637 B.R. 551
Bankr. E.D. Okla.2022Background:
- Scott and Vicki Scherer filed a Chapter 7 petition in August 2012 and claimed their Muskogee residence as homestead exempt under Oklahoma law.
- The debtors listed multiple Oklahoma Tax Commission (OTC) tax warrants (statutory tax liens) against the homestead totaling about $97,000.
- Debtors filed a motion to avoid the OTC liens under 11 U.S.C. § 522(f), characterizing the tax warrants as "judgments/statement of judgments;" no objections were filed and a debtor-prepared order avoiding the liens was entered.
- The OTC was not properly served with the motion or the resulting order; no certificate of service for the order was filed and the OTC did not learn of the entry until a later attempted property transfer.
- The OTC reopened the bankruptcy in 2021 and moved under Fed. R. Civ. P. 60(b) (made applicable by Rule 9024) to vacate the order; debtors opposed.
- The court granted vacatur and denied the original motion to avoid liens, holding (a) tax warrants are statutory tax liens not avoidable under § 522(f), and (b) additional equitable and procedural grounds (misrepresentation, improper service, public interest) supported relief under Rule 60(b)(6).
Issues:
| Issue | Plaintiff's Argument (OTC) | Defendant's Argument (Scherer) | Held |
|---|---|---|---|
| Whether tax warrants are avoidable under 11 U.S.C. § 522(f) | Tax warrants are not judicial liens; OTC argues § 522(f) does not apply and tax liens remain | Debtors argued the liens were "judgments"/judicial liens avoidable under § 522(f) | Held: Tax warrants are statutory tax liens and not avoidable under § 522(f); relief was improper |
| Whether the order avoiding liens should be vacated under Rule 60(b)(6) | OTC sought vacatur as an "other reason"—order granted based on legal error and misrepresentation | Debtors argued delay and long reliance should preserve the order | Held: Vacatur granted under Rule 60(b)(6); substantial reasons justify relief (legal error, misrepresentation, lack of notice) |
| Whether Debtors’ counsel and filings misrepresented the law such that relief must be undone | OTC contended the motion mischaracterized tax warrants as judicial liens and lacked legal support (Rule 9011 concern) | Debtors maintained they relied on order and would be prejudiced by vacatur | Held: Court found the motion misrepresented the law; misrepresentation supports vacatur; debtor prejudice does not outweigh misconduct and legal error |
| Whether OTC’s ~9-year delay in moving to vacate is unreasonable | OTC said it lacked notice of the motion/order and only discovered the defect upon attempted conveyance | Debtors argued long reliance made vacatur inequitable | Held: Delay was reasonable given OTC’s lack of proper service/notice; reopening and timely challenge after discovery justified relief |
Key Cases Cited
- In re Schick, 418 F.3d 321 (3d Cir. 2005) (statutory tax liens are not judicial liens avoidable under § 522(f))
- Pierce v. Cook & Co., 518 F.2d 720 (10th Cir. 1975) (Rule 60(b) motions committed to court's sound discretion)
- Caribou Four Corners, Inc. v. Truck Ins. Exchange, 443 F.2d 796 (10th Cir. 1971) (discretionary nature of relief under Rule 60(b))
- Compton v. Alton Steamship Co. Inc., 608 F.2d 96 (4th Cir. 1979) (movant under Rule 60(b) must show meritorious defense; "one cannot be prejudiced by loss of that to which he was not entitled")