474 B.R. 497
Bankr. S.D. Tex.2012Background
- Discover Bank moved to reconsider the court’s Jan. 23, 2012 judgment favorable to Fuentes for Discover’s failure to appear at trial.
- Discover sought relief from judgment based on excusable neglect and a meritorious defense that a default should have been entered due to Fuentes’ failure to answer.
- Fuentes filed chapter 7 on May 31, 2011; Discover filed an adversary proceeding to except $4,940 in charges from discharge under §523(a)(2)(A).
- The complaint lacked factual support; Fuentes failed to appear for a scheduling conference, and trial was set for Jan. 23, 2012. Discover moved for default on Jan. 19, 2012, which the court denied on Jan. 20, 2012.
- Both parties failed to appear at trial on Jan. 23, 2012, and the court entered judgment for Fuentes. Discover moved to reconsider on Jan. 24, 2012; a hearing was held May 14, 2012.
- The court ultimately held that Discover was not entitled to a default judgment or relief from judgment, and analyzed Rule 9(b) pleading standards and Rule 55 discretionary standards in the §523 context.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Discover is entitled to default judgment in a §523(a)(2)(A) action. | Discover argues for default judgment under Rule 55(b)(1) for a sum certain. | Fuentes contends the relief is not a sum certain and Rule 55(b)(1) is inapplicable; the claim seeks nondischargeability, requiring more than a monetary amount. | Default judgment denied; Rule 55(b)(1) inapplicable; insufficient pleading under Rule 9(b). |
| Whether the complaint complies with Rule 9(b) for fraud in a §523(a)(2)(A) action. | Discover argues its pleadings suffice under Rule 9(b). | Fuentes asserts the complaint lacks particularity and fails to plead circumstances constituting fraud. | Complaint fails to state fraud with particularity; not enough to support default or §523(a)(2)(A) claim. |
| Whether the court should grant relief from judgment under excusable neglect. | Discover claims excusable neglect justified relief from judgment. | Fuentes opposes relief; the merits do not show excusable neglect or meritorious defense. | Relief denied; no excusable neglect established and no meritorious defense proven. |
| Whether Rule 55(b)(2) discretion applies to deny a default in this context. | Discover relies on discretion to grant default due to failure to plead adequately. | Fuentes emphasizes court discretion to deny default when grounds are in doubt or largely technical. | Court exercised discretion to deny default; pleaded deficiencies and lack of proper basis for entry. |
Key Cases Cited
- Nishimatsu Constr. Co., Ltd. v. Houston Nat'l Bank, 515 F.2d 1200 (5th Cir.1975) (default judgment requires sufficient basis in pleadings)
- In re Mercer, 246 F.3d 391 (5th Cir.2001) (fraud standards govern §523(a)(2)(A) actions)
- In re Haber Oil, 12 F.3d 426 (5th Cir.1994) (fraud allegations require particularity)
- In re Crandall, 400 B.R. 111 (Bankr.S.D.Tex.2008) (Rule 9(b) specificity required; boilerplate not enough)
- In re Morrison, 555 F.3d 473 (5th Cir.2009) (separate grounds for dischargeability and monetary judgment; Rule 55 context in §523)