In re: John Howard Boardman & Johanna Lea Boardman

Filing 21

ORDER by Judge Charles R. Breyer denying 14 Motion to Alter Judgment. (crblc2, COURT STAFF) (Filed on 11/26/2012)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

United States District Court
For the Northern District of California

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ORDER DENYING MOTION TO
ALTER JUDGMENT

Appellant,

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No. C 11-04788 CRB

United States Bank, N.A.

v.
JOHN HOWARD BOARDMAN ET AL.,

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Appellees.

/

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In substance, this is a motion for reconsideration of this Court’s order affirming the

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Bankruptcy Court’s confirmation of the Chapter 13 Bankruptcy Plan of Debtors John

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Howard Boardman and Johanna Lee Boardman. While the bank points out a tension in the

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way the Bankruptcy Court and this Court treated a loan from a family member for purposes

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of analyzing the Chapter 13 plan, the Court’s treatment of the loan was not an error or

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oversight, and so the Court DENIES the motion.

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I.

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INTRODUCTION
The Boardmans petitioned for Chapter 13 bankruptcy in July 2010. N.D. Cal. Petition,

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Bankruptcy Case No. 10-12656 Dkt. (“BK Dkt.”) 1. At the time of the petition, they owed

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U.S. Bank $676,737 in connection with a loan secured by real property in Ukiah, California.

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Id. at 10. The parties stipulated the home was worth $400,000. BK Dkt. 35.

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The Boardmans’ Third Amended Chapter 13 Plan bifurcated U.S. Bank’s claim into
its secured and unsecured portions, and proposed to pay off the secured portion in full with a

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loan from John Boardman’s mother, while the unsecured portion would essentially be a loss

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for the bank. Third Amended Plan, BK Dkt. 48; Hr’g Tr., BK Dkt. 74, at 6. The Bankruptcy

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Court confirmed the plan over U.S. Bank’s objections. Objection, BK Dkt. 50; Order

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Confirming Plan, BK Dkt. 58. U.S. Bank appealed, and this Court affirmed the Bankruptcy

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Court and entered judgment for the Boardmans. Dkts. 12, 13.

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U.S. Bank now moves to alter the judgment, arguing that this Court made a mistake of

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law and deprived it of due process in ruling without hearing oral argument on the appeal. As

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relevant to this motion, the crux of U.S. Bank’s arguments were set out in a footnote in this

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Court’s previous order, which explained that U.S. Bank’s objections

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stem from alternative ways of viewing the $400,000 loan from [the] mother. If
the money is viewed as a loan which [the Boardmans] must pay back, then
[U.S. Bank] contends that the plan is not feasible, as [the Boardmans’]
expenses exceed their income. If, in the alternative, the money is viewed as a
gift which will likely not be paid back, then [the Boardmans] will have
significantly more disposable income than the $200 per month they are
committed to contributing to the plan [and thus proposed the plan in bad faith].

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Id. at 5 n.13. The Order went on to affirm the Bankruptcy Court’s treatment of the $400,000

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as a loan that must be paid back rather than additional disposable income. Id. at 7-8.

United States District Court
For the Northern District of California

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U.S. Bank now argues that this Court was correct in concluding that the $400,000 was

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a loan, but (1) the Court applied the wrong test in determining whether the plan was feasible,

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and (2) the Court erred by essentially treating the $400,000 as a loan for purposes of the

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“good faith” inquiry but as a gift for purposes of the feasibility analysis.

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II.

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LEGAL STANDARD
Rule 60(b) provides relief from judgment where one or more of the following is

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shown: (1) mistake, inadvertence, surprise or excusable neglect; (2) newly discovered

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evidence which by due diligence could not have been discovered before the court’s decision;

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(3) fraud by the adverse party; (4) the judgment is void; (5) the judgment has been satisfied;

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(6) any other reason justifying relief. Fed. R. Civ. P. 60(b). U.S. Bank cites subdivisions (1)

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and (6) in support of its motion.

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Rule 60(b)(1) permits relief from judgment because of “mistake, inadvertence,

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surprise, or excusable neglect.” Fed. R. Civ. P. 60(b)(1). Though motions under this
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subsection usually concern mistakes made by the party seeking relief, the Ninth Circuit

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permits 60(b)(1) relief premised on an error of law made by the court. Kingvision Pay-Per-

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View Ltd. v. Lake Alice Bar, 168 F.3d 347, 350 (9th Cir. 1999); Liberty Mut. Ins. Co. v.

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E.E.O.C., 691 F.2d 438, 440-41 (9th Cir. 1982); see also 11 Wright et al., Federal Practice &

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Procedure § 2858.1 (2d ed. 2008) (noting circuit split).
Rule 60(b)(6) is a “catchall provision” that applies only when the reason for granting

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relief is not covered by any of the other reasons set forth in Rule 60. United States v.

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Washington, 394 F.3d 1152, 1157 (9th Cir. 2005). “It has been used sparingly as an

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equitable remedy to prevent manifest injustice and is to be utilized only where extraordinary

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United States District Court
For the Northern District of California

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circumstances prevented a party from taking timely action to prevent or correct an erroneous

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judgment.” Id. (internal quotations omitted). A party “must demonstrate both injury and

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circumstances beyond his control that prevented him from proceeding with the prosecution or

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defense of the action in a proper fashion.” Id. (internal quotations omitted).

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III.

DISCUSSION

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U.S. Bank moves for relief from the judgment under both 60(b)(1) and 60(b)(6).

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A.

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U.S. Bank says this Court’s order affirming the confirmation of the plan conflated

60(b)(1)

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whether the debtors have demonstrated an ability to make all payments required to be made

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under the terms of the Third Amended Chapter 13 Plan with whether they showed an ability

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to make a particular $200 payment to the trustee called for under the plan. The Order stated:

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Although the excess debt-to-income ratio raises a question as to the feasibility
of the plan, the fact that [the Boardmans] were able to make all payments on
the plan up to the date of the confirmation provides a reasonable basis for the
Bankruptcy Court to conclude that [the Boardmans] will be able to continue
doing so. In light of this history of success in making the required plan
payments, the Bankruptcy Court was not clearly erroneous [sic] in determining
that the Third Amended Plan has a reasonable probability of success.

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Dkt. 12 at 6-7. It is true that the record reflects that the Boardmans were current only on the

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$200 trustee payment, May 11 Hr’g Tr., BK Dkt. 73 at 8, and is silent as to the payment

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history for other required payments.

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This Court should have been more precise in its language; nevertheless, the Order did

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not, as U.S. bank suggests, fundamentally misconstrue the feasibility test. On the contrary,

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the Order correctly explained that “a court may not approve a plan unless, after considering

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all creditors’ objections and receiving the advice of the trustee, the judge is persuaded that

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‘the debtor will be able to make all payments under the plan and to comply with the plan.’”

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Order Affirming, dkt. 12 at 5 (quoting Till v. SCS Credit Corp., 541 U.S. 465 480 (2004))

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(emphasis added). The demonstrated ability to stay current on post-petition trustee payments

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is some evidence of a debtor’s ability to make all required plan payments. E.g., In re Hua,

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411 B.R. 671, 677 (Bankr. S.D. Cal. 2009); Margraf v. Oliver, 28 B.R. 420, 423-24 (Bankr.

United States District Court
For the Northern District of California

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S.D. Ohio 1983).1
Of course, as U.S. Bank points out, a debtor could stay current with the trustee while

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falling behind on other required payments, so it is not conclusive evidence. Along those

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lines, U.S. Bank argues that once the $400,000 from Boardman’s mother is classified as a

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loan and not a source of income, the Boardmans’ documented expenses far exceeded their

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income, and the Boardmans’ own figures made clear that they could not possibly make all

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required plan payments through the life of the plan.

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On the other hand, U.S. Bank concedes that “[i]f the Bankruptcy Court or the District

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Court had found that the $400,000 loan by [the] mother was a ‘gift’ then the Debtors would

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have demonstrated ‘positive income.’” Mot. at 6; see also Appellant’s Opening Br., dkt. 6, at

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10; Appellant’s Reply Br., dkt. 10, at 5 n.2. As a practical matter, then, if the Boardmans had

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some flexibility in using and repaying the $400,000 during the 36-month plan term, the plan

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was feasible. Cf. In re Lapin, 302 B.R. 184, 193 (Bankr. S.D. Tex. 2003) (plan feasible even

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though monthly expenses exceeded income where debtor identified other sources of money).

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As the bank itself argued in contending that the plan was proposed in bad faith, the
Bankruptcy Court could reasonably conclude on the record before it that the Boardmans had

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U.S. Bank also suggested at the hearing on this motion that the feasibility question incorporates
11 U.S.C. § 109(e)’s requirement that a Chapter 13 debtor have “regular income.” In “most cases, the
fact that a debtor has been making regular plan payments to the trustee is significant evidence that the
debtor’s income is sufficiently regular.” Collier on Bankruptcy ¶101.30[2] (Resnick & Sommer eds.
16th ed.).
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that leeway in making full payments on the $400,000 loan during the life of the plan: “[t]here

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[wa]s no requirement the loan be current (there are no default terms) and there [wa]s no

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further requirement that [the Boardmans] shall pay the loan in full until 2026.” Appellant’s

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Opening Br. 14.

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True, there is some tension in concluding that (1) the $400,000 need not be treated as

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“disposable income” because it was a loan that the Boardmans were obligated to repay, and

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that (2) the repayment obligations were flexible and provided the Boardmans a cushion that

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made the plan feasible. U.S. Bank insists that any “cushion” must be disposable income that

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should have gone to unsecured creditors–but a loan with unusually favorable terms is still a

United States District Court
For the Northern District of California

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loan, and the Bankruptcy Court has broad discretion in determining whether a plan is

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feasible. E.g., In re Anderson, 28 B.R. 628, 630-31 (Bankr. S.D. Ohio 1982); 8 Collier on

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Bankruptcy ¶ 1325.07[1] (Resnick & Sommer eds. 16th ed.).

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Accordingly, the motion to alter judgment is DENIED.

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B.

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Subsection (b)(6) “and the preceding clauses are mutually exclusive; a motion brought

60(b)(6)

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under clause (6) must be for some reason other than the five reasons preceding it under the

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rule.” Lyon v. Agusta S.P.A., 252 F.3d 1078, 1088-89 (9th Cir. 2001). To the extent U.S.

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Bank’s arguments about legal error are brought under Rule 60(b)(6), they are accordingly

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DENIED.

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U.S. Bank does, however, make a due process-type argument that does not fit

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comfortably under any of the other clauses. This Court decided the appeal without hearing

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oral argument, citing Northern District of California Bankruptcy Local Rule 8012-1, which

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states that “[u]pon completion of the briefing, the assigned District Judge will set a date for

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oral argument, if needed; otherwise the matter will be deemed submitted for decision.”

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Order Affirming at 1. U.S. Bank says it was denied “a reasonable opportunity to be heard.”

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This Court’s disposition was fully consistent with the local rule permitting decision

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without oral argument, which is not itself invalid or a violation of U.S. Bank’s due process

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rights. Cf. Morrow v. Topping, 437 F.2d 1155, 1156 (9th Cir. 1971). Moreover, Rule 8012
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contemplates that a party desiring oral argument can “file a statement setting forth the reason

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why oral argument should be allowed,” Fed. R. Bankr. P. 8012, and U.S. Bank filed no such

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statement. Anyway, this motion has provided the bank the opportunity to fully brief and

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present oral argument on the merits of its arguments, so its motion to alter the judgment

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under Rule 60(b)(6) is DENIED.

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IV.

CONCLUSION

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This Court’s Order Affirming Confirmation of Bankruptcy Plan was not premised on

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a legal error and did not deny U.S. Bank a reasonable opportunity to be heard. Accordingly,

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the Court DENIES the bank’s motion to alter judgment.

United States District Court
For the Northern District of California

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IT IS SO ORDERED.

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CHARLES R. BREYER
UNITED STATES DISTRICT JUDGE

Dated: November 26, 2012

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