Rae v. Estate of Van Buren , 34 F. App'x 897 ( 2002 )


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  •                         UNPUBLISHED
    UNITED STATES COURT OF APPEALS
    FOR THE FOURTH CIRCUIT
    In Re: RICHARD RAE,                     
    Debtor.
    RICHARD RAE
    Plaintiff-Appellee,           No. 01-2238
    v.
    ESTATE OF RENE VAN BUREN,
    Defendant-Appellant.
    
    Appeal from the United States District Court
    for the Eastern District of Virginia, at Alexandria.
    Claude M. Hilton, Chief District Judge.
    (CA-99-1724-A, BK-97-12939)
    Argued: April 4, 2002
    Decided: May 2, 2002
    Before MICHAEL and MOTZ, Circuit Judges, and
    Walter K. STAPLETON, Senior Circuit Judge of the
    United States Court of Appeals for the Third Circuit,
    sitting by designation.
    Affirmed by unpublished per curiam opinion.
    COUNSEL
    ARGUED: Jeffrey Marc Sherman, O’ROURKE & CUNDRA, Wash-
    ington, D.C., for Appellant.
    2                             IN RE RAE
    Unpublished opinions are not binding precedent in this circuit. See
    Local Rule 36(c).
    OPINION
    PER CURIAM:
    After Richard Rae defaulted on a loan from Rene Van Buren, Rae
    filed for bankruptcy protection. Because Rene Van Buren had died in
    the interim, her estate filed a claim in Rae’s bankruptcy case. The
    bankruptcy court disallowed the claim, reasoning that the underlying
    loan was usurious under Florida law; the district court affirmed. The
    Van Buren estate appeals, contending that Rae waived his usury argu-
    ment below, that Rae failed to prove the loan was usurious, and that
    Rae’s perjury and falsification require a new trial. We affirm.
    I.
    By way of background, we note that before the loan that led to this
    appeal, Rae, the debtor, had conducted financial transactions for sev-
    eral years with David Van Buren, the son and executor of the estate
    of Rene Van Buren. In their dealings, Rae and David Van Buren
    tended to rely on uneven and informal documentation.
    Rae, David Van Buren, and Rene Van Buren were all present at the
    formation of the loan in question. Rae’s account of that transaction,
    which the bankruptcy court expressly credited over contrary testi-
    mony by witnesses for the Van Buren estate, is that Rene Van Buren
    loaned him $100,000, at 18% interest according to the written docu-
    mentation, and that he paid an additional 12% interest, or $12,000, to
    David Van Buren, to yield a total interest rate of 30%. Florida’s usury
    law (which, the parties agree, applies here) forbids any recovery on
    a debt with an interest rate greater than 25%, see Fla. Stat. ch. 687,
    071 (2,7) (2002); Dixon v. Sharp, 
    276 So.2d 817
    , 819 (Fla. 1973), and
    Rae testified that the transaction was deliberately structured in two
    parts to hide the usury. The Van Buren estate contends that the trans-
    actions were separate and legitimate.
    IN RE RAE                              3
    Although he made various payments, the purpose and implications
    of which the parties disputed below, Rae defaulted on the Van Buren
    loan. Unable to meet other financial obligations as well, Rae applied
    for and on August 8, 1998, received a general discharge in bank-
    ruptcy. On November 9, 1998, however, after a trial, the bankruptcy
    court revoked Rae’s general discharge under 
    11 U.S.C.A. § 727
     (West
    1993 & Supp. 2001), which bars discharge in certain circumstances.
    In the revocation proceeding, Rae did not formally plead that the Van
    Buren loan was invalid as usurious, but he did testify to this effect.
    When revoking the discharge ("the revocation proceeding"), the
    bankruptcy court declined to rule, as moved by the Van Buren estate,
    that Rae’s debt to the Van Buren estate was nondischargeable. See 
    11 U.S.C.A. § 523
     (West 1993 & Supp. 2001). After the revocation pro-
    ceeding, then, the Van Buren estate was free to pursue its claim, since
    all of Rae’s debts had been reinstated, but it had not won any specific
    ruling as to its own claim.
    On December 4, 1998, the Van Buren estate filed a proof of claim
    in Rae’s bankruptcy case. See 
    11 U.S.C.A. §§ 501
    , 726 (West 1993
    & Supp. 2001). Rae objected to this proof of claim on the ground that
    the underlying loan had been usurious. See 
    11 U.S.C.A. § 502
     (West
    1993 & Supp. 2001). On April 20, 1999, after a bench trial ("the proof
    of claim proceeding"), the bankruptcy court disallowed the Van
    Buren estate’s claim against Rae, finding the loan usurious. Expressly
    relying on credibility determinations favoring Rae over David Van
    Buren and other witnesses for his mother’s estate, the court ruled that
    the two payments constituted one transaction with an interest rate of
    30% that was thus usurious under Florida law. In doing so, the court
    noted, however, that Rae’s explanation of a particular check he had
    submitted in support of his story was unsatisfactory, because Rae
    could not explain why the check said "3 superbowls" as well as "inter-
    est" in its description line.
    On April 30, 1999, the Van Buren estate moved for reconsideration
    pursuant to Bankruptcy Rule 9023 (2002). On June 10, 1999, the Van
    Buren estate amended and supplemented its earlier motion to recon-
    sider, moving for relief from the judgment or a new trial under Bank-
    ruptcy Rules 9023 and 9024 (2002). The ground for the supplemental
    pleading, which had not been raised in the April 30 motion, was
    4                              IN RE RAE
    newly discovered evidence of fraud. The Van Buren estate offered
    new evidence that Rae had altered the markings on two checks,
    including the check that the bankruptcy court had expressly found
    questionable in its earlier ruling; after the checks cleared, Rae added
    the notation "interest" to the description section of one check and
    "prepaid interest" to that of the other check.
    On June 15, 1999, the bankruptcy court held a hearing on the
    estate’s motion. Rae was unable to dispute the Van Buren estate’s evi-
    dence of fraud. Nevertheless, the court denied the estate’s motion in
    all respects on July 9, 1999, explaining, inter alia, that "notations on
    the checks weighed so little in the balance that it could not affect the
    result reached." Whether the court held an entirely new trial or merely
    reopened the record for new evidence, the court specifically stated, "I
    am convinced that I would reach exactly the same result on the under-
    lying issue, which was the defense of usury in this case."
    The district court affirmed in full, and the Van Buren estate timely
    noted this appeal. We review the bankruptcy court’s findings of fact
    for clear error and the legal conclusions of the bankruptcy and district
    courts de novo, considering the record as a whole. See In re Morris
    Communications, 
    914 F.2d 458
    , 467 (4th Cir. 1990).
    II.
    The Van Buren estate first contends that in support of Rae’s con-
    tention that the loan was usurious, Rae failed to offer "clear and satis-
    factory" evidence, as required by Florida law. We disagree. To show
    that a transaction is usurious, Florida law requires "clear and satisfac-
    tory" evidence of (a) an existing loan, (b) an understanding that the
    money would be returned, (c) an agreement that the rate of interest
    would be greater than the legal limit, and (d) a "corrupt intent to take
    more than the legal rate for the use of the money loaned." Dixon, 276
    So.2d at 819 (citation omitted). In attacking Rae’s evidence of usury,
    the Van Buren estate relies on negative findings that the bankruptcy
    court made as to Rae’s honesty and other factors that fundamentally
    go to the witnesses’ relative credibility. The Achilles heel of this
    approach is the bankruptcy court’s explicit determination that Rae’s
    credibility — even in light of the altered checks — was greater than
    that of the Van Buren estate’s witnesses. Rae’s account, once
    IN RE RAE                                5
    accepted by the trier of fact, is more than sufficient, considered with
    the available documentation, to provide clear and satisfactory evi-
    dence that the agreement among Rae and the Van Burens was usuri-
    ous under Florida law. For the reasons stated by the district court, see
    Estate of Van Buren v. Rae (In re Rae), No. 99-1724-A, slip op. at
    3-4 (E.D. Va. Aug. 23, 2001), we will not second guess the credibility
    determinations of the bankruptcy court.
    The estate next argues that because Rae failed formally to plead an
    affirmative defense of usury during the revocation proceeding, he
    waived the right to make any usury argument in the future. See Bankr.
    R. 7008, 7013, 4007(e) (2002). At the proof of claim proceeding, the
    bankruptcy judge ruled that at the revocation proceeding he had never
    reached the question of the validity of the Van Buren loan to Rae,
    because he had rejected the Van Buren estate’s argument at an earlier
    step, when ruling that the Van Buren debt was not nondischargeable
    under § 523. In order to rule the other way, to hold the debt nondis-
    chargeable, the court would have had to reach the debt’s validity, but
    in declining to so rule, the court said, it simply did not reach the issue.
    As the court noted, the usury issue was raised in testimony in the
    revocation proceeding, though not formally pled. In addition, the Van
    Buren estate later had a full opportunity to litigate the matter in the
    proof of claim proceeding.
    Under the rationale that the Van Buren estate urges upon us, every
    dischargeability and revocation proceeding would have to address the
    validity of every underlying claim. Yet, the estate has not cited a sin-
    gle case, considering either dischargeability, (
    11 U.S.C.A. § 523
    ) or
    revocation (
    11 U.S.C.A. § 727
    ), with the result it seeks in this case.
    The estate does point to cases showing that a bankruptcy court may
    address validity during a dischargeability proceeding under § 523. See
    In re Gergely, 
    186 B.R. 951
     (B.A.P. 9th Cir. 1995), rev’d on other
    grounds, 
    110 F.3d 1448
     (9th Cir. 1997); In re Shapiro, 
    22 B.R. 685
    (Bankr. E.D. Pa. 1982). But it has failed to offer (nor have we
    located) any case holding that a debtor waived an invalidity argument
    by failing to raise it in a proceeding in which a court did not deem
    a debt nondischargeable under § 523. Cf. Sanders v. First Nat’l Bank
    in Great Bend, 
    114 B.R. 507
     (M.D. Tenn. 1990) (dismissing a civil
    non-bankruptcy complaint because it had not been pled in an earlier
    proceeding that resulted in a ruling of nondischargeability). Nor has
    6                               IN RE RAE
    the Van Buren estate identified a single case dealing with a determi-
    nation of the validity of a debt at a general revocation proceeding
    under § 727.
    Moreover, contrary to the Van Buren estate’s contention that the
    usury defense is waived and therefore "forever barred," the bank-
    ruptcy rules allow a debtor to resurrect even a compulsory counter-
    claim if it can show "oversight, inadvertence, or excusable neglect, or
    when justice so requires." Sanders, 
    114 B.R. at
    515 n.3; Bankr. R.
    7008, 7013. Given the liberality of the rules, and the Van Buren
    estate’s failure either to provide one case on point or to show surprise
    or prejudice, we decline to reverse the bankruptcy court for its han-
    dling of this litigation.
    Finally, the Van Buren estate contends that the bankruptcy court
    violated Bankruptcy Rules 9023 and 9024, which incorporate Federal
    Rules of Civil Procedure 59 and 60, respectively, in refusing to over-
    turn its own usury ruling on the ground that Rae perjured himself and
    faked evidence. Although we view the evidence of Rae’s fraud at
    least as seriously as did the bankruptcy judge, who described it as
    "very troubling," we find no basis for finding a violation of Bank-
    ruptcy Rules 9023 or 9024.
    With respect to Rule 9023, the bankruptcy court explained that the
    motion was late given that rule’s strict ten-day time limit. See Fed. R.
    Civ. P. 59. The Van Buren estate made no argument in its brief as to
    the timeliness of the motion, and has thus waived any challenge to
    this procedural ruling. See Fed. R. App. P. 28(a)(9); see, e.g., Marvel
    Specialty Co. v. Bell Hosiery Mills, Inc., 
    330 F.2d 164
    , 169 n.5 (4th
    Cir. 1964).
    As for Rule 9024 (incorporating Rule 60), contrary to the implica-
    tion of the Van Buren estate’s argument, the bankruptcy court plainly
    understood the different standards applicable under Federal Rules of
    Procedure 60(b)(2) and 60(b)(3). Pursuant to Rule 60(b)(2), the court
    noted not only that the newly discovered evidence was cumulative but
    also that it would not have altered the result of the trial; both are rele-
    vant observations under that subsection of the rule. See Boryan v.
    United States, 
    884 F.2d 767
    , 771 (4th Cir. 1989). We see no reason
    IN RE RAE                              7
    to believe that these conclusions constituted an abuse of discretion.
    See 
    id. at 772
    .
    Under Rule 60(b)(3), the bankruptcy court had to determine
    whether the Van Buren estate had shown a "meritorious defense,"
    misconduct proven by clear and convincing evidence, and that the
    movant was not fully permitted to present its case because of the mis-
    conduct. Schultz v. Butcher, 
    24 F.3d 626
    , 630 (4th Cir. 1994) (grant-
    ing a new bench trial). The bankruptcy court rejected the motion on
    the third prong. The court concluded that the estate had had a full and
    fair opportunity to litigate its case despite this evidence, noting that
    the parties extensively debated what the notations on the checks might
    have meant and what the checks might have covered. Indeed, David
    Van Buren testified as to the difference in handwriting between the
    two notations on one check, and the court itself, in its judgment
    before the new evidence of falsification was offered, noted that Rae
    had been unable satisfactorily to account for one check. Given that the
    bankruptcy court held a full two-hour hearing on the new evidence,
    and that the bankruptcy court had expressly doubted this aspect of
    Rae’s testimony in its initial ruling, we decline to hold that the court
    abused its discretion in denying the motion.
    III.
    For these reasons, the district court’s judgment affirming the judg-
    ment of the bankruptcy court is
    AFFIRMED.