Harrison v. Lee Investments Inc et al

Filing 32

MEMORANDUM Opinion and Order signed by the Honorable Edmond E. Chang. For the reasons stated in the Opinion, the judgment of the bankruptcy court is affirmed. Status hearing of 07/17/2014 is vacated. Civil case terminated. Mailed notice(slb, )

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
IN RE VERNON HARRISON and KECELIA )
WEBBER,
)
)
Debtors,
)
)
VERNON HARRISON and
)
KECELIA WEBBER,
)
)
Appellants,
)
)
v.
)
)
LEE INVESTMENT GROUP, INC.
)
et al.,
)
)
Appellees.
)

No. 1:13 cv 1139

Judge Edmond E. Chang

MEMORANDUM OPINION AND ORDER
Debtors Vernon Harrison and Kecelia Webber appeal from the bankruptcy
court’s Order of Default and the Judgment Order Determining Debt Excepted From
Discharge.1 Harrison and Webber assert that the bankruptcy court erred in the
following ways: by allowing creditors, Lee Investment Group and Robert E. Lee, to
file their amended complaint two days after the bankruptcy court’s deadline for
doing so; by denying Harrison and Webber’s motion to dismiss for Lee Investment

1The

Court has jurisdiction over this bankruptcy appeal under 28 U.S.C. § 158(a)(1).
Citations to this Court’s docket are noted as “R. [docket entry number],” followed by a
description of the document in that entry. Citations to documents in the Record on Appeal
filed in the adversary proceeding Lee Investment Group, Inc. v. Harrison, Adv. Proc. No. 11AP-02243 (Bankr. N.D. Ill.) are noted by a description of the document and then the
bankruptcy docket entry number (“Bankr. Dkt. [number]”).

Group’s purported lack of capacity to sue, failure to state a claim for fraud with
sufficient particularity, alleging promissory fraud not recognized under Illinois law,
and making contradictory statements in the complaint; by denying Harrison and
Webber’s motion in limine, motion to vacate the order of default, and motion for
relief from the order of default and order denying motion to vacate and motion in
limine; by issuing its judgment order; and by setting the amount of judgment stated
in its judgment order. R. 14, Appellants’ Br. at 3-8. For the reasons stated below,
the bankruptcy court’s order and judgment are affirmed.
I. Background
The appellants, Harrison and Webber, entered into a Citgo Gas Station
Investment Agreement with the appellees, Lee Investment Group and Robert E.
Lee (together, Lee) in May 2003. Pls.’ Am. Compl. ¶¶ 10, 20 (Bankr. Dkt. 25). Lee
invested $100,000 in exchange for 15% of First Gas’s (the gas station’s business
name) profits and a guaranteed 10% return on the $100,000 investment. Id. ¶¶ 1112. The gas station opened in July 2005. Id. ¶ 15. Harrison and Webber filed for
bankruptcy protection in 2011. Appellants’ Br. at 8. Lee filed complaints against
Harrison and Webber to determine dischargeability of the debts owed by each.
Appellants’ Br. at 8. These cases have been consolidated on appeal. See R. 9, 2/19/13
Minute Entry.
In the bankruptcy court, Harrison and Webber filed a motion to dismiss Lee’s
complaint for failure to state a claim. After denying this motion to dismiss, the court
nevertheless struck the original complaint and gave Lee until February 23, 2012, to

2

file an amended complaint. Order Mot. Dismiss Adversary Proceeding (Bankr. Dkt.
23). Lee filed the amended complaint two days after the deadline, see Pls.’ Am.
Compl. at 7 (Bankr. Dkt. 25) (certificate of service dated Feb. 25, 2011), and
Harrison and Webber did not (at that time) object to the late filing, see R. 16,
Appellees’ Br. at 2. The complaint alleged that Harrison and Webber falsely
represented that the proceeds from the business operations would be used for
corporate purposes, and instead used the money for personal expenses. Pls.’ Am.
Compl. ¶¶ 30-31. Harrison and Webber filed a motion to dismiss the amended
complaint for failure to state a claim and for lack of standing to sue. Def.’s Mot.
Dismiss at 1-3 (Bankr. Dkt. 26). Specifically, Harrison and Webber argued that Lee
did not plead fraud with sufficient particularity as required by Federal Rule of Civil
Procedure 9(b). Id. at 3-5. Harrison and Webber also argued that Lee did not have
standing to sue because Lee Investment Group was involuntarily dissolved by the
Secretary of State in October 2011. Id. at 2. Lee Investment Group’s corporate
status was reinstated in 2012 and is currently in good standing. Appellees’ Br. at 2.
The bankruptcy court rejected both of Harrison and Webber’s arguments and denied
their motion to dismiss the amended complaint. See 4/17/12 Tr. at 8.
Following this denial, the bankruptcy court issued a Final Pretrial Order
requiring that each party submit a list of trial exhibits and witnesses by December
18, 2012. Final Pretrial Order at 1-2 (Bankr. Dkt. 39). The order required that any
objections to the exhibits or witnesses be submitted by December 23, 2012, and
required each party to file a trial brief by December 28, 2012. Id. at 2-3. The order

3

also set the final pretrial hearing for January 3, 2013. Id. at 4. The order stated that
“[f]ailure to comply with the provisions of this order may result in waiver of claims
or defenses, dismissal, default, exclusion or admission of evidence or other sanction,
as justice may require.” Id. at 1. By the first deadline, December 18, 2012, neither
party had exchanged lists of exhibits or witnesses. On December 26, 2012, Lee
called Harrison and Webber’s attorney to let him know that they were sending the
exhibit and witness lists. Appellants’ Br. at 17-18. Harrison and Webber’s attorney
informed Lee that he was leaving the country and may not be back in time for the
pretrial conference on January 3, 2013. Id. Harrison and Webber assert that
because they had received no pretrial documents from Lee, they concluded that Lee
would not be able to introduce any exhibits or present witnesses and would,
therefore, be unable to prove the allegations in their complaints. Id. at 18.
On January 3, 2013, Harrison and Webber did not attend the final pretrial
conference. Order of Default (Bankr. Dkt. 41). Furthermore, Harrison and Webber
had submitted no pretrial materials. Id. As a consequence, the bankruptcy court
entered an order of default against both Harrison and Webber because of their
failure to appear and failure to comply with the Final Pretrial Order. Id. Harrison
and Webber immediately filed a motion to vacate the order of default and a motion
in limine to exclude certain witnesses and evidence, both of which were scheduled to
be heard on the same day as the trial and final prove-up: January 9, 2013. Def.’s
Mot. Vacate (Bankr. Dkt. 45); Def.’s Mot. in Limine (Bankr. Dkt. 46); see also
Appellants’ Br. at 9. At the trial, the court denied the motions and allowed Lee to

4

admit affidavits regarding the amount of debt owed. Order on Def.’s Mot. Vacate
(Bankr. Dkt. 53); Order on Def.’s Mot. in Limine (Bankr. Dkt. 54); see also
Appellants’ Br. at 9. Harrison and Webber filed a motion for relief from the order of
default and the orders denying the motions to vacate and motions in limine. Defs.’
Mot. Relief from Orders (Bankr. Dkt. 55). This motion was also denied, and two
days later the court entered a judgment determining that the debts of both Harrison
and Webber were exempt from discharge and entered judgment in favor of Lee in
the amount of $160,246.57. Order on Defs.’ Mot. Relief from Orders (Bankr. Dkt.
57); Judgment Order (Bankr. Dkt. 58). This amount represents the original
$100,000 investment, a 10% guaranteed return on investment for six years, and
interest. Appellants’ Br. at 22. Harrison and Weber now appeal.2
II. Standard of Review
A federal district court has jurisdiction, under 28 U.S.C. § 158(a), to hear
appeals from the rulings of a bankruptcy court. On appeal, the district court reviews
the factual findings of the bankruptcy court for clear error and reviews the
bankruptcy court’s legal findings de novo. Wiese v. Cmty. Bank of Cent. Wis., 552
F.3d 584, 588 (7th Cir. 2009). Decisions left to the discretion of the bankruptcy
court, however, are reviewed “only for an abuse of discretion.” Id. This is an
exacting standard: “a court abuses its discretion when its decision is premised on an
incorrect legal principle or a clearly erroneous factual finding, or when the record

2Harrison

and Webber’s briefs are single spaced, oddly formatted, and difficult to
read. Appellants would be well-advised to comply with this Court’s formatting rules.

5

contains no evidence on which the court rationally could have relied.” Corporate
Assets, Inc. v. Paloian, 368 F.3d 761, 767 (7th Cir. 2004).
Failure to state a claim is a legal decision, and is therefore reviewed de novo.
In re Rose, 585 F.3d 306, 309 (7th Cir. 2009). Denials of a motion to vacate an order
of default, or of a motion in limine, on the other hand, are reviewed for abuse of
discretion. See Eskridge v. Cook Cnty., 577 F.3d 806, 808-09 (7th Cir. 2009); Von der
Ruhr v. Immtech Int’l, Inc., 570 F.3d 858, 862 (7th Cir. 2009); In re Leventhal, 481
B.R. 409, 420 (N.D. Ill. 2012) (applying an abuse-of-discretion standard to a
bankruptcy-court determination). Likewise, damage awards are reviewed for abuse
of discretion and are only disturbed if the award was plainly excessive. Domanus v.
Lewicki, 742 F.3d 290, 303 (7th Cir. 2014).
III. Discussion
A. Capacity to Sue
Lee Investment Group, although dissolved at the time, did have the capacity
to sue under the relation-back doctrine as codified in the Illinois Business
Corporation Act. The relation-back doctrine “permits a reinstated corporation to
ratify actions taken on its behalf during a period of dissolution, and gives those
actions legal effect from the time they were taken.” Dep’t of Revenue v. Semenek,
551 N.E.2d 314, 315 (Ill. App. Ct. 1990). Harrison and Webber argue that Lee
lacked standing to sue because, in 2011, Lee Investment Group was involuntarily
dissolved by the State of Illinois and was not reinstated until after the deadline for
filing an Adversary Proceeding had passed. Appellants’ Br. at 13-14. In support of

6

this position, Harrison and Weber rely on Jorgensen v. Baker, which held that if a
dissolved corporation is not reinstated before the end of the statute-of-limitations
period, it cannot file suit. 157 N.E.2d 773, 777 (Ill. App. Ct. 1959). But Jorgensen
has been superseded. The Illinois Business Corporation Act, which was passed after
Jorgensen, states that:
Upon filing of the application for reinstatement, the corporate existence shall
be deemed to have continued without interruption from the date of the
issuance of the certificate of dissolution, and the corporation shall stand
revived with such powers, duties and obligations as if it had not been
dissolved; and all acts and proceedings of its officers, directors and
shareholders, acting or purporting to act as such, which would have been
legal and valid but for such dissolution, shall stand ratified and confirmed.
805 ILCS 5/12.45(d) (emphases added). Thus, section 12.45(d) codified the relationback doctrine in a form broader than the common-law version stated in Jorgensen,
and, now, dissolved corporations may file suit prior to reinstatement. See
Henderson-Smith & Assocs., Inc. v. Nahamani Family Serv. Ctr., Inc., 752 N.E.2d
33, 39-41 (Ill. App. Ct. 2001) (holding that a dissolved corporation was allowed to
commence proceedings even if the cause of action accrued while the corporation was
dissolved).
The present case is governed by the statutorily expanded relation-back
doctrine. Lee Investment Group commenced the action when it was dissolved, but
the action accrued when it was in good standing. Thus, Lee Investment Group is
“deemed to have continued without interruption,” and the objections to discharge
“which would have been legal and valid but for such dissolution, shall stand ratified

7

and confirmed.” 805 ILCS 5/12.45(d). This Court holds that Lee had capacity to
oppose the discharge of Harrison and Webber’s debts in the bankruptcy court.
B. Timeliness of Complaint
Any question of the timeliness of the filing of Lee’s Amended Complaint has
been forfeited by Harrison. Harrison and Webber argue now, for the first time on
appeal, that Lee’s amended complaint was not filed in a timely manner in the
bankruptcy court. Appellants’ Br. at 13. After Lee’s original complaint was struck,
the bankruptcy court allowed Lee until February 23, 2012, to file an amended
complaint. Order Mot. Dismiss Adversary Proceeding (Bankr. Dkt. 23). Lee filed its
amended complaint on February 25, two days late. See Pls.’ Am. Compl. at 7
(Bankr. Dkt. 25). Yet Harrison and Webber did not object to the short delay, and
instead moved to dismiss on other grounds and then filed an answer (after their
motion to dismiss was denied) without raising any issue of timeliness.
Under Federal Rule of Civil Procedure 8(c), time bars must generally “be
raised in an answer or responsive pleading.” Kontrick v. Ryan, 540 U.S. 443, 458
(2004) (noting that Fed. R. Civ. P. 8(c) is also applicable to adversary proceedings in
bankruptcy courts by Fed. R. Bankr. P. 7008(a)). Moreover, a party who fails to do
this may nevertheless raise a timeliness objection to a complaint in an amended
answer, or even seek leave to amend her complaint to add such an objection after
that time has passed so long as justice so requires. Id. at 459. When a timeliness
defense is not included in the answer or amended answer, however, that defense is
lost. Id. And only an objection to “lack of subject-matter jurisdiction is preserved
post-trial.” Id.
8

Harrison and Webber did not object to the tardiness of Lee’s amended
complaint in their motion to dismiss, in their answer, or in any of their other
responsive pleadings in front of the bankruptcy court. This is the first occasion on
which any objection to the amended complaint’s timeliness has been raised. It is too
late. Consequently, this Court holds that Harrison and Webber have forfeited any
timeliness objections to Lee’s amended complaint.3
C. Failure to State a Claim
Harrison and Webber raise three objections to the sufficiency of the
complaint: that the complaint does not specify when the alleged misrepresentation
took place; that a promise of a future performance is not fraud; and that Lee’s
pleadings of fraud are contradicted by other allegations in the pleading. Lee’s
Amended Complaint pleads fraud with sufficient particularity. The arguments are
meritless, and the Court discusses each of these objections in turn.
First, Harrison and Webber assert that Lee was required, and failed, to
plead when the alleged false representation occurred. Under Federal Rule of Civil
Procedure 9(b), allegations of fraud must be stated with sufficient particularity. In
its Amended Complaint, Lee thus must have alleged details sufficient “to alert the
defendant[s] of the purported fraud [they] are defending against.” New Century
Bank, N.A. v. Carmell, 424 B.R. 401, 412 (Bankr. N.D. Ill. 2010). In In re Speisman,
495 B.R. 398, 401 (Bankr. N.D. Ill. 2013), the court held that this requirement was

3This

is a requirement that may be forfeited: as Kontrick held, “the filing deadlines
prescribed in Bankruptcy Rules 4004 and 9006(b)(3) are claim-processing rules that do not
delineate what cases bankruptcy courts are competent to adjudicate. 540 U.S. at 454.

9

satisfied by a complaint that identified “who made the misrepresentation[,] state[d]
the time, place and content of the misrepresentation[,] and describe[d] how the
misrepresentations were conveyed.” And, in AnchorBank, FSB v. Hofer, 649 F.3d
610, 615 (7th Cir. 2011), the Seventh Circuit noted that under Federal Rule of Civil
Procedure 9(b), “the plaintiffs-appellants had to state with particularity the
circumstances constituting fraud. This ordinarily requires describing the ‘who,
what, when, where, and how’ of the fraud, although the exact level of particularity
that is required will necessary differ based on the facts of the case.” (citation
omitted). Although these cases indicate that when the fraud occurs may often be an
important, or even necessary, element of pleadings, often is not always. The
ultimate question considered by this Court is whether the plaintiff has “adequately
detail[ed], in broad strokes, the nature and essential factual elements of the alleged
fraud . . .

its

purposes,

or

the

critical

facts

which

are

purportedly

misrepresentations.” Adair v. Hunt Int’l Res. Corp., 526 F. Supp. 736, 744 (N.D. Ill.
1981).
Lee has done exactly this. As the Bankruptcy Court recognized:
The plaintiffs allege, among other things, that they entered into a Citgo gas
station investment agreement with First Gas in May 2003; that prior to
entering into that agreement, the defendants represented to the plaintiffs
that the proceeds of the business would be used for corporate purposes; that
those representations were false and known to be false at the time; that
Harrison and Webber treated First Gas bank accounts as their own and
withdrew funds for their personal use. The proceeds of plaintiffs’ investment
and revenue from the business operations were used to purchase several
luxury vehicles and that as a result of the defendants’ actions the plaintiffs
did not receive the amount of payment provided in the parties’ investment
agreement.
10

4/17/12 Tr. at 6-7. Together, these details are sufficient to provide, in “broad
strokes, the nature and essential factual elements of the alleged fraud . . . its
purposes, or the critical facts.” Adair, 526 F. Supp. at 744. Even if this description
did not specify exactly when the representations in question occurred, there is little
question that Harrison has been alerted to the allegations against him. New
Century Bank, 424 B.R. at 412.
Second, Harrison and Webber argue, for the first time on appeal, that
promissory fraud involving a false statement of intent regarding future conduct is
generally not actionable unless it was part of a scheme to defraud. Because
Harrison and Webber did not raise this issue in the bankruptcy court, Harrison and
Webber have forfeited it. See United Nat’l Records, Inc. v. MCA, Inc., 609 F. Supp.
33, 38-39 (N.D. Ill. 1984). Even were this objection not forfeited, however, the Court
would nevertheless find it unavailing. As Desnick v. American Broadcasting Cos.
noted, “[o]ur best interpretation is that promissory fraud is actionable only if it
either is particularly egregious or, what may amount to the same thing, it is
embedded in a larger pattern of deceptions or enticements that reasonably induces
reliance and against which the law ought to provide a remedy.” 44 F.3d 1345, 1354
(7th Cir. 1995). That is what allegedly happened in the present circumstance;
Harrison’s promises were more than “puffery, bragging, ‘mere words,’ and casual
bonhomie.” Id. Rather, Harrison made a “serious commitment” to Lee: “Harrison
represented to the plaintiffs that the proceeds were being used for corporate
purposes and that First Gas would be operated as a for-profit business enterprise,”

11

and, in fact, went so far as to solemnize a guaranteed 10% return on Lee’s
investment. Pls.’ Am. Compl. ¶¶ 10-12, 30 (Bankr. Dkt. 25). This is actionable
regardless of whether this constitutes ordinary fraud or promissory fraud.
Third, Harrison and Webber assert that the pleadings of fraud are
contradicted by other allegations of the pleading. See Appellants’ Br. at 4, 14-15
(comparing Pls.’ Am. Compl. ¶ 30 (alleging that Harrison and Webber “represented
to the plaintiff that the proceeds [of the investments] were being used for corporate
purposes and that First Gas would be operated as a for-profit business enterprise
for the benefit of investors, including plaintiffs.”), with id. ¶ 26 (noting that
“although Harrison spent most or all of his working days managing the operations
of First Gas, he claimed to receive no compensation for his effort”)). Moreover, the
complaints say that First Gas produced returns for Lee for periods in 2005 and
2006, see Pls.’ Am. Compl. ¶¶ 16-17—an implicit acknowledgment, claim Harrison
and Webber, that it was not a fraudulent investment. The Court does not read these
allegations as contradictory. The first two statements cited by Harrison and Webber
do not in any way contradict each other. And, the fact that Lee acknowledges the
receipt of some returns from First Gas is in no way contradictory to Lee’s claim that
its First Gas deal was fraudulent; it is common for fraudulent deals, such as
pyramid schemes, to provide several years of seemingly legitimate returns to
investors. Neither of these alleged contradictions are sufficient to provide any basis
for a ruling in Harrison and Webber’s favor.

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D. Denial of Harrison and Webber’s December and January Motions
Harrison and Webber also appeal several bankruptcy-court decisions relating
to that court’s January 3 order of default: Harrison and Webber now argue that the
court abused its discretion by denying their motion to vacate the court’s January 3
order of default, that the court abused its discretion in denying their motions in
limine on January 9, and that the court abused its discretion in denying their
motion for relief from its orders of January 3 and January 9. Given the many
overlapping issues between these claims, this Court reviews—and rejects—these
arguments together.
First, to determine that a default judgment must be vacated, “the moving
party must demonstrate: (1) good cause for the default; (2) quick action to correct it;
and (3) a meritorious defense to the complaint.” Wehrs v. Wells, 688 F.3d 886, 890
(7th Cir. 2012) (internal quotation marks and citation omitted). One relevant
consideration in determining whether to grant the motion to set aside a default can
be the moving party’s culpability in that default. See, e.g., Farnese v. Bagnasco, 687
F.2d 761, 764 (3d Cir. 1982); see also Accu-Weather, Inc. v. Reuters Ltd., 779 F.
Supp. 801, 804 (M.D. Pa. 1991) (setting aside a default where the defendant did not
exhibit any culpable conduct).
Harrison and Webber cannot show good cause for their counsel’s failure to
attend the pretrial conference. Their counsel asserts that he was unable to attend
the final pretrial conference because his flight was delayed. See Appellants’ Br. at
17-18; see also Def.’s Mot. Vacate at 4 (Bankr. Dkt. 45). But he provides no
affidavits, flight itineraries, tickets, or notices of delay in support—nor does he
13

identify the flight he was allegedly scheduled to take, the reasons for the alleged
delay, any information on the flight he ended up taking, or the date and flight
number of the flight he ultimately took. Instead, the only evidence this Court has
regarding his plans is what he told Lee’s counsel, see Mem. Opp’n Mot. Vacate
Default (Bankr. Dkt. 50), Exh. 1, Mahoney Aff. ¶ 3 (alleging that Harrison and
Webber’s counsel informed Lee’s counsel on December 26, 2012 that he would not
attend the final pretrial conference because he was leaving the country and would
not be back in his office until January 7, 2013), and what was revealed by his email
autoreply, see id. ¶ 6 (“This is an automated reply. I am out of the office and will be
returning Monday, January 7, 2013.”). The record thus reflects that not only have
Harrison and Webber failed to provide any evidence of good cause for their counsel’s
failure to attend the conference, but their counsel appears to bear the sole
responsibility for this failure.
Moreover, Harrison and Webber cannot show good cause for their failure to
submit a trial brief or any other pretrial materials before their counsel’s departure
from the country. Harrison and Webber claim that this error, too, was excusable:
Lee did not timely serve them with a list of exhibits and witnesses to be used at
trial (Lee informed Harrison and Webber, eight days after the materials were due,
that he would be late). But Harrison and Webber do not explain how Lee’s tardiness
prevented them from submitting their own pretrial materials, and Harrison and
Webber did not raise any issues with the timeliness of these filings until after the

14

default had been filed. Harrison and Webber had from December 18 to December 26
to file a motion to vacate, and did not do so.
Had Harrison and Webber’s failure to submit pretrial materials been the only
basis for default, this might be a closer question. But when viewed together with
their counsel’s outright failure to attend the pretrial conference—a hearing that is
almost always essential to holding a smooth trial—this Court concludes that the
bankruptcy court did not abuse its discretion in declining to vacate its default
judgment. See, e.g., Wehrs, 688 F.3d at 890; Eskridge, 577 F.3d at 808-09.
Similarly, the bankruptcy court did not abuse its discretion in denying
Harrison and Webber’s motions in limine. Harrison and Webber admit that their
“arguments as to why the denial of its motion in limine was error are the same as
the arguments as to why the order of default should have been vacated[:]
Everything hinges on the equal applicability of the Final Pre-Trial Order to both
Appellees and Appellants.” R. 21, Appellants’ Reply Br. at 4. In other words,
Harrison and Webber are arguing that the bankruptcy court could not have
permitted Lee to file its pretrial materials late while holding Harrison and Webber
strictly to the deadlines: to do so must be an abuse of discretion. As has already
been discussed, however, the bankruptcy court had ample reason to treat Lee’s late
submission of its pretrial materials differently from Harrison and Webber’s failure
to submit any pretrial materials or so much as even attend the pretrial conference.
Moreover, as Lee points out (and Harrison and Webber do not dispute), all of the
proposed exhibits implicated by Harrison and Webber’s motions in limine had

15

already been provided to Harrison and Webber. Appellees’ Br. at 12. In this context,
the bankruptcy court’s denial of Harrison and Webber’s motions in limine was not
an abuse of discretion. Von der Ruhr, 570 F.3d at 862.
Finally, Harrison and Webber assert that their failure to submit the required
pretrial materials constitutes excusable neglect, and that the bankruptcy court
erred in denying their motions for relief from its January 3 and January 9 orders.
The bankruptcy court did not abuse its discretion. Courts must take a broad view in
evaluating a claim for excusable neglect, considering “the danger of prejudice to the
debtor, the length of the delay and its potential impact on judicial proceedings, the
reason for the delay, including whether it was within the reasonable control of the
movant, and whether the movant acted in good faith.” Pioneer Inv. Servs. Co. v.
Brunswick Assocs. Ltd. P’ship, 507 U.S. 380, 395 (1993). Thus, when “determining
whether respondents’ failure to file their proofs of claim prior to the bar date was
excusable, the proper focus is upon whether the neglect of respondents and their
counsel was excusable.” Id. at 397. Here, the Final Pretrial Order was entered seven
months before the conference date. Harrison and Webber’s counsel chose to be out of
the country on that date. As the bankruptcy court reasonably recognized, “There’s
no mistake, inadvertence, surprise, or excusable neglect. There’s no newly
discovered evidence that with reasonable diligence couldn’t have been discovered in
time. There’s no fraud. There’s no allegation that the judgment—the prior order is
void. There’s no reason—I haven’t been given any reason to justify the relief
requested.” 1/15/13 Tr. at 16. This ruling does not amount to an abuse of discretion.

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E. Judgment Based on Affidavits
The final issue may be quickly disposed of. The bankruptcy court did not err
in issuing its order of judgment based only on affidavits. This is because a “default
judgment establishes, as a matter of law, that defendants are liable to plaintiff[s] on
each cause of action alleged in the complaint.” Wehrs, 688 F.3d at 892. Nor was the
court’s determined amount of judgment clearly excessive. Although “[damages]
must be proved unless they are liquidated or capable of calculations,” courts should
not generally “reverse a damages award in a default judgment unless it is clearly
excessive.” Id. (internal quotation marks and citation omitted). Here, it is
uncontroverted that the principal amount invested was $100,000 and that Harrison
guaranteed Lee a 10% rate of return. Given this, the amount awarded by the
bankruptcy court, the $100,000 principal plus the 10% guaranteed rate of return,
plus interest, was appropriate.
IV. Conclusion
For the reasons discussed above, the bankruptcy court’s order and judgment
are affirmed.

ENTERED:

s/Edmond E. Chang
Honorable Edmond E. Chang
United States District Judge
DATE: July 14, 2014
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