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#2273 signed 9-26-96

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF KANSAS

In Re:

TONI LOUISE GODFREY,

DEBTOR(S)

NO. 95-40117-7

CHAPTER 7

JOSEPH I. WITTMAN, Trustee,

PLAINTIFF(S),

v.

TONI LOUISE GODFREY,

DEFENDANT(S)

ADV. NO. 96-7084

ORDER GRANTING MOTION TO FILE ANSWER OUT OF TIME

This proceeding is before the Court on the defendant-debtor's motion to file her answer to the trustee's complaint out of time, and the trustee's motion for default judgment. The debtor appears by counsel Lloyd R. Graham. The trustee appears pro se. The Court has reviewed the relevant pleadings and is now ready to rule.

On July 23, 1996, the trustee filed a complaint to revoke the debtor's discharge and for judgment in the amount of a tax refund which she failed to turn over to him. The summons was issued that day and was served by mail on July 29. The debtor concedes she received the summons during the first week of August. She asserts she hired an attorney who some unspecified time later determined he could not represent her due to a conflict of interest. On August 30, the trustee moved for default judgment. On September 20, the debtor filed her motion to file her answer out of time, along with her answer. The debtor states that she "has now made financial arrangements with present counsel to represent her," and her counsel alleges she has a meritorious defense to the complaint. The trustee objects to this motion, claiming the debtor had ample time to find counsel, and her asserted defense that the 1994 tax refund was not part of her bankruptcy estate is not meritorious.

Federal Rule of Bankruptcy Procedure 7012(a) specifies the time for filing an answer to a complaint, a deadline the debtor concedes she missed. Rule 9006(b)(1) provides that a motion made under the circumstances present here may be granted if the movant's failure to act was the result of "excusable neglect." In Pioneer Investment Services v. Brunswick Associates, 507 U.S. ___, 113 S.Ct. 1489, 123 L.Ed.2d 74 (1993), the Supreme Court considered the meaning of that phrase in Rule 9006(b)(1). Initially, the Court quoted an ordinary meaning of "neglect" from Webster's Ninth New Collegiate Dictionary 791 (1983): "'to leave undone or unattended to, esp[ecially] through carelessness.'" 123 L.Ed.2d at 85. Thus, the Court explained, "neglect" encompasses both faultless omissions to act and omissions caused by carelessness. 123 L.Ed.2d at 85. Certainly, situations where neglect is caused by an accident, ill health, incarceration, or an act of God will usually, if not always, be held to be excusable. This leaves the more difficult question of what omissions caused by carelessness are excusable. In these situations, the Supreme Court held that the determination is an equitable one, taking into account all relevant circumstances surrounding the omission. Relevant circumstances include "the danger of prejudice to the debtor, the length of the delay and its potential impact on judicial proceedings, the reason for the delay, including whether it was within the reasonable control of the movant, and whether the movant acted in good faith." 123 L.Ed.2d at 89-90. Here, the possible prejudice involved woud be prejudice to the plaintiff, the trustee. However, the neglect of both the movant and the movant's counsel must be excusable, because the client is accountable for the acts and omissions of chosen counsel. 123 L.Ed.2d at 90-91.

The trustee has not indicated how he would be prejudiced if the debtor is allowed to file her answer out of time. Loss of the benefits gained through the moving party's default cannot constitute prejudice under the excusable neglect standard, or else prejudice would always exist. Instead, the trustee would have to show, for example, that the debtor's delay somehow reduced his ability to pursue his claim against her, or that he somehow reasonably changed his position in reliance on her default. Furthermore, the Tenth Circuit has indicated that default judgments should be available only when the adversary process has been halted by "an essentially unresponsive party." Cessna Finance Corp. v. Bielenberg Masonry Contracting, Inc., 715 F.2d 1442, 1444 (1983). Many courts have indicated a great preference to have matters decided on the merits rather than by default, e.g., Gulley v. Orr, 905 F.2d 1383, 1386 (10th Cir. 1990), especially when large amounts of money are involved, Hutton v. Fisher, 359 F.2d 913, 916 (3d Cir. 1966). The debtor's delay here was about thirty days, not a particularly long time, and she indicates she was making efforts to respond to the suit. Had she known to do so, the debtor could probably have obtained that much of an extension for filing her answer. The facts that the attorney the debtor first chose belatedly realized he had a conflict of interest and that she had difficulty arranging to pay her present counsel should not count strongly against her. She did not choose simply to ignore the trustee's complaint. There is no indication she has not acted in good faith. In short, the Court must conclude the debtor's delay resulted from excusable neglect.

The Court believes the debtor is not required to allege a meritorious defense at this time because no default judgment had been entered before she sought permission to file her late answer. See In re Stone, 588 F.2d 1316, 1319 (10th Cir. 1978) (courts require such showing to set aside default judgment).

Consequently, the debtor's motion to file her answer out of time is hereby granted. The trustee's motion for default judgment is hereby denied. The Clerk is directed to schedule a pretrial conference for this proceeding as the state of the docket permits.

IT IS SO ORDERED.

Dated at Topeka, Kansas, this _____ day of September, 1996.













__________________________________

JAMES A. PUSATERI

CHIEF BANKRUPTCY JUDGE

 

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