Tekman et al v. John E. Harmes, Jr., & Associates, Inc.
Filing
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MEMORANDUM OPINION. Signed by Judge Richard D Bennett on 11/25/11. (hmls, Deputy Clerk)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
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JOHN TEKMEN and ILKEM, LLC
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Appellants,
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Civil Action No.: RDB-11-1385
Bankruptcy No.: 09-22090-RAG
v.
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JOHN E. HARMS, JR. &
ASSOCIATES, INC.,
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Appellee.
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MEMORANDUM OPINION
This case is before this Court on appeal from the Order of the United States
Bankruptcy Court for the District of Maryland (“Bankruptcy Court”) denying the motion of
John Tekmen (“Mr. Tekman”) and Ilkem, LLC (“Ilkem”), (collectively “Appellants”) to
vacate the entry of a default judgment (“Default Judgment”), against Appellants under
Federal Rule of Civil Procedure 60(b) and Federal Rule of Bankruptcy Procedure 7055 and
9024. The Bankruptcy Court denied Appellants’ motion, holding that Appellants’ failure to
file an answer and address the Default Judgment was not the result of excusable neglect. See
Harms v. Tekmen, Bankr. Case No. RAG-09-22090, Adversary Proceeding No. 09-00581,
(Bankr. D. Md. April 21, 2011), ECF No. 1-1 (hereinafter “Bankr. Mem. Op.”).
Subsequently, Appellants appealed the Bankruptcy Court’s decision, whereupon John E.
Harms, Jr. & Associates, Inc. (“Appellee”) filed the presently pending Motion to Dismiss
Appeal. (ECF No. 5). This Court has jurisdiction over this matter pursuant to 28 U.S.C. §
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158(a), as Appellants’ appeal arises from the final order entered by the Bankruptcy Court.
Oral argument is deemed unnecessary as the facts and legal arguments are adequately
presented in the briefs and record, and because the decisional process would not be
significantly aided by oral argument. See Local Rule 105.6 (D. Md. 2010); Fed. R. Bankr. P.
8012. For the reasons that follow, Appellee’s Motion to Dismiss Appeal (ECF No. 5) is
GRANTED.
BACKGROUND AND PROCEDURAL HISTORY
Appellee is the Chapter 11 debtor in the underlying bankruptcy proceedings. Bankr.
Mem. Op. at 1. The Bankruptcy Court granted Appellee’s Motion for Default against
Appellants. Id. at 13. Thereafter, Appellants moved to vacate the default judgment under
Rule 60(b). The Bankruptcy Court denied Appellants’ motion, and Appellants appealed to
this Court. In response, Appellee filed a Motion to Dismiss Appeal. Thus, only those facts
that directly affect this Court’s decision, and not the actual underlying bankruptcy judgment,
will be summarized.
Appellee is an engineering firm, and apparently contracted with Appellants to provide
services for Georgetown Village Business Park in Georgetown, Delaware.
Id. at 2.
Subsequently, on July 2, 2009, Appellee filed a Voluntary Petition for relief in the
Bankruptcy Court (Case No. 09-22090). Id. Upon learning of the bankruptcy filing, Mr.
Tekmen demanded that Appellee return certain documents, records, and other intellectual
property in Appellee’s possession that related to the Business Park project. Id. In response,
Appellee told Mr. Tekmen that, before returning the documents, Mr. Tekman must pay the
sum of $6,118.74 before Appellee would return the requested items. Id. at 2-3. On July 27,
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3009, Mr. Tekmen paid Appellee the amount due using a check drawn on Ilkem’s account,
whereupon Appellee gave Mr. Tekmen documents related to Georgetown Business Park. Id.
at 3. Only a few days later, on August 3, 2009, Mr. Tekmen and Ilkem stopped payment on
the check.
Id.
Consequently, Appellee filed the adversarial proceeding seeking the
$6,118.74. Id.
According to the record of the Bankruptcy Court, the following events are
undisputed by the parties. Id. “On September 4, 2009, [Appellee] forwarded copies of the
Summons and the Complaint to both Mr. Tekmen and the registered agent for Ilkem.” Id.
“On September 7, 2009 Mr. Tekmen was served with the Complaint and Summons.” Id.
“[Mr. Tekmen]’s written response to the Complaint was due to be filed by October 5, 2009.”
Id. The Summons stated, in pertinent part that “if you fail to respond in accordance with
this summons, judgment by default may be taken against you for the relief demanded by the
complaint.” Id. at 4. Mr. Tekmen did not answer or otherwise plead to the Complaint and
on October 8, 2009 Appellee filed the Motion for Default. Id. Neither Mr. Tekmen nor
Ilkem filed a response to the Motion for Default, and on October 9, 2009 the Clerk of the
Court entered default against both Mr. Tekmen and Ilkem. Id. On October 10, 2009 Mr.
Tekmen received notice of the Defaults and retained counsel on October 12, 2009. Id. On
November 3, 2009, the Bankruptcy Court entered the Default Judgment. Id. “On January
12, 2010 more than 120 days after the service of the Summons and Complaint, more than 90
days after the entry of the Default, and more than 70 days after the entry of the Default
Judgment, Mr. Tekmen filed the Motion to Vacate.” Id. In response, Appellee filed an
Opposition to the Motion to Vacate on January 21, 2010. Id.
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Appellants sought relief from the Bankruptcy Court’s judgment solely on the grounds
that Appellants’ failure to file an answer and promptly address the Default Judgment was the
result of excusable neglect under Rule 60(b)(1). Id. at 5. In denying the motion, the
Bankruptcy Court conducted an equity-based analysis that examined “all the relevant
circumstances surrounding the omission.” Id. at 7, citing Pioneer Ins. Servs. Co. v. Brunswick
Associates, Ltd., 507 U.S. 380, 395 (1993). The Bankruptcy Court continued, “[t]hese factors
include, the danger of prejudice to the opposing party, the length of the delay and its 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.” Id., citing
Pioneer, 507 U.S. at 388. The Bankruptcy Court stated, “Pioneer “stand[s] for the principle
that a party’s carelessness or oversight may be excused if there is some good reason that
merits a second chance.” Id. at 10.
The Bankruptcy Court explained that it was undisputed that Appellants’ counsel did
not contest the Default Judgment until seventy days after it was entered. Id. Counsel “was
aware of all the relevant circumstances, yet seemingly made a conscious choice to do nothing
as the weeks passed.”
Id.
Moreover, the Bankruptcy Court found that Counsel’s
explanation that he reached an out of court agreement with Appellee regarding a stay of
execution was “irrelevant to his obligation to act promptly in court, with knowledge of the
circumstances, and also reflects an implied acknowledgement of the validity of the
judgment.” Id. Thus, the Bankruptcy Court held that Appellants did not provide a good
reason for Appellants’ delay in addressing the Default Judgment. Id.
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The Bankruptcy Court acknowledged that in Augusta Fibreglass Coatings, Inc. v. Fodor
Contracting Corp., the Fourth Circuit “seemingly lays down a rule that will always find
excusable neglect if the fault lies with the attorney.” Id. at 11, citing Augusta, 843 F.2d 808,
811 (4th Cir. 1988). However, the Bankruptcy Court explained that Augusta is at odds with
subsequent cases which have defined excusable neglect and confirmed that a party is bound
by their attorney’s actions. Id. Thus, the Bankruptcy Court did not find excusable neglect
on the grounds that Appellants’ Counsel was at fault. Id.
The Bankruptcy Court then addressed the remaining equitable factors from Pioneer—
danger of prejudice1, length of delay, reason for the delay, and good faith—and concluded
that Appellants’ failure to file an answer and promptly address the Default Judgment “while
neglectful was not excusable.” Id. at 13. Consequently, on April 21, 2011, the Bankruptcy
Court denied the Defendants’ Motion to Vacate Entry and closed the case.
Thereafter, on May 4, 2011, Appellants filed a Notice of Appeal to this Court under
28 U.S.C. § 158(a) from the order of the bankruptcy judge denying the Motion to Vacate
Order Granting Judgment Against Tekmen and Ilkem By Default. Not. of App., ECF No.
1. Appellants’ Notice of Appeal was filed with this Court on May 4, 2011, however no
designation of record was filed as required by Bankruptcy Rule 8006. Therefore, on May 23,
2011, this Court issued an Order to Show Cause as to why no designation of record was
filed. Order, ECF No. 2. On June 6, 2011, Appellants filed a Designation of Record On
Regarding prejudice, the Bankruptcy Court noted, “It would cost the Debtor-Plaintiff’s Estate as least as
much as the amount in controversy to re-litigate this matter and that would be prejudicial to the Estate and its
creditors in this reorganization context where scarce resources are the reality and efficiency should be the
rule.” Bankr. Mem. Op. at 12. In addition, some of the records Appellee gave to Appellants are intellectual
property of the Estate. Id. Appellants “have had them since then and whatever unique value they had to the
Estate has surely been lost.” Id.
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Appeal and Statement of Issues Presented (ECF No. 3) and a Response to Show Cause
Order (ECF No. 4). In response, Appellee filed a Motion to Dismiss Appeal on June 14
2011 on the ground that Appellants had not filed a brief in support of their appeal within
fourteen days after initially entering their appeal. (ECF No. 5). As of the filing of this
Memorandum Opinion, Appellants have not responded to Appellee’s Motion to Dismiss
and have not filed a brief in support of their Appeal as required by Bankruptcy Rule
8009(a)(1). 11 U.S.C. Rule 8009(a)(1) (2009).
STANDARD OF REVIEW
Appellants brought this appeal pursuant to Rule 8001 of the Federal Rules of
Bankruptcy Procedure.
On appeal from the Bankruptcy Court, this Court acts as an
appellate court and reviews the Bankruptcy Court's findings of fact for clear error and
conclusions of law de novo. In re Merry-Go-Round Enterprises, Inc., 400 F.3d 219, 224 (4th
Cir.2005); In re Kielisch, 258 F.3d 315, 319 (4th Cir.2001).
A factual finding is clearly
erroneous “when although there is evidence to support it, the reviewing court on the entire
evidence is left with a firm and definite conviction that a mistake has been committed.”
United States v. U.S. Gypsum Co., 333 U.S. 364, 395 (1948). An abuse of discretion standard
applies in the review of the Bankruptcy Court's denial of a Rule 60(b) motion. See Nat’l Org.
for Women v. Operation Rescue, 47 F.3d 667, 669 (4th Cir 1995) (“the power of a district court
to vacate a judgment under Federal Rule of Civil Procedure 60(b) rests within the district
court’s equitable powers, and its decision will not be disturbed on appeal absent a showing
of an abuse of discretion.”). “At its immovable core, the abuse of discretion standard
requires a reviewing court to show enough deference to a primary decision-maker’s
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judgment that the court does not reverse merely because it would have come to a different
result in the first instance.” Evans v. Eaton Corp. Long Term Disability Plan, 514 F.3d 315, 322
(4th Cir. 2008) (citation omitted). The district court may affirm, modify, or reverse a
bankruptcy judge's order, or remand with instructions for further proceedings. See Fed. R.
Bankr.P. 8013; see also In re White, 128 Fed. Appx. 994, 999 (4th Cir.2005); Suntrust Bank v.
Johnson, 2006 U.S. Dist. LEXIS 87622, at *6, 2006 WL 3498411 (D. Md. Dec. 4, 2006).
Bankruptcy Rule 8009(a)(1) requires that the appellant serve and file a brief within 14
days after entry of the appeal on the docket pursuant to Rule 8007. 11 U.S.C. Rule
8009(a)(1) (2009). “To determine whether to dismiss a bankruptcy appeal for failure to
timely file a brief, the district court must exercise its discretion under Bankruptcy Rule
8001(a).” In re Byrd, 2007 WL 4103048 (4th Cir. 2007), citing In re SPR Corp., 45 F.3d 70, 74
(4th Cir. 1995). “In applying Rule 8001(a), the district court must take one of the four steps
outlined in In re Serra Builders, Inc., 970 F.2d 1309 (4th Cir. 1992).” Id. “Specifically, the court
must: ‘(1) make a finding of bad faith or negligence; (2) give the appellant notice and an
opportunity to explain the delay; (3) consider whether the delay had any possible prejudicial
effect on the other parties; or (4) indicate that it considered the impact of the sanction and
available alternatives,’ keeping in mind that dismissal is a ‘harsh sanction which the district
court must not impose lightly.’” Id., quoting Serra, 970 F.2d at 1311. “Proper application of
the Serra test requires the court to consider and balance all relevant factors.” Id.
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ANALYSIS
A. Finding of bath faith or negligence
In this case, this Court finds that Appellants have been negligent with regard to the
procedural requirements of the bankruptcy appeals process. Appellants did not respond to
the Bankruptcy Court’s entry of default for seventy days, whereupon Appellants filed a
Motion to Vacate.
After the Bankruptcy Court denied Appellants’ Motion to Vacate,
Appellants filed a Notice of Appeal. Appellants did not, however, file a designation of the
items to be included on the record of appeal or a statement of the issues on appeal within
fourteen days as required by Bankruptcy Rule 8006. This Court issued an Order to Show
Cause, and Appellants responded with the explanation that Appellants’ Counsel includes
both New York counsel and local counsel, and that there was confusion between them
concerning the “division of labor with respect to this appeal.” Resp. to Order to Show
Cause, ECF No. 4. Thereafter Appellee filed a Motion to Dismiss Appeal, stating that
Appellants had failed to “serve and file a brief within 14 days after entry of the appeal on the
docket” pursuant to Bankruptcy Rule 8009(a)(1). Mot. to Dismiss App. at 2, ECF No. 5. It
has been over four months since the Appellee filed its Motion to Dismiss, and Appellants
have still not filed a brief required under Rule 8009(a)(1), nor have they responded to
Appellee’s Motion to Dismiss Appeal. In sum, Appellants’ pattern of delayed responses in
violation of procedural rules constitutes negligence.
B. Notice and an opportunity to explain the delay
In its Order to Show Cause, this Court provided Appellants with an opportunity to
explain its violation of Rule 8006. Appellants’ explanation that there was confusion between
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Appellants’ New York counsel and local counsel does not justify this pattern of delay. If
anything, it confirms this Court’s finding of negligence.
C. Whether the delay had any possible prejudicial effect on the other parties
With regard to prejudice to Appellee, the Bankruptcy Court adequately summarized
the potential for such prejudice. See supra n.1. In short, Appellants’ pattern of delaying and
extending this litigation is prejudicial to the Appellee’s Estate and its creditors in the Chapter
11 reorganization, “where scarce resources are the reality and efficiency should be the rule.”
Bankr. Mem. Op. at 12.
D. Consideration of the impact of the sanction and available alternatives
This Court has considered the impact of the sanction and available alternatives, and
keeping in mind that dismissal is a “harsh sanction which the district court must not impose
lightly,” this Court finds that dismissal is nonetheless appropriate where Appellants
consistently disregarded procedural rules without providing reasonable excuse or explanation
for their neglect. In re Byrd, 2007 WL 4103048, quoting Serra, 970 F.2d at 1311.
CONCLUSION
For the reasons stated above, Appellee John E. Harms, Jr. & Associates, Inc.’s
Motion to Dismiss Appeal (ECF No. 5) is GRANTED.
A separate Order follows.
Dated: October 25, 2011
/s/________________________
Richard D. Bennett
United States District Judge
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