In re Canopy Financial, Inc.
708 F.3d 934
7th Cir.2013Background
- Canopy Financial’s bankruptcy trustee alleges Bañas and Blackburn misappropriated over $90 million from Canopy’s investors and customers.
- Trustee recovered about $50 million by seizing luxury cars owned by Blackburn; seeks to claw back transfers as fraudulent transfers.
- Buddha Entertainment, a Canopy creditor, was sued; trustee served Buddha’s Nevada registered agent in October 2011 and Buddha defaulted.
- Bankruptcy court entered default judgment requiring Buddha to disgorge funds; Buddha failed to respond or appeal.
- Buddha moved under Fed. R. Bankr. P. 9024 (incorporating Rule 60(b)) to vacate the default, arguing excusable neglect due to its agent’s failure to forward filings.
- The bankruptcy judge and district court denied relief; Buddha appealed, challenging the characterization of “excusable neglect” and the sufficiency of the record.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Rule 60(b)(1) relief was properly denied for excusable neglect. | Trustee argues Buddha failed to show excusable neglect given its agent’s conduct and lack of evidence. | Buddha contends its agent’s failure to forward filings constitutes excusable neglet under Pioneer framework. | Affirmed; no excusable neglect shown; judgment upheld. |
| Whether the record supported excusable neglect given the agent's handling of service. | Trustee contends Buddha bore risk of agent’s nondelivery and failed to provide evidence. | Buddha argues lack of notice was excusable due to agent’s mishandling. | Affirmed; failure to produce essential evidence bars relief. |
| Whether the Pioneer/Robb framework requires knowing the circumstances of the agent’s failure to file. | Trustee emphasizes equitable standard requires consideration of all circumstances. | Buddha suggests the agent’s negligence could be excusable under Robb’s reasoning. | Affirmed; without details, cannot conclude excusable neglect. |
| Whether the record showed reasonable grounds to conclude the agent erred. | Trustee notes record is thin and lacks evidence from the agent or Buddha. | Buddha asserts lack of notice could justify relief if supported by affidavits. | Affirmed; record insufficient to support excusable neglect. |
Key Cases Cited
- Robb v. Norfolk & Western Ry., 122 F.3d 936 (7th Cir.1997) (attorney negligence can be excusable neglect under Rule 60(b)(1))
- Pioneer Investment Services Co. v. Brunswick Associates L.P., 507 U.S. 380 (Supreme Court 1993) (excusable neglect is equitable and based on all relevant circumstances)
- Cracco v. Vitran Express, Inc., 559 F.3d 625 (7th Cir.2009) (considerations of notice and delivery in Rule 60(b) contexts)
- CFTC v. Lake Shore Asset Management Ltd., 646 F.3d 401 (7th Cir.2011) (failure to notify proper recipient defeats excusable neglect defense)
- United States v. 7108 West Grand Avenue, 15 F.3d 632 (7th Cir.1994) (agent’s acts generally attributed to principal; affects neglect analysis)