In re Walter

• Decision Date: 04 March 2002
• Docket Number: No. 00-2075.,00-2075.
• Citation: 282 F.3d 434
• Parties: In re Anna Marie WALTER, Debtor. Jerry Pruzinsky, Defendant-Appellant, v. Silvio Gianetti; Gianetti Investment Company, Plaintiffs-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

282 F.3d 434

In re Anna Marie WALTER, DebtorJerry Pruzinsky, Defendant-Appellant, v.Silvio Gianetti; Gianetti Investment Company, Plaintiffs-Appellees.

No. 00-2075.

United States Court of Appeals, Sixth Circuit.

Argued November 28, 2001.

Decided and Filed March 4, 2002.

Rehearing and Suggestion for Rehearing En Banc Denied April 25, 2002.^*

COPYRIGHT MATERIAL OMITTED

Richard F. Fellrath(argued and briefed), Law Office of Richard F. FELLRATH, Detroit, Michigan, for Appellant.

Jerry L. Watson(argued and briefed), Bloomfield Hills, Michigan, for Appellee.

Before JONES, NELSON, and DAUGHTREY, Circuit Judges.

OPINION

NATHANIEL R. JONES, Circuit Judge.

AppellantJerry Pruzinsky appeals the district court's determination that his Motion for Clarification of Judgment, construed as one seeking relief from judgment pursuant to Federal Rule of Civil Procedure 60(b), was barred by the one-year statute of limitations contained therein.We reverse the judgment of the district court and remand for further proceedings.

I.BACKGROUND

A.The Wayne County Agreement

The debtor, Anna Marie Walter, was formerly married to the appellant, Jerry Pruzinsky.Before the bankruptcy proceedings commenced, the appellee, Gianetti, obtained a default judgment against Walter and Pruzinsky in the Wayne County Circuit Court for $629,400.Gianetti's complaint alleged that Walter and Pruzinsky embezzled funds belonging to several of Gianetti's companies.The parties entered into a settlement agreement in satisfaction of the judgment (the "Wayne County Agreement").Under the terms of the agreement, Walter and Pruzinsky surrendered their interest in certain real property to Gianetti.The agreement further provided that each side retained a contingent lien.This aspect of the agreement provided that the parties would have the real property appraised.If the value of the property exceeded the value of the debt owed to Gianetti, then Gianetti was to refund the difference to Walter and Pruzinsky.Conversely, if the property value was insufficient to satisfy the debt owed to Gianetti, then Gianetti would have a lien on all other assets owned by Walter and Pruzinsky.The Wayne County Circuit Court entered an order on December 6, 1994 incorporating the terms of the Wayne County Agreement.

B.The Federal Agreement

Prior to the completion of the valuation process called for in the Wayne County Agreement, Walter filed her bankruptcy petition in the bankruptcy court, which automatically stayed the proceedings against her in the Wayne County action.When he received notice of this action Gianetti pursued in the bankruptcy court his claim against the Walter estate for the unsatisfied judgment.The trustee in bankruptcy subsequently reached an agreement with Gianetti to settle the claim (the "Federal Agreement").Walter and Pruzinsky were divorced at the time she initiated the bankruptcy proceedings.Therefore, Pruzinsky was neither a party to nor did he participate in the negotiation of this agreement.Pruzinsky was, however, like Gianetti, a creditor of the Walter bankruptcy estate and, as such, was entitled to receive notice of the proposed settlement.After receiving notice, Pruzinsky filed a written objection to certain language in the proposed order which Gianetti and the trustee had drafted to settle the claim.The objection stated:

Now comes Jerry Pruzinsky, creditor in the above captioned matter and objects to the entry of the proposed order approving settlement and particularly the final paragraph of the same for the reason that this paragraph seeks to adjudicate matters not before this Court(a dispute between Jerry Pruzinsky and Silvo Gianetti concerning claims between these parties which is pending in the Wayne Country Circuit Court #92-230961-CK).

Objection To Entry Of Order Approving Settlement.February 12, 1998.J.A.at 70(emphasis added).The proposed order, memorializing the Federal Agreement between Gianetti and the trustee in bankruptcy, read in relevant part as follows (the parties refer to these two paragraphs as "paragraphs three and four"):

It is further ordered that the Wayne County Circuit Court Default Judgment obtained by [Gianetti] against Debtor Anna Marie Walterand her ex-husband, Jerry Pruzinsky ... as well as a certain Settlement Agreement Order of the Wayne County Circuit Court ... are hereby satisfied and forever discharged.It is further ordered that any contingent liens by the Debtor and/or her ex-husband Jerry Pruzinsky, arising under the Wayne County Settlement and Order...[are] hereby released, discharged, and void.

Order Approving Settlement of Secured Claim.April 20, 1998.J.A. 71-72(emphasis added).

C.The April 1998 Order

At a hearing on March 27, 1998, the bankruptcy court heard Pruzinsky's objections to the Federal Agreement.Pruzinsky explained that he was not a party to the Federal Agreement and that he did not participate in the negotiations that produced the proposed order.He further explained that the proposed order drafted by Gianetti and the bankruptcy trustee purported to extinguish his right under the Wayne County Agreement to a refund if the appraised value of the property exceeded the value of the debt owed to Gianetti.Pruzinsky maintained that it was unfair to allow the bankruptcy trustee and Gianetti to bargain away his rights when he was not a party to their agreement.The following exchange took place:

MR. FELLRATH [Counsel for Pruzinsky]: The order ... provides that contingent claims and liens by Jerry Pruzinsky against the letter [sic] — excuse me, against the lender — are released, discharged and void.My client objects to that language.

THE COURT: Well, we're talking now about the last paragraph only of the proposed order; am I right, Mr. Fellrath?

MR. FELLRATH: That's correct....

THE COURT: All right.

MR. FELLRATH: What we object to is the language in that order which — the proposed order, that Mr. Gianetti — the claims of Mr. Pruzinsky against Mr. Gianetti are released, discharged and void....

THE COURT: If the words — Mr. Fellrath —

MR. FELLRATH: Yes.

THE COURT: — if the words, looking now at the proposed order, now — do you have it in front of you?

MR. FELLRATH: Yes, your Honor, I do.

THE COURT: If the words "and/or her ex-husband, Jerry Pruzinsky" — so I understand what you're saying — were eliminated from the order, would that solve your problem?

MR. FELLRATH: Yes, your Honor.The — the — the reference to my client should be deleted from that portion of the order.

THE COURT: All right.Specifically, would that do the trick from your perspective?

MR. FELLRATH: Yes.Yes.

J.A.at 111-13.

At this point in the hearing, Mr. Watson, counsel for Gianetti, objected to the request to delete the reference to Pruzinsky.He argued that it was fair to dissolve Pruzinsky's contingent lien because the terms of the Federal Agreement released Pruzinsky from liability in the event the appraised value of the property was not enough to satisfy the amount owed Gianetti under the default judgment.The bankruptcy court rejected this argument.

THE COURT: How can — how can the Debtor and yourself, between the two of you, eliminate Mr. Pruzinsky's rights?

MR. WATSON: Well, because we are also releasing him from any liability under the settlement....

. . .

THE COURT: All right.So I don't see how I can include language in there which, in effect, gives up rights, frankly.So I will sign an order that excises from the proposed order the language I was talking about, the words: `And/or her ex-husband Jerry Pruzinsky.'I'll sign that order.

J.A.at 114, 117.

D.The Motion for Clarification

The important point to observe from the foregoing exchange is that while the bankruptcy court intended to fully preserve Pruzinsky's rights under the Wayne County Agreement, the settlement order, as modified by the bankruptcy court, does not reflect that intent.It is clear from the record that the objective of the modification was to remove Pruzinsky from the force of the order.This, however, was accomplished only with respect to paragraph four, as Pruzinsky mistakenly told the bankruptcy court that his objection lay only with that section of the order.The April 1998 order of the bankruptcy court did not remove the reference to Pruzinsky in paragraph three.Instead, paragraph three of the order continued to declare that the Wayne County Agreement was fully satisfied and discharged and therefore Pruzinsky's contingent lien was dissolved.

The oversight came to a head in August 1999, when Pruzinsky filed subpoenas in Wayne County Circuit Court to determine the value of property included in the Wayne County Agreement.Gianetti raised the bankruptcy court's April 1998 order as a defense, pointing to paragraph three, the provision of the order stating that, as to Pruzinsky, the Wayne County Agreement was satisfied and forever discharged.The Wayne County Circuit Court, for some reason that remains unexplained adjourned all motions.¹Pruzinsky then filed a "Motion to Clarify" the April 1998 order with the bankruptcy court, contending that the April 1998 order did not bar his action in Wayne County, and sought an order from the bankruptcy court to that effect.

The bankruptcy court construed Pruzinsky's Motion to Clarify as one seeking relief from judgment pursuant to Rule 60(b) of the Federal Rules of Civil Procedure.²Rule 60(b) authorizes a court to relieve a party from a final judgment or order in the following circumstances: (1) mistake, inadvertence, surprise, or excusable neglect; (2) newly discovered evidence; (3) fraud; (4) the judgment is void; (5) the judgment has been satisfied, released, or discharged; or (6) any other reason justifying relief.Fed.R.Civ.P. 60(b)(1)-(6).

Pruzinsky argued that he was entitled to relief under subparts (1), (4), and (6) of Rule 60(b).After a hearing, the bankruptcy court concluded that Rule 60(b)(1), regarding mistake, did not apply...