Sterling Factors, Inc. v. Whelan, No. Civ.A. No. 1:99CV1961JOF

Citation245 BR 698
Decision Date25 February 2000
Docket Number98-73836-JB.,No. Civ.A. No. 1:99CV1961JOF,1:99CV1962JOF. Bankruptcy No. 98-73772-JB
PartiesSTERLING FACTORS, INC., Appellant, v. Michael W.J. WHELAN, Debtor/Appellee. Sterling Factors, Inc., Appellant, v. Edward T. Schaner, Debtor/Appellee.
CourtUnited States District Courts. 11th Circuit. United States District Courts. 11th Circuit. Northern District of Georgia

245 B.R. 698 (2000)

Michael W.J. WHELAN, Debtor/Appellee.

Sterling Factors, Inc., Appellant,
Edward T. Schaner, Debtor/Appellee.

Nos. Civ.A. Nos. 1:99CV1961JOF, 1:99CV1962JOF. Bankruptcy Nos. 98-73772-JB, 98-73836-JB.

United States District Court, N.D. Georgia, Atlanta Division.

February 25, 2000.

245 BR 699
245 BR 700
245 BR 701
Steven Meyer Winter, J. Bertram Levy, Mark I. Sanders, Weinstock & Scavo, Atlanta, GA, for appellant

John R.M. Whelan, Stone Mountain, GA, for appellee.


FORRESTER, District Judge.

This matter is before the court on Sterling Factors Inc.'s dual appeal from the judgment of the Bankruptcy Court for the Northern District of Georgia and Appellees Michael W.J. Whelan's and Edward T. Schaner's motions to dismiss.

I. Statement of the Case

Appellant Sterling Factors, Inc. ("Sterling"), brings the instant appeal challenging the bankruptcy court's refusal to grant summary judgment in its favor against Appellees Michael W.J. Whelan and Edward T. Schaner on the issue of the nondischargeability of a debt obtained by fraud pursuant to 11 U.S.C. § 523. Sterling claims that the bankruptcy court erroneously failed to give preclusive effect to a Georgia state court judgment rendered in its favor on a state claim of fraud against Whelan and Schaner.

Sterling explains the following facts in support of its appeal. On July 9, 1998, the Superior Court of DeKalb County entered judgment in favor of Sterling on a fraud claim under Georgia law against Whelan and Schaner in Sterling Factors, Inc. v. Craftmasters, Inc., et al., Civil Action No. 96-1436-3. Default was entered on behalf of Sterling after a period of fruitless attempts by the court and Sterling to obtain discovery responses from defendants Whelan and Schaner. Sterling was awarded default judgment in the amount of $748,244.31. After receiving notice of the judgment against them, Whelan and Schaner filed petitions for bankruptcy under Chapter 7 of the Bankruptcy Code. Sterling filed complaints with the bankruptcy court seeking to exempt from dischargeability the debts fraudulently incurred by Whelan and Schaner pursuant to 11 U.S.C. § 523(a)(2), (a)(4), and (a)(6). On March 10, 1999, Sterling moved for summary judgment on its complaints in the bankruptcy court. In an Order entered June 30, 1999, the bankruptcy court denied Sterling's motion.

The bankruptcy court addressed the very issue raised by Sterling in the instant appeal: whether the doctrine of collateral estoppel applied to entitle Sterling to summary judgment on its dischargeability claims. See In re Whelan, 236 B.R. 495 (Bankr.N.D.Ga.1999) (Bihary, J.). Before addressing the merits of Sterling's summary judgment motion, however, the bankruptcy court found questions raised by the parties regarding the facts leading to the entry of default judgment by the DeKalb County Superior Court and thus held a hearing addressing those matters. Id. at 498. The bankruptcy court set forth the following facts.

Sterling filed its original complaint against Appellees Whelan and Schaner, along with other defendants, in the Superior Court of DeKalb County in January 1996 asserting five causes of action arising out of the financing of a construction project. Id. Whelan and Schaner filed an answer, and discovery commenced. In March 1997, Sterling amended its complaint to add two additional counts and moved to reopen discovery. Id. The state court granted Sterling's request for additional discovery on July 3, 1997, and on July 8, 1997, Sterling served defendants Whelan and Schaner with interrogatories and requests for production of documents. Id. Counsel for both parties thereafter apparently

245 BR 702
agreed to extend discovery for an additional 60 days, until October 30, 1997, and composed a consent order to that effect. Id. at 499. The copy of the consent order extending discovery submitted by the parties, however, was unsigned and undated. Id. at 499 n. 2

Despite the alleged agreement between the parties to extend discovery, counsel for Sterling submitted a letter to counsel for Whelan and Schaner on October 8, 1997 stating that Whelan's and Schaner's responses to discovery were "long overdue" and threatening to file a motion to strike their answers if such responses were not filed within three days. Id. at 499. On October 22, 1997, Sterling filed a motion with the state court requesting that the court strike the answers of Whelan and Schaner, or in the alternative that the court award sanctions and compel discovery responses. Id. In its brief accompanying its motion to strike, Sterling requested a hearing on the matter. Id. The court did not hold a hearing, however, but instead signed the order to strike and entered default on December 11, 1997. Id.

The bankruptcy court found the following facts relevant in explaining the failure of the state court to hold a hearing prior to entering default. The state court's law clerk submitted an affidavit explaining that counsel for Sterling contacted her sometime in November 1997 to ask whether its "request for oral argument" had been granted, and the law clerk ascertained from the docket that defendants Whelan and Schaner had not filed a written response to Sterling's motion to strike. Id. at 500. The court's law clerk called counsel for Whelan and Schaner to inquire about the lack of response, and when she received no return call, she contacted counsel for Sterling and requested a proposed order striking the answers of defendants Whelan and Schaner and granting default in favor of Sterling. Id. Such a proposed order was submitted, and the court signed the order on December 11, 1997.

Counsel for Whelan and Schaner submitted an affidavit to the bankruptcy court in which he explained that Whelan and Schaner had planned to respond to Sterling's motion to strike at the hearing which was expected to be scheduled. Id. As to the telephone message from the court's law clerk, counsel for Whelan and Schaner testified that a message was recorded on his answering machine on December 10, 1997 informing him that action would be taken the next day, but that he did not receive the message until after December 11, 1997 because he was out of the office. Id. Counsel filed a notice of appeal immediately, but the appeal was denied as interlocutory because the issue of damages remained outstanding in the Superior Court. Id.

On July 9, 1998, Sterling submitted an affidavit to the Superior Court claiming damages in the amount of $717,877.81 and attorneys' fees in the amount of $30,366.50. Id. On that same day, the court issued default judgment as to Counts IV, VI and VII of Sterling's amended complaint1 in favor of Sterling in the amount of $748,244.31. Id.

Counsel for Whelan and Schaner never received a copy of either the July 9, 1998 affidavit claiming damages or the July 9, 1998 order entering judgment against his clients. Id. Counsel claimed before the bankruptcy court that he made periodic reviews of the file in the Clerk's office for the DeKalb County Superior Court and eventually discovered the July 9, 1998 order in August 1998, after the time for appeal had expired. Id. Counsel for Whelan and Schaner filed petitions for bankruptcy

245 BR 703
on behalf of his clients on August 13, 1998 and August 17, 1998

Sterling appeals the bankruptcy court's denial of its motions for summary judgment, stating the issues on appeal as follows: (1) whether an individual found to have willfully failed to comply with a discovery process may relitigate issues adjudicated in default judgment entered by the Georgia Superior Court; (2) whether the bankruptcy court erroneously denied Sterling's motion for summary judgment on its claim of nondischargeability under 11 U.S.C. § 523.

II. Discussion

A. Motions to Dismiss

Appellees Whelan and Schaner move to dismiss Appellant Sterling's actions on the basis of an untimely filing. Rule 8002 of the Federal Rules of Bankruptcy Procedure provides the rules for filing a notice of appeal in a bankruptcy case. The rule requires that a notice of appeal shall be filed "within 10 days of the date of the entry of the judgment, order, or decree appealed from." Fed. R.Bankr.P. 8002(a). The ten-day rule is strictly construed; the district court has no jurisdiction over an untimely filed appeal. See In re Morrow, 564 F.2d 189, 190 (5th Cir.1977); Veltman v. Whetzal, 93 F.3d 517 (8th Cir.1996); In re Fellows, 19 F.3d 245 (5th Cir.1994); In re Revco D.S., Inc., 996 F.2d 1216 (6th Cir.1993).

Appellees assert that because the judgment of the bankruptcy court denying Sterling's motion for summary judgment was entered on June 30, 1999, Sterling had only ten days from that date in which to file a notice of appeal. The tenth day after June 30, 1999, July 10, 1999, fell on a Saturday. Appellees thus concede that Appellant had until Monday, July 12, 1999, to file its notice of appeal. See Fed. R.Bankr.P. 9006(a). The dispute between the parties lies with the issue of whether Appellant filed its notice of appeal on July 12, 1999 or whether the appeal was instead filed on July 13, 1999.

Whelan and Schaner assert that Sterling's notice of appeal was filed on July 13, 1999. They submit as proof of their contention a file-stamped copy of the notices of appeal filed by Sterling with the bankruptcy court which were both originally stamped "July 13, 1999" but over which there is handwriting changing "July 13" to "July 12." Whelan and Schaner also submit a copy of a receipt issued for the filing fees charged for Sterling's two appeals which is dated July 13, 1999. Finally, Whelan and Schaner submit that the certificates of service accompanying the notices were dated July 12, 1999, but that the metered postage on each envelope shows that the date of posting was July 13, 1999.

In response to Appellee's motion to dismiss, Appellant submits the affidavit of J. Bertram...

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