FILED JUN 5 2020 NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT
UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT
In re: BAP No. EC-19-1201-GLB
NATIONS FIRST CAPITAL, LLC, Bk. No. 18-20668
Debtor.
NATIONS FIRST CAPITAL, LLC,
Appellant,
v. MEMORANDUM*
JEAN G. DECEMBRE, DBA Ale Transportation,
Appellee.
Argued and Submitted on May 21, 2020
Filed – June 5, 2020
Appeal from the United States Bankruptcy Court for the Eastern District of California
* This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential value. See 9th Cir. BAP Rule 8024-1. Honorable Christopher M. Klein, Bankruptcy Judge, Presiding
Appearances: Paul J. Pascuzzi of Felderstein Fitzgerald Willoughby Pascuzzi & Rios LLP argued for Appellants; Noel C. Crowley of Crowley & Crowley argued for Appellees
Before: GAN, LAFFERTY, and BRAND, Bankruptcy Judges.
INTRODUCTION
Reorganized chapter 111 debtor Nations First Capital, LLC (“NFC”)
appeals an order from the bankruptcy court denying its motion for
reconsideration of the court’s decision to vacate its prior order disallowing
the claim filed by Appellee Jean Decembre (“Decembre”). Decembre did
not respond to NFC’s claim objection and expressed his opposition for the
first time at the hearing on NFC’s motion for entry of a final decree. After
briefing and a subsequent hearing, the bankruptcy court continued the
hearing and requested briefing on the merits of the claim. The court
ultimately determined that cause existed to reconsider its prior order
1 Unless specified otherwise, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, all “Rule” references are to the Federal Rules of Bankruptcy Procedure, all “Civil Rule” references are to the Federal Rules of Civil Procedure, and all “Local Bankruptcy Rule” references are to the United States Bankruptcy Court Eastern District of California, Local Rules of Practice, effective April 2018.
2 pursuant to Civil Rule 60(b)(6)2, made applicable by Rule 9024, and entered
an order setting aside the disallowance of the claim. The court then
abstained from hearing the merits of the claim, which was pending in state
court.
NFC filed a motion for reconsideration, which the court denied. NFC
argues that the bankruptcy court abused its discretion by deciding that
cause existed to reconsider the claim disallowance under Civil Rule 60(b)(6)
and by determining that the claim was potentially meritorious under state
law.
The bankruptcy court abused its discretion by determining that cause
existed to reconsider the claim disallowance under Civil Rule 60(b)(6)
despite finding that Decembre lacked a cogent excuse for failing to respond
to the objection. Accordingly, we REVERSE.
FACTS
A. Prepetition Events
In 2016, Decembre agreed to lease a 2008 Freightliner semi-truck from
NFC for a term of 24 months. The lease provided Decembre with an option
to purchase the truck at the end of the term. In 2017, Decembre was unable
to make full payments as required by the lease and NFC repossessed the
2 As explained more fully in the discussion section of this memorandum, when reconsidering the allowance or disallowance of a claim under § 502(j), cause is defined under Civil Rule 59 or 60.
3 truck. In November 2017, NFC advised Decembre that it sold the truck and
he was liable for a deficiency balance of $22,991.49.
In January 2018, Decembre filed suit against NFC in the Superior
Court of New Jersey seeking damages, and injunctive and declaratory
relief. Decembre alleged that the lease violated the New Jersey Consumer
Fraud Act, the New Jersey Criminal Usury Act, the New Jersey Consumer
Protection Leasing Act, and the New Jersey “plain language” statute.
B. The Bankruptcy Case and the Claim Objection
In February 2018, NFC filed a chapter 11 petition. Decembre timely
filed an unsecured claim in the amount of $388,000 and attached the
verified complaint filed in the state court action. Decembre did not seek
stay relief or object to NFC’s chapter 11 plan. The court confirmed NFC’s
plan in August 2018.
NFC filed an objection to Decembre’s claim in November 2018. NFC
alleged that Decembre failed to provide a legal basis for his claim because
the statutes cited in the complaint did not apply to the lease under New
Jersey law, and Decembre provided no documentation to support the
amount of the claim. NFC supported the objection with a declaration and
exhibits, and filed a notice of hearing on its objection for January 9, 2019.
NFC filed a certificate of service which stated that Decembre, and
Decembre’s attorney Noel Crowley (“Crowley”), were separately served by
mail with the objection and the notice of hearing. NFC served Decembre’s
4 attorney at the address provided in the proof of claim.
NFC also filed a notice of errata for the exhibits attached to the
declaration in support of its objection and filed a second proof of service
stating that the notice of errata was served separately by mail on Decembre
and Crowley.
Decembre did not file a response to the objection and did not appear
at the hearing on January 9, 2019. At the hearing, the bankruptcy court
made findings of fact and conclusions of law on the record and entered an
order sustaining NFC’s objection without prejudice to reconsideration
under § 502(j).
C. Reconsideration of the Claim Disallowance
On March 20, 2019, the bankruptcy court held a hearing on
NFC’s motion for a final decree. Crowley appeared on behalf of Decembre
and requested that the court delay entry of the final decree in order to
reconsider the disallowance of Decembre’s claim. The bankruptcy court
continued the hearing to April 17, 2019 to allow Decembre time to file a
brief outlining its request for reconsideration. The court’s minute entry
stated that the deadline for Decembre to file a response was April 10, 2019.
On March 21, 2019, Decembre filed a Declaration of Noel C. Crowley
in Opposition to Motion by the Reorganized Debtor for the Entry of a Final
Decree. Crowley stated in the declaration that “to the best of my
knowledge and belief, my office did not receive notice” of the hearing on
5 the claim objection.
On April 12, 2019, Decembre filed a second “Declaration of Noel C.
Crowley in Support of Application To Restore The Claim of Jean G.
Decembre” (the “April Declaration”). Crowley stated in the April
Declaration that “I absolutely deny having seen the Debtor’s Objection to
Decembre’s claim” before March 21, 2019. The April Declaration also
includes argument that Decembre has a valid claim under New Jersey law.
NFC filed a reply and recounted that at the March 20, 2019 hearing,
the court continued the hearing on the motion for final decree to allow
Decembre to file a response. NFC argued that Decembre filed the April
Declaration after the deadline set by the court, and nothing in the April
Declaration warranted denial of the motion for final decree. NFC argued
that to the extent that the April Declaration was intended to serve as a de
facto motion for reconsideration, it should also fail because Decembre did
not rebut the presumption of receipt of the objection and notice of hearing
by both Decembre and Crowley. NFC argued that Decembre failed to
establish cause for reconsideration because merely asserting or implying
that counsel did not receive notice, without any assertion that Decembre
did not receive notice, did not rise to the level of excusable neglect under
Civil Rule 60(b)(1). NFC did not address the merits of the claim in its reply.
At the continued hearing on April 17, 2019, the bankruptcy court
heard arguments regarding whether Decembre was properly served with
6 the objection and whether there was evidence to support mistake,
inadvertence, or excusable neglect under Civil Rule 60(b). But, because
NFC had not addressed the underlying merits of the Decembre claim, the
bankruptcy court again continued the hearing to June 5, 2019 and
requested that NFC address the merits.
NFC filed a brief regarding the merits of Decembre’s claim and
argued that although Decembre had not established cause to relitigate the
merits, all of his claims for relief were contingent on whether the lease was
a “true lease” under state law, or a disguised purchase financing
transaction. NFC argued that the lease was a “fair market value
commercial lease” and therefore exempt under the New Jersey statutes
because the lease term was not for the useful life of the truck, Decembre
was not obligated to purchase the truck at the end of the lease term, and
the option price was defined in the lease as the fair market value of the
equipment. NFC also argued that Decembre had not justified the $388,000
amount of the claim, and the deficiency owed by Decembre would exceed
the maximum amount of damages Decembre could recover under the
statutes. NFC filed a declaration from its portfolio manager which
provided evidence in support of NFC’s argument that the lease was a fair
market value commercial lease.
Decembre replied and argued that the relevant New Jersey consumer
protection statutes applied to products and equipment sold or leased for
7 business purposes, and that leases are included in the statutes unless they
fall within the stated exemptions. Decembre argued that the lease was not
exempt as a “fair market value commercial lease” because New Jersey case
law required the lease to either state the option price or the method for
ascertaining the option price, but NFC reserved the right to determine the
option price without any mention in the lease of the method to be used.
D. The Hearing and the Court’s Order
At the continued hearing, the bankruptcy court stated that based on
its analysis of relevant state law, it appeared that Decembre may have a
meritorious case, but the question was how to best resolve the claim and in
which forum. The bankruptcy court noted that if the lease was exempt
from the statutes as a matter of law, the state court could make that
determination and dismiss the case. The court then took the matter under
advisement.
On June 13, 2019, the bankruptcy court entered an order granting
reconsideration of the claim and abstaining under 28 U.S.C. § 1334(c)(1).
The court held that reconsideration was appropriate to allow the issues to
be decided on the merits, and that the state court was better suited to
decide the claims and defenses which were mixed questions of state law
and fact.
The bankruptcy court stated that a motion for reconsideration under
§ 502(j) is evaluated under the same criteria as a motion under Civil Rule
8 60(b), and that the strong federal policy favoring determination of disputes
on their merits and Decembre’s potential meritorious defense to the
objection, were sufficient to satisfy Civil Rule 60(b)(6), “notwithstanding
the lack of a cogent excuse for not having responded to the Objection in the
first place.” Order, June 13, 2019, 4:10-11.
E. NFC’s Motion to Reconsider
NFC filed a motion for reconsideration and argued that the court
committed clear error by finding cause under Civil Rule 60(b)(6) after
acknowledging that the standard under Civil Rule 60(b)(1) was not met.
Additionally, NFC argued that the court erred by looking to the merits of
the underlying claim as part of its analysis in determining cause for
reconsideration, contrary to the holding of United Student Funds, Inc. v.
Wylie (In re Wylie), 349 B.R. 204 (9th Cir. BAP 2006). Finally, NFC argued
that the court erred by determining that factual issues precluded a ruling
that the Decembre claim fails as a matter of law.
Decembre opposed the motion and argued that the bankruptcy court
appropriately looked to Civil Rule 60(b)(6). Decembre argued that the court
was not required to analyze excusable neglect because Crowley was not to
blame for failing to read a document that was not available to be read.
Decembre suggested that cause to reconsider might also be found in Civil
Rule 60(b)(3) for fraud based on the language in the lease. He attempted to
distinguish Wylie on the basis that the creditor in that case admitted that it
9 received the objection but failed to respond, whereas Crowley testified he
did not see the objection. Finally, he reiterated that the claims were
meritorious.
At the hearing on the motion for reconsideration, the bankruptcy
court stated that the purpose of reconsideration under § 502(j) and Civil
Rule 60(b) is to allow the court discretion to take another look at summary
decisions which may have been made without appropriate conversation.
The court acknowledged that the catch-all provision in Civil Rule 60(b)(6)
has limitations but that the court had discretion to reconsider where
questions of state law and interests of comity were present. The court
denied the motion and entered an order on July 31, 2019. NFC timely
appealed.3
JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and
157(b)(2)(B). We have jurisdiction under 28 U.S.C. § 158.
ISSUES
Did the bankruptcy court abuse its discretion by vacating its prior
order disallowing Decembre’s claim?
3 The notice of appeal refers only to the order denying NFC’s motion for reconsideration, but an appeal of an order denying a motion for reconsideration is sufficient to bring up the merits of both the underlying order and the motion for reconsideration if the reconsideration motion was filed within fourteen days of the entry of the underlying order. See Watson v. Shandell (In re Watson), 192 B.R. 739, 742 n.3 (9th Cir. BAP 1996), aff'd, 116 F.3d 488 (9th Cir. 1997).
10 Did the bankruptcy court abuse its discretion by denying NFC’s
motion for reconsideration?
STANDARD OF REVIEW
We review the bankruptcy court’s decision to reconsider the
disallowance of Decembre’s claim under § 502(j) for abuse of discretion.
Ashford v. Consol. Pioneer Mortg. (In re Consol. Pioneer Mortg.), 178 B.R. 222,
225 (9th Cir. BAP 1995). We also review for an abuse of discretion the
bankruptcy court’s ruling on NFC’s motion for reconsideration. Dicker v.
Dye (In re Edelman), 237 B.R. 146, 150 (9th Cir. BAP 1999).
A bankruptcy court abuses its discretion if it applies the wrong legal
standard, or misapplies the correct legal standard, or if it makes factual
findings that are illogical, implausible, or without support in inferences
that may be drawn from the facts in the record. See TrafficSchool.com, Inc. v.
Edriver Inc., 653 F.3d 820, 832 (9th Cir. 2011) (citing United States v. Hinkson,
585 F.3d 1247, 1262 (9th Cir. 2009) (en banc)).
DISCUSSION
NFC argues that the bankruptcy court abused its discretion by:
(1) finding cause to reconsider under Civil Rule 60(b)(6) despite factual
circumstances which invoked, but did not satisfy, Civil Rule 60(b)(1); and
(2) deciding that it could not definitively determine that the lease was
exempt from the state statutes cited in Decembre’s complaint.
Section 502(j) allows a bankruptcy court to reconsider an order
11 disallowing a claim for cause, and allow or disallow the reconsidered claim
according to the equities of the case. This section is implemented by
Rule 3008, which states “[a] party in interest may move for reconsideration
of an order allowing or disallowing a claim against the estate. The court
after a hearing on notice shall enter an appropriate order.” However,
neither § 502(j) nor Rule 3008 define the standard for “cause.”
We have held that when a request to reconsider a claim disallowance
is made within the time to appeal the order, “cause” to reconsider is
governed by Rule 9023. Wall St. Plaza, LLC v. JSJF Corp. (In re JSJF Corp.),
344 B.R. 94, 103 (9th Cir. BAP 2006), aff’d, 277 F. App’x 718 (9th Cir. 2008).
When, as here, the request is made after the time to appeal has expired, it is
subject to the constraints of Rule 9024. In re Wylie, 349 B.R. at 209; S.G.
Wilson Co. v. Cleanmaster Indus., Inc. (In re Cleanmaster Indus. Inc), 106 B.R.
628, 630 (9th Cir. BAP 1989); see also Blixseth v. Glasser (In re Yellowstone
Mountain Club, LLC), 593 F. App’x 643 (9th Cir. 2015) (“Bankruptcy Rule
9024 says that Federal Rule of Civil Procedure 60 applies to bankruptcy
proceedings. Rule 9024 makes no exception for motions made under 11
U.S.C. § 502(j) to reconsider contested orders allowing claims against the
estate.”). Therefore, the applicable standards for cause to reconsider
Decembre’s claim under § 502(j) are the grounds for relief enumerated in
Civil Rule 60(b).
Rule 3008 and § 502(j) essentially provide for a two-step analysis.
12 First the bankruptcy court must determine if cause exists to reconsider the
claim, and second, the court may enter an appropriate order based on the
equities of the case. “While Rule 3008 permits an order disallowing a claim
to be reconsidered, the merits of the claim objection are no longer fair game
unless the claimant first establishes a good excuse, cognizable under [Civil
Rule] 60(b), for its failure to timely contest the objection.” In re Wylie, 349
B.R. at 210.
Here, Decembre raised the issue of reconsideration approximately 60
days after the order on the claim objection and the bankruptcy court
properly evaluated cause under Civil Rule 60(b). 4 Under Civil Rule 60(b),
the bankruptcy court can relieve a party from a final order for the
following reasons:
(1) mistake, inadvertence, surprise, or excusable neglect;
(2) newly discovered evidence that, with reasonable diligence, could not have been discovered in time to
4 NFC argues that Decembre failed to file or notice a motion as contemplated by Rule 3008. However, the bankruptcy court has authority to act on its own motion to reconsider claims. See Simpson v. Deutsche Bank Nat’l Tr. Co. (In re Simpson), No. CC-12- 1445, 2013 WL 2350967 at *5 (9th Cir. BAP May 29, 2013) (citing Kirwan v. Vanderwerf (In re Kirwan), 164 F.3d 1175, 1177 (8th Cir. 1999)). A bankruptcy court acting sua sponte must still find cause under § 502(j). To preserve the finality of orders allowing or disallowing claims, the court must find cause under either Rule 9023 or Rule 9024 whether a party in interest files a motion or the court moves sua sponte. See e.g., In re Kirwan, 164 F.3d at 1177; Kraemer v. FS P’ship (In re Doorman Prop. Maint.), No. NC-17- 1233-TaFB, 2018 WL 3041128 (9th Cir. BAP June 19, 2018); In re Wylie, 349 B.R. at 210.
13 move for a new trial under Rule 59(b);
(3) fraud (whether previously called intrinsic or extrinsic), misrepresentation, or misconduct by an opposing party;
(4) the judgment is void;
(5) the judgment has been satisfied, released, or discharged; it is based on an earlier judgment that has been reversed or vacated; or applying it prospectively is no longer equitable; or
(6) any other reason that justifies relief.
A. Decembre Did Not Establish Excusable Neglect
Decembre’s reason for failing to respond to the objection is that
Crowley did not see the objection or notice of hearing. NFC filed its
certificate of service which stated, under penalty of perjury, that the
objection, notice of hearing, and exhibits were served by first class mail on
Decembre, and on Crowley at the address listed on the proof of claim. The
record does not indicate that the documents were returned as
undeliverable or unclaimed.
Mail that is properly stamped, addressed, and deposited is presumed
to be received by the addressee. Moody v. Bucknum (In re Bucknum), 951
F.2d 204, 207 (9th Cir. 1991). The movant can rebut this presumption with
clear and convincing evidence. Id. But, the movant must provide something
14 more than a declaration alleging non-receipt. Herndon v. De la Cruz (In re De
la Cruz), 176 B.R. 19, 22 (9th Cir. BAP 1994).
Decembre does not dispute that NFC mailed the notice. He also does
not dispute that he personally, or Crowley’s office, received the objection
and notice of hearing. He only states that Crowley did not see the
documents. This is insufficient to rebut the presumption that Decembre
and his attorney received notice.
The bankruptcy court heard arguments regarding whether there was
evidence in support of mistake, inadvertence, or excusable neglect and
determined that Decembre lacked a cogent excuse for failing to respond.
The record supports this finding and we discern no error here.
B. The Bankruptcy Court Abused Its Discretion By Finding Cause to Reconsider Under Civil Rule 60(b)(6)
Notwithstanding Decembre’s lack of a cogent excuse, the bankruptcy
court determined that it had discretion to set aside the disallowance under
Civil Rule 60(b)(6) based on the policy of deciding cases on their merits,
and the potential meritorious defense argued by Decembre.
Civil Rule 60(b)(6) should be applied “sparingly as an equitable
remedy to prevent manifest injustice . . . [and] only where extraordinary
circumstances prevented a party from taking timely action to prevent or
correct an erroneous judgment.” United States v. Alpine Land & Reservoir Co.,
984 F.2d 1047, 1049 (9th Cir. 1993). A party seeking relief under Civil Rule
15 60(b)(6) must show extraordinary circumstances that demonstrate it is
faultless in the delay. Pioneer Inv. Servs. Co. v. Brunswick Assocs. Lts. P’ship,
507 U.S. 380, 393 (1993).
Clauses (1) through (6) of Civil Rule 60 are mutually exclusive.
Liljeberg v. Health Servs. Acquisition Corp., 486 U.S. 847, 864 n.11 (1988).
Therefore, Civil Rule 60(b)(6) applies “only when the reason for granting
relief is not covered by any of the other reasons set forth in [Civil] Rule 60."
Delay v. Gordon, 475 F.3d 1039, 1044 (9th Cir. 2007).
Neither the policy of adjudicating cases on their merits, nor
Decembre’s potential meritorious claim are sufficient to constitute
extraordinary circumstances under Civil Rule 60(b)(6) where Decembre has
not demonstrated that he was faultless in the delay.
In the context of a motion for relief from a default order, the Ninth
Circuit has instructed courts to consider: (1) whether the non-movant will
be prejudiced; (2) whether the movant has a meritorious defense; and
(3) whether culpable conduct of the movant led to the default. Cassidy v.
Tenorio, 856 F.2d 1412, 1415 (9th Cir. 1988). “This tripartite test is
disjunctive.” Id. A movant’s failure to demonstrate any one of the factors is
justification to deny relief under Civil Rule 60(b). Id.
Although the “policy favoring deciding cases on the merits means
that ‘the finality interest should give way fairly readily’ to the merits,” the
movant must first show that his conduct was not culpable in prompting the
16 default. Morris v. Peralta (In re Peralta), 317 B.R. 381, 388 (9th Cir. BAP 2004)
(quoting TCI Group Life Ins. Plan v. Knoebber, 244 F.3d 691, 696 (9th Cir.
2001), overruled on other grounds by Egelhoff v. Egelhoff, 532 U.S. 141 (2001));
See Cassidy, 856 F.2d at 1415. A defendant’s “culpability” is construed to be
consistent with the Supreme Court’s definition of “excusable neglect.” TCI,
244 F.3d at 696.
Decembre has not shown extraordinary circumstances that
demonstrate he was faultless in the delay. The strong federal policy of
deciding cases on the merits does not override the interest in finality unless
the reason for failing to respond is excusable or not otherwise chargeable to
the movant. The bankruptcy court determined that Decembre lacked a
viable excuse for not responding.
Furthermore, disallowance of a claim under § 502(b)(1) necessarily
requires the court to evaluate the merits of the claim. Once filed, a proof of
claim is entitled to prima facie validity. Rule 3001(f). The filing of a claim
objection initiates a contested matter under Rule 9014 which must be
resolved after notice and opportunity for hearing. Lundell v. Anchor Const.
Specialists, Inc., 223 F.3d 1035, 1039 (9th Cir. 2000). To defeat a claim, the
objector “must come forward with sufficient evidence and ‘show facts
tending to defeat the claim by probative force equal to that of the
allegations of the proof of claim themselves.’” Id. (quoting Wright v. Holm
(In re Holm), 931 F.2d 620, 623 (9th Cir. 1991)).
17 A mere formal objection without evidence is not sufficient to
overcome a proof of claim. In re Holm, 931 F.2d at 623; see also Local
Bankruptcy Rule 3007-1 (“the objection shall be accompanied by evidence
establishing its factual allegations and demonstrating that the proof of
claim should be disallowed. A mere assertion that the proof of claim is not
valid or that the debt is not owed is not sufficient to overcome the
presumptive validity of the proof of claim.”). If the objecting party fails to
present sufficient evidence to rebut the presumption of validity, “the
claims litigation ends there; the claim should be allowed without the
claimant bearing any further burden to demonstrate the validity of its
claim.” Bayview Loan Servicing, LLC v. Donnan (In re Donnan) No. EC-18-
1106-BSL, 2019 WL 1922843, *3 (9th Cir. BAP Apr. 29, 2019).
Pursuant to § 502(b)(1), the bankruptcy court must evaluate the
substance of the claim to determine whether the evidence shows that it is
valid under state law. See Durkin v. Benedor Corp. (In re G.I. Indus., Inc.), 204
F.3d 1276, 1281 (9th Cir. 2000). The bankruptcy court could not have
sustained the objection merely because Decembre failed to respond. It was
required to evaluate the evidence submitted by NFC in support of the
objection and allow or disallow the claim based on the substance of the
claim. This is necessarily a determination on the merits. See Semtek Int’l Inc.
v. Lockheed Martin Corp., 531 U.S. 497, 501-02 (2001) (“an ‘on the merits’
adjudication is one that actually ‘pass[es] directly on the substance of [a
18 particular] claim’ before the court.”) (alterations in original) (citations
omitted). Therefore, the bankruptcy court decided the claim on the merits
at the initial disallowance. While reconsideration is possible, cause to do so
does not include a desire to relitigate the merits.
Similarly, whether Decembre had a potential meritorious defense is
not an extraordinary circumstance sufficient to warrant relief under Civil
Rule 60(b)(6) unless Decembre’s failure to respond to the objection was
excusable. While the lack of a meritorious defense can alone justify denial
of a Civil Rule 60(b) motion, a meritorious case is not sufficient to justify
granting relief unless the movant also demonstrates a lack of culpable
conduct. See TCI, 244 F.3d at 697; In re Wylie, 349 B.R. at 210.
The bankruptcy court cited Cmty. Dental Servs. v. Tani, 282 F.3d 1164,
1172 (9th Cir. 2002) for the proposition that “[Civil] Rule 60(b)(6) may often
constitute the only mechanism for affording . . . the opportunity to present
[a] case on the merits.” Order, June 13, 2019, 4:4-6. Tani involved
“extraordinary circumstances” under Civil Rule 60(b)(6) based on the gross
negligence of the party’s counsel. Id. The Ninth Circuit drew a line between
“gross negligence—which is not chargeable to the client—and ‘ordinary’
negligence or neglect—which is.” Id. at 1170. The Circuit held that errors
made due to the “mere neglect” of a party or its counsel are encompassed
within Civil Rule 60(b)(1) whereas Civil Rule 60(b)(6) encompasses “errors
or actions beyond the petitioner's control.” Id. at 1170, n. 11. There is
19 nothing in the record to indicate that Crowley’s failure to see the objection
and file a response was “gross negligence” or otherwise beyond his control.
Decembre suggests that we can alternatively affirm the bankruptcy
court's finding of cause under Civil Rule 60(b)(3) because of "incoherent"
language in the lease. However, to prevail under Civil Rule 60(b)(3) the
movant “must establish that a judgment was obtained by fraud,
misrepresentation, or misconduct, and that the conduct complained of
prevented the moving party from fully and fairly presenting the case.” In re
M/V Peacock, 809 F.2d 1403, 1404-05 (9th Cir. 1987). Any alleged fraud or
misrepresentation in the lease itself cannot support cause under Civil Rule
60(b)(3).
Decembre’s proffered excuse for failing to respond to the objection is
properly analyzed under Civil Rule 60(b)(1). Decembre failed to
demonstrate excusable neglect under Civil Rule 60(b)(1) and the
bankruptcy court abused its discretion by finding cause to reconsider the
claim disallowance under Civil Rule 60(b)(6).
CONCLUSION
For the reasons set forth above, we REVERSE the bankruptcy court's
order granting reconsideration of the Decembre claim disallowance.