In re Long

• Decision Date: 09 January 2017
• Docket Number: Case No.: 14–2128–JCO
• Citation: 564 B.R. 750
• Parties: IN RE: Richard LONG, Debtor.
• Court: U.S. Bankruptcy Court — Southern District of Alabama

564 B.R. 750

IN RE: Richard LONG, Debtor.

Case No.: 14–2128–JCO

United States Bankruptcy Court, S.D. Alabama, Southern Division.

Signed January 9, 2017

Stephen L. Klimjack, Mobile, AL, for Debtor.

MEMORANDUM OPINION AND ORDER

JERRY C. OLDSHUE, JR, U.S. BANKRUPTCY JUDGE

This matter came before the Court on interested party, Jerry Gaddy's (hereinafter "Gaddy") Motion to Vacate or Grant Relief from Decree, or In the Alternative, Motion to Reopen Case Combined With Motion to Vacate or Grant Relief from Order Granting Motion to Annul Automatic Stay and Validate State Court Order Nunc Pro Tunc, (hereinafter referred to as "Motion to Vacate") (Doc. 87), creditor SE Property Holdings' (hereinafter "SEPH") Brief in Opposition thereto (Doc. 91), and Gaddy's Reply Brief. (Doc. 92). On November 8, 2016, a hearing was held on these matters. Present on behalf of Mr. Gaddy was attorney Clark Hammond. Appearing on behalf of SEPH were attorneys Richard Gaal, William Shreve, and Danielle Mashburn–Myrick and appearing for Debtor Long was attorney Ben Meaher. At the conclusion of the hearing, the Court took these matters under advisement, and now issues its ruling thereon.

Procedural Background

On October 11, 2010, SEPH filed a lawsuit titled SE Property Holdings, LLC v. Water's Edge, LLC et al., Civil Action No. 2010–901862¹ in the Baldwin County Circuit Court (hereinafter "the state court"), against multiple defendants, two of which were Debtor, Richard Long, and interested party, Jerry Gaddy.

On July 2, 2014, Debtor Long filed his Chapter 7 bankruptcy petition. On October 24, 2014, a suggestion of bankruptcy as to Long was filed in the state court action. On December 17, 2014, a document titled, "Final Judgment" was entered by the state court. (Doc. 87–4). The "Final Judgment" found Gaddy, among others, jointly and severally liable in the amount of $9,084,076.14 plus interest. Paragraph three of the "Final Judgment" stated that "[a]ll other claims not herein or otherwise disposed of are dismissed with prejudice." The state court's statement in paragraph three of the Final Judgment presumably ordered the dismissal of all claims against Debtor Long in the state court action. The defendants in the state court action, including Gaddy, appealed the judgment to the Alabama Supreme Court. On April 24, 2015, Debtor Long received his Chapter 7 discharge.

On May 27, 2016, the Alabama Supreme Court dismissed the appeal on the basis that the state court's "Final Judgment" was non-final and was a continuation of the action against Debtor Long, which was prohibited by the automatic stay arising from his Chapter 7. (Doc. 75–3). On June 10, 2016, in response to the Alabama Supreme Court's ruling that it had violated the automatic stay against Debtor Long, SEPH filed in this Court its Motion to Annul Automatic Stay and Retroactively Validate State Court Order (hereinafter referred to as "Motion to Annul") (Doc. 75). According to the Certificate of Service, the Motion to Annul was served on the electronic mailing matrix, and all other parties on the creditor matrix via U.S. Mail. (Doc. 75 at 4). On July 12, 2016, this Court held a hearing on SEPH's Motion to Annul, and on July 15, 2016, this Court found that cause existed to grant SEPH's request. Debtor Long also consented to the retroactive annulment at the hearing. An Order was thus entered retroactively annulling the stay against Debtor Long nunc pro tunc to December 17, 2014. (Doc. 79). Finally, on September 12, 2016, Gaddy filed the present motion requesting that this Court vacate its Order Annulling the Automatic Stay or in the Alternative Re-open Debtor Long's bankruptcy case.

Jurisdiction

This Court has jurisdiction pursuant to 28 U.S.C. §§ 1334(a) and 157(a), and the District Court's Standing Order of Reference dated August 25, 2015. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(G). This is a final order.

The above statement usually satisfies this Court's analysis and explanation of its jurisdiction. However, since the movant in this matter has stated this Court "has injected itself into the jurisdiction of the state courts, without a justifiable basis for doing so," (Doc. 87 at 7), a more detailed explanation is warranted.

Bankruptcy jurisdiction is, at its core, in rem and state courts lack authority and jurisdiction to modify bankruptcy court orders.² The impact of the automatic stay is to place jurisdiction in the bankruptcy court over all matters subject to the automatic stay. In re Benalcazar, 283 B.R. 514, 521 (Bankr. N.D. Ill. 2002) (citing LaBarge v. Vierkant, 240 B.R. 317, 322–25 (8th Cir. BAP 1999) (collecting authorities).

Thus, this Court has exclusive jurisdiction over matters regarding the automatic stay, including those seeking annulment of the stay.

Conclusions of Law

Gaddy's Motion to Vacate is bereft of any cite to statutory authority or case law supporting his position, save one case, In re Albany Partners, Ltd. , 749 F.2d 670 (11th Cir. 1984), which does not support his argument. Gaddy references no section in the Federal Rules of Civil Procedure or the Federal Rules of Bankruptcy Procedure as a basis for filing the Motion to Vacate, although he does mention, no less than five times, the impact of the stay annulment on himself as a basis for relief. Gaddy seems to believe the impact on him as a nonbankrupt defendant is sufficient grounds to vacate this Court's order. This Court disagrees. Without any direction from Gaddy on what statute, rule or case entitles him to such relief, this Court will apply the necessary legal framework within which to consider the Motion to Vacate.

Gaddy set forth the following arguments either in his motion or at the oral argument: (1) that Gaddy was not served with a Copy of SEPH's Motion to Annul the Automatic Stay; (2) that misconduct of SEPH requires this Court's Order Annulling the Automatic Stay be vacated; (3) that this Court did not have legal authority to Annul the Automatic Stay and Retroactively Validate the State Court Order; and (4) alternatively, that this Court should re-open Debtor Long's bankruptcy case. Considering Gaddy's arguments, it appears that the first three would fall under Rule 60 of the Federal Rules of Civil Procedure as made applicable to bankruptcy by Rule 9024 of the Federal Rules of Bankruptcy Procedure, and the final argument, to re-open the case, would fall under Rule 5010 of the Federal Rules of Bankruptcy Procedure. Because of this, the Court will consider Gaddy's Motion to Vacate as having been brought under Rule 60(b), and his alternative Motion to Reopen under Rule 5010.

The Rule 60(b) Arguments

Rule 60(b) is an extraordinary remedy designed to address mistakes attributable to exceptional circumstances. Griffin v. Swim–Tech Corp., 722 F.2d 677, 680 (11th Cir. 1984) (citing Ackerman n v. United States, 340 U.S. 193, 202, 71 S.Ct. 209, 95 L.Ed. 207 (1950). The burden of proof in seeking relief from a final judgment or final order initially lies with the moving party. Id. "The burden for setting aside a final order is a heavy one for res judicata is being negated." In re Abrams, 305 B.R. 920 (Bankr. S.D. Ala. 2002). Whether to grant such relief is within this Court's discretion. In re Timmons, 479 B.R. 597, 608 (Bankr. N.D. Ala. 2012).

With no mention of Rule 60(b) or corresponding Bankruptcy Rule 9024 in Gaddy's Motion to Vacate, the Court must consider each of the six grounds for relief provided by Rule 60(b).³ Rule 60(b) states:

On motion and just terms, the court may relieve a party or its legal representative from a final judgment, order, or proceeding for the following reasons:

(1) mistake, inadvertence, surprise, or excusable neglect;

(2) newly discovered evidence that, with reasonable diligence, could not have been discovered in time to move for a new trial under Rule 59(b);

(3) fraud (whether previously called intrinsic or extrinsic), misrepresentation, or misconduct by an opposing party;

(4) the judgment is void;

(5) the judgment has been satisfied, released or discharged; it is based on an earlier judgment that has been reversed or vacated; or applying it prospectively is no longer equitable; or

(6) any other reason that justifies relief.

Fed. R. Civ. P. 60.

The Court has analyzed all six grounds for relief provided by Rule 60(b) as they apply to Gaddy's arguments and concludes that they fall under subsections (3), (4), and (6).

Rule 60(b)(4) : Due Process

The parties agree that Gaddy was not served with SEPH's motion to Annul the Automatic Stay because the address for Gaddy in the Debtor's creditor matrix was incorrect. Accordingly, Gaddy has asserted that this Court's Order Annulling the Automatic Stay should be vacated because he was not served with a copy of the Motion to Annul filed by SEPH. This Court will assume that Gaddy claims this Court's original order annulling the stay is void for lack of due process and is being brought under Rule 60(b)(4).

The burden of proof in a Rule 60(b)(4) motion rests with the movant. In re Worldwide Web Systems, Inc., 328 F.3d 1291 (11th Cir. 2003). In order to evaluate Gaddy's due process argument, this Court must first consider whether the bankruptcy rules required SEPH to serve Gaddy with its Motion to Annul. Further, this Court must assess whether SEPH's attempted notice to Gaddy of its filing of the Motion to Annul was reasonably calculated to provide notice to Gaddy sufficient to satisfy the due process requirement.

Section 362(d) of Title 11 of the United States Code states, "[o]n request of a party in interest and after notice and a hearing , the court shall grant relief from the stay provided under subsection (a) of this section, such as by terminating, annulling, modifying or conditioning such stay ...." § 362(d) (emphasis added). The Bankruptcy Code defines "after notice and a hearing" to mean "after such notice as is appropriate in the particular circumstances, and such opportunity for a hearing as is appropriate in the particular circumstances;...