- 8th Circuit - Case No. 10-6085
- Since the debtor's lawyer appealed the motion to reconsider, the BAP held it would not review whether the order allowing the trustee to sell the property and pay the taxes as a surcharge against the sale proceeds. The BAP then held that it will not consider the debtor's argument that he did not understand the law as grounds for relief under FR 60(b) because mistake of law is not excusable neglect. Relief under FR 60(b) is an extraordinary one and will only be granted after considering prejudice to other parties, length of delay and potential impact on judicial proceedings, the reason for the delay and whether in good faith. The BAP found prejudice to other parties because other parties, including the taxing authorities, relied on the surcharge in allowing the respective property sold. The BAP also found no "newly discovered evidence" under FR 60(b) despite the debtor's lawyer's argument that the sale price did not cover all claims. The BAP then affirmed the bankruptcy court's order denying the debtor lawyer's motion for reconsideration.
- Procedural context:
- Bankruptcy court allowed chapter 11 trustee to pay federal and state capital gains and income taxes incurred in connection with sale of debtor's property as surcharge as against the sale proceeds. No objection was raised. The debtor's lawyer, as an administrative claimant, later filed an objection under FR 60(b) to this order. The bankruptcy court overruled the objection. The debtor's lawyer then filed a motion for reconsideration. The bankruptcy court denied the motion. The debtor's lawyer then appealed the order denying his motion for reconsideration to the 8th Circuit BAP.
- The bankruptcy court order approving the trustee's sale of property where taxes would be paid as surcharge against the sale proceeds was not objected to by any party, including the debtor's lawyer who held an administrative claim against the estate. Both the trustee's motion to sell and the bankruptcy court's order approving the sale both included explicit language detailin that taxes would be paid as a surcharge against the sale proceeds. Since no party objected, the court approved the sale. Then, realizing the estate did not have sufficient money to pay administrative claims, the debtor's lawyer filed a motion to vacate the previous order allowing the payment of taxes as a surcharge against the sale proceeds. He argued that the surcharges violated the policy of the Code whereby all administrative claimants are treated equally and argued under FR 60(b) that the order was entered into by mistake and inadvertence and should be vacated.
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