on Rupert's claim that a state court judgment against Krautheimer was excepted from discharge under 11 U.S.C. § 523(a)(6). This court has jurisdiction over the subject matter of this case under 28 U.S.C. §§ 1334(a) and 157(a). This is a core proceeding under 28 U.S.C. § 157(b)(2)(I). Venue is proper under 28 U.S.C. § 1408.

For the reasons set forth below, the Court concludes that it was inappropriate to give collateral estoppel effect to the state court judgment with respect to the issue of dischargeability, and the Court did not have a sufficient record to grant summary judgment.


In 1982, Krautheimer, a dentist and resident of Tarrytown, New York, began to sell medical and dental insurance in the lower Hudson valley for R.W. Michael's Agency, Inc. (the "Corporation"), a small insurance brokerage with its headquarters in Orchard Park, New York. In 1988, the owner of the business indicated that he wished to sell the Corporation. On the strength of his trust in and friendship with Robert Lohnes, the senior vice-president of the Corporation, Krautheimer agreed to buy the Corporation jointly with Lohnes. Because Krautheimer had no experience in the insurance business other than sales, he remained in his capacity as salesman and left the day-to-day operation of the Corporation to Lohnes. As Krautheimer explained in state court, "I was completely dependant upon Mr. Lohnes." Krautheimer became a salaried employee of the Corporation, visiting the Orchard Park headquarters about once a month.

In late 1989, Lohnes became terminally ill. Concerned with the continued operation of his business, Krautheimer began to search for a replacement for Lohnes. In May 1990, after extended negotiations in which he interviewed several candidates, Krautheimer hired Rupert as President of the Corporation. Lohnes died in June 1990. In July 1990 Rupert signed an employment contract to serve as President of the Corporation for eight years at $75,000/year plus 33.3% of the profits of the Corporation. Krautheimer signed the employment contract on behalf of the Corporation as Chairman of the Board of Directors and Chief Executive Officer.

For reasons not germane to the issues at hand, Krautheimer lost confidence in Rupert, and on June 10, 1991, Krautheimer terminated Rupert's employment with the Corporation. One week later, Rupert sued Krautheimer, the Corporation and two other defendants in New York State Supreme Court. The complaint (the "state complaint") alleged breach of contract by the Corporation and purported claims of tortious interference with contract against Krautheimer and the two other defendants.

Krautheimer's attorney was forced to withdraw for personal reasons approximately one month before the trial date. Krautheimer appointed new counsel approximately three weeks before the trial and a motion for a continuance was denied. The action proceeded to trial on October 19, 1993.

After a six-day trial the jury found in favor of Rupert against the Corporation and Krautheimer. The jury specifically found: (1) that the Corporation breached the employment contract, (2) that "the defendant, Fred Krautheimer, unduly interfered with the employment contract by inducing the Defendant, R.W. Michaels Agency, Inc., to breach the contract . . .", and (3) $725,000 unspecified "damages" plus interest and costs, for a total of $889,238. The claims against the other two defendants were either abandoned or dismissed.

It is not clear whether Krautheimer had counsel immediately after the state trial. But, for whatever reasons, Krautheimer did not appeal the state court judgment against him. Instead, in early 1994, Krautheimer voluntarily filed a petition for relief under Chapter 7 of the Bankruptcy Code. On February 28, 1994, Rupert commenced this adversary proceeding for a determination that Krautheimer's judgment indebtedness is nondischargeable under 11 U.S.C. § 523(a)(6). In July 1994, Rupert moved for summary judgment based on the doctrine of collateral estoppel. Krautheimer filed a memorandum of law in opposition by new counsel. However, this counsel, who was retained by Krautheimer sometime after his bankruptcy petition was filed, also had to withdraw for personal reasons before the summary judgment hearing. Thus, Krautheimer filed a supplemental memorandum of opposition pro se, and from that point forward Krautheimer has been without counsel in this case.

On October 20, 1994, after hearing oral argument by Rupert's counsel and Krautheimer pro se, this Court took a short recess and then rendered a bench decision granting Rupert's motion for summary judgment based on the premise that Krautheimer was collaterally estopped from a trial on the merits of the elements of discharge under section 523(a)(6) by reason of the state court jury verdict.

In November 1994, Krautheimer filed a "Motion to Dismiss Order Granting Plaintiff Summary Judgment" under Rule 60(b)(3) of the Federal Rules of Civil Procedure. A Memorandum of Law in Opposition was filed by Rupert, and this Court denied that motion on March 10, 1995. During the following year other matters were litigated between the parties of no relevance to the issues at bar. Then, on April 30, 1996 Krautheimer, still acting pro se, filed this motion under Rule 60(b)(6) to have the summary judgment vacated.

In response, Rupert makes four arguments: (1) Rule 60(b) of the Federal Rules of Civil Procedure ("Rule 60(b)") is generally not a proper vehicle for this type of "attack" on the "merits of a judge's decision" and Krautheimer has not met the standard for relief; (2) this motion, to the extent that it may be allowed, is properly made under Rule 60(b)(1) and is therefore time barred by the one-year statute of limitations for Rule 60(b)(1) motions; (3) even if placed under Rule 60(b)(6), Krautheimer is time-barred here as well; and (4) this Court's prior decision was correct.

I. Applicability and timeliness of this motion under Rule 60(b)

The threshold questions are whether this motion applies to subsection (1) or subsection (6) of Rule 60(b) and whether this motion is timely. I conclude that Rule 60(b)(6) applies and that the motion is timely.

As an overarching rule, this Court acknowledges that it is strongly espoused in this circuit that pro se pleadings are held to "less stringent standards than formal pleadings drafted by lawyers," Haines v. Kerner, 404 U.S. 519, 521, 92 S.Ct. 594, 596, 30 L.Ed.2d 652, reh'g denied, 405 U.S. 948, 92 S.Ct. 963, 30 L.Ed.2d 819 (1972), and should be "given the benefit of the doubt." In re Boyer, 108 B.R. 19, 23 (Bankr.N.D.N.Y.1988). This rule is especially pertinent given the "liberal construction afforded to Federal pleadings." Id. (citing Conley v. Gibson, 355 U.S. 41, 47-48, 78 S.Ct. 99, 102-103, 2 L.Ed.2d 80 (1957)). Thus, the Second Circuit has explained that it has "long evinced a sensitivity toward the plight of the uncounselled party attempting to navigate the technically-laden road to the courthouse." Patrick v. LeFevre, 745 F.2d 153, 160 (2d Cir.1984).

Consequently, it is not surprising that in a Second Circuit case in which the Court of Appeals reversed a ruling of a district court denying a pro se plaintiff's motion to set aside a judgment under Fed. R. Civ. Pro. 55(c), it wrote:

The district court also abused its discretion in failing to take into account the plaintiff\'s pro se status. Implicit in the right to self-representation is an obligation on part of the court to make reasonable allowances to protect pro se litigants from inadvertent forfeiture of important rights because of their lack of legal training. While the right "does not exempt a party from compliance with relevant rules of procedural and substantive law," it should not be impaired by harsh application of technical rules.

Traguth v. Zuck, 710 F.2d 90, 95 (2d Cir. 1983) (internal citation omitted). One Second Circuit court has even gone so far as to comment that a pro se litigant's complaint "should be given solicitous and generous consideration . . . and that summary disposition should rarely be granted . . .". McPartland v. American Broadcasting Companies, Inc., 113 F.R.D. 84, 85 (S.D.N.Y.1986) (quoting Raitport v. Chemical Bank, 74 F.R.D. 128, 129 (S.D.N.Y.1977)). Thus, this Court is eminently mindful that a pro se debtor must be given leniency in his motions before this court.

Federal Rule of Civil Procedure 60(b) is incorporated in Bankruptcy Rule 9024. The Rule lists six general reasons for relief from a judgment. In relevant part, it states that

on motion and upon such terms as are just, the court may relieve a party . . . from a final judgment, order, or proceeding for the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect; . . . or (6) any other reason justifying relief from the operation of the judgment. The motion shall be made within a reasonable time, and for reason (1) not more than one year after the judgment, order, or proceeding was entered or taken.

Since it has been said that Rule 60(b)(6) cannot be invoked if the reasons...

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