In re Canopy Financial, Inc.

Summarized by Madison Conquest , State of Tennessee Real Estate Asset Management
13 years 2 days ago

Citation:

In re Canopy Financial, Inc., No. 12-3239 (February 28, 2013) (Easterbrook, Posner and Tinder, Circuit Judges).

Tag(s):

Ruling:

Affirmed. Though a trial judge has discretion to excuse some negligent errors under the equitable “excusable neglect” standard of Pioneer Investment Services Co. v. Brunswick Associates L.P., 507 U.S. 380 (1993) and Robb v. Norfolk & Western Ry., 122 F.3d 354 (7th Cir. 1997), it cannot be an abuse of that discretion to deny relief when the party seeking relief fails to present any, much less sufficient, factual evidence proving the cause of the error and illustrating the circumstances surrounding that error, because the standard requires the court to take “account of all relevant circumstances surrounding the party’s omission.” Relief would have been appropriate if evidence proved that vital documents did not reach the agent. Relief might have been appropriate if the agent received the documents but did not forward them correctly, unless Buddha had signed up for cheap, inadequate registered agent service, like one that only sends documents by ordinary mail without shipment tracking (Amazon tracks $10 movies, so there is no excuse for failure to track legal papers). Relief might have even been granted if Buddha proved the documents reached Buddha’s mailroom but were misrouted despite Buddha’s use of ordinary care in handling legal papers, which would necessarily including giving the agent the proper name and address of the particular individual within the Buddha's administrative office responsible for handling legal papers. But when the legal standard requires review of “all the facts and circumstances”, the litigant must supply those factual details, or else suffer the consequences.

Procedural context:

Bankruptcy Judge Wedoff denied Buddha's Rule 60(b)(1) motion for relief from a default judgment avoiding and ordering disgorgement of over $80,000 of fraudulent transfers. District Judge Conlon affirmed, holding Buddha responsible for the acts of its registered agent. Buddha appealed.

Facts:

When Canopy filed for bankruptcy in 2009, it was discovered that Anthony Banas and Jeremy Blackburn had misappropriated more than $90 million from Canopy's investors and customers for whom Canopy had administered health-related savings and spending accounts. Banas and Blackburn pleaded guilty to fraud and were sentenced to over ten year's imprisonment. Gus Paloian, the Trustee for Canopy's creditors, recovered about $50 million by seizing luxury assets purchased by Banas and Blackburn with Canopy's money, and then began pursuing fraudulent transfers made not in exchange for reasonably equivalent value while Canopy was insolvent pursuant to 11 U.S.C. §§ 544(b), 548, 550, and Illinois’s version of the Uniform Fraudulent Transfer Act, 740 ILCS 160/1 to 160/12. In this case, the Trustee sued Buddha Entertainment, who operated the TAO nighclub in Las Vegas's Venetian Hotel and Casino, to avoid and recover over $80,000 of Canopy's money that Banas and Blackburn had spent there during several visits. The Trustee served the Complaint and Summons on Buddha's registered agent for service of process in Carson City, Nevada. When Buddha did not answer, the Trustee filed and served a motion for default on Buddha's registered agent, and again Buddha failed to respond. Bankruptcy Judge Wedoff entered a default judgment and that judgment was also served on on Buddha's registered agent. When Buddha neither paid nor appealed, the Trustee began to collect from Buddha's assets in Nevada, in response to which Buddha filed a motion under Fed. R. Civ. P. 60(b), incorporated by Fed. R. Bankr. P. 9024, to vacate the default under Rule 60(b)(1), on the grounds of "mistake, inadvertence, surpuirse, or excusable neglect". Buddha asserted that Buddha had not received any of the Trustee's filings and that failure to respond was therefore “excusable neglect.” However, though conceding that the Trustee sent the papers to the agent’s correct address, Buddha did not present ANY evidence from the registered agent itself, and failed to present credible evidence otherwise reflecting the circumstances of the alleged errors. The only affidavits filed were by two particular Buddha managers who simply said they "do not have an “independent recollection” of receiving the complaint and summons; the affidavits were silent about the motion for default. Bankruptcy Judge Wedoff denied Buddha's Rule 60(b)(1) motion for relief from default judgment, and District Judge Conlon affirmed, holding Buddha responsible for the acts of its registered agent. On further appeal, Buddha asserted that Judge Wedoff erred when he stated that the 7th Circuit had said that a registered agent's failure to submit pleadings to the defendant is not "good cause" to vacate a default judgment.

Judge(s):

Easterbrook, Chief Judge, Posner and Tinder, Circuit Judges. Conlon, District Judge. Wedoff, Bankruptcy Judge.

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