Weinman v. Kelley

FILED
United States Court of Appeals
UNITED STATES COURT OF APPEALS Tenth Circuit
FOR THE TENTH CIRCUIT August 9, 2017
_________________________________
Elisabeth A. Shumaker
Clerk of Court
In re: JAMES WARE KELLEY, III,
Debtor.
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JEFFREY WEINMAN,
Plaintiff - Appellee,
v. No. 16-1498
(BAP No. CO-16-004)
JAMES WARE KELLEY, III, (Bankruptcy Appellate Panel)
Defendant - Appellant.
_________________________________
ORDER AND JUDGMENT*
_________________________________
Before LUCERO, HOLMES, and BACHARACH, Circuit Judges.
_________________________________
James Ware Kelley, III, appeals a Bankruptcy Appellate Panel (BAP) order,
which affirmed the bankruptcy court’s denial of successive motions to vacate and
reconsider the entry of default judgment. Exercising jurisdiction under 28 U.S.C.
§ 158(d)(1), we affirm.
*
After examining the briefs and appellate record, this panel has determined
unanimously that oral argument would not materially assist in the determination of
this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is therefore
ordered submitted without oral argument. This order and judgment is not binding
precedent, except under the doctrines of law of the case, res judicata, and collateral
estoppel. It may be cited, however, for its persuasive value consistent with
Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
I
Mr. Kelley is a real-estate investor who attempts to use the bankruptcy laws to
wrongfully retain his tenants’ security deposits.1 In the Eastern District of North
Carolina, he filed a Chapter 11 petition to thwart his tenants’ efforts at recovering
their security deposits, but that case was dismissed. He then relocated and filed the
underlying petition in the District of Colorado after the North Carolina Attorney
General instituted a state-court action there charging him with unfair and deceptive
trade practices. The North Carolina action resulted in a judgment against Mr. Kelley
for restitution, civil penalties, and attorney’s fees. He also was permanently enjoined
from accepting additional security deposits.
In the District of Colorado bankruptcy proceedings, the trustee filed a
complaint against Mr. Kelley objecting to his discharge. The complaint alleged that
Mr. Kelley sought to hinder, delay, or defraud his creditors or an officer of the estate
by destroying, concealing, or transferring his property interests. See 11 U.S.C.
§ 727(a)(2)(A). The trustee also alleged that, with respect to records pertaining to his
financial affairs and business transactions, Mr. Kelley failed to keep or preserve
them, and knowingly and fraudulently withheld them. See id. § 727(a)(3), (4)(D).
Finally, the trustee averred that Mr. Kelley failed to explain the loss or deficiency of
assets to meet his liabilities. See id. § 727(a)(5). The complaint was served on
Mr. Kelley at his address of record in Denver, Colorado. Shortly thereafter, the
1
We afford Mr. Kelly’s pro se pleadings a solicitous construction. See
Van Deelen v. Johnson, 497 F.3d 1151, 1153 n.1 (10th Cir. 2007).
2
trustee filed an amended complaint against Mr. Kelley, adding allegations relating to
the North Carolina judgment. The amended complaint was also served on Mr. Kelley
at his Denver address of record.
Mr. Kelley did not respond to the complaint or amended complaint, prompting
the trustee to move for default judgment. The trustee served the motion for default
both at Mr. Kelley’s Denver, Colorado address listed on his bankruptcy petition, as
well as a North Carolina address that he provided. Mr. Kelley still failed to respond,
however, and consequently, the bankruptcy court entered a default judgment on
September 14, 2015.2
Two weeks later, Mr. Kelley moved the bankruptcy court to set aside the
default judgment under Fed. R. Civ. P. 60(b). That provision allows the court to
relieve a party from a final judgment based on, among other things, excusable
neglect; newly discovered evidence; or fraud, misrepresentation, or misconduct by an
opposing party. See Fed. R. Civ. P. 60(b)(1)-(3). Mr. Kelley claimed excusable
neglect because the motion for default was sent to his North Carolina address and he
did not receive it until September 14, the same day the bankruptcy court entered
default judgment. Further, he claimed there was newly discovered evidence that the
trustee introduced slanderous statements. Last, he asserted the trustee engaged in
fraud by misrepresenting his actions to the bankruptcy court.
2
The next day, September 15, 2015, Mr. Kelley filed a notice of change of
address with the bankruptcy court, listing the North Carolina address.
3
The bankruptcy court rejected these arguments and denied the motion to set
aside the judgment. The court determined there was no excusable neglect under Rule
60(b)(1), principally because Mr. Kelley offered no reason why he failed to respond
to the complaint (as opposed to the motion for default judgment), but also because
the trustee served the motion for default at the North Carolina address. Moreover,
the court determined that Mr. Kelley did not act in good faith but rather acted in a
pattern of “evasion and obfuscation.” Aplt. App. at 122.3 The court reasoned that
Mr. Kelley left North Carolina when the Attorney General there was investigating
him, and then he left Colorado when the trustee in this case was investigating his
estate. And, the court continued, even if he had shown excusable neglect, Mr. Kelley
failed to raise any meritorious defense to the complaint. Regarding Rule 60(b)(2),
the bankruptcy court concluded that Mr. Kelley did not warrant relief because his
evidence was not new, it was not material, and it would not produce a different result.
Nor did he warrant relief under Rule 60(b)(3), the court concluded, because he
presented no evidence that the trustee had engaged in fraud, misrepresentation, or
misconduct.
Mr. Kelley moved the bankruptcy court to reconsider its ruling, citing
Fed. R. Civ. P. 60(b) as well as Fed. R. Civ. P. 59. But because he advanced the
same substantive arguments that the bankruptcy court previously rejected—viz., that
the trustee untimely served the motion for default at the North Carolina address and
3
The appendix filed on appeal does not contain consecutive or even consistent
pagination. Our record citations conform to the pagination of the corrected appendix
filed with the BAP, which begins on page 888 of the appendix filed with this court.
4
otherwise engaged in fraud and misconduct—the bankruptcy court denied the motion
as a procedurally improper, successive motion for reconsideration. See Servants of
Paraclete v. Does, 204 F.3d 1005, 1012 (10th Cir. 2000) (“[A] motion for
reconsideration and a successive Rule 60(b) motion . . . are inappropriate vehicles to
reargue an issue previously addressed by the court when the motion merely advances
new arguments, or supporting facts which were available at the time of the original
motion.”).4 Mr. Kelley appealed to the BAP.
The BAP affirmed. For the first time, Mr. Kelley argued that the default
judgment was void under Rule 60(b)(4) due to a lack of notice and personal
jurisdiction. But the BAP concluded that he forfeited this new theory by failing to
raise it in the bankruptcy court and waived any objection to personal jurisdiction
under the federal rules. See Fed. Bankr. R. P. 7012 (incorporating Fed. R. Civ. P. 12,
regarding waiver of personal-jurisdiction defenses). Accordingly, the BAP ruled that
Mr. Kelley was not entitled to review of this argument. Moreover, the BAP
observed, Mr. Kelley did not dispute that he was properly served with the complaint
and the amended complaint, which he did not answer. Also, the BAP noted that the
Federal Rules do not require service of the motion for default on Mr. Kelley; instead,
4
The same day Mr. Kelley filed his successive motion for reconsideration, on
January 14, 2016, he also filed an “Answer to Amended Complaint, Counter[-]Claim
and Third-Party Complaint.” See Aplt. App. at 143. The bankruptcy court, in its
order denying the motion for reconsideration, struck the pleading as untimely but
noted that even if the court were to consider the substance of the answer, it admitted
the allegations related to the North Carolina judgment, the findings of which were
sufficient to deny discharge. The court also noted that the counterclaims lacked
merit.
5
service “by mail is complete on mailing,” Fed. R. Bankr. P. 9006(e). And in any
event, the motion for default was, in fact, served at Mr. Kelley’s North Carolina
address. As for his arguments that the trustee engaged in fraud or other misconduct,
the BAP concluded that he failed to meet his standard of proof to warrant relief under
Rule 60(b)(3). Dissatisfied with this result, Mr. Kelley appealed to this court.
II
“In our review of BAP decisions, we independently review the bankruptcy
court decision.” Kirkland v. B—Line, LLC (In re Kirkland), 572 F.3d 838, 840
(10th Cir. 2009). The BAP is “a subordinate appellate tribunal whose rulings are not
entitled to any deference (although they certainly may be persuasive).” Schupbach
Invs., L.L.C. v. Rose Hill Bank (In re Schupbach Invs., L.L.C.), 808 F.3d 1215, 1219
(10th Cir. 2015), cert. denied, 136 S. Ct. 2010 (2016). “We review the bankruptcy
court’s legal determinations de novo [and] its factual findings for clear error.” Id.
(citation omitted).
Mr. Kelley’s pro se appellate brief raises several arguments, some of which are
virtually incoherent. Nevertheless, based on our solicitous construction, we distill
the following four arguments: (1) the BAP denied Mr. Kelley due process by holding
oral argument without him; (2) he was entitled to relief under Rule 60(b)(3) because
the trustee defrauded the bankruptcy court; (3) the judgment in the North Carolina
state-court action was incorrect; and (4) the bankruptcy court should have granted
relief under Rule 60(b)(4). We consider these arguments in turn.
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1. Oral Argument before the BAP
Mr. Kelley first contends the BAP violated his due process rights by holding
oral argument without him. Given our independent review of the bankruptcy court’s
decisions, we need not address this argument because the BAP’s procedural ruling
has no impact on the outcome of this case. See Mathai v. Warren (In re Warren),
512 F.3d 1241, 1248 (10th Cir. 2008) (“[W]e review only the Bankruptcy Court’s
decision.” (internal quotation marks omitted)); Orr v. City of Albuquerque, 417 F.3d
1144, 1154 (10th Cir. 2005) (“We will not address this issue because it has no
bearing on the ultimate outcome of the case.”).
In any event, the argument is meritless because Mr. Kelley can show no
prejudice from his inability to participate in oral argument. See Fowler Bros. v.
Young (In re Young), 91 F.3d 1367, 1377 (10th Cir. 1996) (requiring a party to show
prejudice from the denial of oral argument). Federal Rule of Bankruptcy Procedure
8019(f) permits the BAP to proceed with oral argument if one party fails to appear.
The BAP authorized Mr. Kelley to appear by telephone, but he neglected to inform
the court that he was in the Ukraine. He also failed to comply with certain technical
requirements necessary to participate in oral argument via telephone. Thus, not until
the day before scheduled arguments was it discovered that Mr. Kelley’s telephone
number was an invalid international number and that all of his other telephone
numbers prevented him from hearing anything. Mr. Kelley moved for a continuance,
but under these circumstances, the BAP denied his request and proceeded with
arguments as scheduled. Mr. Kelley asserts on appeal that he was prejudiced because
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opposing counsel was allowed to testify and the BAP failed “to ask substantive
questions,” Aplt. Br. at 10, but these arguments do not show prejudice; they attempt
to fault the BAP for the consequences of Mr. Kelley’s own conduct.
2. Allegations of Fraud by the Trustee
Mr. Kelley next renews his arguments under Rule 60(b)(3), insisting that the
trustee perpetrated a fraud upon the bankruptcy court. We review the denial of Rule
60(b) relief for an abuse of discretion. Servants of Paraclete, 204 F.3d at 1009.
“Rule 60(b) relief is extraordinary and may only be granted in exceptional
circumstances.” Lebahn v. Owens, 813 F.3d 1300, 1306 (10th Cir. 2016) (internal
quotation marks omitted). It “is not properly granted where a party merely revisits
the original issues and seeks to challenge the legal correctness of the [bankruptcy]
court’s judgment by arguing that the [bankruptcy] court misapplied the law or
misunderstood the party’s position.” Id. (brackets and internal quotation marks
omitted). Nor is it “an appropriate vehicle to advance new arguments or supporting
facts that were available but not raised at the time of the original argument.” Id.
Rather, “[p]arties seeking relief under Rule 60(b) have a higher hurdle to overcome
because such a motion is not a substitute for an appeal.” Zurich N. Am. v. Matrix
Serv., Inc., 426 F.3d 1281, 1289 (10th Cir. 2005) (internal quotation marks omitted).
Thus, “our review is meaningfully narrower than review of the merits of a direct
appeal.” Id. (internal quotation marks omitted). “We will not reverse the
[bankruptcy] court’s decision on a Rule 60(b) motion unless that decision is arbitrary,
8
capricious, whimsical, or manifestly unreasonable.” Lebahn, 813 F.3d at 1306
(internal quotation marks omitted).
The bankruptcy court did not abuse its discretion in denying relief here. To
warrant setting aside the judgment under Rule 60(b)(3), Mr. Kelley was obligated to
“show clear and convincing proof of fraud, misrepresentation, or misconduct.”
Zurich, 426 F.3d at 1290 (internal quotation marks omitted). He also was required to
show that “the challenged behavior . . . substantially . . . interfered with [his] ability
[to] fully and fairly . . . prepare for and proceed to trial.” Id. (internal quotation
marks omitted). But he has produced no evidence at all suggesting that the trustee
engaged in fraud or misconduct, nor has he established that the trustee impeded his
ability to defend against the allegations in the complaint and the amended complaint.
Indeed, the bankruptcy court recognized that it was Mr. Kelley—not the trustee—
who possessed the documents that were the subject of the complaint’s allegations.
Under these circumstances, Mr. Kelley was not entitled to relief under Rule 60(b)(3).
3. The North Carolina State-Court Judgment
Now for the first time on appeal, Mr. Kelley argues that the North Carolina
state-court action resulted in an erroneous judgment. We will not consider this
argument because Mr. Kelley effectively waived it by failing to raise it in the
bankruptcy court and by not arguing for plain-error review before us. See Richison v.
Ernest Grp., Inc., 634 F.3d 1123, 1127-28 (10th Cir. 2011).
9
4. Relief under Rule 60(b)(4)
Finally, Mr. Kelley insists that the bankruptcy court should have granted relief
under Rule 60(b)(4). We decline to consider this issue for two reasons. First,
Mr. Kelley did not raise any Rule 60(b)(4) argument in the bankruptcy court, and the
BAP concluded that, by failing to do so, Mr. Kelley forfeited the argument and,
moreover, waived it under the federal rules. We agree.
Second, even if Mr. Kelley had preserved an argument under Rule 60(b)(4) in
the bankruptcy court, his brief on appeal does not adequately present any developed
argument under Rule 60(b)(4) to this court. We are mindful of Mr. Kelley’s pro se
status, but we have “repeatedly insisted that pro se parties follow the same rules of
procedure that govern other litigants,” Garrett v. Selby Connor Maddux & Janer,
425 F.3d 836, 840 (10th Cir. 2005) (internal quotation marks omitted). Federal Rule
of Appellate Procedure 28(a)(8)(A) requires that an appellant’s brief contain their
“contentions and the reasons for them, with citations to the authorities and parts of
the record on which the appellant relies.” “Consistent with this requirement, we
routinely have declined to consider arguments that are not raised, or are inadequately
presented, in an appellant’s opening brief.” Bronson v. Swensen, 500 F.3d 1099,
1104 (10th Cir. 2007).
Mr. Kelley’s appellate brief falls far short of the standard required to preserve
and adequately present an argument to this court. It simply lists sub-headings that
question whether relief was required under Rule 60(b)(4). Without any argument,
authority, or explanation, these headings reference the Fourteenth Amendment,
10
unspecified causes of action, and a federal statute. One heading is followed by an
unintelligible statement that “[t]he BAP errored in [sic] by failing to recognize
graphic attached to the pleadings and approving the motion to correct visual scan loss
with the electronic files sent directly to the BAP.” Aplt. Br. at 13-14. We decline to
exercise our discretion to address such incoherent and perfunctory statements.
III
The judgment of the bankruptcy court is affirmed. Mr. Kelley’s motion to take
judicial notice of various materials, including a Handbook of Chapter 7 Trustees and
an Internal Revenue Service guideline, which Mr. Kelley asserts establishes the
trustee’s purported perjury and fraud, is denied.
Entered for the Court
Jerome A. Holmes
Circuit Judge
11