In re Wescot Intern., Inc.
| Decision Date | 15 July 1999 |
| Docket Number | Civ. No. C 98-4332 SC,C 9-98-0080 SC,C 9-98-0079 SC. Bankruptcy No. 1-90-01470. Adversary No. 96-1131. |
| Citation | 236 BR 27 |
| Parties | In re WESCOT INTERNATIONAL, INC., Debtor. Christoph Eising, Plaintiff/Respondent, v. Jeffrey Locke, Trustee for the Chapter 7 Estate of Wescot International, Inc.; Susan Vineyard, dba Vineyard Collection Co., Defendants/Appellants. |
| Court | U.S. District Court — Northern District of California |
William Gwire, Gwire & Frassetto, San Francisco, CA Richard Johns, Kipperman & Johns, San Francisco, CA.
Plaintiff/Appellee Christoph Eising ("Eising") filed a complaint in Bankruptcy Court seeking to set aside a $1 million stipulated judgment entered against him by Defendant/Appellant Jeffrey Locke ("Locke"), for defaulting on a $50,000.00 promissory note. Locke sold the judgment to Defendant/Appellant Susan Vineyard ("Vineyard"), who seeks enforcement. The Bankruptcy Court permanently enjoined enforcement of the $1 million judgment. The Court ruled that Locke is estopped from denying that he had agreed to set aside the $1 million stipulated judgment if Eising satisfied the promissory note. The Court also held that the $1 million judgment amounted to an unconscionable penalty, out of proportion to the original claims. It awarded Vineyard judgment against Eising in an amount representing the money still owing on the $50,000 promissory note. Vineyard appeals to this Court from the judgment of the Bankruptcy Court.
Wescot International, Inc. ("Wescot"), filed for bankruptcy in 1990. Appellee Eising is a former principal of Wescot. Appellant Locke is the Chapter 7 trustee of the Wescot estate. Locke brought suit in 1992 against Eising, alleging that he owed approximately $300,000.00 to the estate. Eising disputed this contention, but agreed to settle in order to avoid incurring legal fees.
The settlement provided for Eising to give Locke a promissory note for $50,000.00. Eising was to make an initial payment of $10,000.00 on or before August 20, 1993, with the balance due monthly in 24 payments, with 8.5% interest. The settlement also provided that, should Eising default, Locke would be entitled to entry of judgment against him in the amount of $1 million. "Default" was defined in the settlement agreement as follows:
Default shall be deemed to have occurred upon the happening of all the following events: (a) Eising does not timely make a payment required under the note; (b) Trustee, or subsequent holder of the note, has notified Eising by notice delivered to him by certified mail, return receipt requested, that the payment has not been received; and © The overdue payment is not received by Trustee, or subsequent holder of the note, within fifteen (15) days from the date of mailing of the notice.
Settlement Agreement and Stipulation for Entry of Judgment at ¶ 6.
In late 1993, after making the initial payment and several monthly payments, Eising missed two payments under the note. He was, however, regularly informing Locke of his efforts to pay. On May 18, 1994, Locke gave Eising official notice that he was in default on his payments due for April and May, 1994, and informed him that the $1 million judgment would be entered against him if failed to cure. Eising failed to cure, and judgment was entered against him on July 22, 1994.
Eising continued to make payments under the note, however, and Locke continued to accept them. On October 20, 1994, Eising offered Locke a cashier's check in an amount sufficient to cure the two month default, on the condition that Locke set aside the one million dollar judgment. Locke refused to set aside the judgment, but did agree not to levy on Eising's property so long as Eising remained current on his payments under the promissory note. The cashier's check remained with Eising's counsel.
Eising continued to make payments on the note until he believed he had completed all the payments. He was mistaken, however, partly because he was unaware that his attorney was still in possession of the cashier's check, and partly due to miscounting the payments.
Locke and Eising then entered into a compromise to fully resolve the remaining debt. However, creditor Vineyard objected, and offered Locke more money to purchase the judgment.
On April 25, 1996, Eising filed a complaint for declaratory relief, injunctive relief, and a temporary restraining order to block enforcement and to prevent Vineyard's purchase of the judgment. The Court approved Vineyard's purchase of the judgment, and Vineyard now owns it subject to Eising's rights and defenses. Eising then filed a second adversary proceeding to determine those rights.
Following a trial in that proceeding, the Bankruptcy Court found that at least a tacit agreement existed between Locke and Eising that Locke would set aside the judgment upon satisfaction of the note, and that Locke had only refused to set aside the judgment previously in order to facilitate its enforcement. The Court thus found that Locke was estopped from arguing that no such agreement existed. By accepting payments on the note, Locke had led Eising to reasonably believe that the judgment would be set aside upon satisfaction of the promissory note.
Further, the Court found that the $1 million judgment amounted to an unreasonable forfeiture out of proportion to the original obligation. Consequently, it found the judgment an unconscionable penalty, and permanently enjoined enforcement.
The Bankruptcy Court awarded Vineyard judgment against Eising in the amount of $10,332.11, representing the money still owing on the $50,000 promissory note, plus interest at the note rate, plus attorneys' fees, less money Vineyard had already recovered through writs of execution. Appellant Vineyard now appeals to this Court from the judgment of the Bankruptcy Court, seeking enforcement of the $1 million judgment.
On appeal to a district court, a bankruptcy judge's findings of fact shall not be set aside unless clearly erroneous. Federal Rules of Bankruptcy Procedure, Rule 8013. Conclusions of law are subject to de novo review. In re Bialac, 712 F.2d 426, 429 (9th Cir.1983).
Motions for relief of judgment pursuant to Rule 60(b) are reviewed under an abuse of discretion standard. Wilson v. City of San Jose, 111 F.3d 688, 691 (9th Cir.1997). Under that standard, a reviewing court may not reverse unless it has a " " Kayes v. Pacific Lumber Co., 51 F.3d 1449, 1464 (9th Cir.) cert. denied, 516 U.S. 914, 116 S.Ct. 301, 133 L.Ed.2d 206 (1995) (quoting United States v. Plainbull, 957 F.2d 724, 725 (9th Cir. 1992)).
A. Vineyard's Argument that Eising's Claim is Barred
Before this Court can review the substance of the decision of the Bankruptcy Court, it must consider the threshold issue, raised by Vineyard, of whether the Bankruptcy Court could properly entertain this matter in the first place. Vineyard has argued that the Court lacked the power to enjoin enforcement of the stipulated judgment because Eising's claim was barred pursuant to Federal Rule of Civil Procedure 60(b) ("FRCP 60(b)"). FRCP 60(b) provides, inter alia, that certain motions for relief from a final judgment may be made no later than one year after entry of judgment; in any case, such a motion must be made within a "reasonable time."1 Vineyard argues that the one year jurisdictional bar applies to any claim Eising could have brought in this case, and that no exception applies. Therefore, because judgment was entered against Eising on July 22, 1994, but he did not file this case until April 25, 1996, the Bankruptcy Court should have dismissed the action.
In its judgment, the Bankruptcy Court made the following findings regarding this issue:
Thus, the Bankruptcy Court provided four alternative bases for jurisdiction under FRCP 60(b): (1) relief for fraud, misrepresentation, or other misconduct by an adverse party under FRCP 60(b)(3); (2) relief because it is no longer equitable that the judgment should have prospective application pursuant to FRCP 60(b)(5); (3) relief for "any other reason justifying relief from the operation of the judgment" under FRCP 60(b)(6); or (4) relief as an independent action pursuant to the "savings clause" of Rule 60(b). If any of these...
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