Osborne v. Homeside Lending, Inc. (In Re Osborne)

United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS
July 26, 2004
FOR THE FIFTH CIRCUIT
_____________________ Charles R. Fulbruge III
Clerk
No. 03-30687
_____________________

In The Matter Of: MARY T. OSBORNE,

Debtor.

MARY T. OSBORNE,
Appellant,

versus

HOMESIDE LENDING, INC.,
Appellee.
__________________________________________________________________

Appeal from the United States District Court
for the Middle District of Louisiana
USDC No. 02-CV-1178-B
_________________________________________________________________

Before JOLLY, DUHÉ, and STEWART, Circuit Judges.

E. GRADY JOLLY, Circuit Judge:

This case presents a dispute between Mary T. Osborne, a

homeowner, and Homeside Lending (“Homeside”), a mortgage lender,

about payments that Osborne was to make directly to Homeside in

accordance with her Chapter 13 bankruptcy plan. After an alleged

default, Homeside secured a judgment that permitted Homeside to

foreclose on Osborne’s home. We vacate that judgment, and remand

for further proceedings.

I

Mary Osborne filed for bankruptcy on August 30, 1999. In

accordance with her bankruptcy payment plan (the “Plan”), a portion
of her wages was assigned to a bankruptcy trustee (the “Trustee”)

for disbursement to creditors, while Osborne was to continue making

regular mortgage payments to Homeside Lending -- including the

payment due the next day for September 1999. Osborne, thinking

that the September 1999 payment was included in and discharged by

the Plan, did not make that particular payment, but did send checks

for October, November, and December. The Plan was confirmed,

without objection by Homeside, on December 12, 1999.

Yet on February 4, 2000, Homeside filed a Motion for Relief

from the Stay protecting Osborne’s house (“First Motion”), claiming

Osborne was four payments in arrears. On February 28, Osborne’s

then-attorney, Stephen Peters, filed an objection explaining why

Osborne had missed the September payment (one payment not four) and

expressing an intent to amend the Plan to include the post-petition

September arrearage. The hearing on the motion was twice continued

to allow Peters to file a modified bankruptcy plan. On April 19,

in Osborne’s absence pursuant to the court’s permission, Bankruptcy

Judge Louis M. Phillips granted the motion and lifted the stay

because Peters had never filed the modified plan. Upon learning of

this development, Osborne fired Peters.

On August 10, 2000, Osborne filed a pro se motion to rescind

the order lifting the stay, and, after Homeside neither responded

nor appeared, the court heard the motion on September 13. Osborne

showed that her October through December checks had all been cashed

2
before Homeside’s First Motion. She also showed that Homeside

received but sent back her checks for January, February, and March,

the lender claiming that these were partial payments -- apparently

based on its claim that there was one month’s arrearage -- which it

did not want to accept lest they be construed as waiver of its

right to a greater amount. Homeside also had asked Osborne to stop

making payments (checks Homeside was refusing to cash) because her

checks might get lost. Osborne complied with this request, but

showed the court that her checking account could cover all payments

theoretically due to that time (including the returned checks).

On September 13, 2000, the court granted Osborne’s August 10

motion, vacated its previous order, and noted that FED. R. CIV. P.

60(b) also justified relief from judgment (as a result of excusable

neglect from problems with Peters, and perhaps newly discovered

evidence). The court also found that the First Motion recited an

incorrect amount of default (on four payments rather than one), and

so Osborne’s refusal to sign a consent order proposed by Homeside

was justified. In the September 13 order, Judge Phillips required

Osborne to: 1) pay the Trustee, within five days, eight months

worth of payments (January-August 2000); 2) file a modified plan to

include the September 1999 payment plus $650 in attorney fees; 3)

pay the September 2000 payment to the Trustee, to be held as a

component of the post-petition payments for Homeside’s account.

Osborne complied with the order, except that, on advice of the

Trustee, she sent the September 2000 payment directly to Homeside.

3
 Soon, confusion was again in the driver’s seat. On April 24,

2001, Homeside filed another Motion for Relief from Stay (“Second

Motion”), alleging three months’ arrearage and asking to lift the

stay without FED. R. BANKR. P. 4001(a)(3)’s ten-day waiting period.

On June 25, Osborne filed an objection, indicating that she had

made all required payments as per the Plan and as required by Judge

Phillips’s order. The court held a hearing on June 27, where

Osborne’s current attorney, Aaron McGee, first appeared but where

Homeside was absent. Osborne presented evidence of payment

(certificates of mailing, cashed checks, carbon duplicates) for

September 2000 through June 2001. The September 2000 payment had

been sent back, as Homeside’s counsel, Stacey Wheat, stated that

this payment had been provided for through the Plan. Osborne also

testified that Homeside had informed her that the April, May, and

June 2001 checks were not cashed but had been sent to Wheat, and

that the delay between receipt and cashing of checks had generated

a computer determination of default.

On June 28, in the face of this unrefuted evidence, the court

dismissed the Second Motion with prejudice concerning the

allegations of missed payments due through June 2001 (“June 28

Order”).

On July 9, 2001, Homeside filed a motion for rehearing of this

Second Motion (or new trial), alleging that it had missed the June

27 hearing because the date had not been calendared by an employee

missing from work. Homeside alleged that representations of

4
Osborne’s account being current were inaccurate, and that payments

were due for February through July 2001. On July 17, Homeside

filed another motion for rehearing (or new trial). Osborne filed

an objection, stating first that Homeside’s motions were untimely,

having been filed more than ten days after the judgment. Osborne

also attached the evidence of payment for April-June 2001, and a

letter explaining why these checks could have been cashed without

waiver of any other rights. Osborne also presented certificates of

mailing for July and August 2001.

Wheat then contacted McGee to negotiate a settlement, and the

parties signed a consent order (the “Consent Order”) that was

approved by the court on August 23, 2001. By the terms of the

Consent Order, Osborne was credited with $1,569 (for checks Wheat

had “found” during negotiations) and was to make four payments of

$120.33 to cure the remaining post-petition arrearage of $481.32

(representing the September 1999 payment). The Consent Order also

contained a “drop dead” clause, which modified the stay and allowed

Homeside to obtain an ex parte order enforcing its security

interest in Osborne’s home upon presentation of an affidavit of

non-payment if any monthly installment (beginning with September

2001) was not paid within 30 days of its due date.1

1
Osborne claims that her Fourteenth Amendment and Bankruptcy
Code § 362(d) rights were violated when she was not given notice
and a hearing before the bankruptcy court lifted the stay
protecting her home, per the “drop dead” clause. Yet there was
nothing unusual about the “drop dead” clause here, and Mendoza
recognized such a mechanism as a valid negotiation tool and

5
 Per the Consent Order, Osborne cured the $481.32 arrearage in

four installments that accompanied her regular payments for August-

December 2001. She also sent in regular payments for January-

September 2002 (as well as a $25 late fee for January). For some

reason that is not clear from the record, Homeside never negotiated

the three checks totaling $1,569 -- which had been credited in the

Consent Order -- nor did it request a new $1,569 payment.

The continued confusion is so confounding that we must assume

that minds were completely disengaged. On April 24, 2002, Wheat

filed an Affidavit of Default and Order Lifting Automatic Stay (the

“Affidavit”), swearing that Osborne had failed to make the Consent

Order payments (even though the Consent Order acknowledged the

payments), and that the February 2002 payment was overdue (even

though Osborne had apparently sent each payment to Homeside). On

May 9, Judge Douglas D. Dodd, who had replaced Judge Phillips in

the case, signed an order (“Dodd’s Order”) lifting the stay on the

basis of the Affidavit, which order was served on McGee by first

class mail. On May 23, Homeside returned Osborne’s January 2002

check (and late fee).

specifically authorized its continued use, even without a debtor’s
consent. Matter of Mendoza, 111 F.3d 1264, 1269 (5th Cir. 1997).
Further, § 362 does not preclude the inclusion of “drop dead”
clauses in bankruptcy court orders modifying stays. Id. at 1270
(citing U.S. v. Ron Pair Enter., Inc., 489 U.S. 235, 241 (1989)).
Finally, Osborne agreed to the inclusion of the clause in the
Consent Order. Thus, it is clear that the bankruptcy court did not
abuse its discretion in enforcing the Consent Order’s drop dead
clause.

6
 McGee apparently did not receive Dodd’s Order until some time

later (after the 10-day period specified for appeal) because of a

separation from his wife and his lack of a business address. On

August 22, McGee filed a motion to vacate Dodd’s Order, attaching

a memorandum of facts controverting the Affidavit and alleging that

all payments had been made. Homeside filed an opposition on

September 5, urging untimeliness, Osborne’s default of $1,569, and

the pending sheriff’s sale of Osborne’s home.

At a motion hearing on September 17 (the “September 17

Hearing”), Osborne requested relief for excusable neglect and

misrepresentation regarding the default. The court was told of

McGee’s separation and petition for divorce leading to his

effective lack of notice, and Osborne presented evidence of all

previously described payments. (Apparently, the payments sworn to

be in default had all been cashed by the time of the Affidavit.)

Wheat stated that she had returned the three checks totaling $1,569

to Osborne; Osborne denied receiving the checks, and Wheat did not

produce any evidence of mailing.2 The court denied Osborne’s

motion on October 30, citing the unreasonableness of McGee’s three-

month delay and evidence of default.

Osborne appealed the bankruptcy court’s order on November 8.

On June 12, 2003, the district court issued a final judgment (on

the briefs) affirming the bankruptcy court’s decision to deny

2
Recall that the Consent Order acknowledged payment of the
$1,569 at issue.

7
Osborne’s motion to vacate Dodd’s Order. Osborne filed a timely

notice of appeal.

II

We review actions taken by the district court in its appellate

role for abuse of discretion. In Re CPDC Inc., 221 F.3d 693, 698

(5th Cir. 2000). A district court abuses its discretion in

reviewing bankruptcy courts when its decision is based on an

erroneous view of the law. Id. The district court in this case

cited “essentially the reasons set forth by the Bankruptcy Judge.”

Thus, we review the legal conclusions of the bankruptcy court de

novo, Matter of Clark Pipe & Supply, Inc., 893 F.2d 693, 697-98

(5th Cir. 1990), and its findings of fact for clear error. FED. R.

BANKR. P. 8013; Matter of Webb, 954 F.2d 1102, 1003 (5th Cir. 1992).

Osborne argues that the district court’s judgment should be

vacated because the bankruptcy court erred in two ways: (1) it

clearly erred in its findings of fact at the September 17 Hearing;

and (2) it abused its discretion in denying Osborne’s motion to

vacate Dodd’s Order.3 We take up these issues in turn.

3
Osborne also argues that the district court abused its
discretion by failing to rule on the admissibility of certain
documents presented by her counsel, McGee, at the September 17
Hearing. Homeside disputes whether McGee moved to offer the proof
of Osborne’s payments, such as cashed checks and certificates of
mailing, into evidence in the first place. Yet McGee stated a
desire to introduce the documents at issue and handed them to court
personnel, and Osborne proceeded to authenticate and discuss the
documents in her testimony, to which Homeside did not object;
Homeside even cross-examined Osborne about the documents. The
district court neither admitted nor declined to admit the proffered
evidence, and it cannot be faulted for not ruling on a non-existent

8
 A

We first examine Osborne’s argument that the bankruptcy court

clearly erred in its findings of fact at the September 17 Hearing,

where the court denied Osborne’s request for relief from the

enforcement of the Consent Order’s “drop dead” clause (granted ex

parte in Dodd’s Order).

Osborne argues that the bankruptcy court’s finding of default

in the amount of $1,569 contradicts the June 28 Order, which

dismissed with prejudice allegations of default on payments due

through June 2001 -- and which preceded the Consent Order. The

June 28 Order acknowledged that Osborne had met her Plan

obligations by sending Homeside the checks. Any default was thus

caused by Homeside’s refusal to negotiate the checks it had in its

possession. Osborne also emphasizes that the Consent Order

explicitly acknowledged (again) that “[t]he Debtor has made a

payment of $1,569.”

Homeside’s arguments to the contrary are unconvincing; the

Consent Order -- including its acknowledgment that Osborne made the

payment on which the court found her in default -- is binding on

both parties. It seems disingenuous to claim that Osborne did not

pay what she owed when it is Homeside that has a history of not

motion to admit. Yet the evidence was offered, authenticated, and
cross-examined, and Homeside has clearly waived any objection to
its implicit admission into the record. See, e.g., U.S. v.
Fuentes, 432 F.2d 405, 409 (5th Cir. 1970). As such, we consider
the evidence to be part of the record.

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cashing and returning valid checks. Homeside simply cannot refuse

to negotiate Osborne’s checks, then blame her for knowing they were

not negotiated, and call it a default.4

As Osborne sent checks in the correct amount due and presented

evidence that she had sufficient funds in her bank account to cover

these payments -- and as the binding Consent Order states that she

made the required payment -- the bankruptcy court clearly erred in

its finding of default.5 Yet this holding does not decide the

appeal because Homeside argues that the finding of default was not

timely challenged by Osborne.

B

We thus take up the question of whether the bankruptcy court

abused its discretion in denying Osborne’s FED. R. CIV. P. (60)(b)

motion to vacate Dodd’s Order.6 Motions under Rule 60(b) must be

4
At oral argument, Homeside explained that it did not cash
Osborne’s checks because of its policy of accepting only certified
checks from debtors with a delinquency; yet there is no indication
that this fact was ever conveyed to Osborne. This excuse, however,
is beside the point; Homeside’s agreement to the Consent Order
indicates that it already accepted the payment in question.
5
Osborne also argues that the bankruptcy court clearly erred
in finding that Homeside had returned checks totaling $1,569, and
that Homeside would rather have Osborne’s money than sell her home
at a sheriff’s sale. The record shows, however, that the court did
not make these findings, so these points of error are meritless.
6
The relevant portion of Rule 60(b), made applicable to
bankruptcy cases by Rule 9024 of the Bankruptcy Rules, reads as
follows:

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,

10
made “within a reasonable time,” unless good cause can be shown for

the delay. Pryor v. U.S. Postal Svc., 769 F.2d 281, 287-88 (5th

Cir. 1985). Moreover, “Rule 60(b) relief will be afforded only in

‘unique circumstances.’” Id. at 287 (citing Wilson v. Atwood

Group, 725 F.2d 255, 257-58 (5th Cir. 1984) (en banc)). This “good

cause,” and these “circumstances,” must necessarily be evaluated on

a case-by-case basis. See, e.g., Ashford v. Steuart, 657 F.2d

1053, 1055 (9th Cir. 1981) (“What constitutes a ‘reasonable time’

depends upon the facts of each case, taking into consideration the

interest in finality, the reason for the delay, the practical

ability of the litigant to learn earlier of the grounds relied

upon, and prejudice to other parties.”).

Osborne argues that two main factors should have left no

choice to the bankruptcy court but to grant her motion to vacate:

1) a legal conclusion of default unsupported by evidence (which we

have already held to be the case, supra); and 2) the loss of her

home being at stake. Further, she contends that the delay in

filing the motion was caused by “excusable neglect” under Rule

or proceeding for the following reasons: (1)
mistake, 1) mistake, inadvertence, surprise,
or excusable neglect; . . . (3) fraud (whether
heretofore denominated intrinsic or
extrinsic), misrepresentation, or other
misconduct of the adverse party; . . . (6) any
other reason justifying relief from the
operation of the judgment. The motion shall
be made within a reasonable time, and for
reasons (1) [and] (3) not more than one year
after the judgment, order, or proceeding was
entered or taken.

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60(b)(1), namely McGee’s not being aware of Dodd’s Order due to

some unfortunate personal circumstances. In addition, Homeside’s

pattern of returning checks and then claiming in the Affidavit that

payment was never received could constitute “misrepresentation”

under Rule 60(b)(3). Finally, Osborne suggests that her repeated

good faith attempts to meet her obligations, justify relief from

the bankruptcy court’s too-harsh judgment under Rule 60(b)(6).

Homeside replies that McGee’s excuses are insufficient to

constitute “excusable neglect” such that the motion was filed

within a “reasonable time” after the judgment per Rule 60(b).

Marcaida v. Roscoe, 569 F.2d 828, 830 (5th Cir. 1979) (counsel’s

preoccupation with other matters -- including father’s death, own

ill health, and the holidays -- does not dispense with the

necessity to comply with court rules) (citing U.S. v. Bowen, 310

F.2d 45, 47 (5th Cir. 1962)).

A decade ago, the Supreme Court addressed whether an

attorney’s inadvertent failure to file within the established

deadline can be “excusable neglect” within the meaning of FED. R.

BANKR. P. 9006(b)(1)7, and defined “excusable neglect” as follows:

Because Congress has provided no other
guideposts for determining what sorts of
neglect will be considered “excusable,” we
conclude that the determination is at bottom
an equitable one, taking account of all the
relevant circumstances surrounding the party’s

7
This rule sets forth the calculation of time in bankruptcy
proceedings, and the holding is illustrative of the (scant)
precedent in this area.

12
 omission. These include . . . the dangers of
prejudice to the [non-moving party], 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. Serv. Co. v. Brunswick Assocs. Ltd. P’ship, 507 U.S.

380, 385 (1993) (emphasis added).

One basic fact strongly supports Homeside: McGee did not

notify the court of his address change, and he admitted that he

received Dodd’s Order in the second or third week of May 2002.

Under this reading, even if McGee did not see the Order within the

ten-day appeal period, lack of notice cannot be an excuse for not

filing a motion until August. It would normally be within the

court’s clear discretion to find a three-month delay unreasonable.

Yet all other equities weigh in Osborne’s favor: Osborne

cured the initial (and inadvertent) post-petition arrearage of one

mortgage payment, sent all other payments as they became due, and

otherwise complied with all aspects of the Plan and the Consent

Order -- and she presented evidence to prove all this. Homeside,

meanwhile, asked for a declaration of default and enforcement of

the drop dead clause on faulty evidence contrary to the Consent

Order. Although we are not prepared to say Homeside acted in bad

faith, it acted recklessly and exercised faulty judgment in asking

for a default when the operative Consent Order acknowledged receipt

of the very payment at issue. Any careful lawyer would have known

13
that there was no basis for default with respect to the $1,569 at

issue until and unless the Consent Order -- which acknowledged

payment -- was set aside, and it never was.

Moreover, the consequence of a ruling adverse to Osborne is

the loss of her home, while the opposite ruling implies a

resolution to which both parties should be amenable: the curing of

the arrearage and continuation of payments under the Plan and the

Consent Order. Under the circumstances present here, we consider

this case to be highly exceptional, and conclude that the

bankruptcy court abused its discretion in denying a 60(b)(6) motion

for “any other reason justifying relief from the operation of the

judgment.”

III

For the foregoing reasons, the judgment of the district court

is VACATED, and the case is REMANDED to the district court with

instructions to remand to the bankruptcy court for further

proceedings consistent with this opinion.

VACATED and REMANDED.

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