Allowing relief under Rule 60(b)(6) requires a “diligent,

conscientious client.” Neither defendant met that test. Indeed, their argument can best be
described as a desperate hindsight effort to shift their responsibility to their lawyer; it verges on
the frivolous+++++++++++++++++++++++++++++

Home>9th Circuit Case Updates> Claimant May Not Argue Merits of Underlying Claim
Objection After 10-Day Period for Appeal Has Expired >
September 25, 2006 | Posted By Sheppard Mullin
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Claimant May Not Argue Merits of Underlying Claim Objection After 10-Day
Period for Appeal Has Expired
On August 14, 2006, the Ninth Circuit Court of Appeals, Bankruptcy Appellate Panel, held in
United Student Funds, Inc. v. Wylie (In re Wylie), 2006 Bankr. Lexis 2088 (9th Cir. BAP 2006),
that a claimant filing a motion to reconsider an order sustaining a claim objection, after the 10-
day period for appeal, was not entitled to revisit the merits of its claim. Instead, the claimant was
limited to the narrow grounds enumerated in FRCP 60(b), which generally require a showing
that events subsequent to the entry of the judgment make its enforcement unfair or inappropriate,
or that the party was deprived of a fair opportunity to appear and be heard in connection with the
underlying dispute.

On May 20, 2005, claimant United Student Funds, Inc. ("USF") had filed a proof of claim in the
amount of $8,617.66, based on a student loan that debtor Heather Wylie received while attending
college (the "Claim"). The Debtors objected to the Claim, contending that the amount due was
$860.48 rather than $8,617.66 (the "Objection"). Despite admitting that it had received the
Objection, USF failed to file a written response or request a hearing within the required
period. Even though USF failed to respond to the Objection, the bankruptcy court set a hearing
on the Objection, and caused to be served on Debtors and USF a notice of the hearing. USF
failed to appear at the hearing, and the bankruptcy court entered an order sustaining the
Objection. More than 10 days after the entry of the order, USF filed a motion for reconsideration
of the order sustaining the Objection, which argued the merits of the Claim. The bankruptcy
court denied the motion for reconsideration without reaching the merits of the Claim.
In affirming the bankruptcy court, the BAP noted that USF had failed to respond to the Objection
in a timely fashion and failed to establish an excuse for this failure. Further, because the Debtors
admitted that the Claim is nondischargeable, an adversary proceeding was not required to
challenge the amount of the Claim.

+++++++++++++++++++++++++++++++++++++++++++++++++++++++

FRCP 60(b)(1) = Mistake , inadvertence or excusable neglect

In Surety Ins. Co. of California v. Williams, 729 F.2d 581, 582 (8th Cir.1984), this court
held that the defendants' claim that their attorney lacked authority to agree to a settlement
agreement, though conclusory in nature, was sufficient to state a ground for relief under Rule
60(b). The court stated that "[a]lthough an attorney is presumed to possess authority to act on
behalf of the client, 'a judgment entered upon an agreement by the attorney may be set aside on
affirmative proof that the attorney had no right to consent to its entry.' " Surety Ins. Co. of
California, 729 F.2d at 582-83 (citing Bradford Exchange v. Trein's Exchange, 600 F.2d 99, 102
(7th Cir.1979)).

In Surety Ins. Co., counsel for the defendants agreed to settle their case prior to trial. The court
entered a judgment in accordance with the settlement agreement. After the defendants learned of
the settlement, they filed a Rule 60(b) motion to vacate the judgment. They claimed that they
were unaware of the court's judgment and their attorney's consent to that judgment. The
defendants further asserted that their attorney had acted contrary to their specific instructions in
agreeing to such a judgment. The present action presents a similar situation. The Holts assert that
their attorney agreed to a settlement holding them personally liable for a judgment without first
explaining to them the significance of such an arrangement and without receiving their express
consent. Moreover, since they were not in court when the agreement was entered in the record,
they could not object until after they had reviewed the settlement documents.

10
"An attorney of record may not compromise, settle, or consent to a final disposition of his
client's case without express authority."2 Turner v. Burlington Northern R.R. Co., 771 F.2d 341,
345 (8th Cir.1985). The rules for determining whether an attorney has been given authority by a
client to settle a case are the same as those which govern other principal-agent relationships. Id.
at 345; Edwards v. Born, Inc., 792 F.2d 387, 389 (3rd Cir.1986). Once it is shown, however, as
in the present action, that an attorney has entered into an agreement to settle a case, the party
who denies that the attorney was authorized to enter into the settlement has the burden to prove
that authorization was not given. Turner, 771 F.2d at 346. This is a heavy burden. Id.
11
Because the motion to vacate the judgment stated a cognizable claim under Rule 60(b), the
district court erred in summarily denying the motion without any type of evidentiary hearing.
Accordingly, we vacate the order denying defendants' motion and remand this case for an
evidentiary hearing and the entry of whatever order the district court thereafter deems
appropriate.3
12

DUMBAULD, Senior District Judge, concurring.

13

I concur in the remand, for an evidentiary hearing to establish whether Sunlite's attorney
"possessed actual, implied, or apparent authority to consent to the judgment," but solely because
I think we are bound to do so by Surety Ins. Co. of California v. Williams, 729 F.2d 581, 582-83
(8th Cir.1984), and other Eighth Circuit cases.

14
In my opinion it is toying with the court, an affront and impediment to the due administration
of justice, for parties to attempt to worm their way out of a reasonable settlement made in open
court.1
15

Parties employing counsel in litigation are subject to the normal rules of the law of agency.
They should know that settlement by the assent of the parties themselves is a favored method of
disposition of cases, better than submission to a third party such as a judge or jury, who though
objective and impartial may not understand the concerns of the parties as well as they do
themselves.

16
Hence the parties should know that their counsel must be authorized at all times to make an
appropriate settlement. Litigants must keep their counsel currently informed of the terms upon
which they are agreeable to the disposition of pending litigation.2
17
This is especially true in the case at bar, where the settlement was sanctioned by a proceeding
in open court. The Holts should have been present at this important stage of their case, rather
than absent, if they thought their counsel incapable of conveying with precision the terms of their
authorization to settle. As a consequence of their indifference they are inflicting an imposition on
the district court to thresh old straw.3+++++++++++++++++++++++++++++++++++++++++

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• AMERICAN ALLIANCE INSURANCE CO LTD v. EAGLE INSURANCE
COMPANY
United States Court of Appeals,Second Circuit.

AMERICAN ALLIANCE INSURANCE CO LTD v. EAGLE INSURANCE

COMPANY
AMERICAN ALLIANCE INSURANCE CO., LTD., Plaintiff-Appellee, v. EAGLE
INSURANCE COMPANY, Defendant-Appellant.
No. 1251, Docket 95-7322.
Argued March 26, 1996. -- August 07, 1996
Before:  NEWMAN, Chief Judge, PARKER, Circuit Judge, and NICKERSON,District Judge.*
Evan H. Krinick, Uniondale, N.Y. (Christine M. Metzner, Rivkin, Radler& Kremer, Uniondale,
N.Y., on the brief), for defendant-appellant.Robert Goodman, Tell, Cheser& Breitbart, New
York City, for plaintiff-appellee.
 This appeal requires the Court to clarify the definition of “excusable neglect,” as used in Rule
60(b) of the Federal Rules of Civil Procedure, for purposes of a motion to vacate a default
judgment.   Eagle Insurance Co. (“Eagle”) appeals from the August 18, 1994, judgment of the
District Court for the Southern District of New York (Robert W. Sweet, Judge) ordering Eagle to
pay $424,997 to American Alliance Insurance Co., Ltd. (“American”).   We conclude that
“excusable neglect” is to be construed generously in the context of an attempt to vacate a default
judgment and that Eagle satisfied that criterion.   We therefore reverse and remand.
Facts
On February 14, 1991, a fire damaged a commercial garage in New York City. The building was
owned by Michael Feidelson, who was insured by American.  Shimoe Brake & Wheel, Inc.
(“Shimoe”), which leased the garage space in the building, was insured by Eagle.   Coverage
under the Eagle policy was to run from September 7, 1990, to September 7, 1991.   However,
Shimoe paid only $900 toward a premium of at least $2,341.   Eagle claims that, on January 14,
1991, DCW Auto Agency, Inc., the managing agent for Eagle's commercial garage liability
policies, mailed a notice of cancellation to Shimoe, Feidelson, and ASE Corp., Shimoe's broker.
  Evidence of actual mailing is in dispute.
American paid $322,264 to Feidelson pursuant to its policy.   In September 1992, American, as
subrogee of Feidelson, brought an action against Shimoe in New York state court.   Eagle was
notified of this action and declined to defend Shimoe on the ground that it had cancelled its
policy with Shimoe.  Shimoe never answered the complaint, and a default judgment was entered
against it on February 24, 1994.
On May 27, 1994, American commenced the instant lawsuit in the District Court, seeking to
collect from Eagle the state court default judgment entered against Shimoe.   American served
the summons and complaint on the New York State Department of Insurance, which on June 1,
1994, mailed the summons and complaint to Eagle's main office in Lynbrook, New York.   The
summons and complaint were then forwarded to Eagle's Uniondale office.
Customarily, a pleading clerk for Eagle's in-house counsel, Isserlis& Kurtz, would log pleadings
when received in the Uniondale office, obtain an extension of time to answer, and assign the
action to an attorney.   In this case, however, the summons and complaint were accidentally
removed from the pleading clerk's desk and placed in the file of a related case before they had
been logged.
On June 8, 1994, American sent to Eagle at its Lynbrook office a copy of a letter to the District
Court, requesting that the action be reassigned from White Plains, where it was originally but
mistakenly filed, to Foley Square.   On July 6, 1994, a notice of reassignment of the case to
Judge Sweet was served by mail on Eagle at its Lynbrook address.   Eagle acknowledges that it
received the July 6 notice, but asserts that its attorneys were not alerted to the action because the
managing attorney, upon determining that no response to the notice was required, merely
forwarded it to the file as she customarily did with the hundreds of letters she received daily.
A pretrial conference was held on July 13, 1994.   There is no evidence that Eagle was informed
of this conference.  Though no default had been entered, as contemplated by Fed.R.Civ.P. 55(a),
the docket entries reflect that the pretrial conference authorized the plaintiff to file a motion for a
default judgment.   That motion was promptly made, and a default judgment was entered on
August 18, 1994.   Eagle did not become aware of this lawsuit until September 6, 1994, when it
received a restraining notice freezing its bank account.   On September 27, 1994, Eagle moved,
by an order to show cause, to vacate the default judgment and for leave to serve an answer.
The District Court denied the motion on the ground that Eagle had failed to show excusable
neglect.   While accepting Eagle's explanation that the summons and complaint had mistakenly
been placed in the wrong file, the Court found that Eagle had not presented evidence of adequate
procedural safeguards that would ordinarily prevent such an error.   In addition, the Court found
that Eagle had failed to present a meritorious defense to the suit because Eagle had not
established that the notice of cancellation had been mailed to all insureds and to their brokers, as
required by New York insurance law.
Discussion
 Preliminarily we note that the entry of a default judgment in this case is procedurally flawed
by lack of compliance with the requirement of Rule 55(a) that the clerk enter a default, a step
that affords the defaulted party an opportunity to move, pursuant to Rule 55(c), to vacate the
default, at least in those instances where the defaulted party becomes aware that a default has
been entered.   A motion to vacate a default is subject to a less rigorous standard than applies to
a Rule 60(b) motion to vacate a default judgment.   See Meehan v. Snow, 652 F.2d 274, 276 (2d
Cir.1981).   Nevertheless, we will review the District Court's denial of the motion to vacate the
default judgment under the standards applicable to a Rule 60(b) motion, rather than a Rule 55(c)
motion, recognizing, however, that Eagle's motion is made in the default judgment context.
 Fed.R.Civ.P. 60(b) provides:
(b) Mistakes;  Inadvertence, Excusable Neglect;  Newly Discovered Evidence;  Fraud;  etc.   On
motion and upon such terms as are just, the court may relieve a party or a party's legal
representative from a final judgment, order, or proceeding for the following reasons:  (1)
mistake, inadvertence, surprise, or excusable neglect;․
In the default judgment context, courts generally examine three criteria to determine whether to
vacate a judgment:  “(1) whether the default was willful;  (2) whether defendant has a meritorious
defense;  and (3) the level of prejudice that may occur to the non-defaulting party if relief is
granted.”  Davis v. Musler, 713 F.2d 907, 915 (2d Cir.1983).
A. “Willfulness”
With regard to the first criterion, this Court has never stated whether “willfulness” requires a
showing of deliberate default or bad faith on the part of the defaulting party, or whether mere
carelessness or negligence will be deemed sufficient to deny vacatur of a default judgment.
1. Variance among circuits.   Other circuits are divided as to the meaning of “willful” conduct
in the context of default judgments.   The Third Circuit has held that a Rule 60(b)(1) motion to
vacate will be denied only on a showing of “culpable conduct,” defined as “actions taken
willfully or in bad faith.”  Gross v. Stereo Component Systems, Inc., 700 F.2d 120, 123-24 (3d
Cir.1983).  The Third Circuit requires more than the “gross-almost willful-neglect” occurring in
the well-named Gross case, which resulted from the complete breakdown in communication
between the two law firms representing one party in the action.   The Sixth Circuit has expressly
followed the Third in requiring some showing of “culpable conduct.”  United Coin Meter Co.,
Inc. v. Seaboard Coastline Railroad, 705 F.2d 839, 844-45 (6th Cir.1983).  Although declining
to define that phrase precisely, see Shepard Claims Service, Inc. v. William Darrah& Associates,
796 F.2d 190, 195 (6th Cir.1986), the Sixth Circuit has stated that “[t]o be treated as culpable,
the conduct of a defendant must display either an intent to thwart judicial proceedings or a
reckless disregard for the effect of its conduct on those proceedings.”  Id. at 194.
Several other circuits, in contrast, expressly refuse to vacate default judgments occurring as a
result of attorney carelessness.   See Johnson v. Gudmundsson, 35 F.3d 1104, 1117 (7th
Cir.1994) (“The touchstone of our analysis has been ‘excusable neglect,’ meaning that we will
grant relief only ‘where the actions leading to the default were not willful, careless, or
negligent.’ ”);   CJC Holdings, Inc. v. Wright &Lato, Inc., 979 F.2d 60, 64 (5th Cir.1992) (focus
on “neglect or culpable conduct ․ more consistent with rule 60(b)” than focus on “willful[ness]”);
 Davis v. Safeway Stores, Inc., 532 F.2d 489, 490 (5th Cir.1976) (per curiam) (failure of
insurance company to communicate with defendant three weeks after receiving copy of
complaint suggests “absence of minimal internal procedural safeguards” and is not excusable
neglect);  Baez v. S.S. Kresge Co., 518 F.2d 349, 350 (5th Cir.1975) (delay due to numerous
forwardings not excusable neglect), cert. denied, 425 U.S. 904, 96 S.Ct. 1495, 47 L.Ed.2d 754
(1976);  Gibbs v. Air Canada, 810 F.2d 1529, 1537-38 (11th Cir.1987) (misplacement of
complaint by mail clerk not excusable neglect).   The Tenth Circuit has also stated that
“[c]arelessness by a litigant or his counsel does not afford a basis for relief under Rule 60(b)(1),”
albeit in a case in which the party failed to provide any explanation for its previous lawyer's
failure to answer the motion to dismiss.  Pelican Production Corp. v. Marino, 893 F.2d 1143,
1146 (10th Cir.1990).
2. Second Circuit precedent.   Though we have elaborated little on the “willfulness” standard
identified in Davis, this Court has recently implied that it will look for bad faith, or at least
something more than mere negligence, before rejecting a claim of excusable neglect based on an
attorney's or a litigant's error.   In Brien v. Kullman Industries, Inc., 71 F.3d 1073, 1078 (2d
Cir.1995), we concluded that the defendant had not willfully defaulted where he had failed to file
an answer because he was mistaken as to the appropriate timing for filing the answer and
because he had received the incorrect docket number from the clerk's office.   We contrasted this
situation to one in which we had found willfulness where the defendant “ ‘admit[ted] he
deliberately chose not to appear in the action because he faced possible indictment upon return to
New York.’ ” Id.
Though American and the District Court relied on many prior decisions of this Court, none
denied motions to vacate because of mere administrative or clerical error.1 However, we have
refused to vacate a judgment where the moving party had apparently made a strategic decision to
default.   See United States v. Erdoss, 440 F.2d 1221 (2d Cir.), cert. denied, 404 U.S. 849, 92
S.Ct. 83, 30 L.Ed.2d 88 (1971);  Dal International Trading Co. v. Sword Line, Inc., 286 F.2d 523
(2d Cir.1961);  Benton v. Vinson, Elkins, Weems &Searls, 255 F.2d 299 (2d Cir.), cert. denied,
358 U.S. 885, 79 S.Ct. 123, 3 L.Ed.2d 113 (1958).   And we found inexcusable an attorney's
decision to wait until the eve of trial to inform the Court that he would be unavailable to try the
case the next day.   See Schwarz v. United States, 384 F.2d 833, 835-36 (2d Cir.1967).  
However, counsel who so “ignored his responsibility” to the Court, id. at 836, could readily be
found culpable under the more stringent, bad faith construction of the willfulness standard.
 3. The “willfulness” standard in the default judgment context.   We see no reason to expand
this Court's willfulness standard to include careless or negligent errors in the default judgment
context.   As the Fifth Circuit noted, “the basic purpose of default judgment is to protect parties
from undue delay-harassment,” Baez, 518 F.2d at 350.   Strong public policy favors resolving
disputes on the merits.   Although courts have an interest in expediting litigation, abuses of
process may be prevented by enforcing those defaults that arise from egregious or deliberate
conduct.  Rule 60(b) expressly contemplates that some types of “neglect” are “excusable.”   The
subjective inquiry into willfulness effectively distinguishes those defaults that, though due to
neglect, are excusable, from those that are not.2 At the same time, we recognize that the degree
of negligence in precipitating a default is a relevant factor to be considered, along with the
availability of a meritorious defense and the existence of prejudice, in determining whether a
default judgment should be vacated and whether failure to do so exceeds allowable discretion.  
See Wagstaff-EL v. Carlton Press Co., 913 F.2d 56 (2d Cir.1990) (default judgment properly
vacated upon weighing of all relevant factors).   Gross negligence can weigh against the party
seeking relief from a default judgment, though it does not necessarily preclude relief.
 In this case, the parties agree that Eagle's failure to answer the complaint was due to a filing
mistake by its in-house counsel's clerk.   Though the two notices that were mailed should have
alerted Eagle to the lawsuit, these notices were routinely filed by an office manager who
assumed that the case had been assigned and was being diligently handled by a staff attorney.  
The misfiling went unnoticed for two months.   Such conduct, though grossly negligent, as the
District Judge found, was not willful, deliberate, or evidence of bad faith, though it weighs
somewhat against granting relief.
B. “Meritorious Defense”
 To satisfy the criterion of a “meritorious defense,” the defense need not be ultimately
persuasive at this stage.  “A defense is meritorious if it is good at law so as to give the factfinder
some determination to make.”  AnilinaFabrique de Colorants v. Aakash Chemicals and
Dyestuffs, Inc., 856 F.2d 873, 879 (7th Cir.1988).
 Eagle has presented a meritorious defense-the claim that it does not insure Shimoe because the
policy was cancelled due to nonpayment of premium before the fire occurred.   The District
Court, however, required conclusive evidence that the cancellation was mailed to all parties
necessary to effectuate the cancellation.   However, the District Court was not the trier of fact on
this issue and should not have required such evidence in order to permit Eagle to present its
defense.
C. “Prejudice”
The District Court did not consider the question of whether American would suffer any prejudice
from having to prosecute its claim against Eagle after a lengthy delay.   American, however,
does not attempt to uphold denial of the motion to vacate on the ground of prejudice.
Conclusion
 Although the denial of a motion for relief from a default judgment is reviewed only for abuse
of discretion, “we may reverse its exercise even where the abuse of discretion is not glaring.”  
Brien, 71 F.3d at 1077.   This limitation reflects the strong preference for resolving disputes on
the merits.   Id.  In this case, there is an absence of willfulness, though the gross negligence
weighs somewhat against the defaulted party;  on the other hand, the presentation of a
meritorious defense and the lack of prejudice to American weigh heavily in favor of Eagle.   On
balance, we conclude that the District Court's allowable discretion was exceeded.   The decision
of the District Court to deny the motion to vacate is reversed, and the case is remanded for
further proceedings.
FOOTNOTES
1.  District courts in this Circuit, however, have held that attorney or client carelessness does
not constitute excusable neglect.   See Insurance Co. of North America v. S/S “Hellenic
Challenger”, 88 F.R.D. 545 (S.D.N.Y.1980) (client adjuster lost summons and complaint);  
Aberson v. Glassman, 70 F.R.D. 683 (S.D.N.Y.1976) (attorney never informed client of
deposition date);  Robinson v. Bantam Books, Inc., 49 F.R.D. 139 (S.D.N.Y.1970) (summons
and complaint forwarded six times before reaching attorney).
2.  We recognize that this construction of “excusable neglect” is more lenient than our
interpretation of that phrase for purposes of granting an extension of time to file a notice of
appeal under Fed. R.App. P. 4(a)(5).   See, e.g., Weinstock v. Cleary, Gottlieb, Steen &
Hamilton, 16 F.3d 501, 503 (2d Cir.1994) (attorney's good faith misunderstanding of operation
of rules not excusable neglect);  Bortugno v. Metro-North Commuter Railroad, 905 F.2d 674,
676 (2d Cir.1990) (failure to file timely notice of appeal not excusable although clerk of court
failed to mail notice of judgment).   A less rigorous construction is appropriate for a lawsuit yet
to be contested on its merits.++++++++++++++++++++++++++++++++++++++++++++++++
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+++++++++++
Traditionally, we have held that relief from a judgment of default should be granted where the
defaulting party acts with reasonable diligence in seeking to set aside the default and tenders a
meritorious defense. Central Operating Co. v. Utility Workers of America,491 F.2d 245, 254
(4th Cir. 1974); Consolidated Masonry & Fireproofing, Inc. v. Wagman Construction Corp.,383
F.2d 249, 251 (4th Cir. 1967). Whether a party has taken "reasonably prompt" action, of course,
must be gauged in light of the facts and circumstances of each occasion and the exercise of
discretion by the trial judge will not be disturbed lightly. Further, all that is necessary to establish
the existence of a "meritorious defense" is a presentation or proffer of evidence, which, if
believed, would permit either the Court or the jury to find for the defaulting party. See Central
Operating Co. v. Utility Workers of America,491 F.2d 245, 252 n.8 (4th Cir. 1974).
These requisites effectuate important policies inhering in our system of justice. Balanced against
the manifest preference
[ 673 F.2d 728 ]

for trials on the merits are our interests in finality and repose, and our concern lest an already-
burdened judicial system be compromised by frivolous and unnecessary proceedings.
Additionally, justice also demands that a blameless party not be disadvantaged by the errors or
neglect of his attorney which cause a final, involuntary termination of proceedings. In Chandler
Leasing Corp. v. Lopez,669 F.2d 919 (4th Cir. 1982), we recently referred to this policy in
reversing an involuntary dismissal with prejudice for failure to obtain local counsel. Finding that
the plaintiff bore no personal responsibility for the failure to obtain local counsel, no prejudice to
the defendant, the lack of a history of dilatory action by the plaintiff, and the availability of
sanctions less drastic than dismissal with prejudice, we reversed the trial court. Although
Chandler Leasing dealt with involuntary dismissal, its concern for distinguishing between the
fault of counsel and the fault of a party personally requires similar treatment of default
judgments.
It is beyond cavil that there was no delay here once the default was discovered. Instead, counsel
immediately filed for relief. Furthermore, while the instant facts may tend to uphold the
Government's libel of the carpets, we cannot say that appellant will be unable to vindicate his
claim, either by showing conclusively that these carpets were household goods or by establishing
another defense. Finally, doubt as to this matter, or as to the propriety of giving relief generally,
must be resolved in appellant's favor since the record clearly discloses he bears no personal
responsibility for the failure to answer punctually or to appear at the pre-trial conference. The
defaults, if any, rest upon his counsel. In the circumstances, we believe that since the District
Court is permitted to impose less severe sanctions, it was not justified in refusing all relief.
The judgment is reversed and the cause remanded for proceedings not inconsistent with this
opinion.+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
++++++++++++++++++++++++++++++++++++++++++++++++++
United States Court of Appeals,Ninth Circuit.
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LATSHAW v. TRAINER WORTHAM COMPANY INC

Elizabeth Albright LATSHAW, Plaintiff-Appellant, v. TRAINER WORTHAM & COMPANY,
INC., a corporation;  Robert J. Vile, a natural person, Defendants-Appellees.

No. 03-57230.

Argued and Submitted Oct. 20, 2005. -- July 06, 2006

Before PREGERSON, CLIFTON, and BYBEE, Circuit Judges.

Harry Steinberg (argued), Lester Schwab Katz & Dwyer, LLP, New York, NY, for the plaintiff-
appellant.Robert D. Weber (argued), DLA Piper Rudnick Gray Cary U.S. LLP, Los Angeles,
CA, for the defendants-appellees.
Plaintiff Elizabeth Latshaw appeals the district court's denial of her motion under Rule 60(b) of
the Federal Rules of Civil Procedure for relief from a judgment.   The judgment resulted from
her acceptance of an offer of judgment under Rule 68 of the Federal Rules of Civil Procedure.  
Latshaw argues that she accepted the offer under coercion from and based upon fraud by her
counsel, who allegedly gave her erroneous legal advice and threatened to resign from the case if
Latshaw did not accept the offer.   We are not persuaded and affirm the decision of the district
court.   Generally speaking, Rule 60(b) is not intended to remedy the effects of a deliberate and
independent litigation decision that a party later comes to regret through second thoughts or
subsequently-gained knowledge that corrects prior erroneous legal advice of counsel.   The
district court's refusal to relieve Latshaw from her decision was not an abuse of discretion.+++++
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
++++++++++++++++++++++++++++++++++++++++++++++++++++++++
98 F.3d 572
36 Fed.R.Serv.3d 660

Thomas D. CASHNER, Plaintiff-Appellant-Cross Appellee,

v. FREEDOM STORES, INC
United States Court of Appeals,
Tenth Circuit.
Oct. 16, 1996.
1
On January 18, 1994, Defendants filed in the district court a motion pursuant to Fed.R.Civ.P.
60(b) for relief from the court's earlier orders incorporating and then enforcing the settlement
agreement. Rule 60(b) provides that the court may relieve a party from a final judgment or order
for any one of five enumerated grounds, including "mistake," or "for any other reason justifying
relief from the operation of the judgment." Fed.R.Civ.P. 60(b).
9
On August 30, 1994, the district court granted Defendants' motion on two grounds. First, it found
that the motion should be granted "for 'mistake' because defendant Leonard Melley, Sr., was
mistaken as to the terms of the Stipulation for Settlement and never intended to agree to the
interpretation of Paragraph 2.D. that I have given to the language of paragraph 2.D." The court
found that Melley had "misunderstood the meaning" of the paragraph. Second, the court found
that the motion should be granted on the ground of impossibility of performance. It found "that
the defendants simply do not generate sufficient accounts receivable to enable the defendants to
comply with my interpretation of paragraph 2.D. of the stipulation of settlement." The court
noted that it earlier had found plaintiff entitled to attorneys' fees and costs incurred with respect
to enforcing the agreement, and invited plaintiff to file again for such relief. Cashner accordingly
moved for attorneys' fees, and the court awarded him $10,000 in attorneys' fees and costs
incurred in connection with the motions to enforce and to vacate the settlement agreement.
10
After the stipulation was set aside, the case was tried and a judgment was entered in favor of the
Defendants on all counts. Cashner now appeals the district court's action in setting aside the
settlement agreement under Rule 60(b). Defendants cross-appeal the award of attorneys' fees to
Cashner.
II.

11
We have jurisdiction under 28 U.S.C. § 1291 to review an order granting a Rule 60(b) motion,
when, after granting the motion, the district court has entered a final decision resolving the
litigation on the trial court level. Stubblefield v. Windsor Capital Group, 74 F.3d 990, 994 (10th
Cir.1996).We review the grant of a Rule 60(b) motion only for an abuse of discretion. Oklahoma
Radio Assocs. v. F.D.I.C., 987 F.2d 685, 697 (10th Cir.1993). However, in determining whether
a district court abused its discretion, we are mindful that "[r]elief under Rule 60(b) is
extraordinary and may only be granted in exceptional circumstances." Bud Brooks Trucking, Inc.
v. Bill Hodges Trucking Co., 909 F.2d 1437, 1440 (10th Cir.1990).
Rule 60(b) provides, in relevant part:

12
On motion and upon such terms as are just, the court may relieve a party ... from a final
judgment, order, or proceeding for the following reasons: (1) mistake, inadvertence, surprise, or
excusable neglect; ... or (6) any other reason justifying relief from the operation of the judgment.
The motion shall be made within a reasonable time, and for reasons (1), (2), and (3) not more
than one year after the judgment, order, or proceeding was entered or taken.
13
Fed.R.Civ.P. 60(b). The district court granted relief based on both subsection (1) and subsection
(6). We may affirm if relief was appropriate on either ground, see Pelican Prod. Corp. v. Marino,
893 F.2d 1143, 1146 (10th Cir.1990), and therefore we examine each provision in turn.
A. Rule 60(b)(1)
The district court granted relief under Rule 60(b)(1) "mistake" on the grounds that "defendant
Leonard Melley, Sr. was mistaken as to the terms of the Stipulation for Settlement and never
intended to agree to the interpretation of paragraph 2.D. that I have given to the language of
paragraph 2.D." Melley, the court found, had "misunderstood the meaning" of the paragraph
"and believed that he had agreed to an entirely different manner of settling the plaintiff's claims."
Cashner protests that such a "mistake" is not of the sort contemplated by Rule 60(b)(1). We
agree.
Rule 60(b)(1) provides:

15
On motion and upon such terms as are just, the court may relieve a party or a party's legal
representative from a final judgment, order, or proceeding for the following reasons: (1) Mistake,
inadvertence, surprise, or excusable neglect;
16
Although earlier versions of this rule limited mistake to mistake of a party, the 1946 Amendment
removed that restrictive qualification so that judicial mistakes are included within the scope of
Rule 60(b). See Fed.R.Civ.P. 60(b) advisory committee notes; 7 Moore, Federal Practice p
60.22, pg. 60-186.
17
However, Rule 60(b) is not intended to be a substitute for a direct appeal. Morris v. Adams-
Millis Corp., 758 F.2d 1352, 1356-57 (10th Cir.1985). Thus, as a general proposition, the
"mistake" provision in Rule 60(b)(1) provides for the reconsideration of judgments only where:
(1) a party has made an excusable litigation mistake or an attorney in the litigation has acted
without authority from a party, or (2) where the judge has made a substantive mistake of law or
fact in the final judgment or order. 7 Moore, Federal Practice p 60.22, pgs. 60-175-179 (listing
some of the litigation mistakes which are appropriate for Rule 60(b)(1) relief); see also
Thompson v. Kerr-McGee Refining Corp., 660 F.2d 1380, 1384-85 (10th Cir.1981) (trial court
did not abuse its discretion in vacating, pursuant to Rule 60(b)(1), dismissal for want of
prosecution when plaintiff's failure timely to obtain attorney of record was in reliance on
attorney's statement that this would not be necessary), cert. denied, 455 U.S. 1019, 102 S.Ct.
1716, 72 L.Ed.2d 137 (1982); Security Mut. Cas. Co. v. Century Cas. Co., 621 F.2d 1062, 1067
(10th Cir.1980) (recognizing that Rule 60(b)(1) can be used to correct judicial error of
substantive law on a theory of mistake of law but holding that a 115 day delay in filing such a
motion was unreasonable); Rocky Mountain Tool & Machine Co. v. Tecon Corp., 371 F.2d 589,
597 (10th Cir.1966) (allowing court to modify interest award under Rule 60(b) even though such
relief would have been untimely under Rule 59).18
If the mistake alleged is a party's litigation mistake, we have declined to grant relief under Rule
60(b)(1) when the mistake was the result of a deliberate and counseled decision by the party.
"Generally speaking, a party who takes deliberate action with negative consequences ... will not
be relieved of the consequences [by Rule 60(b)(1) ] when it subsequently develops that the
choice was unfortunate." 7 Moore, Federal Practice p 60-22, p. 60-182. Similarly, Rule 60(b)(1)
relief is not available for a party who simply misunderstands the legal consequences of his
deliberate acts. In Otoe County Nat'l Bank v. W & P Trucking, 754 F.2d 881, 883-84 (10th
Cir.1985), a defendant failed to answer a complaint because he mistakenly believed that further
proceedings against him had been stayed. He attempted to challenge the resulting default
judgment entered against him on the basis of "mistake." We held that the district court did not
abuse its discretion when it held that the defendant had failed to show "mistake" for purposes of
Rule 60(b)(1) because the defendant's failure to answer was "an informed choice based on the
advice of his co-defendant's counsel." Id. at 883. Similarly, in Cessna Finance Corp. v.
Bielenberg Masonry, 715 F.2d 1442 (10th Cir.1983), we held that the trial court did not abuse its
discretion in denying a Rule 60(b)(1) motion to set aside a default judgment when the defendant,
a guarantor of a corporation's debt, erred, as an error of law, in concluding without the assistance
of independent counsel that he would not be liable because his co-defendant, the corporation, had
filed bankruptcy proceedings. We concluded that the defendant's decision not to defend was a
conscious decision which precluded him from relief under Rule 60(b)(1). See also Andrulonis v.
United States, 26 F.3d 1224, 1235 (2d Cir.1995); Hoffman v. Celebrezze, 405 F.2d 833, 837 (8th
Cir.1969).
19
We also have held that Rule 60(b)(1) is not available to allow a party merely to reargue an issue
previously addressed by the court when the reargument merely advances new arguments or
supporting facts which were available for presentation at the time of the original argument. Van
Skiver v. United States, 952 F.2d 1241, 1243 (10th Cir.1991) ("revisiting the issues already
addressed is not the purpose of a motion to reconsider and advancing new arguments or
supporting facts which were otherwise available for presentation when the original summary
judgment motion was briefed is likewise inappropriate."), cert. denied, 506 U.S. 828, 113 S.Ct.
89, 121 L.Ed.2d 51 (1992). Rather, those kinds of arguments must be addressed within the
context of a Rule 59 motion. For other examples of the kinds of party mistakes that have been
held not to state a claim under Rule 60(b)(1), see 11 Charles A. Wright, Arthur R. Miller & Mary
Kay Kane, Federal Practice and Procedure, § 2858 at pp. 278-291.
20
By contrast, the kinds of mistakes by a party that may be raised by a Rule 60(b)(1) motion are
litigation mistakes that a party could not have protected against, such as the party's counsel
acting without authority of the party to that party's detriment. See Thompson v. Kerr-McGee
Refining Corp., 660 F.2d 1380, 1384-85 (10th Cir.1981) (granting relief under Rule 60(b)(1)
when litigation had previously been dismissed because of reliance upon attorney's advice that no
appearance was necessary); Surety Insur. Co. of Calif. v. Williams, 729 F.2d 581, 582-83 (8th
Cir.1984) ("[A] judgment entered upon an agreement by the attorney may be set aside on
affirmative proof that the attorney had no right to consent to its entry") (internal quotation marks
omitted). Rule 60(b)(1) relief has also been granted upon a showing of a party's excusable failure
to comply with procedural rules. Wallace v. McManus, 776 F.2d 915, 917 (10th Cir.1985) (per
curiam) (finding "excusable neglect" under Rule 60(b) when a pro se prisoner let an appeal
deadline lapse after notice of the entry of judgment was sent to her former attorney rather than to
her).2
21
Here, it is not at all clear that Melley is truly arguing party litigation mistake as defined above.
22
. Rule 60(b)(1) is not available to provide relief when a party takes deliberate action upon advice
of counsel and simply misapprehends the consequences of the action. 7 Moore, Federal Practice,
p 60-22, p. 60-182; Otoe County Nat'l Bank, 754 F.2d at 883-84. See also Thompson v. Kerr-
McGee Refining Corp., 660 F.2d. at 1385; Surety Insur. Co. of Calif. v. Williams, 729 F.2d at
583.
However, when Rule 60(b)(1) is used to challenge a substantive ruling by the district court, we
have required that such a motion be filed within the time frame required for the filing of a notice
of appeal. That is, we have construed the requirement in Rule 60(b)(1) that "the motion shall be
filed within a reasonable time" in this situation to be contemporaneous with the time constraints
for taking a direct appeal. Van Skiver v. U.S., 952 F.2d 1241, 1244 (10th Cir.1991) ("relief may
be granted under Rule 60(b)(1) on a theory of mistake of law, when ... the Rule 60(b) motion is
filed before the time to file a notice of appeal has expired.") (citing Morris v. Adams-Millis
Corp., 758 F.2d 1352, 1358 (10th Cir.1985)). See, also Thompson v. Kerr-McGee Refining
Corp., 660 F.2d at 1385 (indicating that Rule 60(b) motions to vacate mistakes of law are
governed by the thirty day appeals deadline).
24
However, in any event, to the extent that Melley's Rule 60(b)(1) motion asserts judicial mistake,
it was not filed "within a reasonable time." The Rule 60(b)(1) motion was not filed within the 30
day appeal time; thus, Melley's Rule (60)(b)(1) motion asserting judicial mistake was not timely
filed. See Van Skiver, 952 F.2d at 1244.
Therefore, however Melley's Rule 60(b)(1) motion is interpreted, he has failed to state a claim
for relief under that rule.
B. Rule 60(b)(6)
Clause (6) of Rule 60(b) provides that relief may be granted for "any other reason justifying
We have sometimes found such extraordinary circumstances to exist when, after entry of
judgment, events not contemplated by the moving party render enforcement of the judgment
inequitable. See, e.g., Zimmerman v. Quinn, 744 F.2d 81, 82-83 (10th Cir.1984) (upholding
60(b)(6) modification of stipulated judgment to allow the receiving party to escape tax liability
for the transferred amount for a one year period when both parties had expected funds transfer to
occur within sixty days and it did not occur for almost eighteen months); State Bank v. Gledhill
(In re Gledhill), 76 F.3d 1070, 1081 (10th Cir.1996) (upholding 60(b)(6) relief and agreeing with
bankruptcy court's conclusion that "the circumstances of the case had changed significantly
since" the judgment). Here, however, there has been no showing of an unanticipated intervening
change of circumstances. The only event not contemplated by Defendants was that the district
court would disagree with their proffered interpretation of the settlement agreement, and that is
not the kind of intervening event contemplated by Rule 60(b)(5). "[T]he broad power granted by
clause (6) is not for the purpose of relieving a party from free, calculated and deliberate choices
he has made. A party remains under a duty to take legal steps to protect his own interests." 11
Charles A. Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure § 2864,
p. 359 (citing Ackermann v. United States, 340 U.S. 193, 198, 71 S.Ct. 209, 211-12, 95 L.Ed.
207 (1950)).
The Supreme Court held that Ackermann had made a considered and free choice not to appeal,
and "cannot be relieved from such a choice because hindsight seems to indicate to him that his
decision not to appeal was probably wrong.... There must be an end to litigation someday." 340
U.S. at 198, 71 S.Ct. at 211-12. Like Ackermann, Defendants made a free, counseled, deliberate
choice whose consequences in hindsight are unfortunate. Relief under Rule 60(b)(6) is
appropriate when circumstances are so "unusual or compelling" that extraordinary relief is
warranted, or when it "offends justice" to deny such relief. Pelican Prod., 893 F.2d at 1147. We
find nothing sufficiently "unusual or compelling" about making a bad bargain to warrant relief
under Rule 60(b)(6). See Schwartz v. United States, 976 F.2d 213, 218 (4th Cir.1992) (affirming
district court's refusal to grant Rule 60(b)(6) relief on grounds of mutual mistake from judgment
entered pursuant to settlement agreement; "We find no meaningful distinction from a motion
asking for relief from a decision not to appeal, as in Ackermann, and one that asks for relief from
a decision to settle."), cert. denied, 507 U.S. 919, 113 S.Ct. 1280, 122 L.Ed.2d 673 (1993).
We recognize that "[t]he district court has substantial discretion in connection with a Rule 60(b)
motion." Pelican Prod., 893 F.2d at 1146. However, it is an abuse of discretion to grant relief
where no basis for that relief exists. Defendants have alleged only a unilateral mistake as to the
meaning of the stipulation terms that led to their entering into an improvident bargain.
"Stipulated judgments negotiated in open courts are not to be easily set aside. Such judgments
are as final as those entered following trial." V.T.A., Inc. v. Airco, 597 F.2d 220, 226 (10th
Cir.1979). Were we to affirm the grant of Rule 60(b) relief here, we would "upset the delicate
balance between the finality of judgment and justice that Rule 60(b) seeks to maintain." Id. The
district court's grant of Defendants' Rule 60(b) motion is therefore reversed.+++++++++++++++
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
++++++++++++++++++++++++++++++++++++++
Relief from Default Judgment
1) Did the defaulting Party engage in culpable conduct
2) Whether defaulting Party has meritous defense
3) Whether there is prejudice to the non-defaulting party
District Court is free to deny if any of these three factors exist= disjunctive
Incorrect Legal Advise not ground for doe relief from Judgment
Feeny v. AT &E
The district court's grant of summary judgment was the functional equivalent of a default
judgment against Mitan, because it granted judgment without discussing the merits of the claim,
based solely on Mitan's failure to reply. Federal Rule of Civil Procedure 60(b)(1) permits a
district court to grant a defaulting party relief from judgment because of that party's "mistake,
inadvertence, surprise, or excusable neglect." We review a district court's ruling on a 60(b)(1)
motion for abuse of discretion. Union Pacific R.R. Co. v. Progress Rail Servs.Corp., 256 F.3d
781, 782 (8th Cir.2001).
5
The determination of excusable neglect "is at bottom an equitable one, taking account of all
relevant circumstances surrounding the party's omission." Pioneer Inv. Servs. Co. v. Brunswick
Assoc. Ltd. P'ship, 507 U.S. 380, 395, 113 S.Ct. 1489, 123 L.Ed.2d 74 (1993). The relevant
circumstances include "the danger of prejudice to [the non-moving party], 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."
Id. The existence of a meritorious defense is also a relevant factor. Union Pacific, 256 F.3d at
782-783; Johnson v. Dayton Elec. Mfg. Co., 140 F.3d 781, 784 (8th Cir.1998).
6
The district court's analysis focused exclusively on the reason for Mitan's default and concluded,
correctly in our view, that Mitan's failure to respond to the motion for summary judgment was
due to his own neglect in failing to check his mail. When evaluating a motion to set aside a
default judgment, however, courts must do more than simply determine whether the movant had
a satisfactory reason for his neglect. Union Pacific, 256 F.3d at 783. The text of the rule, which
provides that certain "neglect" will be "excusable," contemplates that the courts are "permitted,
where appropriate, to accept late filings caused by inadvertence, mistake, or carelessness."
Pioneer, 507 U.S. at 388, 113 S.Ct. 1489. Whether the movant had a good reason for delay is a
key factor in the analysis, Lowry v. McDonnell Douglas Corp., 211 F.3d 457, 463 (8th
Cir.2000), but even without a satisfactory explanation, relief may be required where other
equitable considerations weigh strongly in favor of setting aside the default judgment. Union
Pacific, 256 F.3d at783.++++++++++++++++++++++++++++++++++++++++++++++++++++
+++++++++++++++++++++++++++++++++
Robb v. Norfolk & western ry. Co.
Subsequently, the plaintiff's attorney filed a motion for relief from the judgment under Rule
60(b)(1), noting that he had reached an agreement with opposing counsel for an extension of
time in which to file his responsive brief, and arguing that his failure to notify the court of this
agreed-upon extension amounted to “excusable neglect.”The trial judge denied the Rule 60(b)(1)
motion, stating his belief that he lacked discretion to grant the motion because of what he
classified as a “hard and fast” rule in this circuit that attorney negligence can never be considered
“excusable neglect.”   However, the Supreme Court in Pioneer Inv. Servs. Co. v. Brunswick
Assocs. Ltd. Partnership, 507 U.S. 380, 113 S.Ct. 1489, 123 L.Ed.2d 74 (1993), underscored the
equitable nature of a court's “excusable neglect” determination and clarified that “excusable
neglect” could “encompass situations in which the failure to comply with a filing deadline is
attributable to negligence.”  Id. at 394, 113 S.Ct. at 1497.   Consistent with Pioneer, we remand
this case to the district judge in order that he might exercise his discretion in ruling on the
plaintiff-appellant's Rule 60(b)(1) motion.+++++++++++++++++++++++++++++++++++++++
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

FRCP 60(b)(2) Newly Discovered Evidence

1) Evidence was discovered after trial

2) movant exercised due diligence to discover new evidence
3) evidence is not merely cumulative or impeaching
4) evidence is material
5) evidence would probably produce a different result
Thermacor Process L.P. v. BASF Corp.We find this argument unconvincing.   The email makes
no affirmative representation that the product was able to withstand continuous temperatures of
366 degrees and spikes up to 400 degrees.   Instead, it indicates only that BASF pursued
development of a high-temperature foam, believed it created a product capable of meeting
Thermacor's needs, and then offered that product to test, as evidenced by the email's reference to
a “trial.”   Moreover, even if the email could be read as representing that BASF was “done”
developing a high-temperature foam, such representation would not be false.   The only term
used to qualify the product was “hi-temp,” and deposition testimony reflects that a foam is
considered “high-temperature” if it performs at temperatures above 250 degrees.   Thus, the
email could only guarantee viability at temperatures above 250 degrees, and Thermacor's post-
failure heat testing confirmed that the foam was able to withstand continuous temperatures as
high as 290 degrees.   Given this information, the email alone cannot be construed as false or as
an affirmaII. Rule 60(b) Motion

 Thermacor filed a Rule 60(b) motion on March 4, 2008 and perfected its appeal from the
February 7, 2008 judgment on March 6, 2008.   Though a perfected appeal divests the district
court of jurisdiction, the district court may still consider and deny a Rule 60(b) motion.  
Shepherd v. Int'l Paper Co., 372 F.3d 326, 329 (5th Cir.2004) (requiring a district court to seek
leave from the appellate court if it wishes to grant the motion).   The district court's denial of
Thermacor's request for relief under Rule 60(b)(2) for “newly discovered evidence” is reviewed
under an abuse of discretion standard.  Crutcher v. Aetna Life Ins. Co., 746 F.2d 1076, 1082
(5th Cir.1984).7

 Rule 60(b)(2) provides that a court may relieve a party from final judgment based on “newly
discovered evidence that, with reasonable diligence, could not have been discovered in time to
move for a new trial under Rule 59(b).”  Fed.R.Civ.P. 60(b).  To obtain Rule 60(b)(2) relief, a
movant must demonstrate:  “(1) that it exercised due diligence in obtaining the information;  and
(2) that the evidence is material and controlling and clearly would have produced a different
result if present before the original judgment.”  Hesling v. CSX Transportation, Inc., 396 F.3d
632, 639 (5th Cir.2005). “A judgment will not be reopened if the evidence is merely cumulative
or impeaching and would not have changed the result.”  Id. at 640.
 In its Rule 60(b) motion, Thermacor offered, as new evidence, deposition testimony by Chris
LaCarte, a BASF representative with knowledge of research, development, and marketing high-
temperature foam products.   LaCarte's deposition was taken on February 6, 2008, the day
before the summary judgment ruling.  Thermacor has offered no evidence that it acted with due
diligence to obtain the transcript prior to February 22nd, nor has any evidence been provided that
LaCarte's deposition could not have been obtained prior to responding to BASF's summary
judgment motion.   Nor did Thermacor ever move to postpone summary judgment response (or
ruling) until after transcription of the deposition.

Moreover, LaCarte's testimony provides nothing more than impeachment evidence, which
generally does not support relief from judgment.   See Hesling, 396 F.3d at 639-40.   Lacarte
testified that he was not involved in formulation, design, testing, or communication with any of
BASF employees regarding the high-temperature spray foam at issue.   This testimony does
nothing more than contradict the testimony of Williams and Patterson, who testified that LaCarte
had been involved in formulating and rating the product.   It provides no evidence as to what
BASF represented to Thermacor, what Thermacor relied upon, or how Thermacor met its
obligation to test end-use suitability.   Based upon LaCarte's own testimony that he was not
involved with the product or the transaction with Thermacor, the district court did not abuse its
discretion by denying the motion after determining the evidence was immaterial.
CONCLUSION
Thermacor failed to provide evidence to create a genuine fact issue as to whether BASF falsely
represented its product, thus summary judgment was properly granted.   Thermacor was also
unable to show that the evidence offered to support its Rule 60(b) motion was material and could
not have been obtained earlier with due diligence, thus the motion was properly denied.
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+
Jones v. Aero/Chem Corp., 921 F. 2d 875 - Court of Appeals, 9th Circuit 1990
878 a. Newly Discovered Evidence.
In deciding the Rule 59 motion, both parties argued and the district court applied the test
borrowed from cases considering motions under Rule 60(b)(2) for relief from judgment based
upon newly discovered evidence. See 11 C. Wright & A. Miller, Federal Practice and Procedure:
Civil § 2859 (1973) ("The same standard applies to motions on the ground of newly discovered
evidence whether they are made under Rule 59 or Rule 60(b)(2)."); 7 J. Moore & J. Lucas,
Moore's Federal Practice ¶ 60.23[4] (2d ed. 1987) (distinction between evidence warranting Rule
59 and Rule 60(b)(2) relief is one of degree rather than kind; Rule 60(b)(2), allowing a more
belated attack on a judgment, may require a stronger showing); Coastal Transfer Co. v. Toyota
Motor Sales, U.S.A., 833 F.2d 208, 211-12 (9th Cir.1987).
Under this test the movant must show the evidence (1) existed at the time of the trial, (2) could
not have been discovered through due diligence, and (3) was "of such magnitude that production
of it earlier would have been likely to change the disposition of the case." Coastal Transfer, 833
F.2d at 211. We review the district court's determination under this standard for abuse of
discretion. Id.
The court determined Jones met the first two requirements, but did not satisfy the third. The
court concluded it was not likely the documents would have changed the outcome because they
only corroborated testimony by Jones' expert. They would have been of de minimis value in light
of the theory of defect Jones presented at trial: the Curb 20 was too sensitive in the locked
position or moved too easily from the locked to the fire position.
Whether knowledge of the newly revealed correspondence would likely have affected the jury's
verdict is a close question. Contrary to the district court's view, we think the letters do more than
merely corroborate plaintiff's expert testimony; they demonstrate knowledge by Athea of a
potential design problem. An admission by the company engineer that the valve was "too
sensitive" is substantively different than testimony to that effect by the plaintiff's own hired
expert.
However, the letters are not equivalent to a "smoking gun," as Jones argues. Rather than
dictating a different result, they would likely have led Jones to prepare and present a different
case — taking additional depositions, presenting other witnesses, and arguing a different theory
of defect to the jury. Althea, too, would have defended differently. We are not persuaded,
however, that the district court abused its discretion in concluding Jones failed to establish the
outcome likely would have been different.+++++++++++++++++++++++++++++++++++++++
+++++++++++++++++++
Coastal Transfer Co. v. Toyota Motor Sales, USA, 833 F. 2d 208 - Court of Appeals, 9th Circuit
1987
The court reasoned, first, that "the revised testimony of [Coastal's] retained expert ... does not
appear to be `new' evidence within the meaning of Rule 59 [because] Coastal Transfer has
possessed the information upon which Walters bases his opinion since before defendants moved
for summary judgment." Second, the court stated that Coastal had failed to exercise the requisite
due diligence in attempting to discover Walters' mistake
Kansas City Area Transp. Auth. v. State of Mo., 640 F. 2d 173 - Court of Appeals, 8th Circuit
1981
This motion was properly denied by the district court because the Authority did not demonstrate,
as required by Fed.R.Civ.P. 60(b), that this was "newly discovered evidence which by due
diligence could not have been discovered in time to move for a new trial under rule 59(b)."
Exhibits 1 and 3 contained information which was clearly available to the Authority at the time
of its motion for summary judgment. Exhibit 2 was a report which was not issued until January
of 1980 (apparently a few days after the district court opinion), but was a study with which the
Authority was familiar prior to its filing both the lawsuit and the motion for summary judgment.
[3] The district court has not abused its discretion in denying the motion to set aside the
judgment. See Engelhard Industries, Inc. v. Research Instrumental Corp., 324 F.2d 347 (9th Cir.
1963).

Englehard
Since the petition was addressed to the discretion of the trial court [George P. Converse & Co. v.
Polaroid Corp., 242 F.2d 116 (1st Cir. 1957)], Engelhard was obliged to show not only that this
evidence was newly discovered or unknown to it until after the hearing, but also that it could not
with reasonable diligence have discovered and produced such evidence at the hearing. But
Engelhard made no showing of any kind. Indeed from our examination of three of the four
affidavits (the other was not made part of the record on appeal) it clearly appears that whatever
facts they contain were readily available to and were known by Engelhard well in advance of the
hearing.[5] In sum, we conclude that the district court did not err in granting summary judgment
with respect to Engelhard's claims based on infringement.
Jones v. Aero/Chem Corp., 921 F. 2d 875 - Court of Appeals, 9th Circuit 1990
b. Misconduct.
The test to be applied when discovery misconduct is alleged in a Rule 59 motion must be
borrowed from cases interpreting Rule 60(b)(3), just as the test applied to a Rule 59 motion
alleging newly discovered evidence is borrowed from Rule 60(b)(2).[3]
Under Rule 60(b)(3), the movant must,
(1) prove by clear and convincing evidence that the verdict was obtained 879*879 through fraud,
misrepresentation, or other misconduct.
(2) establish that the conduct complained of prevented the losing party from fully and fairly
presenting his case or defense. Although when the case involves the withholding of information
called for by discovery, the party need not establish that the result in the case would be altered.
Bunch v. United States, 680 F.2d 1271, 1283 (9th Cir.1982) (citation omitted). Moreover, as the
court said in Anderson v. Cryovac, Inc., 862 F.2d 910 (1st Cir.1988):
Failure to disclose or produce materials requested in discovery can constitute "misconduct"
within the purview of this subsection. See Rozier v. Ford Motor Co., 573 F.2d 1332, 1339 (5th
Cir.1978). "Misconduct" does not demand proof of nefarious intent or purpose as a prerequisite
to redress.... The term can cover even accidental omissions — elsewise it would be pleonastic,
because "fraud" and "misrepresentation" would likely subsume it.... Accidents — at least
avoidable ones — should not be immune from the reach of the rule.
Id. at 923. The court in Anderson found misconduct within the meaning of Rule 60(b)(3) because
plaintiffs demonstrated (1) they exercised due diligence in their discovery requests, (2) defendant
knew, or was charged with knowledge, of the missing document, and had constructive (if not
actual) possession of it; and (3) defendant did not divulge the document's existence. Id. at 928.
Regardless of whether there was misconduct, Athea argues this court should find the letters
cumulative, corroborative and of de minimis value under the Rule 60(b)(3) test of "full fair
opportunity to present one's case" based on the district court's finding to that effect under the
Rule 60(b)(2) "different outcome" test. We disagree. If Jones is able to demonstrate misconduct,
the district court must make a fresh determination whether Jones has demonstrated "substantial
interference" by showing "the material's likely worth as trial evidence or by elucidating its value
as a tool for obtaining meaningful discovery." Id. at 926. As noted earlier, the letters were much
more than merely corroborative or cumulative evidence. And, further, as we also have noted,
evidence that was merely cumulative under the "different outcome" test, may have substantially
interfered with Jones' ability to fully and fairly present her case — for example, concealment of
Athea's statement the valve was too sensitive may have "precluded inquiry into a plausible
theory of liability." Id. at 925. Additionally, Jones may be able to benefit from a presumption of
substantial interference if she can demonstrate the misconduct was sufficiently knowing,
deliberate or intentional. See generally id. at 923-27 (summarizing the applicable standards and
burdens of proof).
It does not appear the district court considered the alleged misconduct in deciding Jones' Rule 59
motion; the district court did not hold a hearing to determine whether there had been misconduct,
either knowing or accidental, nor did it make findings on this issue.[4] We therefore remand to
the district court for appropriate proceedings to determine whether Jones can meet her burdens
under the Rule 60(b)(3) standard as applied to this Rule 59 motion.[5]
I. Clear and Convincing Evidence of Misconduct
Plaintiff must establish misconduct by clear and convincing evidence. To be entitled to a hearing
on the issue, plaintiff must at least make some preliminary showing, which, if believed, would
show her ability to demonstrate misconduct.
Plaintiff does not appear to have made such a showing with respect to defendant's failure to
produce Smith's letters. Despite the majority's reading of Anderson v. Cryovac, Inc., 862 F.2d
910 (1st Cir.1988), as defining misrepresentation (and hence misconduct) very broadly,
misrepresentation still retains at least some requirement of fault. Indeed, the Anderson court
apparently considered only those discovery responses "so ineptly researched or lackadaisical"
881*881 as qualifying as misrepresentations. Id. at 923.

+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Anderson v. Cryovac, Inc., 862 F. 2d 910 - Court of Appeals, 1st Circuit 1988
III. THE UNDISCLOSED EVIDENCE AND THE ENSUING APPEAL
We now reach the second of the plaintiffs' two appeals, No. 88-1070. During the pendency of the
original appeal, certain previously undisclosed evidence surfaced. Plaintiffs learned
serendipitously that Riley had commissioned Yankee Environmental Engineering and Research
Services, Inc. (Yankee) to make a hydrogeologic investigation of the tannery property in 1983.
Yankee was to determine (1) the direction of groundwater flow at the tannery; (2) whether
groundwater contamination was present there; and (3) whether the tannery contributed to
contamination found at Rileyco's two production wells. The resulting report (Report),[8] based
on field research conducted during mid-1983, was never produced in pretrial discovery.
The court made four salient findings: (1) the Report was relevant and within the ambit of
plaintiffs' pretrial discovery request; (2) defense counsel had defaulted in their obligation to
furnish the Report during discovery; (3) the nondisclosure resulted from "a lapse of judgment"
rather than fraud or deliberate misrepresentation, id. at 20; and (4) plaintiffs had not been
prevented from fully and fairly presenting their case.
A. Rule 60(b)(3).
We start with basics. Plaintiffs' motion to upset the judgment was brought under Fed.R.Civ.P.
60(b) and was therefore addressed to the district court's sound discretion. When Rule 60(b) is in
play, we ordinarily defer to the trial judge's more intimate knowledge of the case. For us to act,
there must be an abuse of discretion. United States v. Ayer, 857 F.2d 881, 886 (1st Cir.1988);
Rivera v. M/T Fossarina, 840 F.2d 152, 156 (1st Cir.1988); Pagan v. American Airlines, Inc.,
534 F.2d 990, 993 (1st Cir.1976). Under this standard, we reverse only if it plainly appears that
the court below committed a meaningful error in judgment. See, e.g., In re San Juan Dupont
Plaza Hotel Fire Litigation, 859 F.2d 1007, 1019 (1st Cir.1988) (delineating standard).
In relevant part, Rule 60 states:
On motion and upon such terms as are just, the court may relieve a party ... from a final
judgment, order, or proceeding for the following reasons: ... (3) fraud (whether heretofore
denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party....
Fed.R.Civ.P. 60(b)(3).[9] Failure to disclose or produce materials requested in discovery can
constitute "misconduct" within the purview of this subsection. See Rozier v. Ford Motor Co.,
573 F.2d 1332, 1339 (5th Cir.1978). "Misconduct" does not demand proof of nefarious intent or
purpose as a prerequisite to redress. For the term to have meaning in the Rule 60(b)(3) context, it
must differ from both "fraud" and "misrepresentation." Definition of this difference requires us
to take an expansive view of "misconduct." The term can cover even accidental omissions —
elsewise it would be pleonastic, because "fraud" and "misrepresentation" would likely subsume
it. Cf. United States v. One Douglas A-26B Aircraft, 662 F.2d 1372, 1374-75 n. 6 (11th
Cir.1981) (to avoid redundancy, "misrepresentation" in Rule 60(b)(3) must encompass more than
false statements made with intent to deceive). We think such a construction not overly harsh; it
takes scant imagination to conjure up discovery responses which, though made in good faith, are
so ineptly researched or lackadaisical that they deny the opposing party a fair trial.Accidents —
at least avoidable ones — should not be immune from the reach of the rule. Thus, we find
ourselves in agreement with the Fifth Circuit that, depending upon the circumstances, relief on
the ground of misconduct may be justified "whether there was evil, innocent or careless,
purpose." Bros. Inc. v. W.E. Grace Manufacturing Co., 351 F.2d 208, 211 (5th Cir.1965), cert.
denied, 383 U.S. 936, 86 S.Ct. 1065, 15 L.Ed.2d 852 (1966).

Once we leave the starting gate, the borders of the course blur. The concept of misconduct seems
mutable: not every instance of nondisclosure merits the same judicial response. The text of Rule
60(b)(3) gives precious little guidance as to how a court should ascertain the existence of
misconduct, weigh its effect, and ultimately determine when to set aside a verdict. Our sister
circuits have set some guideposts along the track: the moving party must demonstrate
misconduct — like fraud or misrepresentation — by clear and convincing evidence, and must
then show that the misconduct foreclosed full and fair preparation or presentation of its case.
See, e.g., In re M/V Peacock, 809 F.2d 1403, 1404-05 (9th 924*924 Cir.1987) (Kennedy, J.);
Harre v. A.H. Robins Co., 750 F.2d 1501, 1503 (11th Cir.1985); Stridiron v. Stridiron, 698 F.2d
204, 207 (3d Cir.1983); Square Construction Co. v. Washington Metropolitan Area Transit
Authority, 657 F.2d 68, 71 (4th Cir.1981); Rozier, 573 F.2d at 1339. Another well-sculpted
marker points out that misconduct need not be result-altering in order to merit Rule 60(b)(3)
redress. See Wilson v. Thompson, 638 F.2d 801, 804 (5th Cir.1981); Rozier, 573 F.2d at 1339;
Seaboldt v. Pennsylvania Railroad Company, 290 F.2d 296, 299 (3d Cir.1961); see also Bunch v.
United States, 680 F.2d 1271, 1283 (9th Cir.1982) (when information withheld in discovery,
aggrieved party need not establish that outcome would have been different).[10]

We are in general concert with these authorities, but find it necessary to place our own gloss
upon the subject. Verdicts ought not lightly to be disturbed, so it makes very good sense to
require complainants to demonstrate convincingly that they have been victimized by an
adversary's misconduct. And as with other defects in the course of litigation, the error, to warrant
relief, must have been harmful — it must have "affect[ed] the substantial rights" of the
movant.Fed.R.Civ.P. 61.[11] Moreover, since parties ought not to benefit from their own mis-,
mal-, or nonfeasance, uncertainties attending the application of hindsight in this area should
redound to the movant's benefit. See generally Minneapolis, St. Paul, & Sault Ste. Marie Ry. Co.
v. Moquin, 283 U.S. 520, 521-22, 51 S.Ct. 501, 502, 75 L.Ed. 1243 (1931) (litigant who engages
in misconduct "will not be permitted the benefit of calculation, which can be little better than
speculation, as to the extent of the wrong inflicted upon his opponent").

Our chief refinement of the conventional "full and fair preparation and presentation" standard is
to delineate more exactly how the value of the suppressed evidence should be weighed. By
definition, lack of access to any discoverable material forecloses "full" preparation for trial since
the material in question will be missing. Yet concealed evidence may turn out to be cumulative,
insignificant, or of marginal relevance. If that be the case, retrial would needlessly squander
judicial resources. The solution, we believe, is that before retrial is mandated under Rule 60(b)
(3) in consequence of discovery misconduct, the challenged behavior must substantially have
interfered with the aggrieved party's ability fully and fairly to prepare for and proceed at trial.
Accord Carson v. Polley, 689 F.2d 562, 586 (5th Cir.1982); cf. Wilson v. Volkswagen of
America, Inc., 561 F.2d 494, 504 (4th Cir.1977) (imposition of default judgment as sanction
under Fed.R.Civ.P. 37 should be confined to flagrant cases where failure to produce "materially
affect[s] the substantial rights of the adverse party" and is "prejudicial to the presentation
925*925 of his case"), cert. denied, 434 U.S. 1020, 98 S.Ct. 744, 54 L.Ed.2d 768 (1978);
Telectron, Inc. v. Overhead Door Corp., 116 F.R.D. 107, 132 (S.D.Fla.1987) (similar).

Under a substantial interference rule as we envision it, a party still need not prove that the
concealed material would likely have turned the tide at trial. Substantial impairment may exist,
for example, if a party shows that the concealment precluded inquiry into a plausible theory of
liability, denied it access to evidence that could well have been probative on an important issue,
or closed off a potentially fruitful avenue of direct or cross examination. See, e.g., Seaboldt v.
Pennsylvania Railroad Company, 290 F.2d at 299 (new trial justified where sequestered
information "would have made a difference in ... counsel's approach to the testimony of several
witnesses"). Substantial interference may also be established by presumption or inference. That
possibility, however, brings to the fore the utility of some further embellishments.

Although we agree that the existence of misconduct in the Rule 60(b)(3) sense does not depend
upon a demonstration of nefarious intent or purpose, see supra, the actor's intent is not
immaterial. Nondisclosure comes in different shapes and sizes: it may be accidental or
inadvertent, or considerably more blameworthy (though still short of fraud or outright
misrepresentation). In the case of intentional misconduct, as where concealment was knowing
and purposeful, it seems fair to presume that the suppressed evidence would have damaged the
nondisclosing party. See Nation-Wide Check Corp. v. Forest Hills Distributors, Inc. 692 F.2d
214, 217-19 (1st Cir.1982) (deliberate nonproduction or destruction of relevant document is
"evidence that the party which has prevented production did so out of the well-founded fear that
the contents would harm him"); accord Marquis Theatre Corp., 846 F.2d at 89-90; Knightsbridge
Marketing v. Promociones y Proyectos, 728 F.2d 572, 575 (1st Cir.1984); Commercial Ins. Co.
v. Gonzalez, 512 F.2d 1307, 1314 (1st Cir.), cert. denied, 423 U.S. 838, 96 S.Ct. 65, 46 L.Ed.2d
57 (1975). It seems equally logical that where discovery material is deliberately suppressed, its
absence can be presumed to have inhibited the unearthing of further admissible evidence adverse
to the withholder, that is, to have substantially interfered with the aggrieved party's trial
preparation. See Alexander v. National Farmers Organization, 687 F.2d 1173, 1205-06 (8th
Cir.1982) (where documents deliberately destroyed, court should draw factual inferences adverse
to party responsible); Telectron, Inc., 116 F.R.D. at 134 (where destruction motivated by
"flagrant bad faith," conduct "warrant[ed] the inference that the destroyed documents would have
been harmful to [destroyer]"; resultant unavailability "must therefore be seen as prejudicial to
[innocent party's] interest in pursuing the full and fair litigation of its claims"); National
Association of Radiation Survivors v. Turnage, 115 F.R.D. 543, 557 (N.D.Cal.1987) ("Where
one party wrongfully denies another the evidence necessary to establish a fact in dispute, the
court must draw the strongest allowable inferences in favor of the aggrieved party.").

The presumption, if it arises, should be a rebuttable one. It may be refuted by clear and
convincing evidence demonstrating that the withheld material was in fact inconsequential. We
are keenly aware of the stringency of this standard, yet we believe it to be an appropriate antidote
for deliberate misconduct. A party who is guilty of, say, intentionally shredding documents in
order to stymie the opposition, should not easily be able to excuse the misconduct by claiming
that the vanished documents were of minimal import. Without the imposition of a heavy burden
such as the "clear and convincing" standard, spoliators would almost certainly benefit from
having destroyed the documents, since the opposing party could probably muster little evidence
concerning the value of papers it never saw. As between guilty and innocent parties, the
difficulties created by the absence of evidence should fall squarely upon the former.

926*926 Where the documents have been intentionally withheld but not destroyed, the threshold
becomes easier to climb. In such situations, the documents themselves may constitute clear and
convincing proof that no prejudice inured. Cf. Eaton Corp. v. Appliance Valves Corp., 790 F.2d
874, 878 (Fed.Cir.1986) (where destroyed documents had earlier been produced in discovery and
plaintiff unable to show that they bore significantly on liability issue, destruction was harmless).
Of course, the actual documents are not the only proof of harmlessness which could be clear and
convincing. Even when documents have been destroyed, it is possible to present evidence of
their general nature and contents, and to decide whether they would likely have been irrelevant
or cumulative. See, e.g., Allen Pen Co. v. Springfield Photo Mount, 653 F.2d 17, 24 (1st
Cir.1981).

Conversely, where the nondisclosure was accidental — as opposed to knowing or purposeful —

there seems less reason for an adverse presumption. See Coates v. Johnson & Johnson, 756 F.2d
524, 551 (7th Cir.1985) (where documents were destroyed routinely, not in bad faith, loss would
not support inference that defendant's agents were conscious of weak case); Soria v. Ozinga
Bros., Inc., 704 F.2d 990, 996 n. 7 (7th Cir.1983) (where incomplete recording "due to the
admittedly informal nature of the company's policy rather than willful destruction of existing
records, it would be unfair to create an evidentiary presumption against the company"); Vick v.
Texas Employment Comm'n, 514 F.2d 734, 737 (5th Cir.1975) (mere negligence leading to
destruction of records does not sustain inference that party believed its case lacked merit); Ina
Aviation Corp. v. United States, 468 F.Supp. 695, 700 (E.D.N.Y.) (no illation that missing
evidence unfavorable "where the destruction of evidence is unintentional or where failure to
produce evidence is satisfactorily explained"), aff'd, 610 F.2d 806 (2d Cir.1979); cf. United
States v. Mora, 821 F.2d 860, 869 (1st Cir.1987) (in assessing explanation for delay in presenting
tapes for sealing, court should consider whether delay was caused "deliberately or
inadvertently").

While parties who are substantially prejudiced by their opponents' misconduct may make a case
for a new trial even absent malicious intent, the burden of showing substantial interference in
that circumstance should rightfully rest with the movant. Yet the movant, we suggest, need only
carry that devoir of persuasion by a preponderance of the evidence, since the considerations
which lead us to impose a heightened burden of proof on one who deliberately destroys or
withholds discovery materials are lacking when the default is unintentional and the burden of
proof is, therefore, to be hefted by the withholdee.

To summarize, in motions for a new trial under the misconduct prong of Rule 60(b)(3), the
movant must show the opponent's misconduct by clear and convincing evidence. Next, the
moving party must show that the misconduct substantially interfered with its ability fully and
fairly to prepare for, and proceed at, trial. This burden may be shouldered either by establishing
the material's likely worth as trial evidence or by elucidating its value as a tool for obtaining
meaningful discovery. The burden can also be met by presumption or inference, if the movant
can successfully demonstrate that the misconduct was knowing or deliberate. Once a
presumption of substantial interference arises, it can alone carry the day, unless defeated by a
clear and convincing demonstration that the consequences of the misconduct were nugacious.
Alternatively, if unaided by a presumption — that is, if the movant is unable to prove that the
misconduct was knowing or deliberate — it may still prevail as long as it proves by a
preponderance of the evidence that the nondisclosure worked some substantial interference with
the full and fair preparation or presentation of the case.

In our view, this methodology strikes an acceptable balance between the need to preserve the
finality of judgments and the need to enforce discovery rules against those who would seek
unfair advantage by withholding information. It does not handcuff the nisi prius court; rather
than requiring 927*927 mechanistic decisionmaking, the protocol which we have delineated
envisions that the trial judge will make a series of record-rooted judgment calls in exercising his
informed discretion under Rule 60(b)(3) — judgment calls of the sort district courts are uniquely
equipped to essay. And because weighing the relevant factors remains primarily a task for the
district court, we will ordinarily defer to its assessment of the situation, absent error of law or
manifest abuse of discretion.+++++++++++++++++++++++++++++++++++++++++

Bankruptcy Trustee Has The Exclusive Right To Assert Legal Claims On Behalf
Of The Bankruptcy Estate
In Estate of Spirtos v. Estate of Spirtos, No. 03-56405 (9th Cir. April 12, 2006), the Ninth Circuit
joins the 2nd, 4th, 5th, 6th, 8th, and 11th circuits by holding that 11 U.S.C. § 323 vests the
bankruptcy trustee with the exclusive right to assert legal claims on behalf of the bankruptcy
case. In Spirtos, family member creditors of the deceased debtor filed RICO claims against
nearly everyone in the bankruptcy, including the chapter 7 and U.S. trustees, alleging a joint
conspiracy to conceal assets belonging to the bankruptcy estate. The district court dismissed the
creditors' action for lack of standing.
On appeal, the Ninth Circuit noted that Bankruptcy Code section 323 gives the trustee the
capacity to sue on behalf of the estate. The Court further acknowledged that, under some
circumstances, a trustee may authorize others to bring suit on the estate's behalf. However, the
Ninth Circuit held that the right to bring suit belongs to the trustee in the first instance, not
creditors. The creditors argued that such a rule is not logical, particularly when a creditor also
sues the trustee. The Court reasoned that a creditor may either seek abandonment of the claim as
property of the estate or seek removal of the trustee for malfeasance under Bankruptcy Code
section 324(a). In sum, because the creditors had not received authorization to sue from the
trustee, the Ninth Circuit affirmed the dismissal of the RICO claims for lack of standing to sue
on behalf of the estate. ++++++++++++++++++++++++++++++++++++++++++++
Duties of the Bankruptcy Trustee
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In both chapter 7 and chapter 13 bankruptcy cases, the bankruptcy trustee is responsible for accounting
for property received, investigating the financial affairs of the debtor, examining and objecting to proofs of
claim, opposing the debtor's discharge if appropriate, sending required notices related to domestic
support obligations, if applicable, furnishing information to parties in interest and reporting on the
administration of the case.

Trustee Responsibilities
In the course of administering or overseeing the debtor's estate (the debtor's property or assets), the
trustee first investigates the assets of the estate, which typically includes holding the meeting of creditors
and questioning the debtor at that meeting.
If there are assets of the estate that are neither exempt nor abandoned, the trustee must:
• Collect that property from the debtor or any other entity holding the property
• Convert it into cash, usually by sale of the property
• Be accountable for that property
The trustee must normally give 20 days notice to parties in the case of the intent to sell the property. Any
party, including the debtor, may object within specified time limits under the Bankruptcy Code to the
proposed sale, which may be a private sale or a sale by public auction. If an asset is partially exempt, the
debtor's exemption should be paid in cash from the sales proceeds before distribution of any proceeds to
creditors. If appropriate, the trustee may object to the debtor's claim that particular property is exempt.
However, trustees are discouraged from liquidating or selling small amounts of nonexempt property that
won't bring in enough money when sold to produce a significant payment to unsecured creditors, which
are those creditors whose debts are not secured by the debtor's assets.
The gathering of estate property isn't limited to items of tangible property, but may include acting upon
rights of the debtor, which may in turn result in assets being added to the estate, such as filing lawsuits,
including proceedings to exercise the trustee's power to avoid preferences, fraudulent transfers, and other
avoidable transfers of property of the debtor.
Once the estate's property has been liquidated i.e., converted to cash, the trustee must preserve the
assets and then distribute them to creditors. To do so, the trustee is required to review the proofs of claim
that are filed by creditors and object to those that are improper. The trustee must then make distributions
to creditors whose claims are proper, in the order specified in the Bankruptcy Code.

Chapter 7 Bankruptcies
The chapter 7 trustee has the duty to administer the chapter 7 case and to represent the interests of
unsecured creditors in the case. In the course of doing so, the trustee first investigates the assets of the
estate, an investigation that typically includes holding the meeting of creditors and questioning the debtor
at that meeting. In addition, section 704(a)(10), added by the 2005 amendments to the Bankruptcy Code,
requires the trustee to provide certain notices in cases in which there is a claim with respect to the debtor
for a domestic support obligation.
In the vast majority of consumer chapter 7 cases, there are no nonexempt assets or other assets to
liquidate. In those cases, the trustee:
• Conducts the meeting of creditors
• Investigates the debtor's assets, right to a discharge, and exemptions
• Sends required notices related to domestic support obligations, if applicable, and, ensures that the
statement of intention provisions are followed
The trustee then files a report stating that no assets have been found and, once the deadline for
objections to discharge has passed and the debtor receives a discharge, the case is closed.
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++

Bankruptcy trustees
A bankruptcy trustee is a person nominated by the United States bankruptcy Trustee. The United
States Bankruptcy court approves this person and he takes charge and administers the proceeding
of the debtor?s case during bankruptcy proceedings.
Background of the U.S. Trustee Program
The United States Trustee Program, which was established as a pilot effort from 18 districts by
the Bankruptcy Reform Act during the year 1978. Later it was expanded to more than 21
Regions nation wide.
This program, was funded by the Trustee System Fund of United States, which go its source
from the fee paid by the parties and businesses invoking Federal bankruptcy protection.
The United States Trustee Program:
The United States Trustee is a part of the Department of Justice that is committed in promoting
and protecting the integrity of the Federal bankruptcy system. This trustee also plays an
important role in the speedy and economical resolution of the entire cases file in the bankruptcy
court.
This trustee also helps the private creditors to identify and investigate bankruptcy frauds and
abuse with the United States Attorneys.
Specific Responsibilities of the U.S. Trustees may include:
The Trustee is responsible for appointing and supervising private trustees.
To take legal action and check for fraud and abuse.
To send references for investigation at appropriate time
To ensure bankruptcy estates are administered efficiently.
To Review disclosure statements and applications for the retention of professionals
To Advocate matters relating to the Bankruptcy Code and rules of procedure in court
U.S. Trustee Program Mission Statement:
The Executive Office for U.S. Trustees provides general policy and legal guidance to the debtors
and also oversees the Program's substantive operations, and handles administrative functions.
THE NATIONAL ASSOCIATION OF BANKRUPTCY TRUSTEES
The National Association of Bankruptcy Trustees was formed during 1982 in order to address
the needs of the trustees and to promote an effectiveness of the bankruptcy system. The trustees
representing Chapter 7 distribute approximately $1.5 billion dollars each year to creditors and
administer covering more that a million cases annually. There are more than 1,200 panel trustees
in the country who are receiving new cases on a day to day basis, three quarters of whom are
NABT members, together with hundreds of associate members, including judges, United States
Trustees (USTs)2, auctioneers, appraisers, insurance agents, bankers, attorneys, and accountants
who frequently work with trustees.
Filing for bankruptcy is the very last resort for people overburdened by debts and unable to clear
them. The decision to file bankruptcy is a grave one and it is recommended not to make such a
decision in haste. Many people choose this option without finding out the available alternatives
to bankruptcy.
General functions of trustee
The trustee is responsible for the distribution of the bankrupt?s estate. He is also responsible for
carrying out functions and manages the bankrupt?s estate.

The trustee is responsible to furnish the official receiver the bankrupt?s official
documents and records and provide any further assistance if in case of any need.
The bankrupt's estate shall vest in the trustee immediately on his appointment taking effect or, in
the case of the official receiver, on his becoming trustee.
The trustee can apply to the court for imposing charges in the property consisting of an interest
dwelling in the house.
Powers of trustee
The trustee can allow the bankrupt to perform the following activity with the permission of the
creditors' committee or the court, to :
To superintend the management of his estate or any part of it,
To carry on his business (if any) for the benefit of his creditors, or
To assist in administering the estate in such manner and on such terms as the trustee may direct.
Acquisition by trustee of control
The trustee appointed by the court for a particular bankruptcy case shall take possession of all the
books, important papers and records belonging to the bankrupt or under his control.
The trustee can exercise any possession of stocks or shares in a company or ship or any other
document that is transferable to the same extent as the bankrupt might exercise if he has not
become bankrupt.
Liability of trustee
Where on an application under this section the court is satisfied -
The trustee of a bankrupt's estate has misapplied or retained, or become accountable for, any
money or other property comprised in the bankrupt's estate, or
The bankrupt's estate has suffered any loss in consequence of any duty by a trustee of the estate
in the carrying out of his functions the court may order the trustee, for the benefit of the estate, to
repay, restore or account for money or other property together with interest at such rate as the
court thinks just) or, as the case may require, to pay such sum by way of compensation in respect
of the misfeasance or breach of fiduciary or other duty as the court thinks just. This is without
prejudice to any liability arising apart from this section
An application under this section may be made by the official receiver, the Secretary of State, a
creditor of the bankrupt or the bankrupt himself.
But the leave of the court is required for the making of an application if it is to be made by the
bankrupt or if it is to be made after the trustee has had his release.
Where -
The trustee seizes or disposes of any property which is not comprised in the bankrupt's estate,
and
At the time of the seizure or disposal the trustee believes, and has reasonable grounds for
believing, that he is entitled (whether in pursuance of an order of the court or otherwise) to seize
or dispose of that property,
The trustee appointed by the bankruptcy court is not liable for the loss or damage of the items
seized or disposal. He will be liable only in the case when the damaged is caused by the
negligence of the trustee

The only issue before the appellate courts was whether the bankruptcy court had
exclusive jurisdiction over the state-law claims related to services rendered in the
bankruptcy case. The Second Circuit affirmed the district court’s rejection of the debtor’s
contention “that the disposal of his estate limited the bankruptcy court’s jurisdiction,”
and it agreed that “a bankruptcy court retains postconfirmation jurisdiction to interpret
and enforce its own orders.”[16] The court began its discussion by quoting an opinion
out of the Fifth Circuit faced with a similar question to that in Baker, which stated

That the bankruptcy court has some kind of jurisdiction over this
malpractice action against court-appointed professionals is not in doubt.
But what the court can do with its jurisdiction depends first on whether
the malpractice case is a “core” bankruptcy matter or one that is “related
to” [a bankruptcy proceeding]. If the suit...is merely related to
bankruptcy, the bankruptcy court was required to abstain from hearing it.
28 U.S.C. § 1334(c)(2). If, however, the controversy lies at the core of
the federal bankruptcy power, the bankruptcy law permits but does not
require abstention.[17]
 Further, the Second Circuit recognized that a bankruptcy court has the ability to review
the conduct of the attorneys that it has appointed in a bankruptcy proceeding and held
that adjudication of the malpractice and other claims were an “essential part of
administering the estate,” thereby implicating the bankruptcy court’s “core” jurisdiction.
[18] The claims existed because of the bankruptcy case, and this inextricable link
rendered mandatory abstention pursuant to 28 U.S.C. § 1334(c)(2) inapplicable. Quite
simply, the debtor’s “claims against [Counsel] ‘would have no existence outside of
thebankruptcy.’”[19] +++++++++++++++++

Frauds
The Consumer and Commercial Fraud Section oversees federal criminal prosecution of offenses
such as:
• Consumer fraud, including telemarketing fraud, sweepstakes and premiums fraud, fraud
by businesses against customers
• Securities fraud, including embezzlement by brokers, insiders trading, and false
statements or promises to investors
• Investment fraud in investments other than securities, stocks and bonds, including
franchise fraud, business investments and fictitious charity solicitations
• Computer fraud, including use of the internet to commit fraud
• Copyright, trademark and trade secret fraud
• Insurance fraud, including fictitious accidents, false medical claims and fraud insurance
companies against policy holders
• Bankruptcy fraud, including diversion of assets by trustees or debtors and false
statements to the bankruptcy court
• Commercial fraud, including fraud against businesses and large thefts of funds by
corporate insiders
In addition to laws prohibiting specific unlawful activity, broad federal statutes protect against
fraud, making any fraudulent scheme a federal crime if the United States mail or a courier
service is used in its commission, or if interstate wire transfers, telephone calls, fax
transmissions, e-mails or other interstate communications are used in the fraud.
If anyone has information regarding frauds, please call the U.S. Attorney's Office, Fraud Section,
at (215) 861-8570. Peter Schenck is the Chief of the Fraud Section. The FBI and the U.S. Postal
Inspection Service may also be contacted at the telephone numbers previously listed.

++++++++++++++++++++++++++++++++++++++++
The Financial Fraud and Public Corruption Unit includes securities, commodities and
investor fraud, public corruption, bank fraud and embezzlement, mortgage fraud, tax fraud,
health care fraud, bankruptcy fraud and Foreign Corrupt Practices Act violations.