Girardi v. Heep ( 1999 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
JOHN P. GIRARDI; JANET E. GIRARDI,
Plaintiffs-Appellees,
v.
HATSY HEEP,
No. 98-2617
Defendant-Appellant,
and
ANN BRAKKE CAMPFIELD,
Party in Interest.
Appeal from the United States District Court
for the Eastern District of Virginia, at Richmond.
Robert E. Payne, District Judge.
(CA-96-894-3)
Argued: September 23, 1999
Decided: December 30, 1999
Before WILKINS, NIEMEYER, and TRAXLER, Circuit Judges.
_________________________________________________________________
Reversed and remanded with instructions by unpublished opinion.
Judge Traxler wrote the majority opinion, in which Judge Wilkins
joined. Judge Niemeyer wrote a dissenting opinion.
_________________________________________________________________
COUNSEL
ARGUED: Gary Alvin Bryant, WILLCOX & SAVAGE, P.C., Nor-
folk, Virginia, for Appellant. Archibald Wallce, III, SANDS,
ANDERSON, MARKS & MILLER, Richmond, Virginia, for Appel-
lees. ON BRIEF: John Dinshaw McIntyre, Peter V. Chiusano,
WILLCOX & SAVAGE, P.C., Norfolk, Virginia, for Appellant. L.
Lee Byrd, SANDS, ANDERSON, MARKS & MILLER, Richmond,
Virginia, for Appellees.
_________________________________________________________________
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
_________________________________________________________________
OPINION
TRAXLER, Circuit Judge:
Hatsy Heep ("Heep") appeals from the district court's denial of her
motion to reopen the court's June 17, 1997 judgment. The district
judge rejected Heep's contention that the order is either void under
Federal Rule of Civil Procedure 60(b)(4) or a product of mistake
under Rule 60(b)(1). We reverse and remand with instructions.
I.
In 1991, Heep contracted with John and Janet Girardi ("the
Girardis") to purchase their home and an adjoining lot. Heep later
refused to perform and the Girardis sold the property to another pur-
chaser for substantially less than the Heep contract. The Girardis sued
Heep for breach of contract in Virginia state court and secured a judg-
ment for $873,248.18 and an award of attorney fees. Shortly after the
judgment, Heep filed a Chapter 7 bankruptcy petition, and the
Girardis instituted an adversary proceeding to except their judgment
from discharge on the grounds of fraud or, alternatively, for willful
and malicious injury. See 11 U.S.C.A. §§ 523(a)(2)(A), (a)(6) (West
1993 & Supp. 1999). The trial began before the bankruptcy court with
a presentation of evidence by the Girardis. During their case the
Girardis called Heep as an adverse party, at which time Heep
answered the questions propounded by the Girardis and some thereaf-
ter in response from her attorney. At the close of the Girardis' evi-
2
dence, the bankruptcy judge dismissed the Girardis' complaint on
Heep's motion. Having succeeded in obtaining a dismissal of the
Girardis' claims, Heep did not go forward with her case. The Girardis
appealed to the district court. See 28 U.S.C.A. § 158(a) (Supp. 1998).
By the time the Girardis appealed, Heep's attorney had withdrawn
and Heep was proceeding pro se. The notice of appeal and appellate
brief were served on Heep by first class mail at the address shown for
her in the bankruptcy court's files. Although Heep now alleges she
never received the notice or brief and that the address used was incor-
rect, the address was the one she gave the bankruptcy court as well
as the address used by counsel representing Heep in other matters.
Heep did not attend the appellate argument before the district court.
The district judge, recognizing Heep was without representation, took
the matter under advisement and issued an order giving Heep addi-
tional time to file a brief. The court mailed the order to Heep's
address of record and asked former counsel for Heep, who happened
to be present in the courtroom on another matter, to inform Heep that
she could file a brief. The attorney promptly wrote Heep and
explained that if she did not take appropriate action such as retaining
counsel or filing a brief, the order of the bankruptcy judge would be
reversed.1 Nevertheless, Heep did not retain an attorney or attempt to
respond to the Girardis' arguments.
In subsequently ruling on the issues, the district judge, sitting as an
appellate court, took a different view of the strength of the Girardis'
case than that of the bankruptcy judge, and found the Girardis' evi-
dence sufficient to support a claim for willful and malicious action by
Heep. Rather than remanding the case to the bankruptcy court for the
presentation of Heep's case and the completion of the trial, however,
the district court entered judgment for the Girardis. This decision of
the district court was filed on June 17, 1997, and mailed to Heep.
Heep alleges that she did not learn of the district court's decision
until the fall of 1997. However, Heep's affidavit and the evidence of
_________________________________________________________________
1 As with the original notice of appeal, Heep alleges she never received
her attorney's letter or the district court's order granting an extension of
time.
3
her attempts to retain counsel to handle an appeal of the order show
clearly that Heep knew of the district court's decision by early August
1997. At no point did Heep file a timely appeal or move for an exten-
sion of time to appeal. According to Heep, this inaction resulted from
her lack of funds. Heep first endeavored to redress the June 17, 1997
order in April 1998 when she filed a motion to reopen the judgment
based upon Rules 60(b)(1) and 60(b)(4).2 The district court described
the June 17, 1997 order as the "result of an error of law," but denied
the motion. J.A. at 1280. Heep now appeals the denial of her motion
to reopen the judgment.
II.
Heep claims that she is entitled to relief under Rule 60(b)(4)
because the June 17 order is void. We review the district court's
denial of Heep's Rule 60(b)(4) motion de novo. See Compton v. Alton
S.S. Co., 608 F.2d 96, 107 (4th Cir. 1979) (stating that motions "under
60(b)on any ground other than that the judgment is void" are
reviewed for abuse of discretion); see also Carter v. Fenner, 136 F.3d
1000, 1005 (5th Cir.), cert. denied, 119 S. Ct. 591 (1998); Grun v.
Pneumo Abex Corp., 163 F.3d 411, 423 (7th Cir. 1998), cert. denied,
119 S. Ct. 1496 (1999).
Rule 60(b)(4) permits a district court to relieve a party from a final
judgment because it is void. See Fed. R. Civ. P. 60(b)(4). Unlike the
other grounds under Rule 60(b), a void judgment can be set aside at
any time, and the movant need not establish a meritorious defense.
See Bludworth Bond Shipyard, Inc. v. M/V Caribbean Wind, 841 F.2d
646, 649 (5th Cir. 1988).
Finality concerns and the danger that litigants will use motions
under Rule 60(b)(4) to eschew the appellate process require that we
_________________________________________________________________
2 Depending upon when Heep learned of the district court's order, the
preferred course would have been a timely motion for reconsideration or
alteration of the judgment, an appeal, or a motion for extension of time
to appeal. However, if a judgment is void, a party is not foreclosed from
seeking relief under Rule 60(b)(4) because other available avenues of
correction were not utilized. See Winhoven v. United States, 201 F.2d
174, 175 (9th Cir. 1952).
4
narrowly construe the concept of a void judgment. See Hoult v. Hoult,
57 F.3d 1, 6 (1st Cir. 1995). A judgment that is merely erroneous can-
not be set aside for voidness; direct appeal is the only avenue of cor-
rection. See Baumlin & Ernst, Ltd. v. Gemini, Ltd., 637 F.2d 238, 242
(4th Cir. 1980). A judgment is void if the court rendering the decision
lacked personal jurisdiction, subject matter jurisdiction, or acted with-
out regard for due process of law. See Eberhardt v. Integrated Design
& Constr., Inc., 167 F.3d 861, 871 (4th Cir. 1999); Schwartz v. United
States, 976 F.2d 213, 217 (4th Cir. 1992).
Because the district court clearly had jurisdiction over the parties
and the subject matter, our inquiry is limited to whether Heep was
accorded due process of law. Due process commands that "depriva-
tion of life, liberty or property by adjudication be preceded by notice
and opportunity for hearing appropriate to the nature of the case."
Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 313
(1950); see also Mallette v. Arlington County Employees' Supplemen-
tal Retirement Sys. II, 91 F.3d 630, 640 (4th Cir. 1996) ("At a mini-
mum, the Constitution requires notice and some opportunity to be
heard."). Heep's property rights are at stake and subject to diminution,
see Mullane 339 U.S. at 313, because if the state court judgment and
accompanying fee award are non-dischargeable under the bankruptcy
code, see 11 U.S.C.A. §§ 523(a)(2)(A), (a)(6), Heep will be required
to pay the Girardis almost $1 million.
A.
Heep first alleges that notice was insufficient because (1) she never
received the mailings from the court or the Girardis, and (2) even if
she did, notice was inadequate. Under Bankruptcy Rule 8004, service
of notice may be made by mailing the notice "to the party's last
known address." Fed. R. Bankr. P. 8004. The district judge found that
the relevant materials were "timely sent to Heep at the address where
she resided then which was the address of record she had supplied to
the Bankruptcy Court." J.A. at 1274. Based upon a review of the
record for clear error, see In re Rosenfeld, 23 F.3d 833, 836 (4th Cir.
1994), we accept the district judge's factual findings regarding service
of the Girardis' notice of appeal and other pertinent documents upon
Heep. Moreover, we note that the district judge diligently sought to
protect Heep's rights when at the first scheduled argument he took the
5
matter under advisement and issued an order giving Heep additional
time to file a brief.
We also agree that the notice provided was adequate and reason-
ably conveyed the substance of the Girardis' appeal. Bankruptcy Rule
8001, in pertinent part, provides:
The notice of appeal shall (1) conform substantially to the
appropriate Official Form, (2) contain the names of all par-
ties to the judgment . . . appealed from and the names,
addresses, and telephone numbers of their respective attor-
neys, and (3) be accompanied by the prescribed fee.
Fed. R. Bankr. P. 8001. The notice of appeal closely follows the Offi-
cial Form, see 11 U.S.C.A. Official Bankr. Form 35 (West 1984),
contains the names of all parties to the order and the requisite infor-
mation regarding counsel, specifies the particular judgment appealed
from, and notes that the filing fee was paid. J.A. at 681-83. Consider-
ing the notice of appeal as well as the statement of the issues, we have
no doubt that Heep was adequately informed that the Girardis were
appealing the bankruptcy court's decision that as a matter of law the
Girardis could not prove that Heep's conduct was fraudulent or will-
ful and malicious.
Despite the Girardis' adherence to the Bankruptcy Rules and the
relevant form, Heep further complains that the notice did not inform
her that the district judge might enter judgment for the Girardis with-
out remanding for the presentation of evidence. In essence, Heep
claims she was entitled to pre-hearing notice of every possible out-
come of the proceeding.3 Such an argument clearly has no merit. Con-
cerns for due process of law "do[ ] not require notice of all possible
_________________________________________________________________
3 The cases cited by Heep in support of her position are inapposite. For
example, Heep relies on In re Linkous, 990 F.2d 160 (4th Cir. 1993), in
which we held that notice to a creditor of a confirmation hearing was
insufficient to notify him that a valuation hearing would also be held. Id.
at 163. However, unlike the creditor in In re Linkous who received no
notice of the valuation hearing, Heep was notified on more than one
occasion of the Girardis' appeal. Similarly, Heep cites New York Life
Insurance Co. v. Brown, 84 F.3d 137 (5th Cir. 1996), in which the Fifth
Circuit held that notice requirements were not satisfied when the district
court mailed notice of summary judgment proceedings to Brown at an
address it knew to be invalid. Id. at 142. In this case, however, notice
was mailed to Heep at the address which she provided to the bankruptcy
court.
6
ramifications of a hearing." In re W.F. Dev. Corp., 905 F.2d 883, 885
(5th Cir. 1990). In sum, we find that Heep received adequate notice
of "such nature as reasonably to convey the required information"
about the Girardis' appeal. Mullane, 339 U.S. at 314.
B.
Heep next contends that she was denied an opportunity to be heard.
"The fundamental requirement of due process is the opportunity to be
heard at a meaningful time and in a meaningful manner." Mathews v.
Eldridge, 424 U.S. 319, 333 (1976) (internal quotation marks omit-
ted). Because fundamental fairness requires that a party have the
opportunity to present evidence on the allegations of the complaint
and the contested factual issues, the denial of this opportunity renders
a court's ensuing judgment void. See Klapprott v. United States, 335
U.S. 601, 609 (1949) (stating that "if the hearing of evidence is a legal
prerequisite to rendition of a valid . . . judgment," the denial of the
opportunity to be heard renders the judgment void); In re Complaint
of Bankers Trust Co., 752 F.2d 874, 890 (3d Cir. 1985) ("Due Process
mandates that a judicial proceeding give all parties an opportunity to
be heard on the critical and decisive allegations which go to the core
of the parties' claim or defense and to present evidence on the con-
tested facts."); Thompson v. Madison County Bd. of Educ., 476 F.2d
676, 678 (5th Cir. 1973) (noting the importance of an opportunity to
present evidence and concluding that "a court can only render a judg-
ment after the parties have been afforded a full and fair trial on the
claims properly before the court").
Here, the district court acknowledged that it mistakenly entered
judgment for the Girardis when the proper course would have been
to remand the case to the bankruptcy judge, the original fact finder,
for the presentation of Heep's evidence; however, the district court
determined that this merely rendered the judgment erroneous, but not
void. In reviewing the record, we conclude that the district court's
disposition of the case "went beyond the ordinary``mistake;' it
resulted in a judgment which . . . was ``void.'" Compton, 608 F.2d at
106.
A fundamental aspect of our judicial system is that a judge decid-
ing a dispute between two parties will hear both sides before a judg-
7
ment is entered. This trial never got to the defense. Although Heep
had a limited opportunity to be heard by virtue of her having been cal-
led to the stand as an adverse party by the Girardis, because of the
district court's judgment she will not have been given a chance to
present her case at a "meaningful time and in a meaningful manner."
Mathews, 424 U.S. at 333. First, the Federal Rules of Evidence,
which apply to bankruptcy proceedings, see Fed. R. Bankr. P. 9017,
dictate that cross-examination "be limited to the subject matter of the
direct examination" unless the court permits otherwise. Fed. R. Evid.
611(b). Hence, Heep's counsel, in conducting his cross-examination
of her, was restricted in the scope of his questioning. Moreover, the
trial transcript indicates that counsel for Heep, after a brief cross-
examination, contemplated more extensive questioning during Heep's
case in chief when he informed the bankruptcy judge:"I'll save the
remainder of my questions for our portion of the case." J.A. at 604.
Under these circumstances, Heep's defense to the Girardis' allega-
tions of fraud and malicious injury was never fully presented in the
bankruptcy court. Second, we cannot conclude there were no other
witnesses for Heep or that there was no documentary evidence which
might have been forthcoming if Heep had been permitted to present
her case. In short, Heep has never had a chance to call a single wit-
ness. This is a denial of due process and no judgment dictating such
a result can stand.
The Girardis claim that Heep had a sufficient opportunity to be
heard because she could have attended appellate arguments in the dis-
trict court and thereafter appealed the June 17 order to this court.
Their contention seems to be that the question of due process is deter-
mined by an examination of the process leading to the decision, with-
out regard for the effect of the decision itself. In other words, the
Girardis assert that if the district court accorded Heep proper notice
and an opportunity to be heard during the appeal, the district court's
decision, whatever it was, comported with due process. Our differ-
ence with the Girardis is that we do not believe the due process ques-
tions can be determined by turning a blind eye to the effect of the
June 17 order, for in this extremely unusual situation it is the judg-
ment itself which denies Heep the right to present her side of the case.
See In re Complaint of Bankers Trust, 752 F.2d at 891-92 (holding
that trial court's refusal to conduct a hearing on the validity of a
release and special power of attorney deprived litigant of due pro-
8
cess); Thompson, 476 F.2d at 678 (holding due process was denied
when district court refused to conduct evidentiary hearing concerning
school's decision to terminate teachers). We have previously
expressed concerns for due process when an improper judgment was
entered even though notice and the opportunity to be heard had been
accorded to the defendant. In Compton we concluded that a default
judgment entered against the defendant was void when the district
court misapplied a statute and granted relief in excess of the amount
Compton was entitled to under the complaint. See 608 F.2d at 104-05.
Compton dealt with a suit by a seaman for the recovery of wages. In
Compton, the district judge entered a default judgment for $58,000
when the plaintiff had asked for $5000 and was actually entitled to
only $300. Even though the defendant in Compton , like Heep in the
present case, received notice and declined to appear, we determined
that such an unconscionable judgment had to be void or "there would
be serious due process questions." Id. at 106; see also United States
v. Indoor Cultivation Equip., 55 F.3d 1311 (7th Cir. 1995) (holding
default judgment void even though proper notice was given because
the government failed to commence forfeiture proceeding within the
requisite time); Great Am. Trading Corp. v. I.C.P. Cocoa, Inc., 629
F.2d 1282, 1288 (7th Cir. 1980) (reversing lower court's refusal to
hold evidentiary hearing on existence of an arbitration agreement and
concluding that "if no arbitration agreement exists the arbitration
award and judgment entered thereon is void" despite appellant's
knowledge of the arbitration proceedings and refusal to participate).
Because the effect of the June 17 order was to deprive Heep of an
opportunity to present her case in the bankruptcy court,4 Heep's
knowledge of the proceeding from which the void judgment resulted
and her right to appeal the district court's order to this court do not
alter the fact that a judgment denying due process is void ab initio.
_________________________________________________________________
4 At first blush it appears contradictory to say that the effect of the June
17 order was to deny Heep her due process rights in the bankruptcy court
when Heep emerged victorious in the original proceedings before the
bankruptcy judge. However, the unique situation presented in which the
district judge misconstrued the extent of the proceedings below and
essentially assumed the mantle of a trial court instead of an appellate
court dictates the conclusion that the district judge's action denied Heep
due process in the bankruptcy court.
9
Similarly, the Girardis argue that the June 17 order is merely erro-
neous and that, because Heep never appealed the order, no relief is
available under Rule 60(b). The Girardis claim that because the dis-
trict judge is authorized under Bankruptcy Rule 8013 to affirm, mod-
ify, reverse, or remand with instructions, the fact he acted within his
express powers, i.e., reversing the bankruptcy court and entering
judgment, leads to a valid judgment. While it is true that a district
court sitting as an appellate court has several options under Rule
8013, an exercise of judicial authority still cannot be valid in situa-
tions where there is no personal jurisdiction, where there is no subject
matter jurisdiction, or where due process is denied. See Schwartz, 976
F.2d at 217. So, when due process is denied, the action by the court
is void regardless of whether the court has the general authority to
enter a judgment. Upon hearing Heep's motion to reopen, the district
judge should have "wiped the slate clean" by declaring his entry of
judgment void and thus "restored [Heep] to the position [she] would
have occupied had due process of law been accorded." Armstrong v.
Manzo, 380 U.S. 545, 552 (1965).5
III.
For the foregoing reasons, we conclude that the district court's
June 17, 1997 order is void. Accordingly, we reverse the district
court's denial of Heep's Rule 60(b)(4) motion and remand with
instructions to return the case to the bankruptcy court for completion
of the trial.
REVERSED AND REMANDED WITH INSTRUCTIONS
NIEMEYER, Circuit Judge, dissenting:
Because the June 17 judgment at issue before us was, in every
respect, entered in accordance with due process of law, I dissent from
the majority's conclusion that the substantive error in the content of
the judgment, which the appellant failed to appeal, rendered the judg-
ment void and thereby collaterally reviewable under Federal Rule of
_________________________________________________________________
5 Heep also asks for relief under Rule 60(b)(1) on the grounds that a
mistake was made. Because we hold the June 17 order is void under Rule
60(b)(4), we do not reach this issue.
10
Civil Procedure 60(b)(4). My conclusion rests on the procedural facts
that are undisputed.
I
John and Janet Girardi contracted to sell real property to Hatsy
Heep. When Heep refused to consummate the transaction, the
Girardis were forced to sell the property to another party at a substan-
tial loss. They then sued Heep in a Virginia state court and obtained
a judgment in the amount of $873,248. When Heep sought protection
in bankruptcy from execution of the judgment, the Girardis sued Heep
in bankruptcy to have their judgment excepted from discharge under
11 U.S.C. §§ 523(a)(2)(A) and (a)(6) because Heep's conduct had
been fraudulent, willful, and malicious. At trial in the bankruptcy
court, the bankruptcy judge granted Heep's motion for judgment at
the conclusion of the Girardis' case. The bankruptcy judge made find-
ings of fact and conclusions of law, as required by Federal Rule of
Bankruptcy 7052, holding, among other things, that the Girardis
failed to establish fraud and malice. Accordingly, the bankruptcy
court entered a final order of dismissal dated September 23, 1996 (the
"September 1996 judgment").
From the September 1996 judgment, the Girardis filed a notice of
appeal to the district court pursuant to 28 U.S.C.§ 158(a). Following
a hearing and briefing in the district court, the court entered an order
dated June 17, 1997 (the June 1997 judgment), reversing the "deci-
sion and judgment of the bankruptcy court." The district court
observed that "the record is clear, beyond question, that Heep acted
willfully in breaching the Girardi contract." It concluded that the
uncontradicted evidence established both malice and fraud and that
therefore the state court judgment against Heep was non-
dischargeable.
Heep did not appeal the June 17 judgment of the district court.
Rather, almost ten months later, she tried to attack the judgment col-
laterally by moving to reopen it under Federal Rule of Civil Proce-
dure 60(b)(4). In response to Heep's motion to reopen, the district
court acknowledged that it should not have reversed the bankruptcy
court but rather should have remanded the case for a new trial. But
before ruling on the motion to reopen the judgment, the district court
11
invited Heep to proffer her defenses on the merits and to provide the
district court with an explanation for her delay in filing the Rule
60(b)(4) motion. Following a hearing and briefing, the district court
denied the motion to reopen, stating that Heep's remedy was an
appeal, not a collateral attack on the judgment. In entering this order,
the district court noted that Heep had testified at trial before the bank-
ruptcy court (as an adverse witness for the Girardis) and that her testi-
mony did not "overcome the other record evidence which clearly
established that she willfully and maliciously injured the Girardis."
From the district court's order refusing to reopen the June 17 judg-
ment, this appeal followed. Heep now contends that the district
court's June 17 judgment was void both because Heep did not have
notice of the appeal from the bankruptcy court to the district court and
because she was never given the opportunity to present her case on
the merits before the bankruptcy court.
II
While I agree with the district court and the majority that the June
17 judgment of the district court contained error, that fact does not
justify the conclusion that the judgment was void. The majority ruled
that this June 17 judgment was void because the district court "``acted
in a manner inconsistent with due process of law.'" Eberhardt v. Inte-
grated Design & Construction, Inc., 167 F.3d 861, 871 (4th Cir.
1999) (quoting Schwartz v. United States, 976 F.2d 213, 217 (4th Cir.
1992) (citations omitted)).
As the majority pointed out, Heep was in fact given repeated
notices, from several different sources, of the Girardis' appeal from
the bankruptcy court to the district court. Moreover, when Heep did
not appear to argue the appeal, the district court specifically sent her
another notice to give her an opportunity to brief her position on
appeal. Even though Heep was given this notice and these opportuni-
ties to be heard on appeal, she failed to appear, presumably because
she no longer had an attorney. The majority, however, concludes that
she was not given an opportunity to be heard because she never pre-
sented her case before the bankruptcy court. But the bankruptcy court
proceeding is not the one at issue before us. It is the June 17 judgment
of the district court. By the very conclusion of the majority that Heep
12
had notice and the opportunity to be heard on the appeal, she was
afforded due process in the appellate proceeding and the challenged
judgment cannot be void because of a lack of due process.
The majority conflates the proceedings before the district court and
the bankruptcy court to conclude that because the district court erred,
Heep did not have an opportunity to be heard before the bankruptcy
court. Whether Heep was heard before the bankruptcy court does not,
however, determine whether the district court's order satisfied due
process. The question is whether Heep was given the opportunity to
be heard before the district court which entered the order in question.
Moreover, when the district court erred in entering its judgment, the
remedy for error was an appeal to this court. The fact that Heep did
not take the appeal and therefore was erroneously denied a new trial
does not render the judgment void.
The district court clearly had jurisdiction over the parties and the
subject matter; it clearly acted within its appellate authority over
bankruptcy judgments; and Heep clearly had notice of the appeal and
an opportunity to be heard before the district court. The district
court's judgment was without question entered in conformance with
due process. Because we cannot conclude that the district court's
judgment was void under Federal Rule of Civil Procedure 60(b)(4),
I would affirm the order of the district court denying Heep her motion
to reopen the judgment.
13