United States District Court, W.D. Missouri, Central Division
NANETTE K. LAUGHREY, District Judge.
Kraus-Anderson Capital, Inc. appeals the Bankruptcy Court's decision denying a continuance of the hearing of its adversary proceeding and dismissing the case, and subsequent denial of its motion to alter or amend. This Court affirms.
I. Statement of Facts
John Bosco Donohue and Sheila Ann Donohue filed for bankruptcy in August 2012. In November 2012, Kraus-Anderson filed an adversary proceeding against the Donohues, claiming it had a security interest in some equipment leased to the Donohues' corporation; that the Donohues sold the equipment without notifying Kraus-Anderson and retained the proceeds; and that the Donohues' debts to Kraus-Anderson were not dischargeable due to the Donohues' fraudulent conduct or false representations in connection with the sale of the equipment and retention of the proceeds. Kraus-Anderson was represented in the adversary proceeding by Joseph Wentzell, a Minnesota attorney admitted to practice pro hac vice by the bankruptcy court, and by Jill Olsen, a Missouri attorney appearing as local counsel.
When the adversary proceeding was first filed, the bankruptcy court issued an initial pretrial order, setting a trial date of February 23, 2013. The trial was continued. After a number of pretrial hearings and status conferences, trial was set for February 3, 2014. In December 2013, the parties finished briefing a summary judgment motion filed by Ms. Donohue and, in view of the upcoming pretrial conference of January 21, 2014, the bankruptcy court expedited its ruling on the motion, issuing a 16-page opinion on January 3, 2014. [Doc. 69, p. 10.] At the pretrial conference, Kraus-Anderson's counsel, Joseph Wentzell, requested a continuance, citing health issues of an employee in his office. The request was granted and trial was set for March 3, 2014, subject to the witness availability. Because the March date did not work for the Donohues, the trial was continued to April 28, 2014.
At the pretrial conference of April 21, 2014, Kraus-Anderson, through Mr. Wentzell, requested a continuance of the April 28 trial setting because Kraus-Anderson's chief witness was very ill. The bankruptcy court granted the motion and continued the trial to June 18, 2014. The bankruptcy court subsequently developed a scheduling conflict. The court's assistant sent an email to counsel, including Mr. Wentzell, with a new potential trial date, September 10-11, 2014. Mr. Wentzell confirmed by reply email that September 10 and 11, 2014 would work for him and his client. The bankruptcy court issued an order on June 2, 2014, setting the trial for September 10-11, 2014. The order was mailed to Mr. Wentzell, because he was not participating in electronic filing. Ms. Olsen was participating in electronic filing, and electronic notice of the order was sent to both Ms. Olsen and her assistant.
On September 9, 2014, Mr. Donohue filed notice of the service of a subpoena on Belinda Belcher, along with payment of fees. The subpoena, filed electronically, commanded Ms. Belcher to appear to testify at trial on September 10, 2104. [Doc. 48.]
On September 10, 2014, Mr. Donohue and his counsel, Bruce Strauss and James Baker, along with witnesses, appeared, ready for trial. No corporate representative of Kraus-Anderson appeared, nor did Mr. Wentzell, Ms. Olsen, or any witnesses. The bankruptcy court's assistant reached local counsel, Ms. Olsen, by phone. Ms. Olsen was preparing to board a plane for an out-of-state trip. The bankruptcy court noted that it had not excused Ms. Olsen from appearing at the trial. The court then phoned Mr. Wentzell, and made a record concerning the failure of anyone to appear for Kraus-Anderson. Mr. Wentzell made an oral motion for continuance. He expressed surprise; apologized to the court; noted that the trial had been continued a number of times; stated that the September 2014 trial setting had been mis-calendared by his office as September 18 and 19; explained that he had had a great deal of staff turnover in his office; offered to pay Mr. Donohue's counsel's fees and costs; and stated that the merit of the case, in contrast with the costs associated with preparing for a trial with few witnesses and that would not proceed, weighed in favor of continuing the trial so that the case could be decided on the merits. Mr. Donohue's attorney objected to the continuance, stating that Mr. Donohue had had to live with the bankruptcy proceeding for years already, a substantial amount of time had been spent preparing for the trial, and the setting of September 10 and 11 was clear and known to everyone.
The bankruptcy court orally denied Mr. Wentzell's motion. The court stated that the trial setting date was known to all counsel and that Mr. Wentzell, Ms. Olsen, and Ms. Olsen's assistant had received notice. The court noted that the trial subpoena had been filed the day before. Further, the September setting was not the first trial setting and the case had dragged on for two years, with multiple trial settings. The court did not believe that Mr. Wentzell's offer to pay costs "was sufficient to compensate the debtor and his counsel for the delay, even though this [was] an innocent mistake." [Doc. 68, p. 12.] The court, "with reluctance, " denied the motion to continue and stated that it would enter judgment in Mr. Donohue's favor. [ Id. ] A brief order and judgment in Mr. Donohue's favor were entered on September 17, 2014.
On September 30, 2014, Kraus-Anderson filed a motion under Fed. R. Civ. Pro. 59(e) to alter or amend, along with the affidavit of Mr. Wentzell. Mr. Donohue filed objections. The bankruptcy court heard argument on October 21, 2014. Mr. Wentzell argued that the case should be decided on the merits, and pointed out that the parties had worked cooperatively to prepare for trial. Ms. Olsen added that she was "aware of the trial date, " but her "presence [at trial] was not expected by the client... or Mr. Wentzell. So, even if [she] had been present and not been out of town, [she] wouldn't have been prepared to try the case." [Doc. 69, p. 5.] Ms. Olsen added that she and Mr. Wentzell did not intentionally fail to appear for trial or fail to prosecute the case, "[i]t simply was a matter of crossed signals, including his [Mr. Wentzell's] miscalendaring." [ Id. ]
The court announced that it would deny the motion to alter or amend. Bases for denial included that the September 10-11, 2014 trial setting was the fifth setting and continuances had already been granted at Mr. Wentzell's request; Mr. Wentzell and Ms. Olsen both had notice of the trial setting; Ms. Olsen, local counsel, had not been excused by the court from attending the trial; there was prejudice to the debtor from cost and expense of preparing for the trial; after almost two years of litigation, the debtor deserved to have determined whether he would obtain a fresh start from the debt; and the equities weighed in favor of the debtor who had appeared and was ready for trial. The court explicitly reviewed the obligations of local counsel who moves for admission of another to appear pro hac vice, including the requirement that local counsel "participate in the preparation and presentation of [the case] and [to] accept service of all papers served." [ Id., p. 8.] The court also recited the procedural history of the case, including that the court had expedited its ruling on the motion for summary judgment filed by Ms. Donohue, in view of the then-rapidly approaching trial setting. The limited purpose of Rule 59(e), the court stated, is to correct manifest errors of law or fact, or to present newly discovered evidence, and Kraus-Anderson did not meet that burden.
The bankruptcy court further stated that the motion could be construed as one under Rule 60(b), to set aside default judgment, and proceeded to examine whether relief was appropriate under that standard. Rule 60(b) permits a court to relieve a party from a final judgment on the basis of mistake, inadvertence, surprise or excusable neglect. But, the court stated, excusable neglect under the rule does not include ignorance or carelessness on the part of an attorney. Further, the court stated, relief under the rule is an extraordinary remedy, granted only in exceptional circumstances. The court proceeded to examine four factors to determine whether relief under the rule was appropriate: danger of prejudice to the debtor; length of delay and potential impact on judicial proceedings; reason for the delay, including whether it was in the reasonable control of the movant; and whether the movant acted in good faith. The court noted that although Mr. Donohue argued for application of a "compelling reasons" standard, even under the lesser "excusable neglect" standard argued by Kraus-Anderson, the motion would still be denied. [ Id., p. 14.]
The court concluded Mr. Wentzell's reason - that his office assistant made a mistake - was not grounds to establish excusable neglect. Mr. Wentzell is the attorney and ethically charged with and responsible for his client's matters. Further, Mr. Wentzell in fact had actual knowledge of the date of the trial, because he exchanged emails about it with the court's courtroom deputy. Local counsel also had actual knowledge. The court also found "disingenuous" Mr. Wentzell's affidavit, in which he stated that after the pretrial conference of April 22, 2014, "an order came out thereafter changing the continued trial date from June 18 to September 10th." [ Id., p. 15.] The court stated that Mr. Wentzell's "statement deliberately omits Mr. Wentzell's agreement to change the date to accommodate the Court's change in schedule." [ Id. ]
The bankruptcy court found Mr. Donohue prejudiced, having prepared for trial with his counsel, issued a trial subpoena, and having faced the uncertainty of the proceeding and impact on his fresh start for two years. With respect to delay, the court further noted that Kraus-Anderson filed its adversary proceeding on the last possible day, and its post-trial motion on the last ...