In re:

RAY L. WALES,

Debtor.

Case No. A03-00578-DMD Chapter 7

The debtor is a mechanic employed at Ted Stevens International Airport. On October 26, 2002, he purchased a Macsimizer 18 drawer toolbox ¹

from Michael A. Brown, d/b/a Mac Tools for $4,500.00 on credit. Wales used the toolbox to store tools at work. Wales granted Brown a security interest in the toolbox, but no financing statement was signed or filed. Wales filed for chapter 13 relief on May 22, 2003. Chris Johansen served as his counsel. Mac Tools was listed as an unsecured creditor for $7,000.00.

After arguing with Wales over the phone and allegedly threatening to shoot him, Brown repossessed the toolbox on June 5, 2003, in the company of an airport policeman. Johansen was apparently able to persuade Brown to return the toolbox voluntarily to Wales. Brown then filed a motion for relief from stay against the toolbox on July 14, 2003. ²

Johansen

7 ABR 528 filed an opposition ³

to the motion for relief from stay as well as a motion for valuation, ⁴

contending the workstation was worth $500.00 rather than the $5,000.00 claimed by Brown.

The two motions came before the court for hearing on August 29, 2003. The parties stipulated to entry of an order valuing the toolbox at $4,425.00, allowing interest on the secured claim at 12% from May 23, 2003, forward, for the filing of an amended plan, and for a ten day “drop dead” provision should the debtor default on payments to the trustee. ⁵

Wales defaulted on payments to the trustee and Brown filed a “motion for entry of order,” ⁶

which Wales opposed. At a hearing on March 2, 2004, the parties stipulated to the payment of Brown’s claim in full. ⁷

He was to receive $2,200.00 from the trustee and the balance through a tax refund. The chapter 13 trustee paid Brown $2,200.00. Johansen converted the case to chapter 7 on April 20, 2004, however, and Brown never received the balance of his claim. He renewed his motion for relief. Wales substituted Erik LeRoy as his counsel and then filed his Rule 60(b) motion and an opposition to Brown’s renewed motion. ⁸

A hearing on both motions was held on June 10, 2004.

Fed. R. Civ. P. 60(b), made applicable to bankruptcy proceedings by Fed. R. Bankr. P. 9024, provides, in part:

On motion and upon such terms as are just, the court may relieve a party or a party’s legal representative from a final judgment, order, or proceeding for the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect; . . . (3) fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party; . . . or (6) any other reason justifying relief from the operation of the judgment. The motion shall be made within a reasonable time, and for reasons (1), (2), and (3) not more than one year after the judgment, order, or proceeding was entered or taken.
. . . .

Motions for relief from judgment are committed to the sound discretion of the court, in accordance with the equities of the case. ⁹

Rule 60(b) relief may be afforded from consensual judgments. ¹⁰

Wales alleges that Johansen and the court made a mistake in applying the appropriate law when determining adequate protection and setting conditions for relief from stay. While Brown had a purchase money security interest in the toolbox under Alaska law, ¹¹

his security interest was not perfected. ¹²

The toolbox was purchased by Wales for business or commercial use in his profession as a mechanic. It was not a consumer good exempted from the financing statement requirement of Alaska law. ¹³

The lack of perfection was not raised as a defense by Mr. Johansen when Brown obtained the orders granting adequate protection and setting conditions for relief from stay. Mr. Johansen’s omission or mistake is attributable to his client, however. The Ninth Circuit has stated:

Under this circuit’s precedent, a client is ordinarily chargeable with his counsel’s negligent acts. Clients are “considered to have notice of all facts known to their lawyer-agent.” Ringgold Corp. v. Worrall, 880 F.2d 1138, 1141-42 (9th Cir. 1989). Because the client is presumed to have voluntarily chosen the lawyer as his representative and agent, he ordinarily cannot later avoid accountability for negligent acts or omissions of his counsel. Link v. Wabash R.R. Co., 370 U.S. 626, 633-34, 82 S.Ct. 1386, 8 L.Ed.2d 734 (1962); see also Pioneer, 507 U.S. at 396-97, 113 S.Ct. 1489. ¹⁴

Here, Wales is bound by his former counsel’s mistakes or omissions and cannot obtain relief under Fed. R. Civ. P. 60(b)(1).

Nor can Wales correct legal errors made by the court at this late date. The court’s first stipulated order was entered September 3, 2003, and the second was entered March 4, 2004. Mr. LeRoy moved for Rule 60(b) relief on May 11, 2004. The time for appeal of these orders lapsed ten days after they were entered. ¹⁵

The Ninth Circuit has endorsed the late Professor Moore’s view that a reasonable time for review of a judicial error should not exceed the time for appeal. ¹⁶

Mr. LeRoy’s motion was filed well past the time for appeal and too late for review of judicial errors.

Fed. R. Civ. P. 60(b)(3) allows the court to relieve a party from an order on the grounds of fraud, misrepresentation, or other misconduct. Wales alleges that Brown misrepresented the status of his claim in his motion for relief from stay by stating “creditor is holder of a secured or statutorily secured claim against the debtor.” ¹⁷

But this statement was not a misrepresentation. Wales was a secured party at state law by virtue of the security interest granted in the sales documents that accompanied the motion for relief from stay. ¹⁸

He had a right to payment, or a “claim,” against the debtor within the meaning of the Bankruptcy Code. ¹⁹

The security for the claim had value within the meaning of 11 U.S.C. § 506(b). Brown did not engage in fraud, misrepresentation or other misconduct by alleging he was a secured creditor in his motion for relief from stay.

Finally, Wales seeks relief from the orders under Fed. R. Civ. P. 60(b)(6), which grants relief for “any other reason” than the grounds stated in subsections (b)(1) through (b)(5) of that rule. Gross negligence of counsel may constitute “extraordinary circumstances” under Rule 60(b)(6) which would entitle a party to relief from judgment. ²⁰

However, I find that there was no gross negligence on the part of Mr. Johansen. In Community Dental Services v. Tani, ²¹

Tani’s lawyer “virtually abandoned his client by failing to proceed with his client’s defense despite court orders to do so,” and a default judgment was entered against Tani. The court found that Tani’s counsel engaged in “inexcusable and inexplicable acts”

7 ABR 532 that resulted in the client receiving virtually no representation at all. ²²

Here, Mr. Johansen filed a timely objection to Brown’s motion for relief from stay and participated in several hearings. No default judgment was entered against his client. It appears Mr. Johansen simply assumed that the toolbox was a consumer good perfected without a UCC-1 filing. He was mistaken but his conduct did not rise to the level of gross negligence.

Brown seeks entry of an order that he has relief from stay to foreclose on the toolbox. This court’s order of September 2, 2003, provided:

The debtor will make monthly payments to the trustee in accordance with the revised plan. In the event the debtor should fail to remit his monthly plan payment to the trustee in a timely manner, Mr. Brown shall mail the debtor a written notice specifying the default and giving the debtor ten (10) days to cure the default. Should the debtor fail to cure the default within ten (10) days, Michael Brown shall receive relief from stay without further notice or hearing.

The debtor has converted his case from chapter 13 to chapter 7. He defaulted on the plan payments after receiving written notice of default. He has failed to cure the default. Brown is entitled to relief from stay in accordance with the September 2, 2003, order. Brown’s request for attorney’s fees against the debtor will be denied, however, as there is no legal basis for this request.

An order and judgment will be entered denying the debtor’s motion for 60(b) relief and granting Brown’s motion. Each party will pay their own costs and attorney’s fees.

1 The purchase documents describe the toolbox as a “workstation.” I will not use this confusing description because a “workstation” usually denotes a work area for a personal computer, not an 18 drawer toolbox.

9 See, e.g., Price v. Seydel, 961 F.2d 1470, 1473 (9th Cir. 1992); 12 Moore’s Federal Practice-Civil ¶ 60.22[1] & [5] (3d ed. 2004).

10 Rufo v. Inmates of Suffolk Co. Jail, 502 U.S. 367, 378-383 (1992); 12 Moore’s Federal Practice-Civil ¶ 60.22[4] (3d ed. 2004).

13 The toolbox was not a consumer good as defined by the Uniform Commercial Code. “Consumer goods” encompass goods that are “used or bought for use primarily for personal, family or household purposes.” A.S. 45.29.102(27). In a similar case, Snap-On Tools was found to hold an unperfected security interest when it failed to file UCC-1 financing statements for tools it sold to the debtor, and used by him in his business. In re Rader, 144 B.R. 864 (Bankr. W.D. Mo. 1992).

14 Community Dental Services vs. Tani, 282 F.3d 1164, 1168 (9th Cir. 2002) (en banc).

16 Plotkin v. Pacific Tel. & Tel. Co., 688 F.2d 1291, 1293 (9th Cir. 1982); Gila River Ranch, Inc. v. United States, 368 F.2d 354, 357 (9th Cir. 1966).