James Kelley, III v. United States Bankruptcy Court for the District of Colorado

FILED
U.S. Bankruptcy Appellate Panel
of the Tenth Circuit
NOT FOR PUBLICATION 1
November 30, 2016
UNITED STATES BANKRUPTCY APPELLATE PANELBlaine F. Bates
Clerk
OF THE TENTH CIRCUIT
_________________________________
IN RE JAMES WARE KELLEY, III, BAP No. CO-16-004
Debtor.
__________________________________
JEFFREY WEINMAN, Bankr. No. 13-28933
Adv. No. 15-01268
Plaintiff - Appellee, Chapter 7
v.
JAMES WARE KELLEY, III, OPINION
Defendant - Appellant.
_________________________________
Appeal from the United States Bankruptcy Court
for the District of Colorado
_________________________________
Before NUGENT, SOMERS, and HALL, Bankruptcy Judges.
_________________________________
HALL, Bankruptcy Judge.
_________________________________
Appellant James Kelley 2 appeals the bankruptcy court’s Order Denying Motion to
1
This unpublished opinion may be cited for its persuasive value, but is not precedential,
except under the doctrines of law of the case, claim preclusion, and issue preclusion. 10th
Cir. BAP L.R. 8018-6.
2
Kelley appears pro se on this appeal and similarly appeared pro se in the underlying
Colorado bankruptcy case and the adversary proceeding from which this appeal arises.
Set Aside Default Judgment (the “First Denial Order”) 3 and Order Denying Motion for
Reconsideration of Default Judgment (the “Second Denial Order”). 4
I. INTRODUCTION
Kelley was a real estate investor who bought and sold real estate and leased
various properties to third parties. 5 Beginning in 2009, he routinely collected security
deposits from his tenants in North Carolina and comingled the security deposits with
personal funds in violation of North Carolina laws pertaining to security deposits. 6 He
regularly failed to return the security deposits, challenging tenants with contrived and
unsubstantiated claims that the tenants had left the premises in a damaged state or owed
bills that were not the tenants’ responsibility. 7 He also attempted to thwart tenants’ legal
actions for recovery of their security deposits by appealing judgments entered in favor of
the tenants even though he had not appeared at trial. 8
On August 26, 2010, Kelley further attempted to thwart his tenants’ recovery of
their security deposits by filing a Chapter 11 bankruptcy petition in the Eastern District of
3
First Denial Order in Appellant’s App. at 118.
4
Second Denial Order in Appellant’s App. at 165.
5
Exhibit B, Entry of Judgment and Permanent Injunction Against Defendant James Ware
Kelley, III in Appellant’s App. at 27.
6
Id. at 8, in Appellant’s App. at 33.
7
Id.
8
Id. at 4, in Appellant’s App. at 29.
2
North Carolina. 9 This case was ultimately dismissed on November 27, 2012, for default
under Kelley’s confirmed plan. 10
In July 2013, the North Carolina Attorney General filed a complaint against
Kelley in connection with violations of the North Carolina laws regulating security
deposits and unfair and deceptive trade practices (the “North Carolina Action”). 11
On November 13, 2013, Kelley filed his second Chapter 11 bankruptcy case in the
District of Colorado. He listed on his petition a mailing address of 4117 Tejon,
Apartment D, Denver, CO 80211 (the “Denver Address”). 12 On October 9, 2014, the
bankruptcy court converted Kelley’s Chapter 11 case to Chapter 7. Jeffrey Weinman was
appointed as the Chapter 7 Trustee (the “Trustee”).
On April 6, 2015, in the North Carolina Action, the court entered a judgment
against Kelley13 based on the following facts: (1) Kelley had collected at least $14,935 in
security deposits from his tenants and failed to protect or return those deposits as
9
Id.
10
Id.
11
Exhibit B, Entry of Judgment and Permanent Injunction Against Defendant James
Ware Kelley, III, at 3-4 in Appellant’s App. at 27-28.
12
Kelley represented that he had “been domiciled or has had a residence, principal place
of business, or principal assets in [the District of Colorado] for 180 days immediately
preceding the date of the petition . . . .” First Denial Order at 2, in Appellant’s App. at
119 (quoting In re Kelley, No. 13-28933-HRT (Bankr. D. Colo. Nov. 13, 2013) (No. 1)).
13
The bankruptcy court noted that 11 U.S.C. § 362(b)(4), the police and regulatory
exception to the automatic stay, authorized the North Carolina Superior Court to continue
the prepetition proceeding brought by the North Carolina Attorney General. First Denial
Order at 2, in Appellant’s App. at 119.
3
mandated by applicable state statutes; and (2) Kelley had attempted to thwart tenants’
legal actions to recover judgments by pursuing frivolous court proceedings and appeals,
constituting violations of the North Carolina Unfair and Deceptive Trade Practices Act
(the “North Carolina Judgment”). The North Carolina Judgment required Kelley to pay
restitution, civil penalties, and attorney’s fees and included a permanent injunction
against Kelley from accepting further security deposits. Kelley did not appeal the North
Carolina Judgment.
On July 10, 2015, the Trustee filed a Complaint against, and obtained the issuance
of a summons on, Kelley (collectively referred to herein as the “Complaint”), 14 objecting
to Kelley’s discharge under 11 U.S.C. §§ 727(a)(2), (a)(3), (a)(4)(D), and (a)(5). 15 The
Complaint alleged that Kelley undertook transactions with the intent to hinder, delay, or
defraud creditors in his bankruptcy case by refusing and failing to produce documents or
provide information to the Trustee. The Trustee filed a Certificate of Service 16
documenting service of the Complaint on Kelley at the Denver Address. The Denver
Address was Kelley’s address of record at the time the Complaint was filed.
14
Appellee’s App. at 113.
15
All future references to “Code,” “Section,” and “§” are to the Bankruptcy Code, Title
11 of the United States Code, unless otherwise indicated. All references to “Bankruptcy
Rule” or “Bankruptcy Rules” are to the Federal Rules of Bankruptcy Procedure, unless
otherwise indicated.
16
Appellee’s App. at 119.
4
On July 14, 2015, the Trustee filed his Amended Complaint (the “Amended
Complaint”), 17 adding allegations related to the North Carolina Judgment that Kelley
wrongfully withheld security deposits and thwarted tenants’ legal action to recover such
deposits. 18 The Amended Complaint included a Certificate of Service 19 indicating the
Trustee served the Amended Complaint on Kelley by first class United States mail at the
Denver Address. The Denver Address was Kelley’s address of record at the time the
Amended Complaint was filed.
On August 28, 2015, the Trustee filed his Motion for Entry of Default and Default
Judgment 20 (the “Default Judgment Motion”). At the time of the filing of the Default
Judgment Motion, Kelley had neither filed an answer to the Complaint or the Amended
Complaint nor otherwise appeared in the adversary proceeding. The Trustee represented
that the Complaint and Amended Complaint were properly served on Kelley by first class
United States mail at the Denver Address. Attached to the Default Judgment Motion was
a certified copy of the North Carolina Judgment, an affidavit of the Trustee, and a
declaration of a North Carolina Special Deputy Attorney General. The Default Judgment
Motion also included a certificate of service, which indicated that the Trustee served the
Default Judgment Motion by first class United States mail at the Denver Address and, out
17
Appellant’s App. at 6.
18
Appellee’s Br. 2.
19
Appellant’s App. at 14.
20
Appellant’s App. at 15.
5
of an abundance of caution, at 103 Isley Street, Apartment D, Chapel Hill, NC 27516 (the
“North Carolina Address”). 21
Kelley did not respond to the Default Judgment Motion. On September 14, 2015,
the bankruptcy court entered its Order Granting Motion for Entry of Default and Default
Judgment (the “Default Judgment”). 22 On September 28, 2015, Kelley filed the Debtor’s
Motion to Set Aside Default and Default Judgment (the “Rule 60(b) Motion”). 23 In the
Rule 60(b) Motion, Kelley argued that he provided the North Carolina Address in a
response filed with the bankruptcy court on August 14, 2015, and he did not receive the
Default Judgment Motion at the North Carolina Address until September 14, 2015, the
same day the bankruptcy court entered the Default Judgment. 24 The Trustee filed the
Response in Opposition to Debtor’s Motion to Set Aside Default and Default Judgment
(the “First Response”) on October 12, 2015, indicating he served the Default Judgment
Motion on the North Carolina Address and the Denver Address. 25 On December 31,
2015, the bankruptcy court entered the First Denial Order, discussing at length each
21
Default Judgment Motion at 8, in Appellant’s App. at 22. Kelley listed the North
Carolina Address on an objection that he filed with bankruptcy court on August 14, 2015;
however, he did not change his address of record with the bankruptcy court until
September 15, 2015.
22
Appellant’s App. at 68.
23
Appellant’s App. at 69.
24
Rule 60(b) Motion at 2, in Appellant’s App. at 70. Kelley suggests improper
forwarding or improper postage caused the delay in receipt of the Default Judgment
Motion.
25
First Response at 5, in Appellee’s App. at 126.
6
subsection of Federal Rule of Civil Procedure 60(b) (“Rule 60(b)”) and concluding that
there was no basis for setting aside the Default Judgment.
On January 14, 2016, Kelley filed his Motion for Reconsideration of Default
Judgment (the “Reconsideration Motion”), reiterating his argument that he did not
receive proper notice of the Default Judgment Motion. 26 On January 28, 2016, the
Trustee filed the Trustee’s Response to Debtor’s Motion for Reconsideration of Default
Judgment (the “Second Response”). 27 On February 23, 2016, the bankruptcy court denied
the Reconsideration Motion and entered the Second Denial Order. Kelley subsequently
appealed the First Denial Order and the Second Denial Order.
I. STANDARD OF REVIEW
The Rules do not recognize a motion for reconsideration; however, a
reconsideration motion can be viewed as a motion to alter or amend a default judgment
pursuant to Federal Rule of Civil Procedure 59(e) (“Rule 59(e)”) or as a motion seeking
relief from the a default judgment pursuant to Rule 60(b). 28 The bankruptcy court
reviewed the Rule 60(b) Motion as a motion under Rule 60(b). 29 The bankruptcy court
reviewed the Reconsideration Motion as a motion under Rule 59(e) and Rule 60(b). 30 We
26
Appellant’s App. at 126.
27
Appellee’s App. at 134.
28
Lopez v. Long (In re Long), 255 B.R. 241, 244 (10th Cir. BAP 2000) (citing Van Skiver
v. United States, 952 F.2d 1241, 1243 (10th Cir. 1991)).
29
First Denial Order at 4, in Appellant’s App. at 121.
30
Second Denial Order at 2, in Appellant’s App. at 166. However, Kelley never
addressed any error under Rule 59(e) on appeal and, accordingly, waived any such
7
review a bankruptcy court’s grant or denial of a Rule 59(e) or Rule 60(b) motion for an
abuse of discretion. 31
II. DISCUSSION
A. Kelley’s Argument on Federal Rule of Civil Procedure Rule 60(b).
Kelley principally argues that the bankruptcy court erred in denying the Rule 60(b)
Motion and the Reconsideration Motion because the Default Judgment was void due to
lack of notice and personal jurisdiction. He argues that the bankruptcy court should have,
therefore, granted his Rule 60(b) Motion.
Federal Rule of Civil Procedure 60(b)(4) (“Rule 60(b)(4)”), made applicable to
bankruptcy cases by Rule 9024, provides that the bankruptcy court may relieve a party
from a final judgment when the judgment is void. 32 The Trustee argues that Kelley failed
to seek relief under Rule 60(b)(4) 33 based on the alleged insufficient service of the
Default Judgment Motion before the bankruptcy court and he has, therefore, waived that
argument. The Trustee further contends that even if Kelley could raise this argument
now, the bankruptcy court expressly found that Kelley was properly served with the
Complaint and Amended Complaint at his address of record. The bankruptcy court also
argument. United States v. Abdenbi, 361 F.3d 1282, 1289 (10th Cir. 2004) (citing State
Farm Fire & Cas. Co. v. Mhoon, 31 F.3d 979. 984 n.7 (10th Cir. 1994)).
31
Long, 255 B.R. at 245 (citing Adams v. Reliance Standard Life Ins., 225 F.3d 1179,
1186 n.5 (10th Cir. 2000); Plotner v. AT&T Corp., 224 F.3d 1161, 1174 (10th Cir.
2000)); Servants of the Paraclete v. Does, 204 F.3d 1005, 1009 (10th Cir. 2000).
32
Fed. R. Bankr. P. 9024.
33
Although Kelley argues that relief under Rule 60(b)(3) is mandatory when a party has
no notice of a default proceeding, he only references case law relating to Rule 60(b)(4).
8
found that the Default Judgment Motion was served on Kelley at both the Colorado
Address and the North Carolina Address. 34
Issues and arguments not raised below will not ordinarily be considered on
appeal. 35 If an argument was not raised before the bankruptcy court, the argument is
typically forfeited. 36 Forfeited arguments can be entertained on appeal; however, the BAP
will only reverse a bankruptcy court’s judgment on the basis of a forfeited argument if
failing to do so would entrench a plainly erroneous result. 37 In addition, under Federal
Rule of Civil Procedure Rule 12, made applicable to bankruptcy courts by Rule 7012, any
objection to personal jurisdiction is waived if the party fails to assert the objection in his
or her first responsive pleading or by motion before the first responsive pleading is
filed. 38 In the instant case, Kelley did not raise the issue of relief under Rule 60(b)(4)
before the bankruptcy court and has, therefore, forfeited this argument. Furthermore, he
did not assert lack of personal jurisdiction or insufficient service of process in his first
responsive pleading and has, therefore, waived this argument.
34
First Denial Order at 5, in Appellant’s App. at 122.
35
Rademacher v. Colorado Assoc. of Soil Conservation Dists. Med. Benefit Plan, 11 F.3d
1567 (10th Cir. 1993).
36
In re Arnold, No. CO-15-031, 2016 WL 1022350, at *5 n.35 (10th Cir. BAP Mar. 15,
2016).
37
Id.
38
United States v. 51 Pieces of Real Prop., Roswell, N.M., 17 F.3d 1306, 1318 (10th Cir.
1994) (citing Fed. R. Civ. P. 12(b), made applicable to bankruptcy cases by Rule 7012).
9
Even if we were to consider Kelley’s arguments now, they are not persuasive. 39
Kelley does not contest that he (1) was properly served with the Complaint and Amended
Complaint or (2) failed to file an answer to either the Complaint or the Amended
Complaint. Rather, Kelley argues that lack of notice of the Default Judgment Motion
rendered the Default Judgment void. This argument fails because, even assuming he did
not receive service of the Default Judgment Motion prior to entry of the Default
Judgment, the Federal Rules of Civil Procedure did not require service of the Default
Judgment Motion on Kelley. 40 Nor do the Rules predicate the completeness of service
upon receipt. Rule 9006(e) states that service of “any paper” by mail is complete upon its
mailing. Nevertheless, the bankruptcy court found that Kelley was, in fact, served with
the Default Judgment Motion.
Accordingly, the bankruptcy court did not abuse its discretion in determining that
there was no basis for awarding relief under Rule 60(b) as a result of Kelley’s alleged
delayed receipt of the Default Judgment Motion or lack of notice.
39
Kelley argued before the bankruptcy court that he did not receive service of the Default
Judgment in a timely manner. Rule 60(b) Motion at 3, in Appellant’s App. at 71.
40
Fed. Rule Civ. P. 5(a)(2), made applicable to bankruptcy cases under Rule 7005 (“No
service is required on a party who is in default for failing to appear”); Gourlay v. Sallie
Mae, Inc. (In re Gourlay), 465 B.R. 124, 131 (6th Cir. BAP 2012) (same). Furthermore,
under Rule 7055 and Fed. R. Civ. P. 55(b)(2), Kelley was not entitled to notice of the
Default Judgment Motion since he had not appeared in the adversary proceeding before
the Default Judgment Motion was filed.
10
B. Kelley’s Other Arguments 41
Kelley also argues that that the bankruptcy court erred by denying him the
requested relief when the Trustee had engaged in fraud, misrepresentation, and
misconduct. The record indicates that Kelley did not meet his burden in providing
adequate proof of the fraud, misrepresentation, and misconduct that he alleges.
Furthermore, even if Kelley had met his burden, there is nothing in the record that would
indicate any alleged action taken by the Trustee would have interfered with Kelley’s
ability to fully and fairly prepare for, and proceed at, trial. Accordingly, the bankruptcy
court did not err in determining that relief was not appropriate under Rule 60(b)(3). 42
Kelley filed a Motion to Correct Docket, 43 requesting relief under Federal Rule of
Civil Procedure 8009(e)(2)(C) to file documents electronically to reduce “the visual loss
from multiple reproductions and manual scanning” associated with the hard copy
41
As a pro se appellant, Kelley raises many arguments and facts in his briefs that simply
are not relevant to this appeal, such as facts from a prior North Carolina case to which he
was a party, accusations that the Trustee has acted fraudulently or improperly without
supporting facts in the record, and suggestions that the bankruptcy judge was improperly
aiding the Trustee in defrauding Kelley. As they are not relevant to the issues properly
preserved on appeal, they are not considered by the Court.
42
Kelley also argues that the Default Judgment should be set aside (1) because the
Trustee violated 18 U.S.C. § 242; and (2) because the Trustee applied the incorrect legal
standard. Kelley’s argument appears to be based on the erroneous conclusion that the
Trustee is a government official. Kelley also offers no factual basis to support any
wrongdoing on the part of the Trustee. Furthermore, the Trustee’s application of any
legal standard is not relevant to a determination as whether the bankruptcy court erred.
These arguments are not persuasive.
43
BAP ECF No. 35.
11
documents previously filed. 44 The record is clear that the Complaint, Amended
Complaint, and Default Judgment Motion were properly served on Kelley. Consequently,
we deny the Motion to Correct Docket.
III. CONCLUSION
The bankruptcy court did not err in determining that there was no basis to set aside
the Default Judgment under Rule 59 and Rule 60(b)(4), (b)(3), or under any other
argument pursued by Kelley, and did not err in denying the Rule 60(b) Motion and the
Reconsideration Motion. Accordingly, the orders of the bankruptcy court are
AFFIRMED.
44
Id. at 2.
12