United States Court of Appeals
For the First Circuit
No. 01-9014
IN RE: THE HOME RESTAURANTS, INC.,
Debtor.
____________________
BANCO BILBAO VIZCAYA ARGENTARIA,
Defendant, Appellant,
v.
FAMILY RESTAURANTS, INC., AND HECTOR CUEVAS CUEVAS,
Plaintiffs, Appellees,
WIGBERTO LUGO MENDER,
Defendant, Appellee.
APPEAL FROM THE BANKRUPTCY APPELLATE PANEL
OF THE FIRST CIRCUIT
Before
Torruella, Circuit Judge,
Coffin, Senior Circuit Judge,
and Selya, Circuit Judge.
Wanda I. Luna-Martinez, with whom Montanez & Alicea Law
Offices was on brief, for appellant.
Ramon Torres Rodriguez for plaintiffs-appellees.
Wigberto Lugo Mender for defendant-appellee.
April 2, 2002
COFFIN, Senior Circuit Judge. Appellant Banco Bilbao Vizcaya
Argentaria ("the Bank"), a creditor in a Chapter 7 bankruptcy
proceeding, claims that the bankruptcy court wrongly refused to
grant it relief, under Fed. R. Civ. P. 60(b) and Fed. R. Bankr.
P. 9024, from a default judgment totaling $24,506.55.1 The
Bankruptcy Appellate Panel for the First Circuit ("BAP") affirmed
the bankruptcy court's ruling, and we likewise find no reversible
error.
Although this case reaches us by way of the BAP, we are
charged with direct review of the bankruptcy court's decision. See
In re Healthco Int'l, Inc., 132 F.3d 104, 107 (lst Cir. 1997). We
consider that court's conclusions of law de novo and scrutinize its
factual findings for clear error. Id. Absent legal error, we
review the court's refusal to set aside a default judgment under
Rule 60(b) only for abuse of discretion. See Claremont Flock Corp.
1
The court's default judgment resolved two separate claims
against the Bank for the costs of preserving or disposing of
property of the debtor in which the Bank had a security interest.
See infra p. 3. The original complaint was filed by Family
Restaurants, Inc. and its president, Hector Cuevas, who had
subleased restaurant premises to the debtor, The Home Restaurants,
Inc. Plaintiffs (whom we at times refer to collectively as
"Cuevas") named both the Bank and the bankruptcy trustee, as
representative of the debtor, as defendants. The trustee, in turn,
filed cross-claims against the Bank. Cuevas sought reimbursement
for rent and related costs; the trustee sought, in addition, the
cost of electricity and a contractor's services.
The Bank never responded to the cross-claims, and the court
described its judgment in favor of the trustee as "a simple default
judgment." Although the Bank filed an answer to the complaint, it
took no further action until after the default judgment was
entered. The court termed the default judgment for plaintiffs "a
sanction for [the Bank's] repeated failure to comply with orders of
the Court."
-2-
v. Alm, 281 F.3d 297, 299 (lst Cir. 2002); Key Bank of Maine v.
Tablecloth Textile Co., 74 F.3d 349, 352 (lst Cir. 1996).
The Bank's appeal has three primary prongs, two of which
challenge the bankruptcy court's legal authority to order the
default. It argues that the court lacked jurisdiction to address
appellees' claims in light of the United States Supreme Court's
decision in Hartford Underwriters Ins. Co. v. Union Planters Bank,
N.A., 530 U.S. 1 (2000), and lacked authority to grant the default
judgment without examining the merits of appellees' claims in a
hearing. The Bank also contends that the court abused its
discretion in ordering a default judgment in the circumstances of
this case.
We briefly dispose of each of these contentions.
A. Jurisdiction.
In their complaint, plaintiffs relied on section 506(c) of the
Bankruptcy Code to demand reimbursement of rent and other costs
incurred at the restaurant premises while property in which the
Bank had a security interest remained there. See 11 U.S.C. §
506(c). The section provides that "[t]he trustee may recover from
property securing an allowed secured claim the reasonable,
necessary costs and expenses of preserving, or disposing of, such
property to the extent of any benefit to the holder of such claim."
Id. In Hartford Underwriters, which was decided about one month
after the bankruptcy court's challenged ruling, the Supreme Court
held that only a trustee, and not an administrative claimant, is a
proper party to seek recovery under section 506(c). See 530 U.S.
-3-
at 14. As the BAP observed, that decision overruled First Circuit
precedent allowing such a claim by "third parties who equitably
come to stand in the trustee's shoes," see In re Parque Forestal,
Inc., 949 F.2d 504, 511 (lst Cir. 1991). The Bank contends that
Hartford Underwriters requires reversal of the bankruptcy court's
judgment in favor of Cuevas, a third-party claimant.
Although Hartford Underwriters would appear to negate Cuevas's
standing to bring a section 506(c) claim, it does not require us to
disturb the bankruptcy court's judgment. The rents and related
costs awarded to Cuevas also were incorporated within the cross-
claims filed by the trustee, who unquestionably had standing to
pursue such relief.2 We are thus satisfied that the bankruptcy
court's judgment was consistent with the principles espoused in
Hartford Underwriters.3
B. Lack of Hearing.
The Bank contends that the district court could not grant
judgment on the merits without a hearing to determine whether the
claims and cross-claims were meritorious. To the contrary, it is
precisely the right to contest liability that a party gives up when
it declines to participate in the judicial process. See Franco v.
2
In Count Two of his cross-claims, the trustee asked that the
Bank be obliged to pay any "rent and preservation costs [that] are
due to plaintiff."
3
The court unquestionably had subject matter jurisdiction;
both the claims and cross-claims were within the bankruptcy court's
core jurisdiction. See 28 U.S.C. § 157(b)(2) (A), (O) (core
proceedings include "matters concerning the administration of the
estate" and "other proceedings affecting the liquidation of the
assets of the estate," with exceptions not relevant here).
-4-
Selective Ins. Co., 184 F.3d 4, 9 n.3 (lst Cir. 1999) ("A party who
defaults is taken to have conceded the truth of the factual
allegations in the complaint as establishing the grounds for
liability . . . ."); Brockton Savings Bank v. Peat, Marwick,
Mitchell & Co., 771 F.2d 5, 13 (lst Cir. 1985) ("[T]here is no
question that, default having been entered, each of [plaintiff's]
allegations of fact must be taken as true and each of its [] claims
must be considered established as a matter of law.").
A hearing may be required, however, to set damages when the
amount is in dispute or is not ascertainable from the pleadings.
See Fed. R. Civ. P. 55(b)(2);4 Ortiz-Gonzalez v. Fonovisa, 277 F.3d
59, 64 (lst Cir. 2002); HMG Property Investors v. Parque Indus. Rio
Canas, 847 F.2d 908, 919 (lst Cir. 1988). Here, there was no
uncertainty about the amounts at issue; the complaint and cross-
claims contained specific dollar figures, and the court also
requested and received affidavits from appellees. The court's
order to show cause allowed the Bank the opportunity to respond to
appellees' claims before entry of judgment, but the Bank failed to
do so.
4
Rule 55(b)(2) states:
If, in order to enable the court to enter judgment or to
carry it into effect, it is necessary to take an account
or to determine the amount of damages or to establish the
truth of any averment by evidence or to make an
investigation of any other matter, the court may conduct
such hearings or order such references as it deems
necessary and proper and shall accord a right of trial by
jury to the parties when and as required by any statute
of the United States.
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Where a court has jurisdiction over the subject matter and
parties, the allegations in the complaint state a specific,
cognizable claim for relief, and the defaulted party had fair
notice of its opportunity to object, the court has the discretion
to order a default judgment "without a hearing of any kind," HMG
Property Investors, 847 F.2d at 919. By the same token, the court
may choose to hold a hearing to "establish the truth of any
averment" in the complaint. See Fed. R. Civ. P. 55(b)(2);
Quirindongo Pacheco v. Rolon Morales, 953 F.2d 15, 16 (lst Cir.
1992) (per curiam). There was no abuse of the court's discretion
in this case.
C. Relief from the Default Judgment.
As noted earlier, a court's refusal to set aside a default
judgment is reviewed for abuse of discretion. See supra p. 2. On
this issue, we find it unnecessary to add to the well reasoned
decisions of the bankruptcy court and BAP. See Lawton v. State
Mut. Life Assur. Co. of America, 101 F.3d 218, 220 (lst Cir. 1996).
Their assessments of the Bank's conduct and its asserted
justifications suffice to explain why no such abuse occurred here.
Affirmed.
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