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Issues: Whether the bankruptcy court erred in failing to reconsider its default judgment.
Rules: Rule 60(b) applies since the bankruptcy court entered a judgment of default. Rule 60(b)(1) incorporates Rule 55's 'good cause' standard that applies to entries of default. The factors a court should consider are: "whether the default was willful, whether setting it aside would prejudice the adversary, and whether a meritorious defense is presented..., [and also] whether the public interest was implicated, whether there was significant financial loss to the defendant, and whether the defendant acted expeditiously to correct the default." All the factors need not be considered, they are just a means of identifying whether 'good cause' exists to reconsider the judgment of default. Moreover, because there is a general disfavor of default judgments, "'where there are no intervening equities any doubt should, as a general proposition, be resolved in favor of the movant to the end of securing a trial upon the merits." In determining willfulness, courts "must apply only the preponderance-of-the-evidence standard..."
Holding: Reversed and remanded.
Reasoning: After finding that the bankruptcy court had jurisdiction over Dr. Beitel, the Fifth Circuit found that the bankruptcy court used the wrong standard in denying Beitel's motion for reconsideration. Although the bankruptcy court used the correct standard of proof - clear and convincing evidence - that Beitel was served with the pleadings, the bankruptcy used the wrong standard in requiring clear and convincing evidence to rebut the presumption of willfulness. The bankruptcy court should have only required rebuttal by a preponderance of the evidence and the willfulness finding is set aside. The Fifth Circuit went on to examine the record and determined that the record was insufficient for an independent determination of whether Beitel's motion should have been granted. Thus, the matter is remanded.
Facts: Baron's Stores, Inc. ("Baron's") and Norman and Meryl Lanson (collectively, the "Lansons") moved to reopen the chapter 11 bankruptcy case to sue Marc Cooper, Esq. and his firm, Ronald C. Kopplow, Esq. and his firm, and Sonya Salkin and her firm (collectively, the "Attorneys") for perpetrating a fraud on the court in connection with Baron's bankruptcy, plan of reorganization (the "Plan") (confirmed in December 1999), and testimony before the bankruptcy court. The Lansons sued the Attorneys in state court for malpractice (the "Malpractice Claim"); in 2005, the case was reopened so that the Lansons could pursue the Malpractice Claim in the bankruptcy court. The bankruptcy court found that there was no fraud committed. The Lansons ask the court consider 'newly discovered evidence' that the Attorneys' committed fraud against the court in that they removed an exculpation clause (the "Clause") from the Plan at the last minute. Based on that fact, the Lansons also ask that the court rule that the Plan is void due Baron's lack of consent and deprivation of due process.
(1) A motion under Rule 60(b)(2) relief is an extraordinary request and a movant must meet a fivepart test: "(1) the evidence must be newly discovered since the trial; (2) due diligence on the part of the movant to discover the new evidence must be shown; (3) the evidence must not be merely cumulative or impeaching; (4) the evidence must be material; and (5) the evidence must be such that a new trial would probably produce a new result."
