SPURLOCK et al v. MOREQUITY

Filing 12

ENTRY - We hold that there was no abuse of discretion by the Bankruptcy Court in denying the Spurlocks' motion for reconsideration and request for an adversarial hearing. Therefore, the Bankruptcy Court's ruling is AFFIRMED. Final judgment shall issue accordingly. Signed by Judge Sarah Evans Barker on 12/17/2013. Copies Mailed. (JD)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
INDIANAPOLIS DIVISION

BRIAN LEE SPURLOCK and SALLY
MICHELLE SPURLOCK,

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Appellants,
vs.
MOREQUITY, INC.,
Appellee.

No. 1:13-cv-01765-SEB-TAB

ORDER AFFIRMING THE RULINGS OF THE BANKRUPTCY COURT
This is a bankruptcy appeal. The Bankruptcy Court denied the motion filed by
Appellants Brian Lee Spurlock and Sally Michelle Spurlock (“the Spurlocks”),
proceeding pro se, seeking reconsideration of a prior order by the Bankruptcy Court on
the Spurlocks’ motion brought pursuant to Federal Rule of Civil Procedure 60, as more
fully explained below. The merits of this appeal have been fully briefed, and the Court,
being duly advised, now AFFIRMS the Bankruptcy Court’s order, denying Rule 60
relief.1
Factual and Procedural Background
The Spurlocks owned real property, commonly known as 10941 Geist Road,
Fishers, Indiana (“the Property”). On January 28, 2005, the Spurlocks executed and
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On November 20, 2013, Appellants filed a Motion to Stay Pending Appeal [Docket No. 7],
requesting that the Court stay the impending sheriff’s sale of the property at issue pending
resolution of their appeal. Because we affirm the Bankruptcy Court’s order for the reasons
detailed below, Appellants Motion to Stay is DENIED AS MOOT.
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delivered to Bay Capital Corporation (“Bay Capital”) an Interest Only Adjustable Rate
Note (“Note”) and a mortgage (“the Mortgage”) granting Bay Capital a security interest
in the Property to secure the repayment of the loan it had extended to the Spurlocks. The
Mortgage was recorded in the Hamilton County Recorder’s Office on February 7, 2005,
as Instrument number 200500007351. Bay Capital subsequently assigned the Mortgage
to Appellee MorEquity, Inc. (“MorEquity”) by a separate instrument, which was recorded
in the Hamilton County Recorder’s Office on July 26, 2005, as Instrument number
200500046617.
The Spurlocks failed to make a monthly payment that was due on March 1, 2008.
In fact, they have not made any payments due under the Note since February 14, 2008.
On August 27, 2008, MorEquity initiated a foreclosure action against the Property by
filing a complaint in Hamilton Circuit Court (“the Foreclosure Action”). The Spurlocks
subsequently filed counterclaims against MorEquity based on theories of fraud,
negligence, breach of contract, and various statutory violations, but the state court
dismissed with prejudice the Spurlocks’ counterclaims and amended counterclaims.
MorEquity filed a motion for summary judgment in the Foreclosure Action on December
14, 2011. On March 16, 2012, the state court conducted a hearing on that motion and on
March 21, 2012, before the state court could rule, the Spurlocks filed for bankruptcy
under Chapter 13 of Title 11 of the United States Code. Thereafter, the state court
granted MorEquity’s motion for summary judgment but because of the Spurlock’s
pending bankruptcy proceedings, the order was not enforceable.

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On April 17, 2012, MorEquity filed with the Bankruptcy Court a Motion for
Relief from the Automatic Stay and for Abandonment of Property and Notice of
Objection to Chapter 13 Plan (“Motion for Relief from Stay”), seeking relief from the
automatic stay imposed by 11 U.S.C. § 362. On June 4, 2012, the Bankruptcy Court
conducted a hearing on the Motion for Relief from Stay and the Spurlocks’ objections to
the motion, which were based primarily on MorEquity having failed to establish that it
possessed the original note for the Property. Just before the hearing was set to begin,
however, MorEquity produced the original note to the Spurlocks’ attorney.2 Upon advice
of their counsel, given that the original note had been produced, the Spurlocks withdrew
all objections to the Motion for Relief from Stay. There being no objections, the
Bankruptcy Court granted the Motion for Relief from Stay on June 6, 2012 (“Stay Relief
Order”), finding that “MorEquity is the holder and party entitled to enforce the Note,”
and that the “Note is secured by a valid first priority Mortgage on the Real Estate.”
Docket No. 8-7. The court also found that the Spurlocks “do not have any equity in the
Real Estate and have [proposed] to surrender the Real Estate upon a finding by this court
that MorEquity is the party entitled to enforce the Mortgage and Note.” Id.
As part of its Motion from Relief from Stay, MorEquity objected to the original
Chapter 13 Plan which proposed that MorEquity not be paid any amount of money on its
claim. MorEquity argued that such an exclusion represented an attempt to modify its
rights as a holder of a secured claim in real property that was the debtors’ (the

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The Spurlocks were at that time represented by counsel.
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Spurlocks’) principal residence, in violation of 11 U.S.C. § 1322(a)(b)(2). Not long after
the hearing on the Motion from Relief from Stay and the entry of the Stay Relief Order,
the Spurlocks filed an Amended Chapter 13 Plan asserting that, upon confirmation, the
Property would be abandoned and surrendered to MorEquity. On August 28, 2012, the
Bankruptcy Court entered the Order Confirming Plan (“Confirmation Order”).
Following entry of the Stay Relief Order, MorEquity requested the issuance of a
foreclosure judgment by the Hamilton Circuit Court. The Spurlocks interposed no
opposition to the entry of such a judgment, thus the state court granted MorEquity’s
request. Subsequently, however, the Spurlocks appealed the judgment of foreclosure to
the Indiana Court of Appeals, contending, inter alia, that their due process rights had
been violated and that there was fraud throughout their dealings with MorEquity. The
Court of Appeals dismissed the appeal on collateral estoppel grounds, reasoning that the
issues raised by the Spurlocks in their foreclosure appeal had already been decided by the
Bankruptcy Court in its order granting relief from the automatic stay. See Spurlock v.
MorEquity, Inc., No. 29A04-1207-MF-345, 2013 WL 980031 (Ind. Ct. App. Mar. 12,
2013), trans. denied, 994 N.E.2d 732 (Ind. 2013).
On June 3, 2013, nearly a year after the Bankruptcy Court had entered the Stay
Relief Order, the Spurlocks filed a Motion for Partial Relief from that Order, pursuant to
Federal Rule of Civil Procedure 60. In their Rule 60 motion, the Spurlocks argued that
the validity of the lien was not at issue in the hearing for relief from the automatic stay
and therefore the question of whether the lien was valid had not been adjudicated on the
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merits. Accordingly, the Spurlocks requested that the language in the Bankruptcy
Court’s Stay Relief Order regarding the validity and enforceability of the note and lien be
deleted. More specifically, the Spurlocks requested that the word “valid” be removed
from paragraph number six of the Stay Relief Order, which read: “[The] Note is secured
by a valid first priority Mortgage on the Real Estate.” On September 3, 2013, following a
hearing on the Rule 60 motion, the Bankruptcy Court issued a ruling denying the
Spurlocks’ motion on the grounds that they had failed to put forth any evidence to
establish an entitlement to relief under Rule 60. The Bankruptcy Court also held that the
Spurlocks’ delay in filing their Rule 60 motion, coupled with other dilatory behavior on
their part in both the Bankruptcy Court and state court proceedings, undermined the
equitable relief they had requested.
On September 17, 2013, the Spurlocks filed a motion to reconsider the Bankruptcy
Court’s denial of their Rule 60 motion and requested an adversarial hearing on the
validity of the lien on the Property. The Bankruptcy Court denied the motion to
reconsider on September 23, 2013, concluding that there was insufficient legal and
factual support for the relief they requested. On October 14, 2013, the Spurlocks filed the
instant appeal of the Bankruptcy Court’s denial of the motion to reconsider, which is now
before us for decision.
Legal Analysis
It is clear from the Spurlocks’ briefs that they disagree with virtually every
decision made by the Bankruptcy Court and Hamilton Circuit Court in the underlying
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bankruptcy and foreclosure proceedings. However, while they have put forth a number
of arguments addressing various rulings issued by those courts, the scope of our review is
limited to the Bankruptcy Court’s September 23, 2013 Order denying the Spurlocks’
motion to reconsider the denial of their Rule 60 motion. Our review of this order is to
determine whether it amounted to or otherwise reflected an abuse of discretion. See In re
United Airlines, Inc., 318 Fed. App’x 429, 431 (7th Cir. 2009) (citations omitted). An
abuse of discretion occurs when a decision is “premised on an incorrect legal principle or
a clearly erroneous factual finding, or when the record contains no evidence on which the
court rationally could have relied.” Wiese v. Community Bank of Cent. Wis., 552 F.3d
584, 588 (7th Cir. 2009) (internal quotation marks and citation omitted). Here, the
Spurlocks have presented no grounds on which we could properly conclude that the
Bankruptcy Court abused its discretion in denying their motion to reconsider the denial of
their Rule 60 motion.
In their original Rule 60 motion, the Spurlocks requested that the Bankruptcy
Court remove the word “valid” from its Stay Relief Order, arguing that the validity of the
lien had not been adjudicated in the hearing on MorEquity’s motion to lift the stay.
Given that the Spurlocks had at that point withdrawn all of their objections to the validity
of the Mortgage and promised to surrender the Property in their Chapter 13 plan, we
cannot find that the Bankruptcy Court abused its discretion in denying that motion.3
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It is true that when a bankruptcy court “is made aware at a stay relief hearing that fundamental
questions exist over the extent, validity, or priority of a movant’s security interest it is
appropriate to deny relief until such issues can be resolved in an adversary proceeding.” In re
Topgallant Lines, Inc., No. 89-41996, 1993 WL 13004125, at *2 (Bankr. S.D. Ga. Feb. 8, 1993)
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Moreover, after the Stay Relief Order was issued, the Spurlocks chose not to appeal that
order or otherwise interpose any objections to the language therein until almost a full year
later, when the Rule 60 motion was filed. Relief under Rule 60(b)4 “is an extraordinary
remedy,” (Harrington v. City of Chi., 433 F.3d 542, 546 (7th Cir. 2006) (quotation
omitted)), and must be requested within a “reasonable time” period. Fed. R. Civ. Pro.
60(c)(1). It allows a judgment to be set aside for various grounds, including mistake,
inadvertence, surprise, or excusable neglect; newly discovered evidence; misconduct of
the opposing party; or any other reason that justifies relief. Fed. R. Civ. Pro. 60(b). It is
not, however, “a substitute for a timely appeal.” United Airlines, 318 Fed. App’x at 431
(citations omitted).
Likewise, the Bankruptcy Court did not abuse its discretion in denying the
Spurlocks’ motion to reconsider and request for an adversarial hearing to determine the
validity of MorEquity’s security interest as the motion to reconsider set forth no new
evidence or other grounds to justify reconsideration of the Bankruptcy Court’s prior
sound ruling. Despite the Spurlocks’ prolixity (as evidenced by the one hundred pages of
documents they attached to their motion to reconsider), there is no indication that any of
the evidence submitted was newly discovered. The motion to reconsider was instead
merely a rehash of arguments they had already presented on numerous occasions in both

(citations omitted). Here, however, the Spurlocks withdrew all of their objections to
MorEquity’s motion for relief from the automatic stay, including their objections to the validity
of the Mortgage.
4
Under Rule 60(a), a clerical mistake in an order or other part of the record may be corrected.
However, that provision of Rule 60 is inapplicable here as there is no evidence that the inclusion
of the word “valid” in the Stay Relief Order was a clerical error.
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the state court and the Bankruptcy Court. To the extent that the Spurlocks maintained in
their motion to reconsider that the Bankruptcy Court in its initial ruling had overlooked
material issues of fact or otherwise misunderstood or failed to address their arguments,
such contentions fall outside the scope of Rule 60(b).
Nor was there any basis for the Bankruptcy Court to grant the Spurlocks the
adversarial hearing they requested as part of their motion to reconsider. Pursuant to
Federal Rules of Bankruptcy Procedure 5005 and 7003, a debtor can initiate an adversary
proceeding only by filing a complaint. Fed. R. Bankr. Pro. 5005, 7003. The Spurlocks’
motion to reconsider does not constitute a complaint nor was it served in accordance with
Federal Rule of Bankruptcy Procedure 7004. Accordingly, the Bankruptcy Court did not
abuse its discretion in denying the Spurlocks’ request for an adversarial hearing.
Conclusion
For the reasons detailed above, we hold that there was no abuse of discretion by
the Bankruptcy Court in denying the Spurlocks’ motion for reconsideration and request
for an adversarial hearing. Therefore, the Bankruptcy Court’s ruling is AFFIRMED.
Final judgment shall issue accordingly.
IT IS SO ORDERED.
12/17/2013
Date: ___________________________

_______________________________
SARAH EVANS BARKER, JUDGE
United States District Court
Southern District of Indiana

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Distribution:
BRIAN LEE SPURLOCK
10941 Geist Road
Fishers, IN 46037
SALLY MICHELLE SPURLOCK
10941 Geist Road
Fishers, IN 46037
Darren Andrew Craig
FROST BROWN TODD LLC
[e-mail]
Jeremy M. Dunn
FROST BROWN TODD LLC
[e-mail]

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