1. INTRODUCTION-  A number of default judgments allowing the trustee's claim for double damages for usury have been entered by the clerk, pursuant to FRCP 55(b)(1).⁽¹⁾ The court subsequently made a global ruling applicable to all individual adversary proceedings in the Bonham Recovery Actions (the BRA) that the usury claims should be dismissed.⁽²⁾ Should the court vacate the usury portions of the default judgments entered by the clerk? Since the default judgments pertaining to usury were not susceptible to a "sum certain" determination in the BRA due to the pending global motion to dismiss the usury count, any default judgment required the signature of the court pursuant to FRCP 55(b)(2). Thus, those signed by the clerk should be set aside, even though the defendants have not raised individual affirmative defenses.

The court has identified twenty adversary proceedings in which the clerk entered default judgments allowing usury damages. Those proceedings are identified on the table that appears at the end of this memorandum.

6 ABR 86      2. BACKGROUND- In many of the complaints filed by the trustee in approximately 660 adversary proceedings seeking recovery on the grounds of preference or fraudulent transfer, the trustee has requested double damages under the usury statute, AS 45.45.030.

A number of BRA defendants (not those who were defaulted, of course) have raised an issue about whether such damages are appropriate. The idea of the mega case approach being taken by the BRA was to determine global issues in the BRA, and not in each of the 660 adversaries separately.

The court granted defendants' motions to disallow usury damages, since the debtors engaged in securities fraud and the trustee, who stands in the debtors' shoes in regards to the usury claim, was barred by an Alaska securities statute, AS 45.55.930(g), which prevents someone who enters a contract in violation of the Alaska securities laws from suing on the contract.⁽³⁾

Well before the ruling on the viability of the trustee's usury claims, but after the usury issue was raised as a global issue, the trustee moved to default the defendants listed on the attached table, and judgments were entered by the clerk in these cases between February and May, 1997. As shown on the last page of the attached table, the usury damages awarded by default exceed $300,000 of total damages of about $875,000.

At a hearing on February 16, 1999, in Compton v. Robben Franklin,⁽⁴⁾ the court set aside a default judgment because it was entered by the clerk as opposed to the court.⁽⁵⁾ In that case, the defendants had entered an appearance and the court held that a default judgment for failure to file an answer (after having filed an appearance) must be entered by the court under FRCP 55(b)(2), and not the clerk.

6 ABR 87      This led the court to investigate whether this may have happened in previous adversary proceedings and, thus, the court staff developed a list of cases as shown on the table.

3. LEGAL ANALYSIS-  The affirmative defense that usury damages are not applicable due to the plaintiff's violation of the Alaska securities laws would normally have to be raised by a defendant's answer since the defense is in the nature of estoppel or illegality.⁽⁶⁾ When undertaking the management of the numerous fraudulent transfer claims under the lead BRA adversary,⁽⁷⁾ however, it was implicit, if not explicitly stated, that the rulings on certain global issues would inure to the benefit of all defendants. Thus, the court's ruling that the trustee's usury claim should be dismissed should apply to the defendants listed on the attached table, even if they did not individually raise the defense.

The question is whether these defendants should be relieved of the default judgment entered by the clerk, as opposed to the court. FRCP 55(b) provides:

(b) Judgment. Judgment by default may be entered as follows:

(1) By the Clerk. When the plaintiff's claim against a defendant is for a sum certain or for a sum which can by computation be made certain, the clerk upon request of the plaintiff and upon affidavit of the amount due shall enter judgment for that amount and costs against the defendant, if the defendant has been defaulted for failure to appear and if he is not an infant or incompetent person.

(2) By the Court. In all other cases the party entitled to a judgment by default shall apply to the court therefor; but no judgment by default shall be entered against an infant or incompetent person unless represented in the action by a general guardian, committee, conservator, or other such representative who has appeared therein. If the party against whom judgment by default is sought has appeared in the action, the party (or, if appearing by representative, the party's representative) shall be served with written notice of the application for judgment at least 3 days prior to the hearing on such application. If, in order to enable the court to enter judgment or to carry it into effect, it is necessary to take an account or to determine the amount of damages or to establish the truth of any averment by evidence or to make an investigation of any other matter, the court may conduct such hearings or order such references as it deems necessary and proper and shall accord 6 ABR 88      a right of trial by jury to the parties when and as required by any statute of the United States.

Judge Kleinfeld recently held in Kingvision Pay-Per-View Ltd. v. Lake Alice Bar⁽⁸⁾ that a federal judge in the 9^th Circuit may modify the amount of the default judgment sua sponte or on oral motion based on the court's mistake or inadvertence under FRCP 60(b)(1). FRCP 60(b)(1)⁽⁹⁾ is limited to judgments entered not more than one year before the motion. All of the default judgments in the adversary proceedings shown on the table were entered almost two years ago.

These adversary proceedings, however, have an additional feature that requires setting the judgments aside even though they were entered more than a year ago.

FRCP 55(b)(1) only allows the clerk to enter judgments where there has been no appearance by the defendant, and the complaint is for a sum certain. There are few⁽¹⁰⁾ cases interpreting the "sum certain" aspect of the rule, and the dividing line between what is a simple computation and what is more complicated, requiring the court to be the one that enters the default judgment, is not clear.

First, with respect to three of the adversaries, Compton v. Dale Franklin,⁽¹¹⁾ Compton v. Merle Franklin,⁽¹²⁾ and Compton v. Parkan,⁽¹³⁾ the defendants participated sufficiently to have "appeared." In those cases, it was improper for the default judgment to be entered by the clerk.

6 ABR 89      Secondly, with respect to these three adversaries and the balance of those listed on the table, the computation of a usury recovery required more than a simple calculation. It required a determination whether there is a legal basis for the judgment since that issue had been raised in the BRA with respect to all the individual BRA adversary proceedings.

In some situations, it is easier to determine that the judgment being sought is not for a "sum certain." For example, in a wrongful discharge case seeking punitive damages, a default cannot be entered under FRCP 55(b)(1), because such a claim is not the type that is susceptible to a simple calculation even though a sum certain, $5 million, was requested.⁽¹⁴⁾

Where a default judgment, which should have been signed by the court, was improperly signed by the clerk, it should be well within the power of the court to set those judgments aside under FRCP 60(b)(6), the catchall provision, for "any other reason justifying relief from judgment."

In In re Pacific Far East Lines, Inc.,⁽¹⁵⁾ the 9^th Circuit held that FRCP 60(b)(6) provided grounds to set aside a judgment entered 18 months earlier where the trustee had paid a tax under a statute which was amended to apply retroactively within weeks after the payment. By analogy, this court's ruling on the usury issue should apply retroactively given the extraordinary circumstance of the mega case procedures adopted in the BRA.

In addition, in Meyer v. Lenox⁽¹⁶⁾ the 9^th Circuit held that the court's powers under 11 USC § 105(a) can justify a court, sua sponte, in reviewing a previous order, in addition to the court's powers under FRCP 60(b).⁽¹⁷⁾

Before setting aside a default judgment on the court's own motion, however, notice should be given to the judgment creditor.⁽¹⁸⁾

6 ABR 90      4. CONCLUSION- By separate order, the court will give notice of its intent to set aside the usury damages awarded in the default judgments, but not the defaults, of those judgment creditors listed in the attached table.

If the trustee does not choose to challenge the legal basis of the court's intent to set aside the default judgments, it would be helpful if he would provide a recalculation of damages for each of the adversary cases. In those cases where the defendants have made an appearance, at least a three-day notice of any intended entry of a new default judgment must be given.⁽¹⁹⁾

Dated: February 23, 1999

HERBERT A. ROSS U.S. Bankruptcy Judge

6 ABR 91     

ADV EXT	DEFENDANTS	BANCAP NUMBER	CLOSE COMMENTS	ENTRY OF APPEAR- ANCE	COMPLAINT						JUDGMENT
					Preference	Federal Fraud	State Fraud	Usuary	Less Adj. for Double Recovery	Total Amount of Complaint	Judgment Amount	Plus Costs	Interest Rate %
030	Hall, Danny & Susan	96-4138	Default Jdgmt Entered 3/10/97 Closed 4/9/97	None		18,500		17,000	-8,500	27,000	27,000	120	5.670
044	Kirkley, John NOTE- Prayer only asks for $20,000, however, the judgment was awarded for $40,000.	96-4152	Default Jdgmt Entered 3/10/97 Closed 4/9/97	None		20,000		40,000	-20,000	20,000	40,000	120	5.670
091	Franklin, Dale	96-4204	Default Jdgmt Entered 4/25/97 Closed 2/27/98	EOA filed @ DE#5		19,000	41,500	60,500		121,000	121,000	120	5.640
113	Franklin, Merle	96-4226	Default Jdgmt Entered 4/24/97 Closed 2/27/98	EOA filed @ DE#3	15,000	6,000	10,000	31,000		62,000	62,000	120	5.640
216	Parkan, Christopher C.	96-4332	Default Jdgmt Entered 5/13/97 Closed 2/27/98	None, but change of Add. filed @ DE#7		Fed Int = 5,000 Fed Prin = 10,000	17,000	17,000		49,000	49,000	120	6.060
275	Woods, Richard, individually & dba C.U.C. Electric, Inc.; Woods, Bonni, individually & dba C.U.C. Electric, Inc.; C.U.C. Electric, Inc.	96-4395	Default Jdgmt Entered Against all Defendants 3/12/97 Closed 4/9/97	None		Fed Int = 36,000 Fed Prin =0	131,000	4,000		171,000	171,000	120	5.670
327	Lirette, Lynn A.	96-4449	Default Jdgmt Entered 2/28/97 Closed 4/9/97	None	4,000		2,000	6,000		12,000	12,000	120	5.640
330	Mickowski, Ted Jr.	96-4452	Default Jdgmt Entered 2/27/97 Closed 4/9/97	None		Fed Int = 2,500 Fed Prin = 5,000	13,000	5,500		26,000	26,000	120	5.640
ADV EXT	DEFENDANTS 6 ABR 92	BANCAP NUMBER	CLOSE COMMENTS	ENTRY OF APPEAR- ANCE	COMPLAINT						JUDGMENT
					Preference	Federal Fraud	State Fraud	Usuary	Less Adj. for Double Recovery	Total Amount of Complaint	Judgment Amount	Plus Costs	Interest Rate %
376	Peacock, Richard & Willie	96-4499	Default Jdgmt Entered 2/27/97 Closed 4/9/97	None			31,000	6,000		37,000	37,000	120	5.640
379	Reid, Dalpha	96-4502	Default Jdgmt Entered 2/27/97 Closed 4/9/97	None			15,000	5,000		20,000	20,000	120	5.640
388	Tittle, Mary & Ralph	96-4511	Default Jdgmt Entered 2/27/97 Closed 4/9/97	None		Fed Int = 2,500 Fed Prin =0	2,500	5,000		10,000	10,000	120	5.640
394	Wierenga, Robert A.	96-4517	Default Jdgmt Entered 2/27/97 Closed 4/9/97	None		Fed Int = 3,000 Fed Prin =0	3,000	6,000		12,000	12,000	120	5.640
418	Skingel, Edward R. & Patricia	96-4541	Default Jdgmt Entered 2/27/97 Closed 4/9/97	None		Fed Int = 5,000 Fed Prin =0		5,000		10,000	10,000	120	5.640
451	LaBelle, Kerry	96-4577	Default Jdgmt Entered 5/2/97 Closed 2/27/98	None		Fed Int = 4,000 Fed Prin =0	2,000	6,000		12,000	12,000	120	6.060
452	Law-As, Ailyne Sheppler, Ed Daisy Mary J.	96-4578	Default Jdgmt Entered 5/2/97 Default Set Asideas to Mary Sheppler Only 7/1/98	None		Fed Int =57,912 Fed Prin=10,000	14,000	71,912		153,824	153,824	120	6.060
472	McQuade, Gail Desacia, Lorraine L.	96-4599	Default Jdgmt Entered 2/27/97 Closed 4/9/97	None			22,990	17,990		40,980	40,980	120	5.640
495	Nelson, Wayne & Carolyn	96-4622	Default Jdgmt Entered 2/27/97 Closed 4/9/97	None			22,500	12,500		35,000	35,000	120	5.640
ADV EXT	DEFENDANTS 6 ABR 93	BANCAP NUMBER	CLOSE COMMENTS	ENTRY OF APPEAR- ANCE	COMPLAINT						JUDGMENT
					Preference	Federal Fraud	State Fraud	Usuary	Less Adj. for Double Recovery	Total Amount of Complaint	Judgment Amount	Plus Costs	Interest Rate %
507	Winton, Sue	96-4634	Default Jdgmt Entered 2/27/97 Closed 4/9/97	None			5,000	5,000		10,000	10,000	120	5.640
520	Carlin, Sean	97-4317	Default Jdgmt Entered 1/19/99 Closed 2/3/99	None		Fed Int = 4,000 Fed Prin=0	7,000	4,000		15,000	15,000	120	4.545
604	Loudon, Phillip & Bridgit	97-4403	Default Jdgmt Entered 6/5/98 Closed 7/16/98	None			7,500	2,500		10,000	10,000	120	6.060
	TOTALS							327,902			873,804

1. 6 ABR 85      Incorporated by FRBP 7055.

2. 6 ABR 85      Memorandum Decision Granting Motion to Dismiss (Treated as a Summary Judgment Motion) Claim for Double Damages Under AS 45.45.030, Docket Entry 809, filed January 21, 1999.

3. 6 ABR 86      See, footnote 2.

4. 6 ABR 86      Adv. No. F95-00897-112-HAR (BANCAP 96-4225), Larry D. Compton, Trustee, v Robben Franklin and Lori Franklin.

5. 6 ABR 86      Order to Set Aside Default Judgment Only, filed in Adv. No. F95-00897-112-HAR at Docket Entry 18 on February 19, 1999.

6. 6 ABR 87      FRCP 8(c), incorporated by FRBP 7008.

7. 6 ABR 87      Adv. No. F95-00897-168-HAR (Bancap No. 96-4281).

8. 6 ABR 88      F3d , 1999 Westlaw (9^th Cir 1999).

9. 6 ABR 88      Incorporated by FRBP 7060.

10. 6 ABR 88      Byrd v Keene Corporation, 104 FRD 10, 12 (ED Penn 1984).

11. 6 ABR 88      Adv. No. F95-00897-091-HAR (BANCAP 96-4204), Larry D. Compton, Trustee v Dale D. Franklin, Entry of Appearance filed at Docket Entry 5 on December 2, 1996.

12. 6 ABR 88      Adv. No. F95-00897-113-HAR (BANCAP 96-4226), Larry D. Compton, Trustee v Merle Franklin, Entry of Appearance filed at Docket Entry 3, on December 2, 1996.

13. 6 ABR 88      Adv. No. F95-00897-216-HAR (BANCAP 96-4332), Larry D. Compton, Trustee v Christopher C. Parkan, Change of Address filed at Docket Entry 7 on June 9, 1997, and again at Docket Entry 8 on October 27, 1997.

14. 6 ABR 89      Beck v Atlantic Contracting Company, Inc., 157 FRD 61, 65 (D Kan 1994).

15. 6 ABR 89      889 F2d 242, 249 (9^th Cir 1989).

16. 6 ABR 89      902 F2d 737, 740 (9^th Cir 1990).

17. 6 ABR 89      Incorporated by FRBP 9024.

18. 6 ABR 89      Kingvision Pay-Per-View Ltd. v Lake Alice Bar, see footnote 8.

19. 6 ABR 90      FRCP 55(b)(2).