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Margaret Kinney v. HSBC Bank USA

Summarizing by Lars Fuller

Keeley v. Grider

Keeley v. Grider, Case No. 14-5228 (6th Cir. Nov. 3, 2014) (unpublished).
Plaintiff obtained a default judgment against debtor, but the judgment was entered by the clerk of the bankruptcy court and was not declared "non-dischargeable." The bankruptcy court denied plaintiff's motion to amend the default judgment under Fed. R. Bankr. P. 9024 and Fed. R. Civ. P. 60(a). The Sixth Circuit affirmed. The default judgment was entered by the clerk under Fed. R. Bankr. P. 7055, which permits the clerk to enter judgment only if the judgment is for a sum certain or that can be made certain by computation. The court must enter a default judgment in all other cases. Specifically, where a creditor's claim sounds in fraud, the court must ensure that plaintiff has presented a prima facie case. Because plaintiff did not show fraud but instead moved for entry of a default judgment by the clerk, plaintiff could not have obtained declaratory relief that the judgment is non-dischargeable. Therefore, the clerk made no mistake which could be corrected under Fed. R. Civ. P. 60(a). Further, even if Fed. R. Civ. P. 60(a) extends to mistakes by attorneys, as argued by plaintiff, the Rule is still inapplicable. Plaintiff made a legal decision to proceed via Fed. R. Bankr. P. 7055, and did not make a mistake that could be corrected under the Rule.
Procedural context:
On appeal from an order of the United States District Court for the Western District of Kentucky affirming the bankruptcy court's order denying plaintiff's motion to amend the default judgment.
Debtor defaulted on a $300,000 note. Plaintiff initiated suit against debtor in state court. Debtor filed a voluntary Chapter 7 bankruptcy petition. Plaintiff filed a new complaint in the bankruptcy court re-alleging her state-law claims, specifically alleging fraud and seeking a non-dischargeable judgment under section 523(a)(2)(A). After debtor failed to timely answer the complaint, the clerk of the bankruptcy court entered debtor's default. Plaintiff moved for a default judgment, seeking damages in the amount of pre-judgment interest and principal of $384,375.00, and post-judgment interest, but neither the proposed default judgment nor affidavit in support mentioned fraud or sought a determination that the judgment be non-dischargeable. The clerk entered plaintiff's proposed default judgment and the adversary proceeding was closed. Plaintiff began garnishing debtor's wages, prompting debtor to move to reopen the adversary proceeding. The bankruptcy court denied debtor's motion, finding that debtor had not shown sufficient cause for failing to timely answer the complaint. On the day that debtor obtained his discharge, nearly one year after the default judgment was entered, plaintiff moved, under Fed. R. Bankr. P. 9024 and Fed. R. Civ. P. 60(a), to amend the default judgment to include the phrase "which shall be non-dischargeable under 11 U.S.C. § 523(a)(2)(A)." The bankruptcy court denied plaintiff's motion and plaintiff appealed.
Cook, White, and Michelson (District Judge sitting by designation)

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