In re Nautilus Virgin Charters, Inc.

• Decision Date: 30 June 1982
• Docket Number: Bankruptcy No. 381-00017,381-0004.
• Citation: 22 BR 468
• Parties: In re NAUTILUS VIRGIN CHARTERS, INC., Alleged Debtor. CALYPSO YACHT CHARTERS, INC., Plaintiff, v. NAUTILUS VIRGIN CHARTERS, INC., John I. Quimby, Jack K. Clifford and L.J. O'Connor, Defendants.
• Court: U.S. District Court — Virgin Islands, Bankruptcy Division

22 B.R. 468 (1982)

In re NAUTILUS VIRGIN CHARTERS, INC., Alleged Debtor CALYPSO YACHT CHARTERS, INC., Plaintiff, v. NAUTILUS VIRGIN CHARTERS, INC., John I. Quimby, Jack K. Clifford and L.J. O'Connor, Defendants.

Bankruptcy Nos. 381-00017, 381-0004.

Bankruptcy Court, Virgin Islands, D. St. Thomas and St. John.

June 30, 1982.

Nan L. Blumenfeld, Loud, Watts & Murnan, Charlotte Amalie, St. Thomas, V.I., for plaintiff.

Arthur N. Martin, Jr., Martin & Hart, P.C., East Orange, N.J., Desmond L. Maynard, Charlotte Amalie, St. Thomas, V.I., for defendants.

Thomas K. Moore, Hoffman & Moore, Charlotte Amalie, St. Thomas, V.I., for debtor.

MEMORANDUM AND ORDER

ALBERT A. SHEEN, Bankruptcy Judge.

This case arises out of an Order dismissing an involuntary petition, filed by defendants John I. Quimby, Jack K. Clifford, and L.J. O'Connor, seeking an order for relief under Chapter 11 of the Bankruptcy Act. The alleged debtor is Nautilus Virgin Charters, Inc. Quimby, Clifford, and O'Connor (hereafter referred to as Petitioners) move under both Bankruptcy Rule 923 and 924 for a reconsideration of that order. The sole basis for the motion is that "the learned judge had made a mistake."¹ The question presented by this case is whether a bankruptcy court may reconsider an order when the motion for reconsideration was filed after the time for appeal has elapsed, and the movant's sole claim is that the Court in issuing the underlying ORDER committed a legal error. Holding that such a motion is untimely under Bankruptcy Rules 923 and 924 and therefore must be denied, this Court denies Petitioners' motion for reconsideration.

The facts of the case are as follows. On July 9, 1981, Petitioners filed an involuntary petition seeking an order for relief under Chapter 11 of the Bankruptcy Act. The alleged debtor was Nautilus Virgin Charters, Inc. On October 7, 1981, Chief Judge Christian, while presiding over Bankruptcy Court, dismissed the involuntary petition, citing two grounds. First of all, Nautilus Virgin Charters, Inc. had not paid its franchise tax for the past three years and was thereby barred from maintaining the action in bankruptcy court by 13 V.I.C. Sec. 533(a).² Secondly, Nautilus Virgin Charters, Inc. did not qualify as a "person" under 11 U.S.C. Sec. 101(30)³ because it had been dissolved, pursuant to 13 V.I.C. Sec. 533(c)(1),⁴ for failure to pay the franchise tax. Consequently, as an involuntary case can be commenced only against a "person", 11 U.S.C. Sec. 303(a),⁵ the bankruptcy court lacked jurisdiction over the involuntary petition. For both of these reasons the petition was dismissed.

Petitioners did not appeal the dismissal. Instead, they filed a motion for reconsideration on November 25, 1981. This motion came forty-nine (49) days after the petition was dismissed, nineteen (19) days after the longest possible time for appeal had elapsed, and thirty-nine (39) days after the normal time for appeal had elapsed.⁶ Petitioners base their motion for reconsideration on both Bankruptcy Rule 923 and 924.

Petitioners' Motion Under Rule 923:

Rule 923 states that "except as provided in Rule 307, Rule 59 of the Federal Rules of Civil Procedure applies in bankruptcy cases." Bankruptcy Rule 307 states that

"a party in interest may move for reconsideration of an order allowing or disallowing a claim against the estate. If the motion is granted, the court may after hearing on notice make such further order as may be be appropriate."

Although some courts have treated motions similar to Petitioners' under Federal Rule 59,⁷ this Court will treat Judge Christian's dismissal of the petition as an order "disallowing a claim" and therefore, will apply Rule 307.⁸ S.E.C. v. E.P. Seggos & Co., 416 F.Supp. 280 (S.D.N.Y.1976).

Rule 307 superseded Sec. 57k of the Bankruptcy Act.⁹ Therefore, the period allowed for reconsideration is no longer limited to the time prior to the closing of the estate, as prior cases had held.¹⁰ 7 Moore's Federal Practice 60.187 (2d ed. 1982). Instead, as stated in 12 Collier on Bankruptcy 307.043 (14th ed. 1978),

"after the time to appeal has run, the only time limitation applicable to motions for reconsideration is the one year period applicable to contested orders of allowance or disallowance as a result of Rule 924, which makes applicable Rule 60(b) of the Federal Rules of Civil Procedure."

However, this statement is later qualified by the proviso that, for relief to be granted

"if more than ten (10) days has elapsed after the entry of the order before the motion for reconsideration is filed, the time within which to file a motion pursuant to Rule 923, the requirements of Rule 60(b) of the Federal Rules of Civil Procedure must be met, whether the order was entered with or without contest." 12 Collier on Bankruptcy 307.044 (14th ed. 1978)¹¹

The time for appeal of the order dismissing the involuntary petition had already run when Petitioners filed the motion for reconsideration. Therefore, to rely on Rules 923 and 307 to support the motion for reconsideration, Petitioners must present a claim which is based on Federal Rule 60(b),¹² as did the party in Hurley, supra, note 11. Petitioners contend that Judge Christian "made a mistake" of law in dismissing the petition. As Rule 60(b)(2)-(5) clearly do not apply here, Petitioners' claim of legal error by the court could conceivably fall only under either 60(b)(6) or 60(b)(1).

Rule 60(b)(6) permits a court to relieve a party from a final order for "any other reason justifying relief from the operation of the judgment." A claim of legal error committed by the court, however, does not constitute a sufficient reason. Reversing a Virgin Islands District Court's reconsideration of a judgment made two and a half years earlier, the Third Circuit Court of Appeals held that,

"the correction of legal errors committed by the district courts is the function of the Court of Appeals. Since legal error can usually be corrected on appeal, that factor without more does not justify the granting of relief under Rule 60(b)(6). We know of no authority to the contrary." Martinez-McBean v. Government of the V.I., 14 V.I. 79, 86, 562 F.2d 908, 912 (3rd Cir. 1977).

Having presented no claim in addition to that of legal error by the court, Petitioners cannot obtain relief under 60(b)(6), regardless of when the motion to reconsider was filed.

The First and Seventh Circuits have rejected the contention that legal error by the court constitutes "mistake" under 60(b)(1). Silk v. Sandoval, 435 F.2d 1266 (1st Cir. 1971), cert. den. 402 U.S. 1012, 91 S.Ct. 2189, 29 L.Ed.2d 435 (1971); Swam v. U.S., 327 F.2d 431 (7th Cir. 1964), cert. den. 379 U.S. 852, 85 S.Ct. 98, 13 L.Ed.2d 55 (1964). Nevertheless, other Circuits have permitted such claims, although they distinguish a 60(b)(1) based upon a court's legal error from that based upon either other types of mistake, inadvertence, or excusable neglect. Whereas claims for relief based upon the latter can be filed at any time prior to one year after the judgment, courts generally require that 60(b)(1) claims of "mistake" predicated upon a court's legal error be filed prior to when the time for appeal has run.¹³ Rule 60(b) is not considered a substitute for appeal. 7 Moore's Federal Practice 60.188, 60.223-4 (2d ed. 1982); Wright and Miller Federal Practice and Procedure: Civil Sec. 2858 at 178-180 (1973 ed.). Although the Third Circuit has not decided directly whether Rule 60(b)(1) can provide relief from a court's legal error when the motion for relief is made after the time for appeal has elapsed,¹⁴ the Court did hold that such reconsideration, although not based expressly on 60(b)(1), could be granted during the period for appeal. Sleek v. J.C. Penney, 292 F.2d 256, 258 (3rd Cir. 1961). However, this Court believes that any additional time, beyond that for appeal, is not "reasonable" for the correction of a court's legal error. F.R.C.P. 60(b). Therefore, this Court holds that it will follow the majority of courts and will not grant relief from a judgment when the motion for relief (reconsideration) is based solely upon the ground that a court committed legal error and such motion for relief (reconsideration) is filed after the time for appeal has run. Such motions for relief (reconsideration) are untimely and will be denied. Litigants who believe that a court has improperly interpreted or applied the law should seek relief by appealing to those higher courts whose function is, as stated in Martinez-McBean, "the correction of legal errors committed by the lower courts." 562 F.2d at 912.

Having filed a motion for reconsideration long after the time for appeal had run, Petitioners cannot now be afforded relief under 60(b)(1) on the sole basis that Judge Christian committed legal error, even if that error is conceded.¹⁵ Petitioners also present no claim that other forms of mistake, inadvertence or excusable neglect justify relief from dismissal of their petition. Furthermore, this Court can detect from Petitioners' briefs no basis for relief under either of these categories.¹⁶ Consequently, Petitioners have not presented any claim under 60(b)(1)-(6) upon which this Court could conceivably grant relief at this late date. As stated above, when the motion for reconsideration under Rule 307 is filed more than ten (10) days (the time for appeal) after the entry of the order, the requirements of 60(b) must be met in order for relief to be granted. 12 Collier on Bankruptcy 307.044 (14th ed. 1978). Since the requirements of 60(b) could not possibly be met in this case, as shown above, this Court believes there to be no reason to reconsider the underlying order and therefore denies the motion for reconsideration as untimely under Bankruptcy Rules 923 and 307.

Petitioners also seek relief under Bankruptcy Rule 924 which provides that,

"Rule 60 of the Federal Rules of Civil Procedure applies in bankruptcy cases, except that a motion to reopen a case

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