Wells Fargo Bank, N.A. v. AMH Roman Two NC, LLC, 859 F.3d 295

Background

Wells Fargo held a 2002 equity line of credit secured by a deed of trust on 633 Pendleton Lake Rd (the Property). Debtors later refinanced with PNC in 2004; PNC paid Wells Fargo but Wells Fargo failed to close the line and allowed further advances.
Debtors filed Chapter 13 in March 2012. PNC moved for relief from the automatic stay in October 2012 to foreclose its liens on the Property; PNC served the stay motion electronically on Sean Corcoran, who had filed a general notice of appearance in the case "as counsel for Wells Fargo."
Wells Fargo did not respond to the stay motion. The bankruptcy court granted PNC relief on November 7, 2012, cancelled Wells Fargo’s deed of trust, and a certified copy of that order was recorded in Wake County.
PNC foreclosed and AMH Roman Two NC, LLC purchased the Property in June 2014, recording the deed in September 2014. Wells Fargo later moved (Feb. 2015) under Rule 60(b)(4) and (6) to set aside the bankruptcy order as void and for other relief.
The bankruptcy court denied the Rule 60(b) motion as untimely and because vacatur would unfairly prejudice AMH; the district court affirmed on the ground that the bankruptcy court had jurisdiction and Wells Fargo received constitutionally sufficient notice and, alternatively, that Rule 60(b)(6) relief was not warranted.

Issues

Issue	Wells Fargo's Argument	PNC/AMH's Argument	Held
Whether Rule 60(b) motion was timely and met threshold factors	Delay justified because Corcoran’s appearance was limited to the other property; Wells Fargo lacked notice	Corcoran filed a general appearance; Wells Fargo slept on its rights and waited >2 years after order and after foreclosure purchaser paid value	Motion untimely; Wells Fargo failed threshold (reasonable time) and vacatur would unfairly prejudice bona fide purchaser AMH
Whether bankruptcy court lacked subject-matter jurisdiction because PNC used a motion, not an adversary proceeding under Rule 7001(2)	Order is void because relief affected lien validity and required an adversary proceeding	Bankruptcy courts have statutory authority to determine lien validity; procedural rule requiring an adversary proceeding is not jurisdictional	Bankruptcy court had subject-matter jurisdiction; failure to use adversary procedure was procedural, not jurisdictional
Whether entry of the order violated Wells Fargo’s due process rights	Electronic service and absence of adversary deprived Wells Fargo of constitutionally adequate notice	Corcoran’s general appearance meant notice to counsel was notice to Wells Fargo; electronic service proper under local rules	No due process violation; notice was constitutionally sufficient (actual or constructive via counsel)
Whether Rule 60(b)(6) extraordinary-circumstances relief is warranted	Equitable relief appropriate to prevent injustice to Wells Fargo	Wells Fargo was a sophisticated creditor who failed to protect its interests; vacatur would harm an innocent purchaser	No extraordinary circumstances; Rule 60(b)(6) relief denied

Key Cases Cited

Klapprott v. United States, 335 U.S. 601 (U.S. 1949) (delay may be excused where movant faced severe obstacles to timely action)
Bouret-Echevarria v. Caribbean Aviation Maintenance Corp., 784 F.3d 37 (1st Cir. 2015) (reasonableness of delay judged by movant’s promptness after notice)
In re White, 487 F.3d 199 (4th Cir. 2007) (standard of review for bankruptcy appeals)
MLC Auto., LLC v. Town of S. Pines, 532 F.3d 269 (4th Cir. 2008) (Rule 60(b) denial reviewed for abuse of discretion)
Dowell v. State Farm Fire & Cas. Auto. Ins. Co., 993 F.2d 46 (4th Cir. 1993) (Rule 60(b) threshold factors: timeliness, meritorious defense, prejudice, extraordinary circumstances)
Wendt v. Leonard, 431 F.3d 410 (4th Cir. 2005) (Rule 60(b)(4) void-judgment standard and requirement of egregious jurisdictional error)
United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260 (U.S. 2010) (Bankruptcy Rules are procedural, not necessarily jurisdictional; due-process notice standards)
Jones v. Flowers, 547 U.S. 220 (U.S. 2006) (due process requires notice reasonably calculated under the circumstances)
Cen-Pen Corp. v. Hanson, 58 F.3d 89 (4th Cir. 1995) (procedural requirement for adversary proceeding to invalidate liens; does not by itself resolve jurisdictional question)
Stern v. Marshall, 564 U.S. 462 (U.S. 2011) (limits on bankruptcy courts’ ability to enter final judgments on claims outside core bankruptcy power)
Granfinanciera, S.A. v. Nordberg, 492 U.S. 33 (U.S. 1989) (historical allocation of bankruptcy matters and jury-trial/due-process considerations)
Wellness Int’l Network, Ltd. v. Sharif, 135 S. Ct. 1932 (U.S. 2015) (bankruptcy jurisdiction and historical practice in adjudicating creditor–debtor relations)