UNITED
STATES BANKRUPTCY COURT
EASTERN
DISTRICT OF KENTUCKY
LEXINGTON DIVISION
IN RE:
JOHN C. LAWRENCE
MARITA
LAWRENCE
CASE
NO. 99-51524
DEBTORS
STEPHEN
PALMER, TRUSTEE
PLAINTIFF
VS: ADV. NO. 99-5107
MARK SNEDEGAR, WILMA SNEDEGAR
AND
CARMEN JOHNSON
DEFENDANTS
MEMORANDUM OPINION AND ORDER
This matter is before the court upon the Motion of the
defendants, Carmen Johnson, Wilma Snedegar and Mark Snedegar, to Set Aside the Default
Judgment entered in this action on November 10, 1999 as to those defendants. For the reasons set forth herein, the court
believes that the motion is well taken and will, by the within order, be sustained.
This action began by the filing of a Complaint on September 21,
1999 in which the plaintiff-trustee alleged that the defendants had defaulted upon an
agreement to purchase a business from the debtors, John and Maria Lawrence, and sought
various forms of relief thereunder. After
service of process, the defendants contacted attorney, Delores Woods Baker, with respect
to the adversary proceeding. Apparently Baker
was in touch with Jonathan Gay, attorney for the plaintiff, in the action and participated
in settlement negotiations.
In support of the Motion to Set Aside the Default Judgment, there
are attached thereto the affidavits of Mark Snedegar and Carmen Johnson, who apparently is
the same person as Carmen Hammonds. Those
affidavits indicate that they had contacted attorney Baker and were told that there
interests would be protected in the action. Plaintiff
does not denied that negotiations were ongoing after the filing of the complaint between
the plaintiffs attorney and Baker. The
affidavits attached to the Motion to Set Aside the Default Judgment allege that
misrepresentations were made by the debtors in selling the business to the defendants and
that the defendants had to pay indebtednesses of the debtors after taking over the
operation of the business. The original
attorney representing the defendants, Baker, no longer represents them. They have retained new counsel who has made the
Motion to Set Aside the Default Judgment.
Under governing case precedent, three factors control whether the
court should set aside a default judgment pursuant to Federal Rule of Bankruptcy Procedure
7055(c) and Federal Rule of Civil Procedure 60(b) as adopted in FRBP 9024. The movants in this case contend that the failure
to file an answer was the result of excusable neglect as set forth in Federal Rule of
Civil Procedure 60(b)(1). The governing
factors are 1) whether plaintiff will be prejudiced by sustaining the motion; 2) whether
defendants have a meritorious defense; and 3) whether culpable conduct of the defendants
lead to the default. United Coin Meter
Company, Inc. v. Seaboard Coastline Railroad, 705 F.2d 839 (6th Cir. 1983).
Applying the standards to the present case, it does not appear
that the plaintiff will be prejudiced by sustaining the motion. Although plaintiff contends that defendants have
disposed of some of the assets which they purchased, there is no evidence before the court
at this time that delay in entry of judgment would mean any less recovery by the plaintiff
if he is successful in this action.
Secondly, the facts set forth in the affidavits of Johnson and
Snedegar, if proven, would constitute meritorious defenses to the plaintiffs
Complaint in this matter.
The third requirement, that of absence of culpable conduct of the
defendants which lead to the default, is also met in this case. It is reasonable to believe that the allegations
in the affidavits of Johnson and Snedegar are correct, that is that they relied upon
attorney Baker to defend them. It is clear,
and plaintiff has not denied, that substantial settlement negotiations were had after the
filing of the Complaint and prior to the motion for the default judgment. Any culpability in failing to properly join the
issues in this matter appears to be that of the attorney as opposed to the defendants
themselves who took what seems reasonable action to defend themselves in a timely manner. The fact that the attorney failed to join the
issues timely should not keep them from asserting meritorious defenses in this action.
For the foregoing reasons, it is hereby ORDERED:
1)
That the Motion of the defendants herein to
Set Aside the Judgment by Default entered in this court on November 10, 1999 be, and it
hereby is, SUSTAINED, and said judgment is hereby set aside and held for naught; and
2) Defendants
shall have ten (10) days from the within order within which to answer or otherwise plead
to the plaintiffs Complaint herein.
Dated this day of April, 2000.
BY THE COURT
JUDGE
COPIES TO:
Andrew M. Stephens, Esq.
Beth A. Bowell, Esq.