Karen-Richard Beauty Salon v. Fontainebleau Hotel
| Decision Date | 10 November 1983 |
| Docket Number | No. 83-1466-CIV-EPS.,83-1466-CIV-EPS. |
| Citation | 36 BR 896 |
| Parties | KAREN-RICHARD BEAUTY SALON, INC., Appellant, v. FONTAINEBLEAU HOTEL CORP., Appellee. |
| Court | U.S. District Court — Southern District of Florida |
Michael A. Frank, North Bay Village, Fla., for appellant.
Richard Friedman, Lawrence M. Schantz, Miami, Fla., for appellee.
THIS CAUSE came before the court on appeal from U.S. Bankruptcy Court. Appellant contends that a prior order distributing $15,000 to it was improperly reconsidered absent a showing of the requirements of F.R.C.P. Rule 60(b) and that appellee cannot be relieved of its contractual obligations by assignment. The court having been duly advised, it is hereby
ORDERED AND ADJUDGED that the bankruptcy court's decision is AFFIRMED.
Karen-Richard Beauty Salon, Inc. Karen-Richard was a tenant that had been operating out of the Fontainebleau Hotel on Miami Beach since the hotel was built. It remained there until 1980, three years after the Fontainebleau, together with appellant's lease, changed hands. In 1982, Karen-Richard filed a claim in bankruptcy court to retrieve the security deposit left with Fontainebleau in 1955.
In October, 1982, the court allowed appellant's claim in the amount of $15,000. Some two months later, however, Fontainebleau filed an objection, the gist of which was that a third party had already assumed its obligation and, in addition, that the deposit was no more than $7,000.
The court sustained the objection and issued an order to reconsider its prior judgment. Appellant then moved for a rehearing, claiming that Fontainebleau had exceeded the 10 day limitation imposed by F.R.C.P. 59. The court then issued an order denying the rehearing. On March 23, the court reconsidered Karen-Richard's claim and disallowed it.
Appellant presents the following questions on appeal:
(1) was the bankruptcy judge acting properly in entertaining appellee's motion for reconsideration where the requirements of Rule 60(b) of the Federal Rules of Civil Procedure were not met;
(2) may a party to a contract be relieved of the obligation that a contract imposes by merely assigning the contract to a third party?
The general power of the bankruptcy court within certain limitations to correct its own mistakes or reconsider matters already disposed of sua sponte or upon motion of a party in interest is not disputed. Reconsideration affords the court an opportunity to reexamine a claim on its merits where circumstances call for it. If the motion for reconsideration is granted, there must be a hearing on the merits of the claim. The court is given discretion and is not bound by the requirements of Rule 59 of the Federal Rules of Civil Procedure. 12 Collier on Bankruptcy, ¶ 307.04 at 3-78 (14th ed.).
Section 57k of the repealed 1898 Act read as follows:
Claims which have been allowed may be reconsidered for cause and reallowed or rejected in whole or in part according to the equities of the case, before but not after the estate has been closed.
§ 57 was later revised by Bankruptcy Rule 307,1 which provided:
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 appropriate.
One significant difference between the two statutes is the provision in § 57k that the reconsideration be "for cause." Although it is conspicuously lacking in Rule 307, this provision has been duplicated in Section 502(j):
Before a case is closed, a claim that has been allowed may be reconsidered for cause, and reallowed or disallowed according to the equities of the case.
What constitutes "cause . . . according to the equities of the case" is not entirely clear. However, the grounds alleged need not necessarily be sufficient to require disallowance of the claim, in whole or in part. 3 Collier on Bankruptcy, ¶ 502.10 at 502-110 (15th ed.).
The clearest cause for reconsideration is the discovery, subsequent to allowance, of new relevant facts or evidence that could not have been discovered at an earlier stage, or the discovery of clear errors in the order of allowance. Such grounds should be stated in the moving papers in detail; the exact nature of an alleged mistake should be set forth; and if new evidence has been discovered, it should be explained why such evidence was not discovered earlier.
Id., ¶ 57.23 at 401 (14th ed.) (footnotes omitted).
Appellant's reliance on this excerpt is misplaced. The movant need not state grounds for reconsideration with specificity, although some courts have held that the movant, under certain circumstances, should do so. McLeod v. Boone, 34 Am.B. R.(N.S.) 490, 91 F.2d 71 (9th Cir.1937); Lewith v. Irving Trust Co., 24 Am.B. R.(N.S.) 318, 67 F.2d 855, 856 (2nd Cir.1933). This court need not reach the question whether these decisions are binding on it since it does not read the record as indicating that new evidence was discovered nor that a "clear error" was made.
An interesting facet of this case concerns the interplay between Rule 60(b) of the Federal Rules of Civil Procedure and the Bankruptcy Rules. Bankruptcy Rule 924, which makes applicable, as modified, Federal Rule 60(b), provides that a motion for reconsideration of an order allowing or disallowing a claim entered without a contest is not subject to the one year limitation imposed by Rule 60. This is to say that:
an order of allowance or disallowance, whether contested or not, may be the subject of a motion for reconsideration. The only difference is that, in the absence of a contest, the motion for reconsideration must be made within a reasonable time, and is not precluded by the expiration of one year from the entry of the order.
12 Collier on Bankruptcy, ¶ 307.041 at 3-76 (14th ed.).2 Rule 924 only speaks to the time limitation of an uncontested order and it is evident that Congress intended to leave the remainder of the rule intact.
If more than ten 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. Rule 924 only makes inapplicable the one year limitation of Rule 60(b) of the Federal Rules of Civil Procedure if the claim is allowed or disallowed without a contest.
Id., ¶ 307.044 at 3-78 (14th ed.) (footnotes omitted).
Federal Rule 60(b), entitled Mistakes; Inadvertance; Excusable Neglect; Newly Discovered Evidence; Fraud, etc., reads as follows:
On motion and upon such terms as are just, the court may relieve a party or his legal representative from a final judgment, order, or proceeding for the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect, (2) newly discovered evidence which by due diligence could not have been discovered in time to move for a new trial under Rule 59(b); (3) fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party; (4) the judgment is void; (5) the judgment has been satisfied, released or discharged, or a prior judgment upon which it is based has been reversed or otherwise vacated, or it is no longer equitable that the judgment should have prospective application; or (6) any other reason justifying relief from the operation of the judgment. The motion shall be made within a reasonable time, and for reasons (1), (2), and (3) not more than one year after the judgment, order, or proceeding was entered or taken. A motion under this subdivision (b) does not affect the finality of a judgment or suspend its operation. . . .
This court has been called on to judge whether the bankruptcy court's grant of reconsideration was an "abuse of discretion" given the requirement that relief be fashioned under Rule 60(b). B.R. 307; see, e.g., Cameron v. Roemelmeyer, 389 F.2d 599, 601 (5th Cir.1968).
The bankruptcy court did not specify which section of the Rule it relied upon in making its decision. In fact, there is evidence in the April 18th denial of rehearing that the judge mistakenly believed that Rule 60(b) was inapplicable. However, this court does not believe that such misapprehension warrants overturning the decision.
It is well settled that a motion for relief from a judgment under Rule 60(b) is addressed to the discretion of the trial court, which may apply equitable principles in the exercise of that discretion. Hand v. United States, 441 F.2d 529, 531 (5th Cir. 1971); SEC v. Farm & Home Agency, Inc., 270 F.2d 891, 892 (7th Cir.1959) (citing cases); see also Bros. Inc. v. W.E. Grace Manufacturing Co., 320 F.2d 594, 608 (5th Cir.1963).
In the instant case, the trustee in bankruptcy did not oppose Karen-Richard's claim when it was made, as it had no interest in doing so, and the order granting Karen-Richard's petition was allowed in full. Once the debtor, Ben Novack, realized that there would be assets left over after disbursements were made to the creditors, he had a material interest in protecting his estate against any and all claims and thus sought to protect it. Since the debtor was neither a party to the negotiations nor to the entry of this uncontested order, the judge allowed a hearing pursuant to motion, whereupon the court found that there was no basis for the claim.
The court's grant of reconsideration could have been premised on at least two theories consistent with Rule 60(b). The first is mistake of fact (Rule 60(b)(1)). Debtor, in its petition for rehearing, apparently alleged and later proved to the court's satisfaction that the amount Karen-Richard claimed was unsubstantiated. The decision could likewise have been founded on Rule 60(b)(6). This catchall rule gives the courts ample power to vacate judgments whenever that...
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