IN RE WERNER, (Bankr.N.D.Cal. 2000)

JAMES R. GRUBE.

I. INTRODUCTION

Movant, Educational Credit Management Corporation ("ECMC"), filed a motion to set aside an order granting debtors' application to modify their Chapter 13 Plan. For the reasons discussed below, ECMC's motion is denied.

II. BACKGROUND

Debtors Paul and Maria Werner executed a promissory note for a student loan with ECMC. Before the note was paid in full, the debtors filed for bankruptcy under Chapter 13. ECMC proceeded to file a proof of claim for $11,064.09, which included the amount due on the note, $9,116.53, plus an additional $1,947.56 in collection costs and unpaid fees.

On August 30, 1999, debtors served on ECMC an "Application to Modify Chapter 13 Plan" ("Application") and a "Notice of Application to Modify Chapter 13 Plan and of Opportunity to Request Hearing" ("Notice"). The Application sought to modify the debtors' Chapter 13 plan to make the $1,947.56 in collection costs and unpaid fees on the promissory note "a general unsecured claim and discharged upon plan completion." The Notice, in turn, provided ECMC with twenty days from the mailing of the Notice to either file an objection to the proposed Chapter 13 plan modification or request a hearing on the matter.

ECMC admits receiving the Application and Notice on September 8, 1999, twelve days before the noticed filing deadline. (Declaration of Peggy Helms at 2:7-8.) Nevertheless, debtors did not receive a response to the proposed plan modification by either the noticed deadline or several days thereafter.

Finally, on October 1, 1999, debtors' counsel filed a declaration requesting that the Court confirm the debtors' modified Chapter 13 plan, which the Court did by order filed October 4, 1999. ECMC, in turn, filed the instant motion to set aside the "Order Confirming Modified Chapter 13 Plan" ("Order").

III. DISCUSSION

ECMC submits two separate bases upon which to set aside the Order. First, ECMC argues that the Order should be set aside because the $1,947.56 in collection costs and unpaid fees on the debtors' student loan constituted a nondischargeable debt under § 523(a)(8) of the Bankruptcy Code. Second, ECMC argues that the Order should be set aside under Federal Rule of Civil Procedure 60(b), made applicable to bankruptcy proceedings under Federal Rule of Bankruptcy Procedure 9024. As explained below, ECMC may only properly move to set aside the Order under this latter basis.

Federal Rule of Civil Procedure 60(b)(1) provides in relevant part:

On motion and upon such terms as are just, the court may relieve a party or a party's legal representative from a final judgment, order, or proceeding for the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect. . . . The motion shall be made within a reasonable time, and for reasons (1), (2) and (3) not more than one year after the judgment, order, or proceeding was entered or taken.

Federal Rule of Bankruptcy Procedure 9024 provides:Rule 60 F.R. Civ. P. applies in cases under the Code except that

(1) a motion to reopen a case under the Code or for the reconsideration of an order allowing or disallowing a claim against the estate entered without a contest is not subject to the one year limitation prescribed in Rule 60(b),

(2) a complaint to revoke a discharge in a chapter 7 liquidation case may be filed only within the time allowed by § 727(e) of the Code, and

(3) a complaint to revoke an order confirming a plan may be filed only within the time allowed by § 1144, § 1230, or § 1330.

With regard to ECMC's first argument, the Ninth Circuit recently held that a student loan creditor's "failure to object to the [chapter 13] plan or to appeal the confirmation order `constitutes a waiver of its right to collaterally attack the confirmed plan postconfirmation on the basis that the plan contains a provision contrary to the Code.'" In re Pardee, 193 F.3d 1083, 1985 (9th Cir. 1999), quoting In re Pardee, 218 B.R. 916, 922 (9th Cir. BAP 1998). In particular, the court

f[ou]nd no reason to depart from the well-settled policy that confirmation orders are final orders that are given preclusive effect. Regardless of whether the plan should have been confirmed with the discharge provision . . . "the Plan is res judicata as to all issues that could have or should have been litigated at the confirmation hearing." Id. at 3.

Nevertheless, while ECMC may not move to set aside the Order on grounds that the confirmed plan discharges a purportedly non-dischargeable debt, ECMC may still proceed under its second basis and move to seek relief from the Order under Federal Rule of Civil Procedure 60(b)(1).

ECMC's motion under Rule 60(b) is timely, as it was filed on October 28, 1999, less than one month after the Order was filed.

A Rule 60(b) motion can be used "to modify a confirmed plan of reorganization. . . ." 10 Collier on Bankruptcy, ¶ 9024.05 at 9024-6 [15th ed. 2000]; See also In re Norris, 228 B.R. 27, 31 (M.D. Florida 1998) ("Since the instant [Rule 60(b)] motion was brought . . . less than one year after the . . . Order Amending Confirmed Chapter 13 Plan, [the creditor] can clearly seek relief under Rule 60(b)(1).")

In general, "courts should and do give a liberal construction to 60(b)." 7 Moores Federal Practice, ¶ 60.18[8] at 60-138 [2nd ed. 1996]. Nevertheless, "[r]elief [under Rule 60(b)] is denied from error resulting from mere carelessness." 7 Moores Federal Practice, ¶ 60.22[2] at 60-181.

In this case, ECMC argues that its Bankruptcy Department did not forward the Notice to its Legal Department quickly enough to permit the filing of a timely objection to confirmation. This argument falls most closely within the "excusable neglect" branch of Rule 60(b)(1).

As the Ninth Circuit explained in United States v. R G B; Contractors, Inc., 21 F.3d 952, 956 (9th Cir. 1994), "[e]ven a liberal interpretation of "excusable neglect" will not excuse every error or omission in the conduct of litigation." See also Engleson v. Burlington Northern Railroad, 972 F.2d 1038, 1043 (9th Cir. 1992) ("'Neither ignorance nor carelessness on the part of the litigant or his attorney provide grounds for relief under Rule 60(b)(1).'"(citations omitted)); Kyle v. Campbell Soup Co., 28 F.3d 928, 931 (9th Cir. 1994) (Lawyer's mistake in adding three days for service by mail to time for motion timed from entry of judgment did not constitute excusable neglect.)

Applying this authority to the matter at hand, ECMC does not present a compelling justification for relief under Rule 60(b)(1). In essence, ECMC's claim of "excusable neglect" is premised upon certain organizational delays in the processing of its paperwork:

Due to the volume of claims objections and other bankruptcy proceedings received by the Bankruptcy Department, and because the Bankruptcy Department first had to research the basis for debtor's application and determine whether it should be referred to the Legal Department, the Legal Department was unable to respond to debtor's objection in a timely fashion.

(ECMC's Memorandum of Points ; Authorities at 2:15-19).

Dealing efficiently and effectively with the consequences of a borrower's bankruptcy is simply an unavoidable part of being a commercial lender; those lenders that have the best systems in place to process bankruptcy-related documents will have a competitive advantage. As such, ECMC should not look to the bankruptcy courts to relieve it from the consequences of its own organizational deficiencies. As ECMC was told in the context of another bankruptcy case, "if the `student loan business is a large business . . . well, then, they are going to have to be a little bit better organized.'" In re Bernal, 207 F.3d 595, 599 n. 4 (9th Cir. 2000).

Consequently, ECMC has failed to set forth adequate grounds for relief from judgment pursuant to Federal Rule of Civil Procedure 60(b)(1).

IV. CONCLUSION

For the forgoing reasons, the Court denies ECMC's motion to set aside the Order Confirming Modified Chapter 13 Plan.