UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
JOHN C. LAWRENCE
MARITA LAWRENCE CASE NO. 99-51524
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 The original attorney representing the defendants, Baker, no longer represents them.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
Andrew M. Stephens, Esq.
Beth A. Bowell, Esq.